UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended February 4, 1995
COMMISSION FILE NUMBER 1-10204
------------------------------
CPI CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1256674
(State of Incorporation) (I.R.S. Employer
Identification No.)
1706 WASHINGTON AVENUE
ST. LOUIS, MISSOURI 63103-1790
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 231-1575
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------ -----------------------
Common Stock $.40 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR
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 _____.
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 _____ NO __X__.
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the
New York Stock Exchange - Composite Transaction Listing on
May 2, 1995 ($17.000 per share): $224,699,013.
As of May 2, 1995, 13,862,985 shares of the Common Stock,
$0.40 par value, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the year ended
February 4, 1995, are incorporated by reference into Parts I, II
and IV of this Report.
Portions of the Proxy Statement relating to the Annual Meeting
of Shareholders to be held June 13, 1995, are incorporated by
reference into Part III of this Report.
<PAGE>
TABLE OF CONTENTS
PART I
- ------
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Disagreements on Accounting and Financial Disclosure
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
Signatures
<PAGE>
ITEM I. BUSINESS
THE COMPANY
- -----------
CPI Corp. is a holding company engaged, through its
subsidiaries, in developing and marketing consumer services and
related products through a network of centrally-managed, small
retail locations. The Company operates professional portrait
studios, photographic finishing laboratories, electronic publishing
stores and wall decor locations.
The Company started up its photo finishing business in 1982.
On August 19, 1991, the Company acquired Fox Photo, Inc., and on
December 1, 1992, the Company purchased the operational assets of
Pemtom, Inc., a Minneapolis-based company operating under the name
Proex. At February 4, 1995, the Company operated 660 photo-
finishing locations under the names of CPI Photo Finish, Fox Photo
and Proex.
On May 30, 1993, CPI Corp. entered the wall decor business
with the acquisition of Ridgedale Prints Plus, Inc. ("Prints Plus")
from the Melville Corporation. Prints Plus is a posters, prints
and custom framing retail chain with 120 stores located in malls
throughout the United States.
For the fiscal year ended February 4, 1995, approximately 52%
of net sales and 86% of operating earnings (before deduction of
general corporate expenses, net interest income (expense), other
income and income tax expense) were derived from the Sears Portrait
Studio business. The Company has operated portrait studios as a
Sears Roebuck and Company ("Sears") licensee since 1961, when it
was one of more than 15 Sears portrait photography licensees.
Today, the Company is the only operator of Sears Portrait Studios
in the United States, Canada and Puerto Rico. The Company is
materially dependent upon the continued goodwill of Sears and the
integrity of the Sears name in the retail marketplace. The Company
believes that its relationship with Sears is excellent and that it
has been beneficial to both companies. See "Business-Relationship
With Sears."
The executive office is located at 1706 Washington Avenue, St.
Louis, Missouri, 63103-1790, and its telephone number is (314) 231-
1575. Unless the context otherwise requires, references herein to
the "Company" or "CPI Corp." mean CPI Corp., its consolidated
subsidiaries and their predecessor companies.
RELATIONSHIP WITH SEARS
- -----------------------
The Company operates its Sears Portrait Studio business under
a license agreement. The agreement is terminable by either the
Company or Sears with respect to any or all studios upon 90-days
notice. Early in 1993, Sears announced plans to close 113 stores,
<PAGE>
which included 38 Sears stores with portrait studios. The Company
has relocated some of these studios to new sites in the same market
areas. Except in connection with store closings, Sears has never
terminated the operation of any Company studio under any license
agreement. The relationship with Sears is long-standing and the
Company has no reason to believe that Sears will exercise its
rights under the agreement to reduce materially the scope of the
Company's business with Sears.
The Company and Sears entered into its current license
agreement for fixed location studios as of January 1, 1994. This
agreement expires on December 31, 1998. The agreement provides
that the Company pay Sears a license fee of 15% of total annual net
sales for studios located in a Sears store. Net sales are defined
as gross sales less customer returns, allowances and sales taxes.
The Company provides all studio furniture, equipment and fixtures,
conducts advertising at its own expense, and is responsible for
hiring, training and compensating the Company employees and must
indemnify Sears against all said employee claims.
The Company's freestanding studios in retail malls that
operate under the Sears name pay a license fee of 7.5% of total
annual net sales per studio and benefit from advertising under the
Sears name.
All of the Company's Canadian studios operate under an April
6, 1977, nonexclusive license agreement with Sears Canada, Inc.,
which is a subsidiary of Sears. The agreement renews automatically
on a year-to-year basis but is terminable by either party on 60
days' notice. The license fee is 15% of net sales. The Company
provides all studio furniture, equipment and fixtures and conducts
all advertising at its own expense.
As a Sears licensee, the Company enjoys the benefits of its
use of the Sears name, Sears' daily cashiering and bookkeeping
system, store security services and customers' ability to use their
Sears credit cards to purchase the Company's products or services,
for which Sears bears the credit risk of authorized credit card
use. The Company is also able to place its portrait studio print
media advertising under the Sears name at rates lower than those
the Company could otherwise obtain.
COMPETITION
- -----------
The Company competes in the portrait photography business with
a number of companies that operate fixed location, traveling and
freestanding photography studios. Independent professional photo-
graphers also compete with the Company in various locations. The
Company believes that its portrait photography products are
competitive in terms of price, quality and convenience of purchase
with similar products of its competitors.
<PAGE>
Other national, regional and local companies operate rapid
photographic finishing laboratories that compete in local markets
with the laboratories that the Company is operating. The Company
has identified two principal kinds of competitors - independent
entrepreneur/franchisees who own their minilabs and other major
photofinishers. The Company believes that the quality of its
products enables it to compete successfully and that its marketing
strategy permits effective competition with the other major
photofinishers. The Company enhances the quality of its products
by carefully training and supervising minilab technicians and by
using quality control checks during the photo development and
printing process. While it is felt that the Company competes
successfully in terms of quality, photofinishers who use the
services of a mass production lab are able to finish photographs in
large volume which enables them to sell their photofinishing
services at a lower price. To compete with the other major
photofinishers, the Company has developed a marketing strategy of
locating minilabs in regional retail malls and strip shopping
centers convenient to their target customers, quality-conscious
35mm camera users. In addition, by locating these minilabs in a
number of locations in select metropolitan areas, the Company also
benefits from area-wide marketing and supervision.
The Company competes with numerous national, regional and
local framing retailers serving the wall decor segment of the home
furnishings market. The primary competitors in this business are
franchise locations, small regional chains and many individual
stores which focus on custom framing. Other competitors in this
segment include mass merchants and other specialty home furnishings
stores which offer a fixed selection of pre-framed prints. The
Company believes it competes successfully in this segment by
offering a large selection of prints and frames, fast custom
framing service and very competitive pricing.
The Company's primary competition in the electronic publishing
business is highly fragmented among franchise locations and
numerous individual, owner-operated locations which provide
printing and copy services throughout the United States. The
Company believes it provides efficient, personal service because of
more convenient access to its full range of state-of-the-art
copying equipment.
SUPPLIER RELATIONSHIPS
- ----------------------
The Company purchases photographic paper and film for its
studio and minilab operations primarily from one major
manufacturer. The Company purchases camera, printing, minilab,
reprographic and other equipment and supplies from a number of
suppliers and is not dependent upon any supplier for any specific
kind of equipment. The Company has had no difficulty in the past
obtaining sufficient material to conduct its businesses. The
Company believes that its relations with its suppliers are good.
<PAGE>
SEASONALITY
- -----------
The Company's professional portrait photography business is
seasonal, with the largest volume of sales occurring in the third
and fourth fiscal quarters during the periods preceding and
including the Thanksgiving/Christmas season. The photofinishing
business seasonality is reflected in sales increases in the second
quarter of the fiscal year, in the Thanksgiving/Christmas season
and in sales decreases in the first quarter of the fiscal year.
The seasonality of the wall decor business is exhibited by
increased sales in the fourth fiscal quarter as well.
EMPLOYEES
- ---------
At February 4, 1995, the Company had approximately 12,400
employees, of whom approximately 6,100 were part-time. The
Company's employees significantly increase in number during peak
periods and, at December 17, 1994, the Company had approximately
16,500 employees. The Company's employees are not members of any
union and the Company has experienced no work stoppages. The
Company believes that its relations with its employees are good.
ADDITIONAL INFORMATION REQUIRED UNDER THIS ITEM IS CONTAINED IN
THE REGISTRANT'S 1994 ANNUAL REPORT TO SHAREHOLDERS, EXHIBIT 13 OF
THIS FILING, IN THE DISCUSSION OF THE COMPANY'S BUSINESS SEGMENTS
AND KEY OPERATING UNITS.
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information concerning
the Company's principal facilities:
<TABLE>
Principal Facilities
<CAPTION>
APPROXIMATE
AREA IN PRIMARY OWNERSHIP
LOCATION SQUARE FEET USES OR LEASE
- ------------------- ------------ ------------------ ----------
<S> <C> <C> <C>
St. Louis, Missouri 312,600 Administration and Owned
Photoprocessing
St. Louis, Missouri 79,800 Warehousing Leased (1)
St. Louis, Missouri 44,300 Warehousing Leased (2)
Brampton, Ontario 40,000 Administration, Owned
Warehousing and
Photoprocessing
Las Vegas, Nevada 12,200 Photoprocessing Leased (3)
Thomaston, Connecticut 25,000 Administration and Owned
Photoprocessing
Edina, Minnesota 29,000 Administration, Leased (4)
Warehousing and
Photoprocessing
Concord, California 43,000 Administration, Leased (5)
Warehousing and
Manufacturing
New Castle, Delaware 16,200 Warehousing Leased (6)
<FN>
(1) Lease term expires on June 30, 1997.
(2) Lease term expires on February 28, 1997.
(3) Lease term expires on July 31, 1996.
(4) Lease term expires on March 30, 1999.
(5) Lease term expires on March 31, 2002.
(6) Lease term expires on December 14, 1995
</FN>
</TABLE>
The Company operates its portrait studios in Sears stores
pursuant to the license agreement with Sears. See "Relationship
with Sears." The Company's other portrait studios, which are
located in shopping centers, are generally leased for at least
<PAGE>
three years with some having renewal options. The Company's
minilab locations generally are leased for terms of three to seven
years and some have one or more renewal options. The electronic
publishing locations are generally leased for terms of five to
seven years with one or more renewal options and are commonly
situated in office buildings, multi-use complexes or downtown
locations. The wall decor locations are generally in enclosed
regional malls with lease terms of ten years without renewal
options.
On an ongoing basis, the Company analyzes the use of its
facilities to assure operating economies, effective servicing of
its customers and necessary flexibility to meet present and future
demands of its businesses.
ITEM 3. LEGAL PROCEEDINGS
There are various suits pending against the Company, none of
which is material in nature. It is the opinion of management that
the ultimate liability, if any, resulting from such suits will not
materially affect the consolidated financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders for a vote during
the fourth quarter of fiscal year 1994.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information required under this Item is contained in the
Registrant's 1994 Annual Report to Shareholders, Exhibit 13 of
this filing, in the section titled "Selected Quarterly Financial
Data," and will be contained in the Registrant's 1995 Proxy
Statement, to be dated within 120 days of the end of the
Registrant's fiscal year 1994, and is incorporated herein by
reference.
As of April 17, 1995, the market price of the Registrant's
common stock was $17.625 per share with 13,862,985 shares
outstanding and approximately 2,276 holders of record.
ITEM 6. SELECTED FINANCIAL DATA
Information required under this Item is contained in the
Registrant's 1994 Annual Report to Shareholders, Exhibit 13 of
this filing, in the section titled "Financial Background and
Trends," and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required under this Item is contained in the
Registrant's 1994 Annual Report to Shareholders, Exhibit 13 of
this filing, in the section titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required under this Item is contained in the
Registrant's 1994 Annual Report to Shareholders, Exhibit 13 of
this filing, in the sections titled "Consolidated Balance Sheets,"
"Consolidated Statements of Earnings," "Consolidated Statement of
Changes in Stockholders' Equity," "Consolidated Statement of Cash
Flows," "Notes to Consolidated Financial Statements" and
"Selected Quarterly Financial Data," and is incorporated herein
by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the
Registrant's 1995 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1994, and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the
Registrant's 1994 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1994, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required under this Item will be contained in the
Registrant's 1995 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1994, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Index to Certain Documents
(1) Independent Auditor's Reports
These reports are included in this filing under the sections
titled "Independent Auditors' Report" in this Form 10-K and
"Exhibit 13" (under the title "Independent Auditors' Report"
in the Registrant's 1994 Annual Report to Shareholders), and
are incorporated herein by reference.
(2) Financial Statements:
(a) Consolidated Balance Sheets as of as of February 4, 1995
and February 5, 1994
(b) Consolidated Statements of Earnings for the fiscal years
ended February 4, 1995, February 5, 1994 and
February 6, 1993
(c) Consolidated Statements of Changes in Stockholder's
Equity for the fiscal years ended February 4, 1995,
February 5, 1994 and February 6, 1993
(d) Consolidated Statements of Cash Flows for the fiscal
years ended February 4, 1995, February 5, 1994 and
February 6, 1993
Information required under these items is contained in the
Registrant's 1994 Annual Report to Shareholders, Exhibit 13
of this filing, under the sections titled "Consolidated
Balance Sheets," "Consolidated Statement of Earnings,"
"Consolidated Statements of Changes in Stockholders'
Equity," and "Consolidated Statements of Cash Flows," and
is incorporated herein by reference.
(3) Notes to Consolidated Financial Statements
This information is included in the Registrant's 1994 Annual
Report to Shareholders, Exhibit 13 of this filing, under
the section titled "Notes to Consolidated Financial
Statements," and is incorporated herein by reference.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (Continued)
(4) Financial Statement Schedules
II. Valuation and Qualifying Accounts
This information is included in this filing under the
section titled "Schedule II" in this Form 10-K, and is
incorporated herein by reference.
All other schedules and notes under Regulation S-X are
omitted because they are either not applicable, not
required or the information called for therein appears in
the consolidated financial statements of notes thereto.
(b) Reports on Form 8-K
On December 22, 1994, the Company filed a report on Form 8-K
with an attached press release announcing: a third quarter
increase in sales of 20.7%; a third quarter increase in
earnings per share; the Company does not expect to achieve
most recent full-year earnings projection.
(c) Index to Exhibits
EXHIBIT 3. ARTICLES OF INCORPORATION AND BYLAWS
Information required by this Exhibit 3 is incorporated by reference
to the below listed documents with corresponding filing date and
registration or Commission file numbers where applicable.
<TABLE>
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- ----------------------------- ------------- -------- -----------
<S> <C> <C> <C>
(a) Articles of Incorporation Annual Report 4/30/90 1-10204
on Form 10-K
dated 4/27/90
(b) Bylaws Annual Report 4/30/90 1-10204
on Form 10-K
dated 4/27/90
(c) Amendment to Bylaws Annual Report 5/4/94 1-10204
on Form 10-K
dated 4/6/94
</TABLE>
<PAGE>
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES
Information required by this Exhibit 4 is incorporated by reference
to the below listed documents with corresponding filing date and
registration or Commission file numbers where applicable.
<TABLE>
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- ----------------------------- ------------- -------- -----------
<S> <C> <C> <C>
(a) Articles of Incorporation Annual Report 4/30/90 1-10204
and Bylaws on Form 10-K
dated 4/27/90
(b) Note Agreement for Series Form 10-Q 9/3/93 1-10204
A Senior Notes Due August
31, 2000 and Series B
Notes Due August 31, 2000
(c) Pledge Agreement Form 10-Q 9/3/93 1-10204
(d) Collateral Agency and Form 10-Q 9/3/93 1-10204
Intercreditor Agreement
(e) Series A Senior Note Due Form 10-Q 9/3/93 1-10204
August 31, 2000, No. R-A1
(f) Series B Senior Note Due Form 10-Q 9/3/93 1-10204
August 31, 2000, No. R-B1
(g) Series B Senior Note Due Form 10-Q 9/3/93 1-10204
August 31, 2000, No. R-B2
(h) Revolving Credit Agreement Form 10-Q 9/3/93 1-10204
(i) Revolving Credit Note Form 10-Q 9/3/93 1-10204
(j) CPI Corp. Shareholder Form 8-A 5/2/89 -
Rights Plan
(k) First Amendment to CPI Form 10-Q 9/3/93 1-10204
Corp. Shareholder Rights
Plan
(l) Second Amendment to CPI Annual Report 5/4/94 1-10204
Corp. Shareholder Rights on Form 10-K
Plan dated 4/6/94
</TABLE>
<PAGE>
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- ----------------------------- ------------- -------- -----------
<S> <C> <C> <C>
(m) First Amendment to Form 10-Q 9/2/94 1-10204
Revolving Credit Agreement
dated 6/14/94
(n) Second Amendment to Annual Report 12/22/94 1-10204
Revolving Credit Agreement on Form 10-K
dated 11/9/94 dated 4/6/94
(o) First Amendment to Note Form 10-Q 9/2/94 1-10204
Agreement dated 2/24/94
(p) Second Amendment to Note Form 10-Q 9/2/94 1-10204
Agreement dated 6/14/94
</TABLE>
EXHIBIT 10. MATERIAL CONTRACTS
(10.1) Contract with Sears Roebuck and Co.
(10.2) Employment Contract - Alyn V. Essman
(10.3) Employment Contract - Russell H. Isaak
(10.4) Employment Contract - Patrick J. Morris
(10.5) Employment Contract - David E. April
(10.6) Employment Contract - Barry C. Arthur
(10.7) Employment Contract - Jane E. Nelson
(10.8) Employment Contract - Fran Scheper
Additional information required by this Exhibit 10 is incorporated
by reference to the below listed documents with corresponding
filing date and registration or Commission file numbers where
applicable.
<PAGE>
<TABLE>
EXHIBIT 10. MATERIAL CONTRACTS (CONTINUED)
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- ----------------------------- ------------- -------- -----------
<S> <C> <C> <C>
(a) CPI Corp. 1981 Stock Annual Report 5/5/93 1-10204
Bonus Plan (As Amended on Form 10-K,
and Restated on 2/3/91) dated 4/30/93
(b) Deferred Compensation Annual Report 5/1/92 1-10204
and Stock Appreciation on Form 10-K,
Rights dated 4/24/92
(c) Employment Termination Annual Report 5/1/92 1-10204
Agreement - S. Coovert on Form 10-K,
dated 4/24/92
(d) CPI Corp. Restricted Annual Report 5/1/92 1-10204
Stock Plan on Form 10-K,
dated 4/24/92
(e) Deferred Compensation Annual Report 5/1/92 1-10204
and Retirement Plan for on Form 10-K,
Non-Management Directors dated 4/24/92
(f) CPI Corp. Stock Option Form S-8 7/28/92 33-50082
Plan (As Amended and
Restated effective 2/2/92)
(g) Registration of Form 8-A 3/21/89 -
Securities on the New
York Stock Exchange
(h) CPI Corp. Shareholder Exhibit to 5/2/89 -
Rights Plan Form 8-A
(i) CPI Voluntary Stock Form D 3/31/93 -
Option Plan
(j) First Amendment to CPI Form 10-Q 9/3/93 1-10204
Corp. Shareholder Rights
Plan
(k) Second Amendment to CPI Annual Report 5/4/94 1-10204
Corp. Shareholder Rights on Form 10-K
Plan dated 4/6/94
</TABLE>
<PAGE>
EXHIBIT 11. COMPUTATION OF EARNINGS PER COMMON SHARE
EXHIBIT 13. 1994 ANNUAL REPORT TO SHAREHOLDERS
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 23. INDEPENDENT AUDITORS' CONSENT
EXHIBIT 27. FINANCIAL DATA SCHEDULE
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
CPI CORP.
BY: /s/ Alyn V. Essman
-------------------------
(Alyn V. Essman)
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
Signatures of Directors and Principal Officers
<CAPTION>
Signature Title Date
- ------------------- ------------------------ -------------
<S> <C> <C>
/s/ Alyn V. Essman Chairman of the Board, April 6, 1995
- ----------------------- Chief Executive Officer
(Alyn V. Essman) and Director (Principal
Executive Officer)
/s/ Milford Bohm Director April 6, 1995
- -----------------------
(Milford Bohm)
/s/ Mary Ann Krey Director April 6, 1995
- -----------------------
(Mary Ann Krey)
/s/ Lee Liberman Director April 6, 1995
- -----------------------
(Lee Liberman)
/s/ Nicholas L. Reding Director April 6, 1995
- -----------------------
(Nicholas L. Reding)
/s/ Martin Sneider Director April 6, 1995
- -----------------------
(Martin Sneider)
/s/ Robert L. Virgil Director April 6, 1995
- -----------------------
(Robert L. Virgil)
/s/ Russell Isaak President April 6, 1995
- -----------------------
(Russell Isaak)
/s/ Patrick J. Morris Senior Executive April 6, 1995
- ----------------------- Vice President
(Patrick J. Morris)
/s/ David E. April Senior Executive April 6, 1995
- ----------------------- Vice President
(David E. April)
/s/ Barry C. Arthur Vice President and April 6, 1995
- ----------------------- Treasurer (Principal
(Barry C. Arthur) Financial and
Accounting Officer)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CPI Corp.:
Under date of April 6, 1995, we reported on the consolidated
balance sheets of CPI Corp. and subsidiaries as of February 4, 1995
and February 5, 1994, and the related consolidated statements of
earnings, changes in stockholders' equity, and cash flows for each
of the fiscal years in the three-year period ended February 4,
1995, as contained in the 1994 annual report to stockholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K of CPI
Corp. for the 1994 fiscal year. In connection with our audits of
the aforementioned consolidated financial statements, we have also
audited the related financial statement schedule as listed in the
accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statement schedule based
on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG PEAT MARWICK LLP
St. Louis, Missouri
April 6, 1995
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
CPI CORP. CONSOLIDATED ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
FISCAL YEARS ENDED FEBRUARY 4, 1995, FEBRUARY 5, 1994
AND FEBRUARY 6, 1993
<CAPTION>
FEBRUARY 4, FEBRUARY 5, FEBRUARY 6,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning
of year $ 918,346 $ 1,042,101 $ 1,070,092
============ ============ ============
Balance at end
of year $ 1,277,094 $ 918,346 $ 1,042,101
============ ============ ============
</TABLE>
The majority of receivable amounts are due from Sears for
amounts collected or to be collected by it, for which Sears assumes
all credit risks.
The receivable balances for which an allowance for
uncollectible receivables is established relate primarily to sales
recorded through use of Company commercial charge accounts for
photofinishing and other products and services.
The majority of the allowance for uncollectible receivables is
computed and adjusted every four weeks based on a predetermined
percentage of the related receivable balances. These percentages
are determined using historical results adjusted for current
economic conditions. As a result, the Company does not record
separate additions or deductions to the allowance for individual
accounts but rather adjusts every four weeks for the net change in
the computed allowance based on gross receivable balances.
EXHIBIT (10.1)
MATERIAL CONTRACT
Contract with Sears, Roebuck and Co.
<PAGE>
LICENSE AGREEMENT
PORTRAIT STUDIO
FINITE 195-0
THIS LICENSE AGREEMENT (hereinafter referred to as
"Agreement") is entered into as of the 1st day of January, 1994,
by SEARS, ROEBUCK AND CO., a New York corporation ("Sears") and
CONSUMER PROGRAMS INCORPORATED a Missouri corporation,
("Licensee").
Sears and Licensee hereby agree as follows:
LICENSE
- -------
1. Licensee is in the business described in this paragraph,
and has expertise in that business and has a marketing plan for
that business. Sears hereby grants Licensee the non-exclusive
privilege of conducting and operating, and Licensee shall conduct
and operate, pursuant to the terms, provisions and conditions
contained in this Agreement, a licensed business for the purpose
of producing photographic portraits, passport photographs,
photographic copy, video transfers and restoration work
(hereinafter referred to as "Licensed Business"), at the Sears
locations designated below or in Location Riders: ("Designated
Sears Store(s)").
Dst. AcCtr. Store/Location
---- ------ --------------
To be provided
LISTED ON THE ATTACHED LOCATION RIDER DATED JANUARY 1, 1994.
TERM
- -----
2. The term ("Term") of this Agreement shall be for a period
beginning on January 1, 1994 and ending at the close of business
on December 31, 1998 unless sooner terminated under any of the
provisions of this Agreement.
REPRESENTATION TO LICENSEE
- --------------------------
3. Sears makes no promises or representations whatsoever as
to the potential amount of business Licensee can expect at any
time during operation of the Licensed Business. Licensee is
<PAGE>
solely responsible for any expenses it incurs related to this
Agreement, including any increase in the number of Licensee's
employees or any expenditures for additional facilities or
equipment.
UNAUTHORIZED SALES
- ------------------
4. Licensee shall use the Licensed Business area only for
the purpose authorized in this Agreement, and will offer for sale
only those services and merchandise expressly authorized by this
Agreement.
SEARS COMMISSION
- ----------------
5. (a) Licensee shall pay to Sears a commission ("Sears
Commission") which shall be a sum equal to ten percent (10%) of
total annual net sales if less than $50,000 and fifteen percent
(15%) of total annual net sales if annual net sales are equal to
or over $50,000 - retroactive to the first dollar. Accounting
Centers are to deduct commission rate at fifteen percent (15%).
Licensee will bill Sears annually for any excess commissions
taken from any units with annual net sales of less than $50,000.
NET SALES
- ---------
(b) "Net Sales" means gross sales from operation of the
Licensed Business, less sales taxes, returns and allowances.
GROSS SALES
- -----------
(c) "Gross Sales" means all of Licensee's direct or
indirect sales of services and merchandise from the Licensed
Business including, but not limited to, sales arising out of
referrals, contacts, or recommendations obtained through the
operation of the Licensed Business.
USE OF SEARS NAME
- -----------------
6. (a) Licensee shall operate the Licensed Business under
the name SEARS PORTRAIT STUDIOS. Licensee shall use the name of
Sears only in connection with the operation of the Licensed
Business. Licensee shall not begin any business activity under
<PAGE>
this Agreement without Sears prior written approval of any and
all names that Licensee intends to use in conjunction with the
Licensed Business.
(b) Licensee shall only use the name of Sears, or any
Sears trademark, service mark or trade name (Sears Marks), when
communicating with customers or potential customers of the
Licensed Business. Licensee shall not use Sears Marks either
orally or in writing, including, but not limited to, use of any
letterhead, checks, business cards, or contracts, when
communicating with persons or entities other than customers or
potential customers of the Licensed Business. All such
communications shall be done solely in Licensee's own name.
(c) Licensee shall not question, contest or challenge,
either during or after the Term of this Agreement, Sears ownership
of any Sears Marks Sears may license Licensee to use in connection
with the Licensed Business. Licensee will claim no right, title
or interest in any Sears Mark or Sears Information (mailing
lists/names), except the right to use the same pursuant to the
terms and conditions of this Agreement, and will not register or
attempt to register any Sears Mark.
(d) Licensee recognizes and acknowledges that the use of
any Sears Mark shall not confer upon Licensee any proprietary
rights to any Sears Mark. Upon termination of this Agreement,
Licensee shall immediately stop using any licensed Sears Mark, and
will execute all necessary or appropriate documents to confirm
Sears ownership, or to transfer to Sears any rights Licensee may
have acquired from Sears in any Sears Mark.
(e) Nothing in this Agreement shall be construed to bar
Sears, after expiration or termination of this Agreement, from
protecting its right to the exclusive use of its trademarks,
service marks or trade names against infringement by any party or
parties, including Licensee.
(f) Sears may register in its own name any and all of
the trademarks, service marks or trade names used in operation of
the Licensed Business, and Licensee's use of such names and marks
shall inure to the benefit of Sears for such purposes as well as
for all other purposes and such marks shall be included in the
term "Sears Marks." Licensee shall cooperate in any such
registration or application for registration by Sears.
(g) Sears Marks and Sears Information licensed under
this Agreement possess a special, unique and extraordinary
character which makes it difficult to assess the monetary damage
Sears would sustain in the event of unauthorized use. Irreparable
injury would be caused to Sears by such unauthorized use, and
Licensee agrees that preliminary or permanent injunctive relief
<PAGE>
would be appropriate in the event of breach of this Paragraph 6 by
Licensee.
(h) If Licensee learns of any manufacture or sale by any
third party of products and/or services similar to those offered
by Licensee that would be confusingly similar to those sold by
Licensee in the minds of the public and which bear or are promoted
in association with Sears Marks or any names, symbols, emblems, or
designs or colors which would be confusingly similar in the minds
of the public to Sears Marks, Licensee will promptly notify Sears.
Sears shall, at its sole expense, take such action as it
determines, in its sole discretion, is appropriate. Licensee will
cooperate and assist in such protest or legal action at Sears
expense. If demanded by Sears, Licensee shall join in such
protest or legal action at Sears expense. Licensee shall not
undertake any protest or legal action on its own behalf without
first securing Sears written permission to do so. If Sears
permits Licensee to undertake such protest or legal action, such
protest or legal action shall be at Licensee's sole expense.
Sears shall cooperate and assist Licensee at Licensee's expense.
For the purposes of this paragraph, expenses shall include
reasonable attorneys' fees. All recovery in the form of legal
damages or settlement shall belong to the party bearing the
expense of such protest or legal action.
(i) Licensee shall not file suit using Sears name or
undertake any legal proceeding against any customer without Sears
prior written approval.
ADVERTISING
- -----------
7. (a) Licensee shall advertise and actively promote the
Licensed Business authorized by this Agreement. It is expressly
understood and agreed that all signs, advertising copy including
but not limited to sales brochures, newspaper advertisements,
radio and television commercials, and all sales promotional plans
and devices, and all customer contract forms, guarantee
certificates and other forms and materials which may be utilized
with respect to said Licensed Business, shall be first submitted
for approval to Sears Marketing Manager Licensed Businesses in
Hoffman Estates, Illinois and Licensee further agrees that it will
not issue any such advertising material or conduct any such sales
promotional plan or device without such prior approval. Sears
shall have the right to disapprove all the aforesaid advertising
forms and other materials insofar as it does not properly use
Sears trademarks, service marks or trade names; may subject Sears
to liability, loss of good will, damage to Sears reputation or
Sears customer relations; may fail to adhere to the requirements
or any Federal, State or Local governmental rules, regulations and
laws; or may fail to conform to community or Sears standards of
<PAGE>
good, taste and honest dealing. At Licensee's option and request,
Sears may purchase newspaper advertising and/or electronic media
time for Licensee at Licensee's expense for said concession,
provided that Licensee provides Sears with all necessary
information for any requested advertising at least seven days
prior to the date such advertising is to be run.
REIMBURSEMENT
- -------------
(b) Licensee hereby agrees to reimburse Sears for all
expenses, including but not limited to advertising, incurred by
Sears on behalf of Licensee and requested by Licensee, within
thirty (30) days after the invoice for said expense(s) is sent by
Sears to Licensee. If Sears does not receive reimbursement prior
to the expiration of said thirty (30) days, then Sears shall have
the right, but not the obligation, to retain out of Licensee's
sales receipts described in Paragraph 28 the amount of said
expense(s) with interest, if any, due to Sears.
PUBLICITY
- ---------
8. Licensee will not issue any publicity or press release
regarding its contractual relations with Sears or regarding the
Portrait Business in Sears stores, and will refrain from making
any reference to this Agreement or to Sears in any prospectus,
annual report or other filing required by Federal or state law,
or in the solicitation of business, without obtaining Sears prior
written approval of such action.
RELATIONSHIP
- ------------
9. Licensee is an independent contractor. Nothing contained
in or done pursuant to this Agreement shall be construed as
creating a partnership, agency or joint venture; and neither party
shall become bound by any representation, act or omission of the
other party.
PRICES
- ------
10. Sears has no right or power to establish or control the
prices at which Licensee offers service and/or merchandise in the
Licensed Business. Such right and power is retained by Licensee.
<PAGE>
LICENSEE'S OBLIGATIONS
- ----------------------
11. (a) Licensee will not make purchases or incur any
obligation or expense of any kind in the name of Sears. Prior to
any purchases involving the Licensed Business, Licensee shall
inform its vendors that Sears is not responsible for any
obligations incurred by Licensee. At Sears request, Licensee
shall furnish to Sears the names of all parties from whom Licensee
purchases merchandise or with whom Licensee may have any business
or contractual relations in connection with the Licensed Business.
(b) Licensee shall promptly pay all its obligations,
including those for labor and material, and will not allow any
liens to attach to any Sears or customer's property as a result of
Licensee's failure to pay such sums.
LICENSEE'S EMPLOYEES
- --------------------
12. (a) Licensee shall employ all management and other
personnel necessary for the efficient operation of the Licensed
Business. The Licensed Business shall be operated solely by
Licensee's employees, and not by independent contractors,
sub-contractors, sub-licensees or by any other such arrangement.
(b) Licensee has no authority to employ persons on
behalf of Sears and no employees of Licensee shall be deemed to
be employees or agents of Sears. Licensee has sole and exclusive
control over its labor and employee relations policies, and its
policies relating to wages, hours, working conditions, or
conditions of its employees. Licensee has the sole and exclusive
right to hire, transfer, suspend, lay off, recall, promote,
assign, discipline, adjust grievances and discharge its employees,
provided, however, that at any time Sears so requests, Licensee
will consider transferring from the Licensed Business any employee
who is objectionable to Sears because of risk of harm to the
health, safety and/or security of Sears customers, employees or
merchandise and/or whose manner impairs Sears customer relations.
If Sears objects to any of Licensee's employees, and Licensee
refuses to remove such employee and the conditions which caused
Sears to object continue, Sears may terminate any affected
location by giving thirty (30) days notice to Licensee.
(c) Licensee is solely responsible for all salaries and
other compensation of its employees and will make all necessary
salary deductions and withholdings from its employees' salaries
and other compensation. Licensee is solely responsible for so
paying any and all contributions, taxes and assessments and all
other requirements of the Federal Social Security, Federal and
state unemployment compensation and Federal, state and local
<PAGE>
withholding of income tax laws on all salary and other
compensation of its employees.
(d) Licensee will comply with any other contract,
Federal, state or local law, ordinance, rule, or regulation
regarding its employees, including Federal or state laws or
regulations regarding minimum compensation, overtime and equal
opportunities for employment, and, in particular, Licensee will
comply with the terms of the Federal Civil Rights Acts, Age
Discrimination in Employment Act, Occupational Safety and Health
Act, and the Federal Fair Labor Standards Act, whether or not
Licensee may otherwise be exempt from such acts because of its
size or the nature of its business or for any other reason
whatsoever.
LICENSEE'S EQUIPMENT
- --------------------
13. (a) Entirely at its own expense, Licensee shall install
furniture, fixtures, and equipment, including cash registers as
necessary for the efficient operation of the Licensed Business
("Licensee's Equipment"). Licensee's Equipment, and its size,
design and location, shall at all times be subject to Sears
approval.
PROHIBITED LIENS
- ----------------
(b) Licensee shall not allow any liens, claims or
encumbrances to attach to Sears premises. In the event any lien,
claim or encumbrance attaches to Sears premises, Licensee shall
immediately take all necessary action to cause such lien, claim or
encumbrance to be released, or Sears, at its option, may take such
action and charge Licensee or withhold from sales receipts all
expenses, including attorneys' fees, incurred by Sears in removing
such liens.
MERCHANDISE STOCK
- -----------------
14. Licensee shall maintain a stock of good quality
merchandise as necessary to assure efficient operation of the
Licensed Business.
<PAGE>
STANDARDS
- ---------
15. Licensee shall provide Sears with copies of its written
procedures and policies establishing minimum standards of quality
and/or performance. Licensee shall immediately advise Sears of
any changes in its standards. Without limiting Paragraph 25,
Licensee shall observe no less than such minimum standards of
quality and/or performance. Sears may visit Licensee's offices,
work sites and/or other place of business at any reasonable time
for the purpose of verifying Licensee's compliance with its
standards of quality and/or performance.
CONDITION OF LICENSED BUSINESS AREA
- -----------------------------------
16. (a) The expense of preparing the initial space assigned
to any Licensed Business Location shall be divided between the
parties as described in Exhibit A. Licensee shall be primarily
responsible for any preparations necessary for the operation of
the Licensed Business. Any improvements and installations made
by Sears shall be made to Sears specifications for its own
departments selling comparable merchandise. All improvements or
installations which vary from Sears specifications shall be at
Licensee's sole expense.
