-----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, Hz9ytfcH1ijiePclEY0uzcJFLLBlHYQBO7dBJXNBv8LN62t8HJ0c17ucVhvaSLUd R9dpfwG/8puTT8g1BVw3Nw== 0000912057-96-021427.txt : 19961203 0000912057-96-021427.hdr.sgml : 19961203 ACCESSION NUMBER: 0000912057-96-021427 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960927 SROS: NASD 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: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-04063 FILM NUMBER: 96636286 BUSINESS ADDRESS: STREET 1: 505 WATERFORD PARK STREET 2: STE 455 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125467440 MAIL ADDRESS: STREET 1: 505 WATERFORD PARK STREET 2: STE 455 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST LINEN CO DATE OF NAME CHANGE: 19681227 10-K405 1 10-K405 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 June 29, 1996 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 (612) 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 . ------- -------- The aggregate market value of the voting stock of registrant held by non- affiliates of registrant, on SEPTEMBER 18, 1996, computed by reference to the closing sale price of such shares on such date, was approximately $531,107,132. On SEPTEMBER 18, 1996, there were outstanding 18,919,725 and 1,521,121 shares of the registrant's Class A and Class B Common Stock, respectively. 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. Yes X . No . --------- --------- DOCUMENTS INCORPORATED BY REFERENCE PART OF 10-K INTO WHICH DOCUMENT DOCUMENT IS INCORPORATED - - -------- ------------------------ Portions of annual report to stockholders for the fiscal year ended June 29, 1996 Parts II and IV Portions of proxy statement for the annual meeting of stockholders to be held OCTOBER 31, 1996 Parts I and III 1 PART I ITEM 1. BUSINESS G&K Services, Inc. and its wholly owned subsidiaries (the "Company" or "G&K"), leases and maintains uniforms and related textile products. During fiscal 1996, approximately 60% of total revenues were derived from uniform rentals. The balance was principally from rentals of non-uniform items, such as floor mats, dust mops and cloths, wiping towels and selected linen items, and the manufacture and sale of garments. The revenue generated from manufacturing is not a significant part of G&K's revenue. The Company has been expanding its operations steadily into additional geographic markets. In the United States, G&K currently operates in 33 STATES from 22 PROCESSING PLANTS and 49 SALES AND SERVICE CENTERS. In Canada, the Company serves customers from 16 LOCATIONS, including 7 PROCESSING PLANTS in the provinces of Ontario and Quebec. By comparison, in 1986, G&K operated from 37 locations in 20 states. The Company targets its marketing efforts first to focus on those customers, industries and geographic locations that are expanding and which need a quality-oriented uniform program; and then to provide 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 wants these features built into their uniform programs and are willing to pay a premium price to a vendor that can supply them consistently. PRODUCTS UNIFORMS The Company's full-service leasing program supplies a broad range of work garments, specialized uniforms for corporate identity programs, anti-static garments, ultra-clean particle-free garments, and dress clothing for supervisors, sales personnel and others needing upgraded work apparel. Its products are used in a diversified spectrum of businesses including: pharmaceutical and electronics manufacturers, transportation and distribution firms, health care and food service operations, auto dealerships and equipment repair companies, and schools and office buildings. The Company's customer base includes divisions of MORE THAN HALF OF THE Fortune 100 companies as well as tens of thousands of smaller businesses. No one customer accounts for over one- quarter of 1% of the Company's total revenues. The Company believes that Uniform programs may provide customers with a number of benefits: - Identification - uniforms help identify employees as working for a particular company or department. - Image - uniforms enhance the public appearance of employees and help create a more professional image for the customer. - 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. 2 - Employee morale - uniforms can provide a valued benefit to employees and help improve morale. The Company provides its uniform leasing 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 is available to provide rapid response as individual customer needs change due to increases, decreases or turnover in their work force. Professional cleaning, finishing, repair 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 leasing may provide customers with significant advantages over ownership. Leasing 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. NON-UNIFORM ITEMS Most of the Company's customers also lease items other than uniforms, primarily floor mats, dust mops and cloths, wiping towels and linens. These items make up approximately 40% of total rental revenues. Floor mats 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 jobs. COMPETITION The Company's business encounters a high level of competition with a number of companies in the geographic areas it serves. The Company believes that it 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 National Service Industries, Inc., Unifirst Corporation, Unitog Company and Cintas Corporation. Many of the Company's competitors have greater financial resources than G&K. 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 recently enacted 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, PRP's 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. 3 The Company has entered into administrative agreements at certain of these sites to perform remedial actions. At the landfill in Andover, Minnesota, the cost of remediation is estimated to range from $10 million to $15 million. As one of numerous PRP's, the Company has entered into a Consent Decree and has paid $160,000. The Company believes that it has no further responsibility for site remediation at the Andover Landfill based upon the Consent Decree. The Company has also entered into a Consent Decree involving the landfill site in East Bethel, Minnesota as one of 56 PRP's. The Company was sued by the landfill operator, Sylvester Bros. Development Company, for contribution to the cost of cleaning up this site pursuant to directives from the Minnesota Pollution Control Agency or the Environmental Protection Agency (EPA). Based upon an estimate that the total cleanup of the site will not exceed $7,095,980, the Company has agreed to pay an initial amount of $190,500. In addition, the Company has agreed to pay its pro rata share of any additional amounts by which the actual clean up costs exceed the initial total cost estimate. Whether this will occur depends upon a number of contingencies, therefore any potential future liability is uncertain. The Company has been placed on notice by the owners of a St. Paul, Minnesota shopping center that certain solvents have been detected in the soils near the shopping center. The owner of the shopping center has alleged that the source of the solvents is from a coin operated business that was owned for a period of time in the mid-1960's by a corporation, the shares of which were partially owned by the Company. Certain limited discovery has disclosed that at least one other business in the area used the same solvent which is claimed to be present in the soil. No action has yet to be commenced against the Company and the Company has not agreed to participate in any clean-up at the site. Since relatively little information is available at this time, it is impossible to predict what, if any, liability may ultimately be assigned to the Company. The Company has also received a letter from the Minnesota Pollution Control Agency (the "MPCA") which claims that solvents have been detected in the soils near a facility that was owned by the Company from the late 1940's until the early 1970's. Neither the extent of the solvents in the soils nor the source of the solvents are 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 commence against the Company in connection with this matter. EMPLOYEES The Company's U.S. operations had a total of 4405 employees as of June 29, 1996, consisting of 161 professional sales personnel, 758 route personnel, 2564 production employees, 450 clerical employees, and 472 management and staff employees. Approximately 17.5% of the Company's employees are represented by unions. Management believes its domestic employee relations are satisfactory. The Company's Canadian operations had a total of 970 employees as of June 29, 1996 consisting of 30 professional sales personnel, 147 route personnel, 570 production employees, 86 clerical employees, and 137 management and staff employees. Approximately 59% of the Company's Canadian employees are represented by unions. Management believes Canadian employee relations are satisfactory. 4 FOREIGN AND DOMESTIC OPERATIONS Financial information relating to foreign and domestic operation is set forth on page 26 of the Company's 1996 Annual Report to Stockholders. (THIS SPACE INTENTIONALLY LEFT BLANK) 5 ITEM 2. PROPERTIES The Company cleans and supplies rental items principally from twenty-two industrial garment, dust control and linen supply plants located in the following cities in the United States: Building City Square Footage - - -------------------------------------------------------------------------- Albuquerque, New Mexico 38,800 Atlanta, Georgia 40,000 Chicago, Illinois 48,700 Denver, Colorado 56,200 Fort Worth, Texas 38,000 Green Bay, Wisconsin 51,700 Houston, Texas 33,700 Kansas City, Missouri 45,000 Los Angeles, California 48,300 Mesa, Arizona 36,000 Miami, Florida 51,100 Milwaukee, Wisconsin 44,000 Minneapolis, Minnesota (two plants) 70,000 93,000 Mobile, Alabama 47,300 New Orleans, Louisiana 29,000 Pittsburg, California 47,000 Rockford, Illinois 32,000 Salt Lake City, Utah 41,500 San Antonio, Texas 40,700 San Jose, California 58,600 Seattle, Washington 44,000 6 The Company also operates principally from seven plants located in the following cities in Canada: Building City SQUARE FOOTAGE ----------------------------------------------------------- Toronto, Ontario (two plants) Metro East 49,000 Linen Division 39,700 Montreal, Quebec 25,500 Cambridge, Ontario 57,600 Ottawa, Ontario 35,000 Windsor, Ontario 42,900 Sault St. Marie, Ontario 23,700 All of these facilities are owned by the Company, except the Ottawa, Ontario and Windsor, Ontario facilities, which are leased. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings other than routine litigation incidental to the business of the Company and as set forth in Item 1. Business - Environmental Matters. EXECUTIVE OFFICERS OF G&K SERVICES, INC. - - ---------------------------------------- Position with Officer Name the Company Age Since - - -------------------------------------------------------------------------------- Richard M. Fink Chairman of the Board 66 1970 and CEO William M. Hope President 63 1973 Thomas Moberly Vice President 47 1993 Stephen F. LaBelle Secretary and Treasurer 47 1978 The executive officers have, as their principal occupation, been employed by the Company in the capacities set forth above for more than the last five years, except for Mr. Moberly who was promoted in 1993. Each of such executive officers serve in their capacities as officers of the Company at the pleasure of the Board of Directors. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Reference is made to the information with respect to the principal markets on which the Company's Common Stock is being traded and prices for each quarterly period for the last two years set forth on PAGE 28 of the Company's 1996 Annual Report to Stockholders, and by such reference, such information is incorporated herein. The Company's debt agreement contain various restrictive covenants which limit cash dividends, among other things. The approximate number of stockholders on record of the Company's Common Stock as OF SEPTEMBER 18, 1996 WAS 635. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the financial data with respect to the Company set forth on PAGE 5 of the Company's 1996 Annual Report to Stockholders, and by such reference, such financial data is incorporated herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the management's discussion and analysis of financial condition and results of operations presented in the form of the Financial Review set forth on PAGES 14 THROUGH 16 of the Company's 1996 Annual Report to Stockholders, and by such reference, such information is incorporated herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements and supplementary data set forth on PAGES 16 THROUGH 27 of the Company's 1996 Annual Report to Stockholders, and by such reference, such information is incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None (THIS SPACE INTENTIONALLY LEFT BLANK) 8 PART III Reference is made to the definitive proxy statement filed pursuant to Regulation 14A, which involves the election of directors at the annual meeting of stockholders to be held October 31, 1996 which will be filed with the Commission within 120 days after the close of its fiscal year ended June 29, 1996, and by such reference, said proxy statement is incorporated herein in response to the information called for by Part III (Item 10. Directors and Executive Officers of Registrant; Item II. Executive Compensation; Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13. Certain Relationships and Related Transactions.) (THIS SPACE INTENTIONALLY LEFT BLANK) 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The financial statements listed below are filed as part of this Annual Report on Form 10-K: Data is incorporated by reference from the Annual Report to Stockholders of G&K Services, Inc. for the fiscal year ended June 29, 1996. With the exception of the information specifically incorporated herein by reference, the Annual Report to Stockholders for fiscal 1996 is not to be deemed "filed" as part of the Annual Report on Form 10-K. Page In Annual Report ------------- Report of independent public accountants 27 Consolidated statements of income for each of the three fiscal years in the period ended June 29, 1996 16 Consolidated balance sheets as of June 29, 1996 and July 1, 1995 17 Consolidated statements of cash flows for each of the three fiscal years in the period ended June 29, 1996 18 Consolidated statements of stockholders' equity for each of the three fiscal years in the period ended June 29, 1996 19 Notes to consolidated financial statements 20-26 Separate financial statements of the subsidiaries of the Registrant have been omitted because the Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements are wholly owned. All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto. (b) Reports on Form 8-K None filed during the fourth quarter of fiscal 1996. (c) The following exhibits, as required by Item 601 of Regulation S-K are filed as a part of this report: (THIS SPACE INTENTIONALLY LEFT BLANK) 10 EXHIBIT NO. 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 Registrants' 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) Employment Agreement between the Registrant and Stephen LaBelle, dated January 2, 1991. */** 10(c) 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 Registrants Schedule 13E-4 filing dated May 13, 1985). 10(d) 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(e) 1996 Director Stock Option Plan. */** 10(f)(i) Loan Agreement betweeen the Registrant and Metropolitan Life Insurance Company dated as of September 28, 1990 (incorporated herein by reference to the Registrant's Form 8-K dated September 28, 1990, and Amendment No. 1 thereto dated December 13, 1990). 10(f)(ii) Second Amendment to Loan Agreement, dated June 21, 1994, between G&K Services, Inc., and Metropolitan Life Insurance Company (incorporated herein by reference to the Registrant's Form 10-Q for the quarter ended April 1, 1995). 10(f)(iii) Third Amendment to Loan Agreement, dated as of November 23, 1994, between G&K Services, Inc., and Metropolitan Life Insurance Company (incorporated herein by reference to the Registrant's Form 10-Q for the quarter ended April 1, 1995). 10(f)(iv) Fourth Amendment to Loan Agreement, dated as of May 18, 1995, between G&K Services, Inc., and Metropolitan Life Insurance Company. * 10(g)(i) Credit Agreement dated as of June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd., various banks and Norwest Bank, Minnesota, National Association, as Agent (incorporated by reference to the Registrant's Form 10-Q, for the quarter ended April 1, 1995). 10(g)(ii) First Amendment, dated November 28, 1994, to Credit Agreement dated June 21, 1994, G&K Services, Inc., various banks, and Norwest Bank Minnesota, National Association, as Agent (incorporated by reference to the Registrant's form 10-Q for the quarter ended April 1, 1995). 10(g)(iii) Second Amendment, dated May 18, 1995, to Credit Agreement dated June 21, 1994, among G&K Services, Inc., WorkWear Corporation of Canada, Ltd., various banks, and Norwest Bank Minnesota, National Association, as Agent. * 10(g)(iv) Third Amendment, dated January 4, 1996, to Credit Agreement dated June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd., various banks, and Norwest Bank Minnesota, National Association, as Agent. * 11 10(g)(v) Fourth Amendment, dated August 5, 1996, to Credit Agreement dated June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd., various banks, and Norwest Bank Minnesota, National Association, as Agent. * 10(h) Loan Agreement, dated November 23, 1994, between G&K Services, Inc., and Metropolitan Life Insurance Company. * 10(i) Employment Agreement between Registrant and Thomas Moberly, dated February 20, 1990 (incorporated herein by reference to the Registrant's form 10-K filed September 30, 1993).* FOOTNOTE: * Filed herewith ** Compensatory plan or arrangement 13 Portions of 1996 Annual Report to Stockholders. 22 Subsidiaries of G&K Services, Inc. 23 Consent of Independent Public Accountants 24 Power of Attorney dated as of AUGUST 29, 1996. 27 Financial Data Schedule (FOR SEC USE ONLY) 12 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 26, 1996 G&K SERVICES, INC. (Registrant) By: /s/ Richard Fink ---------------------------------- Richard Fink Chairman of the Board and Chief Executive Officer By: /s/ Stephen F. LaBelle ---------------------------------- Stephen F. LaBelle Treasurer and Secretary, and Principal Accounting and Financial Officer 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below on the 26th day of September 1996, by the following persons in the capacity indicated: G&K SERVICES, INC. /s/ Richard Fink ---------------------------------- By: Richard Fink Chairman of the Board and Chief Executive Officer /s/ Richard Fink - - ---------------------- Chairman of the Board, Chief Executive Officer Richard Fink and Director * President and Director - - ---------------------- William Hope * Vice President - - ---------------------- Thomas Moberly /s/ Stephen F. LaBelle - - ---------------------- Secretary and Treasurer (Principal Stephen F. LaBelle Financial and Accounting Officer) * Director - - ---------------------- Bruce Allbright * Director - - ---------------------- Donald Goldfus * Director - - ---------------------- Bernard Sweet * Director - - ---------------------- Wayne Fortun * Director - - ---------------------- Paul Baszucki * By ------------------ Richard Fink Attorney-in-fact 14 EX-10.(B) 2 EXHIBIT 10(B) EMPLOYEE AGREEMENT THIS AGREEMENT made and executed as of the 2nd day of January, 1991, by and between G&K SERVICES, INC., a Minnesota corporation (hereinafter referred to as "Employer"), and Stephen LaBelle (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 Employee; 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 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, 2 The foregoing restrictions shall survive both 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 us a result of employment of any member of the G&K Group; or (3) solicit, induce or encourage any employee of the G&K G&up 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. 3 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 in the fullest extent permitted by law; provided, however, that if any provision hereof is held to be invalid or unenforceable 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 By /s/ Stephen F. LaBelle By /s/ Richard Fink ------------------------------- ------------------------------- Stephen LaBelle Its Richard Fink - - ---------------------------------- ------------------------------- (Print Name) MANAGER EMPLOYEE 4 EX-10.(E) 3 EXHIBIT 10(E) 1996 STOCK OPTION PLAN G&K SERVICES, INC. 1996 DIRECTOR STOCK OPTION PLAN 1. PURPOSE. The purpose of the G&K Services, Inc. 1996 Director Stock Option Plan (the "Plan") is to advance the interests of G&K Services, Inc. (the "Company") and its shareholders by encouraging increased share ownership by members of the Board of Directors of the Company (the "Board") who are not employees of the Company or any of its subsidiaries, in order to promote long-term shareholder value through continuing ownership of the Company's common stock. 2. ADMINISTRATION. The plan shall be administered by the Board. The Board shall have all the powers vested in it by the terms of the Plan, such powers to include authority (within the limitations described herein) to prescribe the form of the agreement embodying awards of nonqualified stock options made under the Plan ("Options"). The Board shall, subject to the provisions of the Plan, grant Options under the Plan and shall have the power to construe the Plan, to determine all questions arising thereunder and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. Any decisions of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that the members thereof may authorize any one or more of their number or any other officer of the Company to execute and deliver documents on behalf of the Board. No member of the Board shall be liable for anything done or omitted to be done by him or by any other member of the Board in connection with the Plan, except for his own willful misconduct or as expressly provided by statute. 3. PARTICIPATION. Each member of the Board who is not an employee of the Company or any of its subsidiaries (a "Non-Employee Director") shall be eligible to receive an Option in accordance with Paragraph 5 below. 4. AWARDS UNDER THE PLAN. (a) Awards under the Plan shall include only Options, which are rights to purchase Class A common stock of the Company having a par value of $0.50 per share (the "Common Stock"). Such Options are subject to the terms, conditions and restrictions specified in Paragraph 5 below. (b) There may be issued under the Plan pursuant to the exercise of Options an aggregate of not more than 50,000 shares of Common Stock, subject to adjustment as provided in Paragraph 6 below. If any Option is cancelled, terminates or expires unexercised, in whole or in part, any shares of Common Stock that would otherwise have been issuable pursuant thereto will be available for issuance under new Options. (c) A Non-Employee Director to whom an Option is granted (and any person succeeding to such a Non-Employee Director's rights pursuant to the Plan) shall have no rights as a shareholder with respect to any Common Stock issuable pursuant to any such Option until the date of the issuance of a stock certificate to him for such shares. Except as provided in Paragraph 6 below, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such stock certificate is issued. 5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall be evidenced by an agreement in such form as the Board shall prescribe from time to time in accordance with the Plan and shall comply with the following terms and conditions: (a) The Option exercise price shall be the "Average Market Value" (as herein defined) of the Common Stock subject to such Option on the date the Option is granted. Average Market Value shall be the average of the closing prices of the Company's Common Stock during the ten business days preceding the Company's annual meeting of shareholders for a given year, as reported on the Nasdaq National Market. (b) Each Non-Employee Director shall receive, as of the date of initial adoption of the Plan by the shareholders, or upon such Non-Employee Director's initial election or appointment to the Board, a one-time only Option for 3,000 shares of Common Stock (the "One-Time Option"). In addition, for each year beginning in 1996, on the date of the annual meeting of shareholders of the Company, each Non-Employee Director shall automatically receive an Option for 1,000 shares of Common Stock (the "Annual Option"), subject to adjustment as set forth in Section 6 below. (c) The Option shall not be transferable by the optionee otherwise than by will or the laws of descent and distribution, and shall be exercisable during his lifetime only by him. (d) Options shall not be exercisable: (i) before the expiration of one year from the date it is granted and after the expiration of ten years from the date it is granted, and (A) the One-Time Option may be exercised during such period as follows: one-third (33 1/3%) of the total number of shares covered by the One-Time Option shall become exercisable each year beginning with the first anniversary of the date it is granted, and (B) the Annual Option shall become exercisable in full upon the first anniversary of the date it is granted; provided that a Non-Employee Director who does not stand for re-election to the Board may exercise any otherwise unexercisable Annual Options beginning on the date such director's successor is elected and qualified, subject to all of the other terms and conditions of such Annual Options. Notwithstanding anything to the contrary herein, an Option shall automatically become immediately exercisable in full upon the death of a Non-Employee Director; (ii) unless payment in full is made for the shares of Common Stock being acquired thereunder at the time of exercise; such payment shall be made in United States dollars by cash or check, or in lieu thereof, by tendering to the Company Common Stock owned by the person exercising the Option and having a fair market value (as evidenced by the closing sales price of a share of Common Stock on the Nasdaq National Market or, if the Nasdaq National Market is closed on that date, on the last preceding date on which the Nasdaq National Market was open for trading) equal to the cash exercise price applicable to such Option, or by a combination of United States dollars and Common Stock as aforesaid; and (iii) unless the person exercising the Option has been at all times during the period beginning with the date of grant of the Option and ending on the date of such exercise, a Non-Employee Director of the Company, except that if such person shall cease to be such a Non-Employee Director for any reason, including death, while holding an Option that has not expired and has not been fully exercised, such person may, at any time within one year of the date he ceased to be a Non-Employee Director (but in no event after the Option has expired under the provisions of subparagraph 5(d)(i) above), exercise the Option with respect to any Common Stock as to which he could have exercised on the date he ceased to be such a Non-Employee Director. 2 (e) If, on any date on which Options are automatically granted, the number of shares of Common Stock remaining available under the Plan is insufficient for the grant to each Non-Employee Director of Options to purchase 1,000 shares of Common Stock, then Options to purchase a proportionate amount of such available number of shares of Common Stock (rounded to the nearest whole share) shall be granted to each Non-Employee Director. 