-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KUNxL/InzyH6MHdb0iQa03kJTahUguSlgrffICXAljVgiD0pWgyB9IzEARah3IHU /rgb6q5q82Mfsv41G4MD+g== 0001047469-97-000142.txt : 19971009 0001047469-97-000142.hdr.sgml : 19971009 ACCESSION NUMBER: 0001047469-97-000142 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971030 FILED AS OF DATE: 19971008 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: G&K SERVICES INC CENTRAL INDEX KEY: 0000039648 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 410449530 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-04063 FILM NUMBER: 97692412 BUSINESS ADDRESS: STREET 1: 505 WATERFORD PARK STREET 2: STE 455 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125467440 MAIL ADDRESS: STREET 1: 505 WATERFORD PARK STREET 2: STE 455 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST LINEN CO DATE OF NAME CHANGE: 19681227 DEF 14A 1 DEF 14A SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 G&K SERVICES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------ (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------ (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------ (5) Total fee paid: ------------------------------------------------------------------------ / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------ (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------ (3) Filing Party: ------------------------------------------------------------------------ (4) Date Filed: ------------------------------------------------------------------------ [LOGO] G&K SERVICES, INC. 5995 Opus Parkway, Suite 500 Minneapolis, Minnesota 55343 ------------------------ NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OCTOBER 30, 1997 --------------------- TO THE STOCKHOLDERS OF G&K SERVICES, INC.: Please take notice that the Annual Meeting of Stockholders of G&K Services, Inc. (the "Company") will be held, pursuant to due call by the Board of Directors of the Company, in the Mississippi Room of the Marquette Hotel, Seventh and Marquette, Minneapolis, Minnesota, on Thursday, October 30, 1997, at 10:00 a.m., or at any adjournment or adjournments thereof, for the purpose of considering and taking appropriate action with respect to the following: 1. To elect seven directors; 2. To ratify the appointment of Arthur Andersen LLP, Certified Public Accountants, as independent auditors of the Company for 1998; 3. To approve an amendment to the Company's 1989 Stock Option and Compensation Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 1,500,000 shares; and 4. To transact any other business as may properly come before the meeting or any adjournments thereof. Pursuant to due action of the Board of Directors, stockholders of record on September 25, 1997, will be entitled to vote at the meeting or any adjournments thereof. A PROXY FOR THE MEETING IS ENCLOSED HEREWITH. YOU ARE REQUESTED TO FILL IN AND SIGN THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. By Order of the Board of Directors G&K SERVICES, INC. Timothy W. Kuck, SECRETARY October 8, 1997 PROXY STATEMENT OF G&K SERVICES, INC. 5995 OPUS PARKWAY, SUITE 500 MINNEAPOLIS, MINNESOTA 55343 ------------------------ ANNUAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 30, 1997 --------------------- PROXIES AND VOTING This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of G&K Services, Inc. (the "Company") to be used at the Annual Meeting of Stockholders of the Company to be held October 30, 1997. The approximate date on which this Proxy Statement and the accompanying proxy were first sent or given to stockholders was October 8, 1997. Each stockholder who signs and returns a proxy in the form enclosed with this Proxy Statement may revoke the same at any time prior to its use by giving notice of such revocation to the Company in writing, in open meeting or by executing and delivering a new proxy to the Secretary of the Company. Unless so revoked, the shares represented by each proxy will be voted at the meeting and at any adjournments thereof. Presence at the meeting of a stockholder who has signed a proxy does not alone revoke that proxy. Only stockholders of record at the close of business on September 25, 1997 (the "Record Date") will be entitled to vote at the meeting or any adjournments thereof. All shares which are entitled to vote and are represented at the Annual Meeting by properly executed proxies received prior to or at the Meeting, and not revoked will be voted at the Meeting in accordance with the instructions indicated on such proxies. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF The Company has outstanding two classes of voting securities, Class A Common Stock, $0.50 par value, and Class B Common Stock, $0.50 par value, of which 18,990,629 shares of Class A Common Stock and 1,474,996 shares of Class B Common Stock were outstanding as of the close of business on the Record Date. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters put to a vote of stockholders. The following table sets forth, as of the Record Date, certain information with regard to the beneficial ownership of the Company's Class A and Class B Common Stock and the voting power resulting from the ownership of such stock by (i) all persons known by the Company to be the owner, of record or beneficially, of more than 5% of the outstanding Class A or Class B Common Stock of the Company, 1 (ii) each of the directors and nominees for election to the Board of Directors of the Company, (iii) each executive officer named in the Summary Compensation Table, and (iv) all executive officers and directors as a group, inclusive of each Named Executive Officer and without regard to whether such persons are also reporting persons for purposes of Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
CLASS A COMMON STOCK(2) CLASS B COMMON STOCK ------------------------------ ------------------------- PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTING NAME OF BENEFICIAL OWNER(1) SHARES CLASS SHARES CLASS POWER(3) - --------------------------------------------- --------------- ------------- ---------- ------------- ------------- Richard Fink(4)(5)........................... 312,499 1.6 1,315,135 89.2 39.9 5995 Opus Parkway, Suite 500 Minneapolis, MN 55343 RCM Capital Management(6).................... 1,262,500 6.6 -- -- 3.7 Four Embarcadero Center, Suite 2900 San Francisco, CA 94111 Dresdner Bank AG(7).......................... 1,262,500 6.6 -- -- 3.7 Jurgen-Ponto-Platz 1 60301 Frankfurt, Germany Wellington Management Company(8)............. 1,203,700 6.3 -- -- 3.6 75 State Street Boston, MA 02109 Scudder, Stevens & Clark, Inc.(9)............ 1,187,780 6.3 -- -- 3.5 Two International Place Boston, MA 02110 William Hope(4).............................. 260,096 1.4 -- -- * 5995 Opus Parkway, Suite 500 Minneapolis, MN 55343 Bernard Sweet(4)(10)......................... 17,705 * -- -- * Bruce G. Allbright (4)(10)................... 5,282 * -- -- * Wayne M. Fortun(4)(10)....................... 2,155 * -- -- * Donald W. Goldfus(4)(10)..................... 1,750 * -- -- * Paul Baszucki(4)(10)......................... 1,500 * -- -- * Thomas Moberly(11)........................... 50,908 * -- -- * Timothy W. Kuck.............................. 4,960 * -- -- * Stephen F. LaBelle........................... -- -- -- -- -- All executive officers and directors as a group (9 persons)(12)...................... 656,855 3.5 1,315,135 89.2 40.9
- ------------------------ * Less than 1%. (1) Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to the shares shown opposite the name of such person or group. (2) Does not include shares of Class A Common Stock which may be acquired by holders of Class B Common Stock upon conversion of their shares of Class B Common Stock by the holders thereof at any time on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. 2 (FOOTNOTES CONTINUED FROM PREVIOUS PAGE) (3) Holders of Class B Common Stock are entitled to ten votes for each share on all matters submitted to a vote of stockholders. Holders of Class A Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders. (4) Each of these persons is currently a director and nominee for election to the Board of Directors of the Company. Messrs. Fink and Hope are also executive officers of the Company. (5) Includes 116,130 shares held by Richard Fink as co-trustee for the benefit of one of his children, and 4,256 shares owned by a private foundation with respect to which Mr. Fink has shared voting power. Also includes 8,850 shares held by Mr. Fink's spouse. (6) Based solely upon the most recent Schedule 13G on file with the Securities and Exchange Commission. Shares of Class A Common Stock beneficially owned by RCM Capital Management, RCM Limited L.P. and RCM General Corporation are included in the aggregate beneficial ownership of RCM Capital Management. The reporting person possesses sole voting power with respect to 1,019,500 shares, possesses sole investment power with respect to 1,252,500 shares and shares investment power with respect to 10,000 shares. (7) Based solely upon the most recent Schedule 13G on file with the Securities and Exchange Commission. (8) Based solely upon the most recent Schedule 13G on file with the Securities and Exchange Commission. The reporting person shares voting power with respect to 580,900 shares and shares investment power with respect to 1,203,700 shares. (9) Based solely upon the most recent Schedule 13G on file with the Securities and Exchange Commission. The reporting person possesses sole voting power with respect to 287,780 shares, shares voting power with respect to 725,000 shares and possesses sole investment power with respect to 1,187,780 shares. (10) Includes 1,000 shares subject to options which are exercisable within the next 60 days. (11) Includes 750 shares held as joint tenant with his spouse and 426 shares held as guardian for his minor children. (12) Includes 5,000 shares subject to options which are exercisable within the next 60 days. The foregoing footnotes are provided for informational purposes only and each person