(b) Licensee shall, at its expense, keep the Licensed
Business area in a thoroughly clean and neat condition and shall
maintain Licensee's Equipment in good order and repair. Sears
shall provide routine janitorial service in the Licensed Business
area, consistent with the janitorial services regularly performed
in the Designated Sears Store.
HOURS, RULES
- ------------
17. (a) The Licensed Business shall be kept open for
business and operated during the same business hours that the
Designated Sears Store is open for business, or by specific
agreement with store management, except to the extent prevented
by circumstances beyond the control of Sears or Licensee.
(b) Licensee shall conduct its operations in an honest,
courteous and efficient manner and abide by safety and security
rules and regulations of Sears in effect from time to time.
<PAGE>
ACCESS TO LICENSED BUSINESS AREA
- --------------------------------
18. Licensee shall have access to the Licensed Business area
at all times that the Designated Sears Store is open to customers
for business and at all other times as the appropriate Store
Manager approves. Sears shall be furnished with keys to the
Licensed Business area and shall have access to the Licensed
Business area at all times.
PHYSICAL INVENTORY
- ------------------
19. Sears may, solely at Sears discretion, not open any
Designated Sears Store at any time to take a physical inventory
of Sears property. Licensee waives any claim it may have against
Sears for damages resulting from such closing.
CHANGES OF LOCATION
- -------------------
20. Sears shall have the right to change the location,
dimension and amount of area of the Licensed Business from time
to time during the Term of this Agreement in accordance with Sears
judgment as to what arrangements will be most satisfactory for the
general good of the Designated Sears Stores(s). Except as
provided in subsections A, B and C below, responsibility for any
such change of location, dimension or amount of area ("Change of
Location") or remodel shall be charged and allocated in accordance
with Exhibit A, attached hereto and incorporated herein.
(a) If Sears requests or initiates a Change of Location
of a portrait studio that has previously been subject to a Change
of Location during the term of this Agreement, Sears shall bear
all costs related to such Change of Location and shall pay
Licensee the sum of Fifteen Hundred Dollars ($1500.00) for
incidental costs incurred in such a Change of Location.
(b) If a Change of Location does not result in an
increase in square footage for a portrait studio of at least Ten
percent (10%) and such Change of Location is less than the square
footage proposed by Licensee, Sears shall bear all costs related
to such Change of Location (unless the Change of Location is
requested by Licensee) and shall pay Licensee the sum of Fifteen
Hundred Dollars ($1500.00) for incidental costs incurred in such a
Change of Location.
<PAGE>
(c) If any Change of Location or remodel includes the
addition of one or more camera rooms, Sears shall bear fifty
percent (50%) of the cost of each additional camera room and the
remaining costs shall be allocated in accordance with Exhibit A.
(d) Exhibit A sets forth a typical cost analysis based
on the current Annual Edition of Means Repair & Remodeling Cost
Data. Sears and Licensed Business agree that Exhibit A will be
updated annually and mutually agreed upon to reflect subsequent
Annual Editions of Means Repair & Remodeling Cost Data and to
reflect modification of typical designs and specifications.
(e) Sears shall make an end of the month settlement
adjustment thirty (30) days after notifying Licensee of the
project close out and all expenses to be charged to Licensee. In
the event Licensee disputes the settlement adjustment made by
Sears with respect to Change of Location or remodel, it shall
notify Sears and the parties shall have sixty (60) days from the
end of the month settlement adjustment (which was made by Sears)
to resolve any such dispute. Any further adjustment due to either
Sears or Licensee relating to such Change of Location or remodel
shall be made pursuant to an end of the month settlement
adjustment following the above mentioned sixty (60) days.
UTILITIES
- ---------
21. (a) Sears shall furnish, at reasonable hours, and except
as otherwise provided, without expense to Licensee, a reasonable
amount of heat, light and electric power for the operation of the
Licensed Business, except when prevented by strikes, accidents,
breakdowns, improvements and repairs to the heating, lighting and
electric power systems or other causes beyond the control of
Sears. Sears shall not be liable for any injury or damage
whatsoever which may arise by reason of Sears failure to furnish
such heat, light and electric power, regardless of the cause of
such failure, all claims for such injury or damage are expressly
waived by Licensee.
(b) The expense of installing light and power lines
which may be required in order to bring such utilities up to the
Licensed Business area shall be paid Sears. The expense of
purchasing and installing all fixtures and equipment within the
area occupied by the Licensed Business, including all necessary
electrical connections for the Licensed Business, and also
including the subsequent maintenance of fixtures and equipment,
shall be allocated in accordance with Exhibit A.
<PAGE>
TELEPHONE
- ---------
22. (a) If requested by Licensee, Sears will arrange for
telephone service for the Licensed Business, and Licensee shall
pay the entire cost of the installation of the telephone equipment
necessary to provide such service. Licensee shall also pay the
entire cost of the telephone service furnished to the Licensed
Business, including the pro rata cost of the operation,
maintenance, expense, property taxes, insurance expense, corporate
interest expense, and/or payment charges of the switchboard or
telephone communication system at the Designated Sears Store(s).
Such charges shall be consistent with Sears charges to its own
merchandising departments for similar service.
(b) All telephone numbers used in connection with the
Licensed Business shall be separate from phone numbers used by
Licensee in its other business operations and such numbers shall
be deemed to be the property of Sears. Upon expiration or
termination of this Agreement, Licensee shall immediately cease to
use such numbers and shall transfer such numbers to Sears or to
any party Sears designates, and Licensee shall immediately notify
the telephone company of any such transfer.
(c) Sears shall have the right to approve, before
placement, all yellow and white page telephone listings for the
Licensed Business. Sears may, at its sole option, require that
any telephone number listed in any telephone directory using Sears
name be billed through a Sears store or office.
BILLING OF CUSTOMERS
- ---------------------
23. Customers will not be billed, and no settlement will be
made between the parties with respect to any cash or credit
transaction until Licensee has completed the sale or service for
the customer, or until Licensee and the customer have executed an
agreement whereby Licensee will provide future services for the
customer.
QUOTATIONS, ORDERS
- ------------------
24. All quotations for Licensee's service made to customer by
Licensee shall be in writing, or by telephone authorization from
the customer, and such service shall be performed only upon
receipt of a written order signed by such customer. The content
of the forms used for making quotations and for taking orders
shall be satisfactory to both parties. Licensee shall not charge
customers for estimates or proposals.
<PAGE>
CUSTOMER ADJUSTMENT
- -------------------
25. All of the work and services performed by Licensee in
connection with the Licensed Business shall be of a high standard
of workmanship, and all of the merchandise sold in the Licensed
Business shall be of high quality. Licensee shall at all times
maintain a general policy of "Satisfaction Guaranteed" to
customers and shall adjust all complaints of and controversies
with customers arising out of the operation of the Licensed
Business. In any case in which an adjustment is unsatisfactory to
the customer, Sears shall have the right, at Licensee's expense,
to make such further adjustment as Sears deems necessary under the
circumstances, and any adjustment made by Sears shall be
conclusive and binding upon Licensee.
Licensee shall maintain files pertaining to customer
complaints and their adjustment and make such files available to
Sears. Sears may deduct the amounts of any such adjustments from
the sales receipts held by Sears as described in Paragraph 28.
CHECKS
- ------
26. (a) All checks or money orders which Licensee accepts
from customers shall be made payable to Sears, Roebuck and Co..
Licensee shall make certain that all checks are filled out
correctly, having the customer's signature, date, and the correct
amount (in both locations), and be verified in accordance with
Sears policies in effect from time to time. Checks which are
deficient in any of the above areas may be charged back to
Licensee, and Licensee shall reimburse Sears for any of Sears
Commission lost as a result of Licensee's failure to obtain
a properly filled out and verified check.
(b) Sears shall not be entitled to Sears Commission for
those checks that have all of the above information but which are
not paid upon presentment. Any and all losses which may be
sustained by reason of nonpayment of any checks upon presentment
shall be borne by Licensee, and Sears shall have no liability with
respect to such checks, provided that Sears will make whatever
effort it deems reasonable to collect all such checks prior to
charging back such checks to Licensee.
BAD CHECKS
- ----------
(c) After Sears has made at least one attempt to collect
any bad or returned checks a photocopy of the check will be made
and kept on file in each Sears store. On a monthly basis, each
<PAGE>
Sears store will return the checks to Licensee in the
pre-addressed, postage paid envelopes provided by Licensee.
Attached to the checks will be a tape total, to include the store
number, the charge back month, and the total being deducted from
the settlement. Licensee assumes responsibility for checks lost
in the mail. Each Sears store will maintain a file of duplicate
copies for ninety (90) days and Sears will assume liability for
the duplicate totals that do not balance to the deductions on the
monthly settlement report. Such liability ceases in ninety (90)
days.
CREDIT SALES
- ------------
27. (a) With the approval of the Credit Central designated
by Sears, sales may be made by Licensee on such of Sears regularly
established credit plans, including Discover Card, Visa,
Mastercard and American Express, as may be first approved by such
Credit Central. The approval of such Credit Central is required
for each individual credit sale, and approval shall be granted in
the sole discretion of the Credit Central. No part of the finance
charge which may be earned by Sears in connection with any credit
sale shall be payable to or credited in any way to Licensee. All
losses sustained by Sears as a result of non-payment of a Sears
credit account shall be borne by Sears, provided that Licensee has
complied with Sears credit policies and procedures. Except for
non-payment of a Sears credit account, Sears shall have no
liability whatsoever to Licensee for Sears failure to properly
accept or reject a customer's charge.
(b) Licensee will comply with all provisions of Federal
and state laws governing credit sales, and their solicitation,
including but not limited to provisions dealing with disclosures
to customers and finance charges. Licensee shall not modify, in
any way, the terms and conditions of Sears credit plans.
SALES RECEIPTS
- --------------
28. At the close of each business day, Licensee shall submit
an accounting of the gross sales and the returns, allowances and
customer adjustments made during such day by Licensee to the
cashier office of the Sears unit designated by Sears, together
with the gross amount, in cash, of all cash sales, and all credit
sales documents for transactions completed that day. An account
shall be kept by both Licensee and Sears. Sears may retain out of
such receipts the proper amount of the Sears Commission payable
under this Agreement together with any other sums due Sears from
Licensee. The remaining balance shall be payable to Licensee at
<PAGE>
the regular settlement. Sears shall maintain in each location,
complete register tapes of Licensee's transactions for a sixty
(60) day period.
SETTLEMENT
- ----------
29. (a) A settlement between the parties shall be made
promptly each month for all cash and credit transactions of
Licensee during such period, in accordance with Sears customary
accounting procedures. Such settlement will be done through the
Sears Accounting Center designated by Sears. Sears will advance
Licensee eighty-five percent (85%) of net sales weekly.
(b) Licensee shall reimburse Sears at each settlement
for all invoiced expenses, including any advertising expense,
incurred by Sears at Licensee's request, outstanding at the time
of such settlement. If Sears is not reimbursed at such
settlement, then Sears shall have the right, but not the
obligation, to retain out of Licensee's sales receipts the amount
of such expenses with interest, if any, due Sears.
AUDIT
- -----
30. Licensee shall keep and maintain books and records which
accurately reflect the sales made by Licensee under this License
Agreement and the expenses which Licensee incurs in performing
under this License Agreement. Sears shall have the right at any
reasonable time to review and audit the books and records of
Licensee regarding this License Agreement. Such books and records
shall be kept and maintained according to generally accepted
accounting principles.
REPORTS
- -------
31. (a) Licensee shall provide to Sears a monthly report of
sales and income in the manner and form prescribed by Sears,
together with any other information Sears may require for its
records or auditing purposes.
(b) Licensee shall submit its financial report to Sears
annually within ninety (90) days after the close of Licensee's
fiscal year. Such report shall be certified by an accountant, or
by an officer of Licensee in the event that no audit is performed.
Such report shall include, but shall not be limited to, Licensee's
profit and loss statement and balance sheet, and shall be prepared
in accordance with generally accepted accounting principles. This
<PAGE>
requirement may be fulfilled by submission of Licensee's Annual
Report. Sears shall not disclose any such information which is not
available to the public to any third parties without Licensee's
prior consent.
WAIVER
- ------
32. Licensee waives any and all claims it may have against
Sears for damage to Licensee, for the safekeeping or safe delivery
or damage to any property whatsoever of Licensee or of any
customer of Licensee in or about the Licensed Business area,
because of the actual or alleged negligence, act or omission of
any tenant, licensee or occupant of the premises at which the
Licensed Business may be located; or because of any damage caused
by any casualty from any cause whatsoever, excluding Sears sole
negligence, including but not limited to, fire, water, snow,
steam, gas or odors in or from such store or store premises, or
because of the leaking of any plumbing, or because of any accident
or event which may occur in such store or upon store premises; or
because of the actual or alleged acts or omissions of any janitors
or other persons in or about such store or store premises or from
any other such cause whatsoever beyond Sears Control.
INDEMNITY BY LICENSEE
- ---------------------
33. Licensee covenants that it will protect, defend, hold
harmless and indemnify Sears, its directors, officers and
employees, from and against any and all expenses, claims, actions,
liabilities, penalties, attorneys' fees, damages and losses of any
kind whatsoever (including, without limitation of the foregoing,
death of or injury to persons and damage to property), actually or
allegedly resulting from or connected with the operation of the
Licensed Business (including, without limitation of the foregoing,
goods sold, work done, services rendered, or products utilized in
therein, lack of repair in or about the area occupied by the
Licensed Business, operation of or defects in any machinery, motor
vehicles, or equipment used in connection with the Licensed
Business, or located in or about the Licensed Business area; or
arising out of any actual or alleged infringement of any patent or
claim of patent, copyright or non-Sears trademark, service mark,
or trade name); or from the omission or commission of any act,
lawful or unlawful by Licensee or its agents or employees, whether
or not such act is within the scope of the employment of such
agents or employees. This indemnity shall not apply to the extent
any injury or damage is caused solely by Sears negligence.
Licensee's indemnity shall survive the termination of this
Agreement.
<PAGE>
INSURANCE
- ---------
34. (a) Licensee shall, at its sole expense, obtain and
maintain during the Term of this Agreement the following policies
of insurance from companies satisfactory to Sears and containing
provisions satisfactory to Sears and adequate to fully protect
Sears as well as Licensee from and against all expenses, claims,
actions, liabilities and losses related to the subjects covered by
the policies of insurance below:
(1) Worker's Compensation Insurance containing a
waiver of subrogation in favor of Sears (where permitted by state
law) executed by the insurance company and covering all costs,
benefits and liability under state Worker's Compensation and
similar laws which may accrue in favor of any person employed by
Licensee; and Employer's Liability Insurance with limits of not
less than $100,000.
(2) Commercial General Liability Insurance,
including but not limited to coverage for product liability and
completed operations insurance, and containing a Contractual
Liability Endorsement specifically covering the indemnity
provisions in this Agreement, with limits of not less than
$500,000 for bodily injury per occurrence and $100,000 for
property damage per occurrence.
(3) Motor Vehicle Liability insurance with an
Employer's Non-Ownership Liability Endorsement in Licensee's name
covering all vehicles used by Licensee in connection with the
Licensed Business, with limits of not less than $500,000 combined
single limit for bodily injury and property damage per occurrence.
(4) Fire and Extended Coverage Insurance upon
Licensee's property, equipment and merchandise used in the
Licensed Business for the full insurable value thereof and
containing a waiver of subrogation in favor of Sears executed by
the insurance company.
(b) In order to avoid conflicts between insurance
companies, Licensee shall use its best efforts to have all
policies of insurance required by this Paragraph issued by one (l)
insurance company. Each policy shall name Sears as an additional
insured and shall contain a severability of interest/cross
liability endorsement.
(c) Licensee's policies of insurance shall expressly
provide that they shall not be subject to material change or
cancellation without at least thirty (30) days' prior notice to
Sears.
<PAGE>
(d) Licensee shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to
execution of this Agreement. If, in Sears opinion, such policies
do not afford adequate protection for Sears, Sears will so advise
Licensee, and if Licensee does not furnish evidence of acceptable
coverage within fifteen (15) days, Sears shall have the right, at
its option, to obtain additional insurance at the expense of
Licensee and deduct the cost of such insurance from the sales
receipts held by Sears as described in Paragraph 28 of this
Agreement.
(e) Any approval by Sears of any of Licensee's insurance
policies or additional insurance obtained by Sears shall not
relieve Licensee of any responsibility under this Agreement,
including liability for claims in excess of described limits.
MUTUAL RIGHT OF TERMINATION
- ---------------------------
35. Either party may terminate this Agreement, or any
location, without cause, without penalty, and without liability for
any damages as a result of such termination, at any time hereafter
by giving the other party at least ninety (90) days' prior notice.
The notice shall specify the termination date.
ASSIGNMENT BY LICENSEE
- ----------------------
36. Notwithstanding any other provision contained in this
Agreement, this Agreement is not transferable by Licensee in whole
or in part without Sears prior written consent. Any transfer or
attempt to transfer by Licensee whether expressly or by operation
of law, and without Sears prior written consent, shall, at the
option of Sears, without notice, immediately terminate this
Agreement. The sale of Licensee's business or any other
transaction (including sales of stock) which shifts the rights or
liabilities of Licensee to another controlling interest shall be
such a transfer.
RIGHT TO TERMINATION ON DEFAULT BY LICENSEE
- -------------------------------------------
37. If any property of Licensee passes into the hands of any
receiver, assignee, officer of the law or creditor, or if Licensee
vacates, abandons, or ceases to operate under this Agreement, or
if Licensee fails to comply with any material provision or
condition of this Agreement, then Sears may terminate this
Agreement immediately by giving notice to Licensee.
<PAGE>
RIGHT TO TERMINATION ON CLOSING OF STORE
- ----------------------------------------
38. Sears may, solely at Sears discretion, terminate this
Agreement in any affected Licensed Business location without
notice, due to the closing of the Designated Sears Store.
Licensee shall not be entitled to any notice of such store closing
prior to a public announcement of such closing. Licensee waives
any claim it may have against Sears for damages, if any, incurred
as a result of such closing.
RIGHT OF TERMINATION AFTER FIRE
39. If any Designated Sears Store is damaged by fire or any
other casualty so that the Licensed Business area becomes
untenantable, this Agreement may be terminated with respect to
such Licensed Business location, effective as of the date of such
casualty, by either party giving the other party written notice of
such termination within twenty (20) days after the occurrence of
such casualty. If such notice is not given, then this Agreement
shall not terminate, but shall remain in full force and effect and
the parties shall cooperate with each other so that Licensee may
resume the conduct of business as soon as possible.
SUBJECT TO STORE LEASES
- -----------------------
40. If any Designated Sears Store is leased to Sears this
Agreement shall be subject to all of the terms, agreements and
conditions contained in such lease. In the event of the
termination of any such lease by expiration of time or otherwise,
this Agreement shall immediately terminate with respect to
affected Licensed Business locations.
FUTURE OBLIGATIONS
- ------------------
41. After the termination of this Agreement by expiration of
time or otherwise, Licensee shall have no right or interest in
future contracts with Sears relating to any operation similar to
that under this Agreement, and Sears may, without incurring any
liability to Licensee:
(l) enter into an agreement for the operation of a
similar business with any person or organization Sears chooses,
including, but not limited to, Licensee or any of Licensee's
counterparts, or
(2) directly operate a similar business itself.
<PAGE>
GOODWILL
- --------
42. Licensee acknowledges that the commission rate
established by this Agreement takes into consideration that all
good will generated by the operation of the Licensed Business
inures completely to the benefit of Sears and that Licensee has no
right or interest in such good will. "Good will" includes all
ownership rights in any information regarding the customers of the
Licensed Business.
DATA
- ----
43. Any customer list developed by Licensee, its employees or
agents from the operation of, or from records generated as a
result of the operation of the Licensed Business, are deemed
exclusively owned by Sears. Licensee shall not use or permit use
of such customer information for any purpose except the
performance of this Agreement. Licensee shall at all times
maintain any such customer information, including lists,
physically separate and distinct from any customer information
Licensee may maintain that is unrelated to the Licensed Business.
Licensee shall not reproduce, release or in any way make available
or furnish, either directly or indirectly, to any person, firm,
corporation, association or organization at any time, any such
customer information which will or may be used to solicit sales or
business from such customers, including but not limited to the
type of sales or business covered by this License Agreement. Upon
termination of this Agreement for any reason, Licensee shall
immediately deliver all copies of lists of customers and copies of
all other such customer information to Sears; and Licensee, its
officers, employees, successors and assigns, shall not use any
such customer information to solicit any of such customers.
Licensee shall protect all such customer information from
destruction, loss or theft during the term of this Agreement, and
until all copies of customer lists and copies of all other
customer information are turned over to Sears.
SEARS OPTION TO PURCHASE LICENSEE'S EQUIPMENT
- ---------------------------------------------
44. In the event of the termination of this Agreement by
expiration of time or otherwise, Sears shall have the right, but
not the obligation, to purchase from Licensee, and Licensee shall
convey and sell to Sears, such items of Licensee's Equipment
excluding Licensee's software as Sears may designate in a written
notice given to Licensee at least twenty (20) days prior to the
effective date of such termination. Sears shall pay Licensee the
fair market value of such items as of the effective date of such
<PAGE>
termination. In the event that Licensee and Sears are unable to
agree upon such fair market value, Sears may waive its right to
purchase and have no obligation to Licensee, or, at Sears option,
such fair market value shall be ascertained by an independent
appraiser mutually acceptable to Licensee and Sears. Any fee of
such appraiser shall be borne equally by Licensee and Sears.
REMOVAL OF LICENSEE'S EQUIPMENT
- -------------------------------
45. Upon the termination of this Agreement by expiration of
time or otherwise, Licensee shall, at its expense, immediately
remove all of Licensee's Equipment (except such of Licensee's
Equipment as may be purchased by Sears as provided in
Paragraph 44) from Sears premises and shall, without delay and at
Licensee's expense, repair any damage to Sears premises caused by
such removal.
SURVIVAL OF OBLIGATIONS
- -----------------------
46. No termination of this Agreement, by expiration of time
or otherwise, shall relieve the parties of liability for
obligations arising out of the operation of the Licensed Business
before termination.
LICENSES, LAWS, ORDINANCES
- --------------------------
47. Licensee shall, at its expense, obtain all permits and
licenses which may be required under any applicable Federal,
state, or local law, ordinance, rule or regulation by virtue of
any act performed in connection with the operation of the Licensed
Business. Licensee shall comply fully with all applicable
Federal, state and local laws, ordinances, rules and regulations,
including all rules and regulations of the Federal Trade
Commission.
FEES, TAXES
- -----------
48. Licensee shall, at its expense, pay and discharge all
license fees, business, use, sales, gross receipts, income,
property or other applicable taxes or assessments which may be
charged or levied by reason of any act performed in connection
with the operation of the Licensed Business, excluding, however,
all taxes and assessments applicable to Sears income from Sears
Commission or applicable to Sears property.
<PAGE>
REMEDIES CUMULATIVE
- -------------------
49. The remedies provided in this Agreement are cumulative,
and shall not affect in any manner any other remedies that either
party may have for any default or breach by the other party. The
exercise of any right or remedy shall not constitute a waiver of
any other right or remedy under this Agreement or provided by law
or equity. No waiver of any such right or remedy shall be implied
from failure to enforce any such right or remedy other than that
to which the waiver is applicable, and only for that occurrence.
ASSIGNS
- -------
50. The provisions of this Agreement shall be binding upon
Licensee and upon Licensee's successors and assigns and shall be
binding upon and inure to the benefit of Sears, its successors and
assigns.
NOTICES
- -------
51. All notices provided for or which may be given in
connection with this Agreement shall be in writing and given by
personal delivery or certified or registered mail with postage
prepaid and return receipt requested or its equivalent, such as
private express courier. Notices given by Licensee to Sears shall
be addressed to:
SEARS, ROEBUCK AND CO.
Attention: Divisional Vice-President,
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
with a copy to:
SEARS, ROEBUCK AND CO., D/725
Attention: Portrait Studio Licensing Manager
addressed to:
CONSUMER PROGRAMS INCORPORATED
1706 Washington Ave
St. Louis, MO 63103
Attention: C.E.O. and President
Telephone: (314) 231-1575
<PAGE>
Notices if so sent by mail shall be deemed to have been given when
deposited in the mail or with the private courier.
ILLEGAL PROVISION
- -----------------
52. If any provision in this Agreement is held to be invalid,
illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never
been included.
GOVERNING LAWS
- --------------
53. This Agreement shall be interpreted and governed by laws
of the State of Illinois.
ENTIRE AGREEMENT
- ----------------
54. This Agreement sets forth the entire agreement and
understanding between the parties with respect to the Licensed
Business. This Agreement shall not be supplemented, modified or
amended except by a written instrument signed by Licensee (or duly
authorized officer if Licensee is a corporation) and by a duly
authorized officer or agent of Sears, and no person has or shall
have the authority to supplement, modify or amend this Agreement
in any other manner.
PARAGRAPH TITLES
- ----------------
55. The paragraph titles in this Agreement are for the mere
convenience of the parties, and shall not be considered in any
construction or interpretation of this Agreement.
AGREEMENT SUPERSEDED
- --------------------
56. This Agreement supersedes the License Agreement made and
entered into as of January 1, 1991, by and between Sears and
CONSUMER PROGRAMS INCORPORATED (Superseded Agreement).
<PAGE>
Such Superseded Agreement shall be deemed terminated as
of the close of business on December 31, 1993, provided, however,
that Licensee shall be responsible for any and all obligations of
the licensee under the Superseded Agreement arising out of the
operation of the Licensed Business prior to the termination of the
Superseded Agreement.
IN WITNESS WHEREOF, the parties hereto have this day set
their hands, the corporate party or parties by its or their duly
authorized officers or agents.
SEARS, ROEBUCK AND CO.
By: /s/ Kenneth E. Hux
___________________________
Divisional Vice-President,
Licensed Businesses
CONSUMER PROGRAMS INCORPORATED
By: /s/ Russell Isaak
___________________________
<PAGE>
Exhibit A
On this page is an analysis demonstrating the typical cost
allocation between Sears and Licensee for general construction and
installation of Sears supplied fixtures for: a new studio
opening; a remodeled studio in warehouse space; a remodeled studio
in existing retail or office space; a remodeled store in existing
license space; and a refurbished studio in existing license
business space with no wall movement.