6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the outstanding Common Stock of the Company by reason of any stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination or exchange of shares, a sale by the Company of all or part of its assets, any distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event, the number or kind of shares that may be issued under the Plan pursuant to subparagraph 4(b) above (specifically including the number of shares thereafter subject to the One-Time and Annual Options), the number or kind of shares subject to, and the Option price per share under, all outstanding Options shall be automatically adjusted so that the proportionate interest of the participant shall be maintained as before the occurrence of such event; such adjustment in outstanding Options shall be made without change in the total Option exercise price applicable to the unexercised portion of such Options and with a corresponding adjustment in the Option exercise price per share, and such adjustment shall be conclusive and binding for all purposes of the Plan. 7. MISCELLANEOUS PROVISIONS. (a) Except as expressly provided for in the Plan, no Non-Employee Director or other person shall have any claim or right to be granted an Option under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Non-Employee Director any right to be retained in the service of the Company. (b) A participant's rights and interest under the Plan may not be assigned or transferred, hypothecated or encumbered in whole or in part either directly or by operation of law or otherwise (except in the event of a participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any participant in the Plan shall be subject to any obligation or liability of such participant. (c) Common Stock shall not be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign securities, securities exchange and other applicable laws and requirements. (d) It shall be a condition to the obligation of the Company to issue Common Stock upon exercise of an Option, that the participant (or any beneficiary or person entitled to act under subparagraph 5(d)(iii)(B) above) pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. If the amount requested is not paid, the Company may refuse to issue such Common Stock. (e) The expenses of the Plan shall be borne by the Company. (f) By accepting any Option or other benefit under the Plan, each participant and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company or the Board. 3 (g) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Options hereunder or any Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or any other applicable statute, rule or regulation. 8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time and from time to time by the Board as the Board shall deem advisable; provided, however, that no amendment shall become effective without shareholder approval if such shareholder approval is required by law, rule or regulation. No amendment of the Plan shall materially and adversely affect any right of any participant with respect to any Option theretofore granted without such participant's written consent. 9. TERMINATION. This Plan shall terminate upon the earlier of the following dates or events to occur: (a) upon the adoption of a resolution of the Board terminating the Plan; or (b) ten years from the date the Plan is initially approved and adopted by the shareholders of the Company. No termination of the Plan shall materially and adversely affect any of the rights or obligations of any person, without his consent, under any Option theretofore granted under the Plan. 10. IMMEDIATE ACCELERATION OF OPTIONS. Notwithstanding any provision in this Plan to the contrary, all outstanding Options will become exercisable immediately if any of the following events occur unless otherwise determined by the Board of Directors and a majority of the Continuing Directors (as defined below): (a) any person or group of persons becomes the beneficial owner of 30% or more of any equity security of the Company entitled to vote for the election of directors; (b) a majority of the members of the Board of Directors is replaced within the period of less than two years by directors not nominated and approved by the Board of Directors; or (c) the stockholders of the Company approve an agreement to merge or consolidate with or into another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Company's assets (including a plan of liquidation). For purposes of this Section 10, beneficial ownership by a person or group of persons shall be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Beneficial ownership of more than 30% of an equity security may be established by any reasonable method, but shall be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting such ownership. For purposes of this Section 10 "Continuing Directors" are directors (i) who were in office prior to the time any of provisions (a), (b) or (c) occurred or any person publicly announced an intention to acquire 20% or more of any equity security of the Company, (ii) directors in office for a period of more than two years, and (iii) directors nominated and approved by the Continuing Directors. 11. EFFECTIVE DATE OF PLAN. The Plan will become effective on the date that it is approved by the affirmative vote of the holders of a majority of the shares of Common Stock entitled to notice of and to vote at the Company's 1996 Annual Meeting of Stockholders. 4 EX-10.(F)(IV) 4 EXHIBIT 10(F)(IV) LOAN AGREEMENT DATED 9/28/90 Amendment No. 4 to 10.62% Loan Agreement May 18, 1995 G&K Services, Inc. G&K Services, Co. Waterford Park 505 Highway 169N Suite 455 Minneapolis, Minnesota 55441-6446 Attention: Stephen LaBelle Secretary and Treasurer Re: LOAN AGREEMENT DATED AS OF SEPTEMBER 28, 1990. Dear Sirs: We are the holder of the 10.62% Senior Notes (the "Notes") issued by G&K Services, Inc. (the "Company") in the original aggregate principal amount of $40,000,000 pursuant to the Loan Agreement dated as of September 28, 1990, between the Company and us (the "Agreement"). The Notes were amended pursuant to (i) an amendment agreement dated January 28, 1993 (the "First Amendment"), (ii) an amendment dated June 24, 1994 (the "Second Amendment"), and (iii) an amendment dated November 23, 1994 (the "Third Amendment"), and are entitled to the benefit of a Guaranty dated as of September 28, 1990 issued by G&K Services, Co. (the "G&K Co. Guaranty"). Capitalized terms used but not otherwise defined herein shall have the meanings set forth therefor in the Agreement. The Company amended the Credit Agreement pursuant to a First Amendment to Credit Agreement dated as of November 28, 1994 (the "First Credit Amendment") and desires to further amend the Credit Agreement pursuant to a Second Amendment to Credit Agreement and Guarantees dated as of May 18, 1995 (the "Second Credit Amendment"), a copy of which has been provided to us. As the holder of the Notes and as a party to the Agreement, we hereby consent to the First Credit Amendment and the Second Credit Amendment and agree that the Agreement and the Notes shall be amended by this amendment (the "Fourth Amendment") as follows: 1. Subsection C of Section 4.01 of the Notes shall be deleted in its entirety and the following substituted therefor: "C. Indebtedness of Work Wear incurred pursuant to the Credit Agreement not exceeding at any time the lesser of (i) Canadian $34,000,000 and (ii) twenty-five percent (25%) of Consolidated Stockholders' Equity as set forth in the most recently available financial statements of the Company, (quarterly or annual, as the case may be), with conversion to Canadian dollars to be made as of the date of delivery of such financial statements in accordance with Section 1.2 of the Credit Agreement; 2. The definition of "Company Guarantee" in Section 6 of the Notes shall be deleted in its entirety and the following substituted therefor: "'COMPANY GUARANTEE' means the Guarantees, each dated as of June 21, 1994, issued by the Company to the Canadian Banks guaranteeing the indebtedness of Work Wear to the Canadian Banks under the Credit Agreement, as amended by the Second Amendment to Credit Agreement and Guarantees dates as of May 18, 1995, and as further amended from time to time with the consent of Metropolitan." 3. Except as so amended by this Fourth Amendment, the Third Amendment, the Second Amendment and the First Amendment, the Notes and the Agreement are in all respects ratified and confirmed and all provisions thereof shall be given full force and effect as if they were set forth herein in their entirety; and all references in the Agreement to the Notes shall mean the Notes as so amended by this Fourth Amendment, the Third Amendment, the Second Amendment and the First Amendment. [Remainder of Page Intentionally Left Blank] 2 This Fourth Amendment shall be of no force or effect unless and until you have returned to the undersigned a counterpart hereof executed by you at the foot hereof. Very truly yours, METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Michael J. Kroeger ---------------------------------- Name: Michael J. Kroeger Title: Vice President AGREED TO AND ACCEPTED: G&K SERVICES, INC. By: Stephen F. LaBelle - - -------------------------------- Name: Title: G&K SERVICES, CO. By: Stephen F. LaBelle - - -------------------------------- Name: Title: 3 EX-10.(G)(III) 5 EXHIBIT 10(G)(III) 2ND AMENDMENT TO CREDIT AGMT. SECOND AMENDMENT TO CREDIT AGREEMENT AND GUARANTEES This Second Amendment is made as of the 18th day of May, 1995, by and among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD. ("Work Wear"; G&K and Work Wear, as the context requires, may be hereinafter referred to collectively as the "Companies" and individually as a "Company"), NBD BANK (formerly known as NBD Bank, N.A.) ("NBD USA"), NBD BANK, CANADA ("NBD Canada"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest") and HARRIS TRUST AND SAVINGS BANK ("Harris"; NBD USA, NBD Canada, CIBC and Norwest and Harris, as the context requires, may be hereinafter referred to collectively as the "Banks" and individually as a "Bank"). RECITALS The Companies and the Banks have entered into a Credit Agreement dated as of June 21, 1994, as amended by a First Amendment dated November 28, 1994 (the "Credit Agreement") under which NBD USA, Norwest and Harris have agreed to make certain revolving credit loans to and issue letters of credit for the account of G&K (the "Tranche A Facility") and NBD Canada and CIBC have agreed to make certain revolving credit loans to and issue banker's acceptances for the account of Work Wear (the "Tranche B Facility"). Work Wear wishes to increase the size of the Tranche B Facility and NBD Canada and CIBC have agreed to increase their respective Commitments, all pursuant to the terms and subject to the conditions set forth in this Second Amendment. ACCORDINGLY, in consideration of the premises, the Companies and the Banks hereby agree as follows: 1. DEFINITIONS. Except as otherwise expressly set forth herein, all capitalized terms in this Second Amendment which are defined in the Credit Agreement shall have the same meanings assigned to them in the Credit Agreement. 2. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter into this Second Amendment, the Companies hereby represent and warrant as follows. 1. The Loan Documents constitute the legal, valid and binding agreements of each Company (to the extent a company is a party thereto), are subject to no defenses, counterclaims, rights of -offset or recoupment and are enforceable in accordance with their respective terms. 2. The Guaranties of G&K to NBD Canada and CIBC constitute the legal, valid and binding obligations of G&K, are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. 3. The representations and warranties contained in SECTION 9 of the Credit Agreement are true and correct as of the date hereof as though made on and as of this date, except to the extent that such representations and warranties relate solely to an earlier date. 4. No event has occurred and is continuing or would result from the execution and delivery of this Second Amendment and the ancillary documents contemplated hereby which constitutes or would constitute a default or an event of default under the Credit Agreement, the Met Life Loan Agreement (assuming delivery by Met Life of its amendment to the Met Life Loan Agreement, as contemplated hereby) or any other agreement, indenture, evidence of indebtedness or other obligation of either of the Companies. 3. INCREASE IN EXISTING TRANCHE B COMMITMENT AMOUNT. The definition of "Tranche B Commitment Amount" is hereby amended by deleting the reference therein contained to "Thirty Million Canadian Dollars (C. $30,000,000)" and substituting in place thereof the phrase "Thirty-Three Million Eight Hundred Seventy- Five Thousand Canadian Dollars (C. $33,875,000)" CIBC and NBD Canada hereby agree that their respective Commitments shall be increased to the amounts set forth opposite their respective names on the signature pages hereof under the caption "Dollar Amount of Commitment". Additionally, the respective Percentage of CIBC and NBD Canada of all Tranche B Exposure, all Tranche B Loans and the Tranche B Commitment Amount shall be equal to the applicable percentage set forth opposite each such Bank's name on the signature pages hereof under the caption "Percentage". 4. ISSUANCE OF REPLACEMENT PROMISSORY NOTES. To evidence the obligation of Work Wear to repay all Tranche B Loans to the Canadian Banks, and in replacement for (but not in payment of) the Revolving Notes currently held by CIBC and NBD Canada, respectively, Work Wear hereby agrees to issue and deliver to the Canadian Banks the following promissory notes (the "New Notes"): 1. A Revolving Note of Work Wear payable to the order of CIBC in the stated principal amount of C. $l6,937,500, in substantially the form of EXHIBIT A attached hereto. 2. A Revolving Note of Work Wear payable to the order of NBD Canada in the stated principal amount of C. $16,937,500, in substantially the form of EXHIBIT B attached hereto. The New Notes shall be issued to CIBC and NBD Canada in replacement for the Revolving Notes previously held by CIBC and NBD Canada, respectively, and all references in the Credit Agreement and in each other Loan Document to the Notes, Revolving Notes or other terms of like import shall be deemed, as appropriate, references to the New Notes issued in accordance with this Second Amendment. 5. PAYMENT OF FEES. Work Wear hereby irrevocably commits and agrees to pay the following fees and reimburse Norwest for the following expenses: 2 1. A new facility fee will be due and payable to CIBC in the amount of C.$5,193.75. A new facility fee will be due and payable to NBD Canada in the amount of C.$2,306.25. Each such fee shall be deemed fully earned upon execution of this Second Amendment. 2. G&K will pay or reimburse Norwest for all fees and disbursements of counsel to Norwest incurred in connection with the preparation, execution and delivery of this Second Amendment. 6. CONSENT OF G&K; AMENDMENT OF GUARANTEES. G&K, in its capacity as guarantor of the Notes held by the Canadian Banks and all other obligations of Work Wear under the Credit Agreement, hereby consents to increase of the Tranche B Commitment Amount and the respective Commitments of the Canadian Banks and the other amendments contemplated in this Second Amendment, agrees that its Guarantees executed for the benefit of NBD Canada and CIBC, respectively, dated as of June 21, 1994, remain in full force and effect and shall apply in all respects to the New Notes and all indebtedness evidenced thereby as if such New Notes had been executed concurrent with execution of the Credit Agreement. In addition, each such Guarantee is hereby amended as follows: 1. The Guarantee and Postponement of Claim of G&K to NBD Canada dated June 21, 1994 is hereby amended by deleting the clause "Sixteen Million ($16,000,000) Canadian" as it appears in the preamble thereto and inserting instead the clause "Sixteen Million Nine Hundred Thirty-Seven Thousand Five Hundred ($16,937,500) Canadian"; 2. The Guarantee and Postponement of Claim of G&K to CIBC is hereby amended by deleting the clause "Fourteen Million ($14,000,000) Canadian" as it appears in the preamble thereto and inserting instead the clause "Sixteen Million Nine Hundred Thirty-Seven Thousand Five Hundred ($16.937.500) Canadian". All other terms and conditions of the Guarantees remain unmodified and in full force and effect. 7. CONSENT TO MET LIFE LOAN AGREEMENT AMENDMENTS. The definition of "Met Life Loan Agreement" appearing in SECTION 1.1 of the Credit Agreement is hereby amended to read as follows: "MET LIFE LOAN AGREEMENT" means, collectively (i) the Loan Agreement dated as of September 28, 1990 between Met Life and G&K, as amended pursuant to separate amendments dated January 28, 1993, June 21, 1994, November 23, 1994 and May 18, 1995 and (ii) the Loan Agreement between Met Life, certain subsidiaries of Met Life and G&K dated as of November 23, 1994, as amended pursuant to an amendment dated May 18, 1995." 3 8. CONDITIONS PRECEDENT As a condition to the effectiveness of this Second Amendment, Norwest shall have received each of the following, in form and substance satisfactory to it: 1. This Second Amendment, duly executed on behalf of the Companies and each Bank. 2. The New Notes, duly executed on behalf of Work Wear. 3. Certificates of the secretary or assistant secretary of each of the Companies setting forth the specimen signatures of officers of such Companies which have been authorized to execute and deliver this Second Amendment, the New Notes and such other documents as are contemplated hereby (or certifying that the signatures set forth in such party's prior certificate to the Banks remain unchanged), together with a copy of the resolutions adopted by the respective boards of directors of the Companies approving such execution and delivery. 4. Appropriate amendments to the 1990 Met Life Loan Agreement and to the 1994 Met Life Loan Agreement, duly executed on behalf of G&K and Met Life, pursuant to which Met Life evidences its consent to the increase in the Tranche B Commitment Amount and the modifications to the Guarantees and the Credit Agreement as contemplated herein. 5. Opinions of counsel to the Companies in form and content acceptable to the Banks. 9. MISCELLANEOUS. 1. The Companies hereby release and forever discharge the Banks and each of their respective former and present directors, officers, employees, agents and representatives of and from every and all claims, demands, causes of action (at law or in equity) and liabilities of any kind or nature, whether known or unknown, liquidated or unliquidated, absolute or contingent, which the Companies ever had, presently have or claim to have against a Bank or any of its respective directors, officers, employees, agents or representatives of or relating to events, occurrences, actions, inactions or other matters of or relating to the Credit Agreement, any Loan Document or the Guaranties or any actions or inactions hereunder or thereunder which occurred prior to the date of this Second Amendment. 2. The Companies hereby reaffirm their agreement under SECTION 16.6 of the Credit Agreement to pay or reimburse Norwest, among other costs and expenses, for all expenses incurred by Norwest in connection with the amendment, performance or enforcement of the Loan Documents including without limitation, all reasonable fees and disbursements of legal counsel to Norwest in connection with the preparation of this Second Amendment. 4 3. Except as expressly amended hereby, all provisions of the Loan Documents and the Guaranties shall remain in full force and effect. After the effective date hereof, each reference in any Loan Document, the Guaranties or any other document executed in connection with the Credit Agreement to "this Agreement", "hereunder" or "hereof" or words of like import referring to the Credit Agreement or the Guaranties, respectively, shall be deemed and refer to the Credit Agreement or the Guaranties, as the case may be, as amended hereby. In addition, from and after the effective date hereof, each reference in any Loan Document or the Guaranties to the Notes or the Revolving Notes of NBD Canada or CIBC shall be deemed references to the New Notes. 4. This Second Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one in the same one and the same instrument. 5. The execution of this Second Amendment and acceptance of any documents related hereto shall not be deemed a waiver of any Default or Event of Default under any Loan Document, whether or not existing on the date of this Second Amendment. 6. This Second Amendment shall be governed by, and construed in accordance with, the internal laws of the State of Minnesota. IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as of the day and year first above mentioned. G&K SERVICES, INC. By /s/Stephen F. LaBelle --------------------------------- Its Secretary and Treasurer ------------------------- WORK WEAR CORPORATION OF CANADA LTD. By /s/Stephen F. LaBelle --------------------------------- Its Secretary and Treasurer ------------------------- 5 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/John J. Lukaske ------------------------------- Its Vice President ------------------------ NBD BANK By /s/ Illegible Signature ------------------------------- Its ------------------------ HARRIS TRUST AND SAVINGS BANK By /s/ Catherine C. Ciolek ------------------------------- Its Vice President ------------------------ [SIGNATURE PAGE TO SECOND AMENDMENT]
NEW COMMITMENTS --------------- Dollar Amount Tranche of commitment Percentage NBD BANK, CANADA - - ------- ------------- ---------- B C.$16,937,500 50% By /s/ Jeremiah Hynes ------------------------ Its Vice President ----------------------- Dollar Amount Tranche of commitment Percentage CANADIAN IMPERIAL BANK - - ------- ------------- ---------- OF COMMERCE B C.$16,937,500 50% By /s/ Sabira Khan ------------------------ Its Contract Analyst -----------------------
6 EX-10.(G)(IV) 6 EXHIBIT 10(G)(IV) 3RD AMENDMENT TO CREDIT AGMT. THIRD AMENDMENT TO CREDIT AGREEMENT This Third Amendment is made as of the 4th day of January, 1996, by and among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD. ("Work Wear"; G&K and Work Wear, as the context requires, may be hereinafter referred to collectively as the "Companies" and individually as a "Company"), NBD BANK (formerly known as NBD Bank, N.A.) ("NBD USA"), NBD BANK, CANADA ("NBD Canada"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest") and HARRIS TRUST AND SAVINGS BANK ("Harris"; NBD USA, NBD Canada, CIBC and Norwest and Harris, as the context requires, may be hereinafter referred to collectively as the "Banks" and individually as a "Bank"). RECITALS -------- The Companies and the Banks have entered into a Credit Agreement dated as of June 21, 1994, as amended by a First Amendment dated November 28, 1994, and a Second Amendment dated May 18, 1995 (as amended, the "Credit Agreement") under which NBD USA, Norwest and Harris have agreed to make certain revolving credit loans to and issue letters of credit for the account of G&K (the "Tranche A Facility") and NBD Canada and CIBC have agreed to make certain revolving credit loans to and issue banker's acceptances for the account of Work Wear (the "Tranche B Facility"). G&K and Work Wear have requested that certain covenants in the Credit Agreement be amended and the Banks have agreed to such request, all pursuant to the terms and subject to the conditions set forth in this Third Amendment. ACCORDINGLY, in consideration of the premises, the Companies and the Banks hereby agree as follows: 1. DEFINITIONS. Except as otherwise expressly set forth herein, all capitalized terms in this Third Amendment which are defined in the Credit Agreement shall have the same meanings assigned to them in the Credit Agreement. 2. REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into this Third Amendment, the Companies hereby represent and warrant as follows: 1. The Loan Documents constitute the legal, valid and binding agreements of each Company (to the extent a Company is a party thereto), are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. 2. The Guaranties of G&K to NBD Canada and CIBC constitute the legal, valid and binding obligations of G&K, are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. 3. The representations and warranties contained in SECTION 9 of the Credit Agreement are true and correct as of the date hereof as though made on and as of this date, except to the extent that such representations and warranties relate solely to an earlier date. 4, No event has occurred and is continuing or would result from the execution and delivery of this Third Amendment and the ancillary documents contemplated hereby which constitutes or would constitute a default or an event of default under the Credit Agreement, the Met Life Loan Agreement or any other agreement, indenture, evidence of indebtedness or other obligation of either of the Companies. 3. REDUCTION IN INTEREST ON EURODOLLAR LOANS. SECTION 4.4.2 of the Credit Agreement is hereby amended by deleting the reference to "one and one- half percent (l1/2 %)" as it appears in clause (ii) thereof and inserting in place thereof the clause "one and one-quarter percent (11/4 %)". 4. REDUCTION IN ACCEPTANCE FEE. SECTION 3.7(c) of the Credit Agreement is hereby amended by deleting the reference to one and one-half percent (1.50%)" as it appears therein and inserting in place thereof the clause "one and one-quarter percent (1.25%)" 5. INCREASE IN EXPENDITURES FOR FIXED ASSETS. SECTION 11.9 of the Credit Agreement is hereby amended by deleting the reference to "U.S. $33,000,000" as it appears therein across from the fiscal year 1996 and inserting in place thereof the term "U.S $38,000,000". 6. MISCELLANEOUS. 1. The Companies hereby release and forever discharge the Banks and each of their respective former and present directors, officers, employees, agents and representatives of and from every and all claims, demands, causes of action (at law or in equity) and liabilities of any kind or nature, whether known or unknown, liquidated or unliquidated, absolute or contingent, which the Companies ever had, presently have or claim to have against a Bank or any of its respective directors, officers, employees, agents or representatives of or relating to events, occurrences, actions, inactions or other matters of or relating to the Credit Agreement, any Loan Document or the Guaranties or any actions or inactions hereunder or thereunder which occurred prior to the date of this Third Amendment. 2. The Companies hereby reaffirm their agreement under SECTION 16.6 of the Credit Agreement to pay or reimburse Norwest, among other costs and expenses, for all expenses incurred by Norwest in connection with the amendment, performance or enforcement of the Loan Documents, including without limitation, all reasonable fees and disbursements of legal counsel to Norwest in connection with the preparation of this Third Amendment. 2 3. Except as expressly amended hereby, all provisions of the Loan Documents and the Guaranties shall remain in full force and effect. After the effective date hereof, each reference in any Loan Document, the Guaranties or any other document executed in connection with the Credit Agreement to "this Agreement", "hereunder" or "hereof" or words of like import referring to the Credit Agreement or the Guaranties, respectively, shall be deemed and refer to the Credit Agreement or the Guaranties, as the case may be, as amended hereby. 4. This Third Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one in the same one and the same instrument. 5. The execution of this Third Amendment and acceptance of any documents related hereto shall not be deemed a waiver of any Default or Event of Default under any Loan Document, whether or not existing on the date of this Third Amendment. 6. This Third Amendment shall be governed by, and construed in accordance with, the internal laws of the State of Minnesota. IN WITNESS WHEREOF, the undersigned have executed this Third Amendment as of the day and year first above mentioned. G&K SERVICES, INC. By /s/Stephen F. LaBelle --------------------------------------- Its Secretary and Treasurer ----------------------------------- WORK WEAR CORPORATION OF CANADA LTD. By /s/Stephen F. LaBelle --------------------------------------- Its Secretary and Treasurer ----------------------------------- NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Dan Weiles --------------------------------------- Its V P ----------------------------------- NBD BANK By /s/ Illegible Signature --------------------------------------- Its Second Vice President ----------------------------------- 3 HARRIS TRUST AND SAVINGS BANK By /s/ Illegible Signature --------------------------------------- Its Vice President ----------------------------------- NBD BANK, CANADA By /s/ Illegible Signature --------------------------------------- Its Assistant Vice President ----------------------------------- CANADIAN IMPERIAL BANK OF COMMERCE By /s/ Illegible Signature --------------------------------------- Its Credit Designer ----------------------------------- 4 EX-10.