disclaims beneficial ownership of shares owned by any member of his or her family or held in trust for any other person, including family members. On June 14, 1985, Richard Fink, Chairman of the Board of the Company, Stephen LaBelle, the former Secretary and Treasurer of the Company, and certain other persons who are no longer holders of Class B Common Stock entered into a Stockholder Agreement with the Company. This Stockholder Agreement presently covers 1,315,135 shares of Class B Common Stock, representing approximately 89.2% of the outstanding shares of the Class B Common Stock. In connection with his resignation from the Company in January 1997, Mr. LaBelle elected to convert all shares of Class B Common Stock held by him into shares of Class A Common Stock, thereby terminating his rights and obligations under the Stockholder Agreement. The Stockholder Agreement provides for restrictions on the transferability of the Class B Common Stock, in addition to certain other restrictions contained in the Company's Restated 3 Articles of Incorporation. The shares of Class B Common Stock were acquired pursuant to an exchange offer made by the Company in May 1985. The shares of Class B Common Stock owned by Mr. Fink represent substantial voting control of the Company. ELECTION OF DIRECTORS Seven directors are to be elected at the meeting, each director to hold office until the next Annual Meeting of Stockholders, or until his successor is elected and qualified. All of the persons listed below are now serving as directors of the Company and have consented to serve as a director, if elected. The Board of Directors proposes for election the nominees listed below:
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR NAME AND AGE OF NOMINEE PAST FIVE YEARS AND DIRECTORSHIPS IN PUBLIC COMPANIES SINCE - --------------------------- --------------------------------------------------------------------------- --------- Bruce G. Allbright (68) Retired since January 1990, formerly President of Dayton Hudson 1985 Corporation. Prior thereto, Mr. Allbright was Chairman and Chief Executive Officer of Target Stores, a Division of Dayton Hudson Corporation. Mr. Allbright is a director of TCF Financial, Inc. and F.A., Hannaford Brothers Company. Paul Baszucki (57) Chairman of the Board of Directors of Norstan, Inc. since May 1997. Prior 1994 thereto, Mr. Baszucki was Chief Executive Officer of Norstan, Inc. Mr. Baszucki is also a director of Washington Scientific Industries Inc. Richard Fink (67) Chairman of the Board of the Company. Mr. Fink was also Chief Executive 1968 Officer of the Company until January 1997. Mr. Fink is also a director of Rykoff-Sexton, Inc. Wayne M. Fortun (48) President, Chief Executive Officer, Chief Operating Officer and a director 1994 of Hutchinson Technology Inc., and a director of Excelsior-Henderson Motorcycle Manufacturing Company. Donald W. Goldfus (63) Chairman of the Board and Chief Executive Officer of Apogee Enterprises, 1989 Inc. William Hope (64) Chief Executive Officer of the Company since January 1997. From 1993 to 1983 1997, Mr. Hope also served as President and Chief Operating Officer of the Company. Prior thereto Mr. Hope was Vice President of the Company. Bernard Sweet (73) Retired since 1985, formerly President and Chief Executive Officer of 1975 Republic Airlines, Inc. Mr. Sweet is a director of Rykoff-Sexton, Inc.
All shares represented by proxies will be voted FOR the election of the foregoing nominees unless a contrary choice is specified. If any nominee should withdraw or otherwise become unavailable for reasons not presently known, the proxies which would have otherwise been voted for such nominee will be voted for such substitute nominee as may be selected by the Board of Directors. 4 The affirmative vote of the holders of the greater of (a) a majority of the outstanding shares of Class A and Class B Common Stock present and entitled to vote on the election of directors or (b) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum for transaction of business at the meeting, is required for election to the Board of each of the seven (7) nominees named above. A stockholder who abstains with respect to the election of directors is considered to be present and entitled to vote on the election of directors at the meeting, and is in effect casting a negative vote, but a stockholder (including a broker) who does not give authority to a proxy to vote, or withholds authority to vote on the election of directors, shall not be considered present and entitled to vote on the election of directors. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE NOMINEES LISTED ABOVE. 5 EXECUTIVE COMPENSATION The following table sets forth the cash and noncash compensation for each of the last three fiscal years awarded to or earned by the Chief Executive Officer of the Company and the three other most highly compensated executive officers of the Company who were serving as executive officers at the end of fiscal 1997 (the "Named Executive Officers"). Mr. Stephen F. LaBelle served as an executive officer of the Company until his resignation in January, 1997, and would have otherwise been a "Named Executive Officer," but for his resignation. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION --------------------------- --------------------------------- RESTRICTED OTHER ANNUAL STOCK SECURITIES ALL OTHER FISCAL SALARY(1) BONUS COMPENSATION(2) AWARDS(3) UNDERLYING COMPENSATION(4) NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS/SARS(#) ($) - --------------------------------- ---- ---- --------- ------------ ------------ ------------ ------------------- Richard Fink 1997 333,230 0 36,305 -- -- 18,859 Chairman of the Board 1996 306,731 0 27,582 -- -- 21,929 1995 300,750 0 11,123 -- -- 22,338 William Hope 1997 313,442 0 46,988 -- -- 18,509 Chief Executive Officer 1996 279,731 0 33,492 -- -- 20,447 1995 273,788 0 32,500 -- -- 20,563 Thomas Moberly 1997 192,019 0 19,710 172,718 -- 10,682 President and Chief 1996 174,808 0 13,158 -- -- 10,421 Operating Officer 1995 170,192 0 11,114 -- -- 9,582 Timothy W. Kuck(5) 1997 19,615 0 0 152,320 22,575 -- Chief Financial Officer and Secretary Stephen F. LaBelle(6) 1997 95,704 0 123,258 -- -- 73,945 1996 146,923 0 21,016 -- -- 6,332 1995 145,635 0 20,471 -- -- 5,793
- ------------------------ (1) Includes cash compensation deferred at the election of the executive officer under the terms of the Company's 401(k) Savings Incentive Plan and the Executive Deferred Compensation Plan. (2) Includes amounts reimbursed for the payment of taxes resulting from the vesting of restricted stock awards, personal use of company car and country club dues. Amounts disclosed for fiscal 1996 and 1995 have been revised from amounts previously disclosed to include personal use of company car and country club dues, where applicable. 6 (FOOTNOTES CONTINUED FROM PREVIOUS PAGE) (3) Amounts shown in this column reflect the dollar value of awards of restricted stock, based on the closing sale price of unrestricted Class A Common Stock on the Nasdaq National Market on the date of grant. Mr. Moberly was awarded 4,732 shares of restricted stock in fiscal 1997. The value of this award (net of the consideration paid by Mr. Moberly) is based on the last sale price of the Class A Common Stock on the Nasdaq National Market on January 3, 1997, the grant date. Mr. Kuck was awarded 4,760 shares of restricted stock in fiscal 1997. The value of this award (net of the consideration paid by Mr. Kuck) is based on the last sale price of the Class A Common Stock on the Nasdaq National Market on May 12, 1997, the grant date. As of June 28, 1997, the named executives held the following as a result of grants under the 1989 Stock Option and Compensation Plan: Mr. Fink held 8,748 restricted shares at a market value of $323,676; Mr. Hope held 6,175 restricted shares at a market value of $228,475; Mr. Moberly held 4,732 restricted shares at a market value of $175,084; Mr. Kuck held 4,760 restricted shares at a market value of $176,120; and Mr. LaBelle held no restricted shares. Restricted stock awards vest in seven equal annual installments beginning on the first anniversary of the date of grant. Regular dividends are paid on the restricted shares. The Company has agreed to make certain payments to the recipients of restricted stock to cover the taxes payable by such persons upon the vesting of such shares. See footnote 2 above. (4) Represents matching contributions by the Company under the Company's 401(k) Savings Incentive Plan and the Executive Deferred Compensation Plan and term life insurance premiums. (5) Mr. Kuck joined the Company in May 1997. His annual salary is $170,000. (6) Mr. LaBelle resigned from the Company in January 1997. The salary shown was paid to him between June 28, 1996 and January 5, 1997. The amount shown under "All Other Compensation" for fiscal 1997 includes a severance payment of $65,318. OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table sets forth the number of individual grants of stock options made during fiscal year 1997 to the executive officers named in the Summary Compensation Table:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ------------------------------------------------------------------ VALUE AT ASSUMED PERCENT OF TOTAL ANNUAL RATES OF STOCK NUMBER OF SHARES OPTIONS/SARS PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------- NAME GRANTED(#) FISCAL YEAR (%) ($/SHARE)(1) DATE 5%($)(2) 10%($)(2) - ---------------------------- ----------------- ----------------- --------------- ----------- --------- ---------- Timothy W. Kuck 22,575 77.0 32.50 5/12/07 461,433 1,169,385
- ------------------------ (1) The fair market value of the Company's Common Stock on the date of grant was $32.50. Options become exercisable in seven equal annual installments beginning on May 12, 1998. (2) The hypothetical potential appreciation shown in these columns for the named executive is required by rules of the Securities and Exchange Commission (the "SEC"). These amounts do not represent either the historical or anticipated future performance of the Company's Common Stock price appreciation. 7 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The following table sets forth information as to the exercise of options and number and value of unexercised options at fiscal year-end for each of the executive officers named in the Summary Compensation Table who held options during fiscal 1997:
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT SHARES ACQUIRED VALUE REALIZED 6/28/97 (#) 6/28/97 ($) NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - -------------------------------- ----------------- --------------- ----------------------- ----------------------- Timothy W. Kuck (1) N/A N/A 0 / 22,575 0 / 101,588
- ------------------------ (1) Unexercisable options were granted on May 12, 1997 at an exercise price of $32.50 per share. The closing sale price of the Class A Common Stock on June 28, 1997 was $37.00. PENSION PLAN TABLE
YEARS OF SERVICE ---------------------------------------------------------- REMUNERATION 15 20 25 30 35 - ------------- ---------- ---------- ---------- ---------- ---------- $ 125,000 $ 31,250 $ 41,666 $ 52,083 $ 62,500 $ 62,500 150,000 37,500 50,000 62,500 75,000 75,000 175,000 43,750 58,333 72,917 87,500 87,500 200,000 50,000 66,667 83,333 100,000 100,000 225,000 56,250 75,000 93,750 112,500 112,500 250,000 62,500 83,333 104,167 125,000 125,000 300,000 75,000 100,000 125,000 150,000 150,000 350,000 87,500 116,667 145,833 175,000 175,000 400,000 100,000 133,333 166,667 200,000 200,000 450,000 112,500 150,000 187,500 225,000 225,000
The table above sets forth the estimated annual straight life annuity benefits payable upon an executive's retirement at age 65 under both the Company's Pension Plan and its Supplemental Executive Retirement Plan, for various compensation and years of service categories, without any reduction for Social Security benefits. These Plans take into account the average annual salary and bonus shown in the Summary Compensation Table, paid during the five consecutive calendar years in which such amounts were highest (within the past 10 years). The number of years of service credited for Messrs. Fink, Hope, and Moberly as of June 28, 1997 were 32 years, 31 years, and 23 years, respectively. EMPLOYMENT AGREEMENTS The Company has employment agreements with each of Messrs. Moberly and Kuck that are for indefinite terms. Each agreement will terminate upon the death, disability or retirement of the respective Named Executive Officer and provides that employment may be terminated at any time by the Company or by such employee. Each such Named Executive Officer also covenants and agrees that for a period of eighteen (18) months following the date his employment with the Company terminates, he will not (i) compete against the Company, (ii) obtain any ownership interest in any competitor or become employed by any competitor, (iii) encourage any employees of the Company to violate the terms of their 8 employment contracts with the Company or (iv) attempt to take away any customers of the Company. Each such Named Executive Officer also agrees not to disclose any confidential Company information at any time before or after termination of his employment with the Company. DIRECTOR COMPENSATION The Company pays each director who is not otherwise employed by the Company an annual fee of $14,000. The Company also pays each director not otherwise employed by the Company $1,000 for each meeting of the Board of Directors and $500 for each committee meeting of the Board of Directors attended. In addition, eligible directors also participate in the 1996 Director Stock Option Plan (the "1996 Plan") which provides for an annual grant to non-employee directors of options to purchase 1,000 shares of Common Stock at an option exercise price equal to the average of the closing prices of the Company's Common Stock during the ten business days preceding the Company's Annual Meeting for a given year. Each such option has a ten-year term and generally becomes exercisable on the first anniversary of the grant date. In connection with the adoption of the 1996 Plan at last year's Annual Meeting, each of Messrs. Allbright, Baszucki, Fortun, Goldfus and Sweet received a one-time grant of options to purchase 3,000 shares of Common Stock. Those options have ten-year terms and vest in three equal installments on each of the first, second and third anniversaries of the grant date. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Decisions on compensation of the Company's executives generally have been made by the Compensation Committee (the "Compensation Committee") of the Board. Each member of the Compensation Committee is a non-employee director. Prior to October 31, 1996, the Compensation Committee consisted of Bruce G. Allbright, Paul Baszucki and Bernard Sweet. As of October 31, 1996, the members of the Compensation Committee became Paul Baszucki, Wayne M. Fortun and Donald W. Goldfus. All decisions by the Compensation Committee relating to the compensation of the Company's executive officers are reviewed by the full Board. Pursuant to rules designed to enhance disclosure of the Company's policies toward executive compensation, set forth below is a report prepared by the Board of Directors addressing the Company's compensation policies for the fiscal year ended June 28, 1997 as they affected the Company's executive officers. The Compensation Committee's executive compensation policies are designed to provide competitive levels of compensation that integrate pay with the Company's annual objectives and long-term goals, reward above average corporate performance, recognize individual initiative and achievements, and assist the Company in attracting and retaining qualified executives. Executive compensation is set at levels that the Compensation Committee believes to be competitive with those offered by employers of comparable size, growth and profitability in the Company's industry. There are two elements in the Company's executive compensation program, all determined by individual and corporate performance: base salary compensation and long-term incentive compensation. Base salary compensation is determined by the potential impact the individual may have on the Company, the skills and experiences required by the job, comparisons with comparable companies and the performance and potential of the incumbent in the job. 9 William Hope, who became the Chief Executive Officer of the Company in January 1997, received a base salary of $313,442 in 1997. The Company's executive compensation program for 1997 did not provide for the payment of annual performance-based bonuses. In 1992, Mr. Hope received a restricted stock award of 21,620 shares. The award vests in seven equal annual installments, and 3,089 shares vested in 1997. In addition, Mr. Hope received a bonus in 1997 in the amount of $36,541 to cover taxes due on the value of the shares which vested in 1997. Richard Fink, who served as Chief Executive Officer of the Company until January 1997, received a base salary of $333,230 in 1997. In 1994, Mr. Fink received a restricted stock award of 15,309 shares. The award vests in seven equal annual installments, and 2,187 shares vested in 1997. Mr. Fink received a bonus in 1997 in the amount of $25,706 to cover taxes due on the value of the shares which vested in 1997. Long-term incentive compensation under the Company's 1989 Stock Option and Compensation Plan (the "Plan") to the Chief Executive Officer, as well as other executive officers of the Company, are designed to integrate compensation with the Company's annual objectives and long-term goals, reward above-average corporate performance, recognize individual initiative and achievements, assist in the retention of executives and align the long-term interests of management with those of the Company's shareholders. The Compensation Committee makes recommendations to the Board regarding the granting of restricted stock awards and stock option grants to executives and key personnel. Awards vest and options become exercisable based upon criteria established by the Board. During fiscal 1997, the Compensation Committee recommended an award of restricted stock to Mr. Moberly in the amount of 4,732 shares, which award vests in seven equal annual installments. In addition, in connection with the Company's hiring of Mr. Kuck as its new Chief Financial Officer and Secretary, the Compensation Committee recommended an award of restricted stock to Mr. Kuck in the amount of 4,760 shares, which award vests in seven equal annual installments. Mr. Kuck was also granted options to purchase 22,575 shares of Common Stock which vest in seven equal annual installments. The Compensation Committee also recommended that stock options be granted to certain other non-executive officers of the Company. The Compensation Committee does not anticipate that any of the compensation payable to executive officers of the Company in the coming year will exceed the limits and deductibilities set forth in section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation Committee has not established a policy regarding compensation in excess of these limits, but will continue to monitor this issue. Paul Baszucki Wayne M. Fortun Donald W. Goldfus 10 STOCK PERFORMANCE GRAPH The Securities and Exchange Commission requires that the Company include in its proxy statement a line graph presentation comparing cumulative, five-year stockholders' returns on an indexed basis in the Standard & Poors ("S & P") 500 Stock Index and a nationally recognized group of companies in the uniform services industry (the "Peer Index"). The companies included in the Peer Index are Angelica Corporation, Cintas Corporation, National Services Industries, Inc., Unifirst Corporation and Unitog Corporation. The following chart assumes three hypothetical $100 investments over the five-year period ended June 28, 1997, and shows the cumulative values at the end of each succeeding year resulting from appreciation or depreciation in the stock market price, assuming dividend reinvestment. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