<PAGE>
DESIGNATED SEARS LOCATIONS
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
C-02 BAYSHORE NY 01 1324 523
C-03 WHITE PLAINS NY 01 1444 943
C-04 LIVINGSTON NJ 01 1614 2019
C-05 BROOKLYN NY 01 1114 2647
C-06 HICKSVILLE NY 01 1264 1340
C-07 E. NORTHPORT NY 01 1794 964
C-08 STATEN ISLAND NY 01 1624 1350
C-09 NEW BRUNSWICK NJ 01 1314 1274
C-10 WAYNE NJ 01 1434 1926
C-11 ARLINGTON TX 01/SSD 1177 734
C-12 CHULA VISTA CA 11 1358 1442
C-13 EL CAJON CA 11 1438 1488
C-16 BUENA PARK CA 11 1268 1517
C-17 TORRANCE CA 11 1278 1896
C-18 SAN BRUNO CA 11 1478 2312
C-19 CUPERTINO CA 11 1468 1860
C-20 ESCONDIDO CA 11 1758 1349
C-21 FAIRVIEW HEIGHTS IL 11/SSD 1640 1750
C-23 HAMPTON VA 01 1575 993
C-27 STERLING HEIGHTS MI 11 1720 1478
C-28 COSTA MESA CA 11 1388 1456
C-29 DEARBORN MI 11 1700 896
C-30 HOUSTON TX 01 1237 966
C-31 TULSA OK 01 1151 890
C-32 CHESTERFIELD MO 11/SSD 1690 1134
C-33 PASADENA CA 11 1048 1042
C-34 ORANGE CA 11 1378 1194
C-36 NORTHRIDGE CA 11 1508 2357
C-37 SAN BERNARDINO CA 11 1398 1698
C-38 RIVERSIDE CA 11 1298 1292
C-39 ORLANDO FL 01 1225 820
C-40 COLUMBUS GA 01 1145 512
C-41 AURORA CO 11 1141 1338
C-42 DENVER CO 11 1031 768
C-43 DENVER CO 11 1291 877
C-44 LAKEWOOD CO 11 1071 1512
C-45 LITTLETON CO 11 1131 680
C-46 WATERFORD MI 11 1180 812
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
C-47 HONOLULU HI 11 1158 1028
C-48 AIEA OAHU HI 11 1578 1566
C-50 INDIO CA 11 2058 500
C-51 EL CENTRO CA 11 2228 997
C-52 HACKENSACK NJ 01 1094 911
C-53 MIDDLETOWN NJ 01 1574 1109
C-54 WATCHUNG NJ 01 1294 1504
C-55 JERSEY CITY NJ 01 1044 1444
C-56 LAKE GROVE NY 01 1364 1332
C-57 MASSAPEQUA NY 01 1724 1232
C-58 NANUET NY 01 1414 1105
C-59 GLEN BRUNIE MD 01 1394 1475
C-60 BRONX NY 01 2764 1361
C-61 PARAMUS NJ 01 1664 1326
C-62 LUBBOCK TX 01 1247 319
C-64 MODESTO CA 11 1618 673
C-65 SAN JOSE CA 11 1488 2330
C-67 ORLAND PARK IL 11 1750 1823
C-70 SAN ANTONIO TX 01 1047 735
C-71 WICHITA KS 11 1161 2047
C-72 FT. WORTH TX 01/SSD 1267 800
C-74 ANCHORAGE AK 11 1089 1012
C-77 CHESAPEAKE VA 01 1615 1280
C-78 TEXAS CITY TX 01 2197 707
C-81 LAWRENCEVILLE NJ 01 1734 1090
C-83 CORPUS CHRISTI TX 01 1217 800
C-84 ANN ARBOR MI 11 1390 1440
C-85 BALTIMORE MD 01 1634 1598
C-86 CALUMET CITY IL 11 1510 984
C-87 BURLINGTON NJ 01 1874 500
C-88 COVINA CA 11 1418 1030
C-89 LOS ANGELES CA 11 1008 697
C-92 FRESNO CA 11 1208 1201
C-93 SACRAMENTO CA 11 1228 890
C-94 CARSON CA 11 1568 1134
C-95 BAKERSFIELD CA 11 1318 2312
C-96 HAYWARD CA 11 1248 1230
C-97 CONCORD CA 11 1368 915
C-98 GLENDALE CA 11 1088 1111
C-99 SANTA FE SPRINGS CA 11 1428 1210
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
D-47 W. BURLINGTON IA 12 *2760 967
D-48 ALTON IL 12/SSD *6340 1508
D-49 ST. LOUIS MO 12/SSD *1500 1439
EA-1 SALT LAKE CITY UT 11 1118 1689
EA-2 MURRAY UT 11 1558 1697
EA-3 OGDEN UT 11 1718 1761
EA-5 PROVO UT 11 2118 398
EA-6 POCATELLO ID 11 3139 563
EA-7 IDAHO FALLS ID 11 2278 551
EA-8 TWIN FALLS ID 11 2109 615
EA-9 BOISE ID 11 1229 718
EB-2 MIAMI(AVENTURA) FL 01 1655 585
EB-3 MIAMI FL 01 1365 1136
EB-4 POMPANO BEACH FL 01 1205 1134
EB-5 HIALEAH FL 01 1345 706
EB-6 PEMBROKE PINES FL 01 1775 910
EB-7 WEST PALM BEACH FL 01 1705 924
EB-8 JACKSONVILLE FL 01 1635 1028
EB-9 ABILENE TX 01 1307 562
EC-1 CHARLESTON WV 01 1954 560
EC-2 YUBA CITY CA 11 2238 736
EC-3 LAWTON OK 01 2381 307
EC-4 TALLAHASSEE FL 01 1585 245
EC-5 SAN ANGELO TX 01 2517 438
EC-7 OMAHA NE 11 1041 1255
EC-8 CINCINNATI OH 11 1810 1251
EC-9 CINCINNATI OH 11 1610 1438
ED-2 DAYTON OH 11 1560 1290
ED-3 DAYTON OH 11 2060 1516
ED-5 SPRINGDALE OH 11 1280 1089
ED-6 CLARKSVILLE IN 11 2160 846
ED-7 FRANKFORT KY 11 2090 750
ED-8 LEXINGTON KY 11 1580 1495
ED-9 FRANKLIN OH 11 2940 552
EE-1 MERIDIAN MS 01 2096 319
EE-2 LAKE CHARLES LA 01 2217 630
EE-3 GREENWOOD IN 11 1470 827
<FN>
* Remote Studios
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
EE-5 INDIANAPOLIS IN 11 1540 1188
EE-6 INDIANAPOLIS IN 11 1600 741
EE-7 INDIANAPOLIS IN 11 1680 900
EE-8 ALBANY OR 11 2419 1108
EE-9 TOPEKA KS 11/SSD 1642 816
EF-1 ST. JOSEPH MO 11/SSD 2713 620
EF-2 LAS VEGAS NV 11 1668 1243
EF-5 MILWAUKKE WI 11 1102 1545
EF-6 MILWAUKEE WI 11 2272 1208
EF-7 BROOKFIELD WI 11 1062 2533
EF-8 GREENDALE WI 11 1082 2314
EF-9 KENOSHA WI 11 2342 883
EG-1 RACINE WI 11 2200 549
EG-2 ST. PAUL MN 11 1052 806
EG-3 BROOKLYN CENTER MN 11 1032 1306
EG-5 MINNETONKA MN 11 1112 870
EG-6 MAPLEWOOD MN 11 1122 1271
EG-7 BURNSVILLE MN 11 1132 679
EG-8 EDEN PRAIRIE MN 11 1142 695
EG-9 LAS VEGAS NV 11 1328 912
EH-2 FLORENCE AL 01 2316 288
EH-3 AUGUSTA GA 01 1035 754
EH-4 HAMMOND LA 01 2016 576
EH-5 BILOXI MS 01 2256 689
EH-7 HOUMA LA 01 2696 408
EH-8 TOLEDO OH 11 1220 1379
EH-9 TOLEDO OH 11 2020 844
EJ-1 SARASOTA FL 01 1625 714
EJ-2 WATERLOO IA 11 1072 1144
EJ-3 RAPID CITY SD 11 2412 1167
EJ-4 REDDING CA 11 2338 681
EJ-5 WICHITA FALLS TX 01 2177 750
EJ-6 LAKEWOOD NY 01 2584 1046
EJ-7 NEWARK OH 11 2830 493
EJ-8 CARLSBAD CA 11 1678 1292
EJ-9 RENO NV 11 2098 975
EK-1 MEDFORD OR 11 2179 784
EK-2 ANTIOCH CA 11 2288 683
EK-3 PALMDALE CA 11 1068 1112
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
EK-4 STOCKTON CA 11 1288 1169
EK-6 THOUSAND OAKS CA 11 2318 826
EK-7 PARKERSBURG WV 01 2354 975
EK-8 FORT GRATIOT MI 11 2482 972
EK-9 SAGINAW MI 11 1590 865
EL-2 EVANSVILLE IN 11 1330 1548
EL-3 OWENSBORO KY 11 2950 945
EL-4 MANSFIELD OH 11 2010 906
EL-5 LIMA OH 11 2450 1503
EL-6 MISHAWAKA IN 11 1800 999
EL-7 BENTON HARBOR MI 11 2960 871
EL-8 ODESSA TX 01 1397 300
EL-9 SANTA MARIA CA 11 2088 817
E-01 BRYAN COLLEGE STATION TX 01 2547 470
E-03 TYLER TX 01 2077 690
E-04 HOLLYWOOD CA 11 1028 883
E-05 CERRITOS CA 11 1518 1365
E-07 SANTA MONICA CA 11 1178 1335
E-08 BREA CA 11 1638 1290
E-09 CITY OF INDUSTRY CA 11 1598 900
E-10 GAITHERSBURG MD 01 1754 1612
E-11 FREINDSWOOD TX 01 1257 1414
E-12 SAN ANTONIO TX 01 1277 735
E-13 TEXARKANA TX 01 2567 600
E-14 HURST TX 01/SSD 1297 868
E-15 ROCKAWAY NJ 01 1764 1039
E-16 OKOLONA KY 11 1790 2193
E-17 ANTIOCH TN 01 1316 722
E-18 PLANTATION FL 01 1535 1621
E-19 MEMPHIS TN 01 1216 962
E-21 MEMPHIS TN 01 1186 244
E-22 MEMPHIS TN 01 1026 615
E-23 UNIONTOWN PA 01 2614 419
E-24 ALEXANDRIA VA 01 1284 1079
E-25 FT. MYERS FL 01 1495 1362
E-27 RICHMOND VA 01 1135 670
E-28 RICHMOND VA 01 1445 1011
E-31 JOLIET IL 11 1740 1576
E-32 SAN RAFAEL CA 11 1528 819
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
E-36 GADSDEN AL 01 2306 629
E-37 BAYTOWN TX 01 1327 1494
E-38 ERIE PA 01 1694 728
E-39 BELLINGHAM WA 11 2149 614
E-41 ALTOONA PA 01 2494 582
E-43 LAKE JACKSON TX 01 2227 772
E-44 CHEHALIS WA 11 2089 550
E-45 BURLINGTON WA 11 2389 606
E-46 JOHNSON CITY NY 01 1784 1224
E-48 VISALIA CA 11 2068 687
E-49 MERCED CA 11 2298 910
E-50 OXNARD CA 11 1448 287
E-51 SANTA BARBARA CA 11 2138 888
E-52 SANTA CRUZ CA 11 2308 718
E-53 VICTORVILLE CA 11 2829 873
E-54 ABERDEEN WA 11 2299 471
E-55 E. WENATCHEE WA 11 2069 390
E-56 KELSO WA 11 2319 666
E-57 LACEY WA 11 2219 661
E-58 KENNEWICK WA 11 2329 614
E-59 GREENSBORO NC 01 1335 720
E-60 BELOIT WI 11 2322 345
E-61 SPRINGFIELD OR 11 2339 839
E-62 JOHNSTOWN PA 01 1863 871
E-63 CLARKSVILLE TN 01 2335 874
E-64 SHARON PA 01 2544 311
E-65 WICHITA KS 11 1401 599
E-66 HUTCHINSON KS 11 2590 459
E-67 BROWNSVILLE TX 01 2497 261
E-68 LAFAYETTE LA 01 1347 813
E-69 CHARLOTTE NC 01 1515 748
E-70 WILMINGTON NC 01 1455 403
E-71 LONGVIEW TX 01 2557 800
E-72 ROCK HILL SC 01 2807 543
E-73 HICKORY NC 01 2515 442
E-74 GASTONIA NC 01 2465 568
E-75 SPARTANBURG SC 01 1545 499
E-76 CHARLOTTE NC 01 1245 707
E-77 CONCORD NC 01 2075 443
E-78 PINE BLUFF AR 01 2216 740
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
E-79 LINCOLN NE 11 2191 1092
E-80 LANSING MI 11 1170 1380
E-81 DURHAM NC 01 1045 1531
E-82 RALEIGH NC 01 1805 1140
E-83 BURLINGTON NC 01 2105 449
E-84 ASHEVILLE NC 01 1185 697
E-85 FAYETTEVILLE NC 01 1405 1053
E-86 WINSTON-SALEM NC 01 1375 1197
E-87 DANVILLE VA 01 2625 388
E-88 LYNCHBURG VA 01 2835 785
E-89 ROANOKE VA 01 1974 773
E-90 CEDAR RAPIDS IA 11 2212 1083
E-91 YUMA AZ 11 2078 644
E-92 PANAMA CITY FL 01 2805 869
E-93 ORANGE PARK FL 01 1485 1739
E-94 MACON GA 01 1435 252
E-95 CHARLESTON HEIGHTS SC 01 1325 1148
E-96 ST. CLAIRSVILLE OH 01 2104 630
E-97 HARLINGEN TX 01 2537 424
E-98 MC ALLEN TX 01 2507 875
E-99 BELLEVUE NE 11 2051 396
KA-1 ORANGE TX 02 *1407 750
KA-2 CARLISLE PA 02 *2224 1500
KA-3 HYATTSVILLE MD 02 *1604 1033
KA-4 COUNCIL BLUFFS IA 12 *1041 1092
KA-5 ATLANTA GA 02 *2865 1140
KA-6 EDWARDSVILLE IL 12/SSD *1640 1282
KA-7 WOODLAND CA 12 *1228 1233
KA-8 STEVENS POINT WI 12 *3022 1112
KA-9 PANORAMA CITY CA 12 *1168 1225
KB-1 HARRISONBURG VA 02 * 1107
KB-2 OSHKOSH WI 12 * 1650
KB-3 ST. LOUIS MO 12/SSD *1270 1623
KB-4 FREEPORT IL 12 * 1472
KB-5 NEW ORLEANS LA 02 * 956
KB-6 LEMON GROVE CA 12 * 1300
KB-7 NORTH RIVERSIDE IL 12 * 1500
KB-8 BARSTOW CA 12 * 960
KB-9 KANSAS CITY KS 12 * 1260
KC-1 FONTANA CA 12 * 1840
<FN>
*REMOTE STUDIO
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
KC-2 HAMDEN CT 02 * 1500
KC-3 ALHAMBRA CA 12 * 1100
KC-4 SIMI VALLEY CA 12 * 1100
KC-5 REDLANDS CA 12 * 1419
KC-6 PHOENIX AZ 12/SSD * 1500
KC-7 LANCASTER CA 12 * 1200
KC-8 CINCINNATI OH 12 * 1300
KC-9 TUSTIN CA 12 * 1185
KD-1 ROLLING HILLS ESTATES CA 12 * 988
KD-2 DOWNER'S GROVE IL 12 * 1275
KD-3 LIVERMORE CA 12 * 1320
KD-4 BRISTOL CT 02 * 1080
KD-5 REDWOOD CITY CA 12 * 1146
KD-6 LA MIRADA CA 12 * 1330
KD-7 E. PROVIDENCE RI 02 * 1390
KD-8 LOUISVILLE KY 12 * 1260
KD-9 PITTSBURGH PA 02 * 1137
KE-1 GARDEN CITY KS 12 * 1500
KE-2 LONG BEACH CA 12 * 1350
KE-3 LAS VEGAS NV 12 * 1600
KE-4 VALLEJO CA 12 * 1244
KE-5 BAKERSFIELD CA 12 * 1350
KE-6 PHILADELPHIA PA 02 * 1350
KE-7 HERNDON VA 12 * 1763
KE-8 FORT LEE NJ 12 * 1400
KE-9 WEST VALLEY CITY UT 12 * 1323
KF-1 FREEPORT NY 02 * 2000
KF-3 HOLBROOK NY 02 * 2064
KF-4 AURORA IL 12 * 1820
KF-5 OXON HILL MD 02 * 2454
KF-6 PHILADELPHIA PA 02 * 2461
KF-8 ST. CHARLES MO 12 * 2352
KF-9 EVANSTON IL 12 * 1562
K-02 LAUREL MD 02 *1304 1000
K-04 KANSAS CITY MO 12 *2301 900
K-06 LIVONIA MI 12 *1460 1196
K-07 ST. LOUIS MO 12/SSD *1500 684
K-08 WESTMINSTER CO 12 *1291 1130
<FN>
* Remote Studios
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
K-10 TULSA OK 02 *1021 1252
K-11 LOCKPORT NY 02 *1514 1185
K-12 TOLEDO OH 12 *1220 733
K-13 ALLENTOWN PA 02 *1154 1400
K-15 ENFIELD CT 02 *1093 1425
K-16 CLOVIS CA 12 *8516 865
K-17 MATTESON IL 12 *1750 835
K-19 TOWSON MD 02 *1814 960
K-20 BALTIMORE MD 02 *1634 1277
K-21 READING PA 02 *1484 891
K-22 ST. LOUIS MO 12/SSD *1500 1160
K-24 LAKEWOOD WA 12 *1129 900
K-26 PERU IL 12 *1740 1210
K-27 HAZELTON PA 02 *2684 643
K-29 FERGUSON MO 12/SSD *1500 1283
K-30 ORLANDO FL 02 *1225 1187
K-31 OTTUMWA IA 12 *2392 875
K-32 LANSING MI 12 *1170 1042
K-33 CLIFTON PARK NY 02 *1103 967
K-34 MUSCATINE IA 12 *2760 1096
K-35 HAWTHORNE CA 12 *1278 913
K-36 DOWNEY CA 12 *1518 865
K-37 MOUNT PROSPECT IL 12 *1570 894
K-38 TAMPA FL 02 *1465 1242
K-39 LEXINGTON KY 12 *1580 910
K-40 YONKER NY 02 *1114 1257
K-41 NASHVILLE TN 02 *1316 1000
K-42 PHILADELPHIA PA 02 *1084 1308
K-422 CHICAGO IL 12 *1840 826
K-428 KALAMAZOO MI 12 *1380 950
K-43 NEWPORT NEWS VA 02 *1575 1100
K-433 WAUKEGAN IL 12 *1290 1035
K-436 PEORIA IL 12 *1480 1210
K-44 BEL AIR MD 02 *1854 1000
K-446 WYOMING MI 12 *1140 886
K-45 PHOENIX AZ 12 *1588 1371
K-46 SPRINGFIELD MO 02 *1171 1483
K-460 JOPLIN MO 02 *2141 665
<FN>
* Remote Studios
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
K-47 HAMILTON OH 12 *1280 800
K-48 BURTON MI 12 *1100 1094
K-49 EL PASO TX 12 *1317 1082
M-01 ATHENS GA 01 2845 1137
M-02 MIAMI FL 01 1125 587
M-03 FT. LAUDERDALE FL 01 1195 583
M-04 KILLEEN TX 01 2487 363
M-05 FREDRICK MD 01 2664 933
M-06 S.E. PORTLAND OR 11 1119 1360
M-07 ZANESVILLE OH 11 2550 813
M-08 MARION IL 11/SSD 2220 316
M-09 GRAND FORKS ND 11 2332 648
M-10 MINOT ND 11 2152 685
M-11 GALESBURG IL 11 2910 530
M-12 PIQUA OH 11 2610 700
M-13 FINDLAY OH 11 2790 880
M-14 MARION OH 11 2420 584
M-15 RICHMOND IN 11 2800 833
M-16 GREAT FALLS MT 11 2808 764
M-17 MELBOURNE FL 01 2245 705
M-18 FLAGSTAFF AZ 11/SSD 2358 200
M-19 HANFORD CA 11 2198 440
M-20 SANDUSKY OH 11 2510 787
M-21 BILLINGS MT 11 2242 656
M-22 GRAND JUNCTION CO 11 2361 494
M-23 CHILLICOTHE OH 11 2850 741
M-24 BRISTOL VA 01 2425 792
M-25 W. LAFAYETTE IN 11 2000 310
M-26 WINTER HAVEN FL 01 2325 346
M-28 ANDERSON IN 11 2140 343
M-29 MUNCIE IN 11 2570 526
M-30 DANVILLE IL 11 2362 893
M-31 JOPLIN MO 01 2141 302
M-32 PLANO TX 01/SSD 1337 490
M-33 CHARLESTON SC 01 2855 638
M-34 AUSTIN TX 01 1357 1074
M-35 CHICAGO RIDGE IL 11 1840 1733
M-36 COLUMBIA MD 01 1844 1515
<FN>
* Remote Studios
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
M-37 MEMPHIS TN 01 2806 980
M-38 DAVENPORT IA 11 2760 841
M-39 PARKSVILLE MD 01 1854 806
M-40 OXFORD AL 01 2186 543
M-41 OCALA FL 01 1006 812
M-42 SAVANNAH GA 01 1305 589
M-43 MERRITT ISLAND FL 01 1175 761
M-44 GAINESVILLE FL 01 1665 667
M-45 HATTIESBURG MS 01 2116 498
M-46 HOUSTON TX 01 1377 1616
M-47 COCKEYSVILLE MD 01 1864 1132
M-48 BUTLER PA 01 2724 762
M-49 TUCSON AZ 11 1728 1123
M-50 MOUNT HOPE WV 01 2704 416
M-51 BLUEFIELD WV 01 2714 224
M-52 LAREDO TX 01 2247 400
M-53 PHOENIX AZ 11/SSD 1708 923
M-54 PHOENIX AZ 11/SSD 1588 1591
M-55 SCOTTSDALE AZ 11/SSD 1458 742
M-56 PHOENIX AZ 11/SSD 1768 795
M-57 MESA AZ 11/SSD 1628 1156
M-58 BRADENTON FL 01 2565 688
M-59 NAPLES FL 01 2695 518
M-60 CRANBERRY PA 01 2734 1025
M-61 COLORADO SPRINGS CO 11 1221 871
M-62 KANEOHE OAHU HI 11 1738 707
M-63 WAUSAU WI 11 2470 504
M-64 FREDRICKSBURG VA 01 2694 352
M-65 COLUMBUS IN 11 2070 531
M-66 ADRIAN MI 11 2150 500
M-67 LOGANSPORT IN 11 2460 634
M-68 LAS CRUCES NM 11 2527 495
M-69 PORT RICHEY FL 01 2885 1291
M-70 TUPELO MS 01 2786 316
M-71 STATE COLLEGE PA 01 2344 837
M-72 INDIANA PA 01 2674 710
M-73 CHARLOTTESVILLE VA 01 2435 344
M-74 GOLDSBORO NC 01 2225 684
M-75 JACKSONVILLE NC 01 2755 715
M-76 FLORENCE SC 01 2705 648
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
M-77 FARMINGTON NM 11 2597 392
M-78 KINGSPORT TN 01 2825 448
M-79 STAMFORD CT 01 3154 736
M-80 DOTHAN AL 01 2025 310
M-82 JOHNSON CITY TN 01 2265 806
M-83 HOT SPRINGS AR 01 2126 797
M-84 CUMBERLAND MD 01 2774 564
M-85 HAGERSTOWN MD 01 2414 496
M-86 LITTLETON CO 11 1271 287
M-87 MARYVILLE TN 01 2156 322
M-88 VALDOSTA GA 01 2125 438
M-89 ENID OK 01 2291 630
M-90 BRUNSWICK GA 01 2065 685
M-91 DECATUR AL 01 2236 481
M-92 ROCKY MOUNT NC 01 2635 456
M-93 LAUREL MS 01 2566 371
M-94 SHEBOYGAN WI 11 2372 472
M-95 GREENVILLE MS 01 2326 286
M-96 MIAMI FL 01 1715 486
M-97 KEY WEST FL 01 2215 471
N-01 SIOUX CITY IA 11 2422 925
N-02 DAYTONA BEACH FL 01 1075 1424
N-03 JACKSON TN 01 2036 1162
N-04 JONESBORO AR 01 2046 810
N-05 GAUTIER MS 01 2196 408
N-06 JACKSON MI 11 2050 531
N-07 PORTAGE MI 11 1110 1150
N-08 BAY CITY MI 11 2380 631
N-09 ST. CLOUD MN 11 2352 612
N-10 CANTON OH 01 1410 1315
N-11 ROCHESTER MN 11 2602 694
N-12 APPLETON WI 11 2092 875
N-13 GREEN BAY WI 11 2112 1146
N-14 MADISON WI 11 2382 1242
N-15 MADISON WI 11 2232 834
N-16 SANTA ROSA CA 11 1658 642
N-17 GRAND RAPIDS MI 11 1140 1702
N-18 ELKHART IN 11 2130 552
N-19 MISSOULA MT 11 2259 372
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
N-20 BISMARCK ND 11 2402 505
N-21 ANNAPOLIS MD 01 2024 528
N-22 TUSCALOOSA AL 01 2796 476
N-23 VICTOR NY 01 1584 1010
N-24 BUFFALO NY 01 1984 941
N-25 NIAGARA FALLS NY 01 1514 590
N-26 ROCHESTER NY 01 1894 838
N-27 ROCHESTER NY 01 1524 1027
N-28 WILLIAMSVILLE NY 01 1504 829
N-29 HORSEHEADS NY 01 2744 663
N-30 BRIDGEPORT WV 01 2826 679
N-31 FAIRFAX VA 01 1814 2168
N-32 GREENVILLE SC 01 1595 738
N-33 LYNNWOOD WA 11 1109 714
N-34 LA CROSSE WI 11 2432 604
N-35 SALINAS CA 11 1688 502
N-36 NEW CASTLE PA 01 2274 608
N-37 YOUNGSTOWN OH 01 1474 542
N-38 NILES OH 01 1564 1050
N-39 STEUBENVILLE OH 01 2324 778
N-40 WASHINGTON PA 01 2114 330
N-42 ATLANTA GA 01 1275 779
N-43 ATLANTA GA 01 1385 1054
N-46 MORROW GA 01 1565 1990
N-47 IOWA CITY IA 11 2282 709
N-48 DUBUQUE IA 11 2122 833
N-49 FT. DODGE IA 11 2052 252
N-50 MASON CITY IA 11 2252 479
N-51 SIOUX FALLS SD 11 2872 834
N-52 MOLINE IL 11 1050 705
N-53 MIDLAND TX 01 2657 233
N-54 VICTORIA TX 01 2617 270
N-55 SAN LUIS OBISPO CA 11 2258 696
N-56 KOKOMO IN 11 2710 953
N-57 FT. WAYNE IN 11 2730 852
N-58 FT. WAYNE IN 11 1830 1343
N-60 ROCKFORD IL 11 2990 1114
N-61 SPRINGFIELD IL 11 1780 1453
N-62 COLORADO SPRINGS CO 11 1111 943
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
N-63 PUEBLO CO 11 2281 602
N-64 EUREKA CA 11 2628 665
N-65 BOURBONNAIS (KANKAKEE) IL 11 2802 834
N-66 BLOOMINGTON IL 11 2840 640
N-67 PEORIA IL 11 1480 256
N-68 EAU CLAIRE WI 11 2002 879
N-69 DECATUR IL 11 1320 648
N-70 CHAMPAIGN IL 11 2920 627
N-71 TERRE HAUTE IN 11 2600 920
N-72 BLOOMINGTON IN 11 2820 1025
N-73 MICHIGAN CITY IN 11 2290 857
N-74 BATTLE CREEK MI 11 2040 560
N-75 MUSKEGAN MI 11 2930 1151
N-76 SPRINGFIELD OH 11 2390 940
N-77 SHERMAN TX 01/SSD 2627 468
N-78 ANDERSON SC 01 2305 621
N-79 W. DUNDEE IL 11 1820 1305
N-80 NEWARK CA 11 1698 1163
N-81 ALBANY GA 01 2815 414
N-82 QUINCY IL 11 2360 760
N-83 LAKELAND FL 01 1955 1324
N-84 CHATTANOOGA TN 01 1315 874
N-85 UNION CITY GA 01 2865 1042
N-86 FT. COLLINS CO 11 2271 820
N-87 FAYETTEVILLE AR 01 2241 316
N-88 BARBOURSVILLE WV 01 1804 649
N-89 NORTH WALES PA 01 1834 1064
N-90 ROSEBURG OR 11 2289 503
N-91 OKLAHOMA CITY OK 01 1211 614
N-92 BOCA RATON FL 01 1645 455
N-93 HEMET CA 11 2248 171
N-94 GREELEY CO 11 2451 626
N-95 COLONIAL HEIGHTS VA 01 2064 582
N-96 KNOXVILLE TN 01 1675 692
N-97 KNOXVILLE TN 01 1395 1021
N-98 SPRINGFIELD MO 01 1171 619
N-99 BEND OR 11 2279 390
P-02 CAPE GIRARDEAU MO 11/SSD 2146 384
P-03 PADUCAH KY 11/SSD 2176 801
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
P-04 FT. SMITH AR 01 2231 760
P-05 WACO TX 01 1367 826
P-06 COLUMBUS MS 01 2086 301
P-07 JEFFERSON MO 11/SSD 2331 502
P-08 SALINA KS 11 2131 783
P-09 CASPER WY 11 2341 1139
P-10 FARGO ND 11 2082 625
P-11 AUBURN AL 01 2595 520
P-12 CHEYENNE WY 11 2371 732
P-13 MYRTLE BEACH SC 01 2785 881
P-14 COLUMBIA MO 11/SSD 2480 314
P-15 GRAND ISLAND NE 11 2421 653
P-16 KANSAS CITY MO 11/SSD 1181 736
P-18 MANHATTAN KS 11/SSD 2430 1078
Q-01 COEUR D'ALENE ID 11 2349 691
Q-02 ATTLEBORO MA 01 1033 1350
Q-03 KINGSTON MA 01 2043 575
Q-04 PHILLIPSBURG NJ 01 2574 464
Q-05 TITUSVILLE FL 01 2195 342
Q-06 PARIS TX 01/SSD 2097 630
Q-07 CHESAPEAKE VA 01 2454 630
Q-08 COLUMBIA TN 01 2375 634
Q-09 BOWIE MD 01 2004 789
Q-10 JENSEN BEACH FL 01 2315 891
Q-11 MOREHEAD CITY NC 01 2165 706
Q-12 LANGHORNE PA 01 1064 914
Q-13 BOULDER CO 11 2108 400
Q-14 SUMTER SC 01 2365 860
Q-15 MARTINSVILLE VA 01 2094 621
Q-16 CORAL SPRINGS FL 01 1055 1768
Q-17 MIAMI FL 01 2155 436
Q-18 AIKEN SC 01 2095 558
R-01 HIGH POINT NC 01 2545 637
R-02 DALTON GA 01 2615 792
R-03 KING OF PRUSSIA PA 01 1884 1354
R-05 ROME GA 01 2895 561
R-07 GREENVILLE NC 01 2175 564
R-08 VALLEY STREAM NY 01 1924 1419
R-09 PRESCOTT AZ 11/SSD 2348 284
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
R-10 YORKTOWN HEIGHTS NY 01 1944 611
R-11 CLOVIS NM 11 2888 487
R-12 ROSWELL NM 11 2207 320
R-13 SIERRA VISTA AZ 11 2328 443
R-15 SANTA FE NM 11 2208 824
R-16 DULUTH GA 01 1685 790
R-17 FT. PIERCE FL 01 2005 408
R-18 LUFKIN TX 01 2577 344
R-19 MANKATO MN 11 2142 560
R-20 WINCHESTER VA 01 2784 440
R-21 ASHLAND KY 01 2854 567
R-23 HUMBLE TX 01 1417 1486
R-25 WALLA WALLA WA 11 2599 612
R-27 HILO HI 11 2388 498
R-30 HUNTSVILLE AL 01 2166 731
R-31 CINCINNATI OH 12 *1610 1576
R-32 KAHULUI MAUI HI 11 2148 340
R-33 BARTLESVILLE OK 01 2221 241
R-34 MARION IN 11 2072 655
R-35 FAIRFIELD CA 11 2378 1221
R-37 SLIDELL LA 01 2026 404
R-38 MONTCLAIR CA 11 1748 1680
R-40 KENNESAW GA 01 1155 2088
R-41 ORLANDO FL 01 1285 972
R-43 WATERTOWN NY 01 2683 495
R-44 LEAVENWORTH KS 11 2650 370
R-46 LONGMONT CO 11/SSD 2398 356
R-47 PALM BEACH GARDENS FL 01 1765 1543
R-48 PLATTSBURG NY 01 2533 796
R-49 MUSKOGEE OK 01 2045 624
R-50 DULUTH MN 11 2500 770
R-51 BOWLING GREEN KY 01 2546 464
R-52 GAINESVILLE GA 01 2505 798
R-53 PITTSBURGH PA 01 1034 834
R-54 FLUSHING NY 01 3244 626
R-56 LEWISTON ID 11 2209 315
R-57 WESTMINSTER MD 01 2963 614
R-59 LIHUE HI 11 2368 230
<FN>
* Remote Studio
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
R-60 MORRISTOWN TN 01 2055 578
R-61 ARLINGTON TX 01/SSD 1437 854
R-63 TRAVERSE CITY MI 11 2180 366
R-66 MONROE MI 11 2012 416
R-67 CHATTANOOGA TN 01 1105 1003
R-70 MANASSAS VA 01 2044 703
R-71 HATO REY PR 03 1905 1411
R-72 CAROLINA PR 03 1925 820
R-73 BAYAMON PR 03 1915 480
R-75 PONCE PR 03 1945 901
R-76 MAYAGUEZ PR 03 2925 576
R-77 CAGUAS PR 03 2915 160
R-80 SAN ANTONIO TX 01 1427 620
R-81 HOLLAND MI 11 2032 629
R-82 CHICO CA 11 2048 495
R-84 CHRISTIANBURG VA 01 2985 590
R-85 SCHENECTADY NY 01 2113 639
R-86 NEW PHILADELPHIA OH 01 2080 385
R-87 BLOOMSBURG PA 01 2284 630
R-88 AMES IA 11 2092 589
R-89 LOS ANGELES CA 11 1018 1265
R-91 ASHEBORO NC 01 2645 479
R-92 DU BOIS PA 01 2124 374
R-94 CHEEKTOWAGA NY 01 2134 845
R-95 CHICAGO IL 11 2980 699
R-96 SHAWNEE OK 01 2057 522
R-97 ITHACA NY 01 2564 383
R-98 PORT CHARLOTTE FL 01 2145 672
R-99 LEWISVILLE TX 01/SSD 1076 1042
S-414 ST. ANN MO 11/SSD 1500 1346
S-426 VIRGINIA BEACH VA 01 1265 1009
S-427 DALLAS TX 01/SSD 1057 2200
S-467 OVERLAND PARK KS 11/SSD 1101 1218
S-475 HOUSTON TX 01 1197 893
S-477 MESQUITE TX 01/SSD 1187 1683
S-480 FT. WORTH TX 01/SSD 1117 823
S-482 HOUSTON TX 01 1017 950
S-483 HOUSTON TX 01 1067 666
S-484 HOUSTON TX 01 1127 1260
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
S-487 PHILADELPHIA PA 01 1084 1313
S-492 PASADENA TX 01 1107 1125
S-493 CRESTWOOD MO 11/SSD 1270 1324
S-494 SILVER SPRINGS MD 01 1304 1375
S-495 BETHESDA MD 01 1424 1160
S-752 UPPER DARBY PA 01 1174 1040
S-756 DALLAS TX 01/SSD 1227 986
S-758 ALBUQUERQUE NM 11 1287 966
S-760 TULSA OK 01 1021 710
S-761 AUSTIN TX 01 1137 1252
S-762 SAN ANTONIO TX 01 1167 763
S-767 LANDOVER MD 01 1604 2055
S-768 WILLOW GROVE PA 01 1354 903
S-769 TAMPA FL 01 1505 989
S-771 LIVONIA MI 11 1460 1141
S-772 TROY MI 11 1490 1047
S-773 FLINT MI 11 1100 1218
S-774 ROSEVILLE MI 11 1450 1344
S-778 LOUISVILLE KY 11 1850 1460
S-779 COLUMBUS OH 11 1370 615
S-781 COLUBUS OH 11 1440 1298
S-784 FRANKLIN TN 01 2875 702
S-785 GOODLETTSVILLE TN 01 1386 1125
S-786 MEDIA PA 01 1654 761
S-787 FLORISSANT MO 11/SSD 1630 1200
S-788 RICHARDSON TX 01/SSD 1207 343
S-790 TIGARD OR 11 1079 1977
S-791 MOBILE AL 01 1056 737
S-792 ALTAMONTE SPRINGS FL 01 1355 711
S-793 TUCSON AZ 11 1338 1027
S-794 SPOKANE WA 11 1029 1004
S-795 METAIRIE LA 01 1226 803
S-797 GRETNA LA 01 1286 820
S-798 INDEPENDENCE MO 11/SSD 1121 1248
S-799 KANSAS CITY MO 11/SSD 2301 529
S-800 WESTMINISTER CA 11 1608 1004
S-801 LAGUNA HNILLS CA 11 1548 1265
S-802 LINCOLN PARK MI 11 1250 1232
S-803 COLUMBUS OH 11 1150 514
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
S-804 AURORA IL 11 1660 1152
S-805 IRVING TX 01/SSD 2147 782
S-806 SACRAMENTO CA 11 1408 751
S-807 CITRUS HEIGHTS CA 11 1538 1950
S-808 BIRMINGHAM AL 01 1266 963
S-810 BIRMINGHAM AL 01 2746 216
S-812 CORNWELL HEIGHTS PA 01 1454 616
S-814 WILMINGTON DE 01 1853 901
S-815 WILMINGTON DE 01 1254 692
S-816 DEPTFORD NJ 01 1464 1111
S-817 MOORESTOWN NJ 01 1494 720
S-818 LITTLE ROCK AR 01 1016 843
S-819 N. LITTLE ROCK AR 01 2066 936
S-820 COLUMBIA SC 01 1525 774
S-821 N. SAN DIEGO CA 11 1648 1709
S-822 NOVI MI 11 1760 1585
S-823 NORMAN OK 01 2311 702
S-825 OKLAHOMA CITY OK 01 1091 867
S-826 MT. VIEW CA 11 1238 1657
S-827 EL PASO TX 11 1317 825
S-829 AMARILLO TX 01 1387 398
S-830 PARK FOREST IL 11 1420 597
S-832 SCHAUMBURG IL 11 1570 2241
S-833 MERRILLVILLE IN 11 1650 1324
S-836 DES MOINES IA 11 1012 929
S-837 N. HOLLYWOOD CA 11 1168 1041
S-838 CLEARWATER FL 01 1415 1116
S-839 TAMPA FL 01 1465 1565
S-840 MONACA PA 01 1594 1291
S-842 PITTSBURGH PA 01 1334 565
S-844 PITTSBURGH PA 01 1344 1305
S-845 WEST MIFFLIN PA 01 1824 953
S-846 GREENSBURG PA 01 1714 950
S-847 SEATTLE WA 11 1009 519
S-848 TACOMA WA 11 1129 1120
S-849 TUKWILA WA 11 1139 1131
S-850 SEATTLE WA 11 1059 833
S-851 REDMOND WA 11 1069 715
S-852 FEDERAL WAY WA 11 1099 685
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
S-853 SILVERDALE WA 11 2309 886
S-855 EVERETT WA 11 2049 1029
S-856 ST. PETERSBURG FL 01 1295 809
S-857 VANCOUVER WA 11 2239 1134
S-858 SALEM OR 11 2119 881
S-859 CHICAGO IL 11 1010 840
S-860 JACKSON MS 01 1106 1963
S-861 MIDWEST CITY OK 01 1261 616
S-862 BATON ROUGE LA 01 1086 1222
S-863 MONROE LA 01 1116 753
S-864 BOSSIER CITY LA 01 2677 275
S-865 MONTGOMERY AL 01 1126 855
S-866 PENSACOLA FL 01 1096 1366
S-867 FLORENCE KY 11 1730 912
S-868 CHICAGO IL 11 1020 824
S-869 CHICAGO IL 11 1030 672
S-870 CHICAGO IL 11 1090 1160
S-872 CHICAGO IL 11 1380 1323
S-874 NILES IL 11 1290 1851
S-876 OAK BROOK IL 11 1300 1792
S-877 VERNON HILLS IL 11 1620 1380
S-879 SHREVEPORT LA 01 1077 800
S-880 DES MOINES IA 11 2392 606
S-881 UNION GAP WA 11 2029 1117
S-883 BEAUMONT TX 01 1407 660
S-884 PORT ARTHUR TX 01 2637 997
S-887 AKRON OH 01 1520 715
S-888 AKRON OH 01 1670 768
S-889 DENTON TX 01/SSD 2587 577
S-892 CLEVELAND OH 01 1430 1118
S-893 ELYRIA OH 01 1310 988
S-894 MENTOR OH 01 1350 869
S-895 NORTH RANDALL OH 01 1770 626
S-896 RICHMOND HEIGHTS OH 01 1530 769
S-897 NORTH OLMSTEAD OH 01 1710 1342
S-898 ALEXANDRIA LA 01 2087 922
S-899 MARY ESTHER FL 01 2056 850
V-12 W. HARTFORD CT 01 1063 560
V-13 ALBANY NY 01 1103 1177
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
V-15 CLAY NY 01 1623 820
V-16 NEW HARTFORD NY 01 2603 1100
V-18 WATERBURY CT 01 1183 1128
V-19 GLEN FALLS NY 01 2453 675
V-20 LEWISTON ME 01 2463 756
V-21 ALLENTOWN PA 01 1154 1267
V-22 MAY'S LANDING NJ 01 1554 780
V-23 BANGOR ME 01 2583 2035
V-24 WILKES-BARRE PA 01 2604 1057
V-25 LANCASTER PA 01 1644 888
V-26 BURLINGTON VT 01 2053 562
V-27 CAMP HILL PA 01 2624 496
V-29 WARWICK RI 01 1083 811
V-30 SWANSEA MA 01 2283 505
V-31 TOM'S RIVER NJ 01 2524 791
V-32 N. DARTMOUTH MA 01 2373 787
V-33 S. PORTLAND ME 01 2183 768
V-34 READING PA 01 1484 936
V-35 HOLYOKE MA 01 1273 710
V-36 MANCHESTER NH 01 2443 882
V-37 WATERFORD CT 01 1193 835
V-39 HARRISBURG PA 01 1224 886
V-40 POTTSTOWN PA 01 2484 955
V-41 DEDHAM MA 01 1123 642
V-42 ORANGE CT 01 1113 1455
V-43 BROCKTON MA 01 2233 782
V-44 NEWBURGH NY 01 2593 623
V-45 POUGHKEEPSIE NY 01 1333 1043
V-46 KINGSTON NY 01 2353 707
V-47 MIDDLETOWN NY 01 1323 832
V-48 SALISBURY MD 01 1773 1065
V-49 HANOVER PA 01 2244 568
V-50 SCRANTON PA 01 1534 1172
V-51 SPRINGFIELD MA 01 1093 857
V-53 MUNCY PA 01 2644 746
V-54 FRACKVILLE PA 01 2684 918
V-55 BRAINTREE MA 01 1283 1838
V-56 CAMILLUS NY 01 2164 495
V-57 YORK PA 01 1244 882
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
V-58 AUGUSTA ME 01 2293 932
V-59 LEBANON PA 01 2254 698
V-60 BRUNSWICK ME 01 2203 499
V-61 PRESQUE ISLE ME 01 2143 558
V-62 DOVER DE 01 2654 625
V-63 WOONSOCKET RI 01 2073 660
V-64 LANESBOROUGH MA 01 2343 312
V-65 MERIDEN CT 01 1043 670
V-67 VINELAND NJ 01 2374 385
V-68 MANCHESTER CT 01 1443 1232
V-69 DANBURY CT 01 1303 1093
V-70 HYANNIS MA 01 2323 531
V-71 NEWINGTON NH 01 2663 1002
V-72 NATICK MA 01 1403 1476
V-74 CONCORD NH 01 2023 990
V-75 AUBURN NY 01 2473 384
V-76 NASHUA NH 01 1313 1553
V-77 HANOVER MA 01 1243 1452
V-78 PEABODY MA 01 1253 1146
V-79 AUBURN MA 01 1213 1093
V-80 OCEAN NJ 01 1744 791
V-81 SAUGUS MA 01 1053 1090
V-82 LEOMINSTER MA 01 1133
V-83 BURLINGTON MA 01 1163 1293
V-87 GARLAND TX 06/SSD N/A 1107
V-89 JEFFERSON CITY MO 16 N/A 556
V-92 BATESVILLE AR 06 N/A 660
Y-02 LANCASTER OH 11 2750 383
Y-03 ELIZABETHTOWN KY 11 2030 640
Y-04 MERAUX LA 01 2385 504
Y-06 CHAMBERSBURG PA 01 2224 739
Y-08 IRONDEQUOIT NY 01 2003 869
Y-09 NEW HYDE PARK NY 01 2933 949
Y-12 SOUTH WALDORF MD 01 1074 981
Y-13 MURFREESBORO TN 01 2226 573
Y-17 FAIRFIELD AL 01 2206 595
Y-18 SARATOGA SPRINGS NY 01 2173 675
Y-19 COLUMBIA SC 01 2035 551
Y-21 FREEHOLD NJ 01 1204 715
</TABLE>
<PAGE>
<TABLE>
Schedule Of Locations
<CAPTION>
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE
- ----- ---------------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Y-22 MASSENA NY 01 2033 588
Y-23 HOUSTON TX 01 5011 801
Y-24 ST. PETERS MO 11/SSD 1182 1470
Y-25 JACKSONVILLE FL 01 1066 668
Y-26 WESTOVE WV 01 2304 908
Y-27 COON RAPIDS MN 11 2902 284
Y-29 CRYSTAL RIVER FL 01 2555 669
Y-30 CAMBRIDGE MA 01 1343 1107
Y-31 OAKRIDGE TN 01 2376 612
Y-36 ST. CHARLES IL 11 2041 862
Y-37 MESA AZ 11/SSD 1078 728
Y-38 BURBANK CA 11 1838 866
Y-39 RICHMOND CA 11 1788 762
Y-40 PINEVILLE NC 01 1646 800
Y-41 BLOOMINGDALE IL 11 1172 1275
Y-43 CARY NC 01 2824 728
Y-44 MARTINSBURG WV 01 2814 679
Y-46 BALTIMORE MD 01 2823 841
Y-47 MIDLAND MI 11 2642 622
Y-48 FAIRBANKS AK 11 2819 610
Y-50 SALEM NH 01 1003 1049
Y-51 TAUNTON MA 01 2934 962
Y-52 MONTEBELLO CA 11 1998 823
Y-53 CLEVELAND TN 01 2345 530
Y-54 ASHTABULA OH 01 2932 907
Y-55 BLOOMINGTON MN 11 1722 954
Y-56 BOYNTON BEACH FL 01 1755 995
Y-57 VALENCIA CA 11 1999 967
Y-58 MORENO VALLEY CA 11 1868 928
Y-61 HOMESTEAD FL 01 2235 476
Y-62 ALPHARETTA GA 01 1695 1033
Y-63 BEAVER CREEK OH 11 1202 800
Y-64 PUYALLUP WA 11 2330 598
Y-65 SHELBY NC 11 2844 722
Y-66 STROUDSBURG PA 01 2074 937
Y-67 LEESBURG FL 01 2745 588
Y-68 MATTOON IL 11 2931 704
Y-69 THE WOODLANDS TX 11 1457 1011
Y-70 CENTERVILLE GA 01 2415 968
</TABLE>
EXHIBIT (10.2)
MATERIAL CONTRACT
Employment Contract - Alyn V. Essman
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated February 5, 1995, between CONSUMER PROGRAMS
INCORPORATED, a Missouri corporation (the "Corporation"), and
Alyn V. Essman (the "Executive").
WHEREAS, the Corporation currently employs the Executive in
the capacity of Chairman of the Board and Chief Executive Officer,
and the Executive is one of the key executives of the Corporation
and its parent corporation, CPI Corp.;
WHEREAS, there is much competition for the type of business
performed by the Corporation in the locales in which the
Corporation operates, and the Corporation and Executive
acknowledge that the Corporation is active in the product markets
in which it competes;
WHEREAS, Executive, during his or her employment, has been
and will be entrusted with confidential information;
WHEREAS, Executive and the Corporation recognize and
acknowledge that, to ensure the continued growth and stability of
the Corporation, it is necessary to obtain an agreement from
Executive not to compete with the Corporation and not to disclose
confidential information of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue
in the employ of the Corporation as a result of his or her
experience with the Corporation and his or her potential for
making future contributions to the Corporation, and the Executive
is willing to make a commitment to remain in such employ upon the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliated Companies" shall mean any corporation
(or other business entity) controlling, controlled by or under
common control with the Corporation.
(b) "Beneficiary" shall mean the person designated in
writing by the Executive as his or her beneficiary under this
Agreement, or in the absence of such designation, his or her
estate.
(c) "Cause" shall mean:
(1) prior to a Change of Control, (i) conduct or
activity of the Executive materially detrimental to the
Corporation's reputation or business (including financial)
operations; (ii) gross or habitual neglect or breach of duty or
<PAGE>
misconduct of the Executive in discharging the duties of his or
her position; or (iii) prolonged absence by the Executive from
his or her duties (other than on account of illness or
disability) without the consent of the Corporation.
(2) after a Change of Control, (i) an act or acts
of dishonesty on the Executive's part which are intended to
result in his or her substantial personal enrichment at the
expense of the Corporation; (ii) any material violation by the
Executive of his or her obligations and covenants pursuant to
this Agreement which is demonstrably willful and deliberate on
the Executive's part and which results in material injury to the
Corporation; or (iii) the conviction of Executive of a felony or
of a crime involving moral turpitude.
(d) A "Change of Control" shall mean a change in
control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that
such event had been "previously reported" as that term is defined
in Rule 12b-2 of Regulation 12B of the Exchange Act unless the
transactions that give rise to the change in control are approved
or ratified by a majority of the members of the Incumbent Board
of CPI Corp. who are not employees of the Corporation; provided
that, without limitation, notwithstanding anything herein to the
contrary, such a change in control shall be deemed to have
occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of CPI Corp. representing 40% or more
of the combined voting power of CPI Corp.'s then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), (b) individuals who constitute
the Board of CPI Corp. on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by CPI
Corp.'s shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of CPI Corp. in which such person is named as a nominee for
director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person
were a member of the Incumbent Board, or (c) approval by the
stockholders of CPI Corp. of a reorganization, merger or
consolidation, in each case, with respect to which persons who
were the stockholders of CPI Corp. immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation or
<PAGE>
dissolution of CPI Corp. or of the sale of all or substantially
all of the assets of CPI Corp. For purposes of this Agreement,
the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person,"
as such term is used in Section 14(d) of the Exchange Act, other
than CPI Corp., the Corporation or an Affiliated Company or any
employee benefit plan(s) sponsored or maintained by the
Corporation or any Affiliated Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as may be amended from time to time.
(f) "Continuing Directors" shall have the meaning set
forth in Paragraph 3(G) of Article Ten of CPI Corp.'s Certificate
of Incorporation.
(g) "Fiscal Year" shall mean the Fiscal Year of the
Corporation.
(h) "Permanent Disability" shall mean the inability of
Executive to perform the services contemplated by Section 4
hereof for a period of at least one hundred eighty (180)
consecutive calendar days or for thirty-five (35) weeks (whether
or not consecutive) in any twelve (12) month period on account of
any sickness, injury or other infirmity or disability.
(i) "Retirement" shall mean the Executive's voluntary
or involuntary termination of employment with the Corporation
except for termination on account of (A) Cause as defined in
Subsection 6(b) hereof, (B) death or (C) Permanent Disability
before attaining age sixty-five (65).
(j) "Term of Employment" shall have the meaning set
forth in Section 3 hereof.
(k) "Vesting Percentage" shall mean the percentage of
Supplemental Retirement Benefits, death benefits, and disability
benefits in which Executive has a nonforfeitable interest (except
in the event of termination for Cause) based upon the number of
Years of Service Executive has completed, determined as follows:
<TABLE>
<CAPTION>
Completed Years of Service Vesting Percentage
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
<PAGE>
Notwithstanding anything herein to the contrary, if Executive's
employment with the Corporation terminates following a Change of
Control, unless such termination is for Cause, for purposes of
Subsections 5(g), 5(h), and 5(i) of this Agreement Executive
shall be deemed to have completed ten (10) Years of Service and
his or her Vesting Percentage shall be deemed to be 100%.
(l) "Year of Service" shall mean any Fiscal Year
during which the Executive has worked for the Corporation at
least one thousand (1,000) hours, including Fiscal Years prior to
the effective date of this Agreement.
2. Employment. The Corporation hereby employs and engages
the services of the Executive as one of its key executives
initially in the position of Chairman of the Board and Chief
Executive Officer of the Corporation and its parent corporation,
CPI Corp. for the Term of Employment set forth in Section 3. The
Executive agrees to serve the Corporation for the Term of
Employment as provided herein.
3. Term of Employment. The Executive's Term of Employment
shall be a period commencing on the date hereof and ending one
(1) year thereafter; provided, however, that upon the expiration
of the aforesaid period (the "Expiration Date") and upon each
anniversary of the Expiration Date, the Term of Employment shall
automatically be extended for an additional one (1) year period
unless Executive or the Corporation notifies the other in writing
at least sixty (60) days prior to the commencement of such one
(1) year period of an intention to terminate this Agreement.
Notwithstanding anything herein to the contrary, the Term of
Employment shall terminate upon Executive's death or Permanent
Disability as set forth in subsection 6(a) hereof or upon the
Corporation's termination of Executive's employment for Cause
pursuant to subsection 6(b) hereof.
4. Position and Duties.
(a) Prior to a Change of Control, during the Term of
Employment, the Executive shall serve the Corporation in such
capacity as the Corporation may determine. After a Change of
Control, during the Term of Employment, the Executive's position,
authority and responsibilities, the type of work he or she is
asked to perform, and the status and stature of the people with
whom he or she is asked to work, shall be comparable to that
existing with respect to the Executive as of the date immediately
prior to the Change of Control, and after a Change of Control the
Executive's services shall be performed at the location where the
Executive was employed as of the date immediately prior to the
Change of Control, or at such other location as may be mutually
agreed between the Corporation and the Executive.
(b) The Executive agrees to devote his or her full
business time during normal business hours to the business and
affairs of the Corporation (except as otherwise provided herein)
and to use his or her best efforts to promote the interests of
<PAGE>
the Corporation and its Affiliated Companies and to perform
faithfully and efficiently the responsibilities assigned to
him or her in accordance with the terms of this Agreement to the
extent necessary to discharge such responsibilities, except for
(i) service on corporate, civic or charitable boards or
committees not significantly interfering with the performance of
such responsibilities and (ii) periods of vacation and sick
leave to which he or she is entitled. It is expressly understood
and agreed that the Executive's continuing service on any boards
and committees with which he or she shall be connected, as a
member or otherwise, as of the date hereof, or any such service
approved by the Corporation during the Term of Employment, shall
not be deemed to interfere with the performance of the
Executive's services to the Corporation pursuant to this
subparagraph 4(b).
5. Compensation and Other Conditions of Employment.
(a) Base Salary. During the Term of Employment, the
Executive shall receive an annual base salary (the "Base
Salary"), in equal installments payable weekly or at such other
intervals as salary is normally paid by the Corporation to its
employees, at an annual rate established by the Corporation and
any Affiliated Companies as of the date hereof. The Base Salary
shall be reviewed at least once each year and may be increased at
any time and from time to time by action of the Board of
Directors of CPI Corp., any committee thereof or any individual
having authority to take such action, in accordance with the
Corporation's regular practices. Any increase in the Base Salary
shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after such increase the Base Salary
shall not be reduced from such increased level.
(b) Annual Bonus. After a Change of Control, in
addition to the Base Salary, the Executive shall be awarded for
each Fiscal Year during the Term of Employment an annual bonus (the
"Annual Bonus") (pursuant to any bonus plan or program of the
Corporation, any incentive plan or program of the Corporation, or
otherwise) in cash at least equal to the highest bonus paid or
payable to the Executive in respect of any of the Fiscal Years
during the three Fiscal Years immediately prior to the date of
the Change of Control. Prior to a Change of Control, the amount
of the Executive's Annual Bonus shall be determined in accordance
with the Corporation's regular practice.
(c) Other Compensation Plans. After a Change of
Control, in addition to the Base Salary and Annual Bonus payable
as hereinabove provided, during the Term of Employment, the
Executive shall be entitled to participate in all other
compensation plans and programs, including, without limitation,
savings plans, stock option plans, and retirement plans of the
Corporation and its Affiliated Companies (collectively, the
"Savings Plans"), on a basis at least equivalent to that provided
by the Corporation and its Affiliated Companies to the Executive
under such programs immediately prior to the date of the Change
<PAGE>
of Control. Prior to a Change of Control, the Executive's
entitlement to participate in the Savings Plans shall be
determined in accordance with the Corporation's regular
practice. Prior to a Change of Control, nothing herein shall be
construed to prevent the Corporation from amending or altering
any such plans in accordance with the terms thereof. All
agreements between the Corporation and the Executive existing on
the date hereof providing for special pension, retirement or
similar benefits are continued by this Agreement.
(d) Benefit Plans. After a Change of Control, during
the Term of Employment, the Executive, his or her spouse, or his
or her dependents, as the case may be, shall be entitled to
receive all amounts which he or she, his or her spouse or his or
her dependents are or would have been entitled to receive as
benefits under all other benefit plans of the Corporation and its
Affiliated Companies, including, without limitation, medical,
dental, disability, group life, accidental death and travel
accident insurance plans and programs (collectively, the "Benefit
Plans") on a basis at least as favorable to the Executive as on
the date immediately prior to the date of the Change of Control.
Prior to a Change of Control, the Executive's and such other
persons' entitlement to participate in the Benefit Plans shall be
determined in accordance with the Corporation's regular practice.
(e) Expenses. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the regular policies and procedures of the Corporation.
(f) Office and Support Staff. After a Change of
Control the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive as of the date immediately prior to the
date of the Change of Control.
(g) Death Benefits. In the event of Executive's death
after completion of at least ten (10) Years of Service, unless
(1) Executive's employment with the Corporation was terminated
for Cause or (2) Executive (or his or her Beneficiary) is
entitled to receive Supplemental Retirement Benefits pursuant to
subsection 5(i), the Corporation shall pay to Executive's
Beneficiary an annual death benefit equal to forty percent (40%)
(but not to exceed $100,000) of Executive's annual Base Salary
(as defined in subsection 5(a) hereof) for the Fiscal Year of his
or her termination of employment with the Corporation in equal
monthly installments commencing with the month following the
month of Executive's death and ending with the later of (i) the
month in which Executive would have reached age sixty-five (65)
or (ii) the one-hundred twentieth (120th) month following the
month of Executive's death. In the event that Executive dies
before age 65 but has not completed at least ten (10) Years of
Service with the Corporation, death benefits shall be reduced to
an amount equal to the benefits determined under the preceding
sentence multiplied by the Vesting Percentage applicable to
Executive.
<PAGE>
(h) Disability Benefits. In the event of Executive's
Permanent Disability prior to attaining age 65 and prior to
termination of employment with the Corporation, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive annual disability
benefits equal to forty percent (40%) (but not to exceed
$100,000) of Executive's annual Base Salary for the Fiscal Year
in which the Executive terminated employment with the
Corporation, payable in equal monthly installments, commencing
with the month following the month in which Executive terminated
employment as a result of Permanent Disability and ending on the
earlier of (i) the month in which Executive reaches age 65 or
(ii) the month of his or her death. In the event that at the
time of Permanent Disability Executive has not completed at least
ten (10) Years of Service, the disability benefits shall be
reduced to an amount equal to the benefits determined under the
preceding sentence multiplied by the Vesting Percentage
applicable to Executive. Disability benefits pursuant to this
subsection (h) shall be reduced by any amounts paid to Executive
under the Corporation's long-term disability insurance policy,
but shall not be reduced for any payments received by Executive
from Social Security or from any disability insurance coverage
individually owned by Executive.
(i) Supplemental Retirement Benefits.
(1) In the event of Executive's Retirement after
completion of at least ten (10) Years of Service, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive retirement benefits
for ten (10) years in an annual amount equal to forty percent
(40%) (but not to exceed $100,000) of Executive's annual Base
Salary for the Fiscal Year of his or her Retirement
("Supplemental Retirement Benefits"). In the event of
Executive's Retirement before completion of ten (10) Years of
Service, Corporation shall pay Executive retirement benefits on
the same terms as set forth in the preceding sentence except that
retirement benefits shall be reduced to an amount equal to
Supplemental Retirement Benefits multiplied by the Vesting
Percentage.
(2) Supplemental Retirement Benefits shall be
payable in one hundred twenty (120) equal monthly installments
commencing with the month following the later of (i) the month of
Executive's Retirement or (ii) the month during which Executive
reaches age sixty-five (65). If Executive dies prior to the end
of the one hundred twenty (120) month period during which
Supplemental Retirement Benefits are payable, Supplemental
Retirement Benefits shall be payable during the remainder of such
120-month period to his or her Beneficiary.
(3) Notwithstanding anything herein to the
contrary, in the event of Executive's termination of employment
with the Corporation prior to attaining age 65 as a result of
Permanent Disability, if Executive attains age 65 and his or her
employment with the Corporation was not terminated for Cause, the
<PAGE>
Corporation shall pay to Executive the Supplemental Retirement
Benefits set forth in this Subsection 5(i) in accordance with
Executive's Vesting Percentage, commencing as of the month
following the month in which Executive attains age 65; provided,
however, that any Supplemental Retirement Benefits paid pursuant
to this sentence shall be reduced by any amounts paid to
Executive under the Corporation's long-term disability insurance
policy (but shall not be reduced for any payments received by
Executive from Social Security or from any disability insurance
coverage individually owned by Executive) for the same period.
(j) Survivability of Death and Supplemental Retirement
Benefits. In the event of Executive's Retirement or death,
Executive's entitlement to death benefits pursuant to Subsection
5(g) hereof and Supplemental Retirement Benefits pursuant to
Subsection 5(i) hereof shall survive the Term of Employment and
Executive or his or her Beneficiary shall be entitled to such
death benefits and Supplemental Retirement Benefits based on the
same terms and conditions as would have been applicable had his
or her death or Retirement, as the case may be, occurred during
the Term of Employment.
6. Termination of Employment.
(a) Death or Permanent Disability. Except for the
obligations of the Corporation set forth in this Subsection 6
(a), this Agreement shall terminate automatically upon the
Executive's death or Permanent Disability. In the event of such
termination, the Corporation shall pay to the Executive's
Beneficiary or, in the event of Permanent Disability, the
Executive or his or her legal representative, all benefits and
Base Salary accrued through the date of termination, including,
without limitation, amounts payable under any plan referred to in
Subsection 5(d) plus any benefits to which Executive may be
entitled pursuant to Subsection 5(g), Subsection 5(h) or
Subsection 5(i) hereof.
(b) Cause. The Corporation may terminate the
Executive's employment for Cause. If the Executive's employment
is terminated for Cause, the Corporation shall pay the Executive
his or her full accrued Base Salary through the effective date of
the termination of his or her employment (which shall be no
earlier than the date of receipt of notice thereof) at the rate
in effect at the time of such termination, and the Corporation
shall have no further obligations to the Executive under this
Agreement.
(c) Notification Prior to One Year Extension. Either
Executive or the Corporation may terminate this Agreement by
notifying the other party in writing of an intention to do so at
least sixty (60) days prior to the commencement of a one-year
extension period described in Section 3 hereof.
(d) Payments for Involuntary Termination Without
Cause.
<PAGE>
(1) If prior to a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall pay Executive during the 24-month period
following such involuntary termination of employment an amount
equal to 200% of Base Salary for the Fiscal Year of termination,
payable in equal weekly installments or at such other intervals
as salary is normally paid by the Corporation to its employees.
The payment pursuant to this Subsection 6(d)(1) and any payments
to which Executive may be entitled pursuant to Subsections 5(g),
5(h), and 5(i) shall be in full discharge of any claims, actions,
demands or damages of every nature and description which
Executive might have or might assert against the Corporation or
any Affiliated Company in connection with or arising from the
termination of Executive's employment or the termination of this
Agreement.
(2) If following a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to Subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall, at the time of such involuntary
termination, make a lump sum cash payment to Executive equal to
200% of his or her Base Salary for the Fiscal Year of
termination. In addition to the payment pursuant to this
Subsection 6(d)(2) and any payments to which Executive may be
entitled pursuant to Subsections 5(g), 5(h) and 5(i), Executive
shall be entitled to all remedies available under this Agreement
or at law in respect of any damages suffered by Executive as a
result of an involuntary termination of employment without Cause.
7. Gross-Up For Parachute Tax.
(a) General. In the event that following a Change of
Control Executive becomes entitled to any payments (whether
pursuant to this Employment Agreement or any other plan,
arrangement or agreement) from the Corporation in the nature of
compensation ("Parachute Payments") that in the opinion of a
certified public accounting firm (selected in the manner set
forth in Subsection 7(b)) or that under the provisions of a
notice of assessment from the Internal Revenue Service causes
imposition of the tax under Section 4999 of the Code or any
similar tax that may hereafter be imposed (the "Excise Tax"), the
Corporation shall pay Executive, at the time specified in
Subsection 7(d), the Gross-Up Payment (as determined in
accordance with Subsection 7(c)).
(b) Selection of C.P.A. Within fifteen (15) days
after any termination of Executive's employment following a
Change of Control, the majority of the Continuing Directors as of
the date immediately prior to the Change of Control shall select
a certified public accounting firm (the "C.P.A.") to determine
<PAGE>
the amount, if any, of the Excise Tax and the amount, if any, of
the Gross-Up Payments.
(c) Amount of Gross-Up Payments.
(1) The Gross-Up Payments shall be in an amount
such that the net amount retained by Executive with respect to
the Parachute Payments and Gross-Up Payments, after deduction of
any Excise Tax to which the Parachute Payments may be subject and
any federal, state, and local income taxes and Excise Tax upon
the Gross-Up Payments, shall be equal to the gross amount of the
Parachute Payments.
(2) For purposes of determining the amount of the
Gross-Up Payments, Executive shall be deemed to pay federal
income taxes at the applicable rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the applicable rate of
taxation for the calendar year in which the Gross-Up Payment is
to be made.
(3) In the event that the Excise Tax is
subsequently determined to exceed the amount taken into account
at the time the Gross-Up Payment is made pursuant to Subsection
7(d)(1) hereof (including any excess attributable to any
Parachute Payments the existence or amount of which could not be
accurately determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest and addition to tax payable
with respect to such excess) within fifteen (15) days after the
amount of such excess is determined by the C.P.A. or by the
Internal Revenue Service (the "IRS") in a notice of assessment.
(d) Timing of Gross-Up Payments. Gross-Up Payments
other than Gross-Up Payments pursuant to Subsection 7(c)(3) shall
be paid not later than forty-five (45) days following payment of
any Parachute Payments to which the Gross-Up Payments are
attributable; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally determined
on or before such day, the Corporation shall pay to Executive on
such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
applicable federal rate provided in Section l274(d) of the Code)
as soon as the amount thereof can be determined by the C.P.A.,
but in no event later than forty-five (45) days after payment of
such Parachute Payments.
(e) Corporation's Right to Designate Tax
Representative; Assignment of Refund Proceeds. If the IRS
proposes an assessment of the Excise Tax against Executive or
proposes an additional assessment of Excise Tax in excess of the
amount previously reported by Executive:
(1) Executive shall within five (5) days after
receipt from the IRS of notice of the proposed Excise Tax
assessment notify the Corporation in writing and furnish the
Corporation with copies of all correspondence from the IRS
relating to the proposed Excise Tax assessment.
<PAGE>
(2) The Corporation shall be authorized to
designate an attorney and/or accountant (the "Tax
Representative") to serve as Executive's exclusive representative
with respect to all proceedings with the IRS relating to the
proposed Excise Tax assessment, including but not limited to
negotiating a settlement or compromise of the proposed Excise Tax
assessment, filing a claim for refund with respect thereto, and
seeking judicial review of any disallowance of a claim for
refund. Executive hereby agrees to execute an appropriate power
of attorney authorizing the Tax Representative to represent
Executive with respect to the Excise Taxes. Executive further
agrees to take any other appropriate actions reasonably requested
by the Tax Representative in connection therewith; provided,
however, that the Corporation shall reimburse Executive for any
expenses incurred by Executive as a result of compliance with
such requests.
(3) If the Tax Representative files a claim for
refund of Excise Taxes with respect to which the Corporation has
made a Gross-Up Payment and such refund claim is allowed by the
IRS or by the final judgment of a court of competent
jurisdiction, Executive shall endorse the refund check payable to
the Corporation and shall send the refund check to the
Corporation not later than five (5) days after receipt from the
IRS.
(4) If the Corporation designates a Tax
Representative, the Corporation shall pay all of his or her
professional fees and expenses and hold Executive harmless from
any claims in connection therewith. The Tax Representative shall
keep Executive timely informed of all significant developments in
the Excise Tax matter and shall send to Executive copies of all
correspondence relating thereto.
(5) Notwithstanding anything herein to the
contrary, if the Corporation is in material breach of any of its
obligations pursuant to this Agreement, the Corporation's rights
pursuant to this Subsection 7(e) shall be extinguished and
Executive shall have the right to revoke any power of attorney
executed pursuant to this Subsection 7(e).
8. No Obligation to Mitigate Damages. The Executive shall
not be obligated to mitigate any damages by seeking other
employment or otherwise, and no amount payable hereunder and no
benefit or service credit for benefits shall be reduced in the
event that the Executive shall accept alternative employment.
9. Benefits Payable Only From Corporate Assets.
(a) No Trust. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Corporation and the
Executive or his or her Beneficiary.
(b) Executive's Status as Unsecured General Creditor.
The payment of any benefits hereunder to the Executive or his or
<PAGE>
her Beneficiary shall be made from assets which shall continue,
for all purposes, to be a part of the general assets of the
Corporation; no person shall have or acquire any interest in such
assets by virtue of the provisions of this Agreement. To the
extent that the Executive or his or her Beneficiary acquires a
right to receive payments from the Corporation under the
provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
(c) Recovery of Cost of Providing Benefits. In the
event that, in its discretion, the Corporation purchases an
insurance policy insuring the life of the Executive to enable the
Corporation to recover, in whole or in part, the cost of
providing any benefits hereunder, neither the Executive nor his
or her Beneficiary under this Agreement shall have or acquire any
rights whatsoever therein. The Corporation shall be the sole
owner and beneficiary of any such policy and, as such, shall
possess and may exercise all incidents of ownership therein.
10. Determination of Benefits and Claims Procedure. The
Corporation shall make all determinations as to rights to
benefits under this Agreement. Subject to and in compliance with
the specific procedures contained in the applicable regulations
promulgated under the Employee Retirement Income Security Act of
1974, as amended: (i) any decision by the Corporation denying a
claim for benefits under this Agreement by the Executive or his
or her Beneficiary shall be stated in writing by the Corporation
and delivered or mailed to the claimant; (ii) each such notice
shall set forth the specific reasons for the denial, written to
the best of the Corporation's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the
Corporation shall afford a reasonable opportunity to the claimant
whose claim for benefits has been denied for a review of the
decision denying such claim.
11. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any Affiliated Companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Corporation or any
Affiliated Companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or
program of the Corporation or any Affiliated Companies shall be
payable in accordance with the terms of such plan or program.
12. Full Settlement. After a Change of Control, the
Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. Unless
<PAGE>
it is finally determined by a court of competent jurisdiction
after all available appeals that the Corporation has validly
terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof, plus, in each case, interest compounded
quarterly, on the total unpaid amount determined be payable
hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Mercantile Bank, N.A.
in effect from time to time, for the period commencing on the
date of such contest and ending on the date on which the
Corporation shall pay such amount.
13. Covenants.
(a) Non-Competition.
(1) Executive recognizes that during the course
of Executive's employment with the Corporation, Executive has
been and will be instructed about and become acquainted with
confidential information of the Corporation, including, without
limitation, customer lists, methods of sales, the existence and
contents and terms of this Agreement, methods of sales
procurement, sales procurement techniques, sales procedures and
equipment/supply information, equipment and supply acquisition
procedures and processes and sources, customer evaluation
procedures, customer maintenance and supply maintenance
procedures and corresponding information relating to persons,
firms and corporations which are or may become customers of the
Corporation and, further, companies from which the Corporation
obtains various products and supplies for sale, resale and
distribution to customers of the Corporation. This confidential
information further includes, but is not limited to, customer
identity, supplier identity and terms, purchase terms, sales
techniques, purchase conditions and rates, customer needs,
billing procedures and processes, contacts and customer
information. Further, Executive agrees and acknowledges that the
development and assemblage and maintenance of the customer base
of the Corporation has taken extraordinary time, money,
resources, training, and effort by the Corporation and its
employees.
(2) Executive agrees that he or she will not
during the Term of Employment and for a period of two (2) years
following cessation of his or her employment at the Corporation
("Restricted Period"), for any cause or reason, directly or
indirectly:
(A) engage in any business in competition
with the Corporation and its Affiliates or supply and sell to
present customers, former customers and prospects of the
Corporation and its Affiliates; or
<PAGE>
(B) own, manage, operate, control, advise,
be employed by, consult, or materially participate in, or be
materially involved in any manner with the ownership, management,
operation or control of, individually or through any other entity
or device, any business that competes with the business then
conducted by the Corporation or any Affiliate; provided, however,
that mere ownership as an investor of not more than five percent
(5%) of the securities of a corporation or other business
enterprise shall not in and of itself be deemed to violate this
Section 13(b)(2)(B).
(b) Nondisclosure of Confidential Information.
(1) Executive will not, except as authorized by
the Corporation in writing, during or at any time after the
termination of Executive's employment with the Corporation,
directly or indirectly, use for himself or herself or others, or
disclose, communicate, divulge, furnish to, or convey to any
other person, firm, or corporation, any secret or confidential
information, knowledge or data of the Corporation or that of
third parties obtained by Executive during the period of his or
her employment with the Corporation. Such information, knowledge
or data includes, without limitation, the following:
(A) Secret or confidential matters of a
technical nature such as, but not limited to, methods, know-how,
formulations, compositions, processes, discoveries, machines,
inventions, computer programs, and similar items or research
projects involving such items,
(B) Secret or confidential matters of a
business nature such as, but not limited to, marketing policies
or strategies, information about costs, price lists, purchasing
and purchasing policies, profits, market, sales or lists of
customers, customer history information, and
(C) Secret or confidential matters
pertaining to future developments such as, but not limited to,
research and development or future marketing or merchandising.
(2) Executive, upon termination of his or her
employment with the Corporation, or at any other time upon the
Corporation's request, shall deliver promptly to the Corporation
all manuals, letters, notes, notebooks, reports, formulations,
computer programs and similar items, memoranda, lists of
customers, customer history information and all other materials
and copies thereof relating in any way to the Corporation's
business and in any way obtained by Executive during the term of
employment with the Corporation which are in his or her
possession or under his or her control; and Executive will not
make or retain any copies of any of the foregoing and will so
represent to the Corporation upon termination of his or her
employment.
(c) Inducement.
(1) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
use any confidential information for the purposes of inducing or
attempting to induce any present, former, or prospective customer
<PAGE>
of the Corporation or its Affiliates to become a customer of
Executive or any person, firm, or corporation, or business
association with which Executive is affiliated in any capacity
with respect to the markets supplied by the Corporation or its
Affiliates.
(2) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
directly or indirectly solicit for employment or employ any of
the Corporation's employees to work for Executive or any business
association with which/whom Executive is affiliated, or to work
for any other company in the markets supplied by the Corporation
or its Affiliates.
(f) Interest of Parties. Executive agrees that the
duration of the limitations set forth in this Section 13 are
reasonable under the circumstances, considering Executive's
position with the Corporation and other relevant factors, and
that this will not constitute a serious handicap to Executive in
securing future employment.
(g) Disclosure to Corporation. Executive shall
promptly communicate and disclose to the Corporation all
information, observations and data obtained by Executive in the
course of Executive's employment. All written materials, records
and documents made by Executive or coming into Executive's
possession during the Term of Employment concerning any
inventions, products, processes or equipment, manufactured, used,
developed, investigated or considered by the Corporation or any
Affiliated Companies shall be the property of the Corporation,
and upon termination of the Term of Employment, or upon request
of the Corporation during the Term of Employment, Executive
shall promptly deliver the same to the Corporation. Executive
agrees to render to the Corporation such reports of the
activities of the business undertaken by Executive or conducted
under Executive's direction during the Term of Employment as the
Corporation may reasonably request.
(h) Inventions.
(1) Executive shall promptly communicate and
disclose in writing to the Corporation all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called
"Inventions"), made, conceived, developed or purchased by
Executive, or under which Executive acquires the right to grant
licenses or to become licensed, alone or jointly with others,
during the Term of Employment, which have arisen or may arise out
of Executive's employment, or relate to any matters pertaining
to, applicable to, or useful in connection with, the business or
affairs of the Corporation or any Affiliated Companies. All of
Executive's right, title and interest in, to and under all such
inventions, licenses and rights to grant licenses shall be the
sole property of the Corporation. Any such inventions disclosed
to anyone by Executive within one (1) year after the termination
<PAGE>
of the Term of Employment for any cause whatsoever shall be
deemed to have been made or conceived by Executive during the
Term of Employment.
(2) As to all such inventions, Executive shall,
upon request of the Corporation, during the Term of Employment or
thereafter:
A. Execute all documents which the
Corporation shall deem necessary or proper to
enable it to establish title to such inventions,
or other rights, and to enable it to file and
prosecute applications for letters patent of the
United States and any foreign country; and
B. Do all things (including the giving of
evidence in suits and other proceedings) which the
Corporation shall deem necessary or proper to
obtain, maintain or to assert patents for any and
all such inventions or to assert its rights in any
inventions not patented.
All expenses incident to any action required by the Corporation
or taken on its behalf pursuant to the provisions of this
paragraph shall be borne by the Corporation including without
limitation a reasonable payment for Executive's time and expenses
involved in case he or she is not then in its employ.
(i) Litigation. Executive agrees that during the Term
of Employment or thereafter, Executive shall do all things,
including the giving of evidence in suits and other proceedings,
which the Corporation shall deem necessary or proper to obtain,
maintain or assert rights accruing to the Corporation during the
Term of Employment and in connection with which Executive has
knowledge, information or expertise. All reasonable expenses
incurred by Executive during the Term of Employment or thereafter
in fulfilling the duties set forth in this Section, shall be
reimbursed by the Corporation to the full extent legally
appropriate including, without limitation, a reasonable payment
for Executive's time in the event this Agreement has terminated
prior to the time Executive renders such assistance, advice and
counsel.
14. Equity. The parties hereto agree that the services to
be rendered by Executive are special, unique and of an
extraordinary character. In the event of the breach by Executive
of any of the provisions of this Agreement, the Corporation, in
addition and as a supplement to such other rights and remedies as
may exist in its favor, may apply to any court of law or equity
having jurisdiction to enforce the specific performance of this
Agreement, and/or may apply for injunctive relief against any act
which would violate any of the provisions of this Agreement.
15. Effect on Prior Agreements. This Agreement shall
supersede and replace any and all prior employment agreements
entered into between Executive and the Corporation or any
Affiliated Company, including but not limited to that certain
<PAGE>
Employment Agreement dated February 2, 1992. This Agreement
contains the entire understanding of the parties hereto with
respect to the subject matter hereof.
16. No Assignment.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be
assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives and Beneficiary.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors. The
Corporation shall require any successor to all or substantially
all of the business and/or assets of the Corporation, whether
direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform if no
such succession had taken place.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision or clause were omitted.
18. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) In the event that litigation is required to
enforce any provision of this Agreement, subject to the
provisions of Section 12 hereof, the prevailing party shall be
entitled to reasonable attorneys fees.
<PAGE>
(c) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Alyn V. Essman
3 Vouga Lane
Frontenac, MO 63131-2605
If to the Corporation:
Consumer Programs, Incorporated
1706 Washington Avenue
St. Louis, Missouri 63103
Attention: Russ Isaak, President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(d) This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof.
(e) The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate, all as of the day and year first above
written.
CONSUMER PROGRAMS INCORPORATED
By /s/ Russell Isaak
-------------------------------
President
By /s/ Alyn V. Essman
-------------------------------
Alyn V. Essman
Chairman of the Board and
Chief Executive Officer
EXHIBIT (10.3)
MATERIAL CONTRACT
Employment Contract - Russell H. Isaak
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated February 5, 1995, between CONSUMER PROGRAMS
INCORPORATED, a Missouri corporation (the "Corporation"), and
Russell H. Isaak (the "Executive").
WHEREAS, the Corporation currently employs the Executive in
the capacity of President, and the Executive is one of the key
executives of the Corporation and its parent corporation, CPI
Corp.;
WHEREAS, there is much competition for the type of business
performed by the Corporation in the locales in which the
Corporation operates, and the Corporation and Executive
acknowledge that the Corporation is active in the product markets
in which it competes;
WHEREAS, Executive, during his or her employment, has been
and will be entrusted with confidential information;
WHEREAS, Executive and the Corporation recognize and
acknowledge that, to ensure the continued growth and stability of
the Corporation, it is necessary to obtain an agreement from
Executive not to compete with the Corporation and not to disclose
confidential information of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue
in the employ of the Corporation as a result of his or her
experience with the Corporation and his or her potential for
making future contributions to the Corporation, and the Executive
is willing to make a commitment to remain in such employ upon the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliated Companies" shall mean any corporation
(or other business entity) controlling, controlled by or under
common control with the Corporation.
(b) "Beneficiary" shall mean the person designated in
writing by the Executive as his or her beneficiary under this
Agreement, or in the absence of such designation, his or her
estate.