(G)(V) 7 EXHIBIT 10(G)(V) 4TH AMENDMENT TO CREDIT AGMT. FOURTH AMENDMENT TO CREDIT AGREEMENT This Fourth Amendment is made as of the 5th day of August, 1996, by and among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD. ("Work Wear"; G&K and Work Wear, as the context requires, may be hereinafter referred to collectively as the "Companies" and individually as a "Company"), NBD BANK (formerly known as NBD Bank, N.A.) ("NBD USA"), FIRST CHICAGO NBD BANK, CANADA, formerly known as NBD Bank Canada ("NBD Canada"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest") and HARRIS TRUST AND SAVINGS BANK ("Harris"; NBD USA, NBD Canada, CIBC and Norwest and Harris, as the context requires, may be hereinafter referred to collectively as the "Banks" and individually as a "Bank"). RECITALS The Companies and the Banks have entered into a Credit Agreement dated as of June 21, 1994, as amended by a First Amendment dated November 28, 1994, a Second Amendment dated May 18, 1995 and a Third Amendment dated January 4, 1996 (as amended, the "Credit Agreement") under which NBD USA, Norwest and Harris have agreed to make certain revolving credit loans to and issue letters of credit for the account of G&K (the "Tranche A Facility") and NBD Canada and CIBC have agreed to make certain revolving credit loans to and issue banker's acceptances for the account of Work Wear (the "Tranche B Facility"). G&K and Work Wear have requested that the Credit Agreement be amended and the Banks have agreed to such request, all pursuant to the terms and subject to the conditions set forth in this Fourth Amendment. ACCORDINGLY, in consideration of the premises, the Companies and the Banks hereby agree as follows: 1. DEFINITIONS. Except as otherwise expressly set forth herein, all capitalized terms in this Fourth Amendment which are defined in the Credit Agreement shall have the same meanings assigned to them in the Credit Agreement. 2. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter into this Fourth Amendment, the Companies hereby represent and warrant as follows: a. The Loan Documents constitute the legal, valid and binding agreements of each Company (to the extent a Company is a party thereto), are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. b. The Guaranties of G&K to NBD Canada and CIBC constitute the legal, valid and binding obligations of G&K, are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. 3. The representations and warranties contained in SECTION 9 of the Credit Agreement are true and correct as of the date hereof as though made on and as of this date, except to the extent that such representations and warranties relate solely to an earlier date. 4. No event has occurred and is continuing or would result from the execution and delivery of this Fourth Amendment and the ancillary documents contemplated hereby which constitutes or would constitute a default or an event of default under the Credit Agreement, the Met Life Loan Agreement or any other agreement, indenture, evidence of indebtedness or other obligation of either of the Companies. 3. REDUCTION OF INTEREST RATE ON EURODOLLAR LOANS. SECTION 4.4.2 of the Credit Agreement is hereby amended by deleting the reference to "one and one-quarter percent (1 1/4%)" as it appears in clause (ii) thereof and inserting in place thereof the clause "seven-eighths of one percent (.875%)". 4. REDUCTION IN ACCEPTANCE FEE. SECTION 3.7(c) of the Credit Agreement is hereby amended by deleting the reference to "one and one-quarter percent (1 1/4%)" as it appears therein and inserting in place thereof the clause "seven-eighths of one percent (.875%)" 5. EXTENSION OF COMMITMENTS. The definition of "Revolving Loan Termination Date" appearing in SECTION 1.1 of the Credit Agreement is hereby amended by deleting the reference to June 30, 1997 as it appears therein and inserting in place thereof the date "September 30, 1998". In addition, each Revolving Note is hereby amended by deleting the reference to "June 30, 1997" as it appears therein and inserting in place thereof the date "September 30, 1998." 6. MODIFICATION OF FINANCIAL COVENANTS. 1. MINIMUM TOTAL STOCKHOLDER EQUITY. Section 10.10 of the Credit Agreement is hereby amended by deleting the reference to "June 30, 1997" as it appears in the table constituting a part thereof and inserting in place thereof the date "March 31, 1998" and by adding the following at the end of such table: April 1, 1998 through September 30, 1998 $150,000,000 2. EXPENDITURES FOR FIXED ASSETS. Section 11.9 of the Credit Agreement is hereby amended by deleting the reference to "U.S. $35,000,000" as it appears in the table constituting a part thereof across from the fiscal year 1997 and inserting in place thereof the amount "U.S. $38,000,000" and by adding the following to such table: 1998 U.S. $38,000,000 July 1 1998 through September 30, 1998 U.S. $10,000,000 7. MISCELLANEOUS. 2 1. The Companies hereby release and forever discharge the Banks and each of their respective former and present directors, officers, employees, agents and representatives of and from every and all claims, demands, causes of action (at law or in equity) and liabilities of any kind or nature, whether known or unknown, liquidated or unliquidated, absolute or contingent, which the Companies ever had, presently have or claim to have against a Bank or any of its respective directors, officers, employees, agents or representatives of or relating to events, occurrences, actions, inactions or other matters of or relating to the Credit Agreement, any Loan Document or the Guaranties or any actions or inactions hereunder or thereunder which occurred prior to the date of this Fourth Amendment. 2. The Companies hereby reaffirm their agreement under SECTION 16.6 of the Credit Agreement to pay or reimburse Norwest, among other costs and expenses, for all expenses incurred by Norwest in connection with the amendment, performance or enforcement of the Loan Documents, including without limitation, all reasonable fees and disbursements of legal counsel to Norwest in connection with the preparation of this Fourth Amendment. 3. Except as expressly amended hereby, all provisions of the Loan Documents and the Guaranties shall remain in full force and effect. After the effective date hereof each reference in any Loan Document, the Guaranties or any other document executed in connection with the Credit Agreement to "this Agreement", "hereunder" or "hereof" or words of like import referring to the Credit Agreement or the Guaranties, respectively, shall be deemed and refer to the Credit Agreement or the Guaranties, as the case may be, as amended hereby. 4. This Fourth Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 5. The execution of this Fourth Amendment and acceptance of any documents related hereto shall not be deemed a waiver of any Default or Event of Default under any Loan Document, whether or not existing on the date of this Fourth Amendment. 6. This Fourth Amendment shall be governed by, and construed in accordance with, the internal laws of the State of Minnesota. IN WITNESS WHEREOF, the undersigned have executed this Fourth Amendment as of the day and year first above mentioned. G&K SERVICES, INC. By /s/Stephen F. Labelle -------------------------------- Its Secretary and Treasurer ------------------------ 3 WORK WEAR CORPORATION OF CANADA LTD. By /s/Stephen F. LaBelle -------------------------------- Its Secretary and Treasurer ------------------------ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/Daniel Wieles -------------------------------- Its V P ------------------------ NBD BANK By /s/ Illegible Signature -------------------------------- Its Vice President ------------------------ HARRIS TRUST AND SAVINGS BANK By /s/ Catherine C. Ciolek -------------------------------- Its Vice President ------------------------ FIRST CHICAGO NBD BANK, CANADA By /s/ Illegible Signature -------------------------------- Its AVP -------------------------- CANADIAN IMPERIAL BANK OF COMMERCE By /s/ Illegible Signature -------------------------------- Its Illegible --------------------- 4 EX-10.H 8 EXHIBIT 10(H) LOAN AGREEMENT & EXHIBIT A-G - - -------------------------------------------------------------- - - -------------------------------------------------------------- G & K SERVICES, INC. ---------------------- LOAN AGREEMENT Dated November 23, 1994 ---------------------- 8.46% Senior Notes Due November 23, 1997 - - -------------------------------------------------------------- - - -------------------------------------------------------------- TABLE OF CONTENTS Page ---- SECTION 1. ISSUE OF NOTES . . . . . . . . . . . . . . . . . . 1 SECTION 2. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 2 SECTION 3. CONDITIONS OF THE LOAN . . . . . . . . . . . . . . 8 SECTION 4. REPRESENTATIONS OF PURCHASERS. . . . . . . . . . . 10 SECTION 5. FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES; ADDITIONAL INFORMATION; INSPECTION . . . . . . . . . . . . . . . . . . . . 10 SECTION 6. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 13 EXHIBIT A - FORM OF NOTE Page of Note ------- SECTION 1. THE NOTES; TRANSFERS, EXCHANGES, ETC. . . . . . . 1 SECTION 2. PREPAYMENT OF NOTES. . . . . . . . . . . . . . . . 2 SECTION 3. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 5 SECTION 4. RESTRICTIVE COVENANTS. . . . . . . . . . . . . . . 6 SECTION 5. CONSENTS, WAIVERS AND AMENDMENTS . . . . . . . . . 16 SECTION 6. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 17 SECTION 7. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . 26 SECTION 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 31 EXHIBIT B - INDEBTEDNESS FOR MONEY BORROWED AND LIENS SECURING INDEBTEDNESS FOR MONEY BORROWED OF THE COMPANY AND ITS SUBSIDIARIES EXHIBIT C - LIST OF SUBSIDIARIES AND THEIR JURISDICTIONS OF INCORPORATION EXHIBIT D - FORM OF GUARANTY EXHIBIT E - LITIGATION EXHIBIT F - FORM OF OPINION OF MASLON EDELMAN BORMAN & BRAND EXHIBIT G - ERISA -i- G & K SERVICES, INC. LOAN AGREEMENT November 23, 1994 To: The Purchasers Listed in Schedule I hereto: G & K SERVICES, INC., a Minnesota corporation (herein called the "Company"), agrees with each of you as follows: SECTION 1. ISSUE OF NOTES. 1.1. AUTHORIZATION. The Company has duly authorized an issue of $15,000,000 aggregate principal amount of its 8.46% senior notes due November 23, 1997 (herein called the "Notes"), such Notes to be in the form and have terms and provisions substantially as set forth in Exhibit A hereto. The term "Notes" as used herein shall include all promissory notes delivered pursuant to the provisions of this Agreement and all promissory notes delivered in substitution or exchange therefor or in lieu thereof, and, where applicable, shall include the singular number as well as the plural. The term "Note" shall mean one of the Notes. 1.2. LOAN; CLOSING. The Company hereby agrees to borrow from each of you, and each of you, subject to the terms and conditions herein set forth, hereby agree to lend to the Company on November 23, 1994 (the "Closing Date") the aggregate principal amount set forth opposite your name on Schedule I hereto. The loans to be made by each of you on the Closing Date will be evidenced by and be made against delivery to you at 10:00 A.M., Minneapolis time, on the Closing Date, at the office of Metropolitan Life Insurance Company at One Madison Avenue, New York New York, of one or more Notes (as shall be designated by you no later than 5 days prior to the Closing Date) payable to you or registered assigns, dated the Closing Date, duly executed by the Company and in the aggregate principal amount of the loans to be made by you on the Closing Date. Delivery of the Notes to you hereunder shall be made against payment to the Company by wire transfer of immediately available funds to Norwest Bank Minnesota, N.A., ABA 091000019, credit Commercial Loan Account 840165 for further credit to G & K Services, Inc., Account #1073025 (Attention: Mike Bjorgan) in the aggregate principal amount of the loans to be made by you on the Closing Date. SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants that: 2.1. FINANCIAL STATEMENTS. You have been furnished with copies of the consolidated balance sheets of the Company and its Subsidiaries as at June 30, 1990, June 29, 1991, June 27, 1992, July 3, 1993 and July 2, 1994, inclusive, and the related consolidated statements of income, cash flows and stockholders' equity of the Company and its Subsidiaries for the fiscal periods ended on said dates, accompanied in each case by the opinion of its independent certified public accountants. Said financial statements, including the related schedules and notes, are complete and correct and fairly present (a) the financial condition of the Company and its Subsidiaries as at the respective dates of said balance sheets and (b) the results of the operations of the Company and its Subsidiaries for the fiscal periods ended on said dates, all in conformity with generally accepted accounting principles applied on a consistent basis (except as otherwise stated therein or in the notes thereto) throughout the periods involved. Said consolidated balance sheet as of July 2, 1994 and the related schedules and notes show all material liabilities, direct and contingent, of the Company and its Restricted Subsidiaries as of that date. 2.2. NO MATERIAL CHANGES. There has been no material and adverse change in the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Restricted Subsidiaries, taken as a whole, subsequent to July 2, 1994. 2 2.3. OUTSTANDING DEBT AND LIENS. Exhibit B hereto correctly sets forth all Indebtedness outstanding on the date hereof and all Liens securing Indebtedness of the Company or its Restricted Subsidiaries existing on the date hereof. 2.4. ORGANIZATION, AUTHORITY AND GOOD STANDING; SUBSIDIARIES. Exhibit C hereto correctly sets forth (a) the name and jurisdiction of incorporation of each Subsidiary of the Company, (b) a designation of such Subsidiary as either a Restricted Subsidiary or an unrestricted Subsidiary, and (c) a statement of the capitalization of each such Subsidiary and the ownership of its stock. The shares of stock listed in Exhibit C as owned by the Company or any of the Restricted Subsidiaries are so owned as of the date of this Agreement, free and clear of all Liens, and all such shares of stock have been duly issued and are fully paid and non-assessable. The Company and each of its Restricted Subsidiaries is a duly organized and validly existing corporation in good standing under the laws of its respective jurisdiction of incorporation and has full power and authority to own the properties and assets and to carry on the business which it now owns and carries on. Each of the Company and its Restricted Subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction wherein the nature of the property owned or leased by it or the nature of the business transacted by it makes such qualification necessary, except where the failure to do so would not have a material and adverse effect on the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Subsidiaries, taken as a whole. 2.5. TITLE TO PROPERTIES. The Company and its Restricted Subsidiaries have good and marketable fee title to all the real properties and good and marketable title to all other property reflected on the consolidated balance sheet of the Company and its Restricted Subsidiaries as at July 2, 1994 referred to in Section 2.1, or purported to have been acquired by the Company or any of its Restricted Subsidiaries after said date, excepting, however, property sold or otherwise disposed of subsequent to said date in the ordinary course of business and subject to Liens permitted by Sections 3.03A and 4.03 of the Notes. 3 2.6. LEASES AND LIENS. None of the properties or assets reflected in the consolidated balance sheet of the Company and its Restricted Subsidiaries as at July 2, 1994 referred to in Section 2.1, or acquired by the Company or its Restricted Subsidiaries after said date, is held by the Company or any of its Restricted Subsidiaries subject to any Lien which would not be permitted by Section 3.03A or Section 4.03 of the Notes. The Company and its Restricted Subsidiaries enjoy peaceful and undisturbed possession under all of the material leases under which they are operating and all such leases are valid and subsisting and in full force and effect. 2.7. LICENSES. The Company and its Restricted Subsidiaries possess all trademarks, trade names, copyrights, patents, governmental licenses, franchises, certificates, consents, permits and approvals necessary to enable them to carry on their business in all material respects as now conducted and to own and operate the properties material to their business as now owned and operated, without known conflict with the rights of others. All such trademarks, trade names, copyrights, patents, licenses, franchises, certificates, consents, permits and approvals which are material to the Company and its Restricted Subsidiaries, taken as a whole, are valid and subsisting. 2.8. LITIGATION. Except as set forth in Exhibit E hereto, there are no actions, suits or proceedings (whether or not purportedly on behalf of the Company or any Restricted Subsidiary) pending or, to the knowledge of the Company, threatened against or affecting the Company and any of its Restricted Subsidiaries at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which involve any of the transactions herein contemplated or the likelihood of any material and adverse change in the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Restricted Subsidiaries, taken as a whole; and neither the Company nor any Restricted Subsidiary is in default or violation of any judgment, order, writ, injunction, decree, award, statute, rule or regulation of any 4 court, arbitrator or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign which would have a material and adverse effect on the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Restricted Subsidiaries, taken as a whole. 2.9. HAZARDOUS SUBSTANCES. Except as disclosed in Exhibit E hereto, to the best of the Company's knowledge, neither the Company nor any Person has ever caused or permitted any Hazardous Substance to be disposed of in any manner which might result in any material liability to the Company or any of its Restricted Subsidiaries on, under or at any real property which is operated by the Company or any Restricted Subsidiary or in which the Company or any Restricted Subsidiary has any interest; and to knowledge of the Company, no such real property has ever been used (either by the Company or by any other Person) as a dump site or permanent or temporary storage site for any Hazardous Substance except to the extent any such real property has been used by the Company or any Restricted Subsidiary as a temporary storage site for Hazard Substances incidental to the business of the Company and its Restricted Subsidiaries and stored in accordance with all applicable Environmental Laws. 2.10. NO BURDENSOME PROVISIONS. Neither the Company nor any Restricted Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate or legislative restriction or any judgment, order, writ, injunction, decree, award, rule or regulation which materially and adversely affects or in the future may (so far as the Company can now foresee) materially and adversely affect the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Restricted Subsidiaries, taken as a whole. 2.11. COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any Restricted Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any bond, 5 debenture, note or other evidence of Indebtedness of the Company or such Restricted Subsidiary or contained in any instrument under or pursuant to which any thereof has been issued or made and delivered the effect of which would materially and adversely affect the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Restricted Subsidiaries, taken as a whole. Neither the execution and delivery of this Agreement by the Company, the execution and delivery of the Guaranty by the Guarantor, the consummation by the Company of the transactions herein contemplated, compliance by the Company with the terms, conditions and provisions hereof and of the Notes nor compliance by the Guarantor with the terms, provisions and conditions of the Guaranty will violate any provision of law or rule or regulation thereunder or any order, injunction or decree of any court or other governmental body to which the Company, the Guarantor or any Restricted Subsidiary is a party or by which any thereof is bound or conflict with or result in a breach of any of the terms, conditions or provisions of the corporate charter or by-laws of the Company, the Guarantor or any Restricted Subsidiary or of any agreement or instrument to which the Company, the Guarantor or any Restricted Subsidiary is a party or by which the Company, the Guarantor or any such Restricted Subsidiary is bound, or constitute a default thereunder, or result in the creation or imposition of any Lien of any nature whatsoever upon any of the properties or assets of the Company, the Guarantor or any Restricted Subsidiary. No consent of the stockholders of the Company or the Guarantor is required for the execution, delivery and performance of this Agreement or the Notes by the Company or the Guaranty by the Guarantor. 2.12. TRADING WITH THE ENEMY ACT, ETC. Neither this Agreement nor any of the transactions contemplated hereby is in violation of the Trading with the Enemy Act, as amended, the International Emergency Economic Powers Act or the executive orders of the President of the United States issued pursuant to such acts or the regulations issued thereunder or in connection therewith, including, without limitation, the following regulations of the United States Treasury Department: the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control 6 Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Assets Control Regulations, the South African Transactions Regulations and the Libyan Sanctions Regulations (31 C.F.R., Subtitle B, Chapter V, as amended) or the restrictions set forth in Executive Orders No. 8389, 9193, 12544 (Libya), 12722 (Iraq), 12723 (Kuwait), 12724 (Iraq) or 12725 (Kuwait), as amended, of the President of the United States of America or of any rules or regulations issued thereunder. 2.13. ERISA. Each ERISA Plan as to which the Company or any ERISA Affiliate may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event has occurred with respect to any Defined Benefit Plan sponsored by the Company or any ERISA Affiliate which will have the effect of creating a liability of the Company or any ERISA Affiliate which will be material to the Company and its Subsidiaries on a consolidated basis; (ii) neither the Company nor any ERISA Affiliate has withdrawn from any Multi-Employer Plan or initiated steps to do so, except in accordance with all applicable requirements of law and regulations and in a manner which will not create a liability to the Company or any ERISA Affiliate which will be material to the Company and its Subsidiaries on a consolidated basis; (iii) no steps have been taken to terminate any Pension Plan except in accordance with all applicable requirements of law and regulations and in a manner which will not create a liability of the Company or any ERISA Affiliate which will be material to the Company and its Subsidiaries on a consolidated basis; and (iv) during the twelve consecutive months prior to any date on which this representation may be made or re-made, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under Section 302(f)(1) of ERISA. The Company has no contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than (i) liability for continuation coverage described in Part 6 of Title I of ERISA and (ii) as set forth on Exhibit G hereto. The issuance of the Notes will not involve a "prohibited transaction" (as such term is defined in Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or Section 406 of ERISA) that could subject the Company to any tax or penalty on prohibited transactions 7 imposed under said Section 4975 of the Code or under Section 502(i) of ERISA (it being understood that this representation is being made in reliance upon your representation in Section 4.2 regarding the source of your funds). 2.14. TAX LIABILITY. The Company and its Restricted Subsidiaries have filed all tax returns which are required to be filed and have paid all taxes which have become due pursuant to such returns and all other taxes, assessments, fees and other governmental charges upon the Company and its Restricted Subsidiaries and upon their respective properties, assets, income and franchises which have become due and payable by the Company or any of its Restricted Subsidiaries, except those wherein the amount, applicability or validity are being contested by the Company or any such Restricted Subsidiary by appropriate proceedings in good faith and in respect of which adequate reserves have been established and except where the amounts are not material to the Company and its Restricted Subsidiaries as a whole. In the opinion of the Company, all tax liabilities of the Company and its Restricted Subsidiaries were adequately provided for as of July 2, 1994 and are now so provided for on the books of the Company and its Restricted Subsidiaries. 2.15. Reserved. 2.16. REGULATION G; USE OF PROCEEDS. All of the proceeds from the issuance of the Notes will be used by the Company to refinance existing indebtedness and for capital expenditures. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" as defined in Regulation G (12 C.F.R., Chapter II, Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock") or for the for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of said Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause the transaction contemplated herein to violate said Regulation G, Regulation T (12 C.F.R., Chapter II, Part 220) or Regulation X (12 C.F.R., Chapter II, Part 224) or any other regulation 8 of the Board of Governors of the Federal Reserve System or, to the knowledge of the Company, to violate the Securities Exchange Act of 1934, in each case as now in effect or as the same may hereafter be in effect. 2.17. INVESTMENT COMPANY ACT. Neither the Company nor any Restricted Subsidiary is an "investment company," or a Person "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 2.18. GOVERNMENTAL ACTION. No action of, or filing with, any governmental or public body or authority is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of this Agreement or the Notes by the Company or the Guaranty by the Guarantor. 2.19. DISCLOSURE. Neither this Agreement, nor any of the Exhibits hereto, nor any certificate or other data furnished to you in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. There is no fact which materially and adversely affects or in the future may (so far as the Company can now foresee) materially and adversely affect the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Restricted Subsidiaries, taken as a whole, which has not been disclosed to you in writing. 2.20. OFFERING OF NOTES. Neither the Company nor any agent acting in its behalf has, either directly or indirectly, sold or offered for sale or disposed of, or attempted or offered to dispose of, the Notes or any part thereof, or any similar obligation of the Company, to, or has solicited any offers to buy any thereof from, or has otherwise approached or negotiated in respect thereof with, any Person or Persons other than you and not more than two 9 other Persons, all of whom were institutional investors; and the Company agrees that neither it nor any agent acting on its behalf will sell or offer for sale or dispose of, or attempt or offer to dispose of, any thereof to, or solicit any offers to buy any thereof from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or delivery of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. SECTION 3. CONDITIONS OF THE LOAN. Your obligation to make the loans to be made by you on the Closing Date, as provided in Section 1.2, shall be subject to the performance by the Company of all its agreements theretofore to be performed hereunder, to the accuracy of its representations and warranties herein contained and to the satisfaction, prior thereto or concurrently therewith, of the following further conditions: 3.1. GUARANTY. You shall have received on the Closing Date a guaranty (the "Guaranty") dated the Closing Date, and executed by the Guarantor, substantially in the form of Exhibit D hereto, whereby the Guarantor shall guarantee payment of the Notes and of the Company's obligations under this Agreement. 