Item 1.01. Entry Into a Material Definitive Agreement.
Merger Agreement
On
August 15, 2016, G&K Services, Inc. (the
Company
), Cintas Corporation, a Washington corporation (
Parent
), and Bravo Merger Sub, Inc., a Minnesota corporation and a wholly owned subsidiary of Parent
(
Merger Sub
), entered into an Agreement and Plan of Merger, pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company (the
Merger
). As a
result of the Merger, Merger Sub will cease to exist and the Company will survive as a wholly owned subsidiary of Parent.
Pursuant to the Merger Agreement, upon the consummation of the Merger (the
Effective Time
), (i) each share
of common stock of the Company (
Class A Common Stock
), issued and outstanding immediately prior to the Effective Time (other than dissenting shares and shares held by the Company or any direct or indirect wholly owned subsidiary
of the Company or Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent) will be converted into the right to receive $97.50 in cash (the
Per Share Merger Consideration
), (ii) each option to purchase
shares of Class A Common Stock granted under any of the Companys stock plans (each, a
Company Option
) that is outstanding and unexercised (whether vested or unvested) immediately prior to the Effective Time will be canceled
and exchanged for the right to receive a cash payment equal to the product of (x) the total number of shares of Class A Common Stock subject to such Company Option and (y) the excess, if any, of the Per Share Merger Consideration over the
exercise price per share of Class A Common Stock subject to such Company Option, (iii) each restricted stock unit award under any of the Companys stock plans that is outstanding immediately prior to the Effective Time will become fully vested
and be converted into the right to receive an amount in cash equal to the Per Share Merger Consideration (with the number of shares subject to each outstanding restricted stock unit being subject to performance-based vesting criteria being
determined based on target level of achievement of applicable performance goals, if applicable) and (iv) each award of a right under any of the Companys stock plans entitling the holder thereof to shares of Class A Common Stock or cash equal
to or based on the value of shares of Class A Common Stock (other than Company Options or restricted stock units) that is outstanding or payable as of the Effective Time will be cancelled and terminated and be converted into the right to receive an
amount in cash equal to the Per Share Merger Consideration (with the number of shares subject to each such award being subject to performance-based vesting criteria being determined based on target level of achievement of applicable performance
goals, if applicable), in each case, less any required withholding taxes and without interest. Parent expects to fund the Per Share Merger Consideration with new debt incurred pursuant to a debt financing commitment letter.
The Companys Board of Directors (the
Company Board
), unanimously (of those present) (i) approved the
Merger Agreement and the transactions contemplated therein, including the Merger, and (ii) recommended that the Companys shareholders vote to approve the Merger and adopt of the Merger Agreement.
The consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including (i) the
adoption of the Merger Agreement by the holders of a majority of the outstanding Class A Common Stock entitled to vote thereon, (ii) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the
HSR Act
), and the requisite approval from the Competition Bureau of Canada pursuant to the Canada Competition Act being obtained, (iii) no court or government order enjoining or otherwise prohibiting
the consummation of the Merger, (iv) the absence of a material adverse effect with respect to the Company and (v) other customary closing conditions, including (x) the accuracy of the representations and warranties of the other party contained
in the Merger Agreement (subject to certain specified standards) and (y) the performance in all material respects by the other party of its obligations under the Merger Agreement. There is no financing condition to the obligation to consummate the
Merger.
The Merger Agreement contains customary representations and warranties and covenants of the Company, Parent and
Merger Sub. In addition to the covenants described below, these covenants include interim operating covenants that, subject to certain exceptions, (i) require the Company (and its subsidiaries) to operate in the ordinary course of business
consistent with past practice and in compliance with applicable law, (ii) require the Company and Parent to use reasonable best efforts to obtain the required antitrust approvals and (iii) restrict the Companys ability to take certain actions
prior to the Effective Time without Parents consent (which consent shall not be unreasonably
withheld, delayed or conditioned). Among other things, Parent has also agreed to use reasonable best efforts to obtain the debt financing contemplated by a debt financing commitment letter.
Subject to certain exceptions with respect to unsolicited proposals, the Merger Agreement prohibits the Company and its
representatives from soliciting, directly or indirectly, alternative acquisition proposals from third parties, including proposals for transactions that, if consummated (whether in a single transaction or a series of related transactions), would
result in a person or group acquiring (i) 15% or more of the total voting power or economic interest in any class of equity securities of the Company or any of its material subsidiaries or (ii) 15% or more of the consolidated total assets of the
Company and its subsidiaries taken as a whole (an
Acquisition Proposal
). The Merger Agreement restricts the ability of the Company and its representatives to furnish non-public information to, or to participate in any discussions
or negotiations with, any third party with respect to any Acquisition Proposal, subject to certain limited exceptions.
However, any time prior to receipt of the requisite shareholder approval, in certain circumstances and after following certain
procedures set forth in the Merger Agreement, the Company Board is permitted to change its recommendation to the Companys shareholders in response to (i) an unsolicited Acquisition Proposal that the Company Board has concluded in good faith
after consultation with the Companys outside counsel and financial advisors is a superior proposal (taking into account all amendments or revisions to the Merger Agreement proposed by Parent) or (ii) in response to an intervening event, in
each case, if the Company Board has concluded in good faith after consultation with the Companys outside counsel and financial advisors that the failure of the Company Board to make such change of recommendation would be inconsistent with the
directors fiduciary duties under applicable legal requirements.
In addition, at any time prior to the receipt of the
requisite shareholder approval, in certain circumstances and after following certain procedures set forth in the Merger Agreement, the Company Board may terminate the Merger Agreement in connection with an unsolicited Acquisition Proposal that the
Company Board has concluded in good faith after consultation with the Companys outside counsel and financial advisors is a superior proposal (taking into account all amendments or revisions to the Merger Agreement proposed by Parent) if, the
Company, as a condition to such termination, pays the termination fee (described below) prior to or at the time of termination.
The Merger Agreement also contains certain termination rights for both the Parent and the Company, including the ability of
either Parent or the Company (subject to certain exceptions) to terminate the Merger Agreement if (i) the Merger is not consummated within twelve months of the date of the Merger Agreement (extendable up to fifteen months by either party under
certain conditions) (as such date may be extended, the
End Date
), (ii) a governmental authority issues an order enjoining or otherwise prohibiting the Merger or (iii) the Companys shareholders do not approve the Merger
Agreement.
In connection with the termination of the Merger Agreement under specified circumstances, the Company may be
required to pay Parent a termination fee of $60.0 million (including in the event (a) the Company terminates the Merger Agreement in connection with a superior proposal or (b) Parent terminates the Merger Agreement (i) following an adverse
recommendation change by the Company Board, (ii) if the Company Board fails to reaffirm its recommendation to shareholders, or (iii) if the Company Board fails to recommend against a competing tender offer or exchange offer). The Company may also be
required to pay Parent the termination fee (described above) if the Merger Agreement is terminated because (a)(i) the Companys shareholders do not approve the Merger or (ii) the Company breached the Merger Agreement, which resulted in its
failure to meet a closing condition, (b) an alternative proposal was made prior to the date of termination and (c) within twelve months after termination of the Merger Agreement, the Company enters into a definitive agreement, or consummates an
alternative proposal.
In addition, under specified circumstances, Parent may be required to pay the Company a termination
fee of $100.0 million in the event the Merger Agreement is terminated by either Parent or the Company (i) following a court or government order relating to the HSR Act or another antitrust law or regulation that enjoins or otherwise prohibits the
consummation of the Merger or (ii) if the Merger is not consummated by the End Date, provided all of the conditions to closing are satisfied or are then capable of being satisfied, other than the conditions that (x) all required antitrust regulatory
approvals have been obtained and (y) there is no court or government order enjoining or otherwise prohibiting the consummation of the Merger (but only to the extent such order relates to the HSR Act or another antitrust law or regulation).
The foregoing description of the Merger Agreement and the transactions
contemplated thereby does not purport to be complete and is subject, and qualified in its entirety by reference, to the full text of the Merger Agreement, which is attached as Exhibit 2.1 and is incorporated herein by reference. The representations
and warranties contained in the Merger Agreement were made only for the purposes of the Merger Agreement as of specific dates, are solely for the benefit of the parties, and may have been qualified by certain disclosures between the parties and a
contractual standard of materiality different from those generally applicable to investors or shareholders, among other limitations. The representations and warranties were made for the purposes of allocating contractual risk between the parties to
the Merger Agreement and should not be relied upon as a disclosure of factual information relating to the Company or Parent. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the
date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures.