10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

Commission file number 0-4063

G&K SERVICES, INC.

(Exact name of registrant as specified in its charter)

MINNESOTA	41-0449530
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5995 OPUS PARKWAY
MINNETONKA, MINNESOTA 55343
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code (952) 912-5500

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

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

Large accelerated filer þ            Accelerated filer o            Non-accelerated filer o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, par value $0.50 per share, outstanding
October 31, 2006 was 21,417,413 shares

G&K Services, Inc.
Form 10-Q

Table of Contents

	PAGE
PART I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of September 30, 2006 and July 1, 2006		3
Consolidated Statements of Operations for the three months ended September 30, 2006 and October 1, 2005		4
Consolidated Condensed Statements of Cash Flows for the three months ended September 30, 2006 and October 1, 2005		5
Notes to Consolidated Condensed Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosure About Market Risk		19
Item 4. Controls and Procedures		20
PART II
Item 1A Risk Factors		21
Item 6. Exhibits		21
Signatures		22
Executive Employment Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

2

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED BALANCE SHEETS

G&K Services, Inc. and Subsidiaries

	September 30,		July 1,
	2006		2006
(In thousands)	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	23,526	$	19,690
Accounts receivable, less allowance for doubtful accounts of $3,540 and $3,011		96,330		94,964
Inventories		141,999		141,031
Prepaid expenses		14,047		15,552
Total current assets		275,902		271,237
Property, Plant and Equipment, net		250,254		249,001
Goodwill, net		349,479		349,469
Other Assets		79,881		81,385
	$	955,516	$	951,092
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	30,102	$	27,404
Accrued expenses		62,078		72,999
Deferred income taxes		10,418		10,419
Current maturities of long-term debt		18,124		18,199
Total current liabilities		120,722		129,021
Long-Term Debt, net of Current Maturities		203,036		195,355
Deferred Income Taxes		33,266		34,343
Other Noncurrent Liabilities		43,009		44,985
Stockholders’ Equity		555,483		547,388
	$	955,516	$	951,092

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

3

CONSOLIDATED STATEMENTS OF OPERATIONS

G&K Services, Inc. and Subsidiaries
(Unaudited)

	For the Three Months Ended
	September 30,		October 1,
(In thousands, except per share data)	2006		2005
Revenues
Rental operations	$	207,301	$	194,068
Direct sales		15,827		13,880
Total revenues		223,128		207,948
Operating Expenses
Cost of rental operations		131,652		124,506
Cost of direct sales		12,039		10,201
Selling and administrative		49,879		43,745
Depreciation and amortization		11,218		10,599
Total operating expenses		204,788		189,051
Income from Operations		18,340		18,897
Interest expense		3,393		3,015
Income before Income Taxes		14,947		15,882
Provision for income taxes		5,755		5,511
Net Income	$	9,192	$	10,371
Basic weighted average number of shares outstanding		21,186		20,992
Basic Earnings per Common Share	$	0.43	$	0.49
Diluted weighted average number of shares outstanding		21,365		21,148
Diluted Earnings per Common Share	$	0.43	$	0.49
Dividends per share	$	0.0400	$	0.0175

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

4

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

G&K Services, Inc. and Subsidiaries
(Unaudited)

	For the Three Months Ended
	September 30,			October 1,
(In thousands)	2006			2005
Operating Activities:
Net income	$	9,192		$	10,371
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		11,218			10,599
Stock-based compensation		929			1,007
Deferred income taxes		114			394
Changes in current operating items, exclusive of acquisitions		(15,170	)		(15,210	)
Other assets and liabilities		624			148
Net cash provided by operating activities		6,907			7,309
Investing Activities:
Property, plant and equipment additions, net		(9,769	)		(8,506	)
Acquisitions of business assets and other		(994	)		(832	)
Net cash used for investing activities		(10,763	)		(9,338	)
Financing Activities:
Repayments of long-term debt		(7,293	)		(7,309	)
Proceeds from short-term borrowings, net		14,901			11,600
Cash dividends paid		—			(369	)
Sale of common stock		74			658
Net cash provided by financing activities		7,682			4,580
Increase in Cash and Cash Equivalents		3,826			2,551
Effect of Exchange Rates on Cash		10			435
Cash and Cash Equivalents:
Beginning of period		19,690			15,345
End of period	$	23,526		$	18,331

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

5

G&K SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)
Three-month period ended September 30, 2006 and October 1, 2005
(Unaudited)

	The consolidated condensed financial statements included herein, except for the July 1, 2006 balance sheet which was derived from the audited consolidated financial statements for the fiscal year ended July 1, 2006, have been prepared by G&K Services, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2006, and the results of its operations and its cash flows for the three months ended September 30, 2006 and October 1, 2005. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest report on Form 10-K.
	The results of operations for the three-month periods ended September 30, 2006 and October 1, 2005 are not necessarily indicative of the results to be expected for the full year.
1.	Summary of Significant Accounting Policies
	Accounting policies followed by the Company are set forth in Note 1 in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2006.
	Nature of Business
	G&K Services, Inc. (the “Company”) is a market leader in providing branded identity apparel and facility services programs that enhance image and safety in the workplace. The Company serves a wide variety of North American industries including automotive, warehousing, distribution, transportation, energy, manufacturing, food processing, pharmaceutical, semi-conductor, retail, restaurants and hospitality, and many others providing them with rented uniforms and facility services products such as floor mats, dust mops, wiping towels, restroom supplies and selected linen items. The Company also manufactures certain uniform garments that it uses to support its garment rental programs. The Company has two operating segments, United States and Canada, which have been identified as components of the Company that are reviewed by the Company’s Chief Executive Officer to determine resource allocation and evaluate performance.
	Principles of Consolidation
	The accompanying consolidated condensed financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany balances and transactions have been eliminated in consolidation.
	Revenue Recognition
	The Company’s rental operations business is largely based on written service agreements whereby it agrees to collect, launder and deliver uniforms and other related products. The service agreements provide for weekly billing upon completion of the laundering process and delivery to the customer. Accordingly, the Company recognizes revenue from rental operations in the period in which the services are provided. Revenue from rental operations also includes billings to customers for lost or damaged merchandise. Direct sale revenue is recognized in the period in which the product is shipped.

6

Derivative Financial Instruments

The Company uses derivative financial instruments principally to manage the risk that changes in interest rates will affect the amount of its future interest payments. Interest rate swap contracts are used to balance the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swap contracts are reflected at fair value in the consolidated condensed balance sheets and for contracts that cash flow hedge accounting is achieved the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of other comprehensive income). Amounts to be paid or received under the contracts are accrued as interest rates change and are recognized over the life of the contracts as an adjustment to interest expense. The net effect of this accounting is that interest expense on the portion of variable rate debt being hedged is generally recorded based on fixed interest rates.

The Company also uses derivative financial instruments to manage the risk that changes in gasoline cost will have on the future financial results of the Company. The Company purchases futures contracts to effectively hedge a portion of anticipated gasoline purchases. The futures contracts are reflected at fair value in the consolidated condensed balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of other comprehensive income) or in the statements of operations depending on the effectiveness of the cash flow hedge. Upon settlement of each contract, the actual gain or loss is reflected in cost of rental operations.

The Company may periodically hedge firm commitments with its foreign subsidiary, generally with foreign currency contracts. These agreements are recorded at current market values and the gains and losses are included in earnings. Gains and losses on all such transactions were not significant in the first quarter of fiscal 2007 or 2006.

Per Share Data

Basic earnings per common share was computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share was computed similarly to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other dilutive securities, including non-vested restricted stock, using the treasury stock method.

	Three Months Ended
	September 30,		October 1,
	2006		2005
Weighted average number of common shares outstanding used in computation of basic earning per share		21,186		20,992
Weighted average effect of non-vested restricted stock grants and assumed exercise of options		179		156
Shares used in computation of diluted earnings per share		21,365		21,148

Potential common shares of 523,000 and 448,000 related to the Company’s outstanding stock options were excluded from the computation of diluted earnings per share for the three months ended September 30, 2006 and October 1, 2005, respectively. Inclusion of these shares would have been anti-dilutive as the exercise price of these shares exceeded market value.

7

Use of Estimates

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

Recent Accounting Pronouncements

In September, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of FASB statements No. 87, 88, 106 and 132R. The standard requires the Company to:

• Recognize in its statement of financial position the over-funded or under-funded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation.

• Recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but pursuant to FAS 87 and 106 are not recognized as components of net periodic benefit cost.

• Recognize as an adjustment to the opening balance of retained earnings, net of tax, any transition asset or transition obligation remaining from the initial application of FAS 87 or 106.

• Measure defined benefit plan assets and defined benefit plan obligations as of the date of the employer’s statement of financial position.

• Disclose additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits.

	On July 13, 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109,” which fundamentally changes the way that an entity will be required to treat their uncertain tax positions for financial accounting purposes. FIN 48 prescribes rules regarding how an entity should recognize, measure and disclose in its financial statements tax positions that an entity has taken or will take in its tax return that are reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in an increase in a liability for income taxes payable, or a reduction in a deferred tax asset or an increase in a deferred tax liability.
	The Company is currently evaluating the impact of these standards on its consolidated financial statements.
2.	Comprehensive Income
	For the three-month periods ended September 30, 2006 and October 1, 2005, the components of comprehensive income were as follows:

	Three Months Ended
	September 30,			October 1,
	2006			2005
Net income	$	9,192		$	10,371
Other comprehensive income:
Foreign currency translation adjustments, net of tax		(13	)		7,034
Net unrealized holding gain (loss) on derivative financial instruments, net of tax		(1,237	)		672
Comprehensive income	$	7,942		$	18,077

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3.	Goodwill and Intangible Assets
	The changes in the carrying amount of goodwill for the three months ended September 30, 2006, by operating segment, are as follows:

	United States		Canada			Total
Balance as of July 1, 2006	$	286,170	$	63,299		$	349,469
Goodwill acquired during the period, net of purchase price adjustments		30		—			30
Other, primarily foreign currency translation		—		(20	)		(20	)
Balance as of September 30, 2006	$	286,200	$	63,279		$	349,479

Information regarding the Company’s other intangible assets, which are included in other assets on the consolidated condensed balance sheet, are as follows:

	As of September 30, 2006
	Carrying		Accumulated
	Amount		Amortization		Net
Customer contracts	$	106,403	$	60,600	$	45,803
Non-competition agreements		10,908		8,722		2,186
Total	$	117,311	$	69,322	$	47,989

	As of July 1, 2006
	Carrying		Accumulated
	Amount		Amortization		Net
Customer contracts	$	106,408	$	58,158	$	48,250
Non-competition agreements		10,908		8,446		2,462
Total	$	117,316	$	66,604	$	50,712

The customer contracts include the combined value of the written service agreements and the related customer relationship. It has been determined that there is no significant separate value in any customer relationships.