10 3.2. OPINION OF COMPANY COUNSEL. You shall have received on the Closing Date from Maslon Edelman Borman & Brand, counsel for the Company and the Guarantor, a favorable opinion, dated such Closing Date substantially in the form set forth in Exhibit F hereto. 3.3. Reserved. 3.4. RETIREMENT OF LOAN. The revolving credit facility, due November 23, 1994, in the aggregate amount of $5,000,000 from Norwest Bank of Minnesota, National Association, to the Company shall have been paid in full and all obligations of the Company under said facility shall have been discharged, and you shall have received evidence satisfactory to you to such effect. 3.5. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Sections 2.1 through 2.20 of the Agreement shall be true and correct in all material respects when made and on the Closing Date. 3.6. 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 on the Closing Date, and on the Closing Date no Event of Default or default which with notice or lapse of time, or both, would become an Event of Default shall have occurred and be continuing. 3.7. LEGALITY. You shall have satisfied yourself that the Notes being purchased by you on the Closing Date shall qualify on the Closing Date as a legal investment under the laws of your respective jurisdictions of incorporation (without resort to any provision of such law, such as Section 1405(a)(8) of the New York Insurance Law, permitting limited investments by you without restriction as to the character of the particular investment) and such purchase shall not subject you to any penalty or other onerous condition under or pursuant to any applicable law or governmental regulation. 3.8. PROCEEDINGS. All proceedings to be taken in connection with the transactions contemplated by this Agreement, and all documents incidental thereto, shall be 11 satisfactory in form and substance to you; and you shall have received copies of all documents which you may reasonably request in connection with said transactions and copies of the records of all corporate proceedings in connection therewith in form and substance satisfactory to you. 12 3.9. CONSENT OF BANKS. You shall have received on the Closing Date a written consent of each Bank party to the Credit Agreement consenting to the execution and delivery by the Company of this Agreement and the issuance of the Notes and the incurrence by the Company of the indebtedness represented thereby. 3.10. COMPLIANCE CERTIFICATES. You shall have received on the Closing Date, certificates of the appropriate officers of the Company, each dated such Closing Date and satisfactory in substance and form to you, certifying that the conditions specified in Sections 3.4, 3.5, 3.6 and 3.9 have been fulfilled, and as to such other matters as you may reasonably request. SECTION 4. REPRESENTATIONS OF PURCHASERS. 4.1. ACQUISITION FOR INVESTMENT. This Agreement is made with each of you in reliance upon your respective representations to the Company (which, by your acceptance hereof, you confirm) that you are acquiring the Notes for your own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution thereof; PROVIDED, HOWEVER, that the disposition of your property shall at all times be within the control of your Board of Directors. 4.2. ERISA. This Agreement is also made with you in reliance upon your representation to, and agreement with, the Company (which, by your acceptance hereof, you confirm) that no employee benefit plan, other than employee benefit plans identified on a list which has been furnished by you to the Company, accounts for any of the assets allocated to any separate account (as defined in Section 3(17) of ERISA) maintained by you which is a source of funds being used by you to pay the purchase price of any of the Notes. SECTION 5. FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES; ADDITIONAL INFORMATION; INSPECTION. 5.1. FINANCIAL STATEMENTS AND REPORTS. From and after the date hereof and so long as you (or a nominee designated by you) shall hold any of the Notes, the Company will deliver 13 to you in duplicate: (a) as soon as practicable, and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year of the Company, the consolidated statements of income and cash flows of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries for such period and for that part of the fiscal year ended with such quarterly period and the consolidated balance sheet of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding figures as of the end of and for the corresponding quarterly period of the preceding fiscal year, all in reasonable detail, prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of previous years (except as otherwise stated therein or in the notes thereto and except that footnotes shall not be required) and certified by the chief financial officer of the Company as presenting fairly the financial condition and results of operations of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of and for the fiscal periods to which they relate, subject to the Company's year-end adjustments; (b) as soon as practicable, and in any event within 120 days after the end of each fiscal year, the consolidated balance sheet and related consolidated statements of income, cash flows and stockholders' equity of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of and for such year, setting forth in each case in comparative form the corresponding figures of the previous fiscal year, all in reasonable detail, prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of previous years (except as otherwise stated therein or in the notes thereto) and certified by the chief financial officer of the Company as presenting fairly the financial condition and results of operations and 14 changes in financial position of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of and for the fiscal year to which such financial statements relate, and accompanied by a report or opinion of independent certified public accountants of recognized national standing selected by the Company stating that such financial statements present fairly the consolidated financial condition and results of operations of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries in accordance with generally accepted accounting principles consistently applied (except for changes with which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; (c) concurrently with the financial statements delivered pursuant to Section 5.1(b), the written statement of said accountants that in making the examination necessary for their report or opinion on said financial statements they have obtained no knowledge of any Event of Default or any event which, with notice or lapse of time or both, would constitute such an Event of Default, or, if such accountants shall have obtained knowledge of any such Event of Default or event, they shall disclose in such statement the Event of Default or event and the nature and status thereof, but such accountants shall not be liable, directly or indirectly, to anyone for any failure to obtain knowledge of any such Event of Default or event; (d) concurrently with the financial statements delivered pursuant to Sections 5.1(a) and 5.1(b), a certificate of the chief financial officer of the Company (1) setting forth figures and computations demonstrating compliance by the Company and its Restricted Subsidiaries with the requirements of Sections 4.01, 4.03, 4.05, 4.06, 4.07, 4.08, 4.09, 4.11, 4.12 and 4.16 of the Notes, (2) stating that a review of the activities of the Company and its Restricted Subsidiaries during such fiscal year has been made under 15 his supervision to determine whether the Company has fulfilled all of its obligations under this Agreement and the Notes, and (3) stating that, to the best of his knowledge, there exists no Event of Default under this Agreement or under the Notes or event which, with notice or lapse of time or both, would constitute such an Event of Default, or, if any such Event of Default or event exists, specifying such Event of Default or event and the nature and status thereof; (e) as soon as practicable, copies of all financial statements, proxy statements and reports as the Company shall send or make available generally to its security holders, all news releases issued by the Company or any Restricted Subsidiary which are deemed to be material by the Company and all registration statements and regular periodic reports, if any, which it or any Restricted Subsidiary may file with the Securities and Exchange Commission or any governmental agency or agencies substituted therefor or with any national securities exchange; (f) immediately upon a responsible officer of the Company's becoming aware of the existence of an Event of Default under the Notes or any other evidence of Indebtedness of the Company or any Restricted Subsidiary, or an event which, with notice or lapse of time or both, would constitute such an Event of Default, written notice specifying the nature and period of existence thereof and what action the Company or such Restricted Subsidiary, as the case may be, is taking or proposes to take with respect thereto; (g) immediately upon a responsible officer of the Company's becoming aware of the occurrence of any (1) Reportable Event, or (2) nonexempted "prohibited transaction," as defined in Sections 406 and 408 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended, in connection with any ERISA Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Company is taking or proposes to take with respect thereto and, when known, any action taken by the Internal Revenue 16 Service or the Pension Benefit Guaranty Corporation with respect thereto; and (h) such other information as to the business and properties of the Company and of its Subsidiaries, including without limitation, financial statements and other reports filed by the Company or any Subsidiary with any governmental department, bureau, commission or agency, as you may from time to time reasonably request. 5.2. RIGHT TO INSPECT PROPERTIES, BOOKS, ETC. From and after the date hereof and so long as you (or a nominee designated by you) shall hold the Notes, you shall have the right to visit and inspect any of the properties of the Company and its Subsidiaries, to examine the books of account and records of the Company and its Subsidiaries, to make copies and extracts therefrom, to discuss the affairs, finances, accounts and condition of the Company and its Subsidiaries with, and to be advised as to the same by, their respective officers, employees and independent accountants, all at such reasonable times and intervals as you may reasonably desire. SECTION 6. MISCELLANEOUS. 6.1. EXPENSES. Each of you hereby agrees to waive any processing fee normally charged in similar transactions to cover your expenses in preparing for and documenting the transactions contemplated by this Agreement. Each of you agrees that the Company will not otherwise be liable, except as provided in Section 8.01 of the Notes, for the payment of any expenses incurred by you in connection with the transactions contemplated by this Agreement including, without limitation, any legal fees and expenses, travel expenses and costs of printing or other reproduction of this Agreement and the Notes. The Company's obligations under this Section 6.1 shall survive the payment or prepayment of the Notes. 6.2. STAMP TAXES, ETC. The Company will pay, and save you and any subsequent holder of the Notes harmless against, any and all liability (including any interest or penalty for non-payment or delay in payment) with respect to 17 stamp and other similar taxes (other than any such stamp or other taxes incurred upon a transfer of the Notes by you), if any, which may be payable or determined to be payable in connection with the transactions contemplated by this Agreement, including, without limitation, the issue and delivery of the Notes, the purchase thereof or any modification, amendment or alteration thereof. The obligations of the Company under this Section 6.2 shall survive the payment or prepayment of the Notes. 6.3. SUCCESSORS AND ASSIGNS. All covenants, agreements, representations and warranties made herein or in certificates delivered in connection herewith by or on behalf of the Company shall survive the issue and delivery of the Notes to you and the making of the loans by you as provided in Section 1.2, and shall bind the successors and assigns of the Company, whether so expressed or not, and all such covenants, agreements, representations and warranties shall inure to the benefit of your successors and assigns, including any subsequent holder of any of the Notes. 6.4. HOME OFFICE PAYMENT. Notwithstanding any provision to the contrary in the Notes contained, the Company will promptly and punctually pay to you by wire transfer of immediately available funds, not later than 12:00 noon, New York time, on the date payment is due, to the account and in the manner designated by you in Schedule I hereto with sufficient information to identify the source and application of funds or such other account or address as may be designated in writing by you, all amounts payable in respect of the principal of, premium, if any, and interest on, any Notes then held by you or your nominee, without any presentment thereof and without any notation of such payment being made thereon. Prior to the delivery of any Note upon sale, you will make or cause to be made a notation thereon of the date to which interest has been paid thereon and, if not theretofore made, a notation of the extent to which payment has been made on account of the principal thereof. 6.5. NOTICES. All communications provided for hereunder or under the Notes (other than payments in respect 18 thereof which must be made in accordance with Section 6.4) shall be in writing, and if to you, mailed (by registered or certified mail) or delivered to you addressed as provided in Schedule I hereto, or if to the Company, mailed (by registered or certified mail) or delivered to the Company at its office at Waterford Park, 505 Highway 169 N, Suite 455, Minneapolis, Minnesota 55441-6446, Attention: Stephen LaBelle, Secretary and Treasurer with a copy to Neil Sell, Esq., Maslon Edelman Borman & Brand, 1800 Midwest Plaza, Minneapolis, Minnesota 55402-2591, or addressed to you or the Company at any other address in the United States of America that you or the Company may hereafter designate by written notice to the other party. 6.6. DEFINED TERMS. The terms used herein and in certificates delivered pursuant hereto shall have the meanings assigned thereto in Exhibit A hereto, unless otherwise defined herein. 6.7. LAW GOVERNING; MODIFICATION. This Agreement shall be construed in accordance with and governed by the substantive and procedural laws of the State of Minnesota. No provision of this Agreement may be waived, changed or modified, or the discharge thereof acknowledged, orally, but only by an agreement in writing signed by the party against whom the enforcement of any waiver, change, modification or discharge is sought. 6.8. HEADINGS. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement. 6.9. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 19 [Remainder of Page Intentionally Left Blank] 20 If the foregoing is satisfactory to you, please sign the form of acceptance on the enclosed counterpart of this letter agreement and forward the same to the Company, whereupon this letter agreement will become a binding agreement between you and the Company as of the date first above written. Yours very truly, G & K SERVICES, INC. By: /s/ Stephen F. LaBelle ------------------------- Name: Stephen F. LaBelle Title: Treasurer The foregoing agreement is hereby accepted as of the date first above written: METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Michael J. Kroeger --------------------------------- Name: Michael J. Kroeger Title: Vice President METROPOLITAN LIFE INSURANCE COMPANY, on behalf of Separate Account No. 72 By: /s/ Leland C. Launer, Jr. -------------------------------- Name: Leland C. Launer, Jr. Title: Vice President METROPOLITAN LIFE INSURANCE COMPANY, on behalf of Separate Account No. 137 By:/s/ Leland C. Launer, Jr. -------------------------------- Name: Leland C. Launer, Jr. Title: Vice President METROPOLITAN LIFE INSURANCE COMPANY, on behalf of Separate Account No. 145 By:/s/ Leland C. Launer, Jr. -------------------------------- Name: Leland C. Launer, Jr. Title: Vice President TEXAS LIFE INSURANCE COMPANY By:/s/ Bradley Rhoads -------------------------------- Name: Bradley Rhoads Title: Authorized Signatory SCHEDULE I Principal Amount of Notes ------------------------- Purchaser to be Acquired - - -------- -------------- Metropolitan Life Insurance $7,500,000 Company Separate Account No. 72 $2,000,000 Separate Account No. 137 $2,500,000 Separate Account No. 145 $2,000,000 (a) PAYMENTS: Account No. 002-2-410591 Account Name: Metropolitan Life - Corporate Investments Reference Number: PPN ________________ The Chase Manhattan Bank, N.A. Manhattan Branch 33 East 23rd Street New York, New York 10010 ABA No. 021-000021 and requesting the bank to send a credit advice to Metropolitan Life Insurance Company (b) ADDRESS FOR ALL OTHER COMMUNICATIONS: Metropolitan Life Insurance Company One Madison Avenue New York, N.Y. 10010 Attention: Senior Vice-President and Treasurer with a copy to: Metropolitan Life Insurance Company Corporate Investments One Lincoln Centre Suite 800 Oakbrook Terrace, Illinois 60181 Attention: Vice-President SCHEDULE I Principal Amount of Notes Purchaser to be Acquired - - --------- -------------- Texas Life Insurance Company $1,000,000 (a) PAYMENTS: Account No. 80022 Account Name: Texas Life Insurance Company Reference Number: PPN _____________ Texas National Bank 900 Washington Avenue Waco, Texas 76701 ABA No. 111900523 (b) ADDRESS FOR ALL OTHER COMMUNICATIONS: Metropolitan Life Insurance Company One Madison Avenue New York, N.Y. 10010 Attention: Treasurer EXHIBIT A G & K SERVICES, INC. 8.46% Senior Note Due November 23, 1997 No. Minneapolis, Minnesota $ November 23, 1994 G & K SERVICES, INC., a corporation duly organized and existing under the laws of the State of Minnesota (hereinafter called the "Company"), for value received, hereby promises to pay to ____________________________, or registered assigns, on November 23, 1997 the principal amount of ______ ________ Dollars (or so much thereof as shall not have been prepaid) in such coin or currency of the United States of America as at the time of payment shall be legal tender for public and private debts, at the principal office of the Company, in Minneapolis, Minnesota, and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) at said office, in like coin or currency, on the unpaid portion of said principal amount from the date hereof, semi-annually on the 23rd day of May and November in each year, commencing on the first such day after the date hereof, at the rate of 8.46% until such unpaid portion of such principal amount shall have become due and payable and at the Default Rate thereafter and, so far as may be lawful, on any overdue installment of interest at the Default Rate. SECTION 1. THE NOTES; TRANSFERS, EXCHANGES, ETC. 1.01. THE NOTES. This Note is one of an authorized issue of senior promissory notes (hereinafter called the "Notes") made by the Company in an aggregate principal amount of $15,000,000, maturing on November 23, 1997, bearing interest payable at the same rate and on the same dates and issued pursuant to the Agreement. 1.02. REGISTRATION, TRANSFER OR EXCHANGE OF NOTES. The Notes are issuable only as registered Notes. The Company will keep at its office or agency maintained as provided in Section 3.01 a register in which the Company shall provide for the registration and registration of transfer of the Notes. The Holder of this Note may, at its option and either in person or by duly authorized attorney, surrender the same at said office or agency for registration of transfer or exchange, accompanied if surrendered for transfer by a written instrument of transfer duly executed by such Holder or attorney. In case such Holder shall so request a transfer or exchange of this Note, the Company shall, at the expense of such Holder, deliver to or upon such Holder's order one or more Notes in the same aggregate unpaid principal amount as this Note, each dated as of the date of, or, if later, the date to which interest has been paid on, this Note, in the principal amount of $100,000 or a multiple of $1,000 in excess thereof, as requested by such Holder (provided that if such aggregate unpaid principal amount is less than $100,000, the Company will deliver one Note in exchange for the Note), and registered in such name or names as shall be specified by such Holder. Every new Note so made and delivered upon transfer or in exchange for this Note shall be in the form of Exhibit A to the Agreement. Prior to due presentation for registration of transfer of this Note, the Company may deem and treat the registered Holder hereof as the absolute owner of this Note for the purpose of receiving payment of or on account of the principal of and premium, if any, and interest on this Note, and for the purpose of any notice, waiver or consent hereunder, and payment of this Note shall be made only to or upon the order in writing of such Holder. 1.03. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTES. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of any such loss, theft or destruction, upon receipt of a bond of indemnity reasonably satisfactory to the Company or, in 2 the case of any such mutilation, upon surrender and cancellation of this Note, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Note, a new Note of like tenor and unpaid principal amount and dated the date of, or, if later, the date to which interest has been paid on, the lost, stolen, destroyed or mutilated Note. In the case of any Holder which is an original purchaser of the Notes or an Affiliate thereof or any other Holder which is an institutional investor having assets of at least $100,000,000, its own unsecured agreement of indemnity shall be deemed satisfactory to the Company. SECTION 2. PREPAYMENT OF NOTES. 2.01. MANDATORY AND OPTIONAL PREPAYMENTS. A. There shall be no mandatory prepayments on the Notes. B. The Company may at its option prepay the Notes then outstanding as a whole or in part at any time and from time to time, in the principal amount of $1,000,000 or in multiples of $500,000 in excess thereof, by giving each Holder written notice, not less than 15 days nor more than 30 days prior to the date fixed therein for such prepayment (an "Optional Prepayment Date"), which notice shall also specify the principal amount of the Notes held by such Holder so to be prepaid. The Computing Holder shall give written notice to the Company, on the fifth Business Day prior to such Optional Prepayment Date, of the amount of the Yield-Maintenance Price of the principal amount of the Notes held by such Computing Holder so to be prepaid, which notice shall set forth in reasonable detail the computation thereof. The Yield-Maintenance Price set forth in such notice shall be binding on the Company and the Computing Holder absent manifest error. The Company shall deliver to each Holder on or before such Optional Prepayment Date a certificate signed by a principal financial officer of the Company setting forth the Yield-Maintenance Price of the principal amount of the Notes held by such Holder so to be prepaid, accompanied by a copy of the written notice by the Computing Holder referred to above (which sets forth the computation of the Yield-Maintenance Price of the 3 Notes held by the Computing Holder). Thereupon, the Company covenants and agrees that it will on such Optional Prepayment Date prepay the principal amount of the Notes held by each Holder so to be prepaid by payment to such Holder of the Yield-Maintenance Price of such principal amount, together with interest accrued on such principal amount to such Optional Prepayment Date. 2.02. PREPAYMENT UPON CHANGE OF CONTROL. The Company covenants and agrees to, promptly after the occurrence of a Change of Control but in any event within 10 days thereafter, give written notice thereof to each Holder. Such notice shall (a) describe in reasonable detail the facts and circumstances giving rise to such Change of Control, (b) offer to prepay, on a date (the "Change of Control Prepayment Date") which shall be not less than 30 days nor more than 60 days after the date of such notice, all of the Notes held by such Holder, (c) request such Holder to notify the Company in writing, not less than 10 days prior to the Change of Control Prepayment Date, of its acceptance or rejection of such offer and (d) inform the Holder that, upon its receipt of such notice by the Company, failure to reject such offer in writing on or before the 10th day prior to the Change of Control Prepayment Date shall be deemed acceptance of such offer. The notice to the Computing Holder shall also set forth the respective names and addresses of, and principal amounts of the Notes held by, the other Holders. The Computing Holder shall give written notice to the Company and the other Holders, on the fifth Business Day prior to the Change of Control Prepayment Date, of the amount of the Yield-Maintenance Price of the Notes held by it and such other Holders, which notice shall set forth in reasonable detail the computation thereof. The Yield-Maintenance Price set forth in such notice shall be binding on the Company and the other Holders absent manifest error, but such notice in itself shall constitute neither an acceptance nor a rejection by the Computing Holder of such prepayment offer. Thereupon, the Company covenants and agrees that it will on the Change of Control Prepayment Date prepay all of the Notes held by each Holder who has accepted the prepayment offer in 4 accordance with this Section, by payment of the Yield-Maintenance Price of such Notes, together with interest accrued on the unpaid principal amount of such Notes to the Change of Control Prepayment Date. 2.03. DEFAULT RATE. From and after the occurrence of an Event of Default and continuing thereafter until such Event of Default shall be remedied to the written satisfaction of the Holders of the Notes, the outstanding principal balance of this Note and, so far as may be lawful, any overdue installment of interest, shall bear interest, until paid in full, at the Default Rate. 2.04. ALLOCATION OF PREPAYMENTS. In the event of any prepayment of less than all of the outstanding Notes, the Company will allocate the principal amount so to be prepaid (but only in units of $1,000) among the Holders of Notes in proportion, as nearly as may be, to the respective principal amounts of such Notes, not theretofore called for prepayment, of which they shall be Holders. Section 4.22 of the Notes to the contrary notwithstanding, for purposes of the allocation of payments made pursuant to Section 2.01B, any Note acquired by the Company, any Subsidiary or any Affiliate pursuant to Section 2.02 or under the circumstances described in clause (d) of Section 4.22 shall be deemed to be outstanding. 2.05. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment of a portion of the principal amount of this Note, the Holder hereof, at its option, may require the Company to execute and deliver at the expense of such Holder, upon surrender of this Note, a new Note registered in the name of such person or persons as may be designated by such Holder for the principal amount of this Note then remaining unpaid, dated as of the date to which interest has been paid on the principal amount of this Note then remaining unpaid, or may present this Note to the Company for notation hereon of the payment of the portion of the principal amount of this Note so prepaid. Every new Note made and delivered pursuant to the provisions of this Section 2.05 shall in all other respects be in the same form and have the same terms as this Note. The Company may, as a 5 condition of payment of all or any of the principal of, premium, if any, and interest on, this Note, require the Holder to present this Note for notation of such payment and, if this Note be paid in full, require the surrender hereof. SECTION 3. AFFIRMATIVE COVENANTS. The Company covenants and agrees that so long as this Note shall be outstanding: 3.01. MAINTENANCE OF COMPANY OFFICE. The Company will maintain an office or agency at Waterford Park, 505 Highway 169 N, Suite 455, Minneapolis, Minnesota 55441-6446 (or such other place in the United States of America as the Company may designate in writing to the Holder hereof), where notices, presentations and demands to or upon the Company in respect of the Notes may be given or made. 3.02. TO KEEP BOOKS. The Company will, and will cause each of its Subsidiaries to, at all times keep proper books of record and account in which full, true and correct entries will be made of its transactions in accordance with generally accepted accounting principles. 