G&K SERVICES, INC. PEER GROUP S&P 500 6/27/92 $100 $100 $100 7/3/93 139 110 114 7/2/94 177 125 115 7/1/95 224 139 145 6/29/96 328 199 183 6/28/97 427 245 247
6/27/92 7/3/93 7/2/94 7/1/95 6/29/96 6/28/97 ------------ ------------ ------------ ------------ ------------ ------------ G&K Services, Inc................ $ 100 $ 139 $ 177 $ 224 $ 328 $ 427 Peer Group....................... 100 110 125 139 199 245 S & P 500........................ 100 114 115 145 183 247
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS Subject to ratification by the stockholders, the Board of Directors has appointed Arthur Andersen LLP as independent auditors of the Company for the 1998 fiscal year. Arthur Andersen LLP has performed this function for the Company since the 1976 fiscal year. Members of the firm will be available 11 at the Annual Meeting of Stockholders to answer questions and to make a statement if they desire to do so. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF AUDITORS. PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S 1989 STOCK OPTION AND COMPENSATION PLAN On October 31, 1989, the stockholders of the Company approved the Plan covering 900,000 shares of Common Stock, as adjusted for stock splits. Subject to the approval of the stockholders, on August 28, 1997, the Board of Directors further amended the Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 1,500,000 shares. The brief summary of the Plan which follows is qualified in its entirety by reference to the complete text, a copy of which is attached to this Proxy Statement as Exhibit A. GENERAL The purpose of the Plan is to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives ("Incentives") designed to attract, retain and motivate employees of the Company. The Plan provides that a committee (the "Committee") composed of at least two members of the Board of Directors of the Company who have not received Incentives under the Plan or any other plan of the Company for at least one year may grant Incentives to employees in the following forms: (a) stock options; (b) stock appreciation rights; (c) stock awards; (d) restricted stock; (e) performance shares; and (f) cash awards. Incentives may be granted only to employees of the Company (including officers and directors of the Company, but excluding directors of the Company who are not also employees of or consultants to the Company) selected from time to time by the Committee. The number of shares of Common Stock which may be issued under the Plan if this amendment is approved may not exceed 2,400,000 shares, subject to adjustment in the event of a merger, recapitalization or other corporate restructuring. This represents approximately 11.7% of the outstanding shares of Common Stock on the Record Date. As of the Record Date, there were outstanding grants of 355,054 shares of restricted stock and outstanding options for 73,456 shares under the Plan, representing a total of 428,510 stock and option awards outstanding. Accordingly, as of the Record Date, the remaining number of shares which may be issued under the Plan if this amendment is approved is approximately 9.6% of the outstanding Common Stock. STOCK OPTIONS Under the Plan, the Committee may grant non-qualified and incentive stock options to eligible employees to purchase shares of Common Stock from the Company. The Plan confers on the Committee discretion, with respect to any such stock option, to determine the number and purchase price of the shares subject to the option, the term of each option and the time or times during its term when the option becomes exercisable. The purchase price for incentive stock options may not be less than the fair market value of the shares subject to the option on the date of grant. The number of shares subject to an option will be reduced proportionately to the extent that the optionee exercises a related Stock Appreciation Right ("SAR"). The term of a non-qualified option may not exceed 10 years and one day from the date of grant and the term of an incentive stock option may not exceed 10 years from the date of grant. Any option 12 shall become immediately exercisable in the event of specified changes in corporate ownership or control. The Committee may accelerate the exercisability of any option or may determine to cancel stock options in order to make a participant eligible for the grant of an option at a lower price. The Committee may approve the purchase by the Company of an unexercised stock option for the difference between the exercise price and the fair market value of the shares covered by such option. The option price may be paid in cash, check, bank draft or by delivery of shares of Common Stock valued at their fair market value at the time of purchase or by withholding from the shares issuable upon exercise of the option shares of Common Stock valued at their fair market value or as otherwise authorized by the Committee. In the event that an optionee ceases to be an employee of the Company for any reason, including death, any stock option or unexercised portion thereof which was otherwise exercisable on the date of termination of employment shall expire at the time or times established by the Committee. STOCK APPRECIATION RIGHTS A stock appreciation right or SAR is a right to receive, without payment to the Company, a number of shares, cash or any combination thereof, the amount of which is determined pursuant to the formula described below. An SAR may be granted with respect to any stock option granted under the Plan, or alone, without reference to any stock option. An SAR granted with respect to any stock option may be granted concurrently with the grant of such option or at such later time as determined by the Committee and as to all or any portion of the shares subject to the option. The Plan confers on the Committee discretion to determine the number of shares as to which an SAR will relate as well as the duration and exercisability of an SAR. In the case of an SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR pertains will be reduced in the same proportion that the holder exercises the related option. The term of an SAR may not exceed ten years and one day from the date of grant. Unless otherwise provided by the Committee, an SAR will be exercisable for the same time period as the stock option to which it relates is exercisable. Any SAR shall become immediately exercisable in the event of specified changes in corporate ownership or control. The Committee may accelerate the exercisability of any SAR. Upon exercise of an SAR, the holder is entitled to receive an amount which is equal to the aggregate amount of the appreciation in the shares of Common Stock as to which the SAR is exercised. For this purpose, the "appreciation" in the shares consists of the amount by which the fair market value of the shares of Common Stock on the exercise date exceeds (a) in the case of an SAR related to a stock option, the purchase price of the shares under the option or (b) in the case of an SAR granted alone, without reference to a related stock option, an amount determined by the Committee at the time of grant. The Committee may pay the amount of this appreciation to the holder of the SAR by the delivery of Common Stock, cash, or any combination of Common Stock and cash. RESTRICTED STOCK Restricted stock consists of the sale or transfer by the Company to an eligible employee of one or more shares of Common Stock which are subject to restrictions on their sale or other transfer by the employee. The price at which restricted stock will be sold will be determined by the Committee, and it may vary from time to time and among employees and may be less than the fair market value of the shares at the date of sale. All shares of restricted stock will be subject to such restrictions as the Committee may 13 determine. Subject to these restrictions and the other requirements of the Plan, a participant receiving restricted stock shall have all of the rights of a shareholder as to those shares. STOCK AWARDS Stock awards consist of the transfer by the Company to an eligible employee of shares of Common Stock, without payment, as additional compensation for services to the Company. The number of shares transferred pursuant to any stock award will be determined by the Committee. PERFORMANCE SHARES Performance shares consist of the grant by the Company to an eligible employee of a contingent right to receive cash or payment of shares of Common Stock. The performance shares shall be paid in shares of Common Stock to the extent performance objectives set forth in the grant are achieved. The number of shares granted and the performance criteria will be determined by the Committee. CASH AWARDS A cash award consists of a monetary payment made by the Company to an eligible employee as additional compensation for his services to the Company. Payment may depend on the achievement of specified performance objectives. The amount of any monetary payment constituting a cash award shall be determined by the Committee. NON-TRANSFERABILITY OF MOST INCENTIVES No stock option, SAR, performance share or restricted stock granted under the Plan will be transferable by its holder, except in the event of the holder's death, by will or the laws of descent and distribution. During an employee's lifetime, an Incentive may be exercised only by him or her or by his or her guardian or legal representative. AMENDMENT OF THE PLAN The Board of Directors may amend or discontinue the Plan at any time. However, no such amendment or discontinuance may, subject to adjustment in the event of a merger, recapitalization, or other corporate restructuring, (a) change or impair, without the consent of the recipient thereof, an Incentive previously granted, (b) materially increase the maximum number of shares of Common Stock which may be issued to all employees under the Plan, (c) materially change or expand the types of Incentives that may be granted under the Plan, (d) materially modify the requirements as to eligibility for participation in the Plan, or (e) materially increase the benefits accruing to participants. Certain Plan amendments require stockholder approval, including amendments which would materially increase benefits accruing to participants, increase the number of securities issuable under the Plan, or change the requirements for eligibility under the Plan. FEDERAL INCOME TAX CONSEQUENCES The following discussion sets forth certain United States income tax considerations in connection with the ownership of Common Stock. These tax considerations are stated in general terms and are based on the Code and judicial and administrative interpretations thereof. This discussion does not address state or local tax considerations with respect to the ownership of Common Stock. Moreover, the tax considerations relevant to ownership of the Common Stock may vary depending on a holder's particular status. 