Amortization expense was $2,719 and $2,657 for the three months ended September 30, 2006 and October 1, 2005, respectively. Estimated amortization expense for each of the next five fiscal years based on the intangible assets as of September 30, 2006 is as follows:

2007 remaining	$	7,924
2008		10,059
2009		6,338
2010		6,166
2011		5,490
2012		4,734

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4.	Long-Term Debt
	On August 31, 2005, the Company amended and restated its revolving credit facility. The amended and restated revolving credit facility of $325,000 expires on August 31, 2010. As of September 30, 2006, borrowings outstanding under the revolving credit facility were $52,700. The unused portion of the revolver may be used for general corporate purposes, acquisitions, working capital needs and to provide up to $50,000 in letters of credit. As of September 30, 2006, letters of credit outstanding against the revolver were $33,142.
	Borrowings under the revolving credit facility bear interest at 0.55% to 1.50% over the London Interbank Offered Rate (“LIBOR”), or the Canadian prime rate for Canadian borrowings, based on a leverage ratio calculated on a quarterly basis. Advances outstanding as of September 30, 2006 bear interest at a rate of 6.28% which is LIBOR plus 0.88%. The Company also pays a fee on the unused daily balance of the revolving credit facility based on a leverage ratio calculated on a quarterly basis.
	The Company has issued $50,000 of 8.4% unsecured fixed rate private placement notes with certain institutional investors. The 10-year notes have a seven-year average life with a final maturity on July 20, 2010. Each year until maturity, the Company will be required to repay $7,143 of the principal amount at par. As of September 30, 2006, the outstanding balance was $28,572.
	The Company maintains a loan agreement expiring on October 23, 2007. Under the loan agreement, the lender will make loans to the Company on a revolving basis up to $60,000. The facility was amended on June 2, 2006 increasing the facility size from $50,000 to $60,000. The Company will be required to pay interest on outstanding loan balances at a rate per annum of one month LIBOR plus a margin or, if the lender is funding the loan through the issuance of commercial paper to third parties, at a rate per annum equal to a margin plus the average annual interest rate for such commercial paper. In connection with the loan agreement, the Company granted a first priority security interest in certain of its U.S. based receivables. The amount of funds available under the loan agreement will be based on the amount of eligible receivables less various reserve requirements. The Company used the net proceeds of this loan to reduce indebtedness under its unsecured credit facilities. At September 30, 2006, there was $53,000 outstanding under the agreement at a current interest rate of 5.30%.
	The Company has $75,000 of unsecured variable rate private placement notes. The notes bear interest at 0.60% over LIBOR and are scheduled to mature on June 30, 2015. The notes do not require principal payments until maturity. The interest rate is reset and interest payments are paid on a quarterly basis. As of September 30, 2006, the outstanding balance of the notes was $75,000 at a current rate of 5.97%.
5.	Share-Based Compensation
	The Company maintains Stock Option and Compensation Plans to grant certain stock awards, including stock options and restricted shares of stock to key employees and external directors of the Company. Stock options granted to employees generally vest annually in equal amounts over three years and stock options granted on an annual basis to external directors, vest over one year. The stock options have an exercise price equal to the market price of the Company’s common stock on the date of grant. Restricted stock granted to employees prior to January 1, 2002, vest annually in equal amounts over seven years and grants after January 1, 2002, vest annually in equal amounts over five years. Generally the Company recognizes compensation expense for share-based compensation on a straight-line basis over the pertinent vesting period. Total compensation expense related to share-based awards was $929 and $1,007 for the three months ended September 30, 2006, and October 1, 2005, respectively. There were 22,079 and 23,328 shares of restricted stock and stock options that vested during the three months ended September 30, 2006, and October 1, 2005, respectively.

10

6.	Employee Benefit Plans
	The components of net periodic pension cost are as follows for the three months ended September 30, 2006 and October 1, 2005:

							Supplemental Executive
	Pension Plan						Retirement Plan
	Three Months Ended						Three Months Ended
	September 30, 2006			October 1, 2005			September 30, 2006		October 1, 2005
Service cost	$	706		$	1,190		$	65	$	234
Interest cost		1,528			809			143		188
Expected return on assets		(1,388	)		(616	)		—		—
Prior service cost		4			13			2		11
Loss		—			340			—		76
Net periodic pension cost	$	850		$	1,736		$	210	$	509

7.	Segment Information
	The Company has two operating segments, United States and Canada, which have been identified as components of the Company that are reviewed by the Company’s Chief Executive Officer to determine resource allocation and evaluate performance. Each operating segment derives revenues from the branded identity apparel and facility services industry, which includes garment rental and non-apparel items such as floor mats, dust mops, wiping towels, selected linen items and certain restroom products. No one customer’s transactions account for 1.5% or more of the Company’s revenues.
	The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). Corporate expenses are allocated to the segments based on segment revenue. The Company evaluates performance based on income from operations. Financial information by geographic location for the three-month periods ended September 30, 2006 and October 1, 2005 is as follows:

	United
For the Three Months Ended	States		Canada		Total
First Quarter Fiscal Year 2007:
Revenues	$	183,310	$	39,818	$	223,128
Income from operations		11,990		6,350		18,340
Capital expenditures		9,070		699		9,769
Depreciation and amortization expense		9,606		1,612		11,218
First Quarter Fiscal Year 2006:
Revenues	$	173,196	$	34,752	$	207,948
Income from operations		12,823		6,074		18,897
Capital expenditures		7,750		756		8,506
Depreciation and amortization expense		9,108		1,491		10,599

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8.	Inventory
	The components of inventory are as follows for the three months ended September 30, 2006 and July 1, 2006:

	Three Months Ended
	September 30,		July 1,
	2006		2006
Raw Materials	$	4,266	$	5,742
Work in Process		5,679		4,587
Finished Goods		53,674		52,457
New Goods	$	63,619	$	62,786
Merchandise In Service	$	78,380	$	78,245
Total Inventories	$	141,999	$	141,031

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Unaudited)

Overview

G&K Services, Inc., founded in 1902 and currently is headquartered in Minnetonka, Minnesota, is a market leader in providing branded identity apparel and facility services programs that enhance image and safety in the workplace. We serve a wide variety of North American industrial, service and high-technology companies providing them with rented uniforms and facility services products such as floor mats, dust mops, wiping towels, restroom supplies and selected linen items. We also sell uniforms and other apparel items to customers in our direct sale programs. The North American rental MSA is approximately $6.5-$7.0 billion, while the portion of the direct sale market targeted by us is approximately $4.5-$5.0 billion in size.

Our industry is consolidating from many family owned and small local providers to several large providers. We are participating in this industry consolidation. Our rental acquisition strategy is focused on acquisitions that expand our geographic presence and/or expand our local market share and further leverage our existing plants.

In the first quarter of fiscal year 2007, our revenue was $223.1 million a 7% increase from the $207.9 million reported during the first quarter of fiscal 2006. Continued momentum in rental organic growth and strong direct sale organic growth drove the increase compared to the prior year.

Earnings per diluted share totaled $0.43 for the quarter compared to $0.49 during the prior-year quarter. These results reflect the increased investment in sales, marketing and technology initiatives as compared to the prior year. In addition, the first quarter of fiscal 2007 merchandise expense was higher than the same period in fiscal year 2006 due to the acceleration of new account growth during fiscal 2006. Finally, energy costs were also significantly higher in the first quarter of fiscal 2007 than in the same period of fiscal 2006.

Critical Accounting Policies

The discussion of the financial condition and results of operations are based upon the consolidated condensed financial statements, which have been prepared in conformity with United States generally accepted accounting principles. As such, management is required to make certain estimates, judgments and assumptions that are believed to be reasonable based on the information available. These estimates and assumptions affect the reported amount of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, the most important and pervasive accounting policies used and areas most sensitive to material changes from external factors. See Note 1 to the consolidated condensed financial statements for additional discussion of the application of these and other accounting policies.

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Revenue Recognition and Allowance for Doubtful Accounts

Our rental operations business is largely based on written service agreements whereby we agree to collect, launder and deliver uniforms and other related products. The service agreements provide for weekly billing upon completion of the laundering process and delivery to the customer. Accordingly, we recognize revenue from rental operations in the period in which the services are provided. Revenue from rental operations also includes billings to customers for lost or damaged merchandise. Direct sale revenue is recognized in the period in which the product is shipped. Estimates are used in determining the collectibility of billed accounts receivable. Management analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Significant management judgments and estimates are used in connection with establishing the allowance in any accounting period. While we have been consistent in applying our methodologies, and in making our estimates over the past three fiscal years, material differences may result in the amount and timing of bad debt expense recognition for any given period if management makes different judgments or utilizes different estimates.

Inventories

Our inventories consist of new goods and rental merchandise in service. Estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both obsolete and excess inventories. New goods are stated at lower of cost or market, net of any reserve for obsolete or excess inventory. Merchandise placed in service to support rental operations is amortized into cost of rental operations over the estimated useful lives of the underlying inventory items, primarily on a straight-line basis, which results in a matching of the cost of the merchandise with the weekly rental revenue generated by merchandise. Estimated lives of rental merchandise in service range from nine months to three years. In establishing estimated lives for merchandise in service, management considers historical experience and the intended use of the merchandise. Material differences may result in the amount and timing of operating profit for any period if management makes different judgments or utilizes different estimates.

Goodwill, Intangibles and Other Long-Lived Assets

As required under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” goodwill is separately disclosed from other intangible assets on the balance sheet and no longer amortized. SFAS 142 also requires that companies test goodwill for impairment on an annual basis and when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill is assigned below its carrying amount. Our evaluation follows the two step impairment test prescribed by SFAS 142. First we assess whether the fair value of the reporting units exceeds the carrying amount of the unit including goodwill. Our evaluation considers changes in the operating environment, competitive position, market trends, operating performance, quoted market prices for our equity securities and fair value models and research prepared by independent analysts. If the carrying amount of a reporting unit exceeded its fair value, we would perform a second test to measure the amount of impairment loss, if any. Management completes its annual impairment tests in the fourth quarter of each fiscal year. There have been no impairments of goodwill or definite-lived intangible assets in fiscal 2006 and there have been no events or circumstances through the first three months of fiscal 2007 that would indicate that there may have been any impairment of goodwill or definite-lived assets. Future events could cause management to conclude that impairment indicators exist and that goodwill and other intangibles associated with acquired businesses are impaired. Any resulting impairment loss could have a material impact on our financial condition and results of operations.

Property, plant and equipment and definite-lived intangible assets are depreciated or amortized over their useful lives. Useful lives are based on management estimates of the period that the assets will add value. Long-lived assets and definite-lived intangible assets are evaluated for impairment whenever events and circumstances indicate an asset may be impaired. There have been no write-downs of any long-lived assets or definite-lived intangible assets in fiscal 2006 or through the first three months of fiscal 2007.

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Insurance

We self-insure for certain obligations related to health, workers’ compensation and auto and general liability programs. We purchase stop-loss insurance policies to protect us from catastrophic losses. Estimates are used in determining the potential liability associated with reported claims and for losses that have occurred, but have not been reported. Management estimates consider historical claims experience, escalating medical cost trends, expected timing of claim payments and actuarial analyses provided by third parties. Changes in the cost of medical care, our ability to settle claims and the present value estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

Income Taxes

In the normal course of business, we are subject to audits from federal, state, Canadian provincial and other tax authorities regarding various tax liabilities. These audits may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. The amount ultimately paid upon resolution of issues raised may differ from the amount accrued. We believe that taxes accrued on our consolidated balance sheets fairly represent the amount of future tax liability due.

We utilize income tax planning to reduce our overall cost of income taxes. Upon audit, it is possible that certain strategies might be disallowed resulting in an increased liability for income taxes. We believe that the provision for liabilities resulting from the implementation of income tax planning is appropriate. To date, we have not experienced an examination by governmental revenue authorities that would lead management to believe that our past provisions for exposures related to income tax planning are not appropriate.

Deferred income taxes are determined in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. We record valuation allowances to reduce deferred tax assets when it is more likely than not that some portion of the asset may not be realized. We evaluate our deferred tax assets and liabilities on a periodic basis. We believe that we have adequately provided for our future tax obligations based upon current facts, circumstances and tax law.

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Results of Operations

The percentage relationships to revenues of certain income and expense items for the three-month periods ended September 30, 2006 and October 1, 2005, and the percentage changes in these income and expense items between periods are presented in the following table:

	Three Months						Percentage
	Ended						Change
							Three Months
	September 30,			October 1,			Fiscal Year 2007
	2006			2005			vs. Fiscal Year 2006
Revenues:
Rental		92.9	%		93.3	%		6.8	%
Direct		7.1			6.7			14.0
Total revenues		100.0			100.0			7.3
Expenses:
Cost of rental sales		63.5			64.2			5.7
Cost of direct sales		76.1			73.5			18.0
Total cost of sales		64.4			64.8			6.7
Selling and administrative		22.4			21.0			14.0
Depreciation and amortization		5.0			5.1			5.8
Income from operations		8.2			9.1			(2.9	)
Interest expense		1.5			1.5			12.5
Income before income taxes		6.7			7.6			(5.9	)
Provision for income taxes		2.6			2.6			4.4
Net income		4.1	%		5.0	%		(11.4	)%

Three months ended September 30, 2006 compared to three months ended October 1, 2005

Revenues. Total revenues in the first quarter of fiscal 2007 increased 7.3% to $223.1 million from $207.9 million in the first quarter of fiscal 2006. Rental revenue increased $13.2 million in the first quarter, or 6.8%. The organic industrial rental growth rate was approximately 5%, an improvement from approximately 3% in the same period of fiscal 2006. Organic industrial rental revenue has improved due to increased professional sales and increased customer retention.

Direct sale revenue increased 14.0% to $15.8 million in the first quarter of fiscal 2007 compared to $13.9 million in the same period of fiscal 2006. The organic direct sale growth rate was approximately 11.5%. The increase in direct sale revenue was due almost entirely to organic growth.

