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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- - ---------- Exchange Act of 1934
For the Fiscal Year Ended June 29, 1996
Transition Report Pursuant to Section 13 or 15(d) of the
- - ---------- Securities Exchange Act of 1934
Commission file number 0-4063
G&K SERVICES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0449530
------------- -----------------------------
(State of incorporation) (I.R.S Employer Identification No.)
5995 OPUS PARKWAY, STE. 500
MINNETONKA, MINNESOTA 55343
(Address of principal executive offices) ---------
Registrant's telephone number, including area code (612) 912-5500
----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock (par value $0.50 per share)
Class B Common Stock (par value $0.50 per share)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
------- --------
The aggregate market value of the voting stock of registrant held by non-
affiliates of registrant, on SEPTEMBER 18, 1996, computed by reference to the
closing sale price of such shares on such date, was approximately $531,107,132.
On SEPTEMBER 18, 1996, there were outstanding 18,919,725 and 1,521,121
shares of the registrant's Class A and Class B Common Stock, respectively.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X . No .
--------- ---------
DOCUMENTS INCORPORATED BY REFERENCE
PART OF 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
- - -------- ------------------------
Portions of annual report to stockholders for the
fiscal year ended June 29, 1996 Parts II and IV
Portions of proxy statement for the annual meeting
of stockholders to be held OCTOBER 31, 1996 Parts I and III
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PART I
ITEM 1. BUSINESS
G&K Services, Inc. and its wholly owned subsidiaries (the "Company" or
"G&K"), leases and maintains uniforms and related textile products. During
fiscal 1996, approximately 60% of total revenues were derived from uniform
rentals. The balance was principally from rentals of non-uniform items, such as
floor mats, dust mops and cloths, wiping towels and selected linen items, and
the manufacture and sale of garments. The revenue generated from manufacturing
is not a significant part of G&K's revenue.
The Company has been expanding its operations steadily into additional
geographic markets. In the United States, G&K currently operates in 33 STATES
from 22 PROCESSING PLANTS and 49 SALES AND SERVICE CENTERS. In Canada, the
Company serves customers from 16 LOCATIONS, including 7 PROCESSING PLANTS in the
provinces of Ontario and Quebec. By comparison, in 1986, G&K operated from 37
locations in 20 states.
The Company targets its marketing efforts first to focus on those
customers, industries and geographic locations that are expanding and which need
a quality-oriented uniform program; and then to provide high levels of product
quality, customer service and communication. The Company's experience with both
existing and potential customers confirms that a large segment of the market
wants these features built into their uniform programs and are willing to pay a
premium price to a vendor that can supply them consistently.
PRODUCTS
UNIFORMS
The Company's full-service leasing program supplies a broad range of work
garments, specialized uniforms for corporate identity programs, anti-static
garments, ultra-clean particle-free garments, and dress clothing for
supervisors, sales personnel and others needing upgraded work apparel.
Its products are used in a diversified spectrum of businesses including:
pharmaceutical and electronics manufacturers, transportation and distribution
firms, health care and food service operations, auto dealerships and equipment
repair companies, and schools and office buildings. The Company's customer base
includes divisions of MORE THAN HALF OF THE Fortune 100 companies as well as
tens of thousands of smaller businesses. No one customer accounts for over one-
quarter of 1% of the Company's total revenues.
The Company believes that Uniform programs may provide customers with a
number of benefits:
- Identification - uniforms help identify employees as working for
a particular company or department.
- Image - uniforms enhance the public appearance of employees and
help create a more professional image for the customer.
- Worker protection - uniforms help protect workers from difficult
environments such as heavy soils, heat, flame or chemicals.
- Product protection - uniforms help protect products against
contamination in the food, pharmaceutical, electronics and health
care industries.
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- Employee morale - uniforms can provide a valued benefit to
employees and help improve morale.
The Company provides its uniform leasing customers with a full range of
services. Advice and assistance are offered in choosing fabrics, styles and
colors appropriate to the customer's specific needs. A large stock of new and
used garments is available to provide rapid response as individual customer
needs change due to increases, decreases or turnover in their work force.
Professional cleaning, finishing, repair and replacement of uniforms in use is a
normal part of the rental service. Soiled uniforms are picked up at the
customer's location and returned clean on a weekly cycle.
The Company also believes that uniform leasing may provide customers with
significant advantages over ownership. Leasing eliminates investment in
uniforms; offers flexibility in styles, colors and quantities as customer
requirements change; assures consistent professional cleaning, finishing, repair
and replacement of items in use; and provides freedom from the expense and
management time necessary to administer a uniform program.
NON-UNIFORM ITEMS
Most of the Company's customers also lease items other than uniforms,
primarily floor mats, dust mops and cloths, wiping towels and linens. These
items make up approximately 40% of total rental revenues.
Floor mats are used to protect facilities from dust, grease, moisture and
other hazards, and can also enhance decor, provide a corporate identity logo,
or improve traffic safety. Dust mops, cloths and wiping towels are chemically
treated to attract and hold dirt, and are provided in a range of sizes. The
Company's wiping towels are used by its customers for numerous wiping and
cleaning tasks in varied settings. Selected linen items, primarily aprons and
towels, are used for sanitary, or cleaning jobs.
COMPETITION
The Company's business encounters a high level of competition with a number
of companies in the geographic areas it serves. The Company believes that it
ranks among the nation's largest garment rental suppliers. Major competitors
include AraMark (a division of ARA Services, Inc.), and such publicly held
companies as National Service Industries, Inc., Unifirst Corporation, Unitog
Company and Cintas Corporation. Many of the Company's competitors have greater
financial resources than G&K. The Company believes that it competes effectively
in its line of business because of the quality and breadth of its product line,
and the comprehensive customer service programs it offers.
ENVIRONMENTAL MATTERS
The Company generates modest amounts of wastes in connection with its
operations. The Company believes that all of these wastes have been disposed of
properly. Some of these wastes may be classified as hazardous wastes under
recently enacted environmental legislation.
The Company has been identified as a potentially responsible party ("PRP")
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or similar state laws, at a number of waste
disposal sites. Under such laws, PRP's typically are jointly and severally
liable for any investigation and remediation costs incurred with respect to such
sites. The Company's ultimate responsibility, therefore, could be greater than
the share of waste contributed by the Company would otherwise indicate.
3
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The Company has entered into administrative agreements at certain of these
sites to perform remedial actions. At the landfill in Andover, Minnesota, the
cost of remediation is estimated to range from $10 million to $15 million. As
one of numerous PRP's, the Company has entered into a Consent Decree and has
paid $160,000. The Company believes that it has no further responsibility for
site remediation at the Andover Landfill based upon the Consent Decree.
The Company has also entered into a Consent Decree involving the landfill
site in East Bethel, Minnesota as one of 56 PRP's. The Company was sued by the
landfill operator, Sylvester Bros. Development Company, for contribution to the
cost of cleaning up this site pursuant to directives from the Minnesota
Pollution Control Agency or the Environmental Protection Agency (EPA). Based
upon an estimate that the total cleanup of the site will not exceed $7,095,980,
the Company has agreed to pay an initial amount of $190,500. In addition, the
Company has agreed to pay its pro rata share of any additional amounts by which
the actual clean up costs exceed the initial total cost estimate. Whether this
will occur depends upon a number of contingencies, therefore any potential
future liability is uncertain.
The Company has been placed on notice by the owners of a St. Paul,
Minnesota shopping center that certain solvents have been detected in the soils
near the shopping center. The owner of the shopping center has alleged that the
source of the solvents is from a coin operated business that was owned for a
period of time in the mid-1960's by a corporation, the shares of which were
partially owned by the Company. Certain limited discovery has disclosed that at
least one other business in the area used the same solvent which is claimed to
be present in the soil. No action has yet to be commenced against the Company
and the Company has not agreed to participate in any clean-up at the site.
Since relatively little information is available at this time, it is impossible
to predict what, if any, liability may ultimately be assigned to the Company.
The Company has also received a letter from the Minnesota Pollution Control
Agency (the "MPCA") which claims that solvents have been detected in the soils
near a facility that was owned by the Company from the late 1940's until the
early 1970's. Neither the extent of the solvents in the soils nor the source of
the solvents are known to the Company. The Company has agreed to participate in
a Voluntary Investigation and Cleanup Program through the MPCA, but is unable to
provide any estimate of the remediation costs at this time since the
investigation has not been completed. The Company expects to reach an agreement
with the MPCA with respect to a remediation plan. Therefore, no litigation is
expected to commence against the Company in connection with this matter.
EMPLOYEES
The Company's U.S. operations had a total of 4405 employees as of June 29,
1996, consisting of 161 professional sales personnel, 758 route personnel, 2564
production employees, 450 clerical employees, and 472 management and staff
employees. Approximately 17.5% of the Company's employees are represented by
unions. Management believes its domestic employee relations are satisfactory.
The Company's Canadian operations had a total of 970 employees as of June
29, 1996 consisting of 30 professional sales personnel, 147 route personnel, 570
production employees, 86 clerical employees, and 137 management and staff
employees. Approximately 59% of the Company's Canadian employees are
represented by unions. Management believes Canadian employee relations are
satisfactory.
4
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FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operation is set
forth on page 26 of the Company's 1996 Annual Report to Stockholders.
(THIS SPACE INTENTIONALLY LEFT BLANK)
5
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ITEM 2. PROPERTIES
The Company cleans and supplies rental items principally from twenty-two
industrial garment, dust control and linen supply plants located in the
following cities in the United States:
Building
City Square Footage
- - --------------------------------------------------------------------------
Albuquerque, New Mexico 38,800
Atlanta, Georgia 40,000
Chicago, Illinois 48,700
Denver, Colorado 56,200
Fort Worth, Texas 38,000
Green Bay, Wisconsin 51,700
Houston, Texas 33,700
Kansas City, Missouri 45,000
Los Angeles, California 48,300
Mesa, Arizona 36,000
Miami, Florida 51,100
Milwaukee, Wisconsin 44,000
Minneapolis, Minnesota (two plants) 70,000
93,000
Mobile, Alabama 47,300
New Orleans, Louisiana 29,000
Pittsburg, California 47,000
Rockford, Illinois 32,000
Salt Lake City, Utah 41,500
San Antonio, Texas 40,700
San Jose, California 58,600
Seattle, Washington 44,000
6
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The Company also operates principally from seven plants located in the
following cities in Canada:
Building
City SQUARE FOOTAGE
-----------------------------------------------------------
Toronto, Ontario (two plants)
Metro East 49,000
Linen Division 39,700
Montreal, Quebec 25,500
Cambridge, Ontario 57,600
Ottawa, Ontario 35,000
Windsor, Ontario 42,900
Sault St. Marie, Ontario 23,700
All of these facilities are owned by the Company, except the Ottawa,
Ontario and Windsor, Ontario facilities, which are leased.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
litigation incidental to the business of the Company and as set forth in Item 1.
Business - Environmental Matters.
EXECUTIVE OFFICERS OF G&K SERVICES, INC.
- - ----------------------------------------
Position with Officer
Name the Company Age Since
- - --------------------------------------------------------------------------------
Richard M. Fink Chairman of the Board 66 1970
and CEO
William M. Hope President 63 1973
Thomas Moberly Vice President 47 1993
Stephen F. LaBelle Secretary and Treasurer 47 1978
The executive officers have, as their principal occupation, been employed
by the Company in the capacities set forth above for more than the last five
years, except for Mr. Moberly who was promoted in 1993. Each of such executive
officers serve in their capacities as officers of the Company at the pleasure of
the Board of Directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
Reference is made to the information with respect to the principal markets
on which the Company's Common Stock is being traded and prices for each
quarterly period for the last two years set forth on PAGE 28 of the Company's
1996 Annual Report to Stockholders, and by such reference, such information is
incorporated herein. The Company's debt agreement contain various restrictive
covenants which limit cash dividends, among other things.
The approximate number of stockholders on record of the Company's Common
Stock as OF SEPTEMBER 18, 1996 WAS 635.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the financial data with respect to the Company set
forth on PAGE 5 of the Company's 1996 Annual Report to Stockholders, and by such
reference, such financial data is incorporated herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to the management's discussion and analysis of financial
condition and results of operations presented in the form of the Financial
Review set forth on PAGES 14 THROUGH 16 of the Company's 1996 Annual Report to
Stockholders, and by such reference, such information is incorporated herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements and supplementary data set
forth on PAGES 16 THROUGH 27 of the Company's 1996 Annual Report to
Stockholders, and by such reference, such information is incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
(THIS SPACE INTENTIONALLY LEFT BLANK)
8
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PART III
Reference is made to the definitive proxy statement filed pursuant to
Regulation 14A, which involves the election of directors at the annual meeting
of stockholders to be held October 31, 1996 which will be filed with the
Commission within 120 days after the close of its fiscal year ended June 29,
1996, and by such reference, said proxy statement is incorporated herein in
response to the information called for by Part III (Item 10. Directors and
Executive Officers of Registrant; Item II. Executive Compensation; Item 12.
Security Ownership of Certain Beneficial Owners and Management; and Item 13.
Certain Relationships and Related Transactions.)
(THIS SPACE INTENTIONALLY LEFT BLANK)
9
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements listed below are filed as part of this Annual
Report on Form 10-K:
Data is incorporated by reference from the Annual Report to Stockholders of
G&K Services, Inc. for the fiscal year ended June 29, 1996. With the exception
of the information specifically incorporated herein by reference, the Annual
Report to Stockholders for fiscal 1996 is not to be deemed "filed" as part of
the Annual Report on Form 10-K.
Page In
Annual Report
-------------
Report of independent public accountants 27
Consolidated statements of income for each of
the three fiscal years in the period ended
June 29, 1996 16
Consolidated balance sheets as of June 29, 1996
and July 1, 1995 17
Consolidated statements of cash flows for each of
the three fiscal years in the period ended
June 29, 1996 18
Consolidated statements of stockholders' equity for
each of the three fiscal years in the period ended
June 29, 1996 19
Notes to consolidated financial statements 20-26
Separate financial statements of the subsidiaries of the Registrant have
been omitted because the Registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements are wholly owned.
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
(b) Reports on Form 8-K
None filed during the fourth quarter of fiscal 1996.
(c) The following exhibits, as required by Item 601
of Regulation S-K are filed as a part of this report:
(THIS SPACE INTENTIONALLY LEFT BLANK)
10
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EXHIBIT NO.
3(a) Restated Articles of Incorporation, as amended, as filed with the
Secretary of State of Minnesota (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 and Amendment No. 1 thereto,
Registration No. 33-15456). Certificate of Amendment, as filed with the
Secretary of State of Minnesota on November 12, 1987.
3(b) Bylaws, as amended, (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 and Amendment No. 1 thereto,
Registration No. 33-15456 and incorporated by reference to exhibit 3ii of the
Registrants' 10-Q filed May 17, 1994).
10(a) Employment Agreement between the Registrant and Richard Fink, dated
January 6, 1987, (incorporated herein by reference to the Registrant's
Registration No. 33-15456).
10(b) Employment Agreement between the Registrant and Stephen LaBelle, dated
January 2, 1991. */**
10(c) Stockholder Agreement by and among the Registrant, Richard Fink,
William Hope, Stephen LaBelle, Daniel Nielsen, Phillip Oberg and Robert Stotts,
dated June 14, 1985, (incorporated herein by reference to the Registrants
Schedule 13E-4 filing dated May 13, 1985).
10(d) 1989 Stock Option and Compensation Plan (incorporated herein by
reference to the Registrant's definitive proxy statement for the 1989 Annual
Meeting of Shareholders filed August 29, 1989).
10(e) 1996 Director Stock Option Plan. */**
10(f)(i) Loan Agreement betweeen the Registrant and Metropolitan Life
Insurance Company dated as of September 28, 1990 (incorporated herein by
reference to the Registrant's Form 8-K dated September 28, 1990, and Amendment
No. 1 thereto dated December 13, 1990).
10(f)(ii) Second Amendment to Loan Agreement, dated June 21, 1994, between
G&K Services, Inc., and Metropolitan Life Insurance Company (incorporated herein
by reference to the Registrant's Form 10-Q for the quarter ended April 1, 1995).
10(f)(iii) Third Amendment to Loan Agreement, dated as of November 23,
1994, between G&K Services, Inc., and Metropolitan Life Insurance Company
(incorporated herein by reference to the Registrant's Form 10-Q for the quarter
ended April 1, 1995).
10(f)(iv) Fourth Amendment to Loan Agreement, dated as of May 18, 1995,
between G&K Services, Inc., and Metropolitan Life Insurance Company. *
10(g)(i) Credit Agreement dated as of June 21, 1994, among G&K Services,
Inc., Work Wear Corporation of Canada, Ltd., various banks and Norwest Bank,
Minnesota, National Association, as Agent (incorporated by reference to the
Registrant's Form 10-Q, for the quarter ended April 1, 1995).
10(g)(ii) First Amendment, dated November 28, 1994, to Credit Agreement
dated June 21, 1994, G&K Services, Inc., various banks, and Norwest Bank
Minnesota, National Association, as Agent (incorporated by reference to the
Registrant's form 10-Q for the quarter ended April 1, 1995).
10(g)(iii) Second Amendment, dated May 18, 1995, to Credit Agreement dated
June 21, 1994, among G&K Services, Inc., WorkWear Corporation of Canada, Ltd.,
various banks, and Norwest Bank Minnesota, National Association, as Agent. *
10(g)(iv) Third Amendment, dated January 4, 1996, to Credit Agreement dated
June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd.,
various banks, and Norwest Bank Minnesota, National Association, as Agent. *
11
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10(g)(v) Fourth Amendment, dated August 5, 1996, to Credit Agreement dated
June 21, 1994, among G&K Services, Inc., Work Wear Corporation of Canada, Ltd.,
various banks, and Norwest Bank Minnesota, National Association, as Agent. *
10(h) Loan Agreement, dated November 23, 1994, between G&K Services, Inc.,
and Metropolitan Life Insurance Company. *
10(i) Employment Agreement between Registrant and Thomas Moberly, dated
February 20, 1990 (incorporated herein by reference to the Registrant's
form 10-K filed September 30, 1993).*
FOOTNOTE:
* Filed herewith
** Compensatory plan or arrangement
13 Portions of 1996 Annual Report to Stockholders.
22 Subsidiaries of G&K Services, Inc.
23 Consent of Independent Public Accountants
24 Power of Attorney dated as of AUGUST 29, 1996.
27 Financial Data Schedule (FOR SEC USE ONLY)
12
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: September 26, 1996
G&K SERVICES, INC.
(Registrant)
By: /s/ Richard Fink
----------------------------------
Richard Fink
Chairman of the Board and Chief Executive Officer
By: /s/ Stephen F. LaBelle
----------------------------------
Stephen F. LaBelle
Treasurer and Secretary, and
Principal Accounting and Financial Officer
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below on the 26th day of September 1996, by
the following persons in the capacity indicated:
G&K SERVICES, INC.
/s/ Richard Fink
----------------------------------
By: Richard Fink
Chairman of the Board and Chief Executive Officer
/s/ Richard Fink
- - ---------------------- Chairman of the Board, Chief Executive Officer
Richard Fink and Director
* President and Director
- - ----------------------
William Hope
* Vice President
- - ----------------------
Thomas Moberly
/s/ Stephen F. LaBelle
- - ---------------------- Secretary and Treasurer (Principal
Stephen F. LaBelle Financial and Accounting Officer)
* Director
- - ----------------------
Bruce Allbright
* Director
- - ----------------------
Donald Goldfus
* Director
- - ----------------------
Bernard Sweet
* Director
- - ----------------------
Wayne Fortun
* Director
- - ----------------------
Paul Baszucki
* By ------------------
Richard Fink
Attorney-in-fact
14
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THIS AGREEMENT made and executed as of the 2nd day of
January, 1991, by and between
G&K SERVICES, INC., a Minnesota corporation
(hereinafter referred to as "Employer"),
and
Stephen LaBelle (hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Employer is a member of a group of affiliated corporations which
includes G&K Services. inc., a Minnesota corporation, and all its subsidiaries
whether now existing or hereafter formed or acquired, which group is hereinafter
referred to as the "G&K Group";
WHEREAS, Employer has instituted the 1989 Stock Option and Compensation
Plan to permit Employee to purchase shares of Employer's Class A Common Stock
(the "Increased Benefits"); and
WHEREAS, Employer and Employee have mutually rescinded and canceled all
prior agreements between them with respect to Employee's employment, except
those agreements applicable to all employees similarly situated with Employee;
and
WHEREAS, Employer desires to assure Employee's dedication by rewarding
faithful and important contributions to Employer's business, and that of the G&K
Group as a whole, and to preserve the value of such contributions by securing
from Employee reasonable restriction against certain competitive activities:
NOW, THEREFORE, in consideration of the foregoing. the mutual promises set
forth in this Agreement and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employer and Employee agree as
follows:
1. EMPLOYMENT. Employer agrees to and does employ the Employee for an
indefinite term, for such duties, compensation and other terms and conditions as
shall be mutually agreed upon from time to time between Employer and Employee,
including any Increased Benefits described above. Such employment may be
terminated at any time by Employer or Employee for any reason and shall also
terminate on death, disability or retirement of Employee. In connection with
such employment, Employer agrees to acquaint Employee with any customers and
accounts of Employer (or other members of the G&K Group) upon whom the Employee
may be asked to call, solicit or otherwise serve.
If Employee is or becomes a sales or service representative of Employer
including a route driver, selling is a key duty which will require Employee to
have extensive sales contacts with
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Employer's customers and potential customers. Employee agrees to solicit orders
for, or assist in (or both) the delivery of towels, garments, mats, cleaning
supplies, and other laundry and linen services provided by the Employer, and
perform such other duties as the Employer may require of Employee from time to
time. If so employed, Employee also agrees (1) to use his or her best efforts
to obtain and retain trade for the Employer and (2) to faithfully work for the
Employer in the performance of any assigned duties as a sales or service
representative of the Employer.
2. EMPLOYEE BENEFITS. Employee shall receive medical and hospitalization
insurance, pension and other benefits, to the extent such benefits are
consistent with Employer's general practices and policies, or as otherwise
agreed between Employer and Employee.
3. RESTRICTIVE COVENANTS. In consideration of the Employee's employment
by Employer, or Employer's willingness to grant to Employee any Increased
Benefits defined earlier in this Agreement, as the case may be, and the
continued employment of Employee by Employer, Employee hereby covenants and
agrees as follows:
A. PROTECTION OF CONFIDENTIAL INFORMATION. While in the employ of any
member of the G&K Group or at any time after termination of such employment,
Employee shall not (1) directly or indirectly use for Employee's own benefit, or
(2) disclose, provide any person or entity with, or permit any person or entity
access to, any information concerning the G&K Group's customer lists or routes,
pricing, purchasing, inventory, business methods, training manuals or other
materials developed for G&K's employee training programs, or any other non-
public material information, relating to the business of the G&K Group, except
in the usual course of Employee's duties for a member of the G&K Group.
Furthermore, except in the usual course of Employee's duties for a member of the
G&K Group, Employee shall not at any time (1) remove any data or material from
the offices of any member of the G&K Group, (2) record any of the contents of
said data or material or (3) use for Employee's own benefit or disclose to any
one directly or indirectly competing with a member of the G&K Group any
information, data or materials obtained from the files of the G&K Group.
Upon termination of employment, Employee shall collect and return, to the
member (or its authorized representative) of the G&K Group last employing
Employee all original copies and all photocopies of customer lists, prospective
customer lists, contracts, books, records, training manuals, correspondence,
business and financial records, operations reports or any part thereof acquired
by Employee in the course of employment by any member of the G&K Group.
B. CONFLICTS DURING EMPLOYMENT. While in the employ of any member of the
G&K Group, Employee shall not:
(1) solicit, induce or encourage any other G&K Group Employee to
violate any term of their employment contract.
(2) be at the same time employed by a competing company,
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The foregoing restrictions shall survive both survive both termination of
this Agreement and termination of Employee's employment by any member of the G&K
Group.
C. COVENANT NOT TO COMPETE. During a period of eighteen (18) months from
and after the date of termination of Employee's employment with the G&K Group
for any reason, Employee shall not, anywhere within the geographic area in
which Employer (or any other member of the G&K, Group which employed Employee
within three (3) years prior to such date) is conducting its businesses as of
such date (the "Restricted Area"), directly or indirectly:
(1) have any ownership interest in, financial participation in. or
become employed by any competitor of any member of the G&K Group
in the Restricted Area; or
(2) call upon, solicit or attempt to take away any customers or
accounts of the G&K Group, with whom the Employee became
acquainted us a result of employment of any member of the G&K
Group; or
(3) solicit, induce or encourage any employee of the G&K G&up to
violate any term of their employment contract with the G&K Group,
or to assist any other person or entity to do so.
The foregoing competitive restrictions shall survive termination of this
Agreement and shall be effective and enforceable for eighteen (18) months
following termination of Employee's employment with the member of the G&K Group
last employing Employee, unless such period is extended for an additional length
of time pursuant to this Agreement.
D. REMEDIES. Employee acknowledges that irreparable harm will result to
the G&K Group, its business and property, in the event of a breach of this
Agreement by Employee, and that any remedy at law would be inadequate; and
therefore, in the event this Agreement is breached by Employee, the affected
members of the G&K Group shall be entitled, in addition to all other remedies or
damages at law or in equity, to temporary and permanent injunctions and orders
to restrain the violation hereof by Employee and all persons or entities acting
for or with Employee.
In the event of any breach of the foregoing restrictions, Employee agrees
to pay the reasonable attorneys' fees incurred by Employer in pursuing any of
its rights and remedies with respect to such breach, in addition to the actual
damages sustained by Employer as a result thereof.
Furthermore, in the event of a breach of Employee's covenant not to
compete, the eighteen (18) month period stated therein shall be automatically
extended and shall remain in full force during the period of time such breach
continues.
3
<PAGE>
4. SEVERABILITY. It is agreed that each of the provisions contained
herein is severable and, if any provision hereof shall to any extent be invalid
or unenforceable, the remainder of this Agreement, including such provision in
circumstances other than those in which it is held invalid or unenforceable,
shall not be affected thereby and shall be valid or enforceable in the fullest
extent permitted by law; provided, however, that if any provision hereof is held
to be invalid or unenforceable because of its duration or the territory covered.
Employee and Employer agree to be bound by any reasonable period of time or
reasonable territory, or both, as the case may be, determined by a court of
competent jurisdiction.