(c) "Cause" shall mean:
(1) prior to a Change of Control, (i) conduct or
activity of the Executive materially detrimental to the
Corporation's reputation or business (including financial)
operations; (ii) gross or habitual neglect or breach of duty or
<PAGE>
misconduct of the Executive in discharging the duties of his or
her position; or (iii) prolonged absence by the Executive from
his or her duties (other than on account of illness or
disability) without the consent of the Corporation.
(2) after a Change of Control, (i) an act or acts
of dishonesty on the Executive's part which are intended to
result in his or her substantial personal enrichment at the
expense of the Corporation; (ii) any material violation by the
Executive of his or her obligations and covenants pursuant to
this Agreement which is demonstrably willful and deliberate on
the Executive's part and which results in material injury to the
Corporation; or (iii) the conviction of Executive of a felony or
of a crime involving moral turpitude.
(d) A "Change of Control" shall mean a change in
control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that
such event had been "previously reported" as that term is defined
in Rule 12b-2 of Regulation 12B of the Exchange Act unless the
transactions that give rise to the change in control are approved
or ratified by a majority of the members of the Incumbent Board
of CPI Corp. who are not employees of the Corporation; provided
that, without limitation, notwithstanding anything herein to the
contrary, such a change in control shall be deemed to have
occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of CPI Corp. representing 40% or more
of the combined voting power of CPI Corp.'s then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), (b) individuals who constitute
the Board of CPI Corp. on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by CPI
Corp.'s shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of CPI Corp. in which such person is named as a nominee for
director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person
were a member of the Incumbent Board, or (c) approval by the
stockholders of CPI Corp. of a reorganization, merger or
consolidation, in each case, with respect to which persons who
were the stockholders of CPI Corp. immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation or
<PAGE>
dissolution of CPI Corp. or of the sale of all or substantially
all of the assets of CPI Corp. For purposes of this Agreement,
the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person,"
as such term is used in Section 14(d) of the Exchange Act, other
than CPI Corp., the Corporation or an Affiliated Company or any
employee benefit plan(s) sponsored or maintained by the
Corporation or any Affiliated Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as may be amended from time to time.
(f) "Continuing Directors" shall have the meaning set
forth in Paragraph 3(G) of Article Ten of CPI Corp.'s Certificate
of Incorporation.
(g) "Fiscal Year" shall mean the Fiscal Year of the
Corporation.
(h) "Permanent Disability" shall mean the inability of
Executive to perform the services contemplated by Section 4
hereof for a period of at least one hundred eighty (180)
consecutive calendar days or for thirty-five (35) weeks (whether
or not consecutive) in any twelve (12) month period on account of
any sickness, injury or other infirmity or disability.
(i) "Retirement" shall mean the Executive's voluntary
or involuntary termination of employment with the Corporation
except for termination on account of (A) Cause as defined in
Subsection 6(b) hereof, (B) death or (C) Permanent Disability
before attaining age sixty-five (65).
(j) "Term of Employment" shall have the meaning set
forth in Section 3 hereof.
(k) "Vesting Percentage" shall mean the percentage of
Supplemental Retirement Benefits, death benefits, and disability
benefits in which Executive has a nonforfeitable interest (except
in the event of termination for Cause) based upon the number of
Years of Service Executive has completed, determined as follows:
<TABLE>
<CAPTION>
Completed Years of Service Vesting Percentage
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
<PAGE>
Notwithstanding anything herein to the contrary, if Executive's
employment with the Corporation terminates following a Change of
Control, unless such termination is for Cause, for purposes of
Subsections 5(g), 5(h), and 5(i) of this Agreement Executive
shall be deemed to have completed ten (10) Years of Service and
his or her Vesting Percentage shall be deemed to be 100%.
(l) "Year of Service" shall mean any Fiscal Year
during which the Executive has worked for the Corporation at
least one thousand (1,000) hours, including Fiscal Years prior to
the effective date of this Agreement.
2. Employment. The Corporation hereby employs and engages
the services of the Executive as one of its key executives
initially in the position of President of the Corporation and its
parent corporation, CPI Corp. for the Term of Employment set
forth in Section 3. The Executive agrees to serve the
Corporation for the Term of Employment as provided herein.
3. Term of Employment. The Executive's Term of Employment
shall be a period commencing on the date hereof and ending one
(1) year thereafter; provided, however, that upon the expiration
of the aforesaid period (the "Expiration Date") and upon each
anniversary of the Expiration Date, the Term of Employment shall
automatically be extended for an additional one (1) year period
unless Executive or the Corporation notifies the other in writing
at least sixty (60) days prior to the commencement of such one
(1) year period of an intention to terminate this Agreement.
Notwithstanding anything herein to the contrary, the Term of
Employment shall terminate upon Executive's death or Permanent
Disability as set forth in subsection 6(a) hereof or upon the
Corporation's termination of Executive's employment for Cause
pursuant to subsection 6(b) hereof.
4. Position and Duties.
(a) Prior to a Change of Control, during the Term of
Employment, the Executive shall serve the Corporation in such
capacity as the Corporation may determine. After a Change of
Control, during the Term of Employment, the Executive's position,
authority and responsibilities, the type of work he or she is
asked to perform, and the status and stature of the people with
whom he or she is asked to work, shall be comparable to that
existing with respect to the Executive as of the date immediately
prior to the Change of Control, and after a Change of Control the
Executive's services shall be performed at the location where the
Executive was employed as of the date immediately prior to the
Change of Control, or at such other location as may be mutually
agreed between the Corporation and the Executive.
(b) The Executive agrees to devote his or her full
business time during normal business hours to the business and
affairs of the Corporation (except as otherwise provided herein)
and to use his or her best efforts to promote the interests of
<PAGE>
the Corporation and its Affiliated Companies and to perform
faithfully and efficiently the responsibilities assigned to
him or her in accordance with the terms of this Agreement to the
extent necessary to discharge such responsibilities, except for
(i) service on corporate, civic or charitable boards or
committees not significantly interfering with the performance of
such responsibilities and (ii) periods of vacation and sick
leave to which he or she is entitled. It is expressly understood
and agreed that the Executive's continuing service on any boards
and committees with which he or she shall be connected, as a
member or otherwise, as of the date hereof, or any such service
approved by the Corporation during the Term of Employment, shall
not be deemed to interfere with the performance of the
Executive's services to the Corporation pursuant to this
subparagraph 4(b).
5. Compensation and Other Conditions of Employment.
(a) Base Salary. During the Term of Employment, the
Executive shall receive an annual base salary (the "Base
Salary"), in equal installments payable weekly or at such other
intervals as salary is normally paid by the Corporation to its
employees, at an annual rate established by the Corporation and
any Affiliated Companies as of the date hereof. The Base Salary
shall be reviewed at least once each year and may be increased at
any time and from time to time by action of the Board of
Directors of CPI Corp., any committee thereof or any individual
having authority to take such action, in accordance with the
Corporation's regular practices. Any increase in the Base Salary
shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after such increase the Base Salary
shall not be reduced from such increased level.
(b) Annual Bonus. After a Change of Control, in
addition to the Base Salary, the Executive shall be awarded for
each Fiscal Year during the Term of Employment an annual bonus (the
"Annual Bonus") (pursuant to any bonus plan or program of the
Corporation, any incentive plan or program of the Corporation, or
otherwise) in cash at least equal to the highest bonus paid or
payable to the Executive in respect of any of the Fiscal Years
during the three Fiscal Years immediately prior to the date of
the Change of Control. Prior to a Change of Control, the amount
of the Executive's Annual Bonus shall be determined in accordance
with the Corporation's regular practice.
(c) Other Compensation Plans. After a Change of
Control, in addition to the Base Salary and Annual Bonus payable
as hereinabove provided, during the Term of Employment, the
Executive shall be entitled to participate in all other
compensation plans and programs, including, without limitation,
savings plans, stock option plans, and retirement plans of the
Corporation and its Affiliated Companies (collectively, the
"Savings Plans"), on a basis at least equivalent to that provided
by the Corporation and its Affiliated Companies to the Executive
under such programs immediately prior to the date of the Change
<PAGE>
of Control. Prior to a Change of Control, the Executive's
entitlement to participate in the Savings Plans shall be
determined in accordance with the Corporation's regular
practice. Prior to a Change of Control, nothing herein shall be
construed to prevent the Corporation from amending or altering
any such plans in accordance with the terms thereof. All
agreements between the Corporation and the Executive existing on
the date hereof providing for special pension, retirement or
similar benefits are continued by this Agreement.
(d) Benefit Plans. After a Change of Control, during
the Term of Employment, the Executive, his or her spouse, or his
or her dependents, as the case may be, shall be entitled to
receive all amounts which he or she, his or her spouse or his or
her dependents are or would have been entitled to receive as
benefits under all other benefit plans of the Corporation and its
Affiliated Companies, including, without limitation, medical,
dental, disability, group life, accidental death and travel
accident insurance plans and programs (collectively, the "Benefit
Plans") on a basis at least as favorable to the Executive as on
the date immediately prior to the date of the Change of Control.
Prior to a Change of Control, the Executive's and such other
persons' entitlement to participate in the Benefit Plans shall be
determined in accordance with the Corporation's regular practice.
(e) Expenses. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the regular policies and procedures of the Corporation.
(f) Office and Support Staff. After a Change of
Control the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive as of the date immediately prior to the
date of the Change of Control.
(g) Death Benefits. In the event of Executive's death
after completion of at least ten (10) Years of Service, unless
(1) Executive's employment with the Corporation was terminated
for Cause or (2) Executive (or his or her Beneficiary) is
entitled to receive Supplemental Retirement Benefits pursuant to
subsection 5(i), the Corporation shall pay to Executive's
Beneficiary an annual death benefit equal to forty percent (40%)
(but not to exceed $100,000) of Executive's annual Base Salary
(as defined in subsection 5(a) hereof) for the Fiscal Year of his
or her termination of employment with the Corporation in equal
monthly installments commencing with the month following the
month of Executive's death and ending with the later of (i) the
month in which Executive would have reached age sixty-five (65)
or (ii) the one-hundred twentieth (120th) month following the
month of Executive's death. In the event that Executive dies
before age 65 but has not completed at least ten (10) Years of
Service with the Corporation, death benefits shall be reduced to
an amount equal to the benefits determined under the preceding
sentence multiplied by the Vesting Percentage applicable to
Executive.
<PAGE>
(h) Disability Benefits. In the event of Executive's
Permanent Disability prior to attaining age 65 and prior to
termination of employment with the Corporation, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive annual disability
benefits equal to forty percent (40%) (but not to exceed
$100,000) of Executive's annual Base Salary for the Fiscal Year
in which the Executive terminated employment with the
Corporation, payable in equal monthly installments, commencing
with the month following the month in which Executive terminated
employment as a result of Permanent Disability and ending on the
earlier of (i) the month in which Executive reaches age 65 or
(ii) the month of his or her death. In the event that at the
time of Permanent Disability Executive has not completed at least
ten (10) Years of Service, the disability benefits shall be
reduced to an amount equal to the benefits determined under the
preceding sentence multiplied by the Vesting Percentage
applicable to Executive. Disability benefits pursuant to this
subsection (h) shall be reduced by any amounts paid to Executive
under the Corporation's long-term disability insurance policy,
but shall not be reduced for any payments received by Executive
from Social Security or from any disability insurance coverage
individually owned by Executive.
(i) Supplemental Retirement Benefits.
(1) In the event of Executive's Retirement after
completion of at least ten (10) Years of Service, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive retirement benefits
for ten (10) years in an annual amount equal to forty percent
(40%) (but not to exceed $100,000) of Executive's annual Base
Salary for the Fiscal Year of his or her Retirement
("Supplemental Retirement Benefits"). In the event of
Executive's Retirement before completion of ten (10) Years of
Service, Corporation shall pay Executive retirement benefits on
the same terms as set forth in the preceding sentence except that
retirement benefits shall be reduced to an amount equal to
Supplemental Retirement Benefits multiplied by the Vesting
Percentage.
(2) Supplemental Retirement Benefits shall be
payable in one hundred twenty (120) equal monthly installments
commencing with the month following the later of (i) the month of
Executive's Retirement or (ii) the month during which Executive
reaches age sixty-five (65). If Executive dies prior to the end
of the one hundred twenty (120) month period during which
Supplemental Retirement Benefits are payable, Supplemental
Retirement Benefits shall be payable during the remainder of such
120-month period to his or her Beneficiary.
(3) Notwithstanding anything herein to the
contrary, in the event of Executive's termination of employment
with the Corporation prior to attaining age 65 as a result of
Permanent Disability, if Executive attains age 65 and his or her
employment with the Corporation was not terminated for Cause, the
<PAGE>
Corporation shall pay to Executive the Supplemental Retirement
Benefits set forth in this Subsection 5(i) in accordance with
Executive's Vesting Percentage, commencing as of the month
following the month in which Executive attains age 65; provided,
however, that any Supplemental Retirement Benefits paid pursuant
to this sentence shall be reduced by any amounts paid to
Executive under the Corporation's long-term disability insurance
policy (but shall not be reduced for any payments received by
Executive from Social Security or from any disability insurance
coverage individually owned by Executive) for the same period.
(j) Survivability of Death and Supplemental Retirement
Benefits. In the event of Executive's Retirement or death,
Executive's entitlement to death benefits pursuant to Subsection
5(g) hereof and Supplemental Retirement Benefits pursuant to
Subsection 5(i) hereof shall survive the Term of Employment and
Executive or his or her Beneficiary shall be entitled to such
death benefits and Supplemental Retirement Benefits based on the
same terms and conditions as would have been applicable had his
or her death or Retirement, as the case may be, occurred during
the Term of Employment.
6. Termination of Employment.
(a) Death or Permanent Disability. Except for the
obligations of the Corporation set forth in this Subsection 6
(a), this Agreement shall terminate automatically upon the
Executive's death or Permanent Disability. In the event of such
termination, the Corporation shall pay to the Executive's
Beneficiary or, in the event of Permanent Disability, the
Executive or his or her legal representative, all benefits and
Base Salary accrued through the date of termination, including,
without limitation, amounts payable under any plan referred to in
Subsection 5(d) plus any benefits to which Executive may be
entitled pursuant to Subsection 5(g), Subsection 5(h) or
Subsection 5(i) hereof.
(b) Cause. The Corporation may terminate the
Executive's employment for Cause. If the Executive's employment
is terminated for Cause, the Corporation shall pay the Executive
his or her full accrued Base Salary through the effective date of
the termination of his or her employment (which shall be no
earlier than the date of receipt of notice thereof) at the rate
in effect at the time of such termination, and the Corporation
shall have no further obligations to the Executive under this
Agreement.
(c) Notification Prior to One Year Extension. Either
Executive or the Corporation may terminate this Agreement by
notifying the other party in writing of an intention to do so at
least sixty (60) days prior to the commencement of a one-year
extension period described in Section 3 hereof.
(d) Payments for Involuntary Termination Without
Cause.
<PAGE>
(1) If prior to a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall pay Executive during the 24-month period
following such involuntary termination of employment an amount
equal to 200% of Base Salary for the Fiscal Year of termination,
payable in equal weekly installments or at such other intervals
as salary is normally paid by the Corporation to its employees.
The payment pursuant to this Subsection 6(d)(1) and any payments
to which Executive may be entitled pursuant to Subsections 5(g),
5(h), and 5(i) shall be in full discharge of any claims, actions,
demands or damages of every nature and description which
Executive might have or might assert against the Corporation or
any Affiliated Company in connection with or arising from the
termination of Executive's employment or the termination of this
Agreement.
(2) If following a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to Subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall, at the time of such involuntary
termination, make a lump sum cash payment to Executive equal to
200% of his or her Base Salary for the Fiscal Year of
termination. In addition to the payment pursuant to this
Subsection 6(d)(2) and any payments to which Executive may be
entitled pursuant to Subsections 5(g), 5(h) and 5(i), Executive
shall be entitled to all remedies available under this Agreement
or at law in respect of any damages suffered by Executive as a
result of an involuntary termination of employment without Cause.
7. Gross-Up For Parachute Tax.
(a) General. In the event that following a Change of
Control Executive becomes entitled to any payments (whether
pursuant to this Employment Agreement or any other plan,
arrangement or agreement) from the Corporation in the nature of
compensation ("Parachute Payments") that in the opinion of a
certified public accounting firm (selected in the manner set
forth in Subsection 7(b)) or that under the provisions of a
notice of assessment from the Internal Revenue Service causes
imposition of the tax under Section 4999 of the Code or any
similar tax that may hereafter be imposed (the "Excise Tax"), the
Corporation shall pay Executive, at the time specified in
Subsection 7(d), the Gross-Up Payment (as determined in
accordance with Subsection 7(c)).
(b) Selection of C.P.A. Within fifteen (15) days
after any termination of Executive's employment following a
Change of Control, the majority of the Continuing Directors as of
the date immediately prior to the Change of Control shall select
a certified public accounting firm (the "C.P.A.") to determine
<PAGE>
the amount, if any, of the Excise Tax and the amount, if any, of
the Gross-Up Payments.
(c) Amount of Gross-Up Payments.
(1) The Gross-Up Payments shall be in an amount
such that the net amount retained by Executive with respect to
the Parachute Payments and Gross-Up Payments, after deduction of
any Excise Tax to which the Parachute Payments may be subject and
any federal, state, and local income taxes and Excise Tax upon
the Gross-Up Payments, shall be equal to the gross amount of the
Parachute Payments.
(2) For purposes of determining the amount of the
Gross-Up Payments, Executive shall be deemed to pay federal
income taxes at the applicable rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the applicable rate of
taxation for the calendar year in which the Gross-Up Payment is
to be made.
(3) In the event that the Excise Tax is
subsequently determined to exceed the amount taken into account
at the time the Gross-Up Payment is made pursuant to Subsection
7(d)(1) hereof (including any excess attributable to any
Parachute Payments the existence or amount of which could not be
accurately determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest and addition to tax payable
with respect to such excess) within fifteen (15) days after the
amount of such excess is determined by the C.P.A. or by the
Internal Revenue Service (the "IRS") in a notice of assessment.
(d) Timing of Gross-Up Payments. Gross-Up Payments
other than Gross-Up Payments pursuant to Subsection 7(c)(3) shall
be paid not later than forty-five (45) days following payment of
any Parachute Payments to which the Gross-Up Payments are
attributable; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally determined
on or before such day, the Corporation shall pay to Executive on
such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
applicable federal rate provided in Section l274(d) of the Code)
as soon as the amount thereof can be determined by the C.P.A.,
but in no event later than forty-five (45) days after payment of
such Parachute Payments.
(e) Corporation's Right to Designate Tax
Representative; Assignment of Refund Proceeds. If the IRS
proposes an assessment of the Excise Tax against Executive or
proposes an additional assessment of Excise Tax in excess of the
amount previously reported by Executive:
(1) Executive shall within five (5) days after
receipt from the IRS of notice of the proposed Excise Tax
assessment notify the Corporation in writing and furnish the
Corporation with copies of all correspondence from the IRS
relating to the proposed Excise Tax assessment.
<PAGE>
(2) The Corporation shall be authorized to
designate an attorney and/or accountant (the "Tax
Representative") to serve as Executive's exclusive representative
with respect to all proceedings with the IRS relating to the
proposed Excise Tax assessment, including but not limited to
negotiating a settlement or compromise of the proposed Excise Tax
assessment, filing a claim for refund with respect thereto, and
seeking judicial review of any disallowance of a claim for
refund. Executive hereby agrees to execute an appropriate power
of attorney authorizing the Tax Representative to represent
Executive with respect to the Excise Taxes. Executive further
agrees to take any other appropriate actions reasonably requested
by the Tax Representative in connection therewith; provided,
however, that the Corporation shall reimburse Executive for any
expenses incurred by Executive as a result of compliance with
such requests.
(3) If the Tax Representative files a claim for
refund of Excise Taxes with respect to which the Corporation has
made a Gross-Up Payment and such refund claim is allowed by the
IRS or by the final judgment of a court of competent
jurisdiction, Executive shall endorse the refund check payable to
the Corporation and shall send the refund check to the
Corporation not later than five (5) days after receipt from the
IRS.
(4) If the Corporation designates a Tax
Representative, the Corporation shall pay all of his or her
professional fees and expenses and hold Executive harmless from
any claims in connection therewith. The Tax Representative shall
keep Executive timely informed of all significant developments in
the Excise Tax matter and shall send to Executive copies of all
correspondence relating thereto.
(5) Notwithstanding anything herein to the
contrary, if the Corporation is in material breach of any of its
obligations pursuant to this Agreement, the Corporation's rights
pursuant to this Subsection 7(e) shall be extinguished and
Executive shall have the right to revoke any power of attorney
executed pursuant to this Subsection 7(e).
8. No Obligation to Mitigate Damages. The Executive shall
not be obligated to mitigate any damages by seeking other
employment or otherwise, and no amount payable hereunder and no
benefit or service credit for benefits shall be reduced in the
event that the Executive shall accept alternative employment.
9. Benefits Payable Only From Corporate Assets.
(a) No Trust. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Corporation and the
Executive or his or her Beneficiary.
(b) Executive's Status as Unsecured General Creditor.
The payment of any benefits hereunder to the Executive or his or
<PAGE>
her Beneficiary shall be made from assets which shall continue,
for all purposes, to be a part of the general assets of the
Corporation; no person shall have or acquire any interest in such
assets by virtue of the provisions of this Agreement. To the
extent that the Executive or his or her Beneficiary acquires a
right to receive payments from the Corporation under the
provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
(c) Recovery of Cost of Providing Benefits. In the
event that, in its discretion, the Corporation purchases an
insurance policy insuring the life of the Executive to enable the
Corporation to recover, in whole or in part, the cost of
providing any benefits hereunder, neither the Executive nor his
or her Beneficiary under this Agreement shall have or acquire any
rights whatsoever therein. The Corporation shall be the sole
owner and beneficiary of any such policy and, as such, shall
possess and may exercise all incidents of ownership therein.
10. Determination of Benefits and Claims Procedure. The
Corporation shall make all determinations as to rights to
benefits under this Agreement. Subject to and in compliance with
the specific procedures contained in the applicable regulations
promulgated under the Employee Retirement Income Security Act of
1974, as amended: (i) any decision by the Corporation denying a
claim for benefits under this Agreement by the Executive or his
or her Beneficiary shall be stated in writing by the Corporation
and delivered or mailed to the claimant; (ii) each such notice
shall set forth the specific reasons for the denial, written to
the best of the Corporation's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the
Corporation shall afford a reasonable opportunity to the claimant
whose claim for benefits has been denied for a review of the
decision denying such claim.
11. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any Affiliated Companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Corporation or any
Affiliated Companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or
program of the Corporation or any Affiliated Companies shall be
payable in accordance with the terms of such plan or program.
12. Full Settlement. After a Change of Control, the
Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. Unless
<PAGE>
it is finally determined by a court of competent jurisdiction
after all available appeals that the Corporation has validly
terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof, plus, in each case, interest compounded
quarterly, on the total unpaid amount determined be payable
hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Mercantile Bank, N.A.
in effect from time to time, for the period commencing on the
date of such contest and ending on the date on which the
Corporation shall pay such amount.
13. Covenants.
(a) Non-Competition.
(1) Executive recognizes that during the course
of Executive's employment with the Corporation, Executive has
been and will be instructed about and become acquainted with
confidential information of the Corporation, including, without
limitation, customer lists, methods of sales, the existence and
contents and terms of this Agreement, methods of sales
procurement, sales procurement techniques, sales procedures and
equipment/supply information, equipment and supply acquisition
procedures and processes and sources, customer evaluation
procedures, customer maintenance and supply maintenance
procedures and corresponding information relating to persons,
firms and corporations which are or may become customers of the
Corporation and, further, companies from which the Corporation
obtains various products and supplies for sale, resale and
distribution to customers of the Corporation. This confidential
information further includes, but is not limited to, customer
identity, supplier identity and terms, purchase terms, sales
techniques, purchase conditions and rates, customer needs,
billing procedures and processes, contacts and customer
information. Further, Executive agrees and acknowledges that the
development and assemblage and maintenance of the customer base
of the Corporation has taken extraordinary time, money,
resources, training, and effort by the Corporation and its
employees.
(2) Executive agrees that he or she will not
during the Term of Employment and for a period of two (2) years
following cessation of his or her employment at the Corporation
("Restricted Period"), for any cause or reason, directly or
indirectly:
(A) engage in any business in competition
with the Corporation and its Affiliates or supply and sell to
present customers, former customers and prospects of the
Corporation and its Affiliates; or
<PAGE>
(B) own, manage, operate, control, advise,
be employed by, consult, or materially participate in, or be
materially involved in any manner with the ownership, management,
operation or control of, individually or through any other entity
or device, any business that competes with the business then
conducted by the Corporation or any Affiliate; provided, however,
that mere ownership as an investor of not more than five percent
(5%) of the securities of a corporation or other business
enterprise shall not in and of itself be deemed to violate this
Section 13(b)(2)(B).
(b) Nondisclosure of Confidential Information.
(1) Executive will not, except as authorized by
the Corporation in writing, during or at any time after the
termination of Executive's employment with the Corporation,
directly or indirectly, use for himself or herself or others, or
disclose, communicate, divulge, furnish to, or convey to any
other person, firm, or corporation, any secret or confidential
information, knowledge or data of the Corporation or that of
third parties obtained by Executive during the period of his or
her employment with the Corporation. Such information, knowledge
or data includes, without limitation, the following:
(A) Secret or confidential matters of a
technical nature such as, but not limited to, methods, know-how,
formulations, compositions, processes, discoveries, machines,
inventions, computer programs, and similar items or research
projects involving such items,
(B) Secret or confidential matters of a
business nature such as, but not limited to, marketing policies
or strategies, information about costs, price lists, purchasing
and purchasing policies, profits, market, sales or lists of
customers, customer history information, and
(C) Secret or confidential matters
pertaining to future developments such as, but not limited to,
research and development or future marketing or merchandising.
(2) Executive, upon termination of his or her
employment with the Corporation, or at any other time upon the
Corporation's request, shall deliver promptly to the Corporation
all manuals, letters, notes, notebooks, reports, formulations,
computer programs and similar items, memoranda, lists of
customers, customer history information and all other materials
and copies thereof relating in any way to the Corporation's
business and in any way obtained by Executive during the term of
employment with the Corporation which are in his or her
possession or under his or her control; and Executive will not
make or retain any copies of any of the foregoing and will so
represent to the Corporation upon termination of his or her
employment.
(c) Inducement.
(1) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
use any confidential information for the purposes of inducing or
attempting to induce any present, former, or prospective customer
<PAGE>
of the Corporation or its Affiliates to become a customer of
Executive or any person, firm, or corporation, or business
association with which Executive is affiliated in any capacity
with respect to the markets supplied by the Corporation or its
Affiliates.
(2) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
directly or indirectly solicit for employment or employ any of
the Corporation's employees to work for Executive or any business
association with which/whom Executive is affiliated, or to work
for any other company in the markets supplied by the Corporation
or its Affiliates.
(f) Interest of Parties. Executive agrees that the
duration of the limitations set forth in this Section 13 are
reasonable under the circumstances, considering Executive's
position with the Corporation and other relevant factors, and
that this will not constitute a serious handicap to Executive in
securing future employment.
(g) Disclosure to Corporation. Executive shall
promptly communicate and disclose to the Corporation all
information, observations and data obtained by Executive in the
course of Executive's employment. All written materials, records
and documents made by Executive or coming into Executive's
possession during the Term of Employment concerning any
inventions, products, processes or equipment, manufactured, used,
developed, investigated or considered by the Corporation or any
Affiliated Companies shall be the property of the Corporation,
and upon termination of the Term of Employment, or upon request
of the Corporation during the Term of Employment, Executive
shall promptly deliver the same to the Corporation. Executive
agrees to render to the Corporation such reports of the
activities of the business undertaken by Executive or conducted
under Executive's direction during the Term of Employment as the
Corporation may reasonably request.
(h) Inventions.
(1) Executive shall promptly communicate and
disclose in writing to the Corporation all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called
"Inventions"), made, conceived, developed or purchased by
Executive, or under which Executive acquires the right to grant
licenses or to become licensed, alone or jointly with others,
during the Term of Employment, which have arisen or may arise out
of Executive's employment, or relate to any matters pertaining
to, applicable to, or useful in connection with, the business or
affairs of the Corporation or any Affiliated Companies. All of
Executive's right, title and interest in, to and under all such
inventions, licenses and rights to grant licenses shall be the
sole property of the Corporation. Any such inventions disclosed
to anyone by Executive within one (1) year after the termination
<PAGE>
of the Term of Employment for any cause whatsoever shall be
deemed to have been made or conceived by Executive during the
Term of Employment.
(2) As to all such inventions, Executive shall,
upon request of the Corporation, during the Term of Employment or
thereafter:
A. Execute all documents which the
Corporation shall deem necessary or proper to
enable it to establish title to such inventions,
or other rights, and to enable it to file and
prosecute applications for letters patent of the
United States and any foreign country; and
B. Do all things (including the giving of
evidence in suits and other proceedings) which the
Corporation shall deem necessary or proper to
obtain, maintain or to assert patents for any and
all such inventions or to assert its rights in any
inventions not patented.
All expenses incident to any action required by the Corporation
or taken on its behalf pursuant to the provisions of this
paragraph shall be borne by the Corporation including without
limitation a reasonable payment for Executive's time and expenses
involved in case he or she is not then in its employ.
(i) Litigation. Executive agrees that during the Term
of Employment or thereafter, Executive shall do all things,
including the giving of evidence in suits and other proceedings,
which the Corporation shall deem necessary or proper to obtain,
maintain or assert rights accruing to the Corporation during the
Term of Employment and in connection with which Executive has
knowledge, information or expertise. All reasonable expenses
incurred by Executive during the Term of Employment or thereafter
in fulfilling the duties set forth in this Section, shall be
reimbursed by the Corporation to the full extent legally
appropriate including, without limitation, a reasonable payment
for Executive's time in the event this Agreement has terminated
prior to the time Executive renders such assistance, advice and
counsel.
14. Equity. The parties hereto agree that the services to
be rendered by Executive are special, unique and of an
extraordinary character. In the event of the breach by Executive
of any of the provisions of this Agreement, the Corporation, in
addition and as a supplement to such other rights and remedies as
may exist in its favor, may apply to any court of law or equity
having jurisdiction to enforce the specific performance of this
Agreement, and/or may apply for injunctive relief against any act
which would violate any of the provisions of this Agreement.
15. Effect on Prior Agreements. This Agreement shall
supersede and replace any and all prior employment agreements
entered into between Executive and the Corporation or any
Affiliated Company, including but not limited to that certain
<PAGE>
Employment Agreement dated February 2, 1992. This Agreement
contains the entire understanding of the parties hereto with
respect to the subject matter hereof.
16. No Assignment.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be
assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives and Beneficiary.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors. The
Corporation shall require any successor to all or substantially
all of the business and/or assets of the Corporation, whether
direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform if no
such succession had taken place.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision or clause were omitted.
18. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) In the event that litigation is required to
enforce any provision of this Agreement, subject to the
provisions of Section 12 hereof, the prevailing party shall be
entitled to reasonable attorneys fees.
<PAGE>
(c) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Russell H. Isaak
14538 Crossway Ct.
Chesterfield, MO 63017-8014
If to the Corporation:
Consumer Programs, Incorporated
1706 Washington Avenue
St. Louis, Missouri 63103
Attention: Russ Isaak, President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(d) This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof.
(e) The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate, all as of the day and year first above
written.
CONSUMER PROGRAMS INCORPORATED
By /s/ Alyn V. Essman
-------------------------------
Chairman of the Board
and Chief Executive Officer
By /s/ Russell H. Isaak
-------------------------------
Russell H. Isaak
President
EXHIBIT (10.4)
MATERIAL CONTRACT
Employment Contract - Patrick J. Morris
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated February 5, 1995, between CONSUMER PROGRAMS
INCORPORATED, a Missouri corporation (the "Corporation"), and
Patrick J. Morris (the "Executive").
WHEREAS, the Corporation currently employs the Executive in
the capacity of Senior Executive Vice President, and the Executive
is one of the key executives of the Corporation and its parent
corporation, CPI Corp.;
WHEREAS, there is much competition for the type of business
performed by the Corporation in the locales in which the
Corporation operates, and the Corporation and Executive
acknowledge that the Corporation is active in the product markets
in which it competes;
WHEREAS, Executive, during his or her employment, has been
and will be entrusted with confidential information;
WHEREAS, Executive and the Corporation recognize and
acknowledge that, to ensure the continued growth and stability of
the Corporation, it is necessary to obtain an agreement from
Executive not to compete with the Corporation and not to disclose
confidential information of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue
in the employ of the Corporation as a result of his or her
experience with the Corporation and his or her potential for
making future contributions to the Corporation, and the Executive
is willing to make a commitment to remain in such employ upon the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliated Companies" shall mean any corporation
(or other business entity) controlling, controlled by or under
common control with the Corporation.
(b) "Beneficiary" shall mean the person designated in
writing by the Executive as his or her beneficiary under this
Agreement, or in the absence of such designation, his or her
estate.
(c) "Cause" shall mean:
(1) prior to a Change of Control, (i) conduct or
activity of the Executive materially detrimental to the
Corporation's reputation or business (including financial)
operations; (ii) gross or habitual neglect or breach of duty or
<PAGE>
misconduct of the Executive in discharging the duties of his or
her position; or (iii) prolonged absence by the Executive from
his or her duties (other than on account of illness or
disability) without the consent of the Corporation.
(2) after a Change of Control, (i) an act or acts
of dishonesty on the Executive's part which are intended to
result in his or her substantial personal enrichment at the
expense of the Corporation; (ii) any material violation by the
Executive of his or her obligations and covenants pursuant to
this Agreement which is demonstrably willful and deliberate on
the Executive's part and which results in material injury to the
Corporation; or (iii) the conviction of Executive of a felony or
of a crime involving moral turpitude.
(d) A "Change of Control" shall mean a change in
control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that
such event had been "previously reported" as that term is defined
in Rule 12b-2 of Regulation 12B of the Exchange Act unless the
transactions that give rise to the change in control are approved
or ratified by a majority of the members of the Incumbent Board
of CPI Corp. who are not employees of the Corporation; provided
that, without limitation, notwithstanding anything herein to the
contrary, such a change in control shall be deemed to have
occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of CPI Corp. representing 40% or more
of the combined voting power of CPI Corp.'s then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), (b) individuals who constitute
the Board of CPI Corp. on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by CPI
Corp.'s shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of CPI Corp. in which such person is named as a nominee for
director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person
were a member of the Incumbent Board, or (c) approval by the
stockholders of CPI Corp. of a reorganization, merger or
consolidation, in each case, with respect to which persons who
were the stockholders of CPI Corp. immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation or
<PAGE>
dissolution of CPI Corp. or of the sale of all or substantially
all of the assets of CPI Corp. For purposes of this Agreement,
the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person,"
as such term is used in Section 14(d) of the Exchange Act, other
than CPI Corp., the Corporation or an Affiliated Company or any
employee benefit plan(s) sponsored or maintained by the
Corporation or any Affiliated Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as may be amended from time to time.
(f) "Continuing Directors" shall have the meaning set
forth in Paragraph 3(G) of Article Ten of CPI Corp.'s Certificate
of Incorporation.
(g) "Fiscal Year" shall mean the Fiscal Year of the
Corporation.
(h) "Permanent Disability" shall mean the inability of
Executive to perform the services contemplated by Section 4
hereof for a period of at least one hundred eighty (180)
consecutive calendar days or for thirty-five (35) weeks (whether
or not consecutive) in any twelve (12) month period on account of
any sickness, injury or other infirmity or disability.
(i) "Retirement" shall mean the Executive's voluntary
or involuntary termination of employment with the Corporation
except for termination on account of (A) Cause as defined in
Subsection 6(b) hereof, (B) death or (C) Permanent Disability
before attaining age sixty-five (65).
(j) "Term of Employment" shall have the meaning set
forth in Section 3 hereof.
(k) "Vesting Percentage" shall mean the percentage of
Supplemental Retirement Benefits, death benefits, and disability
benefits in which Executive has a nonforfeitable interest (except
in the event of termination for Cause) based upon the number of
Years of Service Executive has completed, determined as follows:
<TABLE>
<CAPTION>
Completed Years of Service Vesting Percentage
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
<PAGE>
Notwithstanding anything herein to the contrary, if Executive's
employment with the Corporation terminates following a Change of
Control, unless such termination is for Cause, for purposes of
Subsections 5(g), 5(h), and 5(i) of this Agreement Executive
shall be deemed to have completed ten (10) Years of Service and
his or her Vesting Percentage shall be deemed to be 100%.
(l) "Year of Service" shall mean any Fiscal Year
during which the Executive has worked for the Corporation at
least one thousand (1,000) hours, including Fiscal Years prior to
the effective date of this Agreement.
2. Employment. The Corporation hereby employs and engages
the services of the Executive as one of its key executives
initially in the position of Senior Executive Vice President of the
Corporation and its parent corporation, CPI Corp. for the Term of
Employment set forth in Section 3. The Executive agrees to serve
the Corporation for the Term of Employment as provided herein.
3. Term of Employment. The Executive's Term of Employment
shall be a period commencing on the date hereof and ending one
(1) year thereafter; provided, however, that upon the expiration
of the aforesaid period (the "Expiration Date") and upon each
anniversary of the Expiration Date, the Term of Employment shall
automatically be extended for an additional one (1) year period
unless Executive or the Corporation notifies the other in writing
at least sixty (60) days prior to the commencement of such one
(1) year period of an intention to terminate this Agreement.
Notwithstanding anything herein to the contrary, the Term of
Employment shall terminate upon Executive's death or Permanent
Disability as set forth in subsection 6(a) hereof or upon the
Corporation's termination of Executive's employment for Cause
pursuant to subsection 6(b) hereof.
4. Position and Duties.
(a) Prior to a Change of Control, during the Term of
Employment, the Executive shall serve the Corporation in such
capacity as the Corporation may determine. After a Change of
Control, during the Term of Employment, the Executive's position,
authority and responsibilities, the type of work he or she is
asked to perform, and the status and stature of the people with
whom he or she is asked to work, shall be comparable to that
existing with respect to the Executive as of the date immediately
prior to the Change of Control, and after a Change of Control the
Executive's services shall be performed at the location where the
Executive was employed as of the date immediately prior to the
Change of Control, or at such other location as may be mutually
agreed between the Corporation and the Executive.
(b) The Executive agrees to devote his or her full
business time during normal business hours to the business and
affairs of the Corporation (except as otherwise provided herein)
and to use his or her best efforts to promote the interests of
<PAGE>
the Corporation and its Affiliated Companies and to perform
faithfully and efficiently the responsibilities assigned to
him or her in accordance with the terms of this Agreement to the
extent necessary to discharge such responsibilities, except for
(i) service on corporate, civic or charitable boards or
committees not significantly interfering with the performance of
such responsibilities and (ii) periods of vacation and sick
leave to which he or she is entitled. It is expressly understood
and agreed that the Executive's continuing service on any boards
and committees with which he or she shall be connected, as a
member or otherwise, as of the date hereof, or any such service
approved by the Corporation during the Term of Employment, shall
not be deemed to interfere with the performance of the
Executive's services to the Corporation pursuant to this
subparagraph 4(b).
5. Compensation and Other Conditions of Employment.
(a) Base Salary. During the Term of Employment, the
Executive shall receive an annual base salary (the "Base
Salary"), in equal installments payable weekly or at such other
intervals as salary is normally paid by the Corporation to its
employees, at an annual rate established by the Corporation and
any Affiliated Companies as of the date hereof. The Base Salary
shall be reviewed at least once each year and may be increased at
any time and from time to time by action of the Board of
Directors of CPI Corp., any committee thereof or any individual
having authority to take such action, in accordance with the
Corporation's regular practices. Any increase in the Base Salary
shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after such increase the Base Salary
shall not be reduced from such increased level.
(b) Annual Bonus. After a Change of Control, in
addition to the Base Salary, the Executive shall be awarded for
each Fiscal Year during the Term of Employment an annual bonus (the
"Annual Bonus") (pursuant to any bonus plan or program of the
Corporation, any incentive plan or program of the Corporation, or
otherwise) in cash at least equal to the highest bonus paid or
payable to the Executive in respect of any of the Fiscal Years
during the three Fiscal Years immediately prior to the date of
the Change of Control. Prior to a Change of Control, the amount
of the Executive's Annual Bonus shall be determined in accordance
with the Corporation's regular practice.
(c) Other Compensation Plans. After a Change of
Control, in addition to the Base Salary and Annual Bonus payable
as hereinabove provided, during the Term of Employment, the
Executive shall be entitled to participate in all other
compensation plans and programs, including, without limitation,
savings plans, stock option plans, and retirement plans of the
Corporation and its Affiliated Companies (collectively, the
"Savings Plans"), on a basis at least equivalent to that provided
by the Corporation and its Affiliated Companies to the Executive
under such programs immediately prior to the date of the Change
<PAGE>
of Control. Prior to a Change of Control, the Executive's
entitlement to participate in the Savings Plans shall be
determined in accordance with the Corporation's regular
practice. Prior to a Change of Control, nothing herein shall be
construed to prevent the Corporation from amending or altering
any such plans in accordance with the terms thereof. All
agreements between the Corporation and the Executive existing on
the date hereof providing for special pension, retirement or
similar benefits are continued by this Agreement.
(d) Benefit Plans. After a Change of Control, during
the Term of Employment, the Executive, his or her spouse, or his
or her dependents, as the case may be, shall be entitled to
receive all amounts which he or she, his or her spouse or his or
her dependents are or would have been entitled to receive as
benefits under all other benefit plans of the Corporation and its
Affiliated Companies, including, without limitation, medical,
dental, disability, group life, accidental death and travel
accident insurance plans and programs (collectively, the "Benefit
Plans") on a basis at least as favorable to the Executive as on
the date immediately prior to the date of the Change of Control.
Prior to a Change of Control, the Executive's and such other
persons' entitlement to participate in the Benefit Plans shall be
determined in accordance with the Corporation's regular practice.
(e) Expenses. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the regular policies and procedures of the Corporation.
(f) Office and Support Staff. After a Change of
Control the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive as of the date immediately prior to the
date of the Change of Control.
(g) Death Benefits. In the event of Executive's death
after completion of at least ten (10) Years of Service, unless
(1) Executive's employment with the Corporation was terminated
for Cause or (2) Executive (or his or her Beneficiary) is
entitled to receive Supplemental Retirement Benefits pursuant to
subsection 5(i), the Corporation shall pay to Executive's
Beneficiary an annual death benefit equal to forty percent (40%)
(but not to exceed $100,000) of Executive's annual Base Salary
(as defined in subsection 5(a) hereof) for the Fiscal Year of his
or her termination of employment with the Corporation in equal
monthly installments commencing with the month following the
month of Executive's death and ending with the later of (i) the
month in which Executive would have reached age sixty-five (65)
or (ii) the one-hundred twentieth (120th) month following the
month of Executive's death. In the event that Executive dies
before age 65 but has not completed at least ten (10) Years of
Service with the Corporation, death benefits shall be reduced to
an amount equal to the benefits determined under the preceding
sentence multiplied by the Vesting Percentage applicable to
Executive.
<PAGE>
(h) Disability Benefits. In the event of Executive's
Permanent Disability prior to attaining age 65 and prior to
termination of employment with the Corporation, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive annual disability
benefits equal to forty percent (40%) (but not to exceed
$100,000) of Executive's annual Base Salary for the Fiscal Year
in which the Executive terminated employment with the
Corporation, payable in equal monthly installments, commencing
with the month following the month in which Executive terminated
employment as a result of Permanent Disability and ending on the
earlier of (i) the month in which Executive reaches age 65 or
(ii) the month of his or her death. In the event that at the
time of Permanent Disability Executive has not completed at least
ten (10) Years of Service, the disability benefits shall be
reduced to an amount equal to the benefits determined under the
preceding sentence multiplied by the Vesting Percentage
applicable to Executive. Disability benefits pursuant to this
subsection (h) shall be reduced by any amounts paid to Executive
under the Corporation's long-term disability insurance policy,
but shall not be reduced for any payments received by Executive
from Social Security or from any disability insurance coverage
individually owned by Executive.
(i) Supplemental Retirement Benefits.
(1) In the event of Executive's Retirement after
completion of at least ten (10) Years of Service, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive retirement benefits
for ten (10) years in an annual amount equal to forty percent
(40%) (but not to exceed $100,000) of Executive's annual Base
Salary for the Fiscal Year of his or her Retirement
("Supplemental Retirement Benefits"). In the event of
Executive's Retirement before completion of ten (10) Years of
Service, Corporation shall pay Executive retirement benefits on
the same terms as set forth in the preceding sentence except that
retirement benefits shall be reduced to an amount equal to
Supplemental Retirement Benefits multiplied by the Vesting
Percentage.
(2) Supplemental Retirement Benefits shall be
payable in one hundred twenty (120) equal monthly installments
commencing with the month following the later of (i) the month of
Executive's Retirement or (ii) the month during which Executive
reaches age sixty-five (65). If Executive dies prior to the end
of the one hundred twenty (120) month period during which
Supplemental Retirement Benefits are payable, Supplemental
Retirement Benefits shall be payable during the remainder of such
120-month period to his or her Beneficiary.
(3) Notwithstanding anything herein to the
contrary, in the event of Executive's termination of employment
with the Corporation prior to attaining age 65 as a result of
Permanent Disability, if Executive attains age 65 and his or her
employment with the Corporation was not terminated for Cause, the
<PAGE>
Corporation shall pay to Executive the Supplemental Retirement
Benefits set forth in this Subsection 5(i) in accordance with
Executive's Vesting Percentage, commencing as of the month
following the month in which Executive attains age 65; provided,
however, that any Supplemental Retirement Benefits paid pursuant
to this sentence shall be reduced by any amounts paid to
Executive under the Corporation's long-term disability insurance
policy (but shall not be reduced for any payments received by
Executive from Social Security or from any disability insurance
coverage individually owned by Executive) for the same period.
(j) Survivability of Death and Supplemental Retirement
Benefits. In the event of Executive's Retirement or death,
Executive's entitlement to death benefits pursuant to Subsection
5(g) hereof and Supplemental Retirement Benefits pursuant to
Subsection 5(i) hereof shall survive the Term of Employment and
Executive or his or her Beneficiary shall be entitled to such
death benefits and Supplemental Retirement Benefits based on the
same terms and conditions as would have been applicable had his
or her death or Retirement, as the case may be, occurred during
the Term of Employment.
6. Termination of Employment.
(a) Death or Permanent Disability. Except for the
obligations of the Corporation set forth in this Subsection 6
(a), this Agreement shall terminate automatically upon the
Executive's death or Permanent Disability. In the event of such
termination, the Corporation shall pay to the Executive's
Beneficiary or, in the event of Permanent Disability, the
Executive or his or her legal representative, all benefits and
Base Salary accrued through the date of termination, including,
without limitation, amounts payable under any plan referred to in
Subsection 5(d) plus any benefits to which Executive may be
entitled pursuant to Subsection 5(g), Subsection 5(h) or
Subsection 5(i) hereof.
(b) Cause. The Corporation may terminate the
Executive's employment for Cause. If the Executive's employment
is terminated for Cause, the Corporation shall pay the Executive
his or her full accrued Base Salary through the effective date of
the termination of his or her employment (which shall be no
earlier than the date of receipt of notice thereof) at the rate
in effect at the time of such termination, and the Corporation
shall have no further obligations to the Executive under this
Agreement.
(c) Notification Prior to One Year Extension. Either
Executive or the Corporation may terminate this Agreement by
notifying the other party in writing of an intention to do so at
least sixty (60) days prior to the commencement of a one-year
extension period described in Section 3 hereof.
(d) Payments for Involuntary Termination Without
Cause.
<PAGE>
(1) If prior to a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall pay Executive during the 24-month period
following such involuntary termination of employment an amount
equal to 200% of Base Salary for the Fiscal Year of termination,
payable in equal weekly installments or at such other intervals
as salary is normally paid by the Corporation to its employees.
The payment pursuant to this Subsection 6(d)(1) and any payments
to which Executive may be entitled pursuant to Subsections 5(g),
5(h), and 5(i) shall be in full discharge of any claims, actions,
demands or damages of every nature and description which
Executive might have or might assert against the Corporation or
any Affiliated Company in connection with or arising from the
termination of Executive's employment or the termination of this
Agreement.
(2) If following a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to Subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall, at the time of such involuntary
termination, make a lump sum cash payment to Executive equal to
200% of his or her Base Salary for the Fiscal Year of
termination. In addition to the payment pursuant to this
Subsection 6(d)(2) and any payments to which Executive may be
entitled pursuant to Subsections 5(g), 5(h) and 5(i), Executive
shall be entitled to all remedies available under this Agreement
or at law in respect of any damages suffered by Executive as a
result of an involuntary termination of employment without Cause.
7. Gross-Up For Parachute Tax.
(a) General. In the event that following a Change of
Control Executive becomes entitled to any payments (whether
pursuant to this Employment Agreement or any other plan,
arrangement or agreement) from the Corporation in the nature of
compensation ("Parachute Payments") that in the opinion of a
certified public accounting firm (selected in the manner set
forth in Subsection 7(b)) or that under the provisions of a
notice of assessment from the Internal Revenue Service causes
imposition of the tax under Section 4999 of the Code or any
similar tax that may hereafter be imposed (the "Excise Tax"), the
Corporation shall pay Executive, at the time specified in
Subsection 7(d), the Gross-Up Payment (as determined in
accordance with Subsection 7(c)).
(b) Selection of C.P.A. Within fifteen (15) days
after any termination of Executive's employment following a
Change of Control, the majority of the Continuing Directors as of
the date immediately prior to the Change of Control shall select
a certified public accounting firm (the "C.P.A.") to determine
<PAGE>
the amount, if any, of the Excise Tax and the amount, if any, of
the Gross-Up Payments.
(c) Amount of Gross-Up Payments.
(1) The Gross-Up Payments shall be in an amount
such that the net amount retained by Executive with respect to
the Parachute Payments and Gross-Up Payments, after deduction of
any Excise Tax to which the Parachute Payments may be subject and
any federal, state, and local income taxes and Excise Tax upon
the Gross-Up Payments, shall be equal to the gross amount of the
Parachute Payments.
(2) For purposes of determining the amount of the
Gross-Up Payments, Executive shall be deemed to pay federal
income taxes at the applicable rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the applicable rate of
taxation for the calendar year in which the Gross-Up Payment is
to be made.
(3) In the event that the Excise Tax is
subsequently determined to exceed the amount taken into account
at the time the Gross-Up Payment is made pursuant to Subsection
7(d)(1) hereof (including any excess attributable to any
Parachute Payments the existence or amount of which could not be
accurately determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest and addition to tax payable
with respect to such excess) within fifteen (15) days after the
amount of such excess is determined by the C.P.A. or by the
Internal Revenue Service (the "IRS") in a notice of assessment.
(d) Timing of Gross-Up Payments. Gross-Up Payments
other than Gross-Up Payments pursuant to Subsection 7(c)(3) shall
be paid not later than forty-five (45) days following payment of
any Parachute Payments to which the Gross-Up Payments are
attributable; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally determined
on or before such day, the Corporation shall pay to Executive on
such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
applicable federal rate provided in Section l274(d) of the Code)
as soon as the amount thereof can be determined by the C.P.A.,
but in no event later than forty-five (45) days after payment of
such Parachute Payments.
(e) Corporation's Right to Designate Tax
Representative; Assignment of Refund Proceeds. If the IRS
proposes an assessment of the Excise Tax against Executive or
proposes an additional assessment of Excise Tax in excess of the
amount previously reported by Executive:
(1) Executive shall within five (5) days after
receipt from the IRS of notice of the proposed Excise Tax
assessment notify the Corporation in writing and furnish the
Corporation with copies of all correspondence from the IRS
relating to the proposed Excise Tax assessment.
<PAGE>
(2) The Corporation shall be authorized to
designate an attorney and/or accountant (the "Tax
Representative") to serve as Executive's exclusive representative
with respect to all proceedings with the IRS relating to the
proposed Excise Tax assessment, including but not limited to
negotiating a settlement or compromise of the proposed Excise Tax
assessment, filing a claim for refund with respect thereto, and
seeking judicial review of any disallowance of a claim for
refund. Executive hereby agrees to execute an appropriate power
of attorney authorizing the Tax Representative to represent
Executive with respect to the Excise Taxes. Executive further
agrees to take any other appropriate actions reasonably requested
by the Tax Representative in connection therewith; provided,
however, that the Corporation shall reimburse Executive for any
expenses incurred by Executive as a result of compliance with
such requests.
(3) If the Tax Representative files a claim for
refund of Excise Taxes with respect to which the Corporation has
made a Gross-Up Payment and such refund claim is allowed by the
IRS or by the final judgment of a court of competent
jurisdiction, Executive shall endorse the refund check payable to
the Corporation and shall send the refund check to the
Corporation not later than five (5) days after receipt from the
IRS.
(4) If the Corporation designates a Tax
Representative, the Corporation shall pay all of his or her
professional fees and expenses and hold Executive harmless from
any claims in connection therewith. The Tax Representative shall
keep Executive timely informed of all significant developments in
the Excise Tax matter and shall send to Executive copies of all
correspondence relating thereto.
(5) Notwithstanding anything herein to the
contrary, if the Corporation is in material breach of any of its
obligations pursuant to this Agreement, the Corporation's rights
pursuant to this Subsection 7(e) shall be extinguished and
Executive shall have the right to revoke any power of attorney
executed pursuant to this Subsection 7(e).
8. No Obligation to Mitigate Damages. The Executive shall
not be obligated to mitigate any damages by seeking other
employment or otherwise, and no amount payable hereunder and no
benefit or service credit for benefits shall be reduced in the
event that the Executive shall accept alternative employment.
9. Benefits Payable Only From Corporate Assets.
(a) No Trust. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Corporation and the
Executive or his or her Beneficiary.
(b) Executive's Status as Unsecured General Creditor.
The payment of any benefits hereunder to the Executive or his or
<PAGE>
her Beneficiary shall be made from assets which shall continue,
for all purposes, to be a part of the general assets of the
Corporation; no person shall have or acquire any interest in such
assets by virtue of the provisions of this Agreement. To the
extent that the Executive or his or her Beneficiary acquires a
right to receive payments from the Corporation under the
provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
(c) Recovery of Cost of Providing Benefits. In the
event that, in its discretion, the Corporation purchases an
insurance policy insuring the life of the Executive to enable the
Corporation to recover, in whole or in part, the cost of
providing any benefits hereunder, neither the Executive nor his
or her Beneficiary under this Agreement shall have or acquire any
rights whatsoever therein. The Corporation shall be the sole
owner and beneficiary of any such policy and, as such, shall
possess and may exercise all incidents of ownership therein.
10. Determination of Benefits and Claims Procedure. The
Corporation shall make all determinations as to rights to
benefits under this Agreement. Subject to and in compliance with
the specific procedures contained in the applicable regulations
promulgated under the Employee Retirement Income Security Act of
1974, as amended: (i) any decision by the Corporation denying a
claim for benefits under this Agreement by the Executive or his
or her Beneficiary shall be stated in writing by the Corporation
and delivered or mailed to the claimant; (ii) each such notice
shall set forth the specific reasons for the denial, written to
the best of the Corporation's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the
Corporation shall afford a reasonable opportunity to the claimant
whose claim for benefits has been denied for a review of the
decision denying such claim.
11. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any Affiliated Companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Corporation or any
Affiliated Companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or
program of the Corporation or any Affiliated Companies shall be
payable in accordance with the terms of such plan or program.
12. Full Settlement. After a Change of Control, the
Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. Unless
<PAGE>
it is finally determined by a court of competent jurisdiction
after all available appeals that the Corporation has validly
terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof, plus, in each case, interest compounded
quarterly, on the total unpaid amount determined be payable
hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Mercantile Bank, N.A.
in effect from time to time, for the period commencing on the
date of such contest and ending on the date on which the
Corporation shall pay such amount.
13. Covenants.
(a) Non-Competition.
(1) Executive recognizes that during the course
of Executive's employment with the Corporation, Executive has
been and will be instructed about and become acquainted with
confidential information of the Corporation, including, without
limitation, customer lists, methods of sales, the existence and
contents and terms of this Agreement, methods of sales
procurement, sales procurement techniques, sales procedures and
equipment/supply information, equipment and supply acquisition
procedures and processes and sources, customer evaluation
procedures, customer maintenance and supply maintenance
procedures and corresponding information relating to persons,
firms and corporations which are or may become customers of the
Corporation and, further, companies from which the Corporation
obtains various products and supplies for sale, resale and
distribution to customers of the Corporation. This confidential
information further includes, but is not limited to, customer
identity, supplier identity and terms, purchase terms, sales
techniques, purchase conditions and rates, customer needs,
billing procedures and processes, contacts and customer
information. Further, Executive agrees and acknowledges that the
development and assemblage and maintenance of the customer base
of the Corporation has taken extraordinary time, money,
resources, training, and effort by the Corporation and its
employees.
(2) Executive agrees that he or she will not
during the Term of Employment and for a period of two (2) years
following cessation of his or her employment at the Corporation
("Restricted Period"), for any cause or reason, directly or
indirectly:
(A) engage in any business in competition
with the Corporation and its Affiliates or supply and sell to
present customers, former customers and prospects of the
Corporation and its Affiliates; or
<PAGE>
(B) own, manage, operate, control, advise,
be employed by, consult, or materially participate in, or be
materially involved in any manner with the ownership, management,
operation or control of, individually or through any other entity
or device, any business that competes with the business then
conducted by the Corporation or any Affiliate; provided, however,
that mere ownership as an investor of not more than five percent
(5%) of the securities of a corporation or other business
enterprise shall not in and of itself be deemed to violate this
Section 13(b)(2)(B).
(b) Nondisclosure of Confidential Information.
(1) Executive will not, except as authorized by
the Corporation in writing, during or at any time after the
termination of Executive's employment with the Corporation,
directly or indirectly, use for himself or herself or others, or
disclose, communicate, divulge, furnish to, or convey to any
other person, firm, or corporation, any secret or confidential
information, knowledge or data of the Corporation or that of
third parties obtained by Executive during the period of his or
her employment with the Corporation. Such information, knowledge
or data includes, without limitation, the following:
(A) Secret or confidential matters of a
technical nature such as, but not limited to, methods, know-how,
formulations, compositions, processes, discoveries, machines,
inventions, computer programs, and similar items or research
projects involving such items,
(B) Secret or confidential matters of a
business nature such as, but not limited to, marketing policies
or strategies, information about costs, price lists, purchasing
and purchasing policies, profits, market, sales or lists of
customers, customer history information, and
(C) Secret or confidential matters
pertaining to future developments such as, but not limited to,
research and development or future marketing or merchandising.
(2) Executive, upon termination of his or her
employment with the Corporation, or at any other time upon the
Corporation's request, shall deliver promptly to the Corporation
all manuals, letters, notes, notebooks, reports, formulations,
computer programs and similar items, memoranda, lists of
customers, customer history information and all other materials
and copies thereof relating in any way to the Corporation's
business and in any way obtained by Executive during the term of
employment with the Corporation which are in his or her
possession or under his or her control; and Executive will not
make or retain any copies of any of the foregoing and will so
represent to the Corporation upon termination of his or her
employment.
(c) Inducement.
(1) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
use any confidential information for the purposes of inducing or
attempting to induce any present, former, or prospective customer
<PAGE>
of the Corporation or its Affiliates to become a customer of
Executive or any person, firm, or corporation, or business
association with which Executive is affiliated in any capacity
with respect to the markets supplied by the Corporation or its
Affiliates.
(2) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
directly or indirectly solicit for employment or employ any of
the Corporation's employees to work for Executive or any business
association with which/whom Executive is affiliated, or to work
for any other company in the markets supplied by the Corporation
or its Affiliates.
(f) Interest of Parties. Executive agrees that the
duration of the limitations set forth in this Section 13 are
reasonable under the circumstances, considering Executive's
position with the Corporation and other relevant factors, and
that this will not constitute a serious handicap to Executive in
securing future employment.
(g) Disclosure to Corporation. Executive shall
promptly communicate and disclose to the Corporation all
information, observations and data obtained by Executive in the
course of Executive's employment. All written materials, records
and documents made by Executive or coming into Executive's
possession during the Term of Employment concerning any
inventions, products, processes or equipment, manufactured, used,
developed, investigated or considered by the Corporation or any
Affiliated Companies shall be the property of the Corporation,
and upon termination of the Term of Employment, or upon request
of the Corporation during the Term of Employment, Executive
shall promptly deliver the same to the Corporation. Executive
agrees to render to the Corporation such reports of the
activities of the business undertaken by Executive or conducted
under Executive's direction during the Term of Employment as the
Corporation may reasonably request.
(h) Inventions.
(1) Executive shall promptly communicate and
disclose in writing to the Corporation all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called
"Inventions"), made, conceived, developed or purchased by
Executive, or under which Executive acquires the right to grant
licenses or to become licensed, alone or jointly with others,
during the Term of Employment, which have arisen or may arise out
of Executive's employment, or relate to any matters pertaining
to, applicable to, or useful in connection with, the business or
affairs of the Corporation or any Affiliated Companies. All of
Executive's right, title and interest in, to and under all such
inventions, licenses and rights to grant licenses shall be the
sole property of the Corporation. Any such inventions disclosed
to anyone by Executive within one (1) year after the termination
<PAGE>
of the Term of Employment for any cause whatsoever shall be
deemed to have been made or conceived by Executive during the
Term of Employment.
(2) As to all such inventions, Executive shall,
upon request of the Corporation, during the Term of Employment or
thereafter:
A. Execute all documents which the
Corporation shall deem necessary or proper to
enable it to establish title to such inventions,
or other rights, and to enable it to file and
prosecute applications for letters patent of the
United States and any foreign country; and
B. Do all things (including the giving of
evidence in suits and other proceedings) which the
Corporation shall deem necessary or proper to
obtain, maintain or to assert patents for any and
all such inventions or to assert its rights in any
inventions not patented.
All expenses incident to any action required by the Corporation
or taken on its behalf pursuant to the provisions of this
paragraph shall be borne by the Corporation including without
limitation a reasonable payment for Executive's time and expenses
involved in case he or she is not then in its employ.
(i) Litigation. Executive agrees that during the Term
of Employment or thereafter, Executive shall do all things,
including the giving of evidence in suits and other proceedings,
which the Corporation shall deem necessary or proper to obtain,
maintain or assert rights accruing to the Corporation during the
Term of Employment and in connection with which Executive has
knowledge, information or expertise. All reasonable expenses
incurred by Executive during the Term of Employment or thereafter
in fulfilling the duties set forth in this Section, shall be
reimbursed by the Corporation to the full extent legally
appropriate including, without limitation, a reasonable payment
for Executive's time in the event this Agreement has terminated
prior to the time Executive renders such assistance, advice and
counsel.
14. Equity. The parties hereto agree that the services to
be rendered by Executive are special, unique and of an
extraordinary character. In the event of the breach by Executive
of any of the provisions of this Agreement, the Corporation, in
addition and as a supplement to such other rights and remedies as
may exist in its favor, may apply to any court of law or equity
having jurisdiction to enforce the specific performance of this
Agreement, and/or may apply for injunctive relief against any act
which would violate any of the provisions of this Agreement.
15. Effect on Prior Agreements. This Agreement shall
supersede and replace any and all prior employment agreements
entered into between Executive and the Corporation or any
Affiliated Company, including but not limited to that certain
<PAGE>
Employment Agreement dated February 2, 1992. This Agreement
contains the entire understanding of the parties hereto with
respect to the subject matter hereof.
16. No Assignment.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be
assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives and Beneficiary.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors. The
Corporation shall require any successor to all or substantially
all of the business and/or assets of the Corporation, whether
direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform if no
such succession had taken place.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision or clause were omitted.
18. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) In the event that litigation is required to
enforce any provision of this Agreement, subject to the
provisions of Section 12 hereof, the prevailing party shall be
entitled to reasonable attorneys fees.
<PAGE>
(c) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Patrick J. Morris
12371 Creekhaven
Des Peres, MO 63131
If to the Corporation:
Consumer Programs, Incorporated
1706 Washington Avenue
St. Louis, Missouri 63103
Attention: Russ Isaak, President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(d) This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof.
(e) The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate, all as of the day and year first above
written.
CONSUMER PROGRAMS INCORPORATED
By /s/ Russell Isaak
-----------------------------------
President
By /s/ Patrick J. Morris
-----------------------------------
Patrick J. Morris
Senior Executive Vice President
EXHIBIT (10.5)
MATERIAL CONTRACT
Employment Contract - David E. April
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated February 5, 1995, between CONSUMER PROGRAMS
INCORPORATED, a Missouri corporation (the "Corporation"), and
David E. April (the "Executive").
WHEREAS, the Corporation currently employs the Executive in
the capacity of Senior Executive Vice President, and the Executive
is one of the key executives of the Corporation and its parent
corporation, CPI Corp.;
WHEREAS, there is much competition for the type of business
performed by the Corporation in the locales in which the
Corporation operates, and the Corporation and Executive
acknowledge that the Corporation is active in the product markets
in which it competes;
WHEREAS, Executive, during his or her employment, has been
and will be entrusted with confidential information;
WHEREAS, Executive and the Corporation recognize and
acknowledge that, to ensure the continued growth and stability of
the Corporation, it is necessary to obtain an agreement from
Executive not to compete with the Corporation and not to disclose
confidential information of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue
in the employ of the Corporation as a result of his or her
experience with the Corporation and his or her potential for
making future contributions to the Corporation, and the Executive
is willing to make a commitment to remain in such employ upon the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliated Companies" shall mean any corporation
(or other business entity) controlling, controlled by or under
common control with the Corporation.
(b) "Beneficiary" shall mean the person designated in
writing by the Executive as his or her beneficiary under this
Agreement, or in the absence of such designation, his or her
estate.
(c) "Cause" shall mean:
(1) prior to a Change of Control, (i) conduct or
activity of the Executive materially detrimental to the
Corporation's reputation or business (including financial)
operations; (ii) gross or habitual neglect or breach of duty or
<PAGE>
misconduct of the Executive in discharging the duties of his or
her position; or (iii) prolonged absence by the Executive from
his or her duties (other than on account of illness or
disability) without the consent of the Corporation.
(2) after a Change of Control, (i) an act or acts
of dishonesty on the Executive's part which are intended to
result in his or her substantial personal enrichment at the
expense of the Corporation; (ii) any material violation by the
Executive of his or her obligations and covenants pursuant to
this Agreement which is demonstrably willful and deliberate on
the Executive's part and which results in material injury to the
Corporation; or (iii) the conviction of Executive of a felony or
of a crime involving moral turpitude.
(d) A "Change of Control" shall mean a change in
control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that
such event had been "previously reported" as that term is defined
in Rule 12b-2 of Regulation 12B of the Exchange Act unless the
transactions that give rise to the change in control are approved
or ratified by a majority of the members of the Incumbent Board
of CPI Corp. who are not employees of the Corporation; provided
that, without limitation, notwithstanding anything herein to the
contrary, such a change in control shall be deemed to have
occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of CPI Corp. representing 40% or more
of the combined voting power of CPI Corp.'s then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), (b) individuals who constitute
the Board of CPI Corp. on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by CPI
Corp.'s shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of CPI Corp. in which such person is named as a nominee for
director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person
were a member of the Incumbent Board, or (c) approval by the
stockholders of CPI Corp. of a reorganization, merger or
consolidation, in each case, with respect to which persons who
were the stockholders of CPI Corp. immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation or
<PAGE>
dissolution of CPI Corp. or of the sale of all or substantially
all of the assets of CPI Corp. For purposes of this Agreement,
the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person,"
as such term is used in Section 14(d) of the Exchange Act, other
than CPI Corp., the Corporation or an Affiliated Company or any
employee benefit plan(s) sponsored or maintained by the
Corporation or any Affiliated Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as may be amended from time to time.
(f) "Continuing Directors" shall have the meaning set
forth in Paragraph 3(G) of Article Ten of CPI Corp.'s Certificate
of Incorporation.
(g) "Fiscal Year" shall mean the Fiscal Year of the
Corporation.
(h) "Permanent Disability" shall mean the inability of
Executive to perform the services contemplated by Section 4
hereof for a period of at least one hundred eighty (180)
consecutive calendar days or for thirty-five (35) weeks (whether
or not consecutive) in any twelve (12) month period on account of
any sickness, injury or other infirmity or disability.
(i) "Retirement" shall mean the Executive's voluntary
or involuntary termination of employment with the Corporation
except for termination on account of (A) Cause as defined in
Subsection 6(b) hereof, (B) death or (C) Permanent Disability
before attaining age sixty-five (65).
(j) "Term of Employment" shall have the meaning set
forth in Section 3 hereof.
(k) "Vesting Percentage" shall mean the percentage of
Supplemental Retirement Benefits, death benefits, and disability
benefits in which Executive has a nonforfeitable interest (except
in the event of termination for Cause) based upon the number of
Years of Service Executive has completed, determined as follows:
<TABLE>
<CAPTION>
Completed Years of Service Vesting Percentage
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
<PAGE>
Notwithstanding anything herein to the contrary, if Executive's
employment with the Corporation terminates following a Change of
Control, unless such termination is for Cause, for purposes of
Subsections 5(g), 5(h), and 5(i) of this Agreement Executive
shall be deemed to have completed ten (10) Years of Service and
his or her Vesting Percentage shall be deemed to be 100%.
(l) "Year of Service" shall mean any Fiscal Year
during which the Executive has worked for the Corporation at
least one thousand (1,000) hours, including Fiscal Years prior to
the effective date of this Agreement.
2. Employment. The Corporation hereby employs and engages
the services of the Executive as one of its key executives
initially in the position of Senior Executive Vice President of the
Corporation and its parent corporation, CPI Corp. for the Term of
Employment set forth in Section 3. The Executive agrees to serve
the Corporation for the Term of Employment as provided herein.
3. Term of Employment. The Executive's Term of Employment
shall be a period commencing on the date hereof and ending one
(1) year thereafter; provided, however, that upon the expiration
of the aforesaid period (the "Expiration Date") and upon each
anniversary of the Expiration Date, the Term of Employment shall
automatically be extended for an additional one (1) year period
unless Executive or the Corporation notifies the other in writing
at least sixty (60) days prior to the commencement of such one
(1) year period of an intention to terminate this Agreement.
Notwithstanding anything herein to the contrary, the Term of
Employment shall terminate upon Executive's death or Permanent
Disability as set forth in subsection 6(a) hereof or upon the
Corporation's termination of Executive's employment for Cause
pursuant to subsection 6(b) hereof.
4. Position and Duties.
(a) Prior to a Change of Control, during the Term of
Employment, the Executive shall serve the Corporation in such
capacity as the Corporation may determine. After a Change of
Control, during the Term of Employment, the Executive's position,
authority and responsibilities, the type of work he or she is
asked to perform, and the status and stature of the people with
whom he or she is asked to work, shall be comparable to that
existing with respect to the Executive as of the date immediately
prior to the Change of Control, and after a Change of Control the
Executive's services shall be performed at the location where the
Executive was employed as of the date immediately prior to the
Change of Control, or at such other location as may be mutually
agreed between the Corporation and the Executive.
(b) The Executive agrees to devote his or her full
business time during normal business hours to the business and
affairs of the Corporation (except as otherwise provided herein)
and to use his or her best efforts to promote the interests of
<PAGE>
the Corporation and its Affiliated Companies and to perform
faithfully and efficiently the responsibilities assigned to
him or her in accordance with the terms of this Agreement to the
extent necessary to discharge such responsibilities, except for
(i) service on corporate, civic or charitable boards or
committees not significantly interfering with the performance of
such responsibilities and (ii) periods of vacation and sick
leave to which he or she is entitled. It is expressly understood
and agreed that the Executive's continuing service on any boards
and committees with which he or she shall be connected, as a
member or otherwise, as of the date hereof, or any such service
approved by the Corporation during the Term of Employment, shall
not be deemed to interfere with the performance of the
Executive's services to the Corporation pursuant to this
subparagraph 4(b).