Organic growth rates are calculated using industrial rental and direct sale revenue, respectively, adjusted for foreign currency exchange rate differences and revenue from newly acquired business compared to prior-period results. We believe that the organic growth rates better reflect the growth of our existing industrial rental and direct sale business and are therefore useful in analyzing our financial condition and results of operations.

Cost of Rental and Direct Sale. Cost of rental operations increased 5.7% to $131.7 million in the first quarter of fiscal 2007 from $124.5 million in the same period of fiscal 2006. Gross margin from rental sales increased to 36.5% in the first quarter of fiscal 2007 from 35.8% in the first quarter of fiscal 2006. Rental gross margins increased due to lower production and delivery costs partially offset by increased merchandise cost associated with new account growth and substantially higher energy costs.

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Cost of direct sales increased 18.0% to $12.0 million in the first quarter of fiscal 2007 from $10.2 million in the same period of fiscal 2006. Gross margin from direct sales decreased to 23.9% in the first quarter of fiscal 2007 from 26.5% in the first quarter of fiscal 2006. The decrease in gross margin was primarily due to increased costs associated with customer fulfillment and freight.

Selling and Administrative. Selling and administrative expenses increased 14.0% to $49.9 million in the first quarter of fiscal 2007 from $43.7 million in the same period of fiscal 2006. As a percentage of total revenues, selling and administrative expenses were 22.4% in the first quarter of fiscal 2007 up from 21.0% in the first quarter of fiscal 2006. In dollar terms, total selling and administrative expenses increased due to an increase in the Company’s sales force and the continued rollout of the company’s information technology initiatives.

Depreciation and Amortization. Depreciation and amortization expense increased 5.8% to $11.2 million in the first quarter of fiscal 2007 from $10.6 million in the same period of fiscal 2006. As a percentage of total revenues, depreciation and amortization expense decreased to 5.0% in the first quarter of fiscal 2007 from 5.1% in the first quarter of fiscal 2006. Net capital expenditures, excluding acquisition of businesses, were $9.8 million in the first quarter of fiscal 2007 compared to $8.5 million in the prior year’s quarter.

Interest Expense. Interest expense was $3.4 million in the first quarter of fiscal 2007, up from $3.0 million in the same period of fiscal 2006. The increase was due to higher interest rates in fiscal 2007 than fiscal 2006.

Provision for Income Taxes. Our effective tax rate increased to 38.5% in the first quarter of fiscal 2007 from 34.7% in the same period of fiscal 2006 due to the reversal of tax reserves in 2006 that were no longer required.

Liquidity, Capital Resources and Financial Condition

Our primary sources of cash are net cash flows from operations and borrowings under our debt arrangements. Primary uses of cash are interest payments on indebtedness, capital expenditures, acquisitions and general corporate purposes.

Working capital at September 30, 2006 was $155.2 million, up 9.1% from $142.2 million at July 1, 2006. The increase in working capital is largely due to continued growth of our business and incremental financing activities.

Operating Activities. Net cash provided by operating activities was $6.9 million in the first three months of fiscal 2007 and $7.3 million in the same period of fiscal 2006. In the first quarter of fiscal 2007 and 2006, cash provided by operations was negatively impacted due to working capital needed to support organic growth and incentive compensation payments related to the prior fiscal years.

Investing Activities. Net cash used in investing activities was $10.8 million in the first three months of fiscal 2007 and $9.3 million in the same period of fiscal 2006. In fiscal year 2007 and 2006, the cash used in investing activities was used primarily to purchase property, plant and equipment.

Financing Activities. Cash provided by financing activities was $7.7 million in the first three months of fiscal 2007 and $4.6 million in the same period of fiscal 2006. In fiscal year 2007 and 2006, the cash provided by financing activities was used to finance the purchase of property, plant and equipment and for working capital.

On August 31, 2005, we amended and restated our revolving credit facility. The amended and restated revolving credit facility of $325.0 million expires on August 31, 2010. As of September 30, 2006, borrowings outstanding under the revolving credit facility were $52.7 million. The unused portion of the revolver may be used for general corporate purposes, acquisitions, working capital needs and to provide up to $50.0 million in letters of credit. As of September 30, 2006, letters of credit outstanding against the revolver were $33.1 million.

Borrowings under the revolving credit facility bear interest at 0.55% to 1.50% over the London Interbank Offered Rate (“LIBOR”), or the Canadian prime rate for Canadian borrowings, based on a leverage ratio calculated on a quarterly basis. Advances outstanding as of September 30, 2006 bear interest at a rate of 6.28% which is LIBOR plus 0.88%. We also pay a fee on the unused daily balance of the revolving credit facility based on a leverage ratio calculated on a quarterly basis.

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We have $50.0 million, 8.4% unsecured fixed rate private placement notes with certain institutional investors. The 10-year notes have a seven-year average life with a final maturity on July 20, 2010. Each year until maturity, we will be required to repay $7.1 million of the principal amount at par. As of September 30, 2006, the outstanding balance was $28.6 million.

We maintain a loan agreement expiring on October 23, 2007. Under the loan agreement, the lender will make loans to us on a revolving basis up to $60.0 million. The facility was amended on June 2, 2006 increasing the facility size from $50.0 million to $60.0 million. We will be required to pay interest on outstanding loan balances at a rate per annum of one month LIBOR plus a margin or, if the lender is funding the loan through the issuance of commercial paper to third parties, at a rate per annum equal to a margin plus the average annual interest rate for such commercial paper. In connection with the loan agreement, we granted a first priority security interest in certain of our U.S. based receivables. The amount of funds available under the loan agreement will be based on the amount of eligible receivables less various reserve requirements. We used the net proceeds of this loan to reduce indebtedness under our unsecured credit facilities. At September 30, 2006, there was $53.0 million outstanding under the agreement at a current rate of 5.30%.

We have $75.0 million of unsecured variable rate private placement notes. The notes bear interest at 0.60% over LIBOR and are scheduled to mature on June 30, 2015. The notes do not require principal payments until maturity. The interest rate is reset and interest payments are paid on a quarterly basis. As of September 30, 2006, the outstanding balance of the notes was $75.0 million at a current rate of 5.97%.

Cash Obligations. Under various agreements, we are obligated to make future cash payments in fixed amounts. These include payments under the variable rate term loan and revolving credit facility, the fixed rate term loan, capital lease obligations and rent payments required under non-cancelable operating leases with initial or remaining terms in excess of one year.

At September 30, 2006, we had available cash on hand of $23.5 million and approximately $239.2 million of available capacity under our revolving credit facility. We anticipate that we will generate sufficient cash flows from operations to satisfy our cash commitments and capital requirements for fiscal 2007 and to reduce the amounts outstanding under the revolving credit facility; however, we may utilize borrowings under the revolving credit facility to supplement our cash requirements from time to time. We estimate that capital expenditures in fiscal 2007 will be approximately $25 million to $35 million.

The amount of cash flow generated from operations could be affected by a number of risks and uncertainties. In fiscal 2007, we may actively seek and consider acquisitions of business assets. The consummation of any acquisition could affect our liquidity profile and level of outstanding debt. We believe that our earnings and cash flow from operations, existing credit facilities and our ability to obtain additional debt or equity capital, if necessary, will be adequate to finance acquisition opportunities.

Off Balance Sheet Arrangements

At September 30, 2006, we had stand-by letters of credit totaling $33.1 million issued and outstanding, primarily in connection with our property and casualty insurance programs and to provide security in connection with a promissory note. No amounts have been drawn upon these letters of credit.

Pension Obligations

We account for our defined benefit pension plan using SFAS No. 87 “Employer’s Accounting for Pensions” (“SFAS 87”). Under SFAS 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. Pension expense calculated under SFAS 87 is generally independent of funding decisions or requirements. We recognized expense for our defined benefit pension plan of $0.9 million in the first quarter of fiscal 2007 and $1.7 million in the same period of fiscal 2006. At July 1, 2006, the fair value of our pension plan assets totaled $32.8 million.

We have frozen our defined benefit pension plan and related supplemental executive retirement plan effective January 1, 2007 and have incurred $0.2 million in costs associated with this action in fiscal year 2006. All benefits earned by defined benefit plan participants through the end of calendar year 2006 will be available upon retirement under plan provisions. Future growth in benefits will no longer occur beyond December 31, 2006.

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The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. At July 1, 2006, we estimated that the pension plan assets will generate a long-term rate of return of 8.0%. This rate was developed by evaluating input from our outside actuary as well as long-term inflation assumptions. The expected long-term rate of return on plan assets at July 1, 2006 is based on an allocation of U.S. equities and U.S. fixed income securities. Decreasing the expected long-term rate of return by 0.5% (from 8.0% to 7.5%) would increase our estimated 2007 pension expense by approximately $0.2 million. Pension liability and future pension expense increase as the discount rate is reduced. We discounted future pension obligations using a rate of 6.45% at July 1, 2006. Our outside actuary determines the discount rate by creating a yield curve based on high quality bonds. Decreasing the discount rate by 0.5% (from 6.45% to 5.95%) would increase our accumulated benefit obligation at July 1, 2006 by approximately $4.6 million and increase the estimated fiscal 2007 pension expense by approximately $0.3 million.

Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in our pension plan will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be in the future.

Impact of Inflation

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases consistent with the rate of inflation or 5.0%, whichever is greater, and continued focus on improvements of operational productivity.

Significant increases in energy costs, specifically natural gas and gasoline, can materially affect our results of operations and financial condition. Currently, energy costs represent approximately 5% of our total revenue.

Litigation

We are involved in a variety of legal actions relating to personal injury, employment, environmental and other legal matters that arise in the normal course of business. These legal actions include lawsuits that challenged the practice of charging for certain environmental services on invoices which were settled in the last fiscal year, and are presently being administered. None of these legal actions are expected to have a material adverse effect on our results of operations or financial position.

Share-Based Compensation

We maintain Stock Option and Compensation Plans to grant certain stock awards, including stock options and restricted shares of stock to key employees and external directors of the Company. Stock options granted to employees generally vest annually in equal amounts over three years and stock options granted on an annual basis to external directors, vest over one year. The stock options have an exercise price equal to the market price of our common stock on the date of grant. Restricted stock granted to employees prior to January 1, 2002, vest annually in equal amounts over seven years and grants after January 1, 2002, vest annually in equal amounts over five years. Generally we recognize compensation expense for share-based compensation on a straight-line basis over the pertinent vesting period. Total compensation expense related to share-based awards was $0.9 million and $1.0 million for the three months ended September 30, 2006, and October 1, 2005, respectively. There were 22,079 and 23,328 shares of restricted stock and stock options that vested during the three months ended September 30, 2006, and October 1, 2005, respectively.

Recent Accounting Pronouncements

In September, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of FASB statements No. 87, 88, 106 and 132R. The standard requires us to:

• Recognize in our statement of financial position the over-funded or under-funded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation.

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• Recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but pursuant to FAS 87 and 106 are not recognized as components of net periodic benefit cost.

• Recognize as an adjustment to the opening balance of retained earnings, net of tax, any transition asset or transition obligation remaining from the initial application of FAS 87 or 106.

• Measure defined benefit plan assets and defined benefit plan obligations as of the date of our statement of financial position.

• Disclose additional information in our notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits.

On July 13, 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109,” which fundamentally changes the way that we will be required to treat our uncertain tax positions for financial accounting purposes. FIN 48 prescribes rules regarding how we should recognize, measure and disclose in our financial statements tax positions that we have taken or will take on our tax return that are reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in an increase in a liability for income taxes payable, or a reduction in a deferred tax asset or an increase in a deferred tax liability.

We are currently evaluating the impact of these standards on our consolidated financial statements.

Cautionary Statements Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar expressions and by the context in which they are used. Such statements are based upon our current expectations and speak only as of the date made. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ from those set forth in or implied by this quarterly report on Form 10-Q. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs, including energy costs, lower sales volumes, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor, costs and possible effects of union organizing activities, loss of key management, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, failure to achieve and maintain effective internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, the initiation or outcome of litigation, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic events, changes in federal and state tax laws and the reactions of competitors in terms of price and service. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made except as required by law. Additional information concerning potential factors that could effect future financial results is included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates. We use financial instruments, including fixed and variable rate debt, as well as interest rate swaps to manage interest rate risk. Interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. Assuming the current level of borrowings, a one percentage point increase in interest rates under these borrowings would have increased our interest expense for the first quarter of fiscal 2007 by approximately $0.3 million. This estimated exposure considers the mitigating effects of interest rate swap agreements outstanding at September 30, 2006 on the change in the cost of variable rate debt.