5. WAIVER. Any waiver by Employer, or any other member of the G&K Group,
of one or more breaches of this Agreement by Employee shall not prevent
subsequent enforcement of the Agreement by any of them or be deemed a waiver by
any of them of any subsequent breach of this Agreement.
6. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties hereto and may not be modified orally, but only by an agreement in
writing signed by both parties.
7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Employer and Employee and shall inure to the benefit of Employee, the legal
representatives of Employee and the successors and assigns of Employer and each
member of the G&K Group, but shall not be assignable by Employee. In the event
Employee's employment is transferred between members of the G&K Group, this
Agreement shall be deemed to have been assigned to the member currently
employing Employee.
8. GOVERNING LAW. This Agreement will be governed by and interpreted
under the laws of the State of Minnesota.
9. VOLUNTARY AGREEMENT. Employee enters into this Agreement voluntarily
and after having had the opportunity to consult with an advisor of his/her
choice.
IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement
as of the day and year first above written.
G&K SERVICES, INC.,
a member of the G&K Group
By /s/ Stephen F. LaBelle By /s/ Richard Fink
------------------------------- -------------------------------
Stephen LaBelle Its Richard Fink
- - ---------------------------------- -------------------------------
(Print Name) MANAGER
EMPLOYEE
4
<PAGE>
G&K SERVICES, INC.
1996 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of the G&K Services, Inc. 1996 Director Stock
Option Plan (the "Plan") is to advance the interests of G&K Services, Inc. (the
"Company") and its shareholders by encouraging increased share ownership by
members of the Board of Directors of the Company (the "Board") who are not
employees of the Company or any of its subsidiaries, in order to promote
long-term shareholder value through continuing ownership of the Company's common
stock.
2. ADMINISTRATION. The plan shall be administered by the Board. The Board
shall have all the powers vested in it by the terms of the Plan, such powers to
include authority (within the limitations described herein) to prescribe the
form of the agreement embodying awards of nonqualified stock options made under
the Plan ("Options"). The Board shall, subject to the provisions of the Plan,
grant Options under the Plan and shall have the power to construe the Plan, to
determine all questions arising thereunder and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable. Any
decisions of the Board in the administration of the Plan, as described herein,
shall be final and conclusive. The Board may act only by a majority of its
members in office, except that the members thereof may authorize any one or more
of their number or any other officer of the Company to execute and deliver
documents on behalf of the Board. No member of the Board shall be liable for
anything done or omitted to be done by him or by any other member of the Board
in connection with the Plan, except for his own willful misconduct or as
expressly provided by statute.
3. PARTICIPATION. Each member of the Board who is not an employee of the
Company or any of its subsidiaries (a "Non-Employee Director") shall be eligible
to receive an Option in accordance with Paragraph 5 below.
4. AWARDS UNDER THE PLAN.
(a) Awards under the Plan shall include only Options, which are rights
to purchase Class A common stock of the Company having a par value of $0.50
per share (the "Common Stock"). Such Options are subject to the terms,
conditions and restrictions specified in Paragraph 5 below.
(b) There may be issued under the Plan pursuant to the exercise of
Options an aggregate of not more than 50,000 shares of Common Stock, subject
to adjustment as provided in Paragraph 6 below. If any Option is cancelled,
terminates or expires unexercised, in whole or in part, any shares of Common
Stock that would otherwise have been issuable pursuant thereto will be
available for issuance under new Options.
(c) A Non-Employee Director to whom an Option is granted (and any person
succeeding to such a Non-Employee Director's rights pursuant to the Plan)
shall have no rights as a shareholder with respect to any Common Stock
issuable pursuant to any such Option until the date of the issuance of a
stock certificate to him for such shares. Except as provided in Paragraph 6
below, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities
or other property) for which the record date is prior to the date such stock
certificate is issued.
<PAGE>
5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall be
evidenced by an agreement in such form as the Board shall prescribe from time to
time in accordance with the Plan and shall comply with the following terms and
conditions:
(a) The Option exercise price shall be the "Average Market Value" (as
herein defined) of the Common Stock subject to such Option on the date the
Option is granted. Average Market Value shall be the average of the closing
prices of the Company's Common Stock during the ten business days preceding
the Company's annual meeting of shareholders for a given year, as reported
on the Nasdaq National Market.
(b) Each Non-Employee Director shall receive, as of the date of initial
adoption of the Plan by the shareholders, or upon such Non-Employee
Director's initial election or appointment to the Board, a one-time only
Option for 3,000 shares of Common Stock (the "One-Time Option"). In
addition, for each year beginning in 1996, on the date of the annual meeting
of shareholders of the Company, each Non-Employee Director shall
automatically receive an Option for 1,000 shares of Common Stock (the
"Annual Option"), subject to adjustment as set forth in Section 6 below.
(c) The Option shall not be transferable by the optionee otherwise than
by will or the laws of descent and distribution, and shall be exercisable
during his lifetime only by him.
(d) Options shall not be exercisable:
(i) before the expiration of one year from the date it is granted
and after the expiration of ten years from the date it is granted, and
(A) the One-Time Option may be exercised during such period as follows:
one-third (33 1/3%) of the total number of shares covered by the One-Time
Option shall become exercisable each year beginning with the first
anniversary of the date it is granted, and (B) the Annual Option shall
become exercisable in full upon the first anniversary of the date it is
granted; provided that a Non-Employee Director who does not stand for
re-election to the Board may exercise any otherwise unexercisable Annual
Options beginning on the date such director's successor is elected and
qualified, subject to all of the other terms and conditions of such
Annual Options. Notwithstanding anything to the contrary herein, an
Option shall automatically become immediately exercisable in full upon
the death of a Non-Employee Director;
(ii) unless payment in full is made for the shares of Common Stock
being acquired thereunder at the time of exercise; such payment shall be
made in United States dollars by cash or check, or in lieu thereof, by
tendering to the Company Common Stock owned by the person exercising the
Option and having a fair market value (as evidenced by the closing sales
price of a share of Common Stock on the Nasdaq National Market or, if the
Nasdaq National Market is closed on that date, on the last preceding date
on which the Nasdaq National Market was open for trading) equal to the
cash exercise price applicable to such Option, or by a combination of
United States dollars and Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been at all times
during the period beginning with the date of grant of the Option and
ending on the date of such exercise, a Non-Employee Director of the
Company, except that if such person shall cease to be such a Non-Employee
Director for any reason, including death, while holding an Option that
has not expired and has not been fully exercised, such person may, at any
time within one year of the date he ceased to be a Non-Employee Director
(but in no event after the Option has expired under the provisions of
subparagraph 5(d)(i) above), exercise the Option with respect to any
Common Stock as to which he could have exercised on the date he ceased to
be such a Non-Employee Director.
2
<PAGE>
(e) If, on any date on which Options are automatically granted, the
number of shares of Common Stock remaining available under the Plan is
insufficient for the grant to each Non-Employee Director of Options to
purchase 1,000 shares of Common Stock, then Options to purchase a
proportionate amount of such available number of shares of Common Stock
(rounded to the nearest whole share) shall be granted to each Non-Employee
Director.
6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of all or part of its assets, any distribution to
shareholders other than a normal cash dividend, or other extraordinary or
unusual event, the number or kind of shares that may be issued under the Plan
pursuant to subparagraph 4(b) above (specifically including the number of shares
thereafter subject to the One-Time and Annual Options), the number or kind of
shares subject to, and the Option price per share under, all outstanding Options
shall be automatically adjusted so that the proportionate interest of the
participant shall be maintained as before the occurrence of such event; such
adjustment in outstanding Options shall be made without change in the total
Option exercise price applicable to the unexercised portion of such Options and
with a corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.
7. MISCELLANEOUS PROVISIONS.
(a) Except as expressly provided for in the Plan, no Non-Employee
Director or other person shall have any claim or right to be granted an
Option under the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any Non-Employee Director any right to be retained in
the service of the Company.
(b) A participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part
either directly or by operation of law or otherwise (except in the event of
a participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right or
interest of any participant in the Plan shall be subject to any obligation
or liability of such participant.
(c) Common Stock shall not be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign securities, securities exchange
and other applicable laws and requirements.
(d) It shall be a condition to the obligation of the Company to issue
Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(d)(iii)(B) above)
pay to the Company, upon its demand, such amount as may be requested by the
Company for the purpose of satisfying any liability to withhold federal,
state, local or foreign income or other taxes. If the amount requested is
not paid, the Company may refuse to issue such Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
(f) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification of,
and consent to, any action taken under the Plan by the Company or the Board.
3
<PAGE>
(g) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Options hereunder or any
Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, or any other
applicable statute, rule or regulation.
8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time and
from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation. No
amendment of the Plan shall materially and adversely affect any right of any
participant with respect to any Option theretofore granted without such
participant's written consent.
9. TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating the Plan;
or
(b) ten years from the date the Plan is initially approved and adopted
by the shareholders of the Company.
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any person, without his consent, under any Option
theretofore granted under the Plan.
10. IMMEDIATE ACCELERATION OF OPTIONS. Notwithstanding any provision in
this Plan to the contrary, all outstanding Options will become exercisable
immediately if any of the following events occur unless otherwise determined by
the Board of Directors and a majority of the Continuing Directors (as defined
below):
(a) any person or group of persons becomes the beneficial owner of 30%
or more of any equity security of the Company entitled to vote for the
election of directors;
(b) a majority of the members of the Board of Directors is replaced
within the period of less than two years by directors not nominated and
approved by the Board of Directors; or
(c) the stockholders of the Company approve an agreement to merge or
consolidate with or into another corporation or an agreement to sell or
otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation).
For purposes of this Section 10, beneficial ownership by a person or group
of persons shall be determined in accordance with Regulation 13D (or any similar
successor regulation) promulgated by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Beneficial
ownership of more than 30% of an equity security may be established by any
reasonable method, but shall be presumed conclusively as to any person who files
a Schedule 13D report with the Securities and Exchange Commission reporting such
ownership.
For purposes of this Section 10 "Continuing Directors" are directors (i) who
were in office prior to the time any of provisions (a), (b) or (c) occurred or
any person publicly announced an intention to acquire 20% or more of any equity
security of the Company, (ii) directors in office for a period of more than two
years, and (iii) directors nominated and approved by the Continuing Directors.
11. EFFECTIVE DATE OF PLAN. The Plan will become effective on the date
that it is approved by the affirmative vote of the holders of a majority of the
shares of Common Stock entitled to notice of and to vote at the Company's 1996
Annual Meeting of Stockholders.
4
<PAGE>
Amendment No. 4 to
10.62% Loan Agreement
May 18, 1995
G&K Services, Inc.
G&K Services, Co.
Waterford Park
505 Highway 169N
Suite 455
Minneapolis, Minnesota 55441-6446
Attention: Stephen LaBelle
Secretary and Treasurer
Re: LOAN AGREEMENT DATED AS OF SEPTEMBER 28, 1990.
Dear Sirs:
We are the holder of the 10.62% Senior Notes (the "Notes") issued by G&K
Services, Inc. (the "Company") in the original aggregate principal amount of
$40,000,000 pursuant to the Loan Agreement dated as of September 28, 1990,
between the Company and us (the "Agreement"). The Notes were amended pursuant
to (i) an amendment agreement dated January 28, 1993 (the "First Amendment"),
(ii) an amendment dated June 24, 1994 (the "Second Amendment"), and (iii) an
amendment dated November 23, 1994 (the "Third Amendment"), and are entitled to
the benefit of a Guaranty dated as of September 28, 1990 issued by G&K Services,
Co. (the "G&K Co. Guaranty"). Capitalized terms used but not otherwise defined
herein shall have the meanings set forth therefor in the Agreement.
The Company amended the Credit Agreement pursuant to a First Amendment to
Credit Agreement dated as of November 28, 1994 (the "First Credit Amendment")
and desires to further amend the Credit Agreement pursuant to a Second Amendment
to Credit Agreement and Guarantees dated as of May 18, 1995 (the "Second Credit
Amendment"), a copy of which has been provided to us. As the holder of the
Notes and as a party to the Agreement, we hereby consent to the First Credit
Amendment and the Second Credit Amendment and agree that the Agreement and the
Notes shall be amended by this amendment (the "Fourth Amendment") as follows:
1. Subsection C of Section 4.01 of the Notes shall be deleted in its
entirety and the following substituted therefor:
"C. Indebtedness of Work Wear incurred pursuant to the Credit
Agreement not exceeding at any time the lesser of (i) Canadian
$34,000,000 and (ii) twenty-five
<PAGE>
percent (25%) of Consolidated Stockholders' Equity as set forth in the
most recently available financial statements of the Company,
(quarterly or annual, as the case may be), with conversion to Canadian
dollars to be made as of the date of delivery of such financial
statements in accordance with Section 1.2 of the Credit Agreement;
2. The definition of "Company Guarantee" in Section 6 of the Notes shall
be deleted in its entirety and the following substituted therefor:
"'COMPANY GUARANTEE' means the Guarantees, each dated as of June
21, 1994, issued by the Company to the Canadian Banks guaranteeing the
indebtedness of Work Wear to the Canadian Banks under the Credit
Agreement, as amended by the Second Amendment to Credit Agreement and
Guarantees dates as of May 18, 1995, and as further amended from time
to time with the consent of Metropolitan."
3. Except as so amended by this Fourth Amendment, the Third Amendment,
the Second Amendment and the First Amendment, the Notes and the Agreement are in
all respects ratified and confirmed and all provisions thereof shall be given
full force and effect as if they were set forth herein in their entirety; and
all references in the Agreement to the Notes shall mean the Notes as so amended
by this Fourth Amendment, the Third Amendment, the Second Amendment and the
First Amendment.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
This Fourth Amendment shall be of no force or effect unless and until you
have returned to the undersigned a counterpart hereof executed by you at the
foot hereof.
Very truly yours,
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Michael J. Kroeger
----------------------------------
Name: Michael J. Kroeger
Title: Vice President
AGREED TO AND ACCEPTED:
G&K SERVICES, INC.
By: Stephen F. LaBelle
- - --------------------------------
Name:
Title:
G&K SERVICES, CO.
By: Stephen F. LaBelle
- - --------------------------------
Name:
Title:
3
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT AND GUARANTEES
This Second Amendment is made as of the 18th day of May, 1995, by and
among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD. ("Work
Wear"; G&K and Work Wear, as the context requires, may be hereinafter referred
to collectively as the "Companies" and individually as a "Company"), NBD BANK
(formerly known as NBD Bank, N.A.) ("NBD USA"), NBD BANK, CANADA ("NBD Canada"),
CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION ("Norwest") and HARRIS TRUST AND SAVINGS BANK ("Harris"; NBD USA,
NBD Canada, CIBC and Norwest and Harris, as the context requires, may be
hereinafter referred to collectively as the "Banks" and individually as a
"Bank").
RECITALS
The Companies and the Banks have entered into a Credit Agreement dated
as of June 21, 1994, as amended by a First Amendment dated November 28, 1994
(the "Credit Agreement") under which NBD USA, Norwest and Harris have agreed to
make certain revolving credit loans to and issue letters of credit for the
account of G&K (the "Tranche A Facility") and NBD Canada and CIBC have agreed to
make certain revolving credit loans to and issue banker's acceptances for the
account of Work Wear (the "Tranche B Facility").
Work Wear wishes to increase the size of the Tranche B Facility and
NBD Canada and CIBC have agreed to increase their respective Commitments, all
pursuant to the terms and subject to the conditions set forth in this Second
Amendment.
ACCORDINGLY, in consideration of the premises, the Companies and the
Banks hereby agree as follows:
1. DEFINITIONS. Except as otherwise expressly set forth herein, all
capitalized terms in this Second Amendment which are defined in the Credit
Agreement shall have the same meanings assigned to them in the Credit Agreement.
2. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter
into this Second Amendment, the Companies hereby represent and warrant as
follows.
1. The Loan Documents constitute the legal, valid and binding
agreements of each Company (to the extent a company is a party thereto),
are subject to no defenses, counterclaims, rights of -offset or recoupment
and are enforceable in accordance with their respective terms.
2. The Guaranties of G&K to NBD Canada and CIBC constitute the
legal, valid and binding obligations of G&K, are subject to no defenses,
counterclaims, rights of offset or recoupment and are enforceable in
accordance with their respective terms.
<PAGE>
3. The representations and warranties contained in SECTION 9 of the
Credit Agreement are true and correct as of the date hereof as though made
on and as of this date, except to the extent that such representations and
warranties relate solely to an earlier date.
4. No event has occurred and is continuing or would result from the
execution and delivery of this Second Amendment and the ancillary documents
contemplated hereby which constitutes or would constitute a default or an
event of default under the Credit Agreement, the Met Life Loan Agreement
(assuming delivery by Met Life of its amendment to the Met Life Loan
Agreement, as contemplated hereby) or any other agreement, indenture,
evidence of indebtedness or other obligation of either of the Companies.
3. INCREASE IN EXISTING TRANCHE B COMMITMENT AMOUNT. The definition
of "Tranche B Commitment Amount" is hereby amended by deleting the reference
therein contained to "Thirty Million Canadian Dollars (C. $30,000,000)" and
substituting in place thereof the phrase "Thirty-Three Million Eight Hundred
Seventy- Five Thousand Canadian Dollars (C. $33,875,000)" CIBC and NBD Canada
hereby agree that their respective Commitments shall be increased to the amounts
set forth opposite their respective names on the signature pages hereof under
the caption "Dollar Amount of Commitment". Additionally, the respective
Percentage of CIBC and NBD Canada of all Tranche B Exposure, all Tranche B Loans
and the Tranche B Commitment Amount shall be equal to the applicable percentage
set forth opposite each such Bank's name on the signature pages hereof under the
caption "Percentage".
4. ISSUANCE OF REPLACEMENT PROMISSORY NOTES. To evidence the
obligation of Work Wear to repay all Tranche B Loans to the Canadian Banks, and
in replacement for (but not in payment of) the Revolving Notes currently held by
CIBC and NBD Canada, respectively, Work Wear hereby agrees to issue and deliver
to the Canadian Banks the following promissory notes (the "New Notes"):
1. A Revolving Note of Work Wear payable to the order of CIBC in the
stated principal amount of C. $l6,937,500, in substantially the form of
EXHIBIT A attached hereto.
2. A Revolving Note of Work Wear payable to the order of NBD Canada
in the stated principal amount of C. $16,937,500, in substantially the form
of EXHIBIT B attached hereto.
The New Notes shall be issued to CIBC and NBD Canada in replacement
for the Revolving Notes previously held by CIBC and NBD Canada, respectively,
and all references in the Credit Agreement and in each other Loan Document to
the Notes, Revolving Notes or other terms of like import shall be deemed, as
appropriate, references to the New Notes issued in accordance with this Second
Amendment.
5. PAYMENT OF FEES. Work Wear hereby irrevocably commits and agrees
to pay the following fees and reimburse Norwest for the following expenses:
2
<PAGE>
1. A new facility fee will be due and payable to CIBC in the amount
of C.$5,193.75. A new facility fee will be due and payable to NBD Canada
in the amount of C.$2,306.25. Each such fee shall be deemed fully earned
upon execution of this Second Amendment.
2. G&K will pay or reimburse Norwest for all fees and disbursements
of counsel to Norwest incurred in connection with the preparation,
execution and delivery of this Second Amendment.
6. CONSENT OF G&K; AMENDMENT OF GUARANTEES. G&K, in its capacity as
guarantor of the Notes held by the Canadian Banks and all other obligations of
Work Wear under the Credit Agreement, hereby consents to increase of the Tranche
B Commitment Amount and the respective Commitments of the Canadian Banks and the
other amendments contemplated in this Second Amendment, agrees that its
Guarantees executed for the benefit of NBD Canada and CIBC, respectively, dated
as of June 21, 1994, remain in full force and effect and shall apply in all
respects to the New Notes and all indebtedness evidenced thereby as if such New
Notes had been executed concurrent with execution of the Credit Agreement. In
addition, each such Guarantee is hereby amended as follows:
1. The Guarantee and Postponement of Claim of G&K to NBD Canada
dated June 21, 1994 is hereby amended by deleting the clause "Sixteen
Million ($16,000,000) Canadian" as it appears in the preamble thereto and
inserting instead the clause "Sixteen Million Nine Hundred Thirty-Seven
Thousand Five Hundred ($16,937,500) Canadian";
2. The Guarantee and Postponement of Claim of G&K to CIBC is hereby
amended by deleting the clause "Fourteen Million ($14,000,000) Canadian" as
it appears in the preamble thereto and inserting instead the clause
"Sixteen Million Nine Hundred Thirty-Seven Thousand Five Hundred
($16.937.500) Canadian".
All other terms and conditions of the Guarantees remain unmodified and
in full force and effect.
7. CONSENT TO MET LIFE LOAN AGREEMENT AMENDMENTS. The definition of
"Met Life Loan Agreement" appearing in SECTION 1.1 of the Credit Agreement is
hereby amended to read as follows:
"MET LIFE LOAN AGREEMENT" means, collectively (i) the Loan Agreement
dated as of September 28, 1990 between Met Life and G&K, as amended
pursuant to separate amendments dated January 28, 1993, June 21, 1994,
November 23, 1994 and May 18, 1995 and (ii) the Loan Agreement between
Met Life, certain subsidiaries of Met Life and G&K dated as of
November 23, 1994, as amended pursuant to an amendment dated May 18,
1995."
3
<PAGE>
8. CONDITIONS PRECEDENT As a condition to the effectiveness of this
Second Amendment, Norwest shall have received each of the following, in form and
substance satisfactory to it:
1. This Second Amendment, duly executed on behalf of the Companies
and each Bank.
2. The New Notes, duly executed on behalf of Work Wear.
3. Certificates of the secretary or assistant secretary of each of
the Companies setting forth the specimen signatures of officers of such
Companies which have been authorized to execute and deliver this Second
Amendment, the New Notes and such other documents as are contemplated
hereby (or certifying that the signatures set forth in such party's prior
certificate to the Banks remain unchanged), together with a copy of the
resolutions adopted by the respective boards of directors of the Companies
approving such execution and delivery.
4. Appropriate amendments to the 1990 Met Life Loan Agreement and to
the 1994 Met Life Loan Agreement, duly executed on behalf of G&K and Met
Life, pursuant to which Met Life evidences its consent to the increase in
the Tranche B Commitment Amount and the modifications to the Guarantees and
the Credit Agreement as contemplated herein.
5. Opinions of counsel to the Companies in form and content
acceptable to the Banks.
9. MISCELLANEOUS.
1. The Companies hereby release and forever discharge the Banks and
each of their respective former and present directors, officers, employees,
agents and representatives of and from every and all claims, demands,
causes of action (at law or in equity) and liabilities of any kind or
nature, whether known or unknown, liquidated or unliquidated, absolute or
contingent, which the Companies ever had, presently have or claim to have
against a Bank or any of its respective directors, officers, employees,
agents or representatives of or relating to events, occurrences, actions,
inactions or other matters of or relating to the Credit Agreement, any Loan
Document or the Guaranties or any actions or inactions hereunder or
thereunder which occurred prior to the date of this Second Amendment.
2. The Companies hereby reaffirm their agreement under SECTION 16.6
of the Credit Agreement to pay or reimburse Norwest, among other costs and
expenses, for all expenses incurred by Norwest in connection with the
amendment, performance or enforcement of the Loan Documents including
without limitation, all reasonable fees and disbursements of legal counsel
to Norwest in connection with the preparation of this Second Amendment.
4
<PAGE>
3. Except as expressly amended hereby, all provisions of the Loan
Documents and the Guaranties shall remain in full force and effect. After
the effective date hereof, each reference in any Loan Document, the
Guaranties or any other document executed in connection with the Credit
Agreement to "this Agreement", "hereunder" or "hereof" or words of like
import referring to the Credit Agreement or the Guaranties, respectively,
shall be deemed and refer to the Credit Agreement or the Guaranties, as the
case may be, as amended hereby. In addition, from and after the effective
date hereof, each reference in any Loan Document or the Guaranties to the
Notes or the Revolving Notes of NBD Canada or CIBC shall be deemed
references to the New Notes.
4. This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which counterparts, taken together, shall
constitute but one in the same one and the same instrument.
5. The execution of this Second Amendment and acceptance of any
documents related hereto shall not be deemed a waiver of any Default or
Event of Default under any Loan Document, whether or not existing on the
date of this Second Amendment.
6. This Second Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of Minnesota.
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment as of the day and year first above mentioned.
G&K SERVICES, INC.
By /s/Stephen F. LaBelle
---------------------------------
Its Secretary and Treasurer
-------------------------
WORK WEAR CORPORATION
OF CANADA LTD.
By /s/Stephen F. LaBelle
---------------------------------
Its Secretary and Treasurer
-------------------------
5
<PAGE>
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/John J. Lukaske
-------------------------------
Its Vice President
------------------------
NBD BANK
By /s/ Illegible Signature
-------------------------------
Its
------------------------
HARRIS TRUST AND SAVINGS BANK
By /s/ Catherine C. Ciolek
-------------------------------
Its Vice President
------------------------
[SIGNATURE PAGE TO SECOND AMENDMENT]
<TABLE>
<CAPTION>
NEW COMMITMENTS
---------------
Dollar Amount
Tranche of commitment Percentage NBD BANK, CANADA
- - ------- ------------- ----------
<S> <C> <C> <C>
B C.$16,937,500 50% By /s/ Jeremiah Hynes
------------------------
Its Vice President
-----------------------
Dollar Amount
Tranche of commitment Percentage CANADIAN IMPERIAL BANK
- - ------- ------------- ---------- OF COMMERCE
B C.$16,937,500 50% By /s/ Sabira Khan
------------------------
Its Contract Analyst
-----------------------
</TABLE>
6
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment is made as of the 4th day of January, 1996, by
and among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD.
("Work Wear"; G&K and Work Wear, as the context requires, may be hereinafter
referred to collectively as the "Companies" and individually as a "Company"),
NBD BANK (formerly known as NBD Bank, N.A.) ("NBD USA"), NBD BANK, CANADA ("NBD
Canada"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION ("Norwest") and HARRIS TRUST AND SAVINGS BANK ("Harris";
NBD USA, NBD Canada, CIBC and Norwest and Harris, as the context requires, may
be hereinafter referred to collectively as the "Banks" and individually as a
"Bank").