3.03. PAYMENT OF TAXES; CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company will, and will cause each of its Subsidiaries to: A. pay and discharge promptly all taxes, assessments and other governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal or mixed or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a Lien upon its property; PROVIDED, HOWEVER, that neither the Company nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if 6 the Company or any such Subsidiary, as the case may be, shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting principles) deemed by it to be adequate with respect thereto; B. do all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises; provided, however, that nothing in this Section 3.03B shall prevent (1) the abandonment or termination of the corporate existence, rights and franchises of any Subsidiary if, in the opinion of the Company, such abandonment or termination is in the interest of the Company and not disadvantageous in any material respect to the holders of the Notes, or (2) a consolidation or merger permitted by Section 4.13; and C. maintain and keep its properties, in good repair, working order and condition in all material respects and from time to time make all needful and proper repairs, renewals and replacements, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 3.04. INSURANCE. The Company will, and will cause each Subsidiary to, keep adequately insured, by financially sound and reputable insurers, all property of a character usually insured by corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds customarily insured against by such corporations, and carry such other insurance as is usually carried by corporations engaged in the same or a similar business similarly situated. SECTION 4. RESTRICTIVE COVENANTS. The Company covenants and agrees that so long as this Note shall be outstanding: 4.01. LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any Restricted 7 Subsidiary to create, assume, incur or otherwise become liable, in each case contingently or otherwise, in respect of any Indebtedness, whether secured or unsecured, other than: A. Indebtedness evidenced by the Notes and the 10.62% Notes; B. Indebtedness of the Company incurred pursuant to the Credit Agreement, not exceeding at any time U.S. $25,000,000; PROVIDED, HOWEVER, that upon the execution and delivery by the parties to the Credit Agreement of a First Amendment to Credit Agreement in form and substance satisfactory to the Holders of the Notes, such amount may be increased to U.S. $50,000,000; C. Indebtedness of Work Wear incurred pursuant to the Credit Agreement not exceeding at any time the lesser of (i) Canadian $30,000,000 and (ii) twenty-five percent (25%) of Consolidated Stockholders' Equity as set forth in the most recently available financial statements of the Company, (quarterly or annual, as the case may be), with conversion to Canadian dollars to be made as of the date of delivery of such financial statements in accordance with Section 1.2 of the Credit Agreement; D. Indebtedness of the Company or any Restricted Subsidiary in existence on September 28, 1990 and listed in EXHIBIT B to the 10.62% Notes, but not including any extensions or renewals thereof; E. Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary on account of borrowings, or Indebtedness of the Company to a Restricted Subsidiary on account of borrowings from that Restricted Subsidiary; F. Subordinated Debt of the Company, or renewals thereof, provided it is subordinated to the prior payment of principal of and interest on the Notes on terms and conditions approved in writing by the Holders of the Notes; and G. Indebtedness of the Company secured by Liens 8 permitted by Section 4.03. 4.02. GUARANTIES. The Company will not, and will not permit any Restricted Subsidiary to, assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other Person, except: A. the Guaranty and the G&K Co. Guaranty; B. the Company Guaranty; C. the endorsement of negotiable instruments by the Company or any Restricted Subsidiary for deposit or collection or similar transactions in the ordinary course of business; and D. guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on September 28, 1990 and listed in EXHIBIT B to the 10.62% Notes. 4.03. LIMITATION ON LIENS. The Company will not, and will not permit any Restricted Subsidiary to (i) create, assume, incur or suffer to exist any Lien upon any property or assets (real or personal, tangible or intangible) of the Company or any Restricted Subsidiary, whether now owned or hereafter acquired, or any income or profits therefrom, (ii) own or acquire or agree to acquire any property or assets (real or personal, tangible or intangible) subject to any Lien, (iii) suffer to exist any Indebtedness of the Company or any Restricted Subsidiary or claims or demands against the Company or any Restricted Subsidiary, which Indebtedness, claims or demands, if unpaid, might (in the hands of the holder or anyone who shall have guaranteed the same or who has any right or obligation to purchase the same), by law or upon bankruptcy or insolvency or otherwise, be given any priority whatsoever over its general creditors or (iv) give its consent to the subordination of any right or claim of the Company or any Restricted Subsidiary to any right or claim of any other Person, 9 EXCLUDING, HOWEVER, from the operation of the foregoing: A. Liens for taxes or assessments or other governmental charges to the extent not required to be paid by Section 3.03A; B. Materialmen's, merchants', carriers', workers', repairers' or other like liens arising in the ordinary course of business to the extent not required to be paid by Section 3.03A; C. Pledges or deposits to secure obligations under worker's compensation laws, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; D. Zoning restrictions, easements, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not in the aggregate have a material adverse effect on the business of the Company or any Restricted Subsidiary; E. Purchase money Liens upon or in property acquired by the Company or any Restricted Subsidiary after the date hereof, or mortgages, liens or security interests existing upon or in such property at the time of acquisition thereof by the Company or any Restricted Subsidiary, provided that: (1) no such Lien extends or shall extend to or cover any property of the Company or any Restricted Subsidiary, as the case may be, other than the property then being acquired and fixed improvements then or thereafter erected thereon; (2) the aggregate principal amount of all Indebtedness of the Company and each Restricted Subsidiary secured by all Liens described in this subsection shall not exceed $1,000,000 at any one time outstanding; and (3) the aggregate principal amount of Indebtedness 10 secured by Liens described in this Subsection E at the time of acquisition of the property subject thereto shall not exceed 100% of the cost of such property or of the then fair market value of such property as determined by the Board of Directors of the Company, whichever shall be less, and the aggregate amount of payments made thereunder in any period of 12 consecutive months will not result in a violation of any other restriction contained in this Agreement; F. Liens on any property of the Company or any Restricted Subsidiary (other than those described in Subsection E) securing any Indebtedness for borrowed money in existence on September 28, 1990 and listed in EXHIBIT B to the 10.62% Notes; and G. Liens arising out of a judgment against the Company or any Restricted Subsidiary for the payment of money not exceeding $500,000 with respect to which an appeal is being prosecuted and a stay of execution pending such appeal has been secured and for which adequate reserves have been established. Without limiting the foregoing, the Company agrees that the Company will not, and will not permit any Restricted Subsidiary to, agree with any other Person not to grant any Lien in its or such Restricted Subsidiary's assets except with the Holders of the 10.62% Notes and the Banks who are parties to the Credit Agreement. 4.04. Reserved. 4.05. CAPITALIZATION RATIO. The Company will maintain as at the end of each of the Company's fiscal quarters, on a consolidated basis, the ratio of (i) all Indebtedness of the Company and its Restricted Subsidiaries arising from borrowed money (including all such Indebtedness created, assumed or guaranteed either directly or indirectly and all obligations secured by Liens upon property on which the Company or a Restricted Subsidiary customarily pays 11 interest), including Consolidated Current Indebtedness, Consolidated Funded Indebtedness and the Current Portion of Consolidated Funded Indebtedness to (ii) the sum of (A) all Indebtedness of the Company and its Restricted Subsidiaries arising from borrowed money (including all such Indebtedness created, assumed or guaranteed either directly or indirectly and all obligations secured by Liens upon property on which the Company or a Restricted Subsidiary customarily pays interest), including Consolidated Current Indebtedness, Consolidated Funded Indebtedness and the Current Portion of Consolidated Funded Indebtedness and (B) the total stockholders' equity of the Company and its Restricted Subsidiaries, determined in accordance with GAAP (as shown and described on its most recently delivered balance sheet), at not more than 0.5 to 1.00. 4.06. CURRENT RATIO. The Company will maintain, at all times the ratio of Consolidated Current Assets to Consolidated Current Liabilities at not less than 1.20 to 1.00. 4.07. MINIMUM TOTAL STOCKHOLDERS' EQUITY. The Company will maintain on a consolidated basis, in each period designated below, its Consolidated Stockholders' Equity, determined in accordance with GAAP (as shown and described on the Company's balance sheet) at an amount not less than the amount set forth opposite such period: PERIOD AMOUNT Date hereof through March 31, 1995 $ 95,000,000 April 1, 1995 through March 31, 1996 $105,000,000 April 1, 1996 through March 31, 1997 $120,000,000 April 1, 1997 through November 23, $135,000,000 1997 4.08. INTEREST COVERAGE RATIO. 12 The Company will maintain as at the end of each of the Company's fiscal quarters, on a consolidated basis, the ratio of (i) Consolidated Earnings Before Interest Expense and Taxes for such quarter and each of the immediately preceding three fiscal quarters to (ii) Consolidated Interest Expense (without deduction of any interest income) for such quarter and each of the immediately preceding three fiscal quarters, at not less than 3.00 to 1.00. 4.09. FUNDS FLOW COVERAGE RATIO. The Company will maintain as at the end of each of the Company's fiscal quarters (based upon such quarter and each of the immediately preceding three fiscal quarters), on a consolidated basis, the ratio of (i) the net income of the Company and its Restricted Subsidiaries, plus depreciation, amortization, non-current deferred income taxes and other non-cash charges for the immediately preceding four fiscal quarters (determined in accordance with GAAP) to (ii) all Indebtedness of the Company and its Restricted Subsidiaries arising from borrowed money (including all such Indebtedness created, assumed or guaranteed either directly or indirectly and obligations secured by Liens upon property upon which the Company or a Restricted Subsidiary customarily pays interest), including Consolidated Current Indebtedness, Consolidated Funded Indebtedness and the Current Portion of Consolidated Funded Indebtedness, for such quarter and each of the immediately preceding three fiscal quarters, at not less than 0.28 to 1.00. 4.10. INVESTMENTS. The Company will not, and will not permit any Restricted Subsidiary to, purchase or hold beneficially any stock or other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, except: A. investments in direct obligations of the United State of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors 13 Corporation or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 and who are rated "A" or better by Standard & Poors Corporation or Moody's Investors' Service; B. any existing investment by the Company or any other Restricted Subsidiary in the stock of any Restricted Subsidiary; C. loans and advances by a Restricted Subsidiary to the Company or another Restricted Subsidiary, except as provided in the proviso to Subsection E below; D. loans and advances by the Company to any Restricted Subsidiary, except as provided in the proviso to Subsection E below; E. any existing loans or investments by the Guarantor or the Company in or to Work Wear; provided, however, that no further loans or advances and no further investments in Work Wear shall be permitted, except for those currently in existence on the date hereof; F. except as provided in the proviso to Subsection E above, investments not otherwise permitted by the foregoing Subsections A through E of this Section 4.10 not at any time exceeding 5% of Consolidated Tangible Net Worth; and G. except as provided in the proviso to Subsection E above, investments not otherwise permitted by the foregoing Subsections A through F of this Section 4.10 to the extent that the amount of such investments is deducted in determining Consolidated Tangible Net Worth for all purposes of the Notes. 4.11. DIVIDENDS. The Company will not declare or pay any dividends (other than dividends payable solely in its own stock) on any class of its stock or make any payment on account of its purchase, 14 redemption, or other retirement of any shares of such stock, or make any distribution in respect thereof, either directly or indirectly during any fiscal year if, after giving effect to such payment, distribution or application, the aggregate amount of such dividends, distributions and application of assets paid or made during such fiscal year would exceed twenty-five percent (25%) of the Net Income of the Company and its Restricted Subsidiaries for the fiscal year immediately preceding the year in which such dividend is paid, or any such distribution or application of assets is made, and the right to make any such payments, distributions and application of assets as herein described shall be non-cumulative from fiscal year to fiscal year. 4.12. SALE OF ASSETS. A. The Company will not, and will not permit any Restricted Subsidiary to, sell, lease, assign, transfer or otherwise dispose of all or a substantial part of its assets (whether in one transaction or in a series of transactions) to any other Person other than in the ordinary course of business, except that (i) a Wholly-owned Restricted Subsidiary of the Company may sell, lease, or transfer all or a substantial part of its assets to the Company or another Wholly-owned Restricted Subsidiary of the Company; (ii) the Company or such other Wholly-owned Restricted Subsidiary, as the case may be, may acquire all or substantially all of the assets of the Subsidiary so to be sold, leased or transferred to it; (iii) the Company may sell all or substantially all of its assets for fair market value to a Wholly-owned Restricted Subsidiary; or (iv) the Company or a Restricted Subsidiary may dispose of assets for fair market value if the assets so disposed of by the Company and its Restricted Subsidiaries during the four immediately preceding fiscal quarters of the Company (x) shall not have an aggregate net book value in excess of 10% of Consolidated Total Assets as of the end of the most recently completed fiscal year of the Company and (y) shall not have contributed in excess of 10% of Consolidated Net Sales or Consolidated Net Income as of the end of the most recently completed fiscal year of the Company and (b) immediately after giving effect to such disposition, there exists no Event of Default or event which with notice or lapse of time or both would become an Event of Default. 15 B. The Company will not, and will not permit any Restricted Subsidiary to, sell, assign, transfer or otherwise dispose of any shares of stock of any Restricted Subsidiary. 4.13. CONSOLIDATION AND MERGER. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other Person; provided, however, that (i) the restrictions contained in this Section shall not apply to or prevent the consolidation or merger of a Restricted Subsidiary with, or a conveyance or transfer of its assets to, the Company (if the Company shall be the continuing or surviving corporation) or another then existing Wholly-owned Restricted Subsidiary of the Company; and (ii) the restrictions contained in this Section shall not apply to or prevent the acquisition of all or substantially all the assets of any other Person as long as immediately after giving effect to such acquisition, there exists no Event of Default or event which notice or lapse of time or both would become an Event of Default. 4.14. SALE AND LEASEBACK. The Company will not, and will not permit any Restricted Subsidiary to, enter into any arrangement, directly or indirectly, with any other Person whereby the Company or such Restricted Subsidiary shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee such property or any part thereof or any other property which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the property being sold or transferred. 4.15. SUBORDINATED DEBT. The Company will not, and will not permit any Restricted Subsidiary to: (i) make any payment of, or acquire, any Subordinated Debt except as expressly permitted by the subordination provision thereof; (ii) give security for all or any part of such Subordinated Debt; (iii) amend or cancel the 16 subordination provisions of such Subordinated Debt; (iv) take or omit to take any action whereby the subordination of such Subordinated Debt or any part thereof to the Notes might be terminated, impaired or adversely affected; or (v) omit to give the Holders of the Notes prompt written notice of any default under any agreement or instrument relating to such Subordinated Debt by reason whereof such Subordinated Debt might become or be declared to be immediately due and payable. 4.16. EXPENDITURES FOR FIXED ASSETS. The Company will not, and will not permit any Restricted Subsidiary to, make any Capital Expenditure, if, after giving effect to such Capital Expenditure, the aggregate amount of Consolidated Capital Expenditures made by the Company and its Restricted Subsidiaries for any fiscal year will exceed the amount set forth below: FISCAL YEAR LIMITATION 1994 U.S. $33,000,000 1995 U.S. $40,000,000 1996 U.S. $33,000,000 1997 U.S. $35,000,000 PROVIDED, HOWEVER, that the restrictions contained in this Section are subject to the further limitations imposed by Section 4.03E if any fixed asset is acquired under a purchase money Lien referred to in that Section. 4.17. RESTRICTIONS ON NATURE OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to engage in any business materially different from the business in which the Company or such Restricted Subsidiary is now engaged. 4.18. HAZARDOUS SUBSTANCES. The Company will not, and will not permit any Subsidiary to, cause or permit any Hazardous Substance to be disposed of in any manner which might result in any material liability to the Company or any Subsidiaries of the Company, on, under, or at any 17 real property which is operated by the Company or any Subsidiary or in which the Company or any Subsidiary has any interest. 4.19. U.S. BUSINESS. The Company will not permit any Subsidiary other than a Restricted Subsidiary to carry on any business in the United States of America. 4.20. Reserved. 4.21. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Restricted Subsidiary to, enter into or be a party to any transaction or agreement with any Affiliate (including, without limitation, the purchase of property from, sale of property to or exchange of property with, or the rendering of any service by or for, or the making of any loan or advance to, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would exist in a comparable arm's length transaction with a Person other than an Affiliate. 4.22. ACQUISITION OF NOTES; NO REISSUANCE. The Company will not, and will not permit any Restricted Subsidiary or Affiliate to directly or indirectly prepay, redeem, retire, purchase or otherwise acquire any Notes, except pursuant to (a) Section 2.01B, (b) Section 2.02 or (c) an offer to all Holders of the Notes to prepay, redeem, retire, purchase or otherwise acquire the Notes held by them on the same terms and conditions and in proportion, as nearly as may be, to the respective unpaid principal amounts of such Notes. Any Note prepaid in full pursuant to Sections 2.01B, 2.02 or clause (c) of this Section 4.22, shall be surrendered to the Company for cancellation and shall not be reissued and no Note shall be issued in lieu of any principal amount of any Note so prepaid. 4.23. ACCOUNTS PAYABLE. 18 The Company will not permit G&K Co. to order goods or services in the name of G&K Co., or pay any trade accounts payable. SECTION 5. CONSENTS, WAIVERS AND AMENDMENTS. Any term, covenant, agreement or condition of the Notes may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by one or more written instruments signed by the Holder or Holders of not less than 66-2/3% in aggregate principal amount of the Notes at the time outstanding; PROVIDED, HOWEVER, that A. no such amendment or waiver shall, without the consent of the holders of all outstanding Notes: (1) change the maturity of the principal of, or any installment of interest on, any of the Notes, or reduce the principal amount thereof or the interest or premium thereon, or subordinate or otherwise modify the terms of, or rights to, payment or prepayment of the principal thereof or payment of interest or premium thereon including, without limitation, extend the time for any such payment; or (2) give to any Note any preference over any other Note; or (3) reduce the percentage of Holders of Notes required to approve any such amendment or effectuate any such waiver; and B. no such waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. Any amendment or waiver pursuant to this Section 5 shall apply equally to all the Holders of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not a notation of such amendment or waiver shall have been made on such Notes. In the case of an amendment or waiver of the character described in Section 5A, the 19 Holder of this Note agrees to make a notation on this Note to indicate that such amendment or waiver has been effected. In the case of any other amendment or waiver, no notation need be made on the Notes at the time outstanding, but any Note executed and delivered thereafter may, at the option of the Company, bear a notation referring to any such amendment or waiver then in effect. For purposes of determining whether the Holders of outstanding Notes of the requisite aggregate principal amount at any time have agreed or consented to any amendment or waiver pursuant to the provisions of this Section 5, any Notes owned by the Company, any Subsidiary or any Affiliate shall be disregarded and deemed not to be outstanding. The Company will not increase the rate of interest on any Note or grant any Holder of any Note any benefit or payment for or in connection with any amendment or waiver in respect to the Notes, whether pursuant to this Section 5 or otherwise, unless such increase in interest or other benefit or payment is extended on the same terms ratably to all other Holders of Notes at the time outstanding. SECTION 6. DEFINITIONS. For all purposes of this Note, except as otherwise expressly provided or unless the context otherwise requires: "ACCELERATION CALCULATION DATE" means the date on which the Yield-Maintenance Price of the Notes accelerated pursuant to Section 7.01 is determined. If the Computing Holder has given the applicable notice to the Company declaring all of the Notes to be due and payable, the Acceleration Calculation Date shall be the date of such notice. Otherwise, it shall be the fifth Business Day after the date of the Computing Holder's receipt from the Company of the applicable notice of acceleration pursuant to Section 7.01. "AFFILIATE" means any Person (other than the Company or any Restricted Subsidiary) which, directly or indirectly, (A) controls or is controlled by or is under common control with the Company or any Subsidiary, or (B) beneficially owns or holds or has the power to direct the voting power of 5% or more of any class of voting stock of the Company or any Subsidiary or (C) has 5% or more of its voting stock (or in the case of a Person which 20 is not a corporation, 5% or more of its equity interest) beneficially owned or held, directly or indirectly, by the Company or any Subsidiary or (D) is a director or officer of the Company or any Subsidiary. For purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" having meanings correlative to the foregoing. "AGREEMENT" means the Loan Agreement dated November 23, 1994 between the Company, Metropolitan Life Insurance Company and certain affiliates, entered into in connection with the issuance of the Notes, as the same may be amended from time to time. "BANKS" means the U.S. Banks and the Canadian Banks specified in the Credit Agreement. "BOARD OF DIRECTORS" means either the board of directors of the Company (or, when so specified or the context so indicates, a Subsidiary) or, if duly authorized to exercise the power of the Board of Directors, any duly authorized committee thereof. "BUSINESS DAY" means any day on which banks are required to be open to carry on their normal business in the State of New York and the State of Minnesota. "CANADIAN BANKS" means the Banks, organized under the laws of Canada or any province or territory thereof, specified in the Credit Agreement as committed to make loans to Work Wear. "CAPITAL EXPENDITURES" for any fiscal year means expenditures made during such fiscal year for fixed or capital assets including, without limitation, the purchase price or construction cost thereof, Capital Lease Obligations and expenditures for maintenance and repairs which would, in accordance with GAAP, be capitalized. "CAPITAL LEASE" means and includes at any time any lease of property, real or personal, which in accordance with GAAP would at such time be required to be capitalized on a balance sheet of the lessee. 