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Energy Cost Risk

We use derivative financial instruments to manage the risk that changes in gasoline cost will have on the future financial results of the Company. We purchase futures contracts to effectively hedge a portion of anticipated gasoline purchases. The futures contracts are reflected at fair value in the consolidated balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of other comprehensive income) for contracts that cash flow hedge accounting is achieved or in the statements of operations depending on the effectiveness of the hedge. Upon settlement of each contract, the actual gain or loss is reflected in gasoline expense. The current fair market value of all outstanding contracts at September 30, 2006 is a negative $0.4 million.

Foreign Currency Exchange Risk

We have material foreign subsidiaries located in Canada. The assets and liabilities of these subsidiaries are denominated in the Canadian dollar and as such are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Results of operations are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities are recorded as a component of stockholders’ equity. Gains and losses from foreign currency transactions are included in results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Form 10-Q. Based on their evaluation, our chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective.

There have been no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended July 1, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 6. EXHIBITS

                a. Exhibits

10.1	Executive Employment Agreement with Richard L. Marcantonio entered into as of August 31, 2004.
31.1  Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2  Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	G&K SERVICES, INC. (Registrant)
Date: November 2, 2006	By:	/s/ Jeffrey L. Wright
		Jeffrey L. Wright
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Thomas J. Dietz
		Thomas J. Dietz
		Vice President and Controller (Principal Accounting Officer)

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EX-10.1

EXHIBIT 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

     THIS AGREEMENT is effective as of the 31^st day of August, 2004, by and between G&K Services, Inc., a Minnesota corporation with (“Employer”); and Richard L. Marcantonio, a resident of the State of Minnesota (“Executive”).

INTRODUCTION

A. Employment and Protection of Employer. Employer has employed Executive in the capacity of President and Chief Executive Officer under that Executive Employment Agreement effective as of June, 2002, and now wishes to make available to Executive certain new benefits and rights under this new Executive Employment Agreement (the “Agreement”), which will fully supercede all previous agreements between them except as specifically set forth herein. Employer further wishes to obtain Executive’s promises related to Notice of Termination as set forth in this Agreement, as well as Executive’s promises not to harm Employer following execution of this Agreement, particularly with respect to Employer’s Confidential Information, as more fully described in Article 7. In Executive’s position with Employer, Executive will be a valued employee of Employer and Employer will benefit from Executive’s continued employment as its President and Chief Executive Officer, and further Executive will have access to and control over Employer’s Confidential Information, which Employer has developed at great expense, time and effort. As a result, voluntary termination by Executive without adequate notice, or disclosure of any Confidential Information, could cause irreparable harm to Employer, and Employer is not willing to extend to Executive the additional benefits, rights and responsibilities under this Agreement unless Executive agrees, as set forth in this Agreement, to provide Employer with reasonable notice of voluntary termination of his employment, reasonable protection for its Confidential Information, and assurances to protect Employer in other ways set forth in Article 7.

     B. Employment and Benefits. For these purposes, Employer is willing to retain Executive as President and Chief Executive Officer and to grant to Executive benefits to which Executive is not otherwise entitled, consisting of the right to receive certain separation compensation, lump sum payments, and outplacement benefits (as described in Articles 5 and 6), if Executive’s employment with Employer terminates under certain circumstances, including without limitation in connection with a Change in Control (as defined in Article 6).

     C. Other Intentions. Executive desires to accept Employer’s offer to be retained as President and Chief Executive Officer and additional benefits set forth in this Agreement, to which Executive is not otherwise entitled.

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     Executive agrees, as a condition of Employer’s offer of additional benefits set forth in this Agreement, to sign this Agreement in order that Employer may have reasonable protections against the disclosure of its Confidential Information, other conduct of Executive prohibited under Article 7 of this Agreement, and certain protections related to Notice of Termination as set forth in this Agreement.

AGREEMENT

     NOW, THEREFORE, in consideration of the facts recited above, which are a part of this Agreement, and the parties’ mutual promises contained in this Agreement, Employer and Executive agree as follows:

ARTICLE 1
DEFINITIONS

     Capitalized terms used generally in this Agreement will have their defined meaning throughout the Agreement. The following terms will have the meanings set forth below; unless the context clearly requires otherwise.

     1.1 “Agreement” means this Agreement, as it may be amended from time to time.

     1.2 “Base Salary” means the total annual cash compensation payable to Executive on a regular periodic basis under Section 3.1, without regard to any voluntary salary deferrals or reductions to fund employee benefits.

     1.3 “Board” means the Board of Directors of Employer.

     1.4 “Cause” has the meaning set forth in Section 5.2.

     1.5 “Date of Termination” has the meaning set forth in Section 5.4(b).

     1.6 “Disability” means the unwillingness or inability of Executive to perform the essential functions of Executive’s position as President and Chief Executive Officer (with or without reasonable accommodation) under this Agreement for a period of ninety (90) days (consecutive or otherwise) within any period of six (6) consecutive months because of Executive’s incapacity due to physical or mental illness, bodily injury or disease. For purposes of this Agreement, Executive will be deemed to have a Disability if he is incapacitated and, within ten (10) days after a Notice of Termination is thereafter given by Employer, Executive will not have returned to the full-time performance of the Executive’s duties; provided, however, that if Executive does not agree with a determination of the existence of a Disability (or the existence of a physical or mental illness or bodily injury or disease), the determination will be may by the certification of a qualified medical doctor mutually agreed to by Employer and Executive (or, in the event of the Executive’s incapacity to designate a doctor, the Executive’s legal representative). In the absence of such agreement, each party will nominate a qualified medical doctor and the two doctors will select a third doctor, who

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will make the determination as to Disability. The decision of the designated physician will be binding upon the parties. In all matters related to the incapacity or disability of Executive, the Executive may act through a legal representative properly appointed for that purpose.

     1.7 “Employer” means G&K Services, Inc., as well as any of its Subsidiaries and any Successor organization.

     1.8 “Executive” means Richard L. Marcantonio, a Minnesota resident.

     1.9 “Notice of Termination” has the meaning set forth in Section 5.6(a).

     1.10 “Plan” means any bonus or incentive compensation agreement, plan, program, policy or arrangement sponsored, maintained or contributed to by Employer, to which Employer is a party or under which employees of Employer are covered, including, without limitation, (a) any stock option, restricted stock or any other equity-based compensation plan; (b) any annual or long-term incentive (bonus) plan; (c) any employee benefit plan, such as a thrift, pension, profit sharing, deferred compensation, medical, dental, disability income, accident, life insurance, automobile allowance, perquisite, fringe benefit, vacation, sick or parental leave, severance or relocation plan or policy and (d) any other agreement, plan, program, policy or arrangement intended to benefit employees or executive officers of Employer.

     1.11 “Subsidiary” means any corporation or other business entity that is controlled by Employer.

     1.12 “Successor” has the meaning set forth in Section 9.1(a).

ARTICLE 2
EMPLOYMENT AND DUTIES

     2.1 Employment. Upon the terms and conditions set forth in this Agreement, Employer hereby employs Executive for an indefinite term, and Executive accepts such employment as President and Chief Executive Officer of Employer. For the term of this Agreement, Executive at all times shall be, and shall have the responsibilities and privileges of, President and Chief Executive Officer of Employer. This Agreement and Executive’s employment by Employer may be terminated at any time as set forth in Article 5.

     2.2 Duties. While Executive is employed hereunder, and excluding any periods of vacation, sick, disability or other leave to which Executive is entitled, Executive agrees to devote substantially all of Executive’s attention and time during normal business hours to the legal and ethical business and affairs of Employer, and to act in the best interests of Employer, its shareholders and employees and, to the extent necessary to discharge the responsibilities assigned to Executive under this Agreement and under Employer’s bylaws, to use Executive’s reasonable best efforts to perform faithfully and efficiently all responsibilities of the position.

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     Executive will comply with Employer’s policies and procedures; provided, however, that to the extent these policies and procedures are inconsistent with this Agreement, the provisions of this Agreement will control.

ARTICLE 3
COMPENSATION AND BENEFITS

     3.1 Base Salary. Commencing as of the effective date of this Agreement, Employer will pay Executive a Base Salary at a minimum annual rate of Six Hundred Thousand Dollars ($600,000.00). Executive’s Base Salary may be adjusted and determined periodically by Employer’s Board of Directors; provided, however, that a Base Salary established under this Agreement will remain in effect until the Board has completed its next annual review of Executive’s performance.. The Base Salary will be paid in substantially equal regular periodic payments in consistent with Employer’s regular payroll practices. If Executive’s Base Salary is changed at any time during Executive’s employment by Employer, the changed amount will become the Base Salary under this Agreement, subject to any subsequent changes.

     3.2 Other Compensation and Benefits. While Executive is employed by Employer under this Agreement:

     (a) Executive will be permitted to participate in all Plans for which Executive is or becomes eligible under their respective terms.

     (b) Employer may, in its sole discretion, amend or terminate any Plan that provides benefits generally to its employees or its executive officers; provided, however, that in the event that Employer terminates its health, dental or life Plan offered to Executive, without replacing the Plan, Executive will be entitled to receive as additional compensation an amount equal to the cash equivalent of any terminated benefits.

     (c) Executive will also be entitled to participate in or receive benefits under any Plan made available by Employer in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of these Plans and the preceding provisions of this Section 3.2.

     (d) Executive shall be entitled to a minimum incentive pay under the Annual Management Incentive Plan in effect at Employer from time to time. Executive’s minimum target incentive, as a percentage of Base Salary, is 70%, with an unlimited maximum incentive opportunity, based on achievement by Employer of Company Financial Measures for Earnings Per Share (55% of incentive opportunity) and Total Revenue Growth (25% of incentive opportunity), as well as Key Initiatives/Department or Individual Objectives (20% of incentive opportunity). Executive’s incentive pay may be adjusted and determined periodically by Employer’s Board of Directors; provided, however, that incentive pay established under this Agreement will remain in effect until the Board has completed its next annual review of Executive’s performance.

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     (e) Executive will continue to have the rights, benefits and responsibilities set forth in that Promissory Note in the original principal amount of Four Hundred Thousand Dollars ($400,000.00. ), an unexecuted copy of which is attached hereto as Exhibit C, and that related Stock Pledge Agreement, an unexecuted copy of which is attached hereto as Exhibit D, the originals of which were made and entered into by Executive with Employer as of July 2002, and each of which are current as of the date of this Agreement.

     (f) Executive will have the use of a personal automobile leased by Employer under its Executive Automobile Program with a value up to the greater of (i) Seventy-Five Thousand Dollars ($75,000.00), (ii) the value set forth in the Employer’s Executive Automobile Program, or (iii) such other value as the Board of Directors or it Compensation Committee may determine for Executive.

     (g) Executive will have available annual financial planning and tax preparation benefits with a value up to the greater of (i) Five Thousand Dollars ($5,000.00), (ii) the value set forth in the Employer’s plans for such services, or (iii) such other value as the Board of Directors or it Compensation Committee may determine for Executive.

     (h) Executive will be entitled to up to six (6) weeks of vacation annually, or such greater period of time as the Board of Directors or its Compensation Committee may determine from time to time.

ARTICLE 4
RESTRICTED STOCK GRANT

     4.1 Restricted Stock Agreement. Employer and Executive previously entered into a Restricted Stock Agreement dated as of June, 2002, an unexecuted copy of which is attached to this Agreement as Exhibit A. This Agreement continues in full force and effect, and is incorporated into this Agreement, granting Executive the right to purchase Employer Stock (as defined below) in the amount, at the price and on the terms set forth in the Restricted Stock Agreement.

     4.2 Employer Stock. “Employer Stock” means the voting common stock of Employer described in the Restricted Stock Agreement attached as Exhibit A.

ARTICLE 5
TERMINATION

     5.1 Termination. This Article 5 sets forth the terms for termination of Executive’s employment under this Agreement, subject to the respective continuing rights and obligations of the parties under this Agreement. In general, this Agreement and Executive’s employment with

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the Employer may be terminated by Employer upon thirty (30) days advance written notice to Executive and by Executive upon ninety (90) days advance written notice to Employer, for any reason or no reason, or at any time by mutual written agreement of the parties. For purposes of this section, the ninety (90) advance written notice required for termination by Executive is necessary so that Employer may have the opportunity to find a suitable replacement for Executive. This Agreement and Executive’s employment under this Agreement will terminate in the event of Executive’s death or Disability, as of the applicable Date of Termination.