RECITALS
--------
The Companies and the Banks have entered into a Credit Agreement dated
as of June 21, 1994, as amended by a First Amendment dated November 28, 1994,
and a Second Amendment dated May 18, 1995 (as amended, the "Credit Agreement")
under which NBD USA, Norwest and Harris have agreed to make certain revolving
credit loans to and issue letters of credit for the account of G&K (the "Tranche
A Facility") and NBD Canada and CIBC have agreed to make certain revolving
credit loans to and issue banker's acceptances for the account of Work Wear (the
"Tranche B Facility").
G&K and Work Wear have requested that certain covenants in the Credit
Agreement be amended and the Banks have agreed to such request, all pursuant to
the terms and subject to the conditions set forth in this Third Amendment.
ACCORDINGLY, in consideration of the premises, the Companies and the
Banks hereby agree as follows:
1. DEFINITIONS. Except as otherwise expressly set forth herein, all
capitalized terms in this Third Amendment which are defined in the Credit
Agreement shall have the same meanings assigned to them in the Credit Agreement.
2. REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into
this Third Amendment, the Companies hereby represent and warrant as follows:
1. The Loan Documents constitute the legal, valid and binding
agreements of each Company (to the extent a Company is a party thereto),
are subject to no defenses, counterclaims, rights of offset or recoupment
and are enforceable in accordance with their respective terms.
2. The Guaranties of G&K to NBD Canada and CIBC constitute the
legal, valid and binding obligations of G&K, are subject to no defenses,
counterclaims, rights of offset or recoupment and are enforceable in
accordance with their respective terms.
<PAGE>
3. The representations and warranties contained in SECTION 9 of the
Credit Agreement are true and correct as of the date hereof as though made
on and as of this date, except to the extent that such representations and
warranties relate solely to an earlier date.
4, No event has occurred and is continuing or would result from the
execution and delivery of this Third Amendment and the ancillary documents
contemplated hereby which constitutes or would constitute a default or an event
of default under the Credit Agreement, the Met Life Loan Agreement or any other
agreement, indenture, evidence of indebtedness or other obligation of either of
the Companies.
3. REDUCTION IN INTEREST ON EURODOLLAR LOANS. SECTION 4.4.2 of the
Credit Agreement is hereby amended by deleting the reference to "one and one-
half percent (l1/2 %)" as it appears in clause (ii) thereof and inserting in
place thereof the clause "one and one-quarter percent (11/4 %)".
4. REDUCTION IN ACCEPTANCE FEE. SECTION 3.7(c) of the Credit
Agreement is hereby amended by deleting the reference to one and one-half
percent (1.50%)" as it appears therein and inserting in place thereof the clause
"one and one-quarter percent (1.25%)"
5. INCREASE IN EXPENDITURES FOR FIXED ASSETS. SECTION 11.9 of the
Credit Agreement is hereby amended by deleting the reference to "U.S.
$33,000,000" as it appears therein across from the fiscal year 1996 and
inserting in place thereof the term "U.S $38,000,000".
6. MISCELLANEOUS.
1. The Companies hereby release and forever discharge the Banks and
each of their respective former and present directors, officers, employees,
agents and representatives of and from every and all claims, demands,
causes of action (at law or in equity) and liabilities of any kind or
nature, whether known or unknown, liquidated or unliquidated, absolute or
contingent, which the Companies ever had, presently have or claim to have
against a Bank or any of its respective directors, officers, employees,
agents or representatives of or relating to events, occurrences, actions,
inactions or other matters of or relating to the Credit Agreement, any Loan
Document or the Guaranties or any actions or inactions hereunder or
thereunder which occurred prior to the date of this Third Amendment.
2. The Companies hereby reaffirm their agreement under SECTION 16.6
of the Credit Agreement to pay or reimburse Norwest, among other costs and
expenses, for all expenses incurred by Norwest in connection with the
amendment, performance or enforcement of the Loan Documents, including
without limitation, all reasonable fees and disbursements of legal counsel
to Norwest in connection with the preparation of this Third Amendment.
2
<PAGE>
3. Except as expressly amended hereby, all provisions of the Loan
Documents and the Guaranties shall remain in full force and effect. After
the effective date hereof, each reference in any Loan Document, the
Guaranties or any other document executed in connection with the Credit
Agreement to "this Agreement", "hereunder" or "hereof" or words of like
import referring to the Credit Agreement or the Guaranties, respectively,
shall be deemed and refer to the Credit Agreement or the Guaranties, as the
case may be, as amended hereby.
4. This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which counterparts, taken together, shall
constitute but one in the same one and the same instrument.
5. The execution of this Third Amendment and acceptance of any
documents related hereto shall not be deemed a waiver of any Default or
Event of Default under any Loan Document, whether or not existing on the
date of this Third Amendment.
6. This Third Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of Minnesota.
IN WITNESS WHEREOF, the undersigned have executed this Third Amendment
as of the day and year first above mentioned.
G&K SERVICES, INC.
By /s/Stephen F. LaBelle
---------------------------------------
Its Secretary and Treasurer
-----------------------------------
WORK WEAR CORPORATION
OF CANADA LTD.
By /s/Stephen F. LaBelle
---------------------------------------
Its Secretary and Treasurer
-----------------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Dan Weiles
---------------------------------------
Its V P
-----------------------------------
NBD BANK
By /s/ Illegible Signature
---------------------------------------
Its Second Vice President
-----------------------------------
3
<PAGE>
HARRIS TRUST AND SAVINGS BANK
By /s/ Illegible Signature
---------------------------------------
Its Vice President
-----------------------------------
NBD BANK, CANADA
By /s/ Illegible Signature
---------------------------------------
Its Assistant Vice President
-----------------------------------
CANADIAN IMPERIAL BANK
OF COMMERCE
By /s/ Illegible Signature
---------------------------------------
Its Credit Designer
-----------------------------------
4
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
This Fourth Amendment is made as of the 5th day of August, 1996, by
and among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD.
("Work Wear"; G&K and Work Wear, as the context requires, may be hereinafter
referred to collectively as the "Companies" and individually as a "Company"),
NBD BANK (formerly known as NBD Bank, N.A.) ("NBD USA"), FIRST CHICAGO NBD BANK,
CANADA, formerly known as NBD Bank Canada ("NBD Canada"), CANADIAN IMPERIAL BANK
OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest")
and HARRIS TRUST AND SAVINGS BANK ("Harris"; NBD USA, NBD Canada, CIBC and
Norwest and Harris, as the context requires, may be hereinafter referred to
collectively as the "Banks" and individually as a "Bank").
RECITALS
The Companies and the Banks have entered into a Credit Agreement dated
as of June 21, 1994, as amended by a First Amendment dated November 28, 1994, a
Second Amendment dated May 18, 1995 and a Third Amendment dated January 4, 1996
(as amended, the "Credit Agreement") under which NBD USA, Norwest and Harris
have agreed to make certain revolving credit loans to and issue letters of
credit for the account of G&K (the "Tranche A Facility") and NBD Canada and CIBC
have agreed to make certain revolving credit loans to and issue banker's
acceptances for the account of Work Wear (the "Tranche B Facility").
G&K and Work Wear have requested that the Credit Agreement be amended
and the Banks have agreed to such request, all pursuant to the terms and subject
to the conditions set forth in this Fourth Amendment.
ACCORDINGLY, in consideration of the premises, the Companies and the
Banks hereby agree as follows:
1. DEFINITIONS. Except as otherwise expressly set forth herein, all
capitalized terms in this Fourth Amendment which are defined in the Credit
Agreement shall have the same meanings assigned to them in the Credit Agreement.
2. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter
into this Fourth Amendment, the Companies hereby represent and warrant as
follows:
a. The Loan Documents constitute the legal, valid and binding
agreements of each Company (to the extent a Company is a party thereto),
are subject to no defenses, counterclaims, rights of offset or recoupment
and are enforceable in accordance with their respective terms.
b. The Guaranties of G&K to NBD Canada and CIBC constitute the
legal, valid and binding obligations of G&K, are subject to no defenses,
counterclaims, rights of offset or recoupment and are enforceable in
accordance with their respective terms.
<PAGE>
3. The representations and warranties contained in SECTION 9 of the
Credit Agreement are true and correct as of the date hereof as though made
on and as of this date, except to the extent that such representations and
warranties relate solely to an earlier date.
4. No event has occurred and is continuing or would result from the
execution and delivery of this Fourth Amendment and the ancillary documents
contemplated hereby which constitutes or would constitute a default or an
event of default under the Credit Agreement, the Met Life Loan Agreement or
any other agreement, indenture, evidence of indebtedness or other
obligation of either of the Companies.
3. REDUCTION OF INTEREST RATE ON EURODOLLAR LOANS. SECTION 4.4.2 of
the Credit Agreement is hereby amended by deleting the reference to "one and
one-quarter percent (1 1/4%)" as it appears in clause (ii) thereof and inserting
in place thereof the clause "seven-eighths of one percent (.875%)".
4. REDUCTION IN ACCEPTANCE FEE. SECTION 3.7(c) of the Credit
Agreement is hereby amended by deleting the reference to "one and one-quarter
percent (1 1/4%)" as it appears therein and inserting in place thereof the
clause "seven-eighths of one percent (.875%)"
5. EXTENSION OF COMMITMENTS. The definition of "Revolving Loan
Termination Date" appearing in SECTION 1.1 of the Credit Agreement is hereby
amended by deleting the reference to June 30, 1997 as it appears therein and
inserting in place thereof the date "September 30, 1998". In addition, each
Revolving Note is hereby amended by deleting the reference to "June 30, 1997" as
it appears therein and inserting in place thereof the date "September 30, 1998."
6. MODIFICATION OF FINANCIAL COVENANTS.
1. MINIMUM TOTAL STOCKHOLDER EQUITY. Section 10.10 of the Credit
Agreement is hereby amended by deleting the reference to "June 30, 1997"
as it appears in the table constituting a part thereof and inserting in
place thereof the date "March 31, 1998" and by adding the following at
the end of such table:
April 1, 1998 through September 30, 1998 $150,000,000
2. EXPENDITURES FOR FIXED ASSETS. Section 11.9 of the Credit
Agreement is hereby amended by deleting the reference to "U.S. $35,000,000"
as it appears in the table constituting a part thereof across from the
fiscal year 1997 and inserting in place thereof the amount "U.S.
$38,000,000" and by adding the following to such table:
1998 U.S. $38,000,000
July 1 1998 through September 30, 1998 U.S. $10,000,000
7. MISCELLANEOUS.
2
<PAGE>
1. The Companies hereby release and forever discharge the Banks and
each of their respective former and present directors, officers, employees,
agents and representatives of and from every and all claims, demands,
causes of action (at law or in equity) and liabilities of any kind or
nature, whether known or unknown, liquidated or unliquidated, absolute or
contingent, which the Companies ever had, presently have or claim to have
against a Bank or any of its respective directors, officers, employees,
agents or representatives of or relating to events, occurrences, actions,
inactions or other matters of or relating to the Credit Agreement, any Loan
Document or the Guaranties or any actions or inactions hereunder or
thereunder which occurred prior to the date of this Fourth Amendment.
2. The Companies hereby reaffirm their agreement under SECTION 16.6
of the Credit Agreement to pay or reimburse Norwest, among other costs and
expenses, for all expenses incurred by Norwest in connection with the
amendment, performance or enforcement of the Loan Documents, including
without limitation, all reasonable fees and disbursements of legal counsel
to Norwest in connection with the preparation of this Fourth Amendment.
3. Except as expressly amended hereby, all provisions of the Loan
Documents and the Guaranties shall remain in full force and effect. After
the effective date hereof each reference in any Loan Document, the
Guaranties or any other document executed in connection with the Credit
Agreement to "this Agreement", "hereunder" or "hereof" or words of like
import referring to the Credit Agreement or the Guaranties, respectively,
shall be deemed and refer to the Credit Agreement or the Guaranties, as the
case may be, as amended hereby.
4. This Fourth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which counterparts, taken together, shall
constitute but one and the same instrument.
5. The execution of this Fourth Amendment and acceptance of any
documents related hereto shall not be deemed a waiver of any Default or
Event of Default under any Loan Document, whether or not existing on the
date of this Fourth Amendment.
6. This Fourth Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of Minnesota.
IN WITNESS WHEREOF, the undersigned have executed this Fourth
Amendment as of the day and year first above mentioned.
G&K SERVICES, INC.
By /s/Stephen F. Labelle
--------------------------------
Its Secretary and Treasurer
------------------------
3
<PAGE>
WORK WEAR CORPORATION
OF CANADA LTD.
By /s/Stephen F. LaBelle
--------------------------------
Its Secretary and Treasurer
------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/Daniel Wieles
--------------------------------
Its V P
------------------------
NBD BANK
By /s/ Illegible Signature
--------------------------------
Its Vice President
------------------------
HARRIS TRUST AND SAVINGS BANK
By /s/ Catherine C. Ciolek
--------------------------------
Its Vice President
------------------------
FIRST CHICAGO NBD BANK, CANADA
By /s/ Illegible Signature
--------------------------------
Its AVP
--------------------------
CANADIAN IMPERIAL BANK
OF COMMERCE
By /s/ Illegible Signature
--------------------------------
Its Illegible
---------------------
4
<PAGE>
- - --------------------------------------------------------------
- - --------------------------------------------------------------
G & K SERVICES, INC.
----------------------
LOAN AGREEMENT
Dated November 23, 1994
----------------------
8.46% Senior Notes Due November 23, 1997
- - --------------------------------------------------------------
- - --------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. ISSUE OF NOTES . . . . . . . . . . . . . . . . . . 1
SECTION 2. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 2
SECTION 3. CONDITIONS OF THE LOAN . . . . . . . . . . . . . . 8
SECTION 4. REPRESENTATIONS OF PURCHASERS. . . . . . . . . . . 10
SECTION 5. FINANCIAL STATEMENTS; COMPLIANCE
CERTIFICATES; ADDITIONAL INFORMATION;
INSPECTION . . . . . . . . . . . . . . . . . . . . 10
SECTION 6. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 13
EXHIBIT A - FORM OF NOTE
Page
of Note
-------
SECTION 1. THE NOTES; TRANSFERS, EXCHANGES, ETC. . . . . . . 1
SECTION 2. PREPAYMENT OF NOTES. . . . . . . . . . . . . . . . 2
SECTION 3. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 5
SECTION 4. RESTRICTIVE COVENANTS. . . . . . . . . . . . . . . 6
SECTION 5. CONSENTS, WAIVERS AND AMENDMENTS . . . . . . . . . 16
SECTION 6. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 17
SECTION 7. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . 26
SECTION 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 31
EXHIBIT B - INDEBTEDNESS FOR MONEY BORROWED AND
LIENS SECURING INDEBTEDNESS FOR MONEY BORROWED OF THE
COMPANY AND ITS SUBSIDIARIES
EXHIBIT C - LIST OF SUBSIDIARIES AND THEIR JURISDICTIONS
OF INCORPORATION
EXHIBIT D - FORM OF GUARANTY
EXHIBIT E - LITIGATION
EXHIBIT F - FORM OF OPINION OF MASLON EDELMAN
BORMAN & BRAND
EXHIBIT G - ERISA
-i-
<PAGE>
G & K SERVICES, INC.
LOAN AGREEMENT
November 23, 1994
To: The Purchasers
Listed in Schedule I hereto:
G & K SERVICES, INC., a Minnesota corporation (herein called the
"Company"), agrees with each of you as follows:
SECTION 1. ISSUE OF NOTES.
1.1. AUTHORIZATION. The Company has duly authorized an issue of
$15,000,000 aggregate principal amount of its 8.46% senior notes due November
23, 1997 (herein called the "Notes"), such Notes to be in the form and have
terms and provisions substantially as set forth in Exhibit A hereto. The term
"Notes" as used herein shall include all promissory notes delivered pursuant to
the provisions of this Agreement and all promissory notes delivered in
substitution or exchange therefor or in lieu thereof, and, where applicable,
shall include the singular number as well as the plural. The term "Note" shall
mean one of the Notes.
1.2. LOAN; CLOSING. The Company hereby agrees to borrow from each of you,
and each of you, subject to the terms and conditions herein set forth, hereby
agree to lend to the Company on November 23, 1994 (the "Closing Date") the
aggregate principal amount set forth opposite your name on Schedule I hereto.
The loans to be made by each of you on the Closing Date will be evidenced
by and be made against delivery to you at 10:00 A.M., Minneapolis time, on the
Closing Date, at the office of Metropolitan Life Insurance Company at One
Madison Avenue, New York New York, of one or more Notes (as shall be designated
by you no later than 5 days prior to the Closing Date) payable to you or
registered assigns, dated the Closing
<PAGE>
Date, duly executed by the Company and in the aggregate principal amount of the
loans to be made by you on the Closing Date. Delivery of the Notes to you
hereunder shall be made against payment to the Company by wire transfer of
immediately available funds to Norwest Bank Minnesota, N.A., ABA 091000019,
credit Commercial Loan Account 840165 for further credit to G & K Services,
Inc., Account #1073025 (Attention: Mike Bjorgan) in the aggregate principal
amount of the loans to be made by you on the Closing Date.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants that:
2.1. FINANCIAL STATEMENTS. You have been furnished with copies of the
consolidated balance sheets of the Company and its Subsidiaries as at June 30,
1990, June 29, 1991, June 27, 1992, July 3, 1993 and July 2, 1994, inclusive,
and the related consolidated statements of income, cash flows and stockholders'
equity of the Company and its Subsidiaries for the fiscal periods ended on said
dates, accompanied in each case by the opinion of its independent certified
public accountants.
Said financial statements, including the related schedules and notes, are
complete and correct and fairly present (a) the financial condition of the
Company and its Subsidiaries as at the respective dates of said balance sheets
and (b) the results of the operations of the Company and its Subsidiaries for
the fiscal periods ended on said dates, all in conformity with generally
accepted accounting principles applied on a consistent basis (except as
otherwise stated therein or in the notes thereto) throughout the periods
involved. Said consolidated balance sheet as of July 2, 1994 and the related
schedules and notes show all material liabilities, direct and contingent, of the
Company and its Restricted Subsidiaries as of that date.
2.2. NO MATERIAL CHANGES. There has been no material and adverse change
in the business, operations, properties, prospects, assets or condition,
financial or other, of the Company and its Restricted Subsidiaries, taken as a
whole, subsequent to July 2, 1994.
2
<PAGE>
2.3. OUTSTANDING DEBT AND LIENS. Exhibit B hereto correctly sets forth
all Indebtedness outstanding on the date hereof and all Liens securing
Indebtedness of the Company or its Restricted Subsidiaries existing on the date
hereof.
2.4. ORGANIZATION, AUTHORITY AND GOOD STANDING; SUBSIDIARIES. Exhibit C
hereto correctly sets forth (a) the name and jurisdiction of incorporation of
each Subsidiary of the Company, (b) a designation of such Subsidiary as either a
Restricted Subsidiary or an unrestricted Subsidiary, and (c) a statement of the
capitalization of each such Subsidiary and the ownership of its stock. The
shares of stock listed in Exhibit C as owned by the Company or any of the
Restricted Subsidiaries are so owned as of the date of this Agreement, free and
clear of all Liens, and all such shares of stock have been duly issued and are
fully paid and non-assessable. The Company and each of its Restricted
Subsidiaries is a duly organized and validly existing corporation in good
standing under the laws of its respective jurisdiction of incorporation and has
full power and authority to own the properties and assets and to carry on the
business which it now owns and carries on. Each of the Company and its
Restricted Subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction wherein the nature of the property owned or
leased by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to do so would not have a
material and adverse effect on the business, operations, properties, prospects,
assets or condition, financial or other, of the Company and its Subsidiaries,
taken as a whole.
2.5. TITLE TO PROPERTIES. The Company and its Restricted Subsidiaries
have good and marketable fee title to all the real properties and good and
marketable title to all other property reflected on the consolidated balance
sheet of the Company and its Restricted Subsidiaries as at July 2, 1994 referred
to in Section 2.1, or purported to have been acquired by the Company or any of
its Restricted Subsidiaries after said date, excepting, however, property sold
or otherwise disposed of subsequent to said date in the ordinary course of
business and subject to Liens permitted by Sections 3.03A and 4.03 of the Notes.
3
<PAGE>
2.6. LEASES AND LIENS. None of the properties or assets reflected in the
consolidated balance sheet of the Company and its Restricted Subsidiaries as at
July 2, 1994 referred to in Section 2.1, or acquired by the Company or its
Restricted Subsidiaries after said date, is held by the Company or any of its
Restricted Subsidiaries subject to any Lien which would not be permitted by
Section 3.03A or Section 4.03 of the Notes. The Company and its Restricted
Subsidiaries enjoy peaceful and undisturbed possession under all of the material
leases under which they are operating and all such leases are valid and
subsisting and in full force and effect.
2.7. LICENSES. The Company and its Restricted Subsidiaries possess all
trademarks, trade names, copyrights, patents, governmental licenses, franchises,
certificates, consents, permits and approvals necessary to enable them to carry
on their business in all material respects as now conducted and to own and
operate the properties material to their business as now owned and operated,
without known conflict with the rights of others. All such trademarks, trade
names, copyrights, patents, licenses, franchises, certificates, consents,
permits and approvals which are material to the Company and its Restricted
Subsidiaries, taken as a whole, are valid and subsisting.
2.8. LITIGATION. Except as set forth in Exhibit E hereto, there are no
actions, suits or proceedings (whether or not purportedly on behalf of the
Company or any Restricted Subsidiary) pending or, to the knowledge of the
Company, threatened against or affecting the Company and any of its Restricted
Subsidiaries at law or in equity or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind,
which involve any of the transactions herein contemplated or the likelihood of
any material and adverse change in the business, operations, properties,
prospects, assets or condition, financial or other, of the Company and its
Restricted Subsidiaries, taken as a whole; and neither the Company nor any
Restricted Subsidiary is in default or violation of any judgment, order, writ,
injunction, decree, award, statute, rule or regulation of any
4
<PAGE>
court, arbitrator or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign which would have a material and adverse effect on the business,
operations, properties, prospects, assets or condition, financial or other,
of the Company and its Restricted Subsidiaries, taken as a whole.
2.9. HAZARDOUS SUBSTANCES. Except as disclosed in Exhibit E hereto, to
the best of the Company's knowledge, neither the Company nor any Person has ever
caused or permitted any Hazardous Substance to be disposed of in any manner
which might result in any material liability to the Company or any of its
Restricted Subsidiaries on, under or at any real property which is operated by
the Company or any Restricted Subsidiary or in which the Company or any
Restricted Subsidiary has any interest; and to knowledge of the Company, no such
real property has ever been used (either by the Company or by any other Person)
as a dump site or permanent or temporary storage site for any Hazardous
Substance except to the extent any such real property has been used by the
Company or any Restricted Subsidiary as a temporary storage site for Hazard
Substances incidental to the business of the Company and its Restricted
Subsidiaries and stored in accordance with all applicable Environmental Laws.
2.10. NO BURDENSOME PROVISIONS. Neither the Company nor any Restricted
Subsidiary is a party to any agreement or instrument or subject to any charter
or other corporate or legislative restriction or any judgment, order, writ,
injunction, decree, award, rule or regulation which materially and adversely
affects or in the future may (so far as the Company can now foresee) materially
and adversely
affect the business, operations, properties, prospects, assets or condition,
financial or other, of the Company and its Restricted Subsidiaries, taken as a
whole.
2.11. COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any
Restricted Subsidiary is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in
any bond,
5
<PAGE>
debenture, note or other evidence of Indebtedness of the Company or such
Restricted Subsidiary or contained in any instrument under or pursuant to
which any thereof has been issued or made and delivered the effect of which
would materially and adversely affect the business, operations, properties,
prospects, assets or condition, financial or other, of the Company and its
Restricted Subsidiaries, taken as a whole. Neither the execution and
delivery of this Agreement by the Company, the execution and delivery of the
Guaranty by the Guarantor, the consummation by the Company of the
transactions herein contemplated, compliance by the Company with the terms,
conditions and provisions hereof and of the Notes nor compliance by the
Guarantor with the terms, provisions and conditions of the Guaranty will
violate any provision of law or rule or regulation thereunder or any order,
injunction or decree of any court or other governmental body to which the
Company, the Guarantor or any Restricted Subsidiary is a party or by which
any thereof is bound or conflict with or result in a breach of any of the
terms, conditions or provisions of the corporate charter or by-laws of the
Company, the Guarantor or any Restricted Subsidiary or of any agreement or
instrument to which the Company, the Guarantor or any Restricted Subsidiary
is a party or by which the Company, the Guarantor or any such Restricted
Subsidiary is bound, or constitute a default thereunder, or result in the
creation or imposition of any Lien of any nature whatsoever upon any of the
properties or assets of the Company, the Guarantor or any Restricted
Subsidiary. No consent of the stockholders of the Company or the Guarantor is
required for the execution, delivery and performance of this Agreement or the
Notes by the Company or the Guaranty by the Guarantor.
2.12. TRADING WITH THE ENEMY ACT, ETC. Neither this Agreement nor any of
the transactions contemplated hereby is in violation of the Trading with the
Enemy Act, as amended, the International Emergency Economic Powers Act or the
executive orders of the President of the United States issued pursuant to such
acts or the regulations issued thereunder or in connection therewith, including,
without limitation, the following regulations of the United States Treasury
Department: the Foreign Assets Control Regulations, the Transaction Control
Regulations, the Cuban Assets Control
6
<PAGE>
Regulations, the Foreign Funds Control Regulations, the Iranian Assets
Control Regulations, the Nicaraguan Assets Control Regulations, the South
African Transactions Regulations and the Libyan Sanctions Regulations (31
C.F.R., Subtitle B, Chapter V, as amended) or the restrictions set forth in
Executive Orders No. 8389, 9193, 12544 (Libya), 12722 (Iraq), 12723 (Kuwait),
12724 (Iraq) or 12725 (Kuwait), as amended, of the President of the United
States of America or of any rules or regulations issued thereunder.