21 "CAPITAL LEASE OBLIGATION" means at any time the capitalized amount of the rental commitment under a Capital Lease which in accordance with GAAP would at such time be required to be shown on a balance sheet. "CHANGE OF CONTROL" means any acquisition, known or which should have been known to the Company, subsequent to the Closing Date by any Person, or related Persons constituting a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, of (a) the power to elect, appoint or cause the election or appointment of at least a majority of the members of the board of directors of the Company, through beneficial ownership of the capital stock of the Company or otherwise, or (b) all or substantially all of the properties and assets of the Company; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred if (x) the acquisition of such power or properties and assets is pursuant to a transaction in compliance with the provisions of Section 4.13 and (y) no Person, or related Persons constituting a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, shall have the power to elect, appoint or cause the election or appointment of at least a majority of the members of the board of directors of such successor or transferee. For the purposes of this definition, "ACQUISITION" of the power or properties and assets stated in the preceding sentence means the earlier of (i) the actual possession thereof and (ii) the consummation of any transaction or series of related transactions which, with the passage of time, will give such Person or Persons the actual possession thereof. "COMPANY" means G & K Services, Inc. and, subject to Section 4.13, its successors and assigns. "COMPANY GUARANTY" means the Guaranty, dated as of June 21, 1994, issued by the Company to the Canadian Banks guaranteeing the indebtedness of Work Wear to the Canadian Banks under the Credit Agreement. "COMPUTING HOLDER" means, as of the date of the notice of an Event Risk Occurrence, or prepayment of the Notes pursuant to Section 2.01B, or acceleration pursuant to Section 7.01, as the case may be, the Holder who holds Notes with an aggregate principal amount outstanding higher than that of Notes held by any other Holder. For purposes of such determination, the Notes 22 then held by Metropolitan Life Insurance Company and its subsidiaries shall be aggregated. "CONSOLIDATED AMORTIZATION EXPENSES" on any date means the total of all amortization expense of the Company and its Restricted Subsidiaries as it would be shown on a consolidated income statement of the Company and its Restricted Subsidiaries prepared in accordance with GAAP as of such date. "CONSOLIDATED CAPITAL EXPENDITURES" means the aggregate Capital Expenditures made by the Company and its Restricted Subsidiaries. "CONSOLIDATED CURRENT ASSETS" on any date means the total of all current assets of the Company and its Restricted Subsidiaries which would be shown on a consolidated balance sheet of the Company and its Restricted Subsidiaries prepared in accordance with GAAP as of such date. "CONSOLIDATED CURRENT INDEBTEDNESS" means all Indebtedness of the Company and its Restricted Subsidiaries other than Consolidated Funded Indebtedness. "CONSOLIDATED CURRENT LIABILITIES" on any date means the total of all current liabilities of the Company and its Restricted Subsidiaries which would be shown on a consolidated balance sheet of the Company and its Restricted Subsidiaries prepared in accordance with GAAP as of such date. "CONSOLIDATED DEPRECIATION EXPENSE" on any date means the total of all depreciation expense of the Company and its Restricted Subsidiaries as it would be shown on a consolidated income statement of the Company and its Restricted Subsidiaries prepared in accordance with GAAP as of such date. "CONSOLIDATED EARNINGS BEFORE INTEREST EXPENSE AND TAXES" means, with respect to any period, the sum of (i) Consolidated Net Income for such period, (ii) Consolidated Interest Expense, and (iii) taxes of the Company and its Restricted Subsidiaries in respect of Consolidated Net Income, less (i) any amounts that would be considered other income of the Company and its Restricted Subsidiaries in accordance with GAAP, (ii) any income of Unrestricted Subsidiaries and (iii) interest income. 23 "CONSOLIDATED FREE CASH FLOW" means the sum of (i) Consolidated Earnings Before Interest Expense and Taxes (ii) Consolidated Depreciation Expense (iii) and Consolidated Amortization Expense; less Consolidated Capital Expenditures. "CONSOLIDATED FUNDED INDEBTEDNESS" means, without duplication, (i) all Indebtedness of the Company and its Restricted Subsidiaries which by its terms matures more than one year from the date as of which any determination of Funded Indebtedness is made, (ii) any Indebtedness maturing within one year from such date which is renewable at the option of the obligor beyond one year from such date, including Indebtedness renewable or extendible (whether or not theretofore renewed or extended) under, or payable from the proceeds of other Indebtedness which may be incurred pursuant to the provisions of, any revolving credit agreement or other similar agreement and (iii) Capital Lease Obligations. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Indebtedness of the Company or any of its Restricted Subsidiaries for any period, all amounts which would, in accordance with GAAP, be deducted in computing Consolidated Net Income for such period on account of interest on such Indebtedness, including imputed interest in respect of Capital Lease Obligations and amortization of debt discount and expense. "CONSOLIDATED NET INCOME" means, with respect to any period, the Net Income of the Company and its Restricted Subsidiaries for such period after eliminating intercompany items, all as consolidated and determined in accordance with GAAP. "CONSOLIDATED NET SALES" on any date means the total of all revenues from rentals and services of the Company or any of its Restricted Subsidiaries as it would be shown on a consolidated income statement of the Company and its Restricted Subsidiaries prepared in accordance with GAAP as of such date. "CONSOLIDATED NET WORKING CAPITAL" means, as of any particular time, the excess of Consolidated Current Assets over Consolidated Current Liabilities. "CONSOLIDATED STOCKHOLDERS' EQUITY" means the Company's consolidated stockholders' equity as shown and described as such 24 on the Company's consolidated financial statements delivered to you in accordance with Section 5.1 of the Agreement. "CONSOLIDATED TANGIBLE NET WORTH" means, as of any particular time, the aggregate amount of capital and surplus of the Company and its Restricted Subsidiaries appearing on a consolidated balance sheet of the Company and its Restricted Subsidiaries prepared in accordance with GAAP, less the sum of (i) the cost of any treasury shares included on such balance sheet, (ii) the aggregate of all amounts that appear on the asset side of such balance sheet and are attributable to assets which would be treated as intangibles under GAAP, including, without limitation, all such items as goodwill, trademarks, trade names, brand names, copyrights, patents, patent applications, licenses, restrictive covenants and customer lists, franchises, permits and rights with respect to the foregoing, and unamortized debt discount and expense, (iii) the after-tax interest income received cumulatively from the date of Agreement, (iv) after-tax royalty income from unrestricted Subsidiaries cumulatively from the date of the Agreement, (v) cumulative earnings of Work Wear and its Subsidiaries, and (vi) the amount of investments, if any, made pursuant to Section 4.10F. "CONSOLIDATED TOTAL ASSETS" means, as of any particular time and after eliminating intercompany items, the total of all assets of the Company and its Restricted Subsidiaries appearing on a consolidated balance sheet of the Company and its Restricted Subsidiaries in accordance with GAAP, after the deduction of appropriate depreciation, depletion, obsolescence, amortization, valuation, contingency, and other proper reserves in accordance with GAAP. "CURRENT PORTION OF CONSOLIDATED FUNDED INDEBTEDNESS" means and includes all Consolidated Funded Indebtedness which by its terms matures less than one year from the date as of which any determination of Consolidated Funded Indebtedness is made. "CREDIT AGREEMENT" means the Credit Agreement, dated as of June 21, 1994 between the Company, Work Wear, the U.S. Banks and the Canadian Banks specified therein and Norwest Bank Minnesota, National Association, as agent for the Banks, as amended by the First Amendment to Credit Agreement dated as of November [23], 1994, and as the same may be amended from time to time with the 25 consent of Metropolitan. "DEFAULT RATE" means a per annum rate equal to the sum of (i) the interest rate otherwise in effect with respect to this Note, and (ii) two percent (2%). "ENVIRONMENTAL LAW" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802 ET SEQ., the Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., the Federal Water Pollution Control Act, 33 U.S.C. Section 1252 ET SEQ., the Clean Water Act, 33 U.S.C. Section 1321 ET SEQ., the Clean Air Act, 612 U.S.C. Section 7401 ET SEQ., and any other federal, state, county, municipal, local or other statute, law, ordinance or regulation which may relate to or deal with human health or the environment, all as may be from time to time amended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986, as amended. "ERISA PLAN" means any of the following employee benefit plans (each of which shall also be defined terms for purposes of this Note), BUT ONLY TO THE EXTENT ANY OF THEM IS SUBJECT TO REGULATION UNDER ERISA: (i) PENSION PLAN as defined in ERISA Section 3(2); (ii) DEFINED BENEFIT PLAN means a Pension Plan of the type defined in ERISA Section 3(35); (iii) MULTI-EMPLOYER PLAN means a Pension Plan of the type defined in ERISA Section 3(37); and (iv) WELFARE PLAN as defined in ERISA Section 3(1). "EVENTS OF DEFAULT" has the meaning specified in Section 26 7.01. "G&K CO. GUARANTY means the guaranty of the Guarantor, dated as of September 28, 1990, guaranteeing to Metropolitan Life Insurance Company all of the obligations of the Company under the 10.62% Notes and the 10.62% Loan Agreement. "GAAP" means generally accepted accounting principles as they exist at the date of application thereof. "GUARANTOR" means G&K Services, Co. "GUARANTY" means the Guaranty of the Guarantor, dated as of November 23, 1994, guaranteeing to the Purchasers hereunder and all other Holders of Notes the obligations of the Company under the Notes and the Agreement. "HAZARDOUS SUBSTANCE" means any asbestos, urea-formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical waste, radioactive material, explosives, known carcinogens, petroleum products and by- products and other dangerous, toxic or hazardous pollutants, contaminants, chemicals, materials or substances listed or identified in or regulated by any Environmental Law. "HOLDER" means a Person in whose name a Note is recorded on the list maintained by the Company pursuant to Section 1.02. "INDEBTEDNESS" means and includes, without duplication, (i) all indebtedness or obligations for money borrowed (and any notes payable and drafts accepted representing extensions of credit, whether or not representing indebtedness or obligations for money borrowed), (ii) indebtedness or obligations owed for all or any part of the purchase price of property or other assets or for the cost of property or other assets constructed or of improvements thereto, other than accounts payable included in current liabilities and incurred in respect of property purchased in the ordinary course of business, (iii) indebtedness or obligations secured or evidenced by any Lien existing on property owned by the corporation whose Indebtedness is being determined, whether or not the indebtedness or obligations secured or evidenced thereby shall have been assumed, (iv) Capital Lease Obligations, (v) guaranties and endorsements of (other than endorsements for 27 purposes of collection in the ordinary course of business), and obligations to purchase goods or services for the purpose of supplying funds for the purchase or payment of, or measured by, indebtedness, liabilities or obligations of others (whether or not representing money borrowed) and other contingent obligations in respect of, or to purchase or otherwise acquire or service, indebtedness, liabilities or obligations of other (whether or not representing money borrowed) and (vi) all indebtedness, liabilities or obligations (whether or not representing money borrowed) in effect guaranteed by an agreement, contingent or otherwise, to make a loan, advance or capital contribution to or other investment in the debtor for the purpose of assuring or maintaining a minimum equity, asset base, working capital or other balance sheet condition for any date, or to provide funds for the payment of any liability, dividend or stock liquidation payment, or otherwise to supply funds to or in any manner invest in the debtor for such purpose. The guarantees, endorsements, obligations and agreements referred to in clauses (v) and (vi) of the preceding sentence shall constitute (a) Consolidated Current Indebtedness to the extent the indebtedness, liabilities or obligations of another Person to which they relate are Consolidated Current Indebtedness of such other Person and (b) Consolidated Funded Indebtedness to the extent such related indebtedness, liabilities or obligations of such other Person are Consolidated Funded indebtedness of such other Person. "LIEN" means any mortgage, lien, pledge, security interest, encumbrance or charge of any kind, any conditional sale or other title retention agreement or any Capital Lease. "LITIGATION" means any litigation, proceeding (including without limitation any governmental, administrative or arbitration proceeding), claim, lawsuit and/or investigation or inquiry pending or threatened against or involving the Company or any Restricted Subsidiary or any of their respective businesses or operations. "METROPOLITAN" means Metropolitan Life Insurance Company, a New York corporation. "NET INCOME" means, with respect to any Person for any period, the net income (or the net deficit, if expenses and charges exceed revenues and other proper income credits) of such 28 Person for such period determined in accordance with GAAP; provided, however, that Net Income of the Company or any Restricted Subsidiary shall not include: (1) the Net Income of any Person (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an ownership interest unless such Net Income shall have been actually received by the Company or such Restricted Subsidiary in the form of cash dividends or similar cash distributions; (2) any portion of the Net Income of any Restricted Subsidiary which for any reason shall not be available for payment of dividends to the Company, and the Net Income of any Restricted Subsidiary prior to the date it became a Subsidiary; (3) the Net Income of any Person, any of the stock or other equity interests or assets of which have been acquired by the Company or any Subsidiary, realized by such Person prior to the date of such acquisition; and (4) any gain or loss that is deemed extraordinary in accordance with GAAP. "PERSON" includes an individual, a corporation, a partnership, a joint venture, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. "REPORTABLE EVENT" shall have the meaning given to such term in ERISA. "RESTRICTED SUBSIDIARY" means each and every Subsidiary of the Company and its Subsidiaries, whether now existing or hereafter created or acquired. "SUBORDINATED DEBT" means Indebtedness which is subordinated to the Notes and to the Company's obligations under the Agreement on terms approved in writing by the Holders of the Notes. "SUBSIDIARY" means any corporation at least a majority of whose outstanding stock having ordinary voting power for the 29 election of a majority of the members of the board of directors (or other governing body) of such corporation (other than stock having such power only by reason of the happening of a contingency) shall at the time be owned by the Company and/or one or more Subsidiaries of the Company. "10.62% LOAN AGREEMENT" means the Loan Agreement dated as of September 28, 1990 by and between the Company and Metropolitan, as amended to the date hereof, and as the same may be further amended with the consent of Metropolitan. "10.62% NOTES" means the 10.62% Senior Notes due September 28, 1997 of the Company issued pursuant to the 10.62% Loan Agreement, as amended to the date hereof, and as the same may be further amended with the consent of Metropolitan. "U.S. BANKS" means the Banks, organized under the laws of the United States of America or any sate thereof, specified in the Credit Agreement as committed to make loans to the Company. "WEIGHTED AVERAGE LIFE TO FINAL MATURITY" of any Indebtedness (including the Notes) as of the time of determination thereof means the number of years (rounded to the nearest one-twelfth) obtained by dividing the then Remaining Dollar-Years of such Indebtedness by the then outstanding principal amount of such Indebtedness. For the purposes of this definition, "REMAINING DOLLAR-YEARS" means the sum of all products obtained by multiplying the amount of each then remaining sinking fund, serial maturity or other required repayment, including repayment at final maturity, by the number of years (calculated to the nearest one-twelfth) which will elapse between the time of such determination and the date of such repayment. "WHOLLY-OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary all of the capital stock (other than directors' qualifying shares) of which is owned by the Company and/or one or more Wholly-owned Restricted Subsidiaries. "WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the capital stock other than directors' qualifying shares of which is owned by the Company and/or one or more Wholly-owned Subsidiaries. 30 "WORK WEAR" means Work Wear Corporation of Canada Ltd., an Ontario corporation. "YIELD-MAINTENANCE PRICE" means the higher of either (1) the principal amount of the Notes to be prepaid pursuant to Section 2.01B or Section 2.02 or accelerated pursuant to Section 7.01, as the case may be, or (2) the sum of the respective Payment Values of each prospective interest payment, prospective mandatory prepayment and the principal payment at maturity (after giving effect to prior prepayments of principal) in respect of the principal amount of the Notes so to be prepaid or accelerated, as the case may be (the amount of each such payment being herein referred to as a "PAYMENT"). The Payment Value of each Payment shall be determined by discounting such Payment at the Adjusted Reinvestment Rate, for the period from the scheduled date of such Payment to the applicable date of prepayment or acceleration, as the case may be. The Adjusted Reinvestment Rate is the sum of (a) .50% and (b) the yield which shall be imputed from the yields of those actively traded "On The Run" United States Treasury securities having maturities as close as practicable to the Weighted Average Life to Final Maturity of the Notes so to be prepaid or accelerated, as the case may be. The yields of such United States Treasury securities shall be determined as of 10 A.M. Eastern Time on the Acceleration Calculation Date or on the fifth Business Day prior to the Event Risk Occurrence Prepayment Date or the Optional Prepayment Date, as the case may be. All accounting terms used herein and not expressly defined in this Note shall have the meanings respectively given to them in accordance with generally accepted accounting principles ("GAAP") as they exist at the date of applicability thereof. SECTION 7. DEFAULTS AND REMEDIES. 7.01. EVENTS OF DEFAULT. If one or more of the following events herein called "Events of Default" shall happen for any reason whatsoever and whether such happening shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body and be continuing: 31 A. Default shall be made in the payment of principal of (or premium, if any, on) any Note when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment (including, without limitation, a prepayment as provided in Section 2.01B or 2.02), or by acceleration or otherwise; or B. Default shall be made in the payment of any interest on any Note when such interest becomes due and payable, and such default shall continue for a period of 5 days; or C. Default shall be made in the due observance or performance of any covenant, condition or agreement contained in Sections 4.01 to 4.23 and, in the case of Sections 4.06, 4.19 and 4.21, the continuance of such default for a period of 30 days; or D. Default shall be made in the due observance or performance of any other covenant, condition or agreement contained in this Note or in the Agreement, and such default shall continue for 30 days after written notice thereof, specifying such default and requesting that the same be remedied, shall have been given to the Company by the holder of any Note; or E. The Company or any Restricted Subsidiary shall be adjudicated a bankrupt or insolvent, or shall consent to the appointment of a receiver, trustee, custodian or liquidator of itself or of any part of its property, or shall admit in writing its inability, or shall fail, to pay its debts generally as they come due, or shall make a general assignment for the benefit of creditors, or shall file a voluntary petition in reorganization or arrangement in a proceeding under any bankruptcy law (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against the Company or any Restricted Subsidiary in any such proceeding, or shall, by voluntary petition, answer or consent, seek relief under the provisions of any other now existing or future bankruptcy or other similar law providing for the reorganization or winding up of corporations, or the Company or any Restricted Subsidiary or its directors or majority stockholders shall 32 take action looking to the dissolution or liquidation of the Company or such Restricted Subsidiary; or F. An order, judgment or decree shall be entered by any court of competent jurisdiction appointing, without the consent of the Company or any Restricted Subsidiary, a receiver, trustee, custodian or liquidator of the Company or such Restricted Subsidiary or of any part of its property, and such receiver, trustee, custodian or liquidator shall not have been removed or discharged within 60 days thereafter, or any part of the property of the Company or any Restricted Subsidiary shall, in any judicial proceeding, be sequestered and shall not be returned to the possession of the Company or such Restricted Subsidiary within 60 days thereafter; or G. A petition against the Company or any Restricted Subsidiary in a proceeding under any bankruptcy law (as now or hereafter in effect) shall be filed and shall not be dismissed within 90 days after such filing, or, in case the approval of such petition by a court of competent jurisdiction is required, shall be filed and approved by such a court as properly filed and such approval shall not be withdrawn or the proceeding dismissed within 30 days thereafter, or if, under the provisions of any other similar law providing for reorganization or winding up of corporations and which may apply to the Company or any Restricted Subsidiary, any court of competent jurisdiction shall assume jurisdiction, custody or control of the Company or such Restricted Subsidiary or of any part of its property and such jurisdiction, custody or control shall not be relinquished or terminated within 90 days thereafter; or H. The occurrence of an "Event of Default" as defined under the Credit Agreement or any evidence of Indebtedness issued pursuant thereto. I. The Company or any Restricted Subsidiary shall default in the payment of principal or interest on any other evidence of Indebtedness for money borrowed in excess of $250,000 (either in any one case or in the aggregate) or shall default in the performance or observance of any other term, condition or agreement contained in any such evidence 33 of Indebtedness or in any agreement relating thereto, the effect of which is to cause or permit any holder of such indebtedness or a trustee to cause the same to become or be declared due prior to its stated maturity, unless such default shall have been cured or waived prior to such Indebtedness becoming or being declared to be due and payable prior to its stated maturity; or J. Final judgment for the payment of money in excess of $50,000 shall be rendered against the Company or any Restricted Subsidiary and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; or K. Any representation or warranty made by the Company in the Agreement or by the Guarantor in the Guaranty or the G&K Co. Guaranty or in any writing furnished in connection with the transactions contemplated hereby or thereby shall prove to have been false or incorrect in a material respect as of the date made; or L. The Guarantor shall fail to perform its obligations under, or repudiate the Guaranty or the G&K Co. Guaranty, or shall contest in any manner the validity, binding nature or enforceability of the Guaranty; or M. With respect to any Defined Benefit Plan which the Company or any ERISA Affiliate may have any liability, (a) a contribution failure with respect to such plan shall occur sufficient to give rise to a lien under Section 302(f)(1) of ERISA or (b) steps are undertaken to terminate such plan or such plan is terminated or the Company or such ERISA Affiliate withdraws from or institutes steps to withdraw from such plan or any Reportable Event with respect to such plan shall occur which, in any such case, will have the effect of creating a liability of the Company or any ERISA Affiliate which is material to the Company and its Subsidiaries on a consolidated basis; or N. The occurrence of an "Event of Default" as defined under the 10.62% Notes or the 10.62% Loan Agreement; then (i) upon the occurrence of any Event of Default described in 34 Section 7.01E, 7.01F, or 7.01G (each a "Bankruptcy Default"), all of the Notes shall automatically become immediately due and payable, (ii) upon the occurrence of any Event of Default described in Section 7.01A, 7.01B or 7.01L the Holder of this Note may at any time during its continuance, by written notice to the Company, declare this Note to be due and payable, whereupon this Note shall forthwith mature and become due and payable or (iii) upon the occurrence of any Event of Default other than a Bankruptcy Default, the Holder or Holders of at least 66-2/3% in principal amount of the Notes then outstanding (exclusive of any Notes held by the Company, any Subsidiary or any Affiliate) may at any time during its continuance, by written notice to the Company, declare all of the Notes to be due and payable, whereupon in each case all of the Notes shall forthwith mature and become due and payable. The amount payable upon the occurrence of a Bankruptcy Default shall be the entire unpaid principal amount of the Notes, together with interest accrued thereon to the date of the occurrence of such Bankruptcy Default, and such amount shall be payable without presentment, demand, protest or other requirement of any kind, all of which are expressly waived by the Company. The amount payable upon an acceleration based on any other Event of Default shall be, to the extent permitted by law, the Yield-Maintenance Price of the Notes so accelerated, together with interest accrued on the unpaid principal amount of the Notes so accelerated to the date of acceleration, and such amount shall be payable without presentment, demand, protest or further notice, all of which are expressly waived by the Company. On the Acceleration Calculation Date, the Computing Holder shall give written notice to the Company and all the other Holders of the amount of the Yield-Maintenance Price of the Notes so accelerated, which notice shall set forth in reasonable detail the computation thereof. The Yield-Maintenance Price set forth in such notice shall be binding on the Company and the Holders absent manifest error. 7.02. SUITS FOR ENFORCEMENT. In case an Event of Default shall occur and be continuing, the Holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law or other appropriate 35 proceeding, whether for the specific performance of any covenant contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the Holder of this Note. If any Holder shall demand payment thereof or take any other action in respect of an Event of Default, the Company will forthwith give written notice, as provided in Section 8.02, to the other Holders specifying such action and the nature and status of the Event of Default. 7.03. REMEDIES NOT EXCLUSIVE, ETC. No remedy herein or in the Agreement conferred upon or reserved to any Holder is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Agreement or the Notes or now or hereafter existing at law or in equity. No delay in exercising or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder or under the Agreement shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle any Holder to exercise any remedy reserved to it in the Notes or in the Agreement, it shall not be necessary to give any notice to any person. In the event any provision contained in the Notes should be breached by the Company and thereafter duly waived by the Holders from time to time of the Notes in compliance with Section 5, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver, amendment, release, termination or modification of the Notes shall be established by conduct, custom or course of dealing but solely by an instrument in writing in compliance with Section 5. SECTION 8. MISCELLANEOUS. 8.01. COSTS AND EXPENSES. If any Event of Default shall occur, the Company shall pay to each Holder, to the extent permitted under applicable law, all reasonable out-of-pocket expenses incurred by such Holder in connection with such Event of Default and such further amount as shall be sufficient to cover the cost and expense of collection, 36 including reasonable compensation to the attorneys and counsel of such Holder for any services rendered in that connection, upon the Notes held by such Holder. In addition, the Company hereby agrees to indemnify each Holder and each officer, director, employee and agent thereof (herein individually each called an "Indemnitee" and collectively called the "Indemnitees") from and against any and all losses, claims, damages, reasonable expenses (including, without limitation, reasonable attorneys' fees) and liabilities (all of the foregoing being herein called the "Indemnified Liabilities") incurred by an Indemnitee in connection with any Litigation arising out of, or relating to, the financing provided herein or any Litigation in which it is alleged that any Environmental Law has been breached, except for any portion of such losses, claims, damages, expenses or liabilities incurred solely as a result of the gross negligence or willful misconduct of the applicable Indemnitee or as a result of a breach of the Agreement by the applicable Indemnitee. If and to the extent that the foregoing indemnity may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. All obligations provided for in this Section 8.01 shall survive any termination of the Agreement and payment in full of this Note. 8.02. NOTICES. All notices to be given to any Holder shall be given by registered or certified mail to such Holder at its address designated on the date of such notice on the register or other record maintained by the Company. 