     In any such case, this Agreement will terminate as of the applicable Date of Termination, except for the rights and obligations of the parties under this Agreement that survive beyond Executive’s termination of employment.

     5.2 Termination by Employer for Cause. Employer may terminate this Agreement at any time for Cause, with or without advance notice (except as otherwise provided in this Section 5.2). For purposes of this Agreement, “Cause” means any of the following, with respect to Executive’s position of employment with Employer:

     (a) Executive’s failure or refusal to perform the duties and responsibilities set forth in Section 2.2, if the failure or refusal (i) is not due to a Disability or a physical or mental illness or bodily injury or disease; or (ii) is not due to Executive’s reasonable best efforts to perform faithfully and efficiently the responsibilities of his position with Employer, acting in good faith in the interests of Employer, its shareholders and employees; and (iii) is not cured within thirty (30) days after written notice of the failure or refusal is received by Executive from Employer;

     (b) any drunkenness or use of drugs that interferes with the performance of Executive’s obligations under this Agreement; and continues for more than five (5) days after a written notice to Executive; provided, however, that Employer will have the right to prevent Executive from performing any duties under this Agreement and from entering the premises of Employer during any such period;

     (c) Executive’s indictment for or conviction of (including entering a guilty plea or plea of no contest to) a felony or any crime involving moral turpitude, fraud, dishonesty or theft;

     (d) any material dishonesty of Executive involving or affecting Employer;

     (e) any gross negligence or other willful or intentional act or omission of Executive having the effect or reasonably likely to have the effect of injuring the reputation, business or business relationships of Employer in a material way; provided, however, that if an action or omission giving rise to Cause is curable, Employer first will have given prior written notice to the Executive specifying the action or omission with reasonable particularity and, within thirty (30) days after such notice, the Executive will not have cured the action or omission;

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     (f) any willful or intentional breach by Executive of a fiduciary duty to Employer;

     (g) Except as otherwise specifically provided in this Section 5.2, Executive’s material violation or breach of Employer’s standard business practices and policies, including, without limitation, policies against racial or sexual discrimination or harassment; provided, however, that if in the Employer’s discretion, such breach or violation is curable, Employer first will have given prior written notice to the Executive specifying the violation or breach with reasonable particularity and, within thirty (30) days after such notice, the Executive will not have cured the violation or breach giving rise to such Cause;

     (h) any material breach (not covered by any of the above clauses (a) through (g)) of any material term, provision or condition of this Agreement, if such breach is not cured (to the extent curable) within thirty (30) days after written notice thereof is received by Executive from Employer.

     For purposes of this Section 5.2, no act, or failure to act, on Executive’s part will be considered “dishonest,” “willful” or “intentional” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in or not opposed to the best interest of Employer. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for Employer will be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of Employer. Furthermore, the term “Cause” will not include ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if Executive has exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to the position.

     5.3 Termination by Executive. Executive may voluntarily resign from employment under this Agreement with or without Good Reason (as such term is defined in Section 6.1(f)) provided he gives Employer ninety (90) calendar days advance written Notice of Termination.

     5.4 Notice of Termination and Date of Termination.

     (a) For purposes of this Agreement, a “Notice of Termination” will mean a written notice that will indicate the specific termination provisions in this Agreement relied upon and will set forth in reasonable detail the facts and circumstances claimed to provide the basis for the termination. Any termination by Employer or by Executive under this Agreement (other than Executive’s death, or a termination by mutual agreement) will be communicated by written Notice of Termination to the other party.

     (b) For purposes of this Agreement, “Date of Termination” will mean: (i) if Executive’s employment is terminated due to death, the date of Executive’s death; (ii) if Executive’s employment is terminated for Disability, thirty (30) calendar days after the Notice of Termination is given; (iii) if Executive’s employment is terminated by Employer for Cause or by Executive for Good Reason, the date specified in the

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Notice of Termination; (iv) if Executive’s employment is terminated by mutual agreement of the parties, the termination date specified by the agreement; or (v) if Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination, provided that if Executive voluntarily terminates his employment the date specified may be no earlier than ninety (90) calendar days after the date on which the Notice of Termination is given unless an earlier date has been expressly agreed to by Employer and Executive in writing.

     5.5 Compensation during Disability and upon Termination.

     (a) During any period in which Executive fails to perform Executive’s duties under this Agreement as a result of a Disability, Executive will continue to receive all Base Salary and other compensation and benefits to which Executive is otherwise entitled under this Agreement and under any Plan through Executive’s Date of Termination. To the extent the Executive has not received the Base Salary and other compensation and benefits referenced in the preceding sentence prior to the 90^th day of a Disability, Executive will receive such Base Salary and other compensation and benefits.

     (b) Except as otherwise provided in Article 6 or under a mutual agreement of the parties, if Executive’s employment under this Agreement is terminated (i) by Executive’s death, (ii) voluntarily by Executive without Good Reason, (iii) by Employer for Cause, or (iv) by mutual agreement of the parties, then Employer will pay Executive the Base Salary through the Date of Termination, plus any amounts to which the Executive is entitled under any Plan (in accordance with the terms of such Plan). Employer will also pay any retirement benefits to which Executive is or becomes entitled under any Plan, except to the extent any such benefits are forfeited under the terms of the Plan.

     (c) Except in the case of a termination for Disability, if either (i) Employer terminates Executive’s employment under this Agreement without Cause; or (ii) Executive voluntarily terminates his employment under this Agreement for Good Reason, as that term is defined at Section 6.1(f) without regard to whether or not it is associated with a Change of Control; and if Executive executes a written release substantially in the form attached hereto as Exhibit B and consistent with this Section 5.5(d) (a “Release Agreement”), then Employer will pay to Executive, as separation pay, which Executive has not earned and to which he is not otherwise entitled, an amount equal to twelve (12) months of Executive’s monthly Base Salary, plus the full, unprorated target incentive compensation payable to Executive under the Annual Management Incentive Plan in effect as of the Date of Termination without regard to actual achievement of incentive objectives Such payment will be made to the Executive in weekly payments beginning sixteen days after Executive’s execution of the Release Agreement, provided that the Executive has not exercised his rights to revoke or rescind his release of claims under to the Release Agreement. Further, Employer will pay to Executive cash equal to the greater of lease costs and expenses under the Executive Automobile Program or Fifteen Thousand Dollars ($15,000.00), such payment to be made in a lump sum on or about the sixteenth day following Executive’s execution of the Release Agreement.

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     (d) In the event that Executive provides the ninety (90) day Notice of Termination for a voluntary separation and retires from his employment with Employer, (i) at any time following his sixtieth birthday, Executive will be entitled to the continued vesting of all unvested restricted stock and stock options granted by Employer prior to the Date of Termination, and (ii) at any time up to and including Executive’s sixtieth birthday, Executive may be entitled to the continued vesting of all unvested restricted stock and stock options granted by Employer prior to the Date of Termination at the discretion of Employer’s Board of Directors, with all the rights and privileges set forth under the Restricted Stock Agreement or Employer’s 1998 Stock Option and Compensation Plan.

     Executive will not be required to mitigate Employer’s payment obligations under this Article 5 by making any efforts to secure other employment; and Executive’s commencement of employment with another employer will not reduce the obligations of Employer under to this Article 5.

ARTICLE 6
CHANGE IN CONTROL

     6.1 Definitions Relating to a Change in Control. The following terms will have the meanings set forth below; unless the context clearly requires otherwise:

     (a) “1934 Act” will mean the Securities Exchange Act of 1934, as amended (or any successor provision), and the regulations promulgated under that Act.

     (b) “Beneficial Ownership” by a person or group of persons will be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission under the 1934 Act. Beneficial Ownership of an equity security may be established by any reasonable method, but will be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting such ownership.

     (c) “Change of Control” means the occurrence of any of the following events:

     (i) any person or group of persons attains Beneficial Ownership (as defined below) of 30% or more of any equity security of Employer entitled to vote for the election of directors;

     (ii) a majority of the members of the Board is replaced within the period of less than two years by directors not nominated and approved by the Board; or

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     (iii) the stockholders of Employer 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 Employer’s assets (including a plan of liquidation).

     (d) “Continuing Directors” are (i) directors who were in office prior to the time any events described in paragraphs (c)(i), (c)(ii) or (c)(iii) of this Section 6.1 occurred, or any person publicly announced an intention to acquire 20% or more of any equity security of Employer; (ii) directors in office for a period of more than two years; and (iii) directors nominated and approved by the Continuing Directors.

     (e) “Change in Control Termination” will mean that a Change in Control of Employer has occurred, and either of the following events also occurs within one (1) year after the Change in Control: (i) Employer terminates the Executive’s employment or this Agreement for any reason other than for Cause, Executive’s death or Executive’s Disability; or (ii) Executive terminates his employment for Good Reason.

     (f) “Good Reason” will mean, with respect to a voluntary termination of employment by Executive, any of the following:

     (i) an adverse involuntary change in Executive’s status or position as President and Chief Executive Officer of Employer, including, without limitation, (A) any adverse change in Executive’s status or position as a result of a material diminution in Executive’s duties, responsibilities or authority; (B) the assignment to Executive of any duties or responsibilities that, in Executive’s reasonable judgment, are significantly inconsistent with Executive’s status or position; or (C) any removal of Executive from, or any failure to reappoint or reelect Executive to, such position (except in connection with a termination of Executive’s employment for Cause in accordance with Article 5, or as a result of Executive’s Disability or death);

     (ii) in the event that following a Change in Control, Executive, in performing the duties of his employment, does not report directly to the Board, or if Employer is not an ultimate parent entity following such Change in Control, the board of directors of such ultimate parent entity;

     (iii) in the event of a Change in Control, either (A) a reduction by Employer in Executive’s Base Salary, or (B) a termination or adverse change in Executive’s incentive-based compensation package that materially and adversely effects Executive’s compensation as a whole;

     (iv) the taking of any action by Employer that would materially and adversely affect the physical conditions existing as of the date of the Change of Control, and under which Executive performs employment duties for Employer;

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     (v) Employer’s requiring Executive to be based anywhere other than where Executive’s office is located as of the effective date of this Agreement, except for required travel on Employer’s business to an extent substantially consistent with business travel obligations;

     (vi) in the event of a Change in Control, any failure by Employer to obtain from any Successor an assumption of this Agreement as contemplated by Section 9.1; or

     (vii) any purported termination by Employer or by a successor to the Employer either of this Agreement or of the employment of the Executive that is not expressly authorized by this Agreement; or any breach of this Agreement by Employer at any time, other than an isolated, insubstantial and inadvertent failure that does not occur in bad faith and is remedied by Employer within a reasonable period after Employer’s receipt of notice thereof from Executive.

     6.2 Benefits Upon a Change in Control Termination. If a Change in Control Termination occurs with respect to Executive, Executive will be entitled to the following benefits; provided, however, that to the extent Executive has already received the same type of benefits under Article 5 as a result of Executive’s Change in Control Termination, Executive’s benefits under this Section 6.2 will be offset by such other benefits, to the extent necessary to prevent duplication of benefits under this Agreement:

     (a) all of the payments and benefits that Executive would have been entitled to receive if the Change in Control Termination were described in Section 5.5(c), except that in lieu of any further Base Salary payments to Executive for periods subsequent to the Date of Termination, Employer will pay to Executive an amount equal to twenty-four (24) months of (i) Executive’s monthly Base Salary, plus (ii) the Employer-paid portion of health and welfare benefits coverage, plus (iii) the full, unprorated target incentive compensation payable to Executive under the Annual Management Incentive Plan in effect as of the Date of Termination without regard to actual achievement of incentive objectives, plus (iv) the greater of lease costs and expenses under the Executive Automobile Program or a lump sum of Thirty Thousand Dollars ($30,000.00); all such payments to be made in a single lump sum on or about the sixteenth day following Executive’s execution of the Release Agreement;

     (b) all terms and conditions of that Change of Control Agreement dated as of November 12, 2002 between Employer and Executive, a copy of which is attached to this Agreement as Exhibit E, shall continue in full force and effect, and is incorporated into this Agreement, granting to Executive the acceleration of incentives provided under Employer’s 1998 Stock Option and Compensation Plan; and

     (c) for a period of not less than six (6) months following Executive’s Date of Termination, Employer will reimburse Executive for all reasonable expenses incurred by Executive (excluding any arrangement by which Executive prepays expenses for a period of

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greater than thirty (30) days) in seeking employment with another employer, including the fees of a reputable outplacement organization selected by Employer, but not to exceed $12,000.00 in the aggregate.

     Executive will not be required to mitigate Employer’s payment obligations under this Article 6 by making any efforts to secure other employment; and Executive’s commencement of employment with another employer will not reduce the obligations of Employer under this Article 6.

     6.3 Limitation on Severance Payment. Notwithstanding any provision contained herein to the contrary, if any amount or benefit to be paid or provided under this Article 6, or any other plan or agreement between Executive and Employer would be an “Excess Parachute Payment,” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Article 6 will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction will be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes). If requested by Executive or Employer, the determination of whether any reduction in such payments or benefits to be provided under this Article 6 or otherwise is required pursuant to the preceding sentence will be made by an independent accounting firm that is a “Big-4 Accounting Firm” (or other accounting firm mutually acceptable to Executive and Employer) not then-engaged as Employer’s independent public auditor, at the expense of Employer, and the determination such independent accounting firm will be final and binding on all parties. In making its determination, the independent accountant will allocate a reasonable portion of the severance payment to the value of any personal services rendered following the Change in Control and the value of any noncompetition agreement or similar agreements to the extent that such items reduce the amount of the parachute payment. In the event that any payment or benefit intended to be provided under this Article 6 or otherwise is required to be reduced pursuant to this Section 6.3, Executive (in his sole discretion) will be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section. Employer will provide Executive with all information reasonably requested by Executive to permit Executive to make such designation. In the event that Executive fails to make such designation within ten (10) business days of receiving such information, Employer may effect such reduction in any manner it deems appropriate.

ARTICLE 7
PROTECTION OF EMPLOYER

     7.1 Confidential Information. For purposes of this Article 7, “Confidential Information” means information that is proprietary to Employer or proprietary to others and entrusted to Employer; whether or not such information includes trade secrets. Confidential Information includes, but is not limited to, information relating to Employer’s business plans and to its business as conducted or anticipated to be conducted, and to

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its past or current or anticipated products and services. Confidential Information also includes, without limitation, information concerning Employer’s customer lists or routes, pricing, purchasing, inventory, business methods, training manuals or other materials developed for Employer’s employee training, employee compensation, research, development, accounting, marketing and selling. All information that Executive has a reasonable basis to consider as confidential will be Confidential Information, whether or not originated by Executive and without regard to the manner in which Executive obtains access to this and any other proprietary information of Employer.

     Executive will not, during or after the termination of Executive’s employment under this Agreement, (a) directly or indirectly use for Executive’s own benefit; or (b) disclose any Confidential Information to, or otherwise permit access to Confidential Information by, any person or entity not employed by Employer or not authorized by Employer to receive such Confidential Information, without the prior written consent of Employer. Executive will use reasonable and prudent care to safeguard and protect and prevent the unauthorized use and disclosure of Confidential Information. Furthermore, except in the usual course of Executive’s duties for Employer, Executive will not at any time remove any Confidential Information from the offices of Employer, record or copy any Confidential Information or use for Executive’s own benefit or disclose to any person or entity directly or indirectly competing with Employer any information, data or materials obtained from the files or customers of Employer, whether or not such information, data or materials are Confidential Information.

     Upon any termination of Executive’s employment, Executive will collect and return to Employer (or its authorized representative) all original copies and all other copies of any Confidential Information acquired by Executive while employed by Employer.

     The obligations contained in this Section 7.1 will survive for as long as Employer, in its sole judgment, considers the information to be Confidential Information. The obligations under this Section 7.1 will not apply to any Confidential Information that is now or becomes generally available to the public through no fault of Executive or to Executive’s disclosure of any Confidential Information required by law or judicial or administrative process.

     7.2 Non-Competition. Executive agrees that, while employed by Employer and for a period of eighteen (18) months following the date of Executive’s termination of employment for any reason, Executive will not, directly or indirectly, alone or as an officer, director, shareholder, partner, member, employee or consultant of any other corporation or any partnership, limited liability company, firm or other business entity:

     (a) engage in, have any ownership interest in, financial participation in, or become employed by, any business or commercial activity in competition (i) with any part of Employer’s business, as conducted anywhere within the geographic area in which Employer has conducted its business within the three (3) years before such date, or (ii) with any part of Employer’s contemplated business with respect to which

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Executive has Confidential Information governed by Section 7.1. For purposes of this paragraph, “ownership interest” will not include beneficial ownership of less than one percent (1%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange or quoted on NASDAQ;

(b) call upon, solicit or attempt to take away any customers or accounts of Employer;

(c) solicit, induce or encourage any supplier of goods or services to Employer to cease its business relationship with Employer, or violate any term of any contract with Employer; or

(d) solicit, induce or encourage any other employee of Employer to cease employment with Employer, or otherwise violate any term of such employee’s contract of employment with Employer.

The restrictions set forth in this Section 7.2 will survive any termination of this Agreement or other termination of Executive’s employment with Employer, and will remain effective and enforceable for the full 18-month period; provided, however, that this period will be automatically extended and will remain in full force for an additional period equal to any period in which Executive is proven to have violated any such restriction.

     7.3 Protection of Reputation. Executive will, both during and after the termination of Executive’s employment under this Agreement, refrain from communicating to any person, including without limitation any employee of Employer, any statements or opinions that are negative in any way about Employer or any of its past, present or future officials. In return, whenever Employer sends or receives any Notice of Termination of Executive’s employment under this Agreement, Employer will advise the members of its operating committee and executive committee (or any successors to such committees), to refrain from negative communications about Executive to third parties.

     7.4 Remedies. The parties declare and agree that it is impossible to accurately measure in money the damages that will accrue to Employer by reason of Executive’s failure to perform any of Executive’s obligations under this Article 7; and that any such breach will result in irreparable harm to Employer, for which any remedy at law would be inadequate. Therefore, if Employer institutes any action or proceeding to enforce the provisions of this Article 7, Executive hereby waives the claim or defense that such party has an adequate remedy at law, Executive will not assert in any such action or proceeding the claim or defense that such party has an adequate remedy at law, and Employer will be entitled, in addition to all other remedies or damages at law or in equity, to temporary and permanent injunctions and orders to restrain any violations of this Article 7 by Executive and all persons or entities acting for or with Executive.

     7.5 Survival. The provisions and obligations of Article 7 of this Agreement will survive the termination of this Agreement or the termination of the Executive’s employment with Employer, and will remain in full force and effect thereafter.

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     7.6 Continuation. Executive and Employer acknowledge that the terms and conditions of this Article 7 restate and continue terms and conditions previously agreed to between then as a condition for Executive’s first employment with Employer. To the extent that any portion of this Article 7 may be deemed invalid for a failure of Employer to provide new consideration to Executive, then that portion of this Article 7 will be deemed to have been supported by the previous agreements between Executive and Employer as a condition for his first employment with Employer.

ARTICLE 8
GENERAL PROVISIONS

     8.1 Successors and Assigns; Beneficiary.

(a) For purposes of this Agreement, “Successor” will mean any corporation, individual, group, association, partnership, limited liability company, firm, venture or other entity or person that, subsequent to the effective date of this Agreement, succeeds to the actual or practical ability to control (either immediately or with the passage of time) substantially all of Employer and/or Employer’s business and/or assets, directly or indirectly, by merger, consolidation, recapitalization, purchase, liquidation, redemption, assignment, similar corporate transaction, operation of law or otherwise.

     (b) This Agreement will be binding upon and inure to the benefit of any Successor of Employer and each Subsidiary, and any such Successor will absolutely and unconditionally assume all of Employer’s and any Subsidiary’s obligations hereunder. Upon Executive’s written request, Employer will seek to have any Successor, by agreement in form and substance satisfactory to Executive, assent to the fulfillment by Employer of their obligations under this Agreement. Failure to obtain such assent prior to the time a person or entity becomes a Successor (or where Employer does not have advance notice that a person or, entity may become a Successor, within one (1) business day after having notice that such person or entity may become or has become a Successor) will constitute Good Reason for termination of employment by Executive pursuant to Article 6.

     (c) This Agreement and all rights of Executive hereunder will inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees and any assignees permitted hereunder. If Executive dies while any amounts would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, will be paid in accordance with the terms of this Agreement to Executive’s Beneficiary. Executive may not assign this Agreement, in whole or in any part, without the prior written consent of Employer.

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     (d) For purposes of this Section 9.1, “Beneficiary” means the person or persons designated by Executive (in writing to Employer) to receive benefits payable after Executive’s death pursuant to Section 9.1(c). In the absence of any such designation or in the event that all of the persons so designated predecease Executive, Beneficiary means the executor, administrator or personal representative of Executive’s estate.

     8.2 Litigation Expense. If any party is made or will become a party to any litigation (including arbitration) commenced by or against the other party involving the enforcement of any of the rights or remedies of such party, or arising on account of a default of the other party in its performance of any of the other party’s obligations hereunder, then the parties will bear their own expenses and attorneys’ fees.

     8.3 No Offsets. In no event will any amount payable to Executive pursuant to this Agreement be reduced for purposes of offsetting, either directly or indirectly, any indebtedness or liability of Executive to Employer.

     8.4 Notices. All notices, requests and demands given to or made pursuant hereto will, except as otherwise specified herein, be in writing and be personally delivered or mailed postage prepaid, registered or certified U. S. mail, to any party as its address set forth on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice hereunder will be deemed effectively given and received: (a) if personally delivered, upon delivery; or (b) if mailed, on the registered date or the date stamped on the certified mail receipt.

     8.5 Captions. The various headings or captions in this Agreement are for convenience only and will not affect the meaning or interpretation of this Agreement. When used herein, the terms “Article” and “Section” mean an Article or Section of this Agreement, except as otherwise stated.

     8.6 Governing Law. The validity, interpretation, construction, performance, enforcement and remedies of or relating to this Agreement, and the rights and obligations of the parties hereunder, will be governed by the substantive laws of the State of Minnesota (without regard to the conflict of laws rules or statutes of any jurisdiction), and any and every legal proceeding arising out of or in connection with this Agreement will be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose.

     8.7 Construction. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     8.8 Waiver. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder will operate as a waiver thereof; nor will any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law.

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     8.9 Modification. This Agreement may not be modified or amended except by written instrument signed by the parties hereto.

     8.10 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, including that Executive Employment Agreement between them effective as of June, 2002, except as otherwise provided in this Agreement, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement.

     8.11 Survival. The parties expressly acknowledge and agree that the provisions of this Agreement which by their express or implied terms extend (a) beyond the termination of Executive’s employment hereunder (including without limitation provisions relating to severance compensation and effects of a Change in Control); or (b) beyond the termination of this Agreement, including, without limitation Article 7 (relating to confidential information, non-competition and non-solicitation), will continue in full force and effect notwithstanding Executive’s termination of employment hereunder or the termination of this Agreement, respectively.

     8.12 Voluntary Agreement. Executive has entered into this Agreement voluntarily, after having the opportunity to consult with an advisor chosen freely by Executive.

     IN WITNESS WHEREOF, the parties hereto have caused this Executive Employment Agreement to be duly executed and delivered on the day and year first above written, but effective retroactively as of the effective date of this Agreement.

EMPLOYER:	G&K SERVICES, INC.
	By
	Richard Fink
		Its Chairman of the Board of Directors
EXECUTIVE:
	Richard L. Marcantonio
Executive’s Address:	5995 Opus Parkway
	Minnetonka, MN 55343

Signature Page — Executive Employment Agreement

EXHIBIT A

RESTRICTED STOCK AGREEMENT

RESTRICTED STOCK AGREEMENT (the “Agreement”) made effective January 2, 2002 by and between G&K Services, Inc., a Minnesota corporation, having a place of business at G&K Services, Inc., 5995 Opus Parkway, Suite 500, Minnetonka, MN 55343 (the “Company”), and                      (“Employee”).

WITNESSETH:

WHEREAS, the Company has adopted the G&K Services, Inc. 1998 Stock Option and Compensation Plan (the “Plan”) to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives designed to attract, retain and motivate employees; and

WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”) believes that entering into this Agreement with Employee is consistent with the stated purposes for which the Plan was adopted.