2.13. ERISA. Each ERISA Plan as to which the Company or any ERISA
Affiliate may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event has
occurred with respect to any Defined Benefit Plan sponsored by the Company or
any ERISA Affiliate which will have the effect of creating a liability of the
Company or any ERISA Affiliate which will be material to the Company and its
Subsidiaries on a consolidated basis; (ii) neither the Company nor any ERISA
Affiliate has withdrawn from any Multi-Employer Plan or initiated steps to do
so, except in accordance with all applicable requirements of law and regulations
and in a manner which will not create a liability to the Company or
any ERISA Affiliate which will be material to the Company and its Subsidiaries
on a consolidated basis; (iii) no steps have been taken to terminate any Pension
Plan except in accordance with all applicable requirements of law and
regulations and in a manner which will not create a liability of the Company or
any ERISA Affiliate which will be material to the Company and its Subsidiaries
on a consolidated basis; and (iv) during the twelve consecutive months prior to
any date on which this representation may be made or re-made, no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise to
a lien under Section 302(f)(1) of ERISA. The Company has no contingent
liability with respect to any post-retirement benefit under a Welfare Plan,
other than (i) liability for continuation coverage described in Part 6 of Title
I of ERISA and (ii) as set forth on Exhibit G hereto. The issuance of the Notes
will not involve a "prohibited transaction" (as such term is defined in Section
4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or Section
406 of ERISA) that could subject the Company to any tax or penalty on prohibited
transactions
7
<PAGE>
imposed under said Section 4975 of the Code or under Section 502(i) of ERISA
(it being understood that this representation is being made in reliance upon
your representation in Section 4.2 regarding the source of your funds).
2.14. TAX LIABILITY. The Company and its Restricted Subsidiaries have
filed all tax returns which are required to be filed and have paid all taxes
which have become due pursuant to such returns and all other taxes, assessments,
fees and other governmental charges upon the Company and its Restricted
Subsidiaries and upon their respective properties, assets, income and franchises
which have become due and payable by the Company or any of its Restricted
Subsidiaries, except those wherein the amount, applicability or validity are
being contested by the Company or any such Restricted Subsidiary by appropriate
proceedings in good faith and in respect of which adequate reserves have been
established and except where the amounts are not material to the Company and its
Restricted Subsidiaries as a whole. In the opinion of the Company, all tax
liabilities of the Company and its Restricted Subsidiaries were adequately
provided for as of July 2, 1994 and are now so provided for on the books of the
Company and its Restricted Subsidiaries.
2.15. Reserved.
2.16. REGULATION G; USE OF PROCEEDS. All of the proceeds from the
issuance of the Notes will be used by the Company to refinance existing
indebtedness and for capital expenditures. None of such proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any "margin
stock" as defined in Regulation G (12 C.F.R., Chapter II, Part 207) of the Board
of Governors of the Federal Reserve System (herein called "margin stock") or for
the for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
said Regulation G. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause the transaction contemplated
herein to violate said Regulation G, Regulation T (12 C.F.R., Chapter II, Part
220) or Regulation X (12 C.F.R., Chapter II, Part 224) or any other regulation
8
<PAGE>
of the Board of Governors of the Federal Reserve System or, to the knowledge of
the Company, to violate the Securities Exchange Act of 1934, in each case as now
in effect or as the same may hereafter be in effect.
2.17. INVESTMENT COMPANY ACT. Neither the Company nor any Restricted
Subsidiary is an "investment company," or a Person "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
2.18. GOVERNMENTAL ACTION. No action of, or filing with, any governmental
or public body or authority is required to authorize, or is otherwise required
in connection with, the execution, delivery and performance of this Agreement or
the Notes by the Company or the Guaranty by the Guarantor.
2.19. DISCLOSURE. Neither this Agreement, nor any of the Exhibits
hereto, nor any certificate or other data furnished to you in writing by or
on behalf of the Company in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein
not misleading. There is no fact which materially and adversely affects or in
the future may (so far as the Company can now foresee) materially and
adversely affect the business, operations, properties, prospects, assets or
condition, financial or other, of the Company and its Restricted
Subsidiaries, taken as a whole, which has not been disclosed to you in
writing.
2.20. OFFERING OF NOTES. Neither the Company nor any agent acting in
its behalf has, either directly or indirectly, sold or offered for sale or
disposed of, or attempted or offered to dispose of, the Notes or any part
thereof, or any similar obligation of the Company, to, or has solicited any
offers to buy any thereof from, or has otherwise approached or negotiated in
respect thereof with, any Person or Persons other than you and not more than
two
9
<PAGE>
other Persons, all of whom were institutional investors; and the Company
agrees that neither it nor any agent acting on its behalf will sell or offer
for sale or dispose of, or attempt or offer to dispose of, any thereof to, or
solicit any offers to buy any thereof from, or otherwise approach or
negotiate in respect thereof with, any Person or Persons so as thereby to
bring the issuance or delivery of the Notes within the provisions of Section
5 of the Securities Act of 1933, as amended.
SECTION 3. CONDITIONS OF THE LOAN.
Your obligation to make the loans to be made by you on the Closing Date,
as provided in Section 1.2, shall be subject to the performance by the
Company of all its agreements theretofore to be performed hereunder, to the
accuracy of its representations and warranties herein contained and to the
satisfaction, prior thereto or concurrently therewith, of the following
further conditions:
3.1. GUARANTY. You shall have received on the Closing Date a guaranty
(the "Guaranty") dated the Closing Date, and executed by the Guarantor,
substantially in the form of Exhibit D hereto, whereby the Guarantor shall
guarantee payment of the Notes and of the Company's obligations under this
Agreement.
10
<PAGE>
3.2. OPINION OF COMPANY COUNSEL. You shall have received on the Closing
Date from Maslon Edelman Borman & Brand, counsel for the Company and the
Guarantor, a favorable opinion, dated such Closing Date substantially in the
form set forth in Exhibit F hereto.
3.3. Reserved.
3.4. RETIREMENT OF LOAN. The revolving credit facility, due November 23,
1994, in the aggregate amount of $5,000,000 from Norwest Bank of Minnesota,
National Association, to the Company shall have been paid in full and all
obligations of the Company under said facility shall have been discharged, and
you shall have received evidence satisfactory to you to such effect.
3.5. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Sections 2.1 through 2.20 of the Agreement shall be
true and correct in all material respects when made and on the Closing Date.
3.6. NO DEFAULT. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or on the Closing Date, and on the Closing Date
no Event of Default or default which with notice or lapse of time, or both,
would become an Event of Default shall have occurred and be continuing.
3.7. LEGALITY. You shall have satisfied yourself that the Notes being
purchased by you on the Closing Date shall qualify on the Closing Date as a
legal investment under the laws of your respective jurisdictions of
incorporation (without resort to any provision of such law, such as Section
1405(a)(8) of the New York Insurance Law, permitting limited investments by you
without restriction as to the character of the particular investment) and such
purchase shall not subject you to any penalty or other onerous condition under
or pursuant to any applicable law or governmental regulation.
3.8. PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incidental
thereto, shall be
11
<PAGE>
satisfactory in form and substance to you; and you shall have received copies
of all documents which you may reasonably request in connection with said
transactions and copies of the records of all corporate proceedings in
connection therewith in form and substance satisfactory to you.
12
<PAGE>
3.9. CONSENT OF BANKS. You shall have received on the Closing Date a
written consent of each Bank party to the Credit Agreement consenting to the
execution and delivery by the Company of this Agreement and the issuance of the
Notes and the incurrence by the Company of the indebtedness represented thereby.
3.10. COMPLIANCE CERTIFICATES. You shall have received on the Closing
Date, certificates of the appropriate officers of the Company, each dated such
Closing Date and satisfactory in substance and form to you, certifying that the
conditions specified in Sections 3.4, 3.5, 3.6 and 3.9 have been fulfilled, and
as to such other matters as you may reasonably request.
SECTION 4. REPRESENTATIONS OF PURCHASERS.
4.1. ACQUISITION FOR INVESTMENT. This Agreement is made with each of you
in reliance upon your respective representations to the Company (which, by your
acceptance hereof, you confirm) that you are acquiring the Notes for your own
account for the purpose of investment and not with a view to, or for sale in
connection with, the distribution thereof; PROVIDED, HOWEVER, that the
disposition of your property shall at all times be within the control of your
Board of Directors.
4.2. ERISA. This Agreement is also made with you in reliance upon your
representation to, and agreement with, the Company (which, by your acceptance
hereof, you confirm) that no employee benefit plan, other than employee benefit
plans identified on a list which has been furnished by you to the Company,
accounts for any of the assets allocated to any separate account (as defined in
Section 3(17) of ERISA) maintained by you which is a source of funds being used
by you to pay the purchase price of any of the Notes.
SECTION 5. FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES; ADDITIONAL
INFORMATION; INSPECTION.
5.1. FINANCIAL STATEMENTS AND REPORTS. From and after the date hereof and
so long as you (or a nominee designated by you) shall hold any of the Notes, the
Company will deliver
13
<PAGE>
to you in duplicate:
(a) as soon as practicable, and in any event within 45 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year of the Company, the consolidated statements of income and cash
flows of the Company and its Subsidiaries and of the Company and its
Restricted Subsidiaries for such period and for that part of the fiscal
year ended with such quarterly period and the consolidated balance sheet of
the Company and its Subsidiaries and of the Company and its Restricted
Subsidiaries as at the end of such period, setting forth in each case in
comparative form the corresponding figures as of the end of and for the
corresponding quarterly period of the preceding fiscal year, all in
reasonable detail, prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of previous
years (except as otherwise stated therein or in the notes thereto and
except that footnotes shall not be required) and certified by the chief
financial officer of the Company as presenting fairly the financial
condition and results of operations of the Company and its Subsidiaries
and of the Company and its Restricted Subsidiaries as at the end of and
for the fiscal periods to which they relate, subject to the Company's
year-end adjustments;
(b) as soon as practicable, and in any event within 120 days after
the end of each fiscal year, the consolidated balance sheet and related
consolidated statements of income, cash flows and stockholders' equity of
the Company and its Subsidiaries and of the Company and its Restricted
Subsidiaries as at the end of and for such year, setting forth in each case
in comparative form the corresponding figures of the previous fiscal year,
all in reasonable detail, prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of previous
years (except as otherwise stated therein or in the notes thereto) and
certified by the chief financial officer of the Company as presenting
fairly the financial condition and results of operations and
14
<PAGE>
changes in financial position of the Company and its Subsidiaries and of
the Company and its Restricted Subsidiaries as at the end of and for the
fiscal year to which such financial statements relate, and accompanied by a
report or opinion of independent certified public accountants of
recognized national standing selected by the Company stating that such
financial statements present fairly the consolidated financial condition
and results of operations of the Company and its Subsidiaries and of the
Company and its Restricted Subsidiaries in accordance with generally
accepted accounting principles consistently applied (except for changes
with which such accountants concur) and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(c) concurrently with the financial statements delivered pursuant to
Section 5.1(b), the written statement of said accountants that in making
the examination necessary for their report or opinion on said financial
statements they have obtained no knowledge of any Event of Default or any
event which, with notice or lapse of time or both, would constitute such an
Event of Default, or, if such accountants shall have obtained knowledge of
any such Event of Default or event, they shall disclose in such statement
the Event of Default or event and the nature and status thereof, but
such accountants shall not be liable, directly or indirectly, to anyone
for any failure to obtain knowledge of any such Event of Default or event;
(d) concurrently with the financial statements delivered pursuant to
Sections 5.1(a) and 5.1(b), a certificate of the chief financial officer of
the Company (1) setting forth figures and computations demonstrating
compliance by the Company and its Restricted Subsidiaries with the
requirements of Sections 4.01, 4.03, 4.05, 4.06, 4.07, 4.08, 4.09, 4.11,
4.12 and 4.16 of the Notes, (2) stating that a review of the activities of
the Company and its Restricted Subsidiaries during such fiscal year has
been made under
15
<PAGE>
his supervision to determine whether the Company has fulfilled all of its
obligations under this Agreement and the Notes, and (3) stating that, to
the best of his knowledge, there exists no Event of Default under this
Agreement or under the Notes or event which, with notice or lapse of time
or both, would constitute such an Event of Default, or, if any such Event
of Default or event exists, specifying such Event of Default or event and
the nature and status thereof;
(e) as soon as practicable, copies of all financial statements, proxy
statements and reports as the Company shall send or make available
generally to its security holders, all news releases issued by the
Company or any Restricted Subsidiary which are deemed to be material by
the Company and all registration statements and regular periodic
reports, if any, which it or any Restricted Subsidiary may file with the
Securities and Exchange Commission or any governmental agency or
agencies substituted therefor or with any national securities exchange;
(f) immediately upon a responsible officer of the Company's becoming
aware of the existence of an Event of Default under the Notes or any other
evidence of Indebtedness of the Company or any Restricted Subsidiary, or
an event which, with notice or lapse of time or both, would constitute
such an Event of Default, written notice specifying the nature and
period of existence thereof and what action the Company or such
Restricted Subsidiary, as the case may be, is taking or proposes to take
with respect thereto;
(g) immediately upon a responsible officer of the Company's becoming
aware of the occurrence of any (1) Reportable Event, or (2) nonexempted
"prohibited transaction," as defined in Sections 406 and 408 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended, in
connection with any ERISA Plan or any trust created thereunder, a written
notice specifying the nature thereof, what action the Company is taking or
proposes to take with respect thereto and, when known, any action taken by
the Internal Revenue
16
<PAGE>
Service or the Pension Benefit Guaranty Corporation with respect thereto;
and
(h) such other information as to the business and
properties of the Company and of its Subsidiaries, including without
limitation, financial statements and other reports filed by the Company or
any Subsidiary with any governmental department, bureau, commission or
agency, as you may from time to time reasonably request.
5.2. RIGHT TO INSPECT PROPERTIES, BOOKS, ETC. From and after the date
hereof and so long as you (or a nominee designated by you) shall hold the Notes,
you shall have the right to visit and inspect any of the properties of the
Company and its Subsidiaries, to examine the books of account and records of the
Company and its Subsidiaries, to make copies and extracts therefrom, to discuss
the affairs, finances, accounts and condition of the Company and its
Subsidiaries with, and to be advised as to the same by, their respective
officers, employees and independent accountants, all at such reasonable times
and intervals as you may reasonably desire.
SECTION 6. MISCELLANEOUS.
6.1. EXPENSES. Each of you hereby agrees to waive any processing fee
normally charged in similar transactions to cover your expenses in preparing for
and documenting the transactions contemplated by this Agreement. Each of you
agrees that the Company will not otherwise be liable, except as provided in
Section 8.01 of the Notes, for the payment of any expenses incurred by you in
connection with the transactions contemplated by this Agreement including,
without limitation, any legal fees and expenses, travel expenses and costs of
printing or other reproduction of this Agreement and the Notes. The
Company's obligations under this Section 6.1 shall survive the payment or
prepayment of the Notes.
6.2. STAMP TAXES, ETC. The Company will pay, and save you and any
subsequent holder of the Notes harmless against, any and all liability
(including any interest or penalty for non-payment or delay in payment) with
respect to
17
<PAGE>
stamp and other similar taxes (other than any such stamp or other taxes
incurred upon a transfer of the Notes by you), if any, which may be payable
or determined to be payable in connection with the transactions contemplated
by this Agreement, including, without limitation, the issue and delivery of
the Notes, the purchase thereof or any modification, amendment or alteration
thereof. The obligations of the Company under this Section 6.2 shall survive
the payment or prepayment of the Notes.
6.3. SUCCESSORS AND ASSIGNS. All covenants, agreements,
representations and warranties made herein or in certificates delivered in
connection herewith by or on behalf of the Company shall survive the issue and
delivery of the Notes to you and the making of the loans by you as provided in
Section 1.2, and shall bind the successors and assigns of the Company,
whether so expressed or not, and all such covenants, agreements,
representations and warranties shall inure to the benefit of your successors
and assigns, including any subsequent holder of any of the Notes.
6.4. HOME OFFICE PAYMENT. Notwithstanding any provision to the
contrary in the Notes contained, the Company will promptly and punctually pay to
you by wire transfer of immediately available funds, not later than 12:00 noon,
New York time, on the date payment is due, to the account and in the manner
designated by you in Schedule I hereto with sufficient information to identify
the source and application of funds or such other account or address as may be
designated in writing by you, all amounts payable in respect of the principal
of, premium, if any, and interest on, any Notes then held by you or your
nominee, without any presentment thereof and without any notation of such
payment being made thereon.
Prior to the delivery of any Note upon sale, you will make or cause to
be made a notation thereon of the date to which interest has been paid thereon
and, if not theretofore made, a notation of the extent to which payment has been
made on account of the principal thereof.
6.5. NOTICES. All communications provided for hereunder or under the
Notes (other than payments in respect
18
<PAGE>
thereof which must be made in accordance with Section 6.4) shall be in
writing, and if to you, mailed (by registered or certified mail) or delivered
to you addressed as provided in Schedule I hereto, or if to the Company,
mailed (by registered or certified mail) or delivered to the Company at its
office at Waterford Park, 505 Highway 169 N, Suite 455, Minneapolis,
Minnesota 55441-6446, Attention: Stephen LaBelle, Secretary and Treasurer
with a copy to Neil Sell, Esq., Maslon Edelman Borman & Brand, 1800 Midwest
Plaza, Minneapolis, Minnesota 55402-2591, or addressed to you or the Company
at any other address in the United States of America that you or the Company
may hereafter designate by written notice to the other party.
6.6. DEFINED TERMS. The terms used herein and in certificates
delivered pursuant hereto shall have the meanings assigned thereto in Exhibit A
hereto, unless otherwise defined herein.
6.7. LAW GOVERNING; MODIFICATION. This Agreement shall be construed
in accordance with and governed by the substantive and procedural laws of the
State of Minnesota. No provision of this Agreement may be waived, changed or
modified, or the discharge thereof acknowledged, orally, but only by an
agreement in writing signed by the party against whom the enforcement of any
waiver, change, modification or discharge is sought.
6.8. HEADINGS. The headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
6.9. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
19
<PAGE>
[Remainder of Page Intentionally Left Blank]
20
<PAGE>
If the foregoing is satisfactory to you, please sign the form of
acceptance on the enclosed counterpart of this letter agreement and forward the
same to the Company, whereupon this letter agreement will become a binding
agreement between you and the Company as of the date first above written.
Yours very truly,
G & K SERVICES, INC.
By: /s/ Stephen F. LaBelle
-------------------------
Name: Stephen F. LaBelle
Title: Treasurer
The foregoing agreement is
hereby accepted as of the
date first above written:
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Michael J. Kroeger
---------------------------------
Name: Michael J. Kroeger
Title: Vice President
METROPOLITAN LIFE INSURANCE COMPANY,
on behalf of Separate Account No. 72
By: /s/ Leland C. Launer, Jr.
--------------------------------
Name: Leland C. Launer, Jr.
Title: Vice President
METROPOLITAN LIFE INSURANCE COMPANY,
on behalf of Separate Account No. 137
By:/s/ Leland C. Launer, Jr.
--------------------------------
Name: Leland C. Launer, Jr.
Title: Vice President
METROPOLITAN LIFE INSURANCE COMPANY,
on behalf of Separate Account No. 145
By:/s/ Leland C. Launer, Jr.
--------------------------------
Name: Leland C. Launer, Jr.
Title: Vice President
TEXAS LIFE INSURANCE COMPANY
By:/s/ Bradley Rhoads
--------------------------------
Name: Bradley Rhoads
Title: Authorized Signatory
<PAGE>
SCHEDULE I
Principal Amount of Notes
-------------------------
Purchaser to be Acquired
- - -------- --------------
Metropolitan Life Insurance $7,500,000
Company
Separate Account No. 72 $2,000,000
Separate Account No. 137 $2,500,000
Separate Account No. 145 $2,000,000
(a) PAYMENTS:
Account No. 002-2-410591
Account Name: Metropolitan Life -
Corporate Investments
Reference Number: PPN ________________
The Chase Manhattan Bank, N.A.
Manhattan Branch
33 East 23rd Street
New York, New York 10010
ABA No. 021-000021
and requesting the bank to send a credit advice to Metropolitan Life Insurance
Company
(b) ADDRESS FOR ALL OTHER COMMUNICATIONS:
Metropolitan Life Insurance Company
One Madison Avenue
New York, N.Y. 10010
Attention: Senior Vice-President and Treasurer
with a copy to:
Metropolitan Life Insurance Company
Corporate Investments
One Lincoln Centre
Suite 800
Oakbrook Terrace, Illinois 60181
Attention: Vice-President
<PAGE>
SCHEDULE I
Principal Amount of Notes
Purchaser to be Acquired
- - --------- --------------
Texas Life Insurance Company $1,000,000
(a) PAYMENTS:
Account No. 80022
Account Name: Texas Life Insurance
Company
Reference Number: PPN _____________
Texas National Bank
900 Washington Avenue
Waco, Texas 76701
ABA No. 111900523
(b) ADDRESS FOR ALL OTHER COMMUNICATIONS:
Metropolitan Life Insurance Company
One Madison Avenue
New York, N.Y. 10010
Attention: Treasurer
<PAGE>
EXHIBIT A
G & K SERVICES, INC.
8.46% Senior Note
Due November 23, 1997
No. Minneapolis, Minnesota
$ November 23, 1994
G & K SERVICES, INC., a corporation duly organized and existing under the
laws of the State of Minnesota (hereinafter called the "Company"), for value
received, hereby promises to pay to ____________________________, or registered
assigns, on November 23, 1997 the principal amount of ______ ________ Dollars
(or so much thereof as shall not have been prepaid) in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
public and private debts, at the principal office of the Company, in
Minneapolis, Minnesota, and to pay interest (computed on the basis of a 360-day
year of twelve 30-day months) at said office, in like coin or currency, on the
unpaid portion of said principal amount from the date hereof, semi-annually on
the 23rd day of May and November in each year, commencing on the first such day
after the date hereof, at the rate of 8.46% until such unpaid portion of such
principal amount shall have become due and payable and at the Default Rate
thereafter and, so far as may be lawful, on any overdue installment of interest
at the Default Rate.
SECTION 1. THE NOTES; TRANSFERS, EXCHANGES, ETC.
1.01. THE NOTES.
This Note is one of an authorized issue of senior promissory notes
(hereinafter called the "Notes") made by the Company in an aggregate principal
amount of $15,000,000, maturing on November
<PAGE>
23, 1997, bearing interest payable at the same rate and on the same dates and
issued pursuant to the Agreement.
1.02. REGISTRATION, TRANSFER OR EXCHANGE OF NOTES.
The Notes are issuable only as registered Notes. The Company will keep at
its office or agency maintained as provided in Section 3.01 a register in which
the Company shall provide for the registration and registration of transfer of
the Notes.
The Holder of this Note may, at its option and either in person or by duly
authorized attorney, surrender the same at said office or agency for
registration of transfer or exchange, accompanied if surrendered for transfer by
a written instrument of transfer duly executed by such Holder or attorney. In
case such Holder shall so request a transfer or exchange of this Note, the
Company shall, at the expense of such Holder, deliver to or upon such Holder's
order one or more Notes in the same aggregate unpaid principal amount as this
Note, each dated as of the date of, or, if later, the date to which interest has
been paid on, this Note, in the principal amount of $100,000 or a multiple of
$1,000 in excess thereof, as requested by such Holder (provided that if such
aggregate unpaid principal amount is less than $100,000, the Company will
deliver one Note in exchange for the Note), and registered in such name or names
as shall be specified by such Holder. Every new Note so made and delivered upon
transfer or in exchange for this Note shall be in the form of Exhibit A to the
Agreement.
Prior to due presentation for registration of transfer of this Note, the
Company may deem and treat the registered Holder hereof as the absolute owner of
this Note for the purpose of receiving payment of or on account of the principal
of and premium, if any, and interest on this Note, and for the purpose of any
notice, waiver or consent hereunder, and payment of this Note shall be made only
to or upon the order in writing of such Holder.
1.03. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTES.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of any such loss, theft
or destruction, upon receipt of a bond of indemnity reasonably satisfactory to
the Company or, in
2
<PAGE>
the case of any such mutilation, upon surrender and cancellation of this
Note, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Note, a new Note of like tenor and unpaid principal
amount and dated the date of, or, if later, the date to which interest has
been paid on, the lost, stolen, destroyed or mutilated Note. In the case of
any Holder which is an original purchaser of the Notes or an Affiliate
thereof or any other Holder which is an institutional investor having assets
of at least $100,000,000, its own unsecured agreement of indemnity shall be
deemed satisfactory to the Company.
SECTION 2. PREPAYMENT OF NOTES.
2.01. MANDATORY AND OPTIONAL PREPAYMENTS.
A. There shall be no mandatory prepayments on the Notes.
B. The Company may at its option prepay the Notes then outstanding as a
whole or in part at any time and from time to time, in the principal amount of
$1,000,000 or in multiples of $500,000 in excess thereof, by giving each Holder
written notice, not less than 15 days nor more than 30 days prior to the date
fixed therein for such prepayment (an "Optional Prepayment Date"), which notice
shall also specify the principal amount of the Notes held by such Holder so to
be prepaid.
The Computing Holder shall give written notice to the Company, on the fifth
Business Day prior to such Optional Prepayment Date, of the amount of the
Yield-Maintenance Price of the principal amount of the Notes held by such
Computing Holder so to be prepaid, which notice shall set forth in reasonable
detail the computation thereof. The Yield-Maintenance Price set forth in
such notice shall be binding on the Company and the Computing Holder absent
manifest error.
The Company shall deliver to each Holder on or before such Optional
Prepayment Date a certificate signed by a principal financial officer of the
Company setting forth the Yield-Maintenance Price of the principal amount of the
Notes held by such Holder so to be prepaid, accompanied by a copy of the written
notice by the Computing Holder referred to above (which sets forth the
computation of the Yield-Maintenance Price of the
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Notes held by the Computing Holder).
Thereupon, the Company covenants and agrees that it will on such Optional
Prepayment Date prepay the principal amount of the Notes held by each Holder so
to be prepaid by payment to such Holder of the Yield-Maintenance Price of such
principal amount, together with interest accrued on such principal amount to
such Optional Prepayment Date.
2.02. PREPAYMENT UPON CHANGE OF CONTROL.
The Company covenants and agrees to, promptly after the occurrence of a
Change of Control but in any event within 10 days thereafter, give written
notice thereof to each Holder. Such notice shall (a) describe in reasonable
detail the facts and circumstances giving rise to such Change of Control, (b)
offer to prepay, on a date (the "Change of Control Prepayment Date") which shall
be not less than 30 days nor more than 60 days after the date of such notice,
all of the Notes held by such Holder, (c) request such Holder to notify the
Company in writing, not less than 10 days prior to the Change of Control
Prepayment Date, of its acceptance or rejection of such offer and (d) inform the
Holder that, upon its receipt of such notice by the Company, failure to reject
such offer in writing on or before the 10th day prior to the Change of Control
Prepayment Date shall be deemed acceptance of such offer. The notice to the
Computing Holder shall also set forth the respective names and addresses of, and
principal amounts of the Notes held by, the other Holders.
The Computing Holder shall give written notice to the Company and the other
Holders, on the fifth Business Day prior to the Change of Control Prepayment
Date, of the amount of the Yield-Maintenance Price of the Notes held by it and
such other Holders, which notice shall set forth in reasonable detail the
computation thereof. The Yield-Maintenance Price set forth in such notice shall
be binding on the Company and the other Holders
absent manifest error, but such notice in itself shall constitute neither an
acceptance nor a rejection by the Computing Holder of such prepayment offer.
Thereupon, the Company covenants and agrees that it will on the Change of
Control Prepayment Date prepay all of the Notes held by each Holder who has
accepted the prepayment offer in
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accordance with this Section, by payment of the Yield-Maintenance Price of
such Notes, together with interest accrued on the unpaid principal amount of
such Notes to the Change of Control Prepayment Date.
2.03. DEFAULT RATE.
From and after the occurrence of an Event of Default and continuing
thereafter until such Event of Default shall be remedied to the written
satisfaction of the Holders of the Notes, the outstanding principal balance of
this Note and, so far as may be lawful, any overdue installment of interest,
shall bear interest, until paid in full, at the Default Rate.
2.04. ALLOCATION OF PREPAYMENTS.
In the event of any prepayment of less than all of the outstanding Notes,
the Company will allocate the principal amount so to be prepaid (but only in
units of $1,000) among the Holders of Notes in proportion, as nearly as may be,
to the respective principal amounts of such Notes, not theretofore called for
prepayment, of which they shall be Holders. Section 4.22 of the Notes to the
contrary notwithstanding, for purposes of the allocation of payments made
pursuant to Section 2.01B, any Note acquired by the Company, any Subsidiary or
any Affiliate pursuant to Section 2.02 or under the circumstances described in
clause (d) of Section 4.22 shall be deemed to be outstanding.
2.05. SURRENDER OF NOTES; NOTATION THEREON.
Upon any prepayment of a portion of the principal amount of this Note, the
Holder hereof, at its option, may require the Company to execute and deliver at
the expense of such Holder, upon surrender of this Note, a new Note registered
in the name of such person or persons as may be designated by such Holder for
the principal amount of this Note then remaining unpaid, dated as of the date to
which interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Company for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
Every new Note made and delivered pursuant to the provisions of this Section
2.05 shall in all other respects be in the same form and have the same terms
as this Note. The Company may, as a
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condition of payment of all or any of the principal of, premium, if any, and
interest on, this Note, require the Holder to present this Note for notation of
such payment and, if this Note be paid in full, require the surrender hereof.
SECTION 3. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that so long as this Note shall be
outstanding:
3.01. MAINTENANCE OF COMPANY OFFICE.
The Company will maintain an office or agency at Waterford Park, 505
Highway 169 N, Suite 455, Minneapolis, Minnesota 55441-6446 (or such other place
in the United States of America as the Company may designate in writing to the
Holder hereof), where notices, presentations and demands to or upon the Company
in respect of the Notes may be given or made.
3.02. TO KEEP BOOKS.
The Company will, and will cause each of its Subsidiaries to, at all times
keep proper books of record and account in which full, true and correct entries
will be made of its transactions in accordance with generally accepted
accounting principles.
3.03. PAYMENT OF TAXES; CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES.
The Company will, and will cause each of its Subsidiaries to:
A. pay and discharge promptly all taxes, assessments and other
governmental charges or levies imposed upon it or upon its income or upon
any of its property, real, personal or mixed or upon any part thereof, as
well as all claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a Lien upon its property;
PROVIDED, HOWEVER, that neither the Company nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings and if
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the Company or any such Subsidiary, as the case may be, shall have set
aside on its books reserves (segregated to the extent required by generally
accepted accounting principles) deemed by it to be adequate with respect
thereto;
B. do all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises; provided, however,
that nothing in this Section 3.03B shall prevent (1) the abandonment or
termination of the corporate existence, rights and franchises of any
Subsidiary if, in the opinion of the Company, such abandonment or
termination is in the interest of the Company and not disadvantageous in
any material respect to the holders of the Notes, or (2) a consolidation
or merger permitted by Section 4.13; and
C. maintain and keep its properties, in good repair, working order
and condition in all material respects and from time to time make all
needful and proper repairs, renewals and replacements, so that the business
carried on in connection therewith may be properly and advantageously
conducted at all times.
3.04. INSURANCE.
The Company will, and will cause each Subsidiary to, keep adequately
insured, by financially sound and reputable insurers, all property of a
character usually insured by corporations engaged in the same or a similar
business similarly situated against loss or damage of the kinds customarily
insured against by such corporations, and carry such other insurance as is
usually carried by corporations engaged in the same or a similar business
similarly situated.
SECTION 4. RESTRICTIVE COVENANTS.
The Company covenants and agrees that so long as this Note shall be
outstanding:
4.01. LIMITATION ON INDEBTEDNESS.
The Company will not, and will not permit any Restricted
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Subsidiary to create, assume, incur or otherwise become liable, in each case
contingently or otherwise, in respect of any Indebtedness, whether secured or
unsecured, other than:
A. Indebtedness evidenced by the Notes and the 10.62% Notes;
B. Indebtedness of the Company incurred pursuant to the Credit
Agreement, not exceeding at any time U.S. $25,000,000; PROVIDED, HOWEVER,
that upon the execution and delivery by the parties to the Credit Agreement
of a First Amendment to Credit Agreement in form and substance satisfactory
to the Holders of the Notes, such amount may be increased to U.S.
$50,000,000;
C. Indebtedness of Work Wear incurred pursuant to the Credit
Agreement not exceeding at any time the lesser of (i) Canadian $30,000,000
and (ii) twenty-five percent (25%) of Consolidated Stockholders' Equity as
set forth in the most recently available financial statements of the
Company, (quarterly or annual, as the case may be), with conversion to
Canadian dollars to be made as of the date of delivery of such financial
statements in accordance with Section 1.2 of the Credit Agreement;
D. Indebtedness of the Company or any Restricted Subsidiary in
existence on September 28, 1990 and listed in EXHIBIT B to the 10.62%
Notes, but not including any extensions or renewals thereof;
E. Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary on account of borrowings, or Indebtedness of the
Company to a Restricted Subsidiary on account of borrowings from that
Restricted Subsidiary;
F. Subordinated Debt of the Company, or renewals thereof, provided it
is subordinated to the prior payment of principal of and interest on the
Notes on terms and conditions approved in writing by the Holders of the
Notes; and
G. Indebtedness of the Company secured by Liens
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permitted by Section 4.03.
4.02. GUARANTIES.
The Company will not, and will not permit any Restricted Subsidiary to,
assume, guarantee, endorse or otherwise become directly or contingently liable
in connection with any obligations of any other Person, except:
A. the Guaranty and the G&K Co. Guaranty;
B. the Company Guaranty;
C. the endorsement of negotiable instruments by the Company or any
Restricted Subsidiary for deposit or collection or similar transactions in
the ordinary course of business; and
D. guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on September 28, 1990 and listed in EXHIBIT B to the 10.62%
Notes.
4.03. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted Subsidiary to (i)
create, assume, incur or suffer to exist any Lien upon any property or assets
(real or personal, tangible or intangible) of the Company or any Restricted
Subsidiary, whether now owned or hereafter acquired, or any income or profits
therefrom, (ii) own or acquire or agree to acquire any property or assets (real
or personal, tangible or intangible) subject to any Lien, (iii) suffer to exist
any Indebtedness of the Company or any Restricted Subsidiary or claims or
demands against the Company or any Restricted Subsidiary, which Indebtedness,
claims or demands, if unpaid, might (in the hands of the holder or anyone who
shall have guaranteed the same or who has any right or obligation to purchase
the same), by law or upon bankruptcy or insolvency or otherwise, be given any
priority whatsoever over its general creditors or (iv) give its consent to the
subordination of any right or claim of the Company or any Restricted Subsidiary
to any right or claim of any other Person,
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EXCLUDING, HOWEVER, from the operation of the foregoing:
A. Liens for taxes or assessments or other governmental charges to
the extent not required to be paid by Section 3.03A;
B. Materialmen's, merchants', carriers', workers', repairers' or
other like liens arising in the ordinary course of business to the extent
not required to be paid by Section 3.03A;
C. Pledges or deposits to secure obligations under worker's
compensation laws, unemployment insurance and social security laws, or to
secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases or to secure statutory obligations
or surety or appeal bonds, or to secure indemnity, performance or other
similar bonds in the ordinary course of business;
D. Zoning restrictions, easements, licenses, restrictions on the use
of real property or minor irregularities in title thereto, which do not in
the aggregate have a material adverse effect on the business of the Company
or any Restricted Subsidiary;
E. Purchase money Liens upon or in property acquired by the Company
or any Restricted Subsidiary after the date hereof, or mortgages, liens or
security interests existing upon or in such property at the time of
acquisition thereof by the Company or any Restricted Subsidiary, provided
that:
(1) no such Lien extends or shall extend to or cover any property of
the Company or any Restricted Subsidiary, as the case may be, other
than the property then being acquired and fixed improvements then or
thereafter erected thereon;
(2) the aggregate principal amount of all Indebtedness of the Company
and each Restricted Subsidiary secured by all Liens described in this
subsection shall not exceed $1,000,000 at any one time outstanding;
and
(3) the aggregate principal amount of Indebtedness
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secured by Liens described in this Subsection E at the time of
acquisition of the property subject thereto shall not exceed 100%
of the cost of such property or of the then fair market value of such
property as determined by the Board of Directors of the Company,
whichever shall be less, and the aggregate amount of payments made
thereunder in any period of 12 consecutive months will not result in a
violation of any other restriction contained in this Agreement;
F. Liens on any property of the Company or any Restricted Subsidiary
(other than those described in Subsection E) securing any Indebtedness for
borrowed money in existence on September 28, 1990 and listed in EXHIBIT B
to the 10.62% Notes; and
G. Liens arising out of a judgment against the Company or any
Restricted Subsidiary for the payment of money not exceeding $500,000 with
respect to which an appeal is being prosecuted and a stay of execution
pending such appeal has been secured and for which adequate reserves have
been established.
Without limiting the foregoing, the Company agrees that the Company will
not, and will not permit any Restricted Subsidiary to, agree with any other
Person not to grant any Lien in its or such Restricted Subsidiary's assets
except with the Holders of the 10.62% Notes and the Banks who are parties to the
Credit Agreement.
4.04. Reserved.
4.05. CAPITALIZATION RATIO.
The Company will maintain as at the end of each of the Company's fiscal
quarters, on a consolidated basis, the ratio of (i) all Indebtedness of the
Company and its Restricted Subsidiaries arising from borrowed money (including
all such Indebtedness created, assumed or guaranteed either directly or
indirectly and all obligations secured by Liens upon property on which the
Company or a Restricted Subsidiary customarily pays
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interest), including Consolidated Current Indebtedness, Consolidated Funded
Indebtedness and the Current Portion of Consolidated Funded Indebtedness to
(ii) the sum of (A) all Indebtedness of the Company and its Restricted
Subsidiaries arising from borrowed money (including all such Indebtedness
created, assumed or guaranteed either directly or indirectly and all
obligations secured by Liens upon property on which the Company or a
Restricted Subsidiary customarily pays interest), including Consolidated
Current Indebtedness, Consolidated Funded Indebtedness and the Current
Portion of Consolidated Funded Indebtedness and (B) the total stockholders'
equity of the Company and its Restricted Subsidiaries, determined in
accordance with GAAP (as shown and described on its most recently delivered
balance sheet), at not more than 0.5 to 1.00.
4.06. CURRENT RATIO.
The Company will maintain, at all times the ratio of Consolidated Current
Assets to Consolidated Current Liabilities at not less than 1.20 to 1.00.
4.07. MINIMUM TOTAL STOCKHOLDERS' EQUITY.
The Company will maintain on a consolidated basis, in each period
designated below, its Consolidated Stockholders' Equity, determined in
accordance with GAAP (as shown and described on the Company's balance sheet) at
an amount not less than the amount set forth opposite such period:
PERIOD AMOUNT
Date hereof through March 31, 1995 $ 95,000,000
April 1, 1995 through March 31, 1996 $105,000,000
April 1, 1996 through March 31, 1997 $120,000,000
April 1, 1997 through November 23, $135,000,000
1997
4.08. INTEREST COVERAGE RATIO.
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The Company will maintain as at the end of each of the Company's fiscal
quarters, on a consolidated basis, the ratio of (i) Consolidated Earnings Before
Interest Expense and Taxes for such quarter and each of the immediately
preceding three fiscal quarters to (ii) Consolidated Interest Expense (without
deduction of any interest income) for such quarter and each of the immediately
preceding three fiscal quarters, at not less than 3.00 to 1.00.
4.09. FUNDS FLOW COVERAGE RATIO.
The Company will maintain as at the end of each of the Company's fiscal
quarters (based upon such quarter and each of the immediately preceding three
fiscal quarters), on a consolidated basis, the ratio of (i) the net income of
the Company and its Restricted Subsidiaries, plus depreciation, amortization,
non-current deferred income taxes and other non-cash charges for the immediately
preceding four fiscal quarters (determined in accordance with GAAP) to (ii) all
Indebtedness of the Company and its Restricted Subsidiaries arising from
borrowed money (including all such Indebtedness created, assumed or guaranteed
either directly or indirectly and obligations secured by Liens upon property
upon which the Company or a Restricted Subsidiary customarily pays interest),
including Consolidated Current Indebtedness, Consolidated Funded Indebtedness
and the Current Portion of Consolidated Funded Indebtedness, for such quarter
and each of the immediately preceding three fiscal quarters, at not less than
0.28 to 1.00.
4.10. INVESTMENTS.
The Company will not, and will not permit any Restricted Subsidiary to,
purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, except:
A. investments in direct obligations of the United State of America
or any agency or instrumentality thereof whose obligations constitute full
faith and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S. corporations
rated "A-1" or "A-2" by Standard & Poors
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Corporation or "P-1" or "P-2" by Moody's Investors Service or certificates
of deposit or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having deposits in excess
of $100,000,000 and who are rated "A" or better by Standard & Poors
Corporation or Moody's Investors' Service;
B. any existing investment by the Company or any other Restricted
Subsidiary in the stock of any Restricted Subsidiary;
C. loans and advances by a Restricted Subsidiary to the Company or
another Restricted Subsidiary, except as provided in the proviso to
Subsection E below;
D. loans and advances by the Company to any Restricted Subsidiary,
except as provided in the proviso to Subsection E below;
E. any existing loans or investments by the Guarantor or the Company
in or to Work Wear; provided, however, that no further loans or advances
and no further investments in Work Wear shall be permitted, except for
those currently in existence on the date hereof;
F. except as provided in the proviso to Subsection E above,
investments not otherwise permitted by the foregoing Subsections A through
E of this Section 4.10 not at any time exceeding 5% of Consolidated
Tangible Net Worth; and
G. except as provided in the proviso to Subsection E above,
investments not otherwise permitted by the foregoing Subsections A through
F of this Section 4.10 to the extent that the amount of such investments is
deducted in determining Consolidated Tangible Net Worth for all purposes of
the Notes.
4.11. DIVIDENDS.
The Company will not declare or pay any dividends (other than dividends
payable solely in its own stock) on any class of its stock or make any payment
on account of its purchase,
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redemption, or other retirement of any shares of such stock, or make any
distribution in respect thereof, either directly or indirectly during any
fiscal year if, after giving effect to such payment, distribution or
application, the aggregate amount of such dividends, distributions and
application of assets paid or made during such fiscal year would exceed
twenty-five percent (25%) of the Net Income of the Company and its Restricted
Subsidiaries for the fiscal year immediately preceding the year in which such
dividend is paid, or any such distribution or application of assets is made,
and the right to make any such payments, distributions and application of
assets as herein described shall be non-cumulative from fiscal year to fiscal
year.
4.12. SALE OF ASSETS.
A. The Company will not, and will not permit any Restricted Subsidiary
to, sell, lease, assign, transfer or otherwise dispose of all or a
substantial part of its assets (whether in one transaction or in a series of
transactions) to any other Person other than in the ordinary course of
business, except that (i) a Wholly-owned Restricted Subsidiary of the Company
may sell, lease, or transfer all or a substantial part of its assets to the
Company or another Wholly-owned Restricted Subsidiary of the Company; (ii)
the Company or such other Wholly-owned Restricted Subsidiary, as the case may
be, may acquire all or substantially all of the assets of the Subsidiary so
to be sold, leased or transferred to it; (iii) the Company may sell all or
substantially all of its assets for fair market value to a Wholly-owned
Restricted Subsidiary; or (iv) the Company or a Restricted Subsidiary may
dispose of assets for fair market value if the assets so disposed of by the
Company and its Restricted Subsidiaries during the four immediately preceding
fiscal quarters of the Company (x) shall not have an aggregate net book value
in excess of 10% of Consolidated Total Assets as of the end of the most
recently completed fiscal year of the Company and (y) shall not have
contributed in excess of 10% of Consolidated Net Sales or Consolidated Net
Income as of the end of the most recently completed fiscal year of the
Company and (b) immediately after giving effect to such disposition, there
exists no Event of Default or event which with notice or lapse of time or
both would become an Event of Default.
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B. The Company will not, and will not permit any Restricted Subsidiary to,
sell, assign, transfer or otherwise dispose of any shares of stock of any
Restricted Subsidiary.
4.13. CONSOLIDATION AND MERGER.
The Company will not, and will not permit any Restricted Subsidiary to,
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person; provided, however, that (i) the restrictions contained in this Section
shall not apply to or prevent the consolidation or merger of a Restricted
Subsidiary with, or a conveyance or transfer of its assets to, the Company (if
the Company shall be the continuing or surviving corporation) or another then
existing Wholly-owned Restricted Subsidiary of the Company; and (ii) the
restrictions contained in this Section shall not apply to or prevent the
acquisition of all or substantially all the assets of any other Person as long
as immediately after giving effect to such acquisition, there exists no Event of
Default or event which notice or lapse of time or both would become an Event of
Default.
4.14. SALE AND LEASEBACK.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any arrangement, directly or indirectly, with any other Person
whereby the Company or such Restricted Subsidiary shall sell or transfer any
real or personal property, whether now owned or hereafter acquired, and then or
thereafter rent or lease as lessee such property or any part thereof or any
other property which the Company or such Restricted Subsidiary, as the case may
be, intends to use for substantially the same purpose or purposes as the
property being sold or transferred.
4.15. SUBORDINATED DEBT.
The Company will not, and will not permit any Restricted Subsidiary to: (i)
make any payment of, or acquire, any Subordinated Debt except as expressly
permitted by the subordination provision thereof; (ii) give security for all or
any part of such Subordinated Debt; (iii) amend or cancel the
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subordination provisions of such Subordinated Debt; (iv) take or omit to take
any action whereby the subordination of such Subordinated Debt or any part
thereof to the Notes might be terminated, impaired or adversely affected; or
(v) omit to give the Holders of the Notes prompt written notice of any
default under any agreement or instrument relating to such Subordinated Debt
by reason whereof such Subordinated Debt might become or be declared to be
immediately due and payable.
4.16. EXPENDITURES FOR FIXED ASSETS.
The Company will not, and will not permit any Restricted Subsidiary to,
make any Capital Expenditure, if, after giving effect to such Capital
Expenditure, the aggregate amount of Consolidated Capital Expenditures made by
the Company and its Restricted Subsidiaries for any fiscal year will exceed the
amount set forth below:
FISCAL YEAR LIMITATION
1994 U.S. $33,000,000
1995 U.S. $40,000,000
1996 U.S. $33,000,000
1997 U.S. $35,000,000
PROVIDED, HOWEVER, that the restrictions contained in this Section are subject
to the further limitations imposed by Section 4.03E if any fixed asset is
acquired under a purchase money Lien referred to in that Section.
4.17. RESTRICTIONS ON NATURE OF BUSINESS.
The Company will not, and will not permit any Restricted Subsidiary to
engage in any business materially different from the business in which the
Company or such Restricted Subsidiary is now engaged.
4.18. HAZARDOUS SUBSTANCES.
The Company will not, and will not permit any Subsidiary to, cause or
permit any Hazardous Substance to be disposed of in any manner which might
result in any material liability to the Company or any Subsidiaries of the
Company, on, under, or at any
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real property which is operated by the Company or any Subsidiary or in which
the Company or any Subsidiary has any interest.
4.19. U.S. BUSINESS.
The Company will not permit any Subsidiary other than a Restricted
Subsidiary to carry on any business in the United States of America.
4.20. Reserved.
4.21. TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into or be a party to any transaction or agreement with any Affiliate
(including, without limitation, the purchase of property from, sale of property
to or exchange of property with, or the rendering of any service by or for, or
the making of any loan or advance to, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company or such
Restricted Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would exist in a comparable
arm's length transaction with a Person other than an Affiliate.
4.22. ACQUISITION OF NOTES; NO REISSUANCE.
The Company will not, and will not permit any Restricted Subsidiary or
Affiliate to directly or indirectly prepay, redeem, retire, purchase or
otherwise acquire any Notes, except pursuant to (a) Section 2.01B, (b) Section
2.02 or (c) an offer to all Holders of the Notes to prepay, redeem, retire,
purchase or otherwise acquire the Notes held by them on the same terms and
conditions and in proportion, as nearly as may be, to the respective unpaid
principal amounts of such Notes. Any Note prepaid in full pursuant to Sections
2.01B, 2.02 or clause (c) of this Section 4.22, shall be surrendered to the
Company for cancellation and shall not be reissued and no Note shall be issued
in lieu of any principal amount of any Note so prepaid.
4.23. ACCOUNTS PAYABLE.
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The Company will not permit G&K Co. to order goods or services in the name
of G&K Co., or pay any trade accounts payable.
SECTION 5. CONSENTS, WAIVERS AND AMENDMENTS.
Any term, covenant, agreement or condition of the Notes may, with the
consent of the Company, be amended or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more written instruments signed by the Holder or
Holders of not less than 66-2/3% in aggregate principal amount of the Notes
at the time outstanding; PROVIDED, HOWEVER, that
A. no such amendment or waiver shall, without the consent of the
holders of all outstanding Notes:
(1) change the maturity of the principal of, or any installment of
interest on, any of the Notes, or reduce the principal amount thereof or
the interest or premium thereon, or subordinate or otherwise modify the
terms of, or rights to, payment or prepayment of the principal thereof or
payment of interest or premium thereon including, without limitation,
extend the time for any such payment; or
(2) give to any Note any preference over any other Note; or
(3) reduce the percentage of Holders of Notes required to approve any
such amendment or effectuate any such waiver; and
B. no such waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon.
Any amendment or waiver pursuant to this Section 5 shall apply equally
to all the Holders of the Notes and shall be binding upon them, upon each
future holder of any Note and upon the Company, whether or not a notation of
such amendment or waiver shall have been made on such Notes. In the case of
an amendment or waiver of the character described in Section 5A, the
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Holder of this Note agrees to make a notation on this Note to indicate that
such amendment or waiver has been effected. In the case of any other
amendment or waiver, no notation need be made on the Notes at the time
outstanding, but any Note executed and delivered thereafter may, at the
option of the Company, bear a notation referring to any such amendment or
waiver then in effect. For purposes of determining whether the Holders of
outstanding Notes of the requisite aggregate principal amount at any time
have agreed or consented to any amendment or waiver pursuant to the
provisions of this Section 5, any Notes owned by the Company, any Subsidiary
or any Affiliate shall be disregarded and deemed not to be outstanding.
The Company will not increase the rate of interest on any Note or grant
any Holder of any Note any benefit or payment for or in connection with any
amendment or waiver in respect to the Notes, whether pursuant to this Section
5 or otherwise, unless such increase in interest or other benefit or payment
is extended on the same terms ratably to all other Holders of Notes at the
time outstanding.
SECTION 6. DEFINITIONS.
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires:
"ACCELERATION CALCULATION DATE" means the date on which the
Yield-Maintenance Price of the Notes accelerated pursuant to Section 7.01 is
determined. If the Computing Holder has given the applicable notice to the
Company declaring all of the Notes to be due and payable, the Acceleration
Calculation Date shall be the date of such notice. Otherwise, it shall be
the fifth Business Day after the date of the Computing Holder's receipt from
the Company of the applicable notice of acceleration pursuant to Section 7.01.
"AFFILIATE" means any Person (other than the Company or any Restricted
Subsidiary) which, directly or indirectly, (A) controls or is controlled by or
is under common control with the Company or any Subsidiary, or (B) beneficially
owns or holds or has the power to direct the voting power of 5% or more of any
class of voting stock of the Company or any Subsidiary or (C) has 5% or more of
its voting stock (or in the case of a Person which
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is not a corporation, 5% or more of its equity interest) beneficially owned or
held, directly or indirectly, by the Company or any Subsidiary or (D) is a
director or officer of the Company or any Subsidiary. For purposes of this
definition, "control" means the power to direct the management and policies
of a Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" having meanings correlative to the foregoing.
"AGREEMENT" means the Loan Agreement dated November 23, 1994 between the
Company, Metropolitan Life Insurance Company and certain affiliates, entered
into in connection with the issuance of the Notes, as the same may be amended
from time to time.
"BANKS" means the U.S. Banks and the Canadian Banks specified in the Credit
Agreement.
"BOARD OF DIRECTORS" means either the board of directors of the Company
(or, when so specified or the context so indicates, a Subsidiary) or, if duly
authorized to exercise the power of the Board of Directors, any duly authorized
committee thereof.
"BUSINESS DAY" means any day on which banks are required to be open to
carry on their normal business in the State of New York and the State of
Minnesota.
"CANADIAN BANKS" means the Banks, organized under the laws of Canada or any
province or territory thereof, specified in the Credit Agreement as committed to
make loans to Work Wear.
"CAPITAL EXPENDITURES" for any fiscal year means expenditures made during
such fiscal year for fixed or capital assets including, without limitation, the
purchase price or construction cost thereof, Capital Lease Obligations and
expenditures for maintenance and repairs which would, in accordance with
GAAP, be capitalized.
"CAPITAL LEASE" means and includes at any time any lease of property, real
or personal, which in accordance with GAAP would at such time be required to be
capitalized on a balance sheet of the lessee.