14 Under existing federal income tax provisions, an employee who receives a stock option or performance shares or an SAR under the Plan or who purchases or receives shares of restricted stock under the Plan which are subject to restrictions which create a "substantial risk of forfeiture" (within the meaning of section 83 of the Code) will not normally realize any income, nor will the Company normally receive any deduction for federal income tax purposes in the year such Incentive is granted. An employee who receives a stock award under the Plan consisting of shares of Common Stock will realize ordinary income in the year of the award in an amount equal to the fair market value of the shares of Common Stock covered by the award on the date it is made, and the Company will be entitled to a deduction equal to the amount the employee is required to treat as ordinary income. An employee who receives a cash award will realize ordinary income in the year the award is paid equal to the amount thereof, and the amount of the cash will be deductible by the Company. When a non-qualified stock option granted pursuant to the Plan is exercised, the employee will realize ordinary income measured by the difference between the aggregate purchase price of the shares of Common Stock as to which the option is exercised and the aggregate fair market value of shares of the Common Stock on the exercise date, and the Company will be entitled to a deduction in the year the option is exercised equal to the amount the employee is required to treat as ordinary income. Options which qualify as incentive stock options are entitled to special tax treatment. Under existing federal income tax law, if shares purchased pursuant to the exercise of such an option are not disposed of by the optionee within two years from the date of granting of the option or within one year after the transfer of the shares to the optionee, whichever is longer, then (i) no income will be recognized to the optionee upon the exercise of the option; (ii) any gain or loss will be recognized to the optionee only upon ultimate disposition of the shares and, assuming the shares constitute capital assets in the optionee's hands, will be treated as long-term capital gain or loss; (iii) the optionee's basis in the shares purchased will be equal to the amount of cash paid for such shares; and (iv) the Company will not be entitled to a federal income tax deduction in connection with the exercise of the option. The Company understands that the difference between the option price and the fair market value of the shares acquired upon exercise of an incentive stock option will be treated as an "item of tax preference" for purposes of the alternative minimum tax. In addition, incentive stock options exercised more than three months after retirement are treated as non-qualified options. The Company further understands that if the optionee disposes of the shares acquired by exercise of an incentive stock option before the expiration of the holding period described above, the optionee must treat as ordinary income in the year of that disposition an amount equal to the difference between the optionee's basis in the shares and the lesser of the fair market value of the shares on the date of exercise or the selling price. In addition, the Company will be entitled to a deduction equal to the amount the employee is required to treat as ordinary income. If the exercise price of an option is paid by surrender of previously owned shares, the basis of the shares received in replacement of the previously owned shares is carried over. If the option is a nonstatutory option, the gain recognized on exercise is added to the basis. If the option is an incentive stock option, the optionee will recognize gain if the shares surrendered were acquired through the exercise of an incentive stock option and have not been held for the applicable holding period. This gain will be added to the basis of the shares received in replacement of the previously owned shares. When a stock appreciation right granted pursuant to the Plan is exercised, the employee will realize ordinary income in the year the right is exercised equal to the value of the appreciation which he is entitled 15 to receive pursuant to the formula described above, and the Company will be entitled to a deduction in the same year and in the same amount. An employee who receives restricted stock or performance shares subject to restrictions which create a "substantial risk of forfeiture" (within the meaning of section 83 of the Code) will normally realize taxable income on the date the shares become transferable or no longer subject to substantial risk of forfeiture or on the date of their earlier disposition. The amount of such taxable income will be equal to the amount by which the fair market value of the shares of Common Stock on the date such restrictions lapse (or any earlier date on which the shares are disposed of) exceeds their purchase price, if any. An employee may elect, however, to include in income in the year of purchase or grant the excess of the fair market value of the shares of Common Stock (without regard to any restrictions) on the date of purchase or grant over its purchase price. The Company will be entitled to a deduction for compensation paid in the same year and in the same amount as income is realized by the employee. PROXIES AND VOTING The adoption of the amendment to the Plan requires the affirmative vote of a majority of the votes cast, provided that the total votes cast represent over 50 percent in interest of all shares of Common Stock entitled to vote on this matter. Unless instructed to the contrary, all proxies will be voted for the adoption of the amendment. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE AMENDMENT. OTHER MATTERS BOARD OF DIRECTORS AND COMMITTEES The Board of Directors held six meetings during fiscal 1997. The Company has an audit committee and a compensation committee, but does not have a nominating committee of the Board of Directors. No director attended fewer than 75 percent of the aggregate number of meetings of the Board of Directors and the committees of the Board on which he served except Mr. Paul Baszucki. The Company's audit committee, which presently consists of Messrs. Bruce G. Allbright and Bernard Sweet, held two meetings during fiscal 1997. The audit committee recommends to the full Board the engagement of the independent accountants, reviews the audit plan and results of the audit engagement, reviews the independence of the auditors, and reviews the adequacy of the Company's system of internal accounting controls. The Company's compensation committee, which presently consists of Messrs. Paul Baszucki, Wayne M. Fortun and Donald W. Goldfus, held one meeting during fiscal 1997. The compensation committee reviews the Company's remuneration policies and practices, makes recommendations to the Board in connection with all compensation matters affecting the Company and administers the 1989 Stock Option and Compensation Plan. CERTAIN TRANSACTIONS The Company loaned Thomas Moberly, President of the Company, $200,000 in connection with his purchase of a residence in April 1994. This loan is evidenced by a promissory note which accrues interest at the rate of 10% per year. Interest only on the note is payable for five years. Thereafter, the note continues to accrue interest at the rate of 10% and is repayable in full over a term of five years. Pursuant to the terms 16 of the note, the current balance owing by Mr. Moberly is equal to the note's original principal amount. The note is secured by a mortgage on Mr. Moberly's residence. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC and the Nasdaq National Market. Officers, directors and greater-than-ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Mr. Richard Fink, Chairman of the Board of the Company, filed a Form 5 with the SEC on September 26, 1997 which was due on August 12, 1997. Thomas Moberly, a Vice President of the Company, filed an amended Form 4 with the SEC on September 26, 1997 which was due on February 10, 1997. Other than as specifically disclosed herein, and based solely on review of the copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that during the fiscal year ended June 28, 1997, all Section 16(a) filing requirements applicable to its officers, directors and greater-than-ten-percent beneficial owners were complied with. PROPOSALS OF STOCKHOLDERS All proposals of stockholders intended to be presented at the 1998 Annual Meeting of Stockholders of the Company must be received by the Company at its executive offices on or before June 10, 1998. SOLICITATION The Company will bear the cost of preparing, assembling and mailing the proxy, Proxy Statement, Annual Report and other material which may be sent to the stockholders in connection with this solicitation. Brokerage houses and other custodians, nominees and fiduciaries may be requested to forward soliciting material to the beneficial owners of stock, in which case they will be reimbursed by the Company for their expenses in doing so. Proxies are being solicited primarily by mail, but, in addition officers and regular employees of the Company may solicit proxies personally, by telephone, by telegram or by special letter. The Board of Directors does not intend to present to the meeting any other matter not referred to above and does not presently know of any matters that may be presented to the meeting by others. However, if other matters come before the meeting, it is the intent of the persons named in the enclosed proxy to vote the proxy in accordance with their best judgment. By Order of the Board of Directors G&K SERVICES, INC. Timothy W. Kuck, SECRETARY 17 EXHIBIT A G&K SERVICES, INC. 1989 STOCK OPTION AND COMPENSATION PLAN 1. PURPOSE. The purpose of the 1989 Stock Option and Compensation Plan (the "Plan") of G&K Services, Inc. (the "Company") is to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives ("Incentives") designed to attract, retain and motivate employees. Incentives may consist of opportunities to purchase or receive shares of Class A Common Stock, $.50 par value, of the Company ("Common Stock"), monetary payments or both on terms determined under this Plan. 2. ADMINISTRATION. The Plan shall be administered by the compensation committee (the "Committee") of the Board of Directors of the Company. The Committee shall consist of not less than two directors of the Company and shall be appointed from time to time by the Board of Directors of the Company. Each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 ("Non-Employee Directors"), and the regulations promulgated thereunder (the "1934 Act"). The Board of Directors of the Company may from time to time appoint members of the Committee in substitution for, or in addition to, members previously appointed, and may fill vacancies, however caused, in the Committee. The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as it shall deem advisable. A majority of the Committee's members shall constitute a quorum. All action of the Committee shall be taken by the majority of its members. Any action may be taken by a written instrument signed by majority of the members and actions so taken shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary, shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. The Committee shall have complete authority to award Incentives under the Plan, to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan. The Committee's decisions and matters relating to the Plan shall be final and conclusive on the Company and its participants. 3. ELIGIBLE EMPLOYEES. Employees of the Company (including officers and directors, but excluding directors of the Company who are not also full-time employees of the Company) shall become eligible to receive Incentives under the Plan when designated by the Committee. Employees may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate. Participation by officers of the Company and any performance objectives relating to such officers must be approved by the Committee. Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate participants who are not officers and to set or modify such targets may be delegated. 4. TYPES OF INCENTIVES. Incentives under the Plan may be granted in any one or a combination of the following forms: (a) incentive stock options and non-statutory stock options (section 6); (b) stock appreciation rights ("SARs") (section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e) performance shares (section 9); and (f) cash awards (section 10). 5. SHARES SUBJECT TO THE PLAN. 5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 11.6, the number of shares of Common Stock which may be issued under the Plan shall not exceed 900,000 shares of Common Stock after giving effect to three-for-two stock splits effected in the form of a stock dividend to stockholders of record on September 18, 1989, and January 4, 1994. 5.2. CANCELLATION. To the extent that cash in lieu of shares of Common Stock is delivered upon the exercise of an SAR pursuant to Section 7.4, the Company shall be deemed, for purposes of applying the limitation on the number of shares, to have issued the greater of the number of shares of Common Stock which it was entitled to issue upon such exercise or on the exercise of any related option. In the event that a stock option or SAR granted hereunder expires or is terminated or canceled unexercised as to any shares of Common Stock, such shares may again be issued under the Plan either pursuant to stock options, SARs or otherwise. In the event that shares of Common Stock are issued as restricted stock or pursuant to a stock award and thereafter are forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the Plan, either as restricted stock, pursuant to stock awards or otherwise. The Committee may also determine to cancel, and agree to the cancellation of, stock options in order to make a participant eligible for the grant of a stock option at a lower price than the option to be canceled. 5.3. TYPE OF COMMON STOCK. Common Stock issued under the Plan in connection with stock options, SARs, performance shares, restricted stock or stock awards, will be authorized and unissued shares. 6. STOCK OPTIONS. A stock option is a right to purchase shares of Common Stock from the Company. Each stock option granted by the Committee under this Plan shall be subject to the following terms and conditions: 6.1. PRICE. The option price per share shall be determined by the Committee, subject to adjustment under Section 11.6. 6.2. NUMBER. The number of shares of Common Stock subject to the option shall be determined by the Committee, subject to adjustment as provided in Section 11.6. The number of shares of Common Stock subject to a stock option shall be reduced in the same proportion that the holder thereof exercises an SAR if any SAR is granted in conjunction with or related to the stock option. 6.3. DURATION AND TIME FOR EXERCISE. Subject to earlier termination as provided in Section 11.4, the term of each stock option shall be determined by the Committee but shall not exceed ten years and one day from the date of grant. Each stock option shall become exercisable at such time or times during its term as shall be determined by the Committee at the time of grant. No stock option may be exercised during the first twelve months of its term. Except as provided by the preceding sentence, the Committee may accelerate the exercisability of any stock option. Subject to the foregoing and with the approval of the Committee, all or any part of the shares of Common Stock with respect to which the right to purchase has accrued may be purchased by the Company at the time of such accrual or at any time or times thereafter during the term of the option. 6.4. MANNER OF EXERCISE. A stock option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares. The option price shall be payable in United States dollars upon exercise of the option and may be paid by cash; uncertified or certified check; bank draft; by delivery of shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value on the date such option is exercised; by instructing the Company to withhold from the shares of Common Stock issuable upon exercise of the stock option shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value or in such other manner as may A-2 be authorized from time to time by the Committee. Prior to the issuance of shares of Common Stock upon the exercise of a stock option, a participant shall have no rights as a stockholder. 6.5. INCENTIVE STOCK OPTIONS. Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options (as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended): (a) The aggregate Fair Market Value (determined as of the time the option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any participant during any calendar year (under all of the Company's plans) shall not exceed $100,000. (b) Any Incentive Stock Option certificate authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the options as Incentive Stock Options. (c) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by Board of Directors or the date this Plan was approved by the stockholders. (d) Unless sooner exercised, all Incentive Stock Options shall expire no later than 10 years after the date of grant. (e) The option price for Incentive Stock Options shall be not less than the Fair Market Value of the Common Stock subject to the option on the date of grant. (f) No Incentive Stock Options shall be granted to any participant who, at the time such option is granted, would own (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation. 7. STOCK APPRECIATION RIGHTS. An SAR is a right to receive, without payment to the Company, a number of shares of Common Stock, cash or any combination thereof, the amount of which is determined pursuant to the formula set forth in Section 7.4. An SAR may be granted (a) with respect to any stock option granted under this Plan, either concurrently with the grant of such stock option or at such later time as determined by the Committee (as to all or any portion of the shares of Common Stock subject to the stock option), or (b) alone, without reference to any related stock option. Each SAR granted by the Committee under this Plan shall be subject to the following terms and conditions: 7.1. NUMBER. Each SAR granted to any participant shall relate to such number of shares of Common Stock as shall be determined by the Committee, subject to adjustment as provided in Section 11.6. In the case of an SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR pertains shall be reduced in the same proportion that the holder of the option exercises the related stock option. 7.2. DURATION. Subject to earlier termination as provided in Section 11.4, the term of each SAR shall be determined by the Committee but shall not exceed ten years and one day from the date of grant. Unless otherwise provided by the Committee, each SAR shall become exercisable at such time or times, to such extent and upon such conditions as the stock option, if any, to which it relates is A-3 exercisable. No SAR may be exercised during the first twelve months of its term. Except as provided in the preceding sentence, the Committee may in its discretion accelerate the exercisability of any SAR. 7.3. EXERCISE. An SAR may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of SARs which the holder wishes to exercise. Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver to the exercising holder certificates for the shares of Common Stock or cash or both, as determined by the Committee, to which the holder is entitled pursuant to Section 7.4. 7.4 PAYMENT. Subject to the right of the Committee to deliver cash in lieu of shares of Common Stock (which, as it pertains to officers and directors of the Company, shall comply with all requirements of the 1934 Act), the number of shares of Common Stock which shall be issuable upon the exercise of an SAR shall be determined by dividing: (a) the number of shares of Common Stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares (for this purpose, the "appreciation" shall be the amount by which the Fair Market Value of the shares of Common Stock subject to the SAR on the exercise date exceeds (1) in the case of an SAR related to a stock option, the purchase price of the shares of Common Stock under the stock option or (2) in the case of an SAR granted alone, without reference to a related stock option, an amount which shall be determined by the Committee at the time of grant, subject to adjustment under Section 11.6); by (b) the Fair Market Value of a share of Common Stock on the exercise date. In lieu of issuing shares of Common Stock upon the exercise of an SAR, the Committee may elect to pay the holder of the SAR cash equal to the Fair Market Value on the exercise date of any or all of the shares which would otherwise be issuable. No fractional shares of Common Stock shall be issued upon the exercise of an SAR; instead, the holder of the SAR shall be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a share of Common Stock on the exercise date or to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise. 8. STOCK AWARDS AND RESTRICTED STOCK. A stock award consists of the transfer by the Company to a participant of shares of Common Stock, without other payment therefor, as additional compensation for services to the Company. A share of restricted stock consists of shares of Common Stock which are sold or transferred by the Company to a participant at a price determined by the Committee (which price shall be at least equal to the minimum price required by applicable law for the issuance of a share of Common Stock) and subject to restrictions on their sale or other transfer by the participant. The transfer of Common Stock pursuant to stock awards and the transfer and sale of restricted stock shall be subject to the following terms and conditions: 8.1. NUMBER OF SHARES. The number of shares to be transferred or sold by the Company to a participant pursuant to a stock award or as restricted stock shall be determined by the Committee. 8.2. SALE PRICE. The Committee shall determine the price, if any, at which shares of restricted stock shall be sold to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such shares of Common Stock at the date of sale. A-4 8.3. RESTRICTIONS. All shares of restricted stock transferred or sold hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation any or all of the following: (a) a prohibition against the sale, transfer, pledge or other encumbrance of the shares of restricted stock, such prohibition to lapse at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability or retirement of the holder of such shares, or otherwise); (b) a requirement that the holder of shares of restricted stock forfeit, or (in the case of shares sold to a participant) resell back to the Company at his cost, all or a part of such shares in the event of termination of his employment during any period in which such shares are subject to restrictions; (c) such other conditions or restrictions as the Committee may deem advisable. 8.4. ESCROW. In order to enforce the restrictions imposed by the Committee pursuant to Section 8.3, the participant receiving restricted stock shall enter into an agreement with the Company setting forth the conditions of the grant. Shares of restricted stock shall be registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company. Each such certificate shall bear a legend in substantially the following form: The transferability of this certificate and the shares of Class A Common Stock represented by it are subject to the terms and conditions (including conditions of forfeiture) contained in the 1989 Stock Option and Compensation Plan of G&K Services, Inc. (the "Company"), and an agreement entered into between the registered owner and the Company. A copy of the Plan and the agreement is on file in the office of the secretary of the Company. 8.5. END OF RESTRICTIONS. Subject to Section 11.5, at the end of any time period during which the shares of restricted stock are subject to forfeiture and restrictions on transfer, such shares will be delivered free of all restrictions to the participant or to the participant's legal representative, beneficiary or heir. 8.6. STOCKHOLDER. Subject to the terms and conditions of the Plan, each participant receiving restricted stock shall have all the rights of a stockholder with respect to shares of stock during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares. Dividends paid in cash or property other than Common Stock with respect to shares of restricted stock shall be paid to the participant currently. 9. PERFORMANCE SHARES. A performance share consists of an award which shall be paid in shares of Common Stock, as described below. The grant of performance share shall be subject to such terms and conditions as the Committee deems appropriate, including the following: 9.1. PERFORMANCE OBJECTIVES. Each performance share will be subject to performance objectives for the Company or one of its operating units to be achieved by the end of a specified period. The number of performance shares granted shall be determined by the Committee and may be subject to such terms and conditions, as the Committee shall determine. If the performance objectives are achieved, each participant will be paid in shares of Common Stock or cash. If such objectives are not met, each grant of performance shares may provide for lesser payments in accordance with formulas established in the award. A-5 9.2. NOT STOCKHOLDER. The grant of performance shares to a participant shall not create any rights in such participant as a stockholder of the Company, until the payment of shares of Common Stock with respect to an award. 9.3. NO ADJUSTMENTS. No adjustment shall be made in performance shares granted on account of cash dividends which may be paid or other rights which may be issued to the holders of Common Stock prior to the end of any period for which performance objectives were established. 9.4. EXPIRATION OF PERFORMANCE SHARE. If any participant's employment with the Company is terminated for any reason other than normal retirement, death or disability prior to the achievement of the participant's stated performance objectives, all the participant's rights on the performance shares shall expire and terminate unless otherwise determined by the Committee. In the event of termination of employment by reason of death, disability, or normal retirement, the Committee, in its own discretion may determine what portions, if any, of the performance shares should be paid to the participant. 10. CASH AWARDS. A cash award consists of a monetary payment made by the Company to a participant as additional compensation for his services to the Company. Payment of a cash award will normally depend on achievement of performance objectives by the Company or by individuals. The amount of any monetary payment constituting a cash award shall be determined by the Committee in its sole discretion. Cash awards may be subject to other terms and conditions, which may vary from time to time and among participants, as the Committee determines to be appropriate. 11. GENERAL. 11.1. EFFECTIVE DATE. The Plan will become effective upon its approval by the affirmative vote of the holders of a majority of the voting power of the shares of the Company's Class A and Class B Common Stock present and entitled to vote at a meeting of its stockholders. Unless approved within one year after the date of the Plan's adoption by the Board of Directors, the Plan shall not be effective for any purpose. 11.2. DURATION. The Plan shall remain in effect until all Incentives granted under the Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated under the terms of the Plan and all restrictions imposed on shares of Common Stock in connection with their issuance under the Plan have lapsed. No Incentives may be granted under the Plan after the tenth anniversary of the date the Plan is approved by the stockholders of the Company. 11.3. NON-TRANSFERABILITY OF INCENTIVES. No stock option, SAR, restricted stock or performance award may be transferred, pledged or assigned by the holder thereof (except, in the event of the holder's death, by will or the laws of descent and distribution to the limited extent provided in the Plan or in the Incentive) and the Company shall not be required to recognize any attempted assignment of such rights by any participant. During a participant's lifetime, an Incentive may be exercised only by him or by his guardian or legal representative. 11.4. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. In the event that a participant ceases to be an employee of the Company for any reason, including death, any Incentives may be exercised or shall expire at such times as may be determined by the Committee. 