NOW, THEREFORE, it is agreed as follows:

1. Grant of Stock.

Subject to the terms and provisions of this Agreement and the Plan, the Company hereby sells to Employee the number of shares of Class A Common Stock, $0.50 par value, of the Company (the “Stock”) for the purchase price set forth at the end of this Agreement after “Number of Shares” and “Purchase Price”, respectively. The Stock will be transferred of record to Employee and a certificate or certificates representing the Stock will be issued in the name of Employee upon the execution of this Agreement, the payment of the Purchase Price set forth at the end of this Agreement, if any, and the execution and delivery by Employee to the Company of a stock power endorsed in blank. Each such certificate will bear a legend in the form provided for in the Plan. The Stock, together with a stock power endorsed in blank by employee, will be deposited with the Company. Employee will not be entitled to delivery of certificates representing the Stock until the expiration of the restrictions set forth in paragraph 3 of this Agreement.

2. Rights of Employee

Upon the execution of this Agreement and issuance of the certificates for the Stock, Employee will become a stockholder with respect to the Stock and will have all of the rights of a stockholder with respect to all such shares, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares, provided, however, that such shares will be subject to the restrictions set forth in paragraph 3 of this Agreement.

Notwithstanding the preceding paragraph, the Committee may, in its discretion, instruct the Company to withhold any stock dividends or stock splits issued on or with respect to shares that are subject to the restrictions provided for in Paragraph 3 of this Agreement.

3. Restrictions

Employee agrees that at all times prior to the vesting of the Stock as contemplated by Paragraph 4 hereof:

a)

Employee will not sell, transfer, pledge, hypothecate or otherwise encumber the Stock; and

b)

If Employee’s employment with the Company is voluntarily or involuntarily terminated for any reason whatsoever, or Employee violates the terms of any confidentiality agreement, non-solicitation covenant or covenant not to compete, however delineated, subject to paragraph 4 hereof, Employee will forfeit and transfer to the Company all shares of Stock, and the Company will pay Employee an amount equal to the Purchase Price of $.50 par value paid by Employee, if any, with respect to the shares of Stock so forfeited.

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c) If the Employee is transferred out of an eligible-level position, the employee will receive any shares vesting within nine months of transfer. Any remaining shares will be forfeited and the Company will pay the Employee an amount equal to the Purchase Price of $.50 par value paid by the Employee with respect to the shares of Stock forfeited.

4. Lapse of Restrictions

Subject to Section 11.12 of the Plan, the restrictions set forth in Paragraph 3 of this Agreement will lapse on one-fifth of the Stock on January 2, 2003, and one-fifth of the Stock on each of the next four successive anniversaries of such date. The Company will deliver certificates representing the shares of Stock upon which the restrictions have lapsed and have become vested, free and clear of all restrictions, except as provided in Section 11.5 of the Plan, within 30 days after the date such shares of Stock have become vested.

5. Securities Act

The Company will have the right, but not the obligation, to cause the shares of Stock issuable hereunder to be registered under the appropriate rules and regulations of the Securities and Exchange Commission.

Employee hereby represents and warrants to the Company that Employee is acquiring the shares for investment and not with a view to the sale or distribution thereof.

If shares of Stock or other securities issuable hereunder have not been registered under the Securities Act of 1933, as amended, or other applicable federal or state securities law or regulations, such shares will bear a legend restricting the transferability thereof, such legend to be substantially in the following form:

     “The shares represented by this certificate have not been registered or qualified under federal or state securities laws. The shares may not be offered for sale, sold, pledged or otherwise disposed of unless so registered or qualified, unless an exemption exists or unless such disposition is not subject to the federal or state securities laws, and the availability of any exemption or the inapplicability of such securities laws must be established by an opinion of counsel, which opinion and counsel will both be reasonably satisfactory to the Company.”

6. Copy of Plan

By the execution of this Agreement, Employee acknowledges receipt of a copy of the Plan, the terms and conditions of which are hereby incorporated herein by reference and made a part hereof by reference as if set forth in full.

7. Administration

This Agreement will at all times be subject to the terms and conditions of the Plan. The Committee will have the sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of the Committee with respect thereto and to this Agreement will be final and binding upon Employee. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan will govern and control.

8. Continuation of Employment

This Agreement will not confer upon Employee, and will not be construed to confer upon Employee, any right to continue in the employ of the Company for any period of time, and will not limit the rights of the Company in their sole discretion, to terminate the employment of Employee at any time, with or without cause, for any reason or no reason, or to change Employee’s assignment or rate of compensation.

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9. Section 83(b) Election

Employee understands that he (and not the Company) will be responsible for his own federal, state, local or foreign tax liability and any of his other tax consequences that may arise as a result of the transactions contemplated by this Agreement. Employee will rely solely on the determinations of his tax advisors or his own determinations, and not on any statements or representations by the Company or any of its agents, with regard to all such tax matters. Employee understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the difference between the amount paid for the Stock and the fair market value of the Stock as of the date any restrictions on the Stock lapse. In this context, “restriction” includes without limitation the vesting restrictions set forth in paragraph 3 hereof. In the event the Company has registered any of its shares under the Securities Exchange Act of 1934, “restriction” with respect to officers, directors and ten percent (10%) shareholders also means the period after the purchase of the Stock during which such officer, director and ten percent (10%) shareholders could be subject to suit under Section 16(b) of the Securities Exchange Act of 1934. Employee understands that Employee may elect to be taxed at the time the shares of Stock are purchased rather than when and as the restrictions on the Stock lapse or expire by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days from the date of purchase. In the event Employee files an election under Section 83(b) of the Code, such election will contain all information required under the applicable treasury regulation(s) and Employee will deliver a copy of such election to the Company contemporaneously with filing such election with the Internal Revenue Service. EMPLOYEE ACKNOWLEDGES THAT IT IS EMPLOYEE’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF EMPLOYEE REQUESTS THAT THE COMPANY OR ITS REPRESENTATIVES MAKE THIS FILING ON EMPLOYEE’S BEHALF.

10. Governing Law

This Agreement, in its interpretation and effect, will be governed by the laws of the State of Minnesota applicable to contracts executed and to be performed therein.

11. Amendments

This Agreement may be amended only by a written agreement executed by the Company and Employee.

12. Entire Agreement

This Agreement embodies the entire agreement made between the parties hereto with respect to matters covered herein and will not be modified except in accordance with paragraph 11 of this Agreement.

13. Counterparts

This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which will constitute but one and the same agreement.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed as of the date first written above.

	G&K Services, Inc.
	By:
	Its:	Chief Executive Officer
Name
Number of Shares: 15,000
Purchase Price: $.50 per share

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EXHIBIT B

SEPARATION AGREEMENT AND GENERAL RELEASE

Definitions. All the words used in this Separation Agreement and General Release have their plain meaning in ordinary English. Specific terms used in this Separation Agreement and General Release have the following meanings:

1.	Words such as I and me include both me and anyone who has or obtains any legal rights or claims through me. My name is ___.
2.	“G&K” means G&K Services, Inc., and its past or present managers, agents, officers, directors, employees, shareholders, committees, insurers, indemnitors, successors or assigns of any of the foregoing entities.

G&K’s Promises. In exchange for My Promises, as set forth below, G&K has promised to extend the following consideration to me, but only if I have not exercised my rights to rescind as provided in this agreement:

1. Pay me, as separation pay which I have not earned, and to which I am not otherwise entitled,                      (___) months of my monthly Base Salary in effect as of the Date of Termination, less any separation pay amounts to which I am entitled under any written Plan generally applicable to management employees of G&K. Payment of the separation pay will be made sixteen days after I sign this agreement, and only if I have not exercised my rights to revoke or rescind as provided in this agreement. These payments will be subject to applicable federal and state income tax and FICA withholding.

My Claims. The claims I am releasing include all of my rights to any relief of any kind from G&K including but not limited to:

1.	All claims I have now, whether or not I now know about the claims;
2.	All claims for attorney’s fees;
3.	All claims, through the date this document is executed, for alleged discrimination against me and any other rights and claims, the Minnesota Human Rights Act (“MHRA”), the federal Age Discrimination in Employment Act (“ADEA”) or any other federal, state, or local law;
4.	All claims arising out of my offer of employment, employment or my separation from employment with G&K including, but not limited to, any alleged breach of contract, wrongful termination, defamation or intentional infliction of emotional distress;
5.	All claims for any other alleged unlawful employment practices arising out of or relating to my employment or my separation from employment; and
6.	All claims for any other form of pay, for example unaccrued holiday pay, vacation pay and sick pay.

My Promises. In exchange for receiving the payments and other consideration set forth in this Separation Agreement and General Release, I promise to give up all my claims against G&K. I fully and finally release, give up, and otherwise relinquish all of my rights and claims against G&K, including for example rights and claims under the MHRA and ADEA. I will not bring any lawsuits or make any other demands against

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G&K, except if necessary to enforce the provisions of this Separation Agreement and General Release. The money and benefits I will receive as set forth in this Separation Agreement and General Release are full and fair payment for the release of all my rights and claims. G&K does not owe me anything in addition to what I will receive under this Separation Agreement and General Release. The consideration extended by G&K in this agreement in return for my release of rights and claims is more than anything of value to which I am already entitled.

Additional Agreements and Understandings.

1.	G&K does not admit that it is responsible or legally obligated to me, and in fact G&K denies that it is responsible or legally obligated to me even though it has paid me to release my claims.
2.	My last day of employment is                                         .
3.	This Agreement replaces, supersedes and nullifies any prior oral or written agreements between G&K and me, with the exception of the provisions set forth in Article 7 of the Executive Employment Agreement between me and G&K, and the terms of any written Plan generally applicable to management employees of G&K.

Rights to Consider, Revoke and Rescind.

1.	I understand that I am advised by G&K to consult an attorney prior to signing this Separation Agreement and General Release.
2.	I further understand that I have twenty-one (21) days to consider this Separation Agreement and General Release of age discrimination claims under the ADEA, beginning                                         , the date on which I received this Separation Agreement and General Release. If I sign this Separation Agreement and General Release, I understand that I will then be entitled to revoke my release of any rights and claims of age discrimination under the ADEA within seven (7) days of executing it, and the release of my ADEA rights and claims will not become effective or enforceable until the seven-day period has expired.
3.	I further understand that I have the right to rescind this general release of discrimination rights and claims under the MHRA within fifteen (15) calendar days of the date upon which I sign it. I understand that, if I desire to rescind my general release of discrimination rights and claims under the MHRA, I must put my rescission request in writing and deliver it to G&K by hand or by mail within 15 calendar days of the date of execution of this Separation Agreement and General Release by me. If I deliver my rescission request by mail, it must be:

a.	postmarked within 15 calendar days of the day on which I sign this Separation Agreement and General Release;
b.	addressed to Mary Anderson, Director of Compensation & Benefits, G&K Services, Inc., 5995 Opus Parkway, Suite 500, Minnetonka, Minnesota 55343 and,

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c. sent by certified mail, return receipt requested.

     I understand that if I revoke or rescind this Separation Agreement and General Release, all of G&K’s obligations under this agreement will immediately cease, and G&K will not pay me any of the money or benefits in this agreement.

     I have read this Separation Agreement and General Release carefully and understand all of its terms. I have had the opportunity to discuss this Separation Agreement and General Release with my own attorney prior to signing it. In agreeing to sign this Separation Agreement and General Release, I have not relied on any statements or explanations made by G&K, its agents or its attorneys.

	(Name)
Subscribed and sworn to
before me this            day
of                     , 20     .
Notary Public
	G&K SERVICES, INC.
	By
	Its

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EXHIBIT C

PROMISSORY NOTE

$400,000	Minneapolis, Minnesota
	June ___, 2002

FOR VALUE RECEIVED, Richard L. Marcantonio (“Maker”), promises to pay to G&K Services, Inc., a Minnesota corporation (the “Company” or “Holder”) at its office at 5995 Opus Parkway, Suite 500, Minnetonka, Minnesota 55343, or at such other place as the holder hereof may from time to time designate in writing, in lawful money of the United States of America, the principal sum equal to Four Hundred Thousand Dollars ($400,000) (the “Principal Sum”), upon the terms and subject to the conditions set forth herein.

No interest shall accrue on the unpaid Principal Sum during the term of this Note.

     Subject to the forgiveness of certain amounts of the Principal Sum, as provided below, the Principal Sum shall be payable in five (5) annual installments, each in the amount set forth under the caption “Amount Payable” in the table below, commencing on the one-year anniversary of the date hereof and continuing on each of the next four (4) successive anniversaries thereof (each a “Payment Date”). For so long as Maker continues to be employed by Holder, the amount of the Principal Sum set forth under the caption “Amount Subject To Forgiveness” in the table below shall be forgiven by Holder on the applicable anniversary of the date hereof.