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"CAPITAL LEASE OBLIGATION" means at any time the capitalized amount of the
rental commitment under a Capital Lease which in accordance with GAAP would at
such time be required to be shown on a balance sheet.
"CHANGE OF CONTROL" means any acquisition, known or which should have been
known to the Company, subsequent to the Closing Date by any Person, or related
Persons constituting a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, of (a) the power to elect, appoint or cause the election
or appointment of at least a majority of the members of the board of
directors of the Company, through beneficial ownership of the capital stock of
the Company or otherwise, or (b) all or substantially all of the properties and
assets of the Company; PROVIDED, HOWEVER, that a Change of Control shall not be
deemed to have occurred if (x) the acquisition of such power or
properties and assets is pursuant to a transaction in compliance with the
provisions of Section 4.13 and (y) no Person, or related Persons constituting a
"group" for purposes of Section 13(d) of the Securities Exchange Act of 1934,
shall have the power to elect, appoint or cause the election or appointment of
at least a majority of the members of the board of directors of such successor
or transferee. For the purposes of this definition, "ACQUISITION" of the power
or properties and assets stated in the preceding sentence means the earlier of
(i) the actual possession thereof and (ii) the consummation of any transaction
or series of related transactions which, with the passage of time, will give
such Person or Persons the actual possession thereof.
"COMPANY" means G & K Services, Inc. and, subject to Section 4.13, its
successors and assigns.
"COMPANY GUARANTY" means the Guaranty, dated as of June 21, 1994, issued by
the Company to the Canadian Banks guaranteeing the indebtedness of Work Wear to
the Canadian Banks under the Credit Agreement.
"COMPUTING HOLDER" means, as of the date of the notice of an Event Risk
Occurrence, or prepayment of the Notes pursuant to Section 2.01B, or
acceleration pursuant to Section 7.01, as the case may be, the Holder who holds
Notes with an aggregate principal amount outstanding higher than that of Notes
held by any other Holder. For purposes of such determination, the Notes
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then held by Metropolitan Life Insurance Company and its subsidiaries shall
be aggregated.
"CONSOLIDATED AMORTIZATION EXPENSES" on any date means the total of all
amortization expense of the Company and its Restricted Subsidiaries as it would
be shown on a consolidated income statement of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP as of such date.
"CONSOLIDATED CAPITAL EXPENDITURES" means the aggregate Capital
Expenditures made by the Company and its Restricted Subsidiaries.
"CONSOLIDATED CURRENT ASSETS" on any date means the total of all current
assets of the Company and its Restricted Subsidiaries which would be shown on a
consolidated balance sheet of the Company and its Restricted Subsidiaries
prepared in accordance with GAAP as of such date.
"CONSOLIDATED CURRENT INDEBTEDNESS" means all Indebtedness of the Company
and its Restricted Subsidiaries other than Consolidated Funded Indebtedness.
"CONSOLIDATED CURRENT LIABILITIES" on any date means the total of all
current liabilities of the Company and its Restricted Subsidiaries which would
be shown on a consolidated balance sheet of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP as of such date.
"CONSOLIDATED DEPRECIATION EXPENSE" on any date means the total of all
depreciation expense of the Company and its Restricted Subsidiaries as it would
be shown on a consolidated income statement of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP as of such date.
"CONSOLIDATED EARNINGS BEFORE INTEREST EXPENSE AND TAXES" means, with
respect to any period, the sum of (i) Consolidated Net Income for such period,
(ii) Consolidated Interest Expense, and (iii) taxes of the Company and its
Restricted Subsidiaries in respect of Consolidated Net Income, less (i) any
amounts that would be considered other income of the Company and its Restricted
Subsidiaries in accordance with GAAP, (ii) any income of Unrestricted
Subsidiaries and (iii) interest income.
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"CONSOLIDATED FREE CASH FLOW" means the sum of (i) Consolidated Earnings
Before Interest Expense and Taxes (ii) Consolidated Depreciation Expense (iii)
and Consolidated Amortization Expense; less Consolidated Capital Expenditures.
"CONSOLIDATED FUNDED INDEBTEDNESS" means, without duplication, (i) all
Indebtedness of the Company and its Restricted Subsidiaries which by its terms
matures more than one year from the date as of which any determination of Funded
Indebtedness is made, (ii) any Indebtedness maturing within one year from such
date which is renewable at the option of the obligor beyond one year from such
date, including Indebtedness renewable or extendible (whether or not theretofore
renewed or extended) under, or payable from the proceeds of other Indebtedness
which may be incurred pursuant to the provisions of, any revolving credit
agreement or other similar agreement and (iii) Capital Lease Obligations.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Indebtedness of
the Company or any of its Restricted Subsidiaries for any period, all amounts
which would, in accordance with GAAP, be deducted in computing Consolidated Net
Income for such period on account of interest on such Indebtedness, including
imputed interest in respect of Capital Lease Obligations and amortization of
debt discount and expense.
"CONSOLIDATED NET INCOME" means, with respect to any period, the Net Income
of the Company and its Restricted Subsidiaries for such period after eliminating
intercompany items, all as consolidated and determined in accordance with GAAP.
"CONSOLIDATED NET SALES" on any date means the total of all revenues
from rentals and services of the Company or any of its Restricted
Subsidiaries as it would be shown on a consolidated income statement of the
Company and its Restricted Subsidiaries prepared in accordance with GAAP as
of such date.
"CONSOLIDATED NET WORKING CAPITAL" means, as of any particular time, the
excess of Consolidated Current Assets over Consolidated Current Liabilities.
"CONSOLIDATED STOCKHOLDERS' EQUITY" means the Company's consolidated
stockholders' equity as shown and described as such
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on the Company's consolidated financial statements delivered to you in
accordance with Section 5.1 of the Agreement.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any particular time, the
aggregate amount of capital and surplus of the Company and its Restricted
Subsidiaries appearing on a consolidated balance sheet of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP, less the sum of
(i) the cost of any treasury shares included on such balance
sheet, (ii) the aggregate of all amounts that appear on the asset side of such
balance sheet and are attributable to assets which would be treated as
intangibles under GAAP, including, without limitation, all such items as
goodwill, trademarks, trade names, brand names, copyrights, patents, patent
applications, licenses, restrictive covenants and customer lists, franchises,
permits and rights with respect to the foregoing, and unamortized debt discount
and expense, (iii) the after-tax interest income received cumulatively from the
date of Agreement, (iv) after-tax royalty income from unrestricted Subsidiaries
cumulatively from the date of the Agreement, (v) cumulative earnings of Work
Wear and its Subsidiaries, and (vi) the amount of investments, if any, made
pursuant to Section 4.10F.
"CONSOLIDATED TOTAL ASSETS" means, as of any particular time and after
eliminating intercompany items, the total of all assets of the Company and its
Restricted Subsidiaries appearing on a consolidated balance sheet of the Company
and its Restricted Subsidiaries in accordance with GAAP, after the deduction of
appropriate depreciation, depletion, obsolescence, amortization, valuation,
contingency, and other proper reserves in accordance with GAAP.
"CURRENT PORTION OF CONSOLIDATED FUNDED INDEBTEDNESS" means and includes
all Consolidated Funded Indebtedness which by its terms matures less than one
year from the date as of which any determination of Consolidated Funded
Indebtedness is made.
"CREDIT AGREEMENT" means the Credit Agreement, dated as of June 21, 1994
between the Company, Work Wear, the U.S. Banks and the Canadian Banks specified
therein and Norwest Bank Minnesota, National Association, as agent for the
Banks, as amended by the First Amendment to Credit Agreement dated as of
November [23], 1994, and as the same may be amended from time to time with the
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consent of Metropolitan.
"DEFAULT RATE" means a per annum rate equal to the sum of (i) the interest
rate otherwise in effect with respect to this Note, and (ii) two percent (2%).
"ENVIRONMENTAL LAW" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 ET SEQ., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1802 ET SEQ., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., the Federal Water
Pollution Control Act, 33 U.S.C. Section 1252 ET SEQ., the Clean Water Act, 33
U.S.C. Section 1321 ET SEQ., the Clean Air Act, 612 U.S.C. Section 7401 ET SEQ.,
and any other federal, state, county, municipal, local or other statute, law,
ordinance or regulation which may relate to or deal with human health or the
environment, all as may be from time to time amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any corporation, trade or business that is, along
with the Company, a member of a controlled group of corporations or a controlled
group of trades or businesses, as described in sections 414(b) and 414(c),
respectively, of the Internal Revenue Code of 1986, as amended.
"ERISA PLAN" means any of the following employee benefit plans (each of
which shall also be defined terms for purposes of this Note), BUT ONLY TO THE
EXTENT ANY OF THEM IS SUBJECT TO REGULATION UNDER ERISA:
(i) PENSION PLAN as defined in ERISA Section 3(2);
(ii) DEFINED BENEFIT PLAN means a Pension Plan of the type defined in
ERISA Section 3(35);
(iii) MULTI-EMPLOYER PLAN means a Pension Plan of the type defined in
ERISA Section 3(37); and
(iv) WELFARE PLAN as defined in ERISA Section 3(1).
"EVENTS OF DEFAULT" has the meaning specified in Section
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7.01.
"G&K CO. GUARANTY means the guaranty of the Guarantor, dated as of
September 28, 1990, guaranteeing to Metropolitan Life Insurance Company all of
the obligations of the Company under the 10.62% Notes and the 10.62% Loan
Agreement.
"GAAP" means generally accepted accounting principles as they exist at the
date of application thereof.
"GUARANTOR" means G&K Services, Co.
"GUARANTY" means the Guaranty of the Guarantor, dated as of November 23,
1994, guaranteeing to the Purchasers hereunder and all other Holders of Notes
the obligations of the Company under the Notes and the Agreement.
"HAZARDOUS SUBSTANCE" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum products and by-
products and other dangerous, toxic or hazardous pollutants, contaminants,
chemicals, materials or substances listed or identified in or regulated by any
Environmental Law.
"HOLDER" means a Person in whose name a Note is recorded on the list
maintained by the Company pursuant to Section 1.02.
"INDEBTEDNESS" means and includes, without duplication, (i) all
indebtedness or obligations for money borrowed (and any notes payable and drafts
accepted representing extensions of credit, whether or not representing
indebtedness or obligations for money borrowed), (ii) indebtedness or
obligations owed for all or any part of the purchase price of property or other
assets or for the cost of property or other assets constructed or of
improvements thereto, other than accounts payable included in current
liabilities and incurred in respect of property purchased in the ordinary course
of business, (iii) indebtedness or obligations secured or evidenced by any Lien
existing on property owned by the corporation whose Indebtedness is being
determined, whether or not the indebtedness or obligations secured or evidenced
thereby shall have been assumed, (iv) Capital Lease Obligations, (v) guaranties
and endorsements of (other than endorsements for
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purposes of collection in the ordinary course of business), and obligations
to purchase goods or services for the purpose of supplying funds for the
purchase or payment of, or measured by, indebtedness, liabilities or
obligations of others (whether or not representing money borrowed) and other
contingent obligations in respect of, or to purchase or otherwise acquire or
service, indebtedness, liabilities or obligations of other (whether or not
representing money borrowed) and (vi) all indebtedness, liabilities or
obligations (whether or not representing money borrowed) in effect guaranteed
by an agreement, contingent or otherwise, to make a loan, advance or capital
contribution to or other investment in the debtor for the purpose of assuring
or maintaining a minimum equity, asset base, working capital or other balance
sheet condition for any date, or to provide funds for the payment of any
liability, dividend or stock liquidation payment, or otherwise to supply
funds to or in any manner invest in the debtor for such purpose. The
guarantees, endorsements, obligations and agreements referred to in clauses
(v) and (vi) of the preceding sentence shall constitute (a) Consolidated
Current Indebtedness to the extent the indebtedness, liabilities or
obligations of another Person to which they relate are Consolidated Current
Indebtedness of such other Person and (b) Consolidated Funded Indebtedness to
the extent such related indebtedness, liabilities or obligations of such other
Person are Consolidated Funded indebtedness of such other Person.
"LIEN" means any mortgage, lien, pledge, security interest, encumbrance or
charge of any kind, any conditional sale or other title retention agreement or
any Capital Lease.
"LITIGATION" means any litigation, proceeding (including without limitation
any governmental, administrative or arbitration proceeding), claim, lawsuit
and/or investigation or inquiry pending or threatened against or involving the
Company or any Restricted Subsidiary or any of their respective businesses or
operations.
"METROPOLITAN" means Metropolitan Life Insurance Company, a New York
corporation.
"NET INCOME" means, with respect to any Person for any period, the net
income (or the net deficit, if expenses and charges exceed revenues and other
proper income credits) of such
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Person for such period determined in accordance with GAAP; provided, however,
that Net Income of the Company or any Restricted Subsidiary shall not include:
(1) the Net Income of any Person (other than a Restricted Subsidiary) in
which the Company or any Restricted Subsidiary has an ownership interest
unless such Net Income shall have been actually received by the Company or
such Restricted Subsidiary in the form of cash dividends or similar cash
distributions;
(2) any portion of the Net Income of any Restricted Subsidiary which for
any reason shall not be available for payment of dividends to the Company,
and the Net Income of any Restricted Subsidiary prior to the date it became
a Subsidiary;
(3) the Net Income of any Person, any of the stock or other equity
interests or assets of which have been acquired by the Company or any
Subsidiary, realized by such Person prior to the date of such acquisition;
and
(4) any gain or loss that is deemed extraordinary in accordance with GAAP.
"PERSON" includes an individual, a corporation, a partnership, a joint
venture, a trust, an unincorporated organization or a government or any agency
or political subdivision thereof.
"REPORTABLE EVENT" shall have the meaning given to such term in ERISA.
"RESTRICTED SUBSIDIARY" means each and every Subsidiary of the Company and
its Subsidiaries, whether now existing or hereafter created or acquired.
"SUBORDINATED DEBT" means Indebtedness which is subordinated to the Notes
and to the Company's obligations under the Agreement on terms approved in
writing by the Holders of the Notes.
"SUBSIDIARY" means any corporation at least a majority of whose outstanding
stock having ordinary voting power for the
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election of a majority of the members of the board of directors (or other
governing body) of such corporation (other than stock having such power only
by reason of the happening of a contingency) shall at the time be owned by
the Company and/or one or more Subsidiaries of the Company.
"10.62% LOAN AGREEMENT" means the Loan Agreement dated as of September 28,
1990 by and between the Company and Metropolitan, as amended to the date hereof,
and as the same may be further amended with the consent of Metropolitan.
"10.62% NOTES" means the 10.62% Senior Notes due September 28, 1997 of the
Company issued pursuant to the 10.62% Loan Agreement, as amended to the date
hereof, and as the same may be further amended with the consent of Metropolitan.
"U.S. BANKS" means the Banks, organized under the laws of the United States
of America or any sate thereof, specified in the Credit Agreement as committed
to make loans to the Company.
"WEIGHTED AVERAGE LIFE TO FINAL MATURITY" of any Indebtedness (including
the Notes) as of the time of determination thereof means the number of years
(rounded to the nearest one-twelfth) obtained by dividing the then Remaining
Dollar-Years of such Indebtedness by the then outstanding principal amount of
such Indebtedness. For the purposes of this definition, "REMAINING
DOLLAR-YEARS" means the sum of all products obtained by multiplying the
amount of each then remaining sinking fund, serial maturity or other required
repayment, including repayment at final maturity, by the number of years
(calculated to the nearest one-twelfth) which will elapse between the time of
such determination and the date of such repayment.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary all of
the capital stock (other than directors' qualifying shares) of which is owned by
the Company and/or one or more Wholly-owned Restricted Subsidiaries.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the capital stock
other than directors' qualifying shares of which is owned by the Company and/or
one or more Wholly-owned Subsidiaries.
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"WORK WEAR" means Work Wear Corporation of Canada Ltd., an Ontario
corporation.
"YIELD-MAINTENANCE PRICE" means the higher of either (1) the principal
amount of the Notes to be prepaid pursuant to Section 2.01B or Section 2.02 or
accelerated pursuant to Section 7.01, as the case may be, or (2) the sum of the
respective Payment Values of each prospective interest payment, prospective
mandatory prepayment and the principal payment at maturity (after giving effect
to prior prepayments of principal) in respect of the principal amount of the
Notes so to be prepaid or accelerated, as the case may be (the amount of each
such payment being herein referred to as a "PAYMENT"). The Payment Value of
each Payment shall be determined by discounting such Payment at the Adjusted
Reinvestment Rate, for the period from the scheduled date of such Payment to the
applicable date of prepayment or acceleration, as the case may be. The Adjusted
Reinvestment Rate is the sum of (a) .50% and (b) the yield which shall be
imputed from the yields of those actively traded "On The Run" United States
Treasury securities having maturities as close as practicable to the Weighted
Average Life to Final Maturity of the Notes so to be prepaid or accelerated, as
the case may be. The yields of such United States Treasury securities shall be
determined as of 10 A.M. Eastern Time on the Acceleration Calculation Date or on
the fifth Business Day prior to the Event Risk Occurrence Prepayment Date or the
Optional Prepayment Date, as the case may be.
All accounting terms used herein and not expressly defined in this Note
shall have the meanings respectively given to them in accordance with generally
accepted accounting principles ("GAAP") as they exist at the date of
applicability thereof.
SECTION 7. DEFAULTS AND REMEDIES.
7.01. EVENTS OF DEFAULT.
If one or more of the following events herein called "Events of Default"
shall happen for any reason whatsoever and whether such happening shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body
and be continuing:
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A. Default shall be made in the payment of principal of (or premium,
if any, on) any Note when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment (including, without
limitation, a prepayment as provided in Section 2.01B or 2.02), or by
acceleration or otherwise; or
B. Default shall be made in the payment of any interest on any Note
when such interest becomes due and payable, and such default shall continue
for a period of 5 days; or
C. Default shall be made in the due observance or performance of any
covenant, condition or agreement contained in Sections 4.01 to 4.23 and, in
the case of Sections 4.06, 4.19 and 4.21, the continuance of such default
for a period of 30 days; or
D. Default shall be made in the due observance or performance of any
other covenant, condition or agreement contained in this Note or in the
Agreement, and such default shall continue for 30 days after written notice
thereof, specifying such default and requesting that the same be remedied,
shall have been given to the Company by the holder of any Note; or
E. The Company or any Restricted Subsidiary shall be adjudicated a
bankrupt or insolvent, or shall consent to the appointment of a receiver,
trustee, custodian or liquidator of itself or of any part of its property,
or shall admit in writing its inability, or shall fail, to pay its debts
generally as they come due, or shall make a general assignment for the
benefit of creditors, or shall file a voluntary petition in reorganization
or arrangement in a proceeding under any bankruptcy law (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against the Company or any Restricted Subsidiary in any such
proceeding, or shall, by voluntary petition, answer or consent, seek relief
under the provisions of any other now existing or future bankruptcy or
other similar law providing for the reorganization or winding up of
corporations, or the Company or any Restricted Subsidiary or its directors
or majority stockholders shall
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take action looking to the dissolution or liquidation of the Company or
such Restricted Subsidiary; or
F. An order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of the Company or
any Restricted Subsidiary, a receiver, trustee, custodian or liquidator of
the Company or such Restricted Subsidiary or of any part of its property,
and such receiver, trustee, custodian or liquidator shall not have been
removed or discharged within 60 days thereafter, or any part of the
property of the Company or any Restricted Subsidiary shall, in any judicial
proceeding, be sequestered and shall not be returned to the possession of
the Company or such Restricted Subsidiary
within 60 days thereafter; or
G. A petition against the Company or any Restricted Subsidiary in a
proceeding under any bankruptcy law (as now or hereafter in effect) shall
be filed and shall not be dismissed within 90 days after such filing, or,
in case the approval of such petition by a court of competent jurisdiction
is required, shall be filed and approved by such a court as properly filed
and such approval shall not be withdrawn or the proceeding dismissed within
30 days thereafter, or if, under the provisions of any other similar law
providing for reorganization or winding up of corporations and which may
apply to the Company or any Restricted Subsidiary, any court of competent
jurisdiction shall assume jurisdiction, custody or control of the Company
or such Restricted Subsidiary or of any part of its property and such
jurisdiction, custody or control shall not be relinquished or terminated
within 90 days thereafter; or
H. The occurrence of an "Event of Default" as defined under the
Credit Agreement or any evidence of Indebtedness issued pursuant thereto.
I. The Company or any Restricted Subsidiary shall default in the
payment of principal or interest on any other evidence of Indebtedness for
money borrowed in excess of $250,000 (either in any one case or in the
aggregate) or shall default in the performance or observance of any other
term, condition or agreement contained in any such evidence
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of Indebtedness or in any agreement relating thereto, the effect of which
is to cause or permit any holder of such indebtedness or a trustee to cause
the same to become or be declared due prior to its stated maturity, unless
such default shall have been cured or waived prior to such Indebtedness
becoming or being declared to be due and payable prior to its stated
maturity; or
J. Final judgment for the payment of money in excess of $50,000 shall
be rendered against the Company or any Restricted Subsidiary and the same
shall remain undischarged for a period of 30 days during which execution
shall not be effectively stayed; or
K. Any representation or warranty made by the Company in the
Agreement or by the Guarantor in the Guaranty or the G&K Co. Guaranty or in
any writing furnished in connection with the transactions contemplated
hereby or thereby shall prove to have been false or incorrect in a material
respect as of the date made; or
L. The Guarantor shall fail to perform its obligations under, or
repudiate the Guaranty or the G&K Co. Guaranty, or shall contest in any
manner the validity, binding nature or enforceability of the Guaranty; or
M. With respect to any Defined Benefit Plan which the Company or any
ERISA Affiliate may have any liability, (a) a contribution failure with
respect to such plan shall occur sufficient to give rise to a lien under
Section 302(f)(1) of ERISA or (b) steps are undertaken to terminate such
plan or such plan is terminated or the Company or such ERISA Affiliate
withdraws from or institutes steps to withdraw from such plan or any
Reportable Event with respect to such plan shall occur which, in any such
case, will have the effect of creating a liability of the Company or any
ERISA Affiliate which is material to the Company and its Subsidiaries on a
consolidated basis; or
N. The occurrence of an "Event of Default" as defined under the
10.62% Notes or the 10.62% Loan Agreement;
then (i) upon the occurrence of any Event of Default described in
34
<PAGE>
Section 7.01E, 7.01F, or 7.01G (each a "Bankruptcy Default"), all of the
Notes shall automatically become immediately due and payable, (ii) upon the
occurrence of any Event of Default described in Section 7.01A, 7.01B or 7.01L
the Holder of this Note may at any time during its continuance, by written
notice to the Company, declare this Note to be due and payable, whereupon
this Note shall forthwith mature and become due and payable or (iii) upon the
occurrence of any Event of Default other than a Bankruptcy Default, the
Holder or Holders of at least 66-2/3% in principal amount of the Notes then
outstanding (exclusive of any Notes held by the Company, any Subsidiary or
any Affiliate) may at any time during its continuance, by written notice to
the Company, declare all of the Notes to be due and payable, whereupon in
each case all of the Notes shall forthwith mature and become due and payable.
The amount payable upon the occurrence of a Bankruptcy Default shall be the
entire unpaid principal amount of the Notes, together with interest accrued
thereon to the date of the occurrence of such Bankruptcy Default, and such
amount shall be payable without presentment, demand, protest or other
requirement of any kind, all of which are expressly waived by the Company. The
amount payable upon an acceleration based on any other Event of Default shall
be, to the extent permitted by law, the Yield-Maintenance Price of the Notes
so accelerated, together with interest accrued on the unpaid principal amount
of the Notes so accelerated to the date of acceleration, and such amount
shall be payable without presentment, demand, protest or further notice, all
of which are expressly waived by the Company.
On the Acceleration Calculation Date, the Computing Holder shall give
written notice to the Company and all the other Holders of the amount of the
Yield-Maintenance Price of the Notes so accelerated, which notice shall set
forth in reasonable detail the computation thereof. The Yield-Maintenance
Price set forth in such notice shall be binding on the Company and the
Holders absent manifest error.
7.02. SUITS FOR ENFORCEMENT.
In case an Event of Default shall occur and be continuing, the Holder of
this Note may proceed to protect and enforce its rights by suit in equity,
action at law or other appropriate
35
<PAGE>
proceeding, whether for the specific performance of any covenant contained in
this Note or in aid of the exercise of any power granted in this Note, or may
proceed to enforce the payment of this Note or to enforce any other legal or
equitable right of the Holder of this Note. If any Holder shall demand
payment thereof or take any other action in respect of an Event of Default,
the Company will forthwith give written notice, as provided in Section 8.02,
to the other Holders specifying such action and the nature and status of the
Event of Default.
7.03. REMEDIES NOT EXCLUSIVE, ETC. No remedy herein or in the Agreement
conferred upon or reserved to any Holder is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under the
Agreement or the Notes or now or hereafter existing at law or in equity. No
delay in exercising or omission to exercise any right or power accruing upon any
default, omission or failure of performance hereunder or under the Agreement
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and as
often as may be deemed expedient. In order to entitle any Holder to exercise
any remedy reserved to it in the Notes or in the Agreement, it shall not be
necessary to give any notice to any person. In the event any provision
contained in the Notes should be breached by the Company and thereafter duly
waived by the Holders from time to time of the Notes in compliance with Section
5, such waiver shall be limited to the particular breach so waived and shall not
be deemed to waive any other breach hereunder. No waiver, amendment,
release, termination or modification of the Notes shall be established by
conduct, custom or course of dealing but solely by an instrument in writing
in compliance with Section 5.
SECTION 8. MISCELLANEOUS.
8.01. COSTS AND EXPENSES.
If any Event of Default shall occur, the Company shall pay to each Holder,
to the extent permitted under applicable law, all reasonable out-of-pocket
expenses incurred by such Holder in connection with such Event of Default and
such further amount as shall be sufficient to cover the cost and expense of
collection,
36
<PAGE>
including reasonable compensation to the attorneys and counsel of such Holder
for any services rendered in that connection, upon the Notes held by such
Holder. In addition, the Company hereby agrees to indemnify each Holder and
each officer, director, employee and agent thereof (herein individually each
called an "Indemnitee" and collectively called the "Indemnitees") from and
against any and all losses, claims, damages, reasonable expenses (including,
without limitation, reasonable attorneys' fees) and liabilities (all of the
foregoing being herein called the "Indemnified Liabilities") incurred by an
Indemnitee in connection with any Litigation arising out of, or relating to,
the financing provided herein or any Litigation in which it is alleged that
any Environmental Law has been breached, except for any portion of such
losses, claims, damages, expenses or liabilities incurred solely as a result
of the gross negligence or willful misconduct of the applicable Indemnitee or
as a result of a breach of the Agreement by the applicable Indemnitee. If
and to the extent that the foregoing indemnity may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. All obligations provided for in this
Section 8.01 shall survive any termination of the Agreement and payment in
full of this Note.