8.03. COVENANTS BIND SUCCESSORS AND ASSIGNS. All covenants and agreements in this Note by the Company shall bind its successors and assigns, whether so expressed or not. 8.04. GOVERNING LAW. This Note shall be construed in accordance with and governed by the substantive and procedural laws of the State of Minnesota. 37 [Remainder of Page Intentionally Left Blank] 38 8.05. HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, G & K SERVICES, INC. has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized, and to be dated as of the day and year first above written. G & K SERVICES, INC. By: -------------------------- Name: Title: EXHIBIT B INDEBTEDNESS AND LIENS SECURING INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES EXHIBIT C LIST OF SUBSIDIARIES Jurisdiction of Restricted or Name Incorporation Unrestricted Capitalization - - ---- ---------------- -------------- -------------- G & K Services, Inc. owns 100% of the outstanding shares of stock of all of the foregoing subsidiaries. EXHIBIT D FORM OF GUARANTY WHEREAS G & K Services, Inc., a Minnesota corporation (the "Company") desires to obtain loans from Metropolitan Life Insurance Company and its subsidiary Texas Life Insurance Company (collectively, the "Lenders"), pursuant to the terms and conditions of a Loan Agreement (the "Agreement") dated as of November 23, 1994, between the Company and the Lenders and the Company's 8.46% Senior Notes due November 23, 1997 (the "Notes") issued pursuant thereto; WHEREAS the Lenders, as a condition to making any loans to the Company, have required the execution of this Guaranty; NOW, THEREFORE, the undersigned, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby agrees as follows: 1. The undersigned hereby absolutely and unconditionally guarantees to each of the Lenders and each other Holder of the Notes the full and prompt payment when due of the principal, premium, if any, and interest on the Notes, whether at maturity or earlier by reason of acceleration or otherwise, and the payment and performance of each and every other debt, liability and obligation of every type and description which the Company may now or at any time hereafter owe to the Lenders or each other Holder of the Notes pursuant to the Notes and the Agreement (all such principal, premium, interest, debts, liabilities and obligations being hereinafter collectively referred to as the "Indebtedness"). 2. No act or thing need occur to establish the liability of the undersigned hereunder, and no act or thing, except full payment and discharge of all Indebtedness, shall in any way exonerate the undersigned or modify, reduce, limit or release the liability of the undersigned hereunder. 3. This is an absolute, unconditional and continuing guaranty of payment of the Indebtedness and shall continue to be in force and be binding upon the undersigned whether or not all Indebtedness is paid in full. The undersigned represents and warrants to the Lenders and each other Holder of the Notes that the undersigned has a direct and substantial financial interest in the Company and expects to derive substantial benefits therefrom and from the loans made by the Lenders pursuant to the Agreement and as evidenced by the Notes, and that this Guaranty is given for a corporate purpose. 4. The Lenders and each other Holder of the Notes shall have the right to declare immediately due and payable, and the undersigned will forthwith pay to each Holder of the Notes, the full amount of all Indebtedness, whether due and payable or unmatured, if the undersigned becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the undersigned applies for, consents to, or acquiesces in the appointment of, a trustee, receiver or other custodian for the undersigned or any substantial part of the property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the undersigned or for a substantial part of the property thereof and is not discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding (except the voluntary dissolution, not under any bankruptcy or insolvency law, or of the undersigned), is commenced in respect of the undersigned, and if such case or proceeding is not commenced by the undersigned, it is consented to or acquiesced in by the undersigned or remains for 30 days undismissed; or the undersigned takes any corporate action to authorize, or in furtherance of, any of the foregoing. 5. The liability of the undersigned hereunder shall be without any limitation as to amount, plus accrued interest thereon and all reasonable attorneys' fees, collection costs and enforcement expenses referable thereto. Indebtedness may be created and continued in any amount without affecting or impairing the liability of the undersigned hereunder. 6. The undersigned will not exercise or enforce any right of contribution, reimbursement, recourse or subrogation available 3 to the undersigned against any person liable for payment of the Indebtedness, or as to any collateral security therefor, unless and until all of the Indebtedness shall have been fully paid and discharged. 7. The undersigned will pay or reimburse the Lenders and each other Holder of the Notes for all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lenders and each other Holder of the Notes in connection with the protection, defense or enforcement of this Guaranty in any litigation or bankruptcy or insolvency proceedings. 8. The liability of the undersigned shall not be affected or impaired by any of the following acts or things (which the Lenders and each other Holder of the Notes are expressly authorized to do, omit or suffer from time to time, without notice to or approval by the undersigned): (i) any acceptance of collateral security, guarantors, accommodation parties or sureties for any or all Indebtedness; (ii) any one or more extension or renewals of Indebtedness (whether or not for longer than the original period) or any modification of the interest rates, maturities or other contractual terms applicable to any Indebtedness; (iii) any waiver or indulgence granted to the Company, any delay or lack of diligence in the enforcement of Indebtedness, or any failure to institute proceedings, file a claim, give any required notices or otherwise protect any Indebtedness; (iv) any full or partial release of, settlement with, or agreement not to sue the Company or any other guarantor or other person liable in respect of any Indebtedness; (v) any discharge of any evidence of Indebtedness or the acceptance of any instrument in renewal thereof or substitution therefor; (vi) any failure to obtain collateral security (including rights of setoff) for Indebtedness, or to see to the proper or sufficient creation and perfection thereof, or to establish the priority thereof, or to protect, insure, or enforce any collateral security; or any modification, substitution, discharge, impairment, or loss of any collateral security; (vii) any foreclosure or enforcement of any collateral security; (viii) any transfer of all or any part of the indebtedness or any evidence thereof; (ix) any order of application of any payments or credits upon Indebtedness; (x) any election by the Lenders or any other Holder of the Notes under Section 1111(b)(2) of the United States 4 Bankruptcy Code; (xi) the consolidation or merger of the undersigned or the Company with any Person or the sale of all or any part of the assets or stock of the undersigned or the Company to any person; (xii) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to the Company, the undersigned or any other person; and (xiii) any other event, circumstance or condition whatsoever which might otherwise constitute a legal or equitable discharge or defense of a guarantor. 9. The undersigned waives any and all defenses, claims and discharges of the Company, or any other obligor, pertaining to Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the undersigned will not assert, plead or enforce against the Lenders or any other Holder of the Notes any defense of waiver, release, discharge in bankruptcy, statute of limitations, res judicata, statute of frauds, anti- deficiency statute, fraud, incapacity, usury, illegality or unenforceability which may be available to the Company or any other person liable in respect of any Indebtedness, or any setoff available against the Lenders or any other Holder of the Notes to the Company or any such other person, whether or not on account of a related transaction. The undersigned expressly agrees that the undersigned shall be and remain liable for any deficiency remaining after foreclosure of any mortgage or security interest securing Indebtedness, whether or not the liability of the Company or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. 10. The undersigned waives presentment, demand for payment, notice of dishonor or nonpayment, and protest of any instrument evidencing Indebtedness. Neither the Lenders nor any other Holder of the Notes shall not be required first to resort for payment of the Indebtedness to the Company or other persons or their properties, or first to enforce, realize upon or exhaust any collateral security for the Indebtedness, before enforcing this Guaranty. 11. If any payment applied by any Lender or any other Holder of the Notes to the Indebtedness is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or 5 reorganization of the Company or any other obligor), the Indebtedness to which such payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence, notwithstanding such application, and this Guaranty shall be enforceable as to such Indebtedness as fully as if such application had never been made. 12. The liability of the undersigned under this Guaranty is in addition to and shall be cumulative with all other liabilities of the undersigned to the Lenders and each other Holder of the Notes as guarantor or otherwise, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other instrument or agreement evidencing or creating such other liability specifically provides to the contrary. 13. The undersigned represents and warrants to each Lender and each other Holder of the Notes that (i) the undersigned is a corporation duly organized and existing in good standing and has full power and authority to make and deliver this Guaranty; (ii) the execution, delivery and performance of this Guaranty by the undersigned have been fully authorized by all necessary action of its directors and shareholders and do not and will not violate the provisions of, or constitute a default under, any presently applicable law or its articles of incorporation or by-laws or any agreement presently binding on it; (iii) this Guaranty has been duly executed and delivered by the authorized officers of the undersigned and constitutes its lawful, binding and legally enforceable obligation (subject to the United State Bankruptcy Code and other similar laws generally affecting the enforcement of creditors' rights); and (iv) the authorization, execution, delivery and performance of this Guaranty do not require notification to, registration with, or consent or approval by, any federal, state or local regulatory body or administrative agency. 14. This Guaranty shall be effective upon delivery to the Lenders, without further act, condition or acceptance by the Lenders, shall be binding upon the undersigned and the successors and assigns of the undersigned and shall inure to the benefit of the Lenders and their respective successors and assigns including, without limitation, any subsequent Holder of the Notes. Any invalidity or unenforceability of any provision or 6 application of this Guaranty shall not affect other lawful provisions and application hereof, and to this end the provisions of this Guaranty are declared to be severable. This Guaranty may not be waived, modified, amended, terminated, released or otherwise changed except by a writing signed by the undersigned and each Holder of the Notes. This Guaranty shall be governed by the laws of the State of Minnesota. The undersigned waives notice of the Lenders' acceptance hereof and waives the right to a trial by jury in any action based on or pertaining to this Guaranty. 15. Capitalized terms not defined herein shall have the meanings assigned to them in the Loan Agreement. IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of this 23rd day of November, 1994. G & K SERVICES, CO. By: ------------------------- Name: Title: 7 EXHIBIT E Litigation EXHIBIT F Form of Opinion of Maslon Edelman Borman & Brand EXHIBIT G ERISA EX-13.1 9 EXHIBIT 13.1 PORTIONS OF ANNUAL REPORT ELEVEN-YEAR SUMMARY
- - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 1990 1989 - - ---------------------------------------------------------------------------------------------------------------------- PER SHARE Revenues $ 14.96 $ 12.88 $ 11.07 $ 10.25 $ 9.62 $ 8.72 $ 5.89 $ 5.40 Assets 13.81 12.43 10.08 9.95 9.89 10.19 5.07 4.22 Equity 6.89 5.82 4.96 4.44 4.07 3.80 3.47 3.03 Earnings 1.11 0.90 0.73 0.55 0.42 0.38 0.51 0.41 Dividends 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.06 Price: High 32.00 19.50 17.00 13.00 13.33 11.00 10.75 8.11 Low 18.75 13.00 11.69 8.83 8.67 6.08 7.08 6.44 Avg. P/E 22.8 18.1 19.7 19.9 25.9 22.2 17.6 17.7 - - ----------------------------------------------------------------------------------------------------------------- INCOME DATA (000'S) Revenues $305,414 $262,481 $225,229 $207,904 $194,716 $176,233 $118,656 $108,817 Operating Income 45,244 36,103 29,751 24,994 21,539 16,632 16,875 12,996 Net Other Inc. and Exp. (8,028) (5,839) (4,433) (7,227) (7,422) (7,541) (412) 410 Pretax Income 37,216 30,264 25,318 19,113 14,117 12,326 16,463 13,406 Income Taxes 14,496 11,978 10,527 7,990 5,535 5,255 6,255 5,094 Net Income 22,720 18,286 14,791 11,123 8,582 7,771 10,208 8,312 Shares Outstanding 20,413 20,378 20,338 20,290 20,238 20,202 20,151 20,162 - - ----------------------------------------------------------------------------------------------------------------- BALANCE SHEET (000'S) Current Assets $ 99,650 $ 87,319 $ 63,530 $ 58,982 $ 52,302 $ 56,728 $33,503 $31,999 Net Fixed Assets 132,898 114,450 89,584 85,875 85,435 81,862 57,210 42,270 Total Assets 281,989 253,333 205,064 201,822 200,084 205,806 102,088 85,181 Current Liabilities 49,813 42,450 34,179 36,388 33,855 28,703 17,120 15,569 Long-term Debt 75,143 76,519 54,676 59,803 68,421 85,942 9,088 3,766 Stockholders' Equity 140,647 118,529 100,857 90,158 82,439 76,835 69,887 61,015 - - ----------------------------------------------------------------------------------------------------------------- FUNDS FLOW DATA (000'S) From Operating Activities $ 41,317 $ 21,733 $ 28,054 $ 23,090 $ 25,112 $ 17,833 $ 15,929 $ 15,537 Used for Investment (36,237) (45,345) (17,541) (13,072) (15,257) (94,063) (21,242) (14,851) From Financing (1,243) 21,526 (8,556) (5,961) (8,616) 78,351 5,309 437 Change, Cash and Equivalent 3,837 (2,086) 546 2,704 (111) 774 (1,348) (131) - - ----------------------------------------------------------------------------------------------------------------- RATIO ANALYSIS (%) Operating Margin 14.81% 13.75% 13.21% 12.02% 11.06% 9.44% 14.22% 11.94% Pretax Margin 12.19 11.53 11.24 9.19 7.25 6.99 13.87 12.32 Effective Tax Rate 38.95 39.58 41.58 41.80 39.21 42.63 37.99 38.00 Net Margin 7.44 6.97 6.57 5.35 4.41 4.41 8.60 7.64 Return on Assets(1) 8.97 8.92 7.33 5.56 4.17 7.61 11.98 10.69 Return on Average Equity 17.53 16.67 15.49 12.89 10.78 10.59 15.60 14.45 - - ----------------------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------- 1988 1987 1986 - - ---------------------------------------------------------------- PER SHARE Revenues $ 4.78 $ 5.05 $ 4.54 Assets 3.95 3.63 3.40 Equity 2.74 1.73 1.46 Earnings 0.37 0.30 0.25 Dividends 0.06 0.06 0.06 Price: High 7.78 6.15 3.56 Low 4.00 3.00 2.52 Avg. P/E 15.7 15.4 12.3 - - ---------------------------------------------------------------- INCOME DATA (000'S) Revenues $ 94,007 $ 80,755 $ 71,586 Operating Income 11,512 9,950 8,060 Net Other Inc. and Exp. 398 (640) (627) Pretax Income 11,910 9,310 7,433 Income Taxes 4,547 4,569 3,531 Net Income 7,363 4,741 3,902 Shares Outstanding 19,676 16,002 15,766 - - ---------------------------------------------------------------- BALANCE SHEET (000'S) Current Assets $ 35,286 $ 23,642 $ 22,848 Net Fixed Assets 33,894 28,941 26,321 Total Assets 77,758 58,151 53,559 Current Liabilities 15,539 12,376 12,809 Long-term Debt 3,414 13,809 14,332 Stockholders' Equity 54,009 27,618 22,966 - - ---------------------------------------------------------------- FUNDS FLOW DATA (000'S) From Operating Activities $ 12,438 $ 9,674 $ 9,327 Used for Investment (19,543) (8,425) (11,988) From Financing 9,497 (1,054) 4,326 Change, Cash and Equivalent 1,138 (739) 793 - - ---------------------------------------------------------------- RATIO ANALYSIS (%) Operating Margin 12.25% 12.32% 11.26 Pretax Margin 12.67 11.53 10.38 Effective Tax Rate 38.18 49.08 47.50 Net Margin 7.83 5.87 5.45 Return on Assets(1) 12.66 8.85 8.93 Return on Average Equity 18.04 18.75 18.29 - - ---------------------------------------------------------------- - - ----------------------------------------------------------------
TEN-YEAR HIGHLIGHTS Compound Annual Revenue Growth 15.6% Compound Annual Net Income Growth 19.3% Compound Annual Returns to Shareholders 24.1% (1) BASED ON BEGINNING AMOUNTS 5 FINANCIAL REVIEW PERFORMANCE AGAINST LONG-TERM FINANCIAL GOALS
REVIEW OF GOALS VERSUS ACTUAL PERFORMANCE - - ------------------------------------------------------------------------------------------- Financial Fiscal 5-Year 10-Year Goal 1996 Results Results - - ------------------------------------------------------------------------------------------- REVENUE GROWTH (1) 15% 16.4% 11.6% 15.6% PRETAX MARGINS 12% 12.2% 10.3% 10.9% NET INCOME GROWTH (1) 15% 24.2% 23.9% 19.3% RETURN ON AVERAGE EQUITY 18% 17.5% 14.7% 15.1% - - -------------------------------------------------------------------------------------------
(1) COMPOUND ANNUAL GROWTH RATE G&K, one of North America's leading suppliers of corporate work uniform programs, has long established performance goals to measure its results. In fiscal 1996, G&K exceeded three of these goals and moved much closer to the fourth, its return on average equity target. Effective implementation of business strategies continues to generate consistent growth for G&K Services, which registered a 16.4% increase in fiscal 1996 revenues and a compounded rental revenue growth rate exceeding 15% since going public in 1969. Significantly, G&K's growth over the last two years has exceeded 15% without the benefit of acquisitions. This internal growth rate has put G&K at the top of the list among its major competitors. G&K has exceeded its 15% revenue growth target in each of the past two years and over the ten-year period ended with fiscal 1996. These rates of growth surpass the uniform leasing industry in general, which has been expanding at a 5-6% annual rate. Increasing numbers of companies are using uniform programs to enhance their image and to protect products or employees in working environments. Beyond general industry growth, G&K has benefited from the markets' strong reception of G&K's specialized systems, the opening of facilities in 14 markets since 1990, and the cultivation of specialized niche markets such as cleanroom garment processing. G&K's pretax margin exceeded the Company's 12% goal in fiscal 1996. The strong improvement in pretax margins during the past few years reflects the Company's continued superior results in the U.S. combined with four consecutive years of strong operating margin improvement in Canada. Net income growth exceeded our 15% goal by a wide margin, with fiscal 1996 growth of 24.2% and a five-year compounded growth rate of 23.9%. Revenue growth, cost control and the improvement of margins in Canada all contributed to the increase in net income. Substantial growth in net income continues to improve the return on average stockholders' equity. G&K moved very close to its 18% goal, reaching 17.5% in fiscal 1996. FISCAL 1996 IN REVIEW Total revenues for fiscal 1996 rose 16.4% to a record $305.4 million from $262.5 million in fiscal 1995. Rental revenue growth accounted for the entire increase, rising 17.2%. U.S. and Canadian annual rental revenues increased 18.0% and 12.8%, respectively. The improvement is attributable to increased new account sales, expansion of existing accounts, selective price increases and new market entries. During fiscal 1996, total direct sales to outside customers decreased slightly from the prior year as a greater portion of products produced by our manufacturing division were used by G&K to service rental customers. [EDGAR REPRESENTATION OF PLOT POINTS FOR BAR CHARTS] REVENUES ($ IN MILLIONS) 1992.................... 195 1993.................... 208 1994.................... 225 1995.................... 262 1996.................... 305 PRETAX MARGIN (PERCENT) 1992.................... 7.3 1993.................... 9.2 1994.................... 11.2 1995.................... 11.5 1996.................... 12.2 NET INCOME ($ IN MILLIONS) 1992.................... 9 1993.................... 11 1994.................... 15 1995.................... 18 1996.................... 23 RETURN ON AVERAGE EQUITY ($ IN MILLIONS) 1992.................... 11 1993.................... 13 1994.................... 16 1995.................... 17 1996.................... 18 14 Cost of rental operations continues to grow slower than rental revenues, increasing 14.1% while rental revenues rose 17.2%. As a percentage of rental revenues, expenses declined to 55.5% for 1996 compared to 57.0% in fiscal 1995. This decrease related primarily to better utilization of rental merchandise and improved plant efficiency, in both the U.S. and Canada. Cost of Direct Sales decreased 6.0% in 1996, compared to fiscal 1995. As a percentage of revenues, costs improved to 79.0% compared with 81.6% last year, primarily from operational improvements at our manufacturing division. Selling and administrative expenses increased 19.4% to $67.9 million. As a percentage of revenues, selling and administrative expenses increased to 22.2% from 21.7% in fiscal 1995. These expenses grew at a rate greater than the revenue increase primarily from costs associated with new market startups, and additional marketing, training, and data processing costs for supporting operational growth and improvement. Operating income increased 25.3% to $45.2 million. Operating margins continued the trend of the last four years improving to 14.8% from 13.8% in fiscal 1995. U.S. operating margins improved from 13.9% in fiscal 1995 to 14.9% despite larger losses from the growing group of start-up locations begun during the past six years. Operating income benefited from another significant improvement in the Canadian operating margin for the fourth consecutive year. Net income rose 24.2% to a record $22.7 million, or $1.11 per share, from $18.3 million, or $0.90 per share, in fiscal 1995. Net income growth was affected by lower effective income tax rates, but higher interest expense due to larger average borrowing levels when compared to fiscal 1995. Net income margins increased for the fourth consecutive year, reaching 7.4% compared with 7.0% last year and 6.6% in fiscal 1994. FISCAL 1995 COMPARED WITH FISCAL 1994 Total revenues increased 16.5% to $262.5 million. Excluding the contribution by the manufacturing division acquired in September 1994, revenues rose by 15.3%, over 50% greater than the comparable increase of 10% in fiscal 1994 over 1993. U.S. operations posted internal growth of 17.2% in revenues, owing to an increase in the dollar value of new accounts sold, stronger account retention and modest price increases. Including the sales to outside customers by the manufacturing unit, U.S. revenues rose 18.8%. Canadian revenues rose 10.8 % in local currency, or 7.5% in U.S. dollars, as the dollar value of new accounts written grew and account retention improved. Cost of Rental Operations increased 13.2% in fiscal 1995, less than the 15.9% increase in rental revenues. As a percentage of rental revenues, expenses declined to 57.0% from 58.3% in fiscal 1994. This decline resulted primarily from improved rental merchandise utilization. Cost of Direct Sales more than doubled reflecting costs associated with the sales of clothing sold by the manufacturing division acquired during fiscal 1995. Selling and administrative costs remained at a constant 21.7% of revenues in both 1995 and 1994. Selling costs increased to fund higher sales to new customers written in [EDGAR REPRESENTATION OF PLOT POINTS FOR BAR CHARTS] CASH FLOWS FROM OPERATING ACTIVITIES ($ IN MILLIONS) 1992.................... 25 1993.................... 23 1994.................... 28 1995.................... 22 1996.................... 41 STOCKHOLDERS' EQUITY ($ IN MILLIONS) 1992.................... 82 1993.................... 90 1994.................... 101 1995.................... 119 1996.................... 141 DEBT AS A PERCENTAGE OF TOTAL CAPITALIZATION (PERCENT) 1992.................... 48.8 1993.................... 43.8 1994.................... 37.4 1995.................... 41.5 1996.................... 37.4 15 1995 and from costs associated with three startup locations. Selling cost increases were offset as administrative costs expanded at a rate slower than revenues. Net income rose 23.6% to $18.3 million, or $0.90 per share, from $14.8 million, or $0.73 per share, in fiscal 1994. The growth was greater than operating income as higher interest expense was more than offset by lower effective income tax rates. Net margin increased for the third consecutive year, rising to 7.0% from 6.6% in fiscal 1994. LIQUIDITY AND FINANCIAL RESOURCES Cash flow from operating activities in fiscal 1996 rose 90.1% to $41.3 million. The improvement resulted from the gain in net income and from an increase in inventories that was significantly less than in fiscal 1995. The 1995 new inventory growth related to the purchase and operations of the garment manufacturing division acquired in September 1994. Working capital at June 29,1996 was $49.8 million, up 11.1% from $44.9 million at July 1, 1995. The increase reflects higher levels of receivables and rental merchandise in-service inventories to accommodate the 1996 growth in revenues. Long-term debt, including current maturities was $84.2 million at June 29, 1996, a slight increase from $84.0 million at July 1, 1995. Cash flow from operations plus the small increase in long-term debt were utilized to fund capital expenditures of $36.2 million and dividends of $1.4 million. In fiscal 1997 estimated capital expenditures are anticipated to be approximately $44 million. The Company's ratio of debt to total capitalization decreased to 37.4% from 41.5% at the end of fiscal 1995, returning to a ratio similar to the end of fiscal 1994. The Company has a $74 million existing line of credit, of which 67% was outstanding at the end of fiscal 1996. Stockholders' equity grew 18.8% to a record $140.6 million in fiscal 1996, compared with $118.5 million at the end of 1995. G&K's return on average equity increased to 17.5% compared with 16.7% and 15.5% respectively, for fiscal 1995 and fiscal 1994. Management believes that cash flows generated from operations and existing lines of credit should provide adequate funding for its current businesses and expansion program. CONSOLIDATED STATEMENTS OF INCOME G&K SERVICES, INC. AND SUBSIDIARIES
---------------------------------------- FISCAL YEARS ENDED JUNE 29, July 1, July 3, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 - - ------------------------------------------------------------------------------------------- REVENUES Rental operations $295,188 $251,948 $217,330 Direct sales 10,226 10,533 7,899 - - ------------------------------------------------------------------------------------------- Total revenues 305,414 262,481 225,229 - - ------------------------------------------------------------------------------------------- EXPENSES Cost of rental operations 163,752 143,499 126,767 Cost of direct sales 8,079 8,592 4,063 Selling and administrative 67,934 56,909 48,886 Depreciation 17,906 14,703 12,631 Amortization of intangibles 2,499 2,675 3,131 - - ------------------------------------------------------------------------------------------- Total operating expenses 260,170 226,378 195,478 - - ------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 45,244 36,103 29,751 Interest expense 7,964 7,076 5,814 Other (income) expense, net 64 (1,237) (1,381) - - ------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 37,216 30,264 25,318 Provision for income taxes 14,496 11,978 10,527 - - ------------------------------------------------------------------------------------------- NET INCOME $ 22,720 $ 18,286 $ 14,791 Weighted average number of shares outstanding 20,413 20,378 20,338 - - ------------------------------------------------------------------------------------------- Net Income Per Share $ 1.11 $ 0.90 $ 0.73 - - -------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 16 CONSOLIDATED BALANCE SHEETS G&K SERVICES, INC. AND SUBSIDIARIES JUNE 29, July 1, ASSETS (IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995 - - -------------------------------------------------------------------------------- CURRENT ASSETS Cash $ 6,882 $ 3,045 Accounts receivable, less allowance for doubtful accounts of $1,276 and $824 36,696 32,674 Inventories 52,077 48,547 Prepaid expenses 3,995 3,053 - - -------------------------------------------------------------------------------- Total current assets 99,650 87,319 - - -------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 19,326 16,159 Buildings and improvements 61,756 50,852 Machinery and equipment 118,955 106,365 Automobiles and trucks 25,028 20,713 Less accumulated depreciation (92,167) (79,638) - - -------------------------------------------------------------------------------- Total property, plant and equipment 132,898 114,451 - - -------------------------------------------------------------------------------- OTHER ASSETS Goodwill, net 34,642 35,577 Restrictive covenants and customer lists, net 6,860 8,366 Other, principally executive retirement plan assets 7,939 7,620 - - -------------------------------------------------------------------------------- Total other assets 49,441 51,563 - - -------------------------------------------------------------------------------- $281,989 $253,333 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - - -------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 13,068 $ 12,086 Accrued expenses Salaries and employee benefits 10,265 6,999 Other 7,151 5,773 Reserve for income taxes 10,280 10,146 Current maturities of long-term debt 9,049 7,445 Total current liabilities 49,813 42,449 - - -------------------------------------------------------------------------------- LONG-TERM DEBT, NET OF CURRENT MATURITIES 75,143 76,519 DEFERRED INCOME TAXES 10,093 10,582 OTHER NONCURRENT LIABILITIES 6,293 5,254 - - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTES 5, 6 AND 7) STOCKHOLDERS' EQUITY Common stock, $.50 par Class A, 50,000,000 shares authorized, 18,915,725 and 18,543,360 shares issued and outstanding 9,458 9,272 Class B, 10,000,000 shares authorized, 1,521,121 and 1,865,089 shares issued and outstanding 761 933 Additional paid-in capital 19,758 19,228 Retained earnings 116,465 95,174 Foreign Currency translation adjustment (5,795) (6,078) - - -------------------------------------------------------------------------------- Total stockholders' equity 140,647 118,529 - - -------------------------------------------------------------------------------- $281,989 $253,333 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 17 CONSOLIDATED STATEMENTS OF CASH FLOWS G&K SERVICES, INC. AND SUBSIDIARIES
---------------------------------------- FISCAL YEARS ENDED JUNE 29, July 1, July 2, (IN THOUSANDS) 1996 1995 1994 - - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 22,720 $ 18,286 $ 14,791 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 20,405 17,378 15,762 Noncurrent deferred income taxes (495) (436) (998) Changes in current operating items Accounts receivable and prepaid expenses (4,903) (5,322) (2,071) Inventories (3,469) (15,671) (2,977) Accounts payable and other current liabilities 5,718 6,328 3,012 Other, net 1,341 1,170 535 - - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 41,317 21,733 28,054 - - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions, net (36,237) (36,545) (17,541) Acquisition of business assets - (8,800) - - - ------------------------------------------------------------------------------------------------ Net cash used for investing activities (36,237) (45,345) (17,541) - - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 7,552 28,656 1,730 Repayments of long-term debt (7,445) (5,073) (10,286) Cash dividends paid (1,429) (1,427) (1,411) Escrow receivable - (653) - Sale of common stock 79 23 - - - ------------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities (1,243) 21,526 (9,967) - - ------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH 3,837 (2,086) 546 - - ------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------ CASH: Beginning of year 3,045 5,131 4,585 End of year $ 6,882 $ 3,045 $ 5,131 - - ------------------------------------------------------------------------------------------------ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 8,162 $ 6,917 $ 5,683 Income taxes $ 14,415 $ 10,578 $ 9,878 - - ------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY G&K SERVICES, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------ COMMON STOCK Class A Class B ------------------------------------------------------ Foreign Additional Currency Number of Number of Paid-In Retained Translation Shares Amount Shares Amount Capital Earnings Adjustment - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JULY 3, 1993 12,305 $6,152 1,243 $ 622 $22,022 $ 64,928 ($3,566) - - ------------------------------------------------------------------------------------------------------------------------------------ Net income - - - - - 14,791 - Cash dividend $.025 per share, pre-split - - - - - (339) - Common stock split of 3-for-2 6,152 3,076 622 311 (3,387) - - Cash dividend $.0525 per share - - - - - (1,072) - Sale of restricted stock to employees, net 41 21 - - 218 - - Excess of additional pension liability over unrecognized prior service cost related to SERP - - - - - (71) - Amortization of deferred compensation - - - - - - - Foreign Currency translation adjustment - - - - - - (2,849) - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JULY 2, 1994 18,498 9,249 1,865 933 18,853 78,237 (6,415) - - ------------------------------------------------------------------------------------------------------------------------------------ Net income - - - - - 18,286 - Cash dividend $.07 per share - - - - - (1,427) - Sale of restricted stock to employees, net 45 23 - - 375 - - Decrease in excess of additional pension liability over unrecognized prior service cost related to SERP - - - - - 78 - Amortization of deferred compensation - - - - - - - Foreign Currency translation adjustment - - - - - - 337 - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JULY 1, 1995 18,543 9,272 1,865 933 19,228 95,174 (6,078) - - ------------------------------------------------------------------------------------------------------------------------------------ Net income - - - - - 22,720 - Cash dividend $.07 per share - - - - - (1,429) - Sale of restricted stock to employees, net 22 11 - - 465 - - Stock options exercised by employees 7 3 - - 65 - - B Stock converted to A Stock 344 172 (344) (172) - - - Amortization of deferred compensation - - - - - - - Foreign Currency translation adjustment - - - - - - 283 - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE JUNE 29, 1996 18,916 $9,458 1,521 $ 761 $19,758 $116,465 ($5,795) - - ------------------------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS G&K SERVICES, INC. AND SUBSIDIARIES (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA AND SHARE DATA) - - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of G&K Services, Inc. (the Company) and its subsidiaries, all of which are wholly owned. Significant intercompany balances and transactions have been eliminated in consolidation. INVENTORY - New goods inventory is stated at the lower of first-in, first-out cost or market. Rental merchandise in service is stated at cost less amortization, which is not in excess of market. The components of inventory as of June 29, 1996, and July 1, 1995, are as follows: 1996 1995 - - ------------------------------------------------------- New goods $16,941 $17,561 Rental merchandise in service 35,136 30,986 - - ------------------------------------------------------- $52,077 $48,547 - - ------------------------------------------------------- - - ------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT - The Company provides for depreciation on accelerated methods for income tax purposes and principally on the straight-line method for financial reporting purposes over the estimated useful lives of property, plant and equipment. Costs of significant additions, renewals and betterments, including outside 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. PER SHARE DATA - Net income per share is based on the weighted average number of shares of common stock outstanding during each year. INTANGIBLE ASSETS ARISING FROM ACQUISITIONS - The cost of investment in subsidiaries and divisions in excess of underlying net assets (goodwill) is amortized over periods ranging from 15 to 40 years. As of June 29, 1996, and July 1, 1995, accumulated amortization of goodwill was $7,345 and $6,369. Restrictive covenants, stated at cost less accumulated amortization balances of $9,295 and $8,001 as of June 29, 1996, and July 1, 1995, are being amortized over the terms of the respective agreements. Customer lists are amortized over the average life of an account. EXECUTIVE RETIREMENT PLAN ASSETS - The Company has segregated assets consisting primarily of common stock 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 to fund executive retirement plans. See Note 5. FOREIGN CURRENCY - For the Company's foreign operations, assets and liabilities 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. 20 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. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. RECLASSIFICATIONS - Certain prior period amounts have been reclassified to conform to the 1996 presentation. These reclassifications have no effect on net income or total stockholders' equity as previously reported. RECENT ACCOUNTING PRONOUNCEMENT - The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective July 2, 1995. This standard establishes accounting standards for the recognition and measurement of impairment of long-lived assets, certain identifiable intangibles, and goodwill either to be held or disposed of. The adoption did not have a material impact on the financial position or results of operations of the Company. - - -------------------------------------------------------------------------------- 2. LONG-TERM DEBT Debt as of June 29, 1996, and July 1, 1995, includes the following: 1996 1995 - - ----------------------------------------------------------------------- Borrowings under revolving credit agreements (Revolvers) with interest approximating prime rate, unsecured (6.75% to 8.25% at June 29, 1996 and 8.75% to 9.0% at July 1, 1995) $49,409 $41,735 - - ----------------------------------------------------------------------- Senior notes payable to insurance company at rates ranging from 8.46% to 10.62% due in varying amounts through 1998, interest payable semi-annually, unsecured 34,000 40,197 - - ----------------------------------------------------------------------- Industrial development revenue bond repaid in 1996 - 960 - - ----------------------------------------------------------------------- Restrictive covenants and other debt due in varying amounts through 2007 783 1,072 - - ----------------------------------------------------------------------- 84,192 83,964 - - ----------------------------------------------------------------------- Less current maturities (9,049) (7,445) - - ----------------------------------------------------------------------- Total long-term debt $76,143 $76,519 - - ----------------------------------------------------------------------- - - ----------------------------------------------------------------------- Under the terms of the Revolvers, as of June 29, 1996, the Company may borrow up to U.S. $50 million and Canadian (C.) $32 million. The Canadian amount decreases by C. $375 per quarter. All borrowings under the Revolvers are due in September 1998. The Revolvers also allow the Company to issue up to U.S. $10 million, within the U.S. $50 million borrowing limit, in standby letters of credit. As of June 29, 1996, there were approximately $560 in outstanding letters of credit. Aggregate maturities of long-term debt for each of the five years subsequent to June 29, 1996, excluding amounts related to the Revolvers, are $9,049, $25,055, $59, $67, $70, and $483 thereafter. 21 The Company's debt agreements contain various restrictive covenants which, among other matters, require the Company to maintain minimum consolidated net worth levels, as defined, and certain financial ratios. The agreements also limit additional indebtedness, capital expenditures and cash dividends. As of June 29, 1996, the Company was in compliance with all such covenants. The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities and approximates its carrying value as of June 29, 1996 and July 1, 1995. - - -------------------------------------------------------------------------------- 3. STOCKHOLDERS' EQUITY The significant attributes of each class of common stock are as follows: Class A: Each share is entitled to one vote and is freely transferable. Class B: Each share 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 officers and employees of the Company. SALES OF COMMON STOCK TO EMPLOYEES - During 1996, 1995 and 1994 the Company sold, net of cancellations, 21,556, 44,856 and 41,315 shares of restricted stock to key employees at par value. 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 June 29, 1996, restricted stock totalling $2,445 had been issued but not yet charged to compensation expense. In 1996, 1995 and 1994 the Company issued options to purchase 1,939, 12,124 and 8,750 shares of Class A common stock at exercise prices ranging from $16.00 to $25.75 per share vesting through the year 2003. Options totaling 6,841 were exercised during the year ended June 29, 1996 at prices ranging from $8.92 to $16.50. No options had been exercised previously. Options expire after a 10-year holding period. Options outstanding at June 29, 1996 equalled 45,387, at prices ranging from $7.17 to $25.75. As of June 29, 1996 and July 1, 1995, 15,982 and 12,329 options were exercisable, respectively. - - -------------------------------------------------------------------------------- 4. INCOME TAXES The components of the provision for income taxes are as follows: --------------------------------- FISCAL YEARS 1996 1995 1994 - - -------------------------------------------------------------------- Current: Federal $12,671 $7,813 $8,005 State and Local 1,576 1,053 976 Foreign 1,348 2,361 1,637 - - -------------------------------------------------------------------- 15,595 11,227 10,618 Deferred: (1,099) 751 (91) - - -------------------------------------------------------------------- $14,496 $11,978 $10,527 - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- The reconciliation between income taxes using the statutory federal income tax rate and the recorded income tax provision is as follows: -------------------------------- FISCAL YEARS 1996 1995 1994 - - -------------------------------------------------------------------- Income taxes at the U.S. Federal statutory rate of 35% $13,027 $10,593 $8,861 State taxes, net of federal tax benefit 924 768 762 Effect of foreign tax rates 252 702 493 Effect of permanent differences, and other, net 293 (85) 411 - - -------------------------------------------------------------------- Total provision $14,496 $11,978 $10,527 - - -------------------------------------------------------------------- Effective rate 39.0% 39.6% 41.6% - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- 22 The provision for income taxes includes timing differences of $1,922, $1,526, and $1,420 for 1996, 1995, and 1994, principally relating to depreciation and amortization of property, plant and equipment, and the method used in accounting for employee benefit plans (see Note 5). Significant components of the Company's deferred tax assets and deferred tax liabilities as of June 29, 1996 and July 1, 1995, are as follows: 1996 1995 - - -------------------------------------------------------------------- Deferred tax liabilities: Inventory amortization differences $(11,141) $(12,337) Depreciation and property basis differences (8,349) (10,039) Other (5,081) (4,618) - - -------------------------------------------------------------------- Total deferred tax liabilities (24,571) (26,994) - - -------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards - Work Wear 0 1,911 Accruals, reserves and other 4,198 4,355 - - -------------------------------------------------------------------- Total deferred tax assets 4,198 6,266 - - -------------------------------------------------------------------- Net deferred tax liability $(20,373) $(20,728) - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- 5. EMPLOYEE BENEFIT PLANS PENSION PLAN The Company has a noncontributory 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 an annual contribution to the Plan consistent with Federal funding requirements. The net pension cost in 1996, 1995, and 1994 includes the following components: 1996 1995 1994 - - ---------------------------------------------------------------------------- Service cost - benefits earned during the period $952 $767 $727 Interest cost on projected benefit obligation 887 753 677 Expected return on assets (1,241) (1,074) (1,050) Amortization of unrecognized net gain at June 30, 1985 (121) (97) (120) - - ----------------------------------------------------------------------------- Net pension cost $477 $349 $234 - - ----------------------------------------------------------------------------- - - ----------------------------------------------------------------------------- 23 The funded status of the Plan at June 29, 1996, and July 1, 1995, was as follows: 1996 1995 - - -------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $7,526 $6,672 - - -------------------------------------------------------------- Accumulated benefit obligation 7,930 7,034 - - -------------------------------------------------------------- Projected benefit obligation 12,846 11,203 Plan assets at fair value 15,412 13,903 - - -------------------------------------------------------------- Assets in excess of projected benefit obligation 2,566 2,700 Unrecognized transition net asset (534) (667) Unrecognized net gain (2,523) (2,100) Unrecognized prior service cost 688 741 - - -------------------------------------------------------------- Prepaid pension cost at year-end $197 $674 - - -------------------------------------------------------------- - - -------------------------------------------------------------- The projected benefit obligation was determined using an assumed discount rate of 8% and an assumed long-term rate of compensation increase of 5%. The assumed long-term rate of return on plan assets is 9%. 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 $328, $338, and $241 in 1996, 1995, and 1994 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 after one year of service. 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 seven-year employment period, were $385 in 1996, $268 in 1995, and $225 in 1994. 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. SERP Annual benefits under the SERP are based on years of service and individual compensation near retirement. Expense under the SERP for 1996, 1995, and 1994 was $600, $557, and $398. The accumulated benefit obligation, $3,082 as of June 29, 1996, and $2,736 as of July 1, 1995, is included in other noncurrent liabilities in the accompanying consolidated balance sheets. The Company has purchased life insurance contracts which may be used to fund the retirement benefits. The net cash surrender value of the contracts as of June 29, 1996, and July 1, 1995, was $2,081 and $1,608 and is included in other assets in the accompanying consolidated balance sheets. 24 DEFCO PLAN Under the DEFCO Plan, the Company matches a portion of the employees' salary reduction contributions and provides a guaranteed investment return which is adjusted annually. The Company's matching contributions under the DEFCO Plan were $200 in 1996, $162 in 1995, and $130 in 1994. The accumulated benefit obligation, $3,114 as of June 29, 1996, and $2,413 as of July 1, 1995, is included in other noncurrent liabilities in the accompanying consolidated balance sheets. The Company has purchased investments, including common stock and cash equivalents, which may be used to fund the retirement benefits. As of June 29, 1996, and July 1, 1995, the investments had an aggregate market value of $2,820 and $2,348. These amounts approximate cost and are included in other assets in the accompanying consolidated balance sheets. - - -------------------------------------------------------------------- 6. COMMITMENTS AND CONTINGENCIES 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, settlement of the litigation will not have a material effect on the Company's annual results of operations or financial position. - - -------------------------------------------------------------------- 7. LEASE COMMITMENTS The Company has noncancellable operating lease commitments for certain production and other equipment and delivery facilities which expire on various dates through 2003. Minimum annual rental commitments at June 29, 1996, for the fiscal years 1997 through 2001 are $1,992, $1,510, $1,298, $984, and $700. In accordance with the terms of the lease agreements, the Company is required to pay real estate taxes and maintenance costs. Total lease expense for fiscal years 1996, 1995, and 1994 was $3,565, $3,051, and $2,812, respectively. - - -------------------------------------------------------------------- 8. ACQUISITION In September 1994, the Company purchased certain assets of Bauman Carter Patterson Corporation (BCP) for $8,800. BCP manufactures industrial and commercial garments for the Company's own general inventory and for sale to third parties under contract. The acquisition was accounted for as a purchase. The purchase price was allocated to current assets ($4,039), property, plant, and equipment ($2,878), and other noncurrent assets ($1,883). 25 - - -------------------------------------------------------------------- 9. GEOGRAPHIC INFORMATION Geographic financial information is as follows:
United (IN THOUSANDS) States Canada Total - - -------------------------------------------------------------------------------------------------------- 1996 Revenue $ 252,659 $ 52,755 $ 305,414 Income from operations 37,532 7,712 45,244 Total assets 253,520 28,469 281,989 Capital expenditures 29,207 7,030 36,237 Depreciation and amortization expense 16,231 4,174 20,405 - - -------------------------------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------------------------------- 1995 Revenue $ 214,679 $ 47,802 $ 262,481 Income from operations 29,755 6,348 36,103 Total assets 188,776 64,557 253,333 Capital expenditures 33,679 2,868 36,547 Depreciation and amortization expense 13,656 3,722 17,378 - - -------------------------------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------------------------------- 1994 Revenue $ 180,776 $ 44,453 $ 225,229 Income from operations 25,321 4,430 29,751 Total assets 132,123 72,941 205,064 Capital expenditures 14,869 2,672 17,541 Depreciation and amortization expense 11,846 3,916 15,762 - - -------------------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------------------
26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS G&K SERVICES, INC. AND SUBSIDIARIES 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 June 29, 1996, and July 1, 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended June 29, 1996. 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 generally accepted auditing standards. 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 June 29, 1996, and July 1, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 29, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Minneapolis, Minnesota August 30, 1996 27 QUARTERLY FINANCIAL DATA (UNAUDITED) Following is a summary of the results of operations for each of the quarters within fiscal years ended June 29, 1996 and July 1, 1995.
(IN THOUSANDS, EXCEPT PER SHARE DATA) First Second Third Fourth - - ------------------------------------------------------------------------------------------------------------ 1996 Revenues 70,954 75,088 77,478 81,894 Net Income 5,187 5,575 5,712 6,246 Net Income per share $0.25 $0.27 $0.28 $0.31 Dividends per share $0.0175 $0.0175 $0.0175 $0.0175 - - ------------------------------------------------------------------------------------------------------------ 1995 Revenues 60,553 65,554 66,719 69,676 Net Income 4,358 4,648 4,419 4,861 Net Income per share $0.21 $0.23 $0.22 $0.24 Dividends per share $0.0175 $0.0175 $0.0175 $0.0175 - - ------------------------------------------------------------------------------------------------------------
RANGE OF STOCK PRICES
High Low - - ----------------------------------------------------- FISCAL 1996 1st Quarter 25 18 3/4 2nd Quarter 25 3/4 22 1/4 3rd Quarter 28 23 3/8 4th Quarter 32 26 1/4 - - ----------------------------------------------------- FISCAL 1995 1st Quarter 16 1/4 13 2nd Quarter 17 14 3/4 3rd Quarter 18 1/2 15 1/2 4th Quarter 19 1/2 17 3/4 - - -----------------------------------------------------
RETURN TO G&K INVESTORS VERSUS S&P 500 The chart below shows the total value generated by an initial investment of $100 in G&K Services, including stock price appreciation and the reinvestment of dividend payments, compared to an equivalent investment in the Standard & Poor's 500 common stock index. During fiscal 1996, an investment in G&K's stock produced a total return of 46.6% compared with 26.0% for the Standard & Poor's 500. Over the ten-year period ended June 29, 1996, G&K generated a compound annual rate of return of 24.4% compared with 13.8% for the Standard and Poor's 500. [EDGAR REPRESENTATION OF PLOT POINTS FOR BAR CHARTS] G&K SERVICES (VALUE OF $100 INVESTMENT OVER 10 YEARS) S&P 500................. $363 G&K..................... $886 28 EX-22 10 EXHIBIT 22 SUBSIDIARIES OF G&K EXHIBIT 22 SUBSIDIARIES OF G&K SERVICES, INC. G&K Services, 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) 15 EX-23 11 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated AUGUST 30, 1996 included in the Company's 1996 Annual Report to Shareholders. It should be noted that we have not audited any financial statements of the company subsequent to June 29, 1996 or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP ---------------------------------- ARTHUR ANDERSEN LLP Minneapolis, Minnesota, SEPTEMBER 26, 1996 16 EX-24 12 EXHIBIT 24 POWER OF ATTORNEY 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 FINK and STEPHEN LaBELLE, 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 year ended June 29, 1996, 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 29 DAY OF AUGUST 1996. /s/Richard Fink /s/Donald Goldfus - - --------------------------- ----------------------------- Richard Fink Donald Goldfus /s/Bruce Albright /s/William Hope - - --------------------------- ----------------------------- Bruce Allbright William Hope /s/Paul Baszucki /s/Bernard Sweet - - --------------------------- ----------------------------- Paul Baszucki Bernard Sweet /s/Wayne Fortun - - --------------------------- Wayne Fortun 17 EX-27.1 13 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 YEAR JUN-29-1996 JUN-29-1996 6,882 0 37,972 (1,276) 52,077 99,650 225,065 (92,167) 281,989 49,813 0 0 0 10,219 130,427 281,989 10,226 305,414 8,079 260,170 64 2,117 7,964 37,216 14,496 22,720 0 0 0 22,720 1.11 1.11
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