5. Compensation and Other Conditions of Employment.
(a) Base Salary. During the Term of Employment, the
Executive shall receive an annual base salary (the "Base
Salary"), in equal installments payable weekly or at such other
intervals as salary is normally paid by the Corporation to its
employees, at an annual rate established by the Corporation and
any Affiliated Companies as of the date hereof. The Base Salary
shall be reviewed at least once each year and may be increased at
any time and from time to time by action of the Board of
Directors of CPI Corp., any committee thereof or any individual
having authority to take such action, in accordance with the
Corporation's regular practices. Any increase in the Base Salary
shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after such increase the Base Salary
shall not be reduced from such increased level.
(b) Annual Bonus. After a Change of Control, in
addition to the Base Salary, the Executive shall be awarded for
each Fiscal Year during the Term of Employment an annual bonus (the
"Annual Bonus") (pursuant to any bonus plan or program of the
Corporation, any incentive plan or program of the Corporation, or
otherwise) in cash at least equal to the highest bonus paid or
payable to the Executive in respect of any of the Fiscal Years
during the three Fiscal Years immediately prior to the date of
the Change of Control. Prior to a Change of Control, the amount
of the Executive's Annual Bonus shall be determined in accordance
with the Corporation's regular practice.
(c) Other Compensation Plans. After a Change of
Control, in addition to the Base Salary and Annual Bonus payable
as hereinabove provided, during the Term of Employment, the
Executive shall be entitled to participate in all other
compensation plans and programs, including, without limitation,
savings plans, stock option plans, and retirement plans of the
Corporation and its Affiliated Companies (collectively, the
"Savings Plans"), on a basis at least equivalent to that provided
by the Corporation and its Affiliated Companies to the Executive
under such programs immediately prior to the date of the Change
<PAGE>
of Control. Prior to a Change of Control, the Executive's
entitlement to participate in the Savings Plans shall be
determined in accordance with the Corporation's regular
practice. Prior to a Change of Control, nothing herein shall be
construed to prevent the Corporation from amending or altering
any such plans in accordance with the terms thereof. All
agreements between the Corporation and the Executive existing on
the date hereof providing for special pension, retirement or
similar benefits are continued by this Agreement.
(d) Benefit Plans. After a Change of Control, during
the Term of Employment, the Executive, his or her spouse, or his
or her dependents, as the case may be, shall be entitled to
receive all amounts which he or she, his or her spouse or his or
her dependents are or would have been entitled to receive as
benefits under all other benefit plans of the Corporation and its
Affiliated Companies, including, without limitation, medical,
dental, disability, group life, accidental death and travel
accident insurance plans and programs (collectively, the "Benefit
Plans") on a basis at least as favorable to the Executive as on
the date immediately prior to the date of the Change of Control.
Prior to a Change of Control, the Executive's and such other
persons' entitlement to participate in the Benefit Plans shall be
determined in accordance with the Corporation's regular practice.
(e) Expenses. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the regular policies and procedures of the Corporation.
(f) Office and Support Staff. After a Change of
Control the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive as of the date immediately prior to the
date of the Change of Control.
(g) Death Benefits. In the event of Executive's death
after completion of at least ten (10) Years of Service, unless
(1) Executive's employment with the Corporation was terminated
for Cause or (2) Executive (or his or her Beneficiary) is
entitled to receive Supplemental Retirement Benefits pursuant to
subsection 5(i), the Corporation shall pay to Executive's
Beneficiary an annual death benefit equal to forty percent (40%)
(but not to exceed $100,000) of Executive's annual Base Salary
(as defined in subsection 5(a) hereof) for the Fiscal Year of his
or her termination of employment with the Corporation in equal
monthly installments commencing with the month following the
month of Executive's death and ending with the later of (i) the
month in which Executive would have reached age sixty-five (65)
or (ii) the one-hundred twentieth (120th) month following the
month of Executive's death. In the event that Executive dies
before age 65 but has not completed at least ten (10) Years of
Service with the Corporation, death benefits shall be reduced to
an amount equal to the benefits determined under the preceding
sentence multiplied by the Vesting Percentage applicable to
Executive.
<PAGE>
(h) Disability Benefits. In the event of Executive's
Permanent Disability prior to attaining age 65 and prior to
termination of employment with the Corporation, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive annual disability
benefits equal to forty percent (40%) (but not to exceed
$100,000) of Executive's annual Base Salary for the Fiscal Year
in which the Executive terminated employment with the
Corporation, payable in equal monthly installments, commencing
with the month following the month in which Executive terminated
employment as a result of Permanent Disability and ending on the
earlier of (i) the month in which Executive reaches age 65 or
(ii) the month of his or her death. In the event that at the
time of Permanent Disability Executive has not completed at least
ten (10) Years of Service, the disability benefits shall be
reduced to an amount equal to the benefits determined under the
preceding sentence multiplied by the Vesting Percentage
applicable to Executive. Disability benefits pursuant to this
subsection (h) shall be reduced by any amounts paid to Executive
under the Corporation's long-term disability insurance policy,
but shall not be reduced for any payments received by Executive
from Social Security or from any disability insurance coverage
individually owned by Executive.
(i) Supplemental Retirement Benefits.
(1) In the event of Executive's Retirement after
completion of at least ten (10) Years of Service, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive retirement benefits
for ten (10) years in an annual amount equal to forty percent
(40%) (but not to exceed $100,000) of Executive's annual Base
Salary for the Fiscal Year of his or her Retirement
("Supplemental Retirement Benefits"). In the event of
Executive's Retirement before completion of ten (10) Years of
Service, Corporation shall pay Executive retirement benefits on
the same terms as set forth in the preceding sentence except that
retirement benefits shall be reduced to an amount equal to
Supplemental Retirement Benefits multiplied by the Vesting
Percentage.
(2) Supplemental Retirement Benefits shall be
payable in one hundred twenty (120) equal monthly installments
commencing with the month following the later of (i) the month of
Executive's Retirement or (ii) the month during which Executive
reaches age sixty-five (65). If Executive dies prior to the end
of the one hundred twenty (120) month period during which
Supplemental Retirement Benefits are payable, Supplemental
Retirement Benefits shall be payable during the remainder of such
120-month period to his or her Beneficiary.
(3) Notwithstanding anything herein to the
contrary, in the event of Executive's termination of employment
with the Corporation prior to attaining age 65 as a result of
Permanent Disability, if Executive attains age 65 and his or her
employment with the Corporation was not terminated for Cause, the
<PAGE>
Corporation shall pay to Executive the Supplemental Retirement
Benefits set forth in this Subsection 5(i) in accordance with
Executive's Vesting Percentage, commencing as of the month
following the month in which Executive attains age 65; provided,
however, that any Supplemental Retirement Benefits paid pursuant
to this sentence shall be reduced by any amounts paid to
Executive under the Corporation's long-term disability insurance
policy (but shall not be reduced for any payments received by
Executive from Social Security or from any disability insurance
coverage individually owned by Executive) for the same period.
(j) Survivability of Death and Supplemental Retirement
Benefits. In the event of Executive's Retirement or death,
Executive's entitlement to death benefits pursuant to Subsection
5(g) hereof and Supplemental Retirement Benefits pursuant to
Subsection 5(i) hereof shall survive the Term of Employment and
Executive or his or her Beneficiary shall be entitled to such
death benefits and Supplemental Retirement Benefits based on the
same terms and conditions as would have been applicable had his
or her death or Retirement, as the case may be, occurred during
the Term of Employment.
6. Termination of Employment.
(a) Death or Permanent Disability. Except for the
obligations of the Corporation set forth in this Subsection 6
(a), this Agreement shall terminate automatically upon the
Executive's death or Permanent Disability. In the event of such
termination, the Corporation shall pay to the Executive's
Beneficiary or, in the event of Permanent Disability, the
Executive or his or her legal representative, all benefits and
Base Salary accrued through the date of termination, including,
without limitation, amounts payable under any plan referred to in
Subsection 5(d) plus any benefits to which Executive may be
entitled pursuant to Subsection 5(g), Subsection 5(h) or
Subsection 5(i) hereof.
(b) Cause. The Corporation may terminate the
Executive's employment for Cause. If the Executive's employment
is terminated for Cause, the Corporation shall pay the Executive
his or her full accrued Base Salary through the effective date of
the termination of his or her employment (which shall be no
earlier than the date of receipt of notice thereof) at the rate
in effect at the time of such termination, and the Corporation
shall have no further obligations to the Executive under this
Agreement.
(c) Notification Prior to One Year Extension. Either
Executive or the Corporation may terminate this Agreement by
notifying the other party in writing of an intention to do so at
least sixty (60) days prior to the commencement of a one-year
extension period described in Section 3 hereof.
(d) Payments for Involuntary Termination Without
Cause.
<PAGE>
(1) If prior to a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall pay Executive during the 24-month period
following such involuntary termination of employment an amount
equal to 200% of Base Salary for the Fiscal Year of termination,
payable in equal weekly installments or at such other intervals
as salary is normally paid by the Corporation to its employees.
The payment pursuant to this Subsection 6(d)(1) and any payments
to which Executive may be entitled pursuant to Subsections 5(g),
5(h), and 5(i) shall be in full discharge of any claims, actions,
demands or damages of every nature and description which
Executive might have or might assert against the Corporation or
any Affiliated Company in connection with or arising from the
termination of Executive's employment or the termination of this
Agreement.
(2) If following a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to Subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall, at the time of such involuntary
termination, make a lump sum cash payment to Executive equal to
200% of his or her Base Salary for the Fiscal Year of
termination. In addition to the payment pursuant to this
Subsection 6(d)(2) and any payments to which Executive may be
entitled pursuant to Subsections 5(g), 5(h) and 5(i), Executive
shall be entitled to all remedies available under this Agreement
or at law in respect of any damages suffered by Executive as a
result of an involuntary termination of employment without Cause.
7. Gross-Up For Parachute Tax.
(a) General. In the event that following a Change of
Control Executive becomes entitled to any payments (whether
pursuant to this Employment Agreement or any other plan,
arrangement or agreement) from the Corporation in the nature of
compensation ("Parachute Payments") that in the opinion of a
certified public accounting firm (selected in the manner set
forth in Subsection 7(b)) or that under the provisions of a
notice of assessment from the Internal Revenue Service causes
imposition of the tax under Section 4999 of the Code or any
similar tax that may hereafter be imposed (the "Excise Tax"), the
Corporation shall pay Executive, at the time specified in
Subsection 7(d), the Gross-Up Payment (as determined in
accordance with Subsection 7(c)).
(b) Selection of C.P.A. Within fifteen (15) days
after any termination of Executive's employment following a
Change of Control, the majority of the Continuing Directors as of
the date immediately prior to the Change of Control shall select
a certified public accounting firm (the "C.P.A.") to determine
<PAGE>
the amount, if any, of the Excise Tax and the amount, if any, of
the Gross-Up Payments.
(c) Amount of Gross-Up Payments.
(1) The Gross-Up Payments shall be in an amount
such that the net amount retained by Executive with respect to
the Parachute Payments and Gross-Up Payments, after deduction of
any Excise Tax to which the Parachute Payments may be subject and
any federal, state, and local income taxes and Excise Tax upon
the Gross-Up Payments, shall be equal to the gross amount of the
Parachute Payments.
(2) For purposes of determining the amount of the
Gross-Up Payments, Executive shall be deemed to pay federal
income taxes at the applicable rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the applicable rate of
taxation for the calendar year in which the Gross-Up Payment is
to be made.
(3) In the event that the Excise Tax is
subsequently determined to exceed the amount taken into account
at the time the Gross-Up Payment is made pursuant to Subsection
7(d)(1) hereof (including any excess attributable to any
Parachute Payments the existence or amount of which could not be
accurately determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest and addition to tax payable
with respect to such excess) within fifteen (15) days after the
amount of such excess is determined by the C.P.A. or by the
Internal Revenue Service (the "IRS") in a notice of assessment.
(d) Timing of Gross-Up Payments. Gross-Up Payments
other than Gross-Up Payments pursuant to Subsection 7(c)(3) shall
be paid not later than forty-five (45) days following payment of
any Parachute Payments to which the Gross-Up Payments are
attributable; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally determined
on or before such day, the Corporation shall pay to Executive on
such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
applicable federal rate provided in Section l274(d) of the Code)
as soon as the amount thereof can be determined by the C.P.A.,
but in no event later than forty-five (45) days after payment of
such Parachute Payments.
(e) Corporation's Right to Designate Tax
Representative; Assignment of Refund Proceeds. If the IRS
proposes an assessment of the Excise Tax against Executive or
proposes an additional assessment of Excise Tax in excess of the
amount previously reported by Executive:
(1) Executive shall within five (5) days after
receipt from the IRS of notice of the proposed Excise Tax
assessment notify the Corporation in writing and furnish the
Corporation with copies of all correspondence from the IRS
relating to the proposed Excise Tax assessment.
<PAGE>
(2) The Corporation shall be authorized to
designate an attorney and/or accountant (the "Tax
Representative") to serve as Executive's exclusive representative
with respect to all proceedings with the IRS relating to the
proposed Excise Tax assessment, including but not limited to
negotiating a settlement or compromise of the proposed Excise Tax
assessment, filing a claim for refund with respect thereto, and
seeking judicial review of any disallowance of a claim for
refund. Executive hereby agrees to execute an appropriate power
of attorney authorizing the Tax Representative to represent
Executive with respect to the Excise Taxes. Executive further
agrees to take any other appropriate actions reasonably requested
by the Tax Representative in connection therewith; provided,
however, that the Corporation shall reimburse Executive for any
expenses incurred by Executive as a result of compliance with
such requests.
(3) If the Tax Representative files a claim for
refund of Excise Taxes with respect to which the Corporation has
made a Gross-Up Payment and such refund claim is allowed by the
IRS or by the final judgment of a court of competent
jurisdiction, Executive shall endorse the refund check payable to
the Corporation and shall send the refund check to the
Corporation not later than five (5) days after receipt from the
IRS.
(4) If the Corporation designates a Tax
Representative, the Corporation shall pay all of his or her
professional fees and expenses and hold Executive harmless from
any claims in connection therewith. The Tax Representative shall
keep Executive timely informed of all significant developments in
the Excise Tax matter and shall send to Executive copies of all
correspondence relating thereto.
(5) Notwithstanding anything herein to the
contrary, if the Corporation is in material breach of any of its
obligations pursuant to this Agreement, the Corporation's rights
pursuant to this Subsection 7(e) shall be extinguished and
Executive shall have the right to revoke any power of attorney
executed pursuant to this Subsection 7(e).
8. No Obligation to Mitigate Damages. The Executive shall
not be obligated to mitigate any damages by seeking other
employment or otherwise, and no amount payable hereunder and no
benefit or service credit for benefits shall be reduced in the
event that the Executive shall accept alternative employment.
9. Benefits Payable Only From Corporate Assets.
(a) No Trust. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Corporation and the
Executive or his or her Beneficiary.
(b) Executive's Status as Unsecured General Creditor.
The payment of any benefits hereunder to the Executive or his or
<PAGE>
her Beneficiary shall be made from assets which shall continue,
for all purposes, to be a part of the general assets of the
Corporation; no person shall have or acquire any interest in such
assets by virtue of the provisions of this Agreement. To the
extent that the Executive or his or her Beneficiary acquires a
right to receive payments from the Corporation under the
provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
(c) Recovery of Cost of Providing Benefits. In the
event that, in its discretion, the Corporation purchases an
insurance policy insuring the life of the Executive to enable the
Corporation to recover, in whole or in part, the cost of
providing any benefits hereunder, neither the Executive nor his
or her Beneficiary under this Agreement shall have or acquire any
rights whatsoever therein. The Corporation shall be the sole
owner and beneficiary of any such policy and, as such, shall
possess and may exercise all incidents of ownership therein.
10. Determination of Benefits and Claims Procedure. The
Corporation shall make all determinations as to rights to
benefits under this Agreement. Subject to and in compliance with
the specific procedures contained in the applicable regulations
promulgated under the Employee Retirement Income Security Act of
1974, as amended: (i) any decision by the Corporation denying a
claim for benefits under this Agreement by the Executive or his
or her Beneficiary shall be stated in writing by the Corporation
and delivered or mailed to the claimant; (ii) each such notice
shall set forth the specific reasons for the denial, written to
the best of the Corporation's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the
Corporation shall afford a reasonable opportunity to the claimant
whose claim for benefits has been denied for a review of the
decision denying such claim.
11. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any Affiliated Companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Corporation or any
Affiliated Companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or
program of the Corporation or any Affiliated Companies shall be
payable in accordance with the terms of such plan or program.
12. Full Settlement. After a Change of Control, the
Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. Unless
<PAGE>
it is finally determined by a court of competent jurisdiction
after all available appeals that the Corporation has validly
terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof, plus, in each case, interest compounded
quarterly, on the total unpaid amount determined be payable
hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Mercantile Bank, N.A.
in effect from time to time, for the period commencing on the
date of such contest and ending on the date on which the
Corporation shall pay such amount.
13. Covenants.
(a) Non-Competition.
(1) Executive recognizes that during the course
of Executive's employment with the Corporation, Executive has
been and will be instructed about and become acquainted with
confidential information of the Corporation, including, without
limitation, customer lists, methods of sales, the existence and
contents and terms of this Agreement, methods of sales
procurement, sales procurement techniques, sales procedures and
equipment/supply information, equipment and supply acquisition
procedures and processes and sources, customer evaluation
procedures, customer maintenance and supply maintenance
procedures and corresponding information relating to persons,
firms and corporations which are or may become customers of the
Corporation and, further, companies from which the Corporation
obtains various products and supplies for sale, resale and
distribution to customers of the Corporation. This confidential
information further includes, but is not limited to, customer
identity, supplier identity and terms, purchase terms, sales
techniques, purchase conditions and rates, customer needs,
billing procedures and processes, contacts and customer
information. Further, Executive agrees and acknowledges that the
development and assemblage and maintenance of the customer base
of the Corporation has taken extraordinary time, money,
resources, training, and effort by the Corporation and its
employees.
(2) Executive agrees that he or she will not
during the Term of Employment and for a period of two (2) years
following cessation of his or her employment at the Corporation
("Restricted Period"), for any cause or reason, directly or
indirectly:
(A) engage in any business in competition
with the Corporation and its Affiliates or supply and sell to
present customers, former customers and prospects of the
Corporation and its Affiliates; or
<PAGE>
(B) own, manage, operate, control, advise,
be employed by, consult, or materially participate in, or be
materially involved in any manner with the ownership, management,
operation or control of, individually or through any other entity
or device, any business that competes with the business then
conducted by the Corporation or any Affiliate; provided, however,
that mere ownership as an investor of not more than five percent
(5%) of the securities of a corporation or other business
enterprise shall not in and of itself be deemed to violate this
Section 13(b)(2)(B).
(b) Nondisclosure of Confidential Information.
(1) Executive will not, except as authorized by
the Corporation in writing, during or at any time after the
termination of Executive's employment with the Corporation,
directly or indirectly, use for himself or herself or others, or
disclose, communicate, divulge, furnish to, or convey to any
other person, firm, or corporation, any secret or confidential
information, knowledge or data of the Corporation or that of
third parties obtained by Executive during the period of his or
her employment with the Corporation. Such information, knowledge
or data includes, without limitation, the following:
(A) Secret or confidential matters of a
technical nature such as, but not limited to, methods, know-how,
formulations, compositions, processes, discoveries, machines,
inventions, computer programs, and similar items or research
projects involving such items,
(B) Secret or confidential matters of a
business nature such as, but not limited to, marketing policies
or strategies, information about costs, price lists, purchasing
and purchasing policies, profits, market, sales or lists of
customers, customer history information, and
(C) Secret or confidential matters
pertaining to future developments such as, but not limited to,
research and development or future marketing or merchandising.
(2) Executive, upon termination of his or her
employment with the Corporation, or at any other time upon the
Corporation's request, shall deliver promptly to the Corporation
all manuals, letters, notes, notebooks, reports, formulations,
computer programs and similar items, memoranda, lists of
customers, customer history information and all other materials
and copies thereof relating in any way to the Corporation's
business and in any way obtained by Executive during the term of
employment with the Corporation which are in his or her
possession or under his or her control; and Executive will not
make or retain any copies of any of the foregoing and will so
represent to the Corporation upon termination of his or her
employment.
(c) Inducement.
(1) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
use any confidential information for the purposes of inducing or
attempting to induce any present, former, or prospective customer
<PAGE>
of the Corporation or its Affiliates to become a customer of
Executive or any person, firm, or corporation, or business
association with which Executive is affiliated in any capacity
with respect to the markets supplied by the Corporation or its
Affiliates.
(2) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
directly or indirectly solicit for employment or employ any of
the Corporation's employees to work for Executive or any business
association with which/whom Executive is affiliated, or to work
for any other company in the markets supplied by the Corporation
or its Affiliates.
(f) Interest of Parties. Executive agrees that the
duration of the limitations set forth in this Section 13 are
reasonable under the circumstances, considering Executive's
position with the Corporation and other relevant factors, and
that this will not constitute a serious handicap to Executive in
securing future employment.
(g) Disclosure to Corporation. Executive shall
promptly communicate and disclose to the Corporation all
information, observations and data obtained by Executive in the
course of Executive's employment. All written materials, records
and documents made by Executive or coming into Executive's
possession during the Term of Employment concerning any
inventions, products, processes or equipment, manufactured, used,
developed, investigated or considered by the Corporation or any
Affiliated Companies shall be the property of the Corporation,
and upon termination of the Term of Employment, or upon request
of the Corporation during the Term of Employment, Executive
shall promptly deliver the same to the Corporation. Executive
agrees to render to the Corporation such reports of the
activities of the business undertaken by Executive or conducted
under Executive's direction during the Term of Employment as the
Corporation may reasonably request.
(h) Inventions.
(1) Executive shall promptly communicate and
disclose in writing to the Corporation all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called
"Inventions"), made, conceived, developed or purchased by
Executive, or under which Executive acquires the right to grant
licenses or to become licensed, alone or jointly with others,
during the Term of Employment, which have arisen or may arise out
of Executive's employment, or relate to any matters pertaining
to, applicable to, or useful in connection with, the business or
affairs of the Corporation or any Affiliated Companies. All of
Executive's right, title and interest in, to and under all such
inventions, licenses and rights to grant licenses shall be the
sole property of the Corporation. Any such inventions disclosed
to anyone by Executive within one (1) year after the termination
<PAGE>
of the Term of Employment for any cause whatsoever shall be
deemed to have been made or conceived by Executive during the
Term of Employment.
(2) As to all such inventions, Executive shall,
upon request of the Corporation, during the Term of Employment or
thereafter:
A. Execute all documents which the
Corporation shall deem necessary or proper to
enable it to establish title to such inventions,
or other rights, and to enable it to file and
prosecute applications for letters patent of the
United States and any foreign country; and
B. Do all things (including the giving of
evidence in suits and other proceedings) which the
Corporation shall deem necessary or proper to
obtain, maintain or to assert patents for any and
all such inventions or to assert its rights in any
inventions not patented.
All expenses incident to any action required by the Corporation
or taken on its behalf pursuant to the provisions of this
paragraph shall be borne by the Corporation including without
limitation a reasonable payment for Executive's time and expenses
involved in case he or she is not then in its employ.
(i) Litigation. Executive agrees that during the Term
of Employment or thereafter, Executive shall do all things,
including the giving of evidence in suits and other proceedings,
which the Corporation shall deem necessary or proper to obtain,
maintain or assert rights accruing to the Corporation during the
Term of Employment and in connection with which Executive has
knowledge, information or expertise. All reasonable expenses
incurred by Executive during the Term of Employment or thereafter
in fulfilling the duties set forth in this Section, shall be
reimbursed by the Corporation to the full extent legally
appropriate including, without limitation, a reasonable payment
for Executive's time in the event this Agreement has terminated
prior to the time Executive renders such assistance, advice and
counsel.
14. Equity. The parties hereto agree that the services to
be rendered by Executive are special, unique and of an
extraordinary character. In the event of the breach by Executive
of any of the provisions of this Agreement, the Corporation, in
addition and as a supplement to such other rights and remedies as
may exist in its favor, may apply to any court of law or equity
having jurisdiction to enforce the specific performance of this
Agreement, and/or may apply for injunctive relief against any act
which would violate any of the provisions of this Agreement.
15. Effect on Prior Agreements. This Agreement shall
supersede and replace any and all prior employment agreements
entered into between Executive and the Corporation or any
Affiliated Company, including but not limited to that certain
<PAGE>
Employment Agreement dated February 2, 1992. This Agreement
contains the entire understanding of the parties hereto with
respect to the subject matter hereof.
16. No Assignment.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be
assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives and Beneficiary.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors. The
Corporation shall require any successor to all or substantially
all of the business and/or assets of the Corporation, whether
direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform if no
such succession had taken place.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision or clause were omitted.
18. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) In the event that litigation is required to
enforce any provision of this Agreement, subject to the
provisions of Section 12 hereof, the prevailing party shall be
entitled to reasonable attorneys fees.
<PAGE>
(c) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
David E. April
17127 Surrey View Drive
Chesterfield, MO 63005-4458
If to the Corporation:
Consumer Programs, Incorporated
1706 Washington Avenue
St. Louis, Missouri 63103
Attention: Russ Isaak, President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(d) This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof.
(e) The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate, all as of the day and year first above
written.
CONSUMER PROGRAMS INCORPORATED
By /s/ Russell Isaak
-----------------------------------
President
By /s/ David E. April
-----------------------------------
David E. April
Senior Executive Vice President
EXHIBIT (10.6)
MATERIAL CONTRACT
Employment Contract - Barry C. Arthur
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated February 5, 1995, between CONSUMER PROGRAMS
INCORPORATED, a Missouri corporation (the "Corporation"), and
Barry Arthur (the "Executive").
WHEREAS, the Corporation currently employs the Executive in
the capacity of Executive Vice President, Finance-Chief Financial
Officer, and the Executive is one of the key executives of the
Corporation and its parent corporation, CPI Corp.;
WHEREAS, there is much competition for the type of business
performed by the Corporation in the locales in which the
Corporation operates, and the Corporation and Executive
acknowledge that the Corporation is active in the product markets
in which it competes;
WHEREAS, Executive, during his or her employment, has been
and will be entrusted with confidential information;
WHEREAS, Executive and the Corporation recognize and
acknowledge that, to ensure the continued growth and stability of
the Corporation, it is necessary to obtain an agreement from
Executive not to compete with the Corporation and not to disclose
confidential information of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue
in the employ of the Corporation as a result of his or her
experience with the Corporation and his or her potential for
making future contributions to the Corporation, and the Executive
is willing to make a commitment to remain in such employ upon the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliated Companies" shall mean any corporation
(or other business entity) controlling, controlled by or under
common control with the Corporation.
(b) "Beneficiary" shall mean the person designated in
writing by the Executive as his or her beneficiary under this
Agreement, or in the absence of such designation, his or her
estate.
(c) "Cause" shall mean:
(1) prior to a Change of Control, (i) conduct or
activity of the Executive materially detrimental to the
Corporation's reputation or business (including financial)
operations; (ii) gross or habitual neglect or breach of duty or
<PAGE>
misconduct of the Executive in discharging the duties of his or
her position; or (iii) prolonged absence by the Executive from
his or her duties (other than on account of illness or
disability) without the consent of the Corporation.
(2) after a Change of Control, (i) an act or acts
of dishonesty on the Executive's part which are intended to
result in his or her substantial personal enrichment at the
expense of the Corporation; (ii) any material violation by the
Executive of his or her obligations and covenants pursuant to
this Agreement which is demonstrably willful and deliberate on
the Executive's part and which results in material injury to the
Corporation; or (iii) the conviction of Executive of a felony or
of a crime involving moral turpitude.
(d) A "Change of Control" shall mean a change in
control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that
such event had been "previously reported" as that term is defined
in Rule 12b-2 of Regulation 12B of the Exchange Act unless the
transactions that give rise to the change in control are approved
or ratified by a majority of the members of the Incumbent Board
of CPI Corp. who are not employees of the Corporation; provided
that, without limitation, notwithstanding anything herein to the
contrary, such a change in control shall be deemed to have
occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of CPI Corp. representing 40% or more
of the combined voting power of CPI Corp.'s then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), (b) individuals who constitute
the Board of CPI Corp. on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by CPI
Corp.'s shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of CPI Corp. in which such person is named as a nominee for
director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person
were a member of the Incumbent Board, or (c) approval by the
stockholders of CPI Corp. of a reorganization, merger or
consolidation, in each case, with respect to which persons who
were the stockholders of CPI Corp. immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation or
<PAGE>
dissolution of CPI Corp. or of the sale of all or substantially
all of the assets of CPI Corp. For purposes of this Agreement,
the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person,"
as such term is used in Section 14(d) of the Exchange Act, other
than CPI Corp., the Corporation or an Affiliated Company or any
employee benefit plan(s) sponsored or maintained by the
Corporation or any Affiliated Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as may be amended from time to time.
(f) "Continuing Directors" shall have the meaning set
forth in Paragraph 3(G) of Article Ten of CPI Corp.'s Certificate
of Incorporation.
(g) "Fiscal Year" shall mean the Fiscal Year of the
Corporation.
(h) "Permanent Disability" shall mean the inability of
Executive to perform the services contemplated by Section 4
hereof for a period of at least one hundred eighty (180)
consecutive calendar days or for thirty-five (35) weeks (whether
or not consecutive) in any twelve (12) month period on account of
any sickness, injury or other infirmity or disability.
(i) "Retirement" shall mean the Executive's voluntary
or involuntary termination of employment with the Corporation
except for termination on account of (A) Cause as defined in
Subsection 6(b) hereof, (B) death or (C) Permanent Disability
before attaining age sixty-five (65).
(j) "Term of Employment" shall have the meaning set
forth in Section 3 hereof.
(k) "Vesting Percentage" shall mean the percentage of
Supplemental Retirement Benefits, death benefits, and disability
benefits in which Executive has a nonforfeitable interest (except
in the event of termination for Cause) based upon the number of
Years of Service Executive has completed, determined as follows:
<TABLE>
<CAPTION>
Completed Years of Service Vesting Percentage
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
<PAGE>
Notwithstanding anything herein to the contrary, if Executive's
employment with the Corporation terminates following a Change of
Control, unless such termination is for Cause, for purposes of
Subsections 5(g), 5(h), and 5(i) of this Agreement Executive
shall be deemed to have completed ten (10) Years of Service and
his or her Vesting Percentage shall be deemed to be 100%.
(l) "Year of Service" shall mean any Fiscal Year
during which the Executive has worked for the Corporation at
least one thousand (1,000) hours, including Fiscal Years prior to
the effective date of this Agreement.
2. Employment. The Corporation hereby employs and engages
the services of the Executive as one of its key executives
initially in the position of Executive Vice President, Finance-
Chief Financial Officer of the Corporation and its parent
corporation, CPI Corp. for the Term of Employment set
forth in Section 3. The Executive agrees to serve the
Corporation for the Term of Employment as provided herein.
3. Term of Employment. The Executive's Term of Employment
shall be a period commencing on the date hereof and ending one
(1) year thereafter; provided, however, that upon the expiration
of the aforesaid period (the "Expiration Date") and upon each
anniversary of the Expiration Date, the Term of Employment shall
automatically be extended for an additional one (1) year period
unless Executive or the Corporation notifies the other in writing
at least sixty (60) days prior to the commencement of such one
(1) year period of an intention to terminate this Agreement.
Notwithstanding anything herein to the contrary, the Term of
Employment shall terminate upon Executive's death or Permanent
Disability as set forth in subsection 6(a) hereof or upon the
Corporation's termination of Executive's employment for Cause
pursuant to subsection 6(b) hereof.
4. Position and Duties.
(a) Prior to a Change of Control, during the Term of
Employment, the Executive shall serve the Corporation in such
capacity as the Corporation may determine. After a Change of
Control, during the Term of Employment, the Executive's position,
authority and responsibilities, the type of work he or she is
asked to perform, and the status and stature of the people with
whom he or she is asked to work, shall be comparable to that
existing with respect to the Executive as of the date immediately
prior to the Change of Control, and after a Change of Control the
Executive's services shall be performed at the location where the
Executive was employed as of the date immediately prior to the
Change of Control, or at such other location as may be mutually
agreed between the Corporation and the Executive.
(b) The Executive agrees to devote his or her full
business time during normal business hours to the business and
affairs of the Corporation (except as otherwise provided herein)
and to use his or her best efforts to promote the interests of
<PAGE>
the Corporation and its Affiliated Companies and to perform
faithfully and efficiently the responsibilities assigned to
him or her in accordance with the terms of this Agreement to the
extent necessary to discharge such responsibilities, except for
(i) service on corporate, civic or charitable boards or
committees not significantly interfering with the performance of
such responsibilities and (ii) periods of vacation and sick
leave to which he or she is entitled. It is expressly understood
and agreed that the Executive's continuing service on any boards
and committees with which he or she shall be connected, as a
member or otherwise, as of the date hereof, or any such service
approved by the Corporation during the Term of Employment, shall
not be deemed to interfere with the performance of the
Executive's services to the Corporation pursuant to this
subparagraph 4(b).
5. Compensation and Other Conditions of Employment.
(a) Base Salary. During the Term of Employment, the
Executive shall receive an annual base salary (the "Base
Salary"), in equal installments payable weekly or at such other
intervals as salary is normally paid by the Corporation to its
employees, at an annual rate established by the Corporation and
any Affiliated Companies as of the date hereof. The Base Salary
shall be reviewed at least once each year and may be increased at
any time and from time to time by action of the Board of
Directors of CPI Corp., any committee thereof or any individual
having authority to take such action, in accordance with the
Corporation's regular practices. Any increase in the Base Salary
shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after such increase the Base Salary
shall not be reduced from such increased level.
(b) Annual Bonus. After a Change of Control, in
addition to the Base Salary, the Executive shall be awarded for
each Fiscal Year during the Term of Employment an annual bonus (the
"Annual Bonus") (pursuant to any bonus plan or program of the
Corporation, any incentive plan or program of the Corporation, or
otherwise) in cash at least equal to the highest bonus paid or
payable to the Executive in respect of any of the Fiscal Years
during the three Fiscal Years immediately prior to the date of
the Change of Control. Prior to a Change of Control, the amount
of the Executive's Annual Bonus shall be determined in accordance
with the Corporation's regular practice.
(c) Other Compensation Plans. After a Change of
Control, in addition to the Base Salary and Annual Bonus payable
as hereinabove provided, during the Term of Employment, the
Executive shall be entitled to participate in all other
compensation plans and programs, including, without limitation,
savings plans, stock option plans, and retirement plans of the
Corporation and its Affiliated Companies (collectively, the
"Savings Plans"), on a basis at least equivalent to that provided
by the Corporation and its Affiliated Companies to the Executive
under such programs immediately prior to the date of the Change
<PAGE>
of Control. Prior to a Change of Control, the Executive's
entitlement to participate in the Savings Plans shall be
determined in accordance with the Corporation's regular
practice. Prior to a Change of Control, nothing herein shall be
construed to prevent the Corporation from amending or altering
any such plans in accordance with the terms thereof. All
agreements between the Corporation and the Executive existing on
the date hereof providing for special pension, retirement or
similar benefits are continued by this Agreement.
(d) Benefit Plans. After a Change of Control, during
the Term of Employment, the Executive, his or her spouse, or his
or her dependents, as the case may be, shall be entitled to
receive all amounts which he or she, his or her spouse or his or
her dependents are or would have been entitled to receive as
benefits under all other benefit plans of the Corporation and its
Affiliated Companies, including, without limitation, medical,
dental, disability, group life, accidental death and travel
accident insurance plans and programs (collectively, the "Benefit
Plans") on a basis at least as favorable to the Executive as on
the date immediately prior to the date of the Change of Control.
Prior to a Change of Control, the Executive's and such other
persons' entitlement to participate in the Benefit Plans shall be
determined in accordance with the Corporation's regular practice.
(e) Expenses. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the regular policies and procedures of the Corporation.
(f) Office and Support Staff. After a Change of
Control the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive as of the date immediately prior to the
date of the Change of Control.