		Amount Subject
Anniversary	Amount Payable ($)	to Forgiveness ($)
1st Year	80,000	40,000
2nd Year	80,000	40,000
3rd Year	80,000	40,000
4th Year	80,000	40,000
5th Year	80,000	40,000

     In addition to any amounts forgiven pursuant to the terms hereof, the amount payable by Maker to Holder on each Payment Date shall be further reduced by an amount (the “Gross-Up Amount”) equal to any federal, state and local income imposed on Maker as a result of the forgiveness of portions of the Principal Sum hereunder or the interest-free nature of this Note. For purposes of determining the Gross-Up Amount, Maker shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year of the applicable Payment Date and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Maker’s residence in the calendar year of the applicable Payment Date, net of the maximum reduction in federal income taxes that may be obtained from the deduction of such state and local taxes.

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     This Note may be prepaid in whole or in part at any time without payment of any prepayment penalty or fee. Any prepayment shall not accelerate forgiveness of the Amounts Subject to Forgiveness as detailed above.

     The Maker shall remain liable for the payment of this Note, and any other charges payable hereunder, notwithstanding any extension or extensions of time for payment or any indulgence of any kind that Holder may grant to Maker.

     The occurrence of either of the following events shall constitute an event of default under this Note (each such event is hereinafter referred to as an “Event of Default”):

(a)	Voluntary termination not for “Good Reason” (as defined in Maker’s employment agreement with Holder) by Maker of his employment with Holder at any time prior to the five-year anniversary of the commencement of Maker’s employment with Holder; or
(b)	Termination for “Cause” (as defined in Maker’s employment agreement with Holder) by Holder of Maker’s employment with Holder at any time prior to the five-year anniversary of the commencement of Maker’s employment with Holder.

     Upon the occurrence of an Event of Default, Holder may, at its sole and absolute discretion declare the outstanding amount of the Principal Sum to be immediately due and payable in full without demand. Upon the occurrence of an Event of Default hereunder Holder may, at its sole and absolute discretion, deduct any amounts then due hereunder from any money due or to become to Maker from Holder.

     The Maker agrees to pay on demand the costs of collection, including, without limitation, reasonable attorneys’ fees incurred by Holder in collecting or attempting to collect any amount under this Note that is not paid when due or to enforce its rights under this Note. All such costs of collection shall bear interest, payable on demand, from the date of payment thereof by Holder until paid in full by Maker at the lesser of (i) the highest rate permitted by law or (ii) eight (8%) percent.

     Holder shall not by any act of omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver is in writing and signed by an authorized officer of Holder and then only to the extent specifically set forth therein. A waiver on one occasion shall not be construed to be a continuing waiver of such right or remedy on any other occasion.

     Every person who is at any time liable for the payment of the debt evidenced by this Note hereby waives presentment for payment, demand, notice of nonpayment of this Note, protest and notice of protest, and the right to trial by jury in any litigation arising out of, relating to, or connected with this Note or with any instrument given as security herefor, and hereby agrees that Holder may extend, without affecting their liability hereon, the time for payment of any part of or the whole of the debt evidenced by this Note, at any time, at the request of any other person or entity liable for said debt.

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     This Note is given and accepted as evidence of indebtedness only and not in payment of or in satisfaction of any indebtedness or obligation.

     The form and essential validity of this Note shall be governed by the laws of the State of Minnesota applicable to contracts made and to be performed wholly within Minnesota, without giving effect to conflicts of laws principles. All lawsuits and judicial proceedings regarding the interpretation of this Note, any dispute arising hereunder or the collection of any amount due under this Note shall be brought and heard in the District Court, State of Minnesota, Fourth Judicial District, and Maker hereby consents to such jurisdiction. If any portion of this Note is unenforceable, the remainder of this Note shall continue in full force and effect.

     Time is of the essence with respect to all of Maker’s obligations and agreements under this Note.

     This Note and all the provisions, conditions, promises and covenants hereof shall inure to the benefit of Holder, its successors and assigns, and shall be binding upon the Maker, his personal representatives, heirs, successors and assigns.

     This Note is not an employment contract for a definite term. This Note is not intended to modify the at-will employment relationship between Maker and Holder.

     IN WITNESS WHEREOF, the Maker has caused this Note to be signed on his behalf on the day and year first above written.

	Richard L. Marcantonio
Subscribed and sworn to
before me this            day
of                     , 20     .
Notary Public
	G&K SERVICES, INC.
	By
	Its

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EXHIBIT D

STOCK PLEDGE AGREEMENT

     This STOCK PLEDGE AGREEMENT is made and entered into as of the ___day of                     , 2002, by and between Richard L. Marcantonio, a resident of the State of Minnesota (the “Pledgor”) and G&K Services, Inc., a Minnesota corporation (“Pledgee”).

INTRODUCTION

     A. Promissory Note. Pledgor has issued a Promissory Note in the original principal amount of Four Hundred Thousand Dollars ($400,000) (the “Principal Sum”).

     B. Security. To induce Pledgee to enter into the transactions described above, and as security for payments due under the Note, Pledgor has agreed to pledge shares of                                         , a                      corporation (the “Shares”), which Shares have a value of at least 130% of the Principal Sum.

AGREEMENT

     NOW, THEREFORE, in order to secure payment of all amounts due and owing Pledgee under the Note (collectively, the “Obligations”), and in consideration of the facts recited above (which are a part of this Agreement) and the promises set forth below, it is agreed:

     1. Pledge. As collateral for the payment of the Obligations, Pledgor hereby grants a security interest to Pledgee and deposits with Pledgee (accompanied by a stock power in blank) the Shares (which Shares, as adjusted from time to time as provided herein, shall hereinafter to be referred to as the “Pledged Stock”), and Pledgor agrees to perform the obligations set forth herein. Pledgor hereby appoints Pledgee as attorney-in-fact to arrange for the transfer of the Pledged Stock on the books of the Company into the name of Pledgee if an Event of Default (as defined below) occurs as set forth herein. The Pledged Stock shall be held and disposed of pursuant to the terms of this Agreement.

     2. Further Assurances. Pledgor agrees at any time, and from time to time, to execute such other instruments as Pledgee may reasonably request to establish, maintain and perfect the security interest in the Pledged Stock conveyed by this Agreement.

     3. Rights of Pledgor. Prior to the occurrence of an Event of Default:

     (a) Pledgor shall have the right to exercise all voting and other powers pertaining to the Pledged Stock for all purposes; and

     (b) All dividends or other distributions with respect to the Pledged Stock shall be payable to Pledgor; provided, however, that following an Event of Default, all dividends or other distributions with respect to the Pledged Stock shall be payable to Pledgee.

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     4. Representations and Warranties. Pledgor represents and warrants as follows:

     (a) Pledgor will not sell or otherwise dispose of any Pledged Stock or any interest therein without the prior written consent of the Pledgee; and

     (b) Throughout the term of this Agreement, Pledgor will keep the Pledged Stock free and clear of all security interests, liens, and encumbrances, except the security interest granted hereunder.

     5. Adjustment. If during the term of this Agreement any share dividend, reclassification, readjustment or other change is declared or made in the capital structure of the Company, then all new, substituted, and additional shares, or other securities issued by reason of original issuance of the Pledged Stock shall be subject to the terms of this Agreement in the same manner as, and as a part of, the Pledged Stock.

     6. Release of Shares; Termination. On each Payment Date (as such term is defined in the Note), Pledgee agrees to release Shares of Pledged Stock to the extent that the remaining Shares have an aggregate value of 130% of the Obligations, and Pledgee shall transfer to Pledgor such released Shares and deliver any assignments separate from certificate for cancellation relating thereto. Upon full performance of all of the Obligations, Pledgee shall transfer to Pledgor all of the Pledged Stock and deliver any assignments separate from certificate for cancellation, and all rights received by Pledgee under this Agreement shall terminate.

     7. Events of Default. An event of default under this Agreement (“Event of Default”) shall occur when an Event of Default occurs under the Note, and remains uncured for thirty (30) days after written notice of such default is given by Pledgee to Pledgor.

     8. Remedies. Upon the occurrence of an Event of Default and at any time thereafter, Pledgee may exercise any one or more of the following rights or remedies:

     (a) exercise all voting rights, rights to receive dividends and other distributions, and other rights as a holder of the Pledged Stock;

     (b) exercise and enforce any or all rights and remedies available upon default to a secured party under the Uniform Commercial Code, including (i) the right to offer and sell the Pledged Stock privately to purchasers who will agree to take the Pledged Stock for investment and not with a view to distribution, and who will agree to the imposition of restrictive legends on any certificates representing the Pledged Stock, and (ii) the right to arrange for a sale that would otherwise qualify as exempt from registration under the Securities Act of 1933, as amended; and, if notice to Pledgor of any intended disposition of the Pledged Stock or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given at least twenty (20) calendar days prior to the date of intended disposition or other action; and

     (c) exercise or enforce any or all other rights or remedies available to Pledgee by law or agreement against the Pledged Stock, against Pledgor or against any other person or property.

     9. Application of Proceeds. The proceeds of any sale of all or a part of the Pledged Stock shall be applied as follows:

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     (a) First, to the payment of all costs and expenses incurred by Pledgee in enforcing its rights under this Agreement, including without limitation, the reasonable fees of attorneys or other agents employed by Pledgee in connection therewith;

     (b) Second, to the payment of all of the Obligations then due and owing; and

     (c) Third, any surplus remaining after application of the proceeds pursuant to subparagraphs (a) and (b) above shall be paid to Pledgor or the successors or assigns thereof.

Pledgor shall remain liable to Pledgee for any deficiency.

     10. Miscellaneous. The parties agree as follows:

     (a) No waiver of any of the provisions or conditions of this Agreement shall be effective unless such waiver is in writing and signed by the party claimed to have given, or consented to, such waiver.

     (b) No failure on the part of Pledgee to exercise, and no delay on the part of Pledgee in exercising, any right, power, or remedy pursuant to this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by Pledgee of any right, power, or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or remedy. The remedies herein provided are cumulative and shall not be exclusive of any other remedies provided by law or agreement.

     (c) The terms and conditions of this Agreement shall inure to the benefit of, and be binding upon, the respective legal representatives, successors and permitted assigns of the parties; provided, however, that neither party may assign this Agreement or its obligations, duties, or liabilities hereunder without the express prior written consent of the other party.

     (d) This Agreement is delivered and is intended to be performed in the State of Minnesota and should be construed and enforced in accordance with the laws of such State, without regard to conflict of law principles.

     (e) All notices, requests, demands, and other communications hereunder shall be in writing, and shall be deemed to have been duly given three days after mailed if sent by registered mail, return receipt requested, postage prepaid, to the parties at the following addresses (or to any other address given to the other party pursuant to the provisions of this subsection):

If to Pledgor:	If to Pledgee:
	G&K Services, Inc.
	5995 Opus Parkway, Suite 5500
	Minnetonka, MN 55343
	Attention: Chief Financial Officer

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     (f) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     (g) This Agreement may not be amended except by written agreement executed by all parties hereto.

     (h) If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby.

     (i) All representations and warranties contained in this Agreement shall survive the execution, delivery, and performance of this Agreement and any other documents or instruments executed or delivered in connection with or pursuant to any of the foregoing.

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

PLEDGOR:

Richard L. Marcantonio

PLEDGEE:

G&K SERVICES, INC.

By:

Name:

Title:

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EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard L. Marcantonio, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of G&K Services, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

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

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

Date: November 2, 2006

By:	/s/ Richard L. Marcantonio
	Richard L. Marcantonio, Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey L. Wright, certify that:

1. I have reviewed this quarterly report on Form 10-Q of G&K Services, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: November 2, 2006

By:	/s/ Jeffrey L. Wright
	Jeffrey L. Wright, Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

G&K SERVICES INC.
CERTIFICATION OF CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of G&K Services, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard L. Marcantonio, Chairman of the Board and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

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

Date: November 2, 2006

By:	/s/ Richard L. Marcantonio
	Richard L. Marcantonio, Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

G&K SERVICES INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of G&K Services, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jeffrey L. Wright, Senior Vice President and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

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

Date: November 2, 2006

By:	/s/ Jeffrey L. Wright
	Jeffrey L. Wright, Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)