8.02. NOTICES.
All notices to be given to any Holder shall be given by registered or
certified mail to such Holder at its address designated on the date of such
notice on the register or other record maintained by the Company.
8.03. COVENANTS BIND SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Note by the Company shall bind its
successors and assigns, whether so expressed or not.
8.04. GOVERNING LAW.
This Note shall be construed in accordance with and governed by the
substantive and procedural laws of the State of Minnesota.
37
<PAGE>
[Remainder of Page Intentionally Left Blank]
38
<PAGE>
8.05. HEADINGS.
The Section headings herein are for convenience only and shall not affect
the construction hereof.
IN WITNESS WHEREOF, G & K SERVICES, INC. has caused this Note to be
signed in its corporate name by one of its officers thereunto duly authorized,
and to be dated as of the day and year first above written.
G & K SERVICES, INC.
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT B
INDEBTEDNESS AND LIENS SECURING
INDEBTEDNESS OF THE COMPANY
AND ITS SUBSIDIARIES
<PAGE>
EXHIBIT C
LIST OF SUBSIDIARIES
Jurisdiction of Restricted or
Name Incorporation Unrestricted Capitalization
- - ---- ---------------- -------------- --------------
G & K Services, Inc. owns 100% of the outstanding shares of stock of
all of the foregoing subsidiaries.
<PAGE>
EXHIBIT D
FORM OF GUARANTY
WHEREAS G & K Services, Inc., a Minnesota corporation (the "Company")
desires to obtain loans from Metropolitan Life Insurance Company and its
subsidiary Texas Life Insurance Company (collectively, the "Lenders"), pursuant
to the terms and conditions of a Loan Agreement (the "Agreement") dated as of
November 23, 1994, between the Company and the Lenders and the Company's 8.46%
Senior Notes due November 23, 1997 (the "Notes") issued pursuant thereto;
WHEREAS the Lenders, as a condition to making any loans to the Company,
have required the execution of this Guaranty;
NOW, THEREFORE, the undersigned, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. The undersigned hereby absolutely and unconditionally guarantees to
each of the Lenders and each other Holder of the Notes the full and prompt
payment when due of the principal, premium, if any, and interest on the Notes,
whether at maturity or earlier by reason of acceleration or otherwise, and the
payment and performance of each and every other debt, liability and obligation
of every type and description which the Company may now or at any time hereafter
owe to the Lenders or each other Holder of the Notes pursuant to the Notes and
the Agreement (all such principal, premium, interest, debts, liabilities and
obligations being hereinafter collectively referred to as the "Indebtedness").
2. No act or thing need occur to establish the liability of the
undersigned hereunder, and no act or thing, except full payment and discharge of
all Indebtedness, shall in any way exonerate the undersigned or modify, reduce,
limit or release the liability of the undersigned hereunder.
3. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be
<PAGE>
in force and be binding upon the undersigned whether or not all Indebtedness
is paid in full. The undersigned represents and warrants to the Lenders and
each other Holder of the Notes that the undersigned has a direct and
substantial financial interest in the Company and expects to derive
substantial benefits therefrom and from the loans made by the Lenders
pursuant to the Agreement and as evidenced by the Notes, and that this
Guaranty is given for a corporate purpose.
4. The Lenders and each other Holder of the Notes shall have the right to
declare immediately due and payable, and the undersigned will forthwith pay to
each Holder of the Notes, the full amount of all Indebtedness, whether due and
payable or unmatured, if the undersigned becomes insolvent or generally fails to
pay, or admits in writing its inability or refusal to pay, debts as they become
due; or the undersigned applies for, consents to, or acquiesces in the
appointment of, a trustee, receiver or other custodian for the undersigned or
any substantial part of the property thereof, or makes a general assignment for
the benefit of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for the
undersigned or for a substantial part of the property thereof and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding (except the voluntary dissolution, not
under any bankruptcy or insolvency law, or of the undersigned), is commenced in
respect of the undersigned, and if such case or proceeding is not commenced by
the undersigned, it is consented to or acquiesced in by the undersigned or
remains for 30 days undismissed; or the undersigned takes any corporate action
to authorize, or in furtherance of, any of the foregoing.
5. The liability of the undersigned hereunder shall be without any
limitation as to amount, plus accrued interest thereon and all reasonable
attorneys' fees, collection costs and enforcement expenses referable thereto.
Indebtedness may be created and continued in any amount without affecting or
impairing the liability of the undersigned hereunder.
6. The undersigned will not exercise or enforce any right of contribution,
reimbursement, recourse or subrogation available
3
<PAGE>
to the undersigned against any person liable for payment of the Indebtedness,
or as to any collateral security therefor, unless and until all of the
Indebtedness shall have been fully paid and discharged.
7. The undersigned will pay or reimburse the Lenders and each other Holder
of the Notes for all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by the Lenders and each other Holder of the Notes
in connection with the protection, defense or enforcement of this Guaranty in
any litigation or bankruptcy or insolvency proceedings.
8. The liability of the undersigned shall not be affected or impaired by
any of the following acts or things (which the Lenders and each other Holder
of the Notes are expressly authorized to do, omit or suffer from time to
time, without notice to or approval by the undersigned): (i) any acceptance
of collateral security, guarantors, accommodation parties or sureties for any
or all Indebtedness; (ii) any one or more extension or renewals of
Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities or other contractual terms
applicable to any Indebtedness; (iii) any waiver or indulgence granted to the
Company, any delay or lack of diligence in the enforcement of Indebtedness,
or any failure to institute proceedings, file a claim, give any required
notices or otherwise protect any Indebtedness; (iv) any full or partial
release of, settlement with, or agreement not to sue the Company or any other
guarantor or other person liable in respect of any Indebtedness; (v) any
discharge of any evidence of Indebtedness or the acceptance of any instrument
in renewal thereof or substitution therefor; (vi) any failure to obtain
collateral security (including rights of setoff) for Indebtedness, or to see
to the proper or sufficient creation and perfection thereof, or to establish
the priority thereof, or to protect, insure, or enforce any collateral
security; or any modification, substitution, discharge, impairment, or loss
of any collateral security; (vii) any foreclosure or enforcement of any
collateral security; (viii) any transfer of all or any part of the
indebtedness or any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; (x) any election by the Lenders or any
other Holder of the Notes under Section 1111(b)(2) of the United States
4
<PAGE>
Bankruptcy Code; (xi) the consolidation or merger of the undersigned or the
Company with any Person or the sale of all or any part of the assets or stock
of the undersigned or the Company to any person; (xii) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition,
liquidation or similar proceeding with respect to the Company, the
undersigned or any other person; and (xiii) any other event, circumstance or
condition whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.
9. The undersigned waives any and all defenses, claims and discharges of
the Company, or any other obligor, pertaining to Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of the
foregoing, the undersigned will not assert, plead or enforce against the Lenders
or any other Holder of the Notes any defense of waiver, release, discharge in
bankruptcy, statute of limitations, res judicata, statute of frauds, anti-
deficiency statute, fraud, incapacity, usury, illegality or unenforceability
which may be available to the Company or any other person liable in respect of
any Indebtedness, or any setoff available against the Lenders or any other
Holder of the Notes to the Company or any such other person, whether or not on
account of a related transaction. The undersigned expressly agrees that the
undersigned shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing Indebtedness, whether
or not the liability of the Company or any other obligor for such deficiency is
discharged pursuant to statute or judicial decision.
10. The undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Neither the Lenders nor any other Holder of the Notes shall not be required
first to resort for payment of the Indebtedness to the Company or other persons
or their properties, or first to enforce, realize upon or exhaust any collateral
security for the Indebtedness, before enforcing this Guaranty.
11. If any payment applied by any Lender or any other Holder of the Notes
to the Indebtedness is thereafter set aside, recovered, rescinded or required to
be returned for any reason (including, without limitation, the bankruptcy,
insolvency or
5
<PAGE>
reorganization of the Company or any other obligor), the Indebtedness to
which such payment was applied shall for the purposes of this Guaranty be
deemed to have continued in existence, notwithstanding such application, and
this Guaranty shall be enforceable as to such Indebtedness as fully as if
such application had never been made.
12. The liability of the undersigned under this Guaranty is in addition to
and shall be cumulative with all other liabilities of the undersigned to the
Lenders and each other Holder of the Notes as guarantor or otherwise, without
any limitation as to amount, unless the instrument or agreement evidencing or
creating such other instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.
13. The undersigned represents and warrants to each Lender and each other
Holder of the Notes that (i) the undersigned is a corporation duly organized and
existing in good standing and has full power and authority to make and deliver
this Guaranty; (ii) the execution, delivery and performance of this Guaranty by
the undersigned have been fully authorized by all necessary action of its
directors and shareholders and do not and will not violate the provisions of, or
constitute a default under, any presently applicable law or its articles of
incorporation or by-laws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
undersigned and constitutes its lawful, binding and legally
enforceable obligation (subject to the United State Bankruptcy Code and other
similar laws generally affecting the enforcement of creditors' rights); and (iv)
the authorization, execution, delivery and performance of this Guaranty do not
require notification to, registration with, or consent or approval by, any
federal, state or local regulatory body or administrative agency.
14. This Guaranty shall be effective upon delivery to the Lenders, without
further act, condition or acceptance by the Lenders, shall be binding upon the
undersigned and the successors and assigns of the undersigned and shall inure to
the benefit of the Lenders and their respective successors and assigns
including, without limitation, any subsequent Holder of the Notes. Any
invalidity or unenforceability of any provision or
6
<PAGE>
application of this Guaranty shall not affect other lawful provisions and
application hereof, and to this end the provisions of this Guaranty are
declared to be severable. This Guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a writing signed
by the undersigned and each Holder of the Notes. This Guaranty shall be
governed by the laws of the State of Minnesota. The undersigned waives
notice of the Lenders' acceptance hereof and waives the right to a trial by
jury in any action based on or pertaining to this Guaranty.
15. Capitalized terms not defined herein shall have the meanings assigned
to them in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of this
23rd day of November, 1994.
G & K SERVICES, CO.
By:
-------------------------
Name:
Title:
7
<PAGE>
EXHIBIT E
Litigation
<PAGE>
EXHIBIT F
Form of Opinion of Maslon Edelman Borman & Brand
<PAGE>
EXHIBIT G
ERISA
<PAGE>
ELEVEN-YEAR SUMMARY
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
Revenues $ 14.96 $ 12.88 $ 11.07 $ 10.25 $ 9.62 $ 8.72 $ 5.89 $ 5.40
Assets 13.81 12.43 10.08 9.95 9.89 10.19 5.07 4.22
Equity 6.89 5.82 4.96 4.44 4.07 3.80 3.47 3.03
Earnings 1.11 0.90 0.73 0.55 0.42 0.38 0.51 0.41
Dividends 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.06
Price: High 32.00 19.50 17.00 13.00 13.33 11.00 10.75 8.11
Low 18.75 13.00 11.69 8.83 8.67 6.08 7.08 6.44
Avg. P/E 22.8 18.1 19.7 19.9 25.9 22.2 17.6 17.7
- - -----------------------------------------------------------------------------------------------------------------
INCOME DATA (000'S)
Revenues $305,414 $262,481 $225,229 $207,904 $194,716 $176,233 $118,656 $108,817
Operating Income 45,244 36,103 29,751 24,994 21,539 16,632 16,875 12,996
Net Other Inc. and Exp. (8,028) (5,839) (4,433) (7,227) (7,422) (7,541) (412) 410
Pretax Income 37,216 30,264 25,318 19,113 14,117 12,326 16,463 13,406
Income Taxes 14,496 11,978 10,527 7,990 5,535 5,255 6,255 5,094
Net Income 22,720 18,286 14,791 11,123 8,582 7,771 10,208 8,312
Shares Outstanding 20,413 20,378 20,338 20,290 20,238 20,202 20,151 20,162
- - -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET (000'S)
Current Assets $ 99,650 $ 87,319 $ 63,530 $ 58,982 $ 52,302 $ 56,728 $33,503 $31,999
Net Fixed Assets 132,898 114,450 89,584 85,875 85,435 81,862 57,210 42,270
Total Assets 281,989 253,333 205,064 201,822 200,084 205,806 102,088 85,181
Current Liabilities 49,813 42,450 34,179 36,388 33,855 28,703 17,120 15,569
Long-term Debt 75,143 76,519 54,676 59,803 68,421 85,942 9,088 3,766
Stockholders' Equity 140,647 118,529 100,857 90,158 82,439 76,835 69,887 61,015
- - -----------------------------------------------------------------------------------------------------------------
FUNDS FLOW DATA (000'S)
From Operating
Activities $ 41,317 $ 21,733 $ 28,054 $ 23,090 $ 25,112 $ 17,833 $ 15,929 $ 15,537
Used for Investment (36,237) (45,345) (17,541) (13,072) (15,257) (94,063) (21,242) (14,851)
From Financing (1,243) 21,526 (8,556) (5,961) (8,616) 78,351 5,309 437
Change, Cash and
Equivalent 3,837 (2,086) 546 2,704 (111) 774 (1,348) (131)
- - -----------------------------------------------------------------------------------------------------------------
RATIO ANALYSIS (%)
Operating Margin 14.81% 13.75% 13.21% 12.02% 11.06% 9.44% 14.22% 11.94%
Pretax Margin 12.19 11.53 11.24 9.19 7.25 6.99 13.87 12.32
Effective Tax Rate 38.95 39.58 41.58 41.80 39.21 42.63 37.99 38.00
Net Margin 7.44 6.97 6.57 5.35 4.41 4.41 8.60 7.64
Return on Assets(1) 8.97 8.92 7.33 5.56 4.17 7.61 11.98 10.69
Return on Average Equity 17.53 16.67 15.49 12.89 10.78 10.59 15.60 14.45
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- - ----------------------------------------------------------------
1988 1987 1986
- - ----------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE
Revenues $ 4.78 $ 5.05 $ 4.54
Assets 3.95 3.63 3.40
Equity 2.74 1.73 1.46
Earnings 0.37 0.30 0.25
Dividends 0.06 0.06 0.06
Price: High 7.78 6.15 3.56
Low 4.00 3.00 2.52
Avg. P/E 15.7 15.4 12.3
- - ----------------------------------------------------------------
INCOME DATA (000'S)
Revenues $ 94,007 $ 80,755 $ 71,586
Operating Income 11,512 9,950 8,060
Net Other Inc. and Exp. 398 (640) (627)
Pretax Income 11,910 9,310 7,433
Income Taxes 4,547 4,569 3,531
Net Income 7,363 4,741 3,902
Shares Outstanding 19,676 16,002 15,766
- - ----------------------------------------------------------------
BALANCE SHEET (000'S)
Current Assets $ 35,286 $ 23,642 $ 22,848
Net Fixed Assets 33,894 28,941 26,321
Total Assets 77,758 58,151 53,559
Current Liabilities 15,539 12,376 12,809
Long-term Debt 3,414 13,809 14,332
Stockholders' Equity 54,009 27,618 22,966
- - ----------------------------------------------------------------
FUNDS FLOW DATA (000'S)
From Operating
Activities $ 12,438 $ 9,674 $ 9,327
Used for Investment (19,543) (8,425) (11,988)
From Financing 9,497 (1,054) 4,326
Change, Cash and
Equivalent 1,138 (739) 793
- - ----------------------------------------------------------------
RATIO ANALYSIS (%)
Operating Margin 12.25% 12.32% 11.26
Pretax Margin 12.67 11.53 10.38
Effective Tax Rate 38.18 49.08 47.50
Net Margin 7.83 5.87 5.45
Return on Assets(1) 12.66 8.85 8.93
Return on Average Equity 18.04 18.75 18.29
- - ----------------------------------------------------------------
- - ----------------------------------------------------------------
</TABLE>
TEN-YEAR HIGHLIGHTS
Compound Annual Revenue Growth 15.6%
Compound Annual Net Income Growth 19.3%
Compound Annual Returns to Shareholders 24.1%
(1) BASED ON BEGINNING AMOUNTS
5
<PAGE>
FINANCIAL REVIEW
PERFORMANCE AGAINST LONG-TERM FINANCIAL GOALS
<TABLE>
<CAPTION>
REVIEW OF GOALS VERSUS ACTUAL PERFORMANCE
- - -------------------------------------------------------------------------------------------
Financial Fiscal 5-Year 10-Year
Goal 1996 Results Results
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE GROWTH (1) 15% 16.4% 11.6% 15.6%
PRETAX MARGINS 12% 12.2% 10.3% 10.9%
NET INCOME GROWTH (1) 15% 24.2% 23.9% 19.3%
RETURN ON AVERAGE EQUITY 18% 17.5% 14.7% 15.1%
- - -------------------------------------------------------------------------------------------
</TABLE>
(1) COMPOUND ANNUAL GROWTH RATE
G&K, one of North America's leading suppliers of corporate work uniform
programs, has long established performance goals to measure its results. In
fiscal 1996, G&K exceeded three of these goals and moved much closer to the
fourth, its return on average equity target.
Effective implementation of business strategies continues to generate
consistent growth for G&K Services, which registered a 16.4% increase in
fiscal 1996 revenues and a compounded rental revenue growth rate exceeding
15% since going public in 1969. Significantly, G&K's growth over the last two
years has exceeded 15% without the benefit of acquisitions. This internal
growth rate has put G&K at the top of the list among its major competitors.
G&K has exceeded its 15% revenue growth target in each of the past two years
and over the ten-year period ended with fiscal 1996. These rates of growth
surpass the uniform leasing industry in general, which has been expanding at
a 5-6% annual rate. Increasing numbers of companies are using uniform
programs to enhance their image and to protect products or employees in
working environments. Beyond general industry growth, G&K has benefited from
the markets' strong reception of G&K's specialized systems, the opening of
facilities in 14 markets since 1990, and the cultivation of specialized niche
markets such as cleanroom garment processing.
G&K's pretax margin exceeded the Company's 12% goal in fiscal 1996. The
strong improvement in pretax margins during the past few years reflects the
Company's continued superior results in the U.S. combined with four
consecutive years of strong operating margin improvement in Canada.
Net income growth exceeded our 15% goal by a wide margin, with fiscal 1996
growth of 24.2% and a five-year compounded growth rate of 23.9%. Revenue
growth, cost control and the improvement of margins in Canada all contributed
to the increase in net income.
Substantial growth in net income continues to improve the return on average
stockholders' equity. G&K moved very close to its 18% goal, reaching 17.5% in
fiscal 1996.
FISCAL 1996 IN REVIEW
Total revenues for fiscal 1996 rose 16.4% to a record $305.4 million from $262.5
million in fiscal 1995. Rental revenue growth accounted for the entire increase,
rising 17.2%. U.S. and Canadian annual rental revenues increased 18.0% and
12.8%, respectively. The improvement is attributable to increased new account
sales, expansion of existing accounts, selective price increases and new market
entries.
During fiscal 1996, total direct sales to outside customers decreased slightly
from the prior year as a greater portion of products produced by our
manufacturing division were used by G&K to service rental customers.
[EDGAR REPRESENTATION OF PLOT POINTS FOR BAR CHARTS]
REVENUES
($ IN MILLIONS)
1992.................... 195
1993.................... 208
1994.................... 225
1995.................... 262
1996.................... 305
PRETAX MARGIN
(PERCENT)
1992.................... 7.3
1993.................... 9.2
1994.................... 11.2
1995.................... 11.5
1996.................... 12.2
NET INCOME
($ IN MILLIONS)
1992.................... 9
1993.................... 11
1994.................... 15
1995.................... 18
1996.................... 23
RETURN ON
AVERAGE EQUITY
($ IN MILLIONS)
1992.................... 11
1993.................... 13
1994.................... 16
1995.................... 17
1996.................... 18
14
<PAGE>
Cost of rental operations continues to grow slower than rental revenues,
increasing 14.1% while rental revenues rose 17.2%. As a percentage of rental
revenues, expenses declined to 55.5% for 1996 compared to 57.0% in fiscal 1995.
This decrease related primarily to better utilization
of rental merchandise and improved plant efficiency, in both the U.S. and
Canada.
Cost of Direct Sales decreased 6.0% in 1996, compared to fiscal 1995. As a
percentage of revenues, costs improved to 79.0% compared with 81.6% last year,
primarily from operational improvements at our manufacturing division.
Selling and administrative expenses increased 19.4% to $67.9 million. As a
percentage of revenues, selling and administrative expenses increased to 22.2%
from 21.7% in fiscal 1995. These expenses grew at a rate greater than the
revenue increase primarily from costs associated with new market startups, and
additional marketing, training, and data processing costs for supporting
operational growth and improvement.
Operating income increased 25.3% to $45.2 million. Operating margins continued
the trend of the last four years improving to 14.8% from 13.8% in fiscal 1995.
U.S. operating margins improved from 13.9% in fiscal 1995 to 14.9% despite
larger losses from the growing group of start-up locations begun during the past
six years. Operating income benefited from another significant improvement in
the Canadian operating margin for the fourth consecutive year.
Net income rose 24.2% to a record $22.7 million, or $1.11 per share, from $18.3
million, or $0.90 per share, in fiscal 1995. Net income growth was affected by
lower effective income tax rates, but higher interest expense due to larger
average borrowing levels when compared to fiscal 1995. Net income margins
increased for the fourth consecutive year, reaching 7.4% compared with 7.0% last
year and 6.6% in fiscal 1994.
FISCAL 1995 COMPARED WITH FISCAL 1994
Total revenues increased 16.5% to $262.5 million. Excluding the contribution by
the manufacturing division acquired in September 1994, revenues rose by 15.3%,
over 50% greater than the comparable increase of 10% in fiscal 1994 over 1993.
U.S. operations posted internal growth of 17.2% in revenues, owing to an
increase in the dollar value of new accounts sold, stronger account retention
and modest price increases. Including the sales to outside customers by the
manufacturing unit, U.S. revenues rose 18.8%. Canadian revenues rose 10.8 % in
local currency, or 7.5% in U.S. dollars, as the dollar value of new accounts
written grew and account retention improved.
Cost of Rental Operations increased 13.2% in fiscal 1995, less than the 15.9%
increase in rental revenues. As a percentage of rental revenues, expenses
declined to 57.0% from 58.3% in fiscal 1994. This decline resulted primarily
from improved rental merchandise utilization.
Cost of Direct Sales more than doubled reflecting
costs associated with the sales of clothing sold by the manufacturing division
acquired during fiscal 1995.
Selling and administrative costs remained at a constant 21.7% of revenues in
both 1995 and 1994. Selling costs increased to fund higher sales to new
customers written in
[EDGAR REPRESENTATION OF PLOT POINTS FOR BAR CHARTS]
CASH FLOWS FROM
OPERATING ACTIVITIES
($ IN MILLIONS)
1992.................... 25
1993.................... 23
1994.................... 28
1995.................... 22
1996.................... 41
STOCKHOLDERS' EQUITY
($ IN MILLIONS)
1992.................... 82
1993.................... 90
1994.................... 101
1995.................... 119
1996.................... 141
DEBT AS A
PERCENTAGE OF
TOTAL
CAPITALIZATION
(PERCENT)
1992.................... 48.8
1993.................... 43.8
1994.................... 37.4
1995.................... 41.5
1996.................... 37.4
15
<PAGE>
1995 and from costs associated with three startup locations. Selling cost
increases were offset as administrative costs expanded at a rate slower than
revenues.
Net income rose 23.6% to $18.3 million, or $0.90 per share, from $14.8 million,
or $0.73 per share, in fiscal 1994. The growth was greater than operating income
as higher interest expense was more than offset by lower effective income tax
rates. Net margin increased for the third consecutive year, rising to 7.0% from
6.6% in fiscal 1994.
LIQUIDITY AND FINANCIAL RESOURCES
Cash flow from operating activities in fiscal 1996 rose 90.1% to $41.3 million.
The improvement resulted from the gain in net income and from an increase in
inventories that was significantly less than in fiscal 1995. The 1995 new
inventory growth related to the purchase and operations of the garment
manufacturing division acquired in September 1994.
Working capital at June 29,1996 was $49.8 million, up 11.1% from $44.9 million
at July 1, 1995. The increase reflects higher levels of receivables and rental
merchandise in-service inventories to accommodate the 1996 growth in revenues.
Long-term debt, including current maturities was $84.2 million at June 29, 1996,
a slight increase from $84.0 million at July 1, 1995. Cash flow from operations
plus the small increase in long-term debt were utilized to fund capital
expenditures of $36.2 million and dividends of $1.4 million. In fiscal 1997
estimated capital expenditures are anticipated to be approximately $44 million.
The Company's ratio of debt to total capitalization decreased to 37.4% from
41.5% at the end of fiscal 1995, returning to a ratio similar to the end of
fiscal 1994. The Company has a $74 million existing line of credit, of which 67%
was outstanding at the end of fiscal 1996.
Stockholders' equity grew 18.8% to a record $140.6 million in fiscal 1996,
compared with $118.5 million at the end of 1995. G&K's return on average equity
increased to 17.5% compared with 16.7% and 15.5% respectively, for fiscal 1995
and fiscal 1994.
Management believes that cash flows generated from operations and existing lines
of credit should provide adequate funding for its current businesses and
expansion program.
CONSOLIDATED STATEMENTS OF INCOME
G&K SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
----------------------------------------
FISCAL YEARS ENDED
JUNE 29, July 1, July 3,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental operations $295,188 $251,948 $217,330
Direct sales 10,226 10,533 7,899
- - -------------------------------------------------------------------------------------------
Total revenues 305,414 262,481 225,229
- - -------------------------------------------------------------------------------------------
EXPENSES
Cost of rental operations 163,752 143,499 126,767
Cost of direct sales 8,079 8,592 4,063
Selling and administrative 67,934 56,909 48,886
Depreciation 17,906 14,703 12,631
Amortization of intangibles 2,499 2,675 3,131
- - -------------------------------------------------------------------------------------------
Total operating expenses 260,170 226,378 195,478
- - -------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 45,244 36,103 29,751
Interest expense 7,964 7,076 5,814
Other (income) expense, net 64 (1,237) (1,381)
- - -------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 37,216 30,264 25,318
Provision for income taxes 14,496 11,978 10,527
- - -------------------------------------------------------------------------------------------
NET INCOME $ 22,720 $ 18,286 $ 14,791
Weighted average number of shares outstanding 20,413 20,378 20,338
- - -------------------------------------------------------------------------------------------
Net Income Per Share $ 1.11 $ 0.90 $ 0.73
- - -------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
16
<PAGE>
CONSOLIDATED BALANCE SHEETS
G&K SERVICES, INC. AND SUBSIDIARIES
JUNE 29, July 1,
ASSETS (IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
- - --------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 6,882 $ 3,045
Accounts receivable, less allowance for doubtful
accounts of $1,276 and $824 36,696 32,674
Inventories 52,077 48,547
Prepaid expenses 3,995 3,053
- - --------------------------------------------------------------------------------
Total current assets 99,650 87,319
- - --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 19,326 16,159
Buildings and improvements 61,756 50,852
Machinery and equipment 118,955 106,365
Automobiles and trucks 25,028 20,713
Less accumulated depreciation (92,167) (79,638)
- - --------------------------------------------------------------------------------
Total property, plant and equipment 132,898 114,451
- - --------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net 34,642 35,577
Restrictive covenants and customer lists, net 6,860 8,366
Other, principally executive retirement plan assets 7,939 7,620
- - --------------------------------------------------------------------------------
Total other assets 49,441 51,563
- - --------------------------------------------------------------------------------
$281,989 $253,333
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 13,068 $ 12,086
Accrued expenses
Salaries and employee benefits 10,265 6,999
Other 7,151 5,773
Reserve for income taxes 10,280 10,146
Current maturities of long-term debt 9,049 7,445
Total current liabilities 49,813 42,449
- - --------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 75,143 76,519
DEFERRED INCOME TAXES 10,093 10,582
OTHER NONCURRENT LIABILITIES 6,293 5,254
- - --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 5, 6 AND 7)
STOCKHOLDERS' EQUITY
Common stock, $.50 par
Class A, 50,000,000 shares authorized, 18,915,725
and 18,543,360 shares issued and outstanding 9,458 9,272
Class B, 10,000,000 shares authorized, 1,521,121
and 1,865,089 shares issued and outstanding 761 933
Additional paid-in capital 19,758 19,228
Retained earnings 116,465 95,174
Foreign Currency translation adjustment (5,795) (6,078)
- - --------------------------------------------------------------------------------
Total stockholders' equity 140,647 118,529
- - --------------------------------------------------------------------------------
$281,989 $253,333
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
G&K SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
----------------------------------------
FISCAL YEARS ENDED
JUNE 29, July 1, July 2,
(IN THOUSANDS) 1996 1995 1994
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,720 $ 18,286 $ 14,791
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 20,405 17,378 15,762
Noncurrent deferred income taxes (495) (436) (998)
Changes in current operating items
Accounts receivable and prepaid expenses (4,903) (5,322) (2,071)
Inventories (3,469) (15,671) (2,977)
Accounts payable and other current liabilities 5,718 6,328 3,012
Other, net 1,341 1,170 535
- - ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 41,317 21,733 28,054
- - ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions, net (36,237) (36,545) (17,541)
Acquisition of business assets - (8,800) -
- - ------------------------------------------------------------------------------------------------
Net cash used for investing activities (36,237) (45,345) (17,541)
- - ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 7,552 28,656 1,730
Repayments of long-term debt (7,445) (5,073) (10,286)
Cash dividends paid (1,429) (1,427) (1,411)
Escrow receivable - (653) -
Sale of common stock 79 23 -
- - ------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (1,243) 21,526 (9,967)
- - ------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 3,837 (2,086) 546
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
CASH:
Beginning of year 3,045 5,131 4,585
End of year $ 6,882 $ 3,045 $ 5,131
- - ------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 8,162 $ 6,917 $ 5,683
Income taxes $ 14,415 $ 10,578 $ 9,878
- - ------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
18
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
G&K SERVICES, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
------------------------------------------------------
COMMON STOCK
Class A Class B
------------------------------------------------------ Foreign
Additional Currency
Number of Number of Paid-In Retained Translation
Shares Amount Shares Amount Capital Earnings Adjustment
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JULY 3, 1993 12,305 $6,152 1,243 $ 622 $22,022 $ 64,928 ($3,566)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - - - 14,791 -
Cash dividend
$.025 per share,
pre-split - - - - - (339) -
Common stock split
of 3-for-2 6,152 3,076 622 311 (3,387) - -
Cash dividend
$.0525 per share - - - - - (1,072) -
Sale of restricted stock
to employees, net 41 21 - - 218 - -
Excess of additional
pension liability over
unrecognized prior service
cost related to SERP - - - - - (71) -
Amortization of deferred
compensation - - - - - - -
Foreign Currency
translation adjustment - - - - - - (2,849)
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 2, 1994 18,498 9,249 1,865 933 18,853 78,237 (6,415)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - - - 18,286 -
Cash dividend
$.07 per share - - - - - (1,427) -
Sale of restricted stock
to employees, net 45 23 - - 375 - -
Decrease in excess of additional
pension liability over
unrecognized prior service
cost related to SERP - - - - - 78 -
Amortization of deferred
compensation - - - - - - -
Foreign Currency
translation adjustment - - - - - - 337
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 1, 1995 18,543 9,272 1,865 933 19,228 95,174 (6,078)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - - - 22,720 -
Cash dividend
$.07 per share - - - - - (1,429) -
Sale of restricted stock
to employees, net 22 11 - - 465 - -
Stock options exercised
by employees 7 3 - - 65 - -
B Stock converted to
A Stock 344 172 (344) (172) - - -
Amortization of deferred
compensation - - - - - - -
Foreign Currency
translation adjustment - - - - - - 283
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 29, 1996 18,916 $9,458 1,521 $ 761 $19,758 $116,465 ($5,795)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G&K SERVICES, INC. AND SUBSIDIARIES (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA
AND SHARE DATA)
- - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of G&K Services, Inc. (the Company) and its subsidiaries,
all of which are wholly owned. Significant intercompany balances and
transactions have been eliminated in consolidation.
INVENTORY - New goods inventory is stated at the lower of first-in, first-out
cost or market. Rental merchandise in service is stated at cost less
amortization, which is not in excess of market.
The components of inventory as of June 29, 1996, and
July 1, 1995, are as follows:
1996 1995
- - -------------------------------------------------------
New goods $16,941 $17,561
Rental merchandise in service 35,136 30,986
- - -------------------------------------------------------
$52,077 $48,547
- - -------------------------------------------------------
- - -------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - The Company provides for depreciation on
accelerated methods for income tax purposes and principally on the straight-line
method for financial reporting purposes over the estimated useful lives of
property, plant and equipment.
Costs of significant additions, renewals and betterments, including outside
computer software development costs, are capitalized. When an asset is sold or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts and the gain or loss on disposition is reflected in
earnings. Maintenance and repairs are charged to expense when incurred.
PER SHARE DATA - Net income per share is based on the weighted average number of
shares of common stock outstanding during each year.
INTANGIBLE ASSETS ARISING FROM ACQUISITIONS -
The cost of investment in subsidiaries and divisions in excess of underlying net
assets (goodwill) is amortized over periods ranging from 15 to 40 years. As of
June 29, 1996, and July 1, 1995, accumulated amortization of goodwill was $7,345
and $6,369. Restrictive covenants, stated at cost less accumulated amortization
balances of $9,295 and $8,001 as of June 29, 1996, and July 1, 1995, are being
amortized over the terms of the respective agreements. Customer lists are
amortized over the average life of an account.
EXECUTIVE RETIREMENT PLAN ASSETS - The Company has segregated assets consisting
primarily of common stock and cash equivalents which are stated at their fair
value as determined by quoted market prices, and the cash surrender values of
life insurance policies to fund executive retirement plans. See Note 5.
FOREIGN CURRENCY - For the Company's foreign operations, assets and liabilities
are translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments are recorded as a separate component of stockholders' equity.
20
<PAGE>
INCOME TAXES - The Company and its subsidiaries file a consolidated federal
income tax return and separate state and foreign returns. The Company accounts
for income taxes using the liability method. Deferred income taxes are provided
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities at currently enacted tax rates.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Ultimate results could differ from those
estimates.
RECLASSIFICATIONS - Certain prior period amounts have been reclassified to
conform to the 1996 presentation. These reclassifications have no effect on net
income or total stockholders' equity as previously reported.
RECENT ACCOUNTING PRONOUNCEMENT - The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," effective July 2, 1995.
This standard establishes accounting standards for the recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles, and goodwill either to be held or disposed of. The adoption did
not have a material impact on the financial position or results of operations
of the Company.
- - --------------------------------------------------------------------------------
2. LONG-TERM DEBT
Debt as of June 29, 1996, and July 1, 1995, includes the following:
1996 1995
- - -----------------------------------------------------------------------
Borrowings
under revolving credit agreements
(Revolvers) with interest
approximating prime rate, unsecured
(6.75% to 8.25% at June 29, 1996 and
8.75% to 9.0% at July 1, 1995) $49,409 $41,735
- - -----------------------------------------------------------------------
Senior notes payable to insurance
company at rates ranging from
8.46% to 10.62% due in varying
amounts through 1998, interest
payable semi-annually, unsecured 34,000 40,197
- - -----------------------------------------------------------------------
Industrial development revenue bond
repaid in 1996 - 960
- - -----------------------------------------------------------------------
Restrictive covenants and other debt
due in varying amounts through 2007 783 1,072
- - -----------------------------------------------------------------------
84,192 83,964
- - -----------------------------------------------------------------------
Less current maturities (9,049) (7,445)
- - -----------------------------------------------------------------------
Total long-term debt $76,143 $76,519
- - -----------------------------------------------------------------------
- - -----------------------------------------------------------------------
Under the terms of the Revolvers, as of June 29, 1996, the Company may borrow up
to U.S. $50 million and Canadian (C.) $32 million. The Canadian amount decreases
by C. $375 per quarter. All borrowings under the Revolvers are due in September
1998. The Revolvers also allow the Company to issue up to U.S. $10 million,
within the U.S. $50 million borrowing limit, in standby letters of credit. As of
June 29, 1996, there were approximately $560 in outstanding letters of credit.
Aggregate maturities of long-term debt for each of the five years subsequent to
June 29, 1996, excluding amounts related to the Revolvers, are $9,049, $25,055,
$59, $67, $70, and $483 thereafter.
21
<PAGE>
The Company's debt agreements contain various restrictive covenants which, among
other matters, require the Company to maintain minimum consolidated net worth
levels, as defined, and certain financial ratios. The agreements also limit
additional indebtedness, capital expenditures and cash dividends. As of June 29,
1996, the Company was in compliance with all such covenants.
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities and approximates its
carrying value as of June 29, 1996 and July 1, 1995.
- - --------------------------------------------------------------------------------
3. STOCKHOLDERS' EQUITY
The significant attributes of each class of common stock are as follows: Class
A: Each share is entitled to one vote and is freely transferable. Class B: Each
share is entitled to ten votes and can be converted to Class A common stock on a
share-for-share basis. Until converted to Class A common stock, however, Class B
shares are not freely transferable. No cash dividends can be paid on Class B
common stock unless dividends of at least an equal amount per share are paid on
Class A shares. Substantially all Class B shares are held by officers and
employees of the Company.
SALES OF COMMON STOCK TO EMPLOYEES - During 1996, 1995 and 1994 the Company
sold, net of cancellations, 21,556, 44,856 and 41,315 shares of restricted stock
to key employees at par value. The Company records compensation expense as the
restrictions are removed from the stock for the difference between the par value
and fair market value. As of June 29, 1996, restricted stock totalling $2,445
had been issued but not yet charged to compensation expense. In 1996, 1995 and
1994 the Company issued options to purchase 1,939, 12,124 and 8,750 shares of
Class A common stock at exercise prices ranging from $16.00 to $25.75 per share
vesting through the year 2003. Options totaling 6,841 were exercised during the
year ended June 29, 1996 at prices ranging from $8.92 to $16.50. No options had
been exercised previously. Options expire after a 10-year holding period.
Options outstanding at June 29, 1996 equalled 45,387, at prices ranging from
$7.17 to $25.75. As of June 29, 1996 and July 1, 1995, 15,982 and 12,329 options
were exercisable, respectively.
- - --------------------------------------------------------------------------------
4. INCOME TAXES
The components of the provision for income taxes are
as follows:
---------------------------------
FISCAL YEARS
1996 1995 1994
- - --------------------------------------------------------------------
Current:
Federal $12,671 $7,813 $8,005
State and Local 1,576 1,053 976
Foreign 1,348 2,361 1,637
- - --------------------------------------------------------------------
15,595 11,227 10,618
Deferred: (1,099) 751 (91)
- - --------------------------------------------------------------------
$14,496 $11,978 $10,527
- - --------------------------------------------------------------------
- - --------------------------------------------------------------------
The reconciliation between income taxes using the statutory federal income tax
rate and the recorded income tax provision is as follows:
--------------------------------
FISCAL YEARS
1996 1995 1994
- - --------------------------------------------------------------------
Income taxes at the
U.S. Federal
statutory rate
of 35% $13,027 $10,593 $8,861
State taxes, net of
federal tax benefit 924 768 762
Effect of foreign
tax rates 252 702 493
Effect of permanent
differences, and
other, net 293 (85) 411
- - --------------------------------------------------------------------
Total provision $14,496 $11,978 $10,527
- - --------------------------------------------------------------------
Effective rate 39.0% 39.6% 41.6%
- - --------------------------------------------------------------------
- - --------------------------------------------------------------------
22
<PAGE>
The provision for income taxes includes timing differences of $1,922, $1,526,
and $1,420 for 1996, 1995, and 1994, principally relating to depreciation and
amortization of property, plant and equipment, and the method used in accounting
for employee benefit plans (see Note 5).
Significant components of the Company's deferred tax assets and deferred tax
liabilities as of June 29, 1996 and July 1, 1995, are as follows:
1996 1995
- - --------------------------------------------------------------------
Deferred tax liabilities:
Inventory amortization
differences $(11,141) $(12,337)
Depreciation and property basis
differences (8,349) (10,039)
Other (5,081) (4,618)
- - --------------------------------------------------------------------
Total deferred tax liabilities (24,571) (26,994)
- - --------------------------------------------------------------------
Deferred tax assets:
Net operating loss
carryforwards - Work Wear 0 1,911
Accruals, reserves and other 4,198 4,355
- - --------------------------------------------------------------------
Total deferred tax assets 4,198 6,266
- - --------------------------------------------------------------------
Net deferred tax liability $(20,373) $(20,728)
- - --------------------------------------------------------------------
- - --------------------------------------------------------------------
- - --------------------------------------------------------------------
5. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a noncontributory pension plan (the Plan) covering substantially
all employees, except certain employees who are covered by union administered
plans. Benefits are based on number of years of service and each employee's
compensation near retirement. The Company makes an annual contribution to the
Plan consistent with Federal funding requirements.
The net pension cost in 1996, 1995, and 1994 includes the following components:
1996 1995 1994
- - ----------------------------------------------------------------------------
Service cost - benefits
earned during
the period $952 $767 $727
Interest cost on projected
benefit obligation 887 753 677
Expected return on assets (1,241) (1,074) (1,050)
Amortization of
unrecognized net gain
at June 30, 1985 (121) (97) (120)
- - -----------------------------------------------------------------------------
Net pension cost $477 $349 $234
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
23
<PAGE>
The funded status of the Plan at June 29, 1996, and July 1, 1995, was as
follows:
1996 1995
- - --------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $7,526 $6,672
- - --------------------------------------------------------------
Accumulated benefit obligation 7,930 7,034
- - --------------------------------------------------------------
Projected benefit obligation 12,846 11,203
Plan assets at fair value 15,412 13,903
- - --------------------------------------------------------------
Assets in excess of projected
benefit obligation 2,566 2,700
Unrecognized transition net asset (534) (667)
Unrecognized net gain (2,523) (2,100)
Unrecognized prior service cost 688 741
- - --------------------------------------------------------------
Prepaid pension cost at year-end $197 $674
- - --------------------------------------------------------------
- - --------------------------------------------------------------
The projected benefit obligation was determined using an assumed discount rate
of 8% and an assumed long-term rate of compensation increase of 5%. The assumed
long-term rate of return on plan assets is 9%. Plan assets consist primarily of
common stocks and U.S. Government and corporate obligations.
UNION PENSION PLANS Certain employees of the Company are covered by union
sponsored, collectively bargained, multiemployer pension plans (Union Plans).
The Company contributed and charged to expense $328, $338, and $241 in 1996,
1995, and 1994 for such plans. These contributions are determined in
accordance with the provisions of negotiated labor contracts and generally
are based on the number of hours worked. The Company may be liable for its
share of unfunded vested benefits, if any, related to the Union Plans.
Information from the Union Plans' administrators is not available to permit
the Company to determine its share, if any, of unfunded vested benefits.
401(k) PLAN
All full-time nonunion employees are eligible to participate in a 401(k) plan
after one year of service. The Company matches a portion of the employee's
salary reduction contributions and provides investment choices for the
employee. The matching contributions under the 401(k) plan, which vest over a
seven-year employment period, were $385 in 1996, $268 in 1995, and $225 in
1994.
EXECUTIVE RETIREMENT PLANS
The Company has a nonqualified Supplemental Executive Retirement Plan (SERP) and
a nonqualified Executive Deferred Compensation Plan (DEFCO) to provide
designated executives and professional employees with retirement, death and
disability benefits.
SERP
Annual benefits under the SERP are based on years of service and individual
compensation near retirement. Expense under the SERP for 1996, 1995, and 1994
was $600, $557, and $398. The accumulated benefit obligation, $3,082 as of June
29, 1996, and $2,736 as of July 1, 1995, is included in other noncurrent
liabilities in the accompanying consolidated balance sheets. The Company has
purchased life insurance contracts which may be used to fund the retirement
benefits. The net cash surrender value of the contracts as of June 29, 1996, and
July 1, 1995, was $2,081 and $1,608 and is included in other assets in the
accompanying consolidated balance sheets.
24
<PAGE>
DEFCO PLAN
Under the DEFCO Plan, the Company matches a portion of the employees' salary
reduction contributions and provides a guaranteed investment return which is
adjusted annually. The Company's matching contributions under the DEFCO Plan
were $200 in 1996, $162 in 1995, and $130 in 1994. The accumulated benefit
obligation, $3,114 as of June 29, 1996, and $2,413 as of July 1, 1995, is
included in other noncurrent liabilities in the accompanying consolidated
balance sheets. The Company has purchased investments, including common stock
and cash equivalents, which may be used to fund the retirement benefits. As of
June 29, 1996, and July 1, 1995, the investments had an aggregate market value
of $2,820 and $2,348. These amounts approximate cost and are included in other
assets in the accompanying consolidated balance sheets.
- - --------------------------------------------------------------------
6. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in litigation arising in the ordinary course of
business, including being named, along with other defendants, as a potentially
responsible party at certain waste disposal sites where groundwater
contamination has been detected, or is suspected. In the opinion of management,
settlement of the litigation will not have a material effect on the Company's
annual results of operations or financial position.
- - --------------------------------------------------------------------
7. LEASE COMMITMENTS
The Company has noncancellable operating lease commitments for certain
production and other equipment and delivery facilities which expire on various
dates through 2003. Minimum annual rental commitments at June 29, 1996, for the
fiscal years 1997 through 2001 are $1,992, $1,510, $1,298, $984, and $700. In
accordance with the terms of the lease agreements, the Company is required to
pay real estate taxes and maintenance costs. Total lease expense for fiscal
years 1996, 1995, and 1994 was $3,565, $3,051, and $2,812, respectively.
- - --------------------------------------------------------------------
8. ACQUISITION
In September 1994, the Company purchased certain assets of Bauman Carter
Patterson Corporation (BCP) for $8,800. BCP manufactures industrial and
commercial garments for the Company's own general inventory and for sale to
third parties under contract. The acquisition was accounted for
as a purchase. The purchase price was allocated to current assets ($4,039),
property, plant, and equipment ($2,878), and other noncurrent assets ($1,883).
25
<PAGE>
- - --------------------------------------------------------------------
9. GEOGRAPHIC INFORMATION
Geographic financial information is as follows:
<TABLE>
<CAPTION>
United
(IN THOUSANDS) States Canada Total
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Revenue $ 252,659 $ 52,755 $ 305,414
Income from operations 37,532 7,712 45,244
Total assets 253,520 28,469 281,989
Capital expenditures 29,207 7,030 36,237
Depreciation and amortization expense 16,231 4,174 20,405
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
1995
Revenue $ 214,679 $ 47,802 $ 262,481
Income from operations 29,755 6,348 36,103
Total assets 188,776 64,557 253,333
Capital expenditures 33,679 2,868 36,547
Depreciation and amortization expense 13,656 3,722 17,378
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
1994
Revenue $ 180,776 $ 44,453 $ 225,229
Income from operations 25,321 4,430 29,751
Total assets 132,123 72,941 205,064
Capital expenditures 14,869 2,672 17,541
Depreciation and amortization expense 11,846 3,916 15,762
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
G&K SERVICES, INC. AND SUBSIDIARIES
To G&K Services, Inc.:
We have audited the accompanying consolidated balance sheets of G&K SERVICES,
INC.(a Minnesota corporation) AND SUBSIDIARIES as of June 29, 1996, and July 1,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended June 29,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of G&K Services, Inc. and
Subsidiaries as of June 29, 1996, and July 1, 1995, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended June 29, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
August 30, 1996
27
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the results of operations for each of the quarters
within fiscal years ended June 29, 1996 and July 1, 1995.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) First Second Third Fourth
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues 70,954 75,088 77,478 81,894
Net Income 5,187 5,575 5,712 6,246
Net Income per share $0.25 $0.27 $0.28 $0.31
Dividends per share $0.0175 $0.0175 $0.0175 $0.0175
- - ------------------------------------------------------------------------------------------------------------
1995
Revenues 60,553 65,554 66,719 69,676
Net Income 4,358 4,648 4,419 4,861
Net Income per share $0.21 $0.23 $0.22 $0.24
Dividends per share $0.0175 $0.0175 $0.0175 $0.0175
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
RANGE OF STOCK PRICES
<TABLE>
<CAPTION>
High Low
- - -----------------------------------------------------
<S> <C> <C>
FISCAL 1996
1st Quarter 25 18 3/4
2nd Quarter 25 3/4 22 1/4
3rd Quarter 28 23 3/8
4th Quarter 32 26 1/4
- - -----------------------------------------------------
FISCAL 1995
1st Quarter 16 1/4 13
2nd Quarter 17 14 3/4
3rd Quarter 18 1/2 15 1/2
4th Quarter 19 1/2 17 3/4
- - -----------------------------------------------------
</TABLE>
RETURN TO G&K INVESTORS VERSUS S&P 500
The chart below shows the total value generated by an initial investment of
$100 in G&K Services, including stock price appreciation and the reinvestment
of dividend payments, compared to an equivalent investment in the Standard &
Poor's 500 common stock index.
During fiscal 1996, an investment in G&K's stock produced a total return of
46.6% compared with 26.0% for the Standard & Poor's 500. Over the ten-year
period ended June 29, 1996, G&K generated a compound annual rate of return of
24.4% compared with 13.8% for the Standard and Poor's 500.
[EDGAR REPRESENTATION OF PLOT POINTS FOR BAR CHARTS]
G&K SERVICES
(VALUE OF $100
INVESTMENT OVER
10 YEARS)
S&P 500................. $363
G&K..................... $886
28
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF G&K SERVICES, INC.
G&K Services, Co. (incorporated in Minnesota, U.S.A.)
Northwest Linen Co. (incorporated in Minnesota, U.S.A.)
Gross Industrial Towel & Garment Service, Inc. (incorporated in Minnesota,
U.S.A.)
G&K Services of Canada, Inc. (incorporated in Ontario, Canada)
912489 Ontario Limited (incorporated in Ontario, Canada)
Work Wear Corporation of Canada, Ltd. (incorporated in Ontario, Canada)
La Corporation Work Wear du Quebec (incorporated in Quebec, Canada)
15
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated AUGUST 30, 1996 included in the
Company's 1996 Annual Report to Shareholders. It should be noted that we have
not audited any financial statements of the company subsequent to June 29, 1996
or performed any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
----------------------------------
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
SEPTEMBER 26, 1996
16
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
of G&K SERVICES, INC., a Minnesota corporation (the "Company"), hereby
constitute and appoint RICHARD FINK and STEPHEN LaBELLE, and each or any of
them, his true and lawful attorneys-in-fact and agents, for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and file the Annual Report of the Company and Form 10-K for the year
ended June 29, 1996, to be filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 including any amendment or amendments, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys full power and
authority to do and perform each and every thing, requisite and necessary to be
done in and about the premises in order to execute the same as fully to all
intents and purposes as he, himself, might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or could cause to be done by virtue hereof.
IN WITNESS WHEREOF, G&K SERVICES, INC. has caused this Power of Attorney
to be executed in its name by its directors this 29 DAY OF AUGUST 1996.
/s/Richard Fink /s/Donald Goldfus
- - --------------------------- -----------------------------
Richard Fink Donald Goldfus
/s/Bruce Albright /s/William Hope
- - --------------------------- -----------------------------
Bruce Allbright William Hope
/s/Paul Baszucki /s/Bernard Sweet
- - --------------------------- -----------------------------
Paul Baszucki Bernard Sweet
/s/Wayne Fortun
- - ---------------------------
Wayne Fortun
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> JUN-29-1996
<CASH> 6,882
<SECURITIES> 0
<RECEIVABLES> 37,972
<ALLOWANCES> (1,276)
<INVENTORY> 52,077
<CURRENT-ASSETS> 99,650
<PP&E> 225,065
<DEPRECIATION> (92,167)
<TOTAL-ASSETS> 281,989
<CURRENT-LIABILITIES> 49,813
<BONDS> 0
0
0
<COMMON> 10,219
<OTHER-SE> 130,427
<TOTAL-LIABILITY-AND-EQUITY> 281,989
<SALES> 10,226
<TOTAL-REVENUES> 305,414
<CGS> 8,079
<TOTAL-COSTS> 260,170
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 2,117
<INTEREST-EXPENSE> 7,964
<INCOME-PRETAX> 37,216
<INCOME-TAX> 14,496
<INCOME-CONTINUING> 22,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,720
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