11.5. ADDITIONAL CONDITION. Notwithstanding anything in this Plan to the contrary: (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of A-6 any Incentive or the issuance of any shares of Common Stock pursuant to any Incentive, require the recipient of the Incentive, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Incentive or the shares of Common Stock issued pursuant thereto for his own account for investment and not for distribution; and (b) if at any time the Company further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Incentive or the shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Incentive shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 11.6. ADJUSTMENT. In the event of any merger, consolidation or reorganization of the Company with any other corporation or corporations, there shall be substituted for each of the shares of Common Stock then subject to the Plan, including shares subject to restrictions, options, or achievement of performance share objectives, the number and kind of shares of stock or other securities to which the holders of the shares of Common Stock will be entitled pursuant to the transaction. In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock, the number of shares of Common Stock then subject to the Plan, including shares subject to restrictions, options or achievements of performance shares, shall be adjusted in proportion to the change in outstanding shares of Common Stock. In the event of any such adjustments, the purchase price of any option, the performance objectives of any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide participants with the same relative rights before and after such adjustment. 11.7. INCENTIVE PLANS AND AGREEMENTS. Except in the case of stock awards or cash awards, the terms of each Incentive shall be stated in a plan or agreement approved by the Committee. The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as Incentive Stock Options or as non-statutory stock options and in order to eliminate SARs with respect to all or part of such options and any other previously issued options. 11.8. WITHHOLDING. (a) The Company shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option or SAR, the participant may satisfy this obligation in whole or in part by electing (the "Election") to have the Company withhold from the distribution shares of Common Stock having a value up to the amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined ("Tax Date"). A-7 (b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Incentive that the right to make Elections shall not apply to such Incentive. An Election is irrevocable. (c) If a participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act, then an Election is subject to the following additional restrictions: (1) No Election shall be effective for a Tax Date which occurs within six months of the grant of the award, except that this limitation shall not apply in the event death or disability of the participant occurs prior to the expiration of the six-month period. (2) The Election must be made either six months prior to the Tax Date or must be made during a period beginning on the third business day following the date of release for publication of the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date. 11.9. NO CONTINUED EMPLOYMENT OR RIGHT TO CORPORATE ASSETS. No participant under the Plan shall have any right, because of his or her participation, to continue in the employ of the Company for any period of time or to any right to continue his or her present or any other rate of compensation. Nothing contained in the Plan shall be construed as giving an employee, the employee's beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person. 11.10. DEFERRAL PERMITTED. Payment of cash or distribution of any shares of Common Stock to which a participant is entitled under any Incentive shall be made as provided in the Incentive. Payment may be deferred at the option of the participant if provided in the Incentive. 11.11. AMENDMENT OF THE PLAN. The Board may amend or discontinue the Plan at any time. However, no such amendment or discontinuance shall, subject to adjustment under Section 11.6, (a) change or impair, without the consent of the recipient, an Incentive previously granted, (b) increase the maximum number of shares of Common Stock which may be issued to all participants under the Plan, (c) change or expand the types of Incentives that may be granted under the Plan, (d) change the class of persons eligible to receive Incentives under the Plan, or (e) materially increase the benefits accruing to participants under the Plan. 11.12. IMMEDIATE ACCELERATION OF INCENTIVES. Notwithstanding any provision in this Plan or in any Incentive to the contrary, (a) the restrictions on all shares of restricted stock award shall lapse immediately, (b) all outstanding options and SARs will become exercisable immediately, and (c) all performance shares shall be deemed to be met and payment made immediately, if subsequent to the date that the Plan is approved by the Board of Directors of the Company, any of the following events occur unless otherwise determined by the Board of Directors and a majority of the Continuing Directors (as defined below): (1) any person or group of persons becomes the beneficial owner of 30% or more of any equity security of the Company entitled to vote for the election of directors; (2) a majority of the members of the Board of Directors of the Company is replaced within the period of less than two years by directors not nominated and approved by the Board of Directors; or A-8 (3) the stockholders of the Company approve an agreement to merge or consolidate with or into another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Company's assets (including a plan of liquidation). For purposes of this Section 11.12, beneficial ownership by a person or group of persons shall be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the 1934 Act. Beneficial ownership of more than 30% of an equity security may be established by any reasonable method, but shall be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting such ownership. If the restrictions and forfeitability periods are eliminated by reason of provision (1), the limitations of this Plan shall not become applicable again should the person cease to own 30% or more of any equity security of the Company. For purposes of this Section 11.12, "Continuing Directors" are directors (a) who were in office prior to the time any of provisions (1), (2) or (3) occurred or any person publicly announced an intention to acquire 20% or more of any equity security of the Company, (b) directors in office for a period of more than two years, and (c) directors nominated and approved by the Continuing Directors. 11.13. DEFINITION OF FAIR MARKET VALUE. Whenever "Fair Market Value" of Common Stock shall be determined for purposes of this Plan, it shall be determined by reference to the last sale price of a share of Common Stock on the NASDAQ National Market System ("NASDAQ") on the applicable date. If NASDAQ is closed for trading on such date, or if the Common Stock does not trade on such date, then the last sale price used shall be the one on the date the Common Stock last traded on NASDAQ. A-9 G&K SERVICES, INC. PROXY FOR ANNUAL MEETING OF STOCKHOLDERS OCTOBER 30, 1997 The undersigned, a shareholder of G&K Services, Inc., hereby appoints Richard Fink and Timothy W. Kuck, and each of them, as proxies, with full power of substitution, to vote on behalf of the undersigned the number of shares which the undersigned is then entitled to vote, at the Annual Meeting of Stockholders of G&K Services, Inc. to be held in the Mississippi Room, Marquette Hotel, Seventh Street and Marquette Avenue, Minneapolis, Minnesota, at 10:00 a.m. on Thursday, October 30, 1997, and at any and all adjournments thereof, with all the powers which the undersigned would possess if personally present, upon: (1) Election of Directors: / / FOR all nominees (except as marked to the contrary / / WITHHOLD AUTHORITY to vote for all nominees listed below below) Bruce G. Allbright Paul Baszucki Richard Fink Wayne M. Fortun Donald W. Goldfus William Hope Bernard Sweet INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name on the space provided below: -------------------------------------------------------------------------------------------------------------------------- (2) Proposal to ratify the appointment of Arthur Andersen LLP, Certified Public Accountants, as independent auditors of the Company for fiscal 1998. / / FOR / / AGAINST / / ABSTAIN (3) Proposal to amend the Company's 1989 Stock Option and Compensation Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 1,500,000 shares. / / FOR / / AGAINST / / ABSTAIN (4) Upon such other business as may properly come before the meeting or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES, FOR RATIFICATION OF THE APPOINTMENT OF AUDITORS AND FOR THE AMENDMENT TO THE 1989 STOCK OPTION AND COMPENSATION PLAN. (CONTINUED, AND TO BE COMPLETED AND SIGNED, ON THE REVERSE SIDE) G&K SERVICES, INC. ANNUAL MEETING Marquette Hotel Seventh Street and Marquette Avenue Minneapolis, Minnesota OCTOBER 30, 1997 10:00 A.M. [LOGO] (CONTINUED FROM OTHER SIDE) The undersigned hereby revokes all previous proxies relating to the shares covered hereby and acknowledges receipt of the Notice and Proxy Statement relating to the Annual Meeting of Stockholders. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. When properly executed, this proxy will be voted on the proposals set forth herein as directed by the shareholder, but if no direction is made in the space provided, this proxy will be voted FOR the election of all nominees for director, FOR ratification of the appointment of auditors and FOR the proposal to increase the number of shares reserved for issuance under the Company's 1989 Stock Option and Compensation Plan. Dated __________________________, 1997 ______________________________________ (Signature) ______________________________________ (Signature) (Shareholder must sign exactly as the name appears at left. When signed as a corporate officer, executor, administrator, trustee, guardian, etc., please give full title as such. Both joint tenants must sign.) -----END PRIVACY-ENHANCED MESSAGE-----