(g) Death Benefits. In the event of Executive's death
after completion of at least ten (10) Years of Service, unless
(1) Executive's employment with the Corporation was terminated
for Cause or (2) Executive (or his or her Beneficiary) is
entitled to receive Supplemental Retirement Benefits pursuant to
subsection 5(i), the Corporation shall pay to Executive's
Beneficiary an annual death benefit equal to forty percent (40%)
(but not to exceed $100,000) of Executive's annual Base Salary
(as defined in subsection 5(a) hereof) for the Fiscal Year of his
or her termination of employment with the Corporation in equal
monthly installments commencing with the month following the
month of Executive's death and ending with the later of (i) the
month in which Executive would have reached age sixty-five (65)
or (ii) the one-hundred twentieth (120th) month following the
month of Executive's death. In the event that Executive dies
before age 65 but has not completed at least ten (10) Years of
Service with the Corporation, death benefits shall be reduced to
an amount equal to the benefits determined under the preceding
sentence multiplied by the Vesting Percentage applicable to
Executive.
<PAGE>
(h) Disability Benefits. In the event of Executive's
Permanent Disability prior to attaining age 65 and prior to
termination of employment with the Corporation, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive annual disability
benefits equal to forty percent (40%) (but not to exceed
$100,000) of Executive's annual Base Salary for the Fiscal Year
in which the Executive terminated employment with the
Corporation, payable in equal monthly installments, commencing
with the month following the month in which Executive terminated
employment as a result of Permanent Disability and ending on the
earlier of (i) the month in which Executive reaches age 65 or
(ii) the month of his or her death. In the event that at the
time of Permanent Disability Executive has not completed at least
ten (10) Years of Service, the disability benefits shall be
reduced to an amount equal to the benefits determined under the
preceding sentence multiplied by the Vesting Percentage
applicable to Executive. Disability benefits pursuant to this
subsection (h) shall be reduced by any amounts paid to Executive
under the Corporation's long-term disability insurance policy,
but shall not be reduced for any payments received by Executive
from Social Security or from any disability insurance coverage
individually owned by Executive.
(i) Supplemental Retirement Benefits.
(1) In the event of Executive's Retirement after
completion of at least ten (10) Years of Service, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive retirement benefits
for ten (10) years in an annual amount equal to forty percent
(40%) (but not to exceed $100,000) of Executive's annual Base
Salary for the Fiscal Year of his or her Retirement
("Supplemental Retirement Benefits"). In the event of
Executive's Retirement before completion of ten (10) Years of
Service, Corporation shall pay Executive retirement benefits on
the same terms as set forth in the preceding sentence except that
retirement benefits shall be reduced to an amount equal to
Supplemental Retirement Benefits multiplied by the Vesting
Percentage.
(2) Supplemental Retirement Benefits shall be
payable in one hundred twenty (120) equal monthly installments
commencing with the month following the later of (i) the month of
Executive's Retirement or (ii) the month during which Executive
reaches age sixty-five (65). If Executive dies prior to the end
of the one hundred twenty (120) month period during which
Supplemental Retirement Benefits are payable, Supplemental
Retirement Benefits shall be payable during the remainder of such
120-month period to his or her Beneficiary.
(3) Notwithstanding anything herein to the
contrary, in the event of Executive's termination of employment
with the Corporation prior to attaining age 65 as a result of
Permanent Disability, if Executive attains age 65 and his or her
employment with the Corporation was not terminated for Cause, the
<PAGE>
Corporation shall pay to Executive the Supplemental Retirement
Benefits set forth in this Subsection 5(i) in accordance with
Executive's Vesting Percentage, commencing as of the month
following the month in which Executive attains age 65; provided,
however, that any Supplemental Retirement Benefits paid pursuant
to this sentence shall be reduced by any amounts paid to
Executive under the Corporation's long-term disability insurance
policy (but shall not be reduced for any payments received by
Executive from Social Security or from any disability insurance
coverage individually owned by Executive) for the same period.
(j) Survivability of Death and Supplemental Retirement
Benefits. In the event of Executive's Retirement or death,
Executive's entitlement to death benefits pursuant to Subsection
5(g) hereof and Supplemental Retirement Benefits pursuant to
Subsection 5(i) hereof shall survive the Term of Employment and
Executive or his or her Beneficiary shall be entitled to such
death benefits and Supplemental Retirement Benefits based on the
same terms and conditions as would have been applicable had his
or her death or Retirement, as the case may be, occurred during
the Term of Employment.
6. Termination of Employment.
(a) Death or Permanent Disability. Except for the
obligations of the Corporation set forth in this Subsection 6
(a), this Agreement shall terminate automatically upon the
Executive's death or Permanent Disability. In the event of such
termination, the Corporation shall pay to the Executive's
Beneficiary or, in the event of Permanent Disability, the
Executive or his or her legal representative, all benefits and
Base Salary accrued through the date of termination, including,
without limitation, amounts payable under any plan referred to in
Subsection 5(d) plus any benefits to which Executive may be
entitled pursuant to Subsection 5(g), Subsection 5(h) or
Subsection 5(i) hereof.
(b) Cause. The Corporation may terminate the
Executive's employment for Cause. If the Executive's employment
is terminated for Cause, the Corporation shall pay the Executive
his or her full accrued Base Salary through the effective date of
the termination of his or her employment (which shall be no
earlier than the date of receipt of notice thereof) at the rate
in effect at the time of such termination, and the Corporation
shall have no further obligations to the Executive under this
Agreement.
(c) Notification Prior to One Year Extension. Either
Executive or the Corporation may terminate this Agreement by
notifying the other party in writing of an intention to do so at
least sixty (60) days prior to the commencement of a one-year
extension period described in Section 3 hereof.
(d) Payments for Involuntary Termination Without
Cause.
<PAGE>
(1) If prior to a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall pay Executive during the 24-month period
following such involuntary termination of employment an amount
equal to 200% of Base Salary for the Fiscal Year of termination,
payable in equal weekly installments or at such other intervals
as salary is normally paid by the Corporation to its employees.
The payment pursuant to this Subsection 6(d)(1) and any payments
to which Executive may be entitled pursuant to Subsections 5(g),
5(h), and 5(i) shall be in full discharge of any claims, actions,
demands or damages of every nature and description which
Executive might have or might assert against the Corporation or
any Affiliated Company in connection with or arising from the
termination of Executive's employment or the termination of this
Agreement.
(2) If following a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to Subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall, at the time of such involuntary
termination, make a lump sum cash payment to Executive equal to
200% of his or her Base Salary for the Fiscal Year of
termination. In addition to the payment pursuant to this
Subsection 6(d)(2) and any payments to which Executive may be
entitled pursuant to Subsections 5(g), 5(h) and 5(i), Executive
shall be entitled to all remedies available under this Agreement
or at law in respect of any damages suffered by Executive as a
result of an involuntary termination of employment without Cause.
7. Gross-Up For Parachute Tax.
(a) General. In the event that following a Change of
Control Executive becomes entitled to any payments (whether
pursuant to this Employment Agreement or any other plan,
arrangement or agreement) from the Corporation in the nature of
compensation ("Parachute Payments") that in the opinion of a
certified public accounting firm (selected in the manner set
forth in Subsection 7(b)) or that under the provisions of a
notice of assessment from the Internal Revenue Service causes
imposition of the tax under Section 4999 of the Code or any
similar tax that may hereafter be imposed (the "Excise Tax"), the
Corporation shall pay Executive, at the time specified in
Subsection 7(d), the Gross-Up Payment (as determined in
accordance with Subsection 7(c)).
(b) Selection of C.P.A. Within fifteen (15) days
after any termination of Executive's employment following a
Change of Control, the majority of the Continuing Directors as of
the date immediately prior to the Change of Control shall select
a certified public accounting firm (the "C.P.A.") to determine
<PAGE>
the amount, if any, of the Excise Tax and the amount, if any, of
the Gross-Up Payments.
(c) Amount of Gross-Up Payments.
(1) The Gross-Up Payments shall be in an amount
such that the net amount retained by Executive with respect to
the Parachute Payments and Gross-Up Payments, after deduction of
any Excise Tax to which the Parachute Payments may be subject and
any federal, state, and local income taxes and Excise Tax upon
the Gross-Up Payments, shall be equal to the gross amount of the
Parachute Payments.
(2) For purposes of determining the amount of the
Gross-Up Payments, Executive shall be deemed to pay federal
income taxes at the applicable rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the applicable rate of
taxation for the calendar year in which the Gross-Up Payment is
to be made.
(3) In the event that the Excise Tax is
subsequently determined to exceed the amount taken into account
at the time the Gross-Up Payment is made pursuant to Subsection
7(d)(1) hereof (including any excess attributable to any
Parachute Payments the existence or amount of which could not be
accurately determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest and addition to tax payable
with respect to such excess) within fifteen (15) days after the
amount of such excess is determined by the C.P.A. or by the
Internal Revenue Service (the "IRS") in a notice of assessment.
(d) Timing of Gross-Up Payments. Gross-Up Payments
other than Gross-Up Payments pursuant to Subsection 7(c)(3) shall
be paid not later than forty-five (45) days following payment of
any Parachute Payments to which the Gross-Up Payments are
attributable; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally determined
on or before such day, the Corporation shall pay to Executive on
such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
applicable federal rate provided in Section l274(d) of the Code)
as soon as the amount thereof can be determined by the C.P.A.,
but in no event later than forty-five (45) days after payment of
such Parachute Payments.
(e) Corporation's Right to Designate Tax
Representative; Assignment of Refund Proceeds. If the IRS
proposes an assessment of the Excise Tax against Executive or
proposes an additional assessment of Excise Tax in excess of the
amount previously reported by Executive:
(1) Executive shall within five (5) days after
receipt from the IRS of notice of the proposed Excise Tax
assessment notify the Corporation in writing and furnish the
Corporation with copies of all correspondence from the IRS
relating to the proposed Excise Tax assessment.
<PAGE>
(2) The Corporation shall be authorized to
designate an attorney and/or accountant (the "Tax
Representative") to serve as Executive's exclusive representative
with respect to all proceedings with the IRS relating to the
proposed Excise Tax assessment, including but not limited to
negotiating a settlement or compromise of the proposed Excise Tax
assessment, filing a claim for refund with respect thereto, and
seeking judicial review of any disallowance of a claim for
refund. Executive hereby agrees to execute an appropriate power
of attorney authorizing the Tax Representative to represent
Executive with respect to the Excise Taxes. Executive further
agrees to take any other appropriate actions reasonably requested
by the Tax Representative in connection therewith; provided,
however, that the Corporation shall reimburse Executive for any
expenses incurred by Executive as a result of compliance with
such requests.
(3) If the Tax Representative files a claim for
refund of Excise Taxes with respect to which the Corporation has
made a Gross-Up Payment and such refund claim is allowed by the
IRS or by the final judgment of a court of competent
jurisdiction, Executive shall endorse the refund check payable to
the Corporation and shall send the refund check to the
Corporation not later than five (5) days after receipt from the
IRS.
(4) If the Corporation designates a Tax
Representative, the Corporation shall pay all of his or her
professional fees and expenses and hold Executive harmless from
any claims in connection therewith. The Tax Representative shall
keep Executive timely informed of all significant developments in
the Excise Tax matter and shall send to Executive copies of all
correspondence relating thereto.
(5) Notwithstanding anything herein to the
contrary, if the Corporation is in material breach of any of its
obligations pursuant to this Agreement, the Corporation's rights
pursuant to this Subsection 7(e) shall be extinguished and
Executive shall have the right to revoke any power of attorney
executed pursuant to this Subsection 7(e).
8. No Obligation to Mitigate Damages. The Executive shall
not be obligated to mitigate any damages by seeking other
employment or otherwise, and no amount payable hereunder and no
benefit or service credit for benefits shall be reduced in the
event that the Executive shall accept alternative employment.
9. Benefits Payable Only From Corporate Assets.
(a) No Trust. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Corporation and the
Executive or his or her Beneficiary.
(b) Executive's Status as Unsecured General Creditor.
The payment of any benefits hereunder to the Executive or his or
<PAGE>
her Beneficiary shall be made from assets which shall continue,
for all purposes, to be a part of the general assets of the
Corporation; no person shall have or acquire any interest in such
assets by virtue of the provisions of this Agreement. To the
extent that the Executive or his or her Beneficiary acquires a
right to receive payments from the Corporation under the
provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
(c) Recovery of Cost of Providing Benefits. In the
event that, in its discretion, the Corporation purchases an
insurance policy insuring the life of the Executive to enable the
Corporation to recover, in whole or in part, the cost of
providing any benefits hereunder, neither the Executive nor his
or her Beneficiary under this Agreement shall have or acquire any
rights whatsoever therein. The Corporation shall be the sole
owner and beneficiary of any such policy and, as such, shall
possess and may exercise all incidents of ownership therein.
10. Determination of Benefits and Claims Procedure. The
Corporation shall make all determinations as to rights to
benefits under this Agreement. Subject to and in compliance with
the specific procedures contained in the applicable regulations
promulgated under the Employee Retirement Income Security Act of
1974, as amended: (i) any decision by the Corporation denying a
claim for benefits under this Agreement by the Executive or his
or her Beneficiary shall be stated in writing by the Corporation
and delivered or mailed to the claimant; (ii) each such notice
shall set forth the specific reasons for the denial, written to
the best of the Corporation's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the
Corporation shall afford a reasonable opportunity to the claimant
whose claim for benefits has been denied for a review of the
decision denying such claim.
11. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any Affiliated Companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Corporation or any
Affiliated Companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or
program of the Corporation or any Affiliated Companies shall be
payable in accordance with the terms of such plan or program.
12. Full Settlement. After a Change of Control, the
Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. Unless
<PAGE>
it is finally determined by a court of competent jurisdiction
after all available appeals that the Corporation has validly
terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof, plus, in each case, interest compounded
quarterly, on the total unpaid amount determined be payable
hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Mercantile Bank, N.A.
in effect from time to time, for the period commencing on the
date of such contest and ending on the date on which the
Corporation shall pay such amount.
13. Covenants.
(a) Non-Competition.
(1) Executive recognizes that during the course
of Executive's employment with the Corporation, Executive has
been and will be instructed about and become acquainted with
confidential information of the Corporation, including, without
limitation, customer lists, methods of sales, the existence and
contents and terms of this Agreement, methods of sales
procurement, sales procurement techniques, sales procedures and
equipment/supply information, equipment and supply acquisition
procedures and processes and sources, customer evaluation
procedures, customer maintenance and supply maintenance
procedures and corresponding information relating to persons,
firms and corporations which are or may become customers of the
Corporation and, further, companies from which the Corporation
obtains various products and supplies for sale, resale and
distribution to customers of the Corporation. This confidential
information further includes, but is not limited to, customer
identity, supplier identity and terms, purchase terms, sales
techniques, purchase conditions and rates, customer needs,
billing procedures and processes, contacts and customer
information. Further, Executive agrees and acknowledges that the
development and assemblage and maintenance of the customer base
of the Corporation has taken extraordinary time, money,
resources, training, and effort by the Corporation and its
employees.
(2) Executive agrees that he or she will not
during the Term of Employment and for a period of two (2) years
following cessation of his or her employment at the Corporation
("Restricted Period"), for any cause or reason, directly or
indirectly:
(A) engage in any business in competition
with the Corporation and its Affiliates or supply and sell to
present customers, former customers and prospects of the
Corporation and its Affiliates; or
<PAGE>
(B) own, manage, operate, control, advise,
be employed by, consult, or materially participate in, or be
materially involved in any manner with the ownership, management,
operation or control of, individually or through any other entity
or device, any business that competes with the business then
conducted by the Corporation or any Affiliate; provided, however,
that mere ownership as an investor of not more than five percent
(5%) of the securities of a corporation or other business
enterprise shall not in and of itself be deemed to violate this
Section 13(b)(2)(B).
(b) Nondisclosure of Confidential Information.
(1) Executive will not, except as authorized by
the Corporation in writing, during or at any time after the
termination of Executive's employment with the Corporation,
directly or indirectly, use for himself or herself or others, or
disclose, communicate, divulge, furnish to, or convey to any
other person, firm, or corporation, any secret or confidential
information, knowledge or data of the Corporation or that of
third parties obtained by Executive during the period of his or
her employment with the Corporation. Such information, knowledge
or data includes, without limitation, the following:
(A) Secret or confidential matters of a
technical nature such as, but not limited to, methods, know-how,
formulations, compositions, processes, discoveries, machines,
inventions, computer programs, and similar items or research
projects involving such items,
(B) Secret or confidential matters of a
business nature such as, but not limited to, marketing policies
or strategies, information about costs, price lists, purchasing
and purchasing policies, profits, market, sales or lists of
customers, customer history information, and
(C) Secret or confidential matters
pertaining to future developments such as, but not limited to,
research and development or future marketing or merchandising.
(2) Executive, upon termination of his or her
employment with the Corporation, or at any other time upon the
Corporation's request, shall deliver promptly to the Corporation
all manuals, letters, notes, notebooks, reports, formulations,
computer programs and similar items, memoranda, lists of
customers, customer history information and all other materials
and copies thereof relating in any way to the Corporation's
business and in any way obtained by Executive during the term of
employment with the Corporation which are in his or her
possession or under his or her control; and Executive will not
make or retain any copies of any of the foregoing and will so
represent to the Corporation upon termination of his or her
employment.
(c) Inducement.
(1) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
use any confidential information for the purposes of inducing or
attempting to induce any present, former, or prospective customer
<PAGE>
of the Corporation or its Affiliates to become a customer of
Executive or any person, firm, or corporation, or business
association with which Executive is affiliated in any capacity
with respect to the markets supplied by the Corporation or its
Affiliates.
(2) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
directly or indirectly solicit for employment or employ any of
the Corporation's employees to work for Executive or any business
association with which/whom Executive is affiliated, or to work
for any other company in the markets supplied by the Corporation
or its Affiliates.
(f) Interest of Parties. Executive agrees that the
duration of the limitations set forth in this Section 13 are
reasonable under the circumstances, considering Executive's
position with the Corporation and other relevant factors, and
that this will not constitute a serious handicap to Executive in
securing future employment.
(g) Disclosure to Corporation. Executive shall
promptly communicate and disclose to the Corporation all
information, observations and data obtained by Executive in the
course of Executive's employment. All written materials, records
and documents made by Executive or coming into Executive's
possession during the Term of Employment concerning any
inventions, products, processes or equipment, manufactured, used,
developed, investigated or considered by the Corporation or any
Affiliated Companies shall be the property of the Corporation,
and upon termination of the Term of Employment, or upon request
of the Corporation during the Term of Employment, Executive
shall promptly deliver the same to the Corporation. Executive
agrees to render to the Corporation such reports of the
activities of the business undertaken by Executive or conducted
under Executive's direction during the Term of Employment as the
Corporation may reasonably request.
(h) Inventions.
(1) Executive shall promptly communicate and
disclose in writing to the Corporation all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called
"Inventions"), made, conceived, developed or purchased by
Executive, or under which Executive acquires the right to grant
licenses or to become licensed, alone or jointly with others,
during the Term of Employment, which have arisen or may arise out
of Executive's employment, or relate to any matters pertaining
to, applicable to, or useful in connection with, the business or
affairs of the Corporation or any Affiliated Companies. All of
Executive's right, title and interest in, to and under all such
inventions, licenses and rights to grant licenses shall be the
sole property of the Corporation. Any such inventions disclosed
to anyone by Executive within one (1) year after the termination
<PAGE>
of the Term of Employment for any cause whatsoever shall be
deemed to have been made or conceived by Executive during the
Term of Employment.
(2) As to all such inventions, Executive shall,
upon request of the Corporation, during the Term of Employment or
thereafter:
A. Execute all documents which the
Corporation shall deem necessary or proper to
enable it to establish title to such inventions,
or other rights, and to enable it to file and
prosecute applications for letters patent of the
United States and any foreign country; and
B. Do all things (including the giving of
evidence in suits and other proceedings) which the
Corporation shall deem necessary or proper to
obtain, maintain or to assert patents for any and
all such inventions or to assert its rights in any
inventions not patented.
All expenses incident to any action required by the Corporation
or taken on its behalf pursuant to the provisions of this
paragraph shall be borne by the Corporation including without
limitation a reasonable payment for Executive's time and expenses
involved in case he or she is not then in its employ.
(i) Litigation. Executive agrees that during the Term
of Employment or thereafter, Executive shall do all things,
including the giving of evidence in suits and other proceedings,
which the Corporation shall deem necessary or proper to obtain,
maintain or assert rights accruing to the Corporation during the
Term of Employment and in connection with which Executive has
knowledge, information or expertise. All reasonable expenses
incurred by Executive during the Term of Employment or thereafter
in fulfilling the duties set forth in this Section, shall be
reimbursed by the Corporation to the full extent legally
appropriate including, without limitation, a reasonable payment
for Executive's time in the event this Agreement has terminated
prior to the time Executive renders such assistance, advice and
counsel.
14. Equity. The parties hereto agree that the services to
be rendered by Executive are special, unique and of an
extraordinary character. In the event of the breach by Executive
of any of the provisions of this Agreement, the Corporation, in
addition and as a supplement to such other rights and remedies as
may exist in its favor, may apply to any court of law or equity
having jurisdiction to enforce the specific performance of this
Agreement, and/or may apply for injunctive relief against any act
which would violate any of the provisions of this Agreement.
15. Effect on Prior Agreements. This Agreement shall
supersede and replace any and all prior employment agreements
entered into between Executive and the Corporation or any
Affiliated Company, including but not limited to that certain
<PAGE>
Employment Agreement dated February 1, 1992. This Agreement
contains the entire understanding of the parties hereto with
respect to the subject matter hereof.
16. No Assignment.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be
assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives and Beneficiary.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors. The
Corporation shall require any successor to all or substantially
all of the business and/or assets of the Corporation, whether
direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform if no
such succession had taken place.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision or clause were omitted.
18. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) In the event that litigation is required to
enforce any provision of this Agreement, subject to the
provisions of Section 12 hereof, the prevailing party shall be
entitled to reasonable attorneys fees.
<PAGE>
(c) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Barry Arthur
219 North Third Street
New Baden, IL 62265
If to the Corporation:
Consumer Programs, Incorporated
1706 Washington Avenue
St. Louis, Missouri 63103
Attention: Russ Isaak, President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(d) This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof.
(e) The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate, all as of the day and year first above
written.
CONSUMER PROGRAMS INCORPORATED
By /s/ Russell Isaak
-------------------------------------
President
By /s/ Barry Arthur
-------------------------------------
Barry Arthur
Executive Vice President,Finance-
Chief Financial Officer
EXHIBIT (10.7)
MATERIAL CONTRACT
Employment Contract - Jane E. Nelson
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into this first day of June,
1990, by and between Consumer Programs Incorporated, a Missouri
corporation, having its principal office at St. Louis, Missouri, on
its own behalf and on behalf of its affiliated corporations (all
hereinafter referred to as "Employer") and Jane Nelson, an
individual ("hereinafter referred to as "Employee").
WITNESSETH:
-----------
WHEREAS, Employer is engaged in certain portrait studio, photo
finishing, copy services and other operations and promotions
throughout the United States, Canada and Puerto Rico;
WHEREAS, Employee desires to enter into or maintain employment
with Employer in an administrative, executive or managerial
capacity;
WHEREAS, Employer desires to obtain and/or retain the services
of Employee;
WHEREAS, Employer desires to prohibit Employee's disclosure to
others of matters concerning Employer's business which Employee
learns as a result of his employment by Employer, and desires to
prohibit Employee's unauthorized competition with the business of
Employer; and
WHEREAS, Employee has agreed with Employer as to the
confidentiality of the information regarding its business which he
will obtain as a result of his employment by Employer and as to the
necessity for Employer's prohibiting his unauthorized competition
with its business;
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment.
(a) Employer hereby employs Employee and Employee hereby
accepts employment by Employer during the Employment Period (as
hereinafter defined) as Associate General Counsel of Employer or
such other position as the Employer may determine.
(b) Term of Employment. The term of this Agreement shall
commence February 4, 1990, and shall continue through February 2,
1991, and shall hereafter be deemed extended on a month to month
basis, (said term and all extensions thereof hereinafter referred
to as the "Employment Period"), subject to termination, at any
time, with or without cause, by either party.
<PAGE>
2. Duties. During the Employment Period, Employee shall
devote his full working time, best efforts, attention and energies
to perform his duties to the best of his ability in accordance with
the directions and orders of the executive officers of Employer.
Employer shall, in its discretion, have the right to assign
Employee to a division, subsidiary or affiliate of Employer other
than the one in which Employee is employed on the date of execution
of this Agreement. In addition to the duties assigned to Employee
by the executive officers of Employer, Employee shall perform such
other duties as are commensurate with Employee's position and
title, including, by way of illustration and not in limitation: (a)
exercising Employee's best business judgement; (b) safeguarding and
saving from waste the assets of Employer; (c) following,
maintaining and implementing, without limitation, the business
plans, budgets (as modified or amended from time to time by
executive officers), and the business procedures and directives
established and promulgated by Employer. Employee shall perform
his services and duties to the satisfaction of the Employer.
3. Compensation. As compensation for the performance by
Employee of his obligations under this Agreement, Employer shall
compensate Employee as follows:
(a) Base Salary. Employee shall receive a Base Salary in
the amount of $63,000.00 per year, payable in equal weekly
installments or in such other installments as may be agreed upon.
Employer may, at is discretion, increase or decrease the Base
Salary at any time and from time to time.
(b) Annual Bonus. In addition to the Base Salary,
Employee shall receive a Fiscal Year Bonus pursuant to the terms
and conditions specified in Exhibit A, attached hereto and
incorporated herein.
(c) Other Employment Benefits. Employee may participate
in such of Employer's employee plans or fringe benefit arrangements
as Employer makes available to employees in similar positions.
Employee acknowledges that the availability and provisions of all
such employee plans and fringe benefit arrangements may change from
time to time.
(d) Withholding. Employer may withhold form all
compensation payable under this Agreement federal, state and local
taxes as required under applicable laws or regulations.
(e) Expenses. Employer shall reimburse Employee for
reasonable and necessary expenses actually paid by Employee on
Employer's business upon receipt of such substantiating expense
vouchers or records as Employer customarily requires.
4. Covenants of Employee.
(a) Non-Competition. In order for Employer reasonably to
protect its interests against the competitive use of any
confidential information, knowledge, or relationships concerning
the business of Employer to which Employee has access because of
the special nature of his employment, Employee shall not during the
Employment Period and for a period of two (2) years thereafter,
<PAGE>
directly or indirectly, by ownership of securities or otherwise,
engage in any business competitive with Employer or become
associated with or render services to any person, business or
enterprise so engaged. Mere ownership as an investor of not more
than five percent (5%) of the securities of a corporation or other
business enterprise shall not be deemed an association with such
corporation or enterprise.
Following the Employment Period, the restriction on
employment with "a business competitive with Employer" shall only
apply to businesses located and competing in the specific
geographical areas where Employee had responsibilities during the
Employment Period.
(b) Inducement. Employee shall not during the Employment
Period and for a period of two (2) years thereafter, directly or
indirectly, employ, cause others to employ or attempt to induce
others to employ, any employees of Employer, or attempt to induce
said employees to gain or seek other employment.
(c) Disclosure to Outsiders. Except as otherwise herein
provided, Employee shall not at any time during the Employment
Period, or thereafter, communicate or disclose to any unauthorized
person, or use for Employee's own account, without the written
consent of Employer, any of the inventions covered by subsection
(e) of this Section, any information, observations, data, written
materials, records and documents covered by subsection (d) of this
Section, other processes, equipment, or products of Employer or
other information concerning its business or affairs or concerning
the business or affairs of its affiliated corporations, suppliers,
or customers (including without limitation, customer lists);
provided, however, that the obligations of this subsection (c)
shall not apply in the event and to the extent that the aforesaid
matters become generally knows to and available for use by the
public otherwise than by Employee's act or omission.
(d) Disclosure to Employer. Employee shall promptly
communicate and disclose to Employer all information, observations
and data obtained by Employee in the course of Employee's
employment. All written materials, records and documents made by
Employee or coming into Employee's possession during the Employment
Period concerning any inventions, products, processes or equipment,
manufactured, used, developed, investigated or considered by
Employer, and upon termination of the Employment Period or upon
request of Employer during the Employment Period, Employee shall
promptly deliver the same to Employer. Employee agrees to render
to Employer such reports of the activities of the business
undertaken by Employee or conducted under Employee's direction
during the Employment Period as Employer may reasonably request.
(e) Inventions. (1) Employee shall promptly communicate
and disclose in writing to Employer all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called "Inventions"),
made, conceived, developed or purchased by Employee, or under which
Employee acquires the right to grant licenses or to become
licensed, alone or jointly with others, during the Employment
<PAGE>
Period, which have arisen or may arise out of Employee's
employment, or relate to any matters pertaining to, applicable to,
or useful in connection with, the business or affairs or Employer.
All of Employee's right, title and interest in, to and under all
such inventions, licenses and rights to grant licenses shall be the
sole property of the Employer. Any such inventions disclosed to
anyone by Employee within one (1) year after the termination of the
Employment Period for any cause whatsoever shall be deemed to have
been made or conceived by Employee during the Employment Period.
(2) As to all such inventions, Employee shall, upon
request or Employer, during the Employment Period or thereafter:
(A) Execute all documents which Employer shall deem
necessary or proper to enable it to establish title to
such inventions, or other rights, and to enable it to file
and prosecute applications for letters patent of the
United States and any foreign country; and
(B) Do all things (including the giving of evidence
in suits and other proceedings) which Employer shall deem
necessary or proper to obtain, maintain or to assert
patents for any and all such inventions or to assert its
rights in any inventions not patented.
All expenses incident to any action required by Employer or taken
on its behalf pursuant to the provisions of this subsection shall
be borne by Employer including, without limitation, a reasonable
payment for Employee's time and expenses involved in case he is not
then employed by Employer.
(f) Litigation. Employee agrees that during the
Employment Period or thereafter, Employee shall do all things,
including the giving of evidence in suits and other proceedings,
which Employer shall deem necessary or proper to obtain, maintain
or assert rights accruing to Employer during the Employment Period
and in connection with which Employee has knowledge, information or
expertise. All reasonable expenses incurred by Employee during the
Employment Period or thereafter in fulfilling the duties set forth
in this subsection (f) shall be reimbursed by Employer to the full
extent legally appropriate including, without limitation, a
reasonable payment for Employee's time in the event this Agreement
has terminated prior to the time Employee renders such assistance,
advice and counsel.
5. Equity. The parties hereto agree that the services to be
rendered by Employee are special, unique and of an extraordinary
character. In the event of the breach by Employee of any of the
provisions of this Agreement, Employer, in addition and as a
supplement to such other rights and remedies as may exist in its
favor, may apply to any court of law or equity having jurisdiction
to enforce the specific performance of this Agreement and/or may
apply for injunctive relief against any act which would violate any
of the provisions of this Agreement.
6. No Assignment. This Agreement is personal to Employee and
shall not be assignable by Employee without the prior written
<PAGE>
consent of Employer other than by will or the laws of descent and
distribution. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by Employee's legal
representatives and beneficiaries.
7. Entire Agreement. This instrument constitutes the entire
agreement of the parties hereto with respect to Employee's
employment and the compensation therefor.
8. Modification. No modification, amendment or waiver of any
of the provisions of this Agreement shall be effective unless made
in writing specifically referring to this Agreement and signed by
all parties.
9. Waiver. The failure to enforce at any time any of the
provisions of this Agreement or to require at any time performance
by any party of any of the provisions hereof shall in no way be
construed to be a waiver of such provisions or to affect either the
validity of this Agreement, or any part hereof, or the right of
each party thereafter to enforce each and every provision in
accordance with the terms of this Agreement.
10. Attorney's Fees. In the event that litigation is required
to enforce any provision of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees.
11. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted. The parties
specifically agree that should a court determine that the scope of
business restricted or the time and geographical limitations of the
covenants contained in subsection 4(a) hereof are unenforceable
because such provision is unreasonable, such court may, in its
discretion, modify such provision in a manner to render it
reasonable, and such provision, as modified, shall be fully
enforceable as though set forth herein and any such modification
shall not affect the other provisions and clause hereof in any
respect.
12. Binding Effect. This Agreement shall binding upon and
shall inure to the benefit of Employer and any successor of
Employer. For the purposes of this Agreement, the term "successor"
shall mean any person, firm, corporation or other business entity
which at any time, whether by merger, purchase or otherwise, shall
acquire all or substantially all of the assets or business or
Employer as a whole.
13. Titles. The titles of each paragraph hereof are only for
convenience and reference and do not govern the content of any
paragraph in this Agreement.
<PAGE>
14. Affiliate. The term "affiliated corporation" as used
herein shall mean any corporation, which now or hereafter, directly
or indirectly is controlled by Employer or by any corporation which
controls, is controlled by or is under common control with
Employer.
15. Notices. Any notice to be given by either party hereto
shall be in writing, and, unless receipt thereof is acknowledged by
the other party hereto, shall be given by United States certified
mail, postage prepaid, addressed to Employer at its principal
business office and to Employee at his address as shown on the
records of Employer. Any notice given by mail shall be deemed
given on the second business day after deposit in the mails.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri,
without reference to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate on the day and year first above written.
EMPLOYER:
CONSUMER PROGRAMS INCORPORATED
On its own behalf and on behalf
of its affiliated corporations
BY /s/ Russell Isaak
----------------------------
Russell Isaak
TITLE Exec VP - Finance
EMPLOYEE:
/s/ Jane E. Nelson
-----------------------------
Jane E. Nelson
EXHIBIT (10.8)
MATERIAL CONTRACT
Employment Contract - Fran Scheper
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated February 5, 1995, between CONSUMER PROGRAMS
INCORPORATED, a Missouri corporation (the "Corporation"), and
Fran Scheper (the "Executive").
WHEREAS, the Corporation currently employs the Executive in
the capacity of Executive Vice President, Human Resources, and the
Executive is one of the key executives of the Corporation and its
parent corporation, CPI Corp.;
WHEREAS, there is much competition for the type of business
performed by the Corporation in the locales in which the
Corporation operates, and the Corporation and Executive
acknowledge that the Corporation is active in the product markets
in which it competes;
WHEREAS, Executive, during his or her employment, has been
and will be entrusted with confidential information;
WHEREAS, Executive and the Corporation recognize and
acknowledge that, to ensure the continued growth and stability of
the Corporation, it is necessary to obtain an agreement from
Executive not to compete with the Corporation and not to disclose
confidential information of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue
in the employ of the Corporation as a result of his or her
experience with the Corporation and his or her potential for
making future contributions to the Corporation, and the Executive
is willing to make a commitment to remain in such employ upon the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliated Companies" shall mean any corporation
(or other business entity) controlling, controlled by or under
common control with the Corporation.
(b) "Beneficiary" shall mean the person designated in
writing by the Executive as his or her beneficiary under this
Agreement, or in the absence of such designation, his or her
estate.
(c) "Cause" shall mean:
(1) prior to a Change of Control, (i) conduct or
activity of the Executive materially detrimental to the
Corporation's reputation or business (including financial)
operations; (ii) gross or habitual neglect or breach of duty or
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misconduct of the Executive in discharging the duties of his or
her position; or (iii) prolonged absence by the Executive from
his or her duties (other than on account of illness or
disability) without the consent of the Corporation.
(2) after a Change of Control, (i) an act or acts
of dishonesty on the Executive's part which are intended to
result in his or her substantial personal enrichment at the
expense of the Corporation; (ii) any material violation by the
Executive of his or her obligations and covenants pursuant to
this Agreement which is demonstrably willful and deliberate on
the Executive's part and which results in material injury to the
Corporation; or (iii) the conviction of Executive of a felony or
of a crime involving moral turpitude.
(d) A "Change of Control" shall mean a change in
control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that
such event had been "previously reported" as that term is defined
in Rule 12b-2 of Regulation 12B of the Exchange Act unless the
transactions that give rise to the change in control are approved
or ratified by a majority of the members of the Incumbent Board
of CPI Corp. who are not employees of the Corporation; provided
that, without limitation, notwithstanding anything herein to the
contrary, such a change in control shall be deemed to have
occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of CPI Corp. representing 40% or more
of the combined voting power of CPI Corp.'s then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), (b) individuals who constitute
the Board of CPI Corp. on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by CPI
Corp.'s shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of CPI Corp. in which such person is named as a nominee for
director, without objection to such nomination) shall be, for
purposes of this clause (b), considered as though such person
were a member of the Incumbent Board, or (c) approval by the
stockholders of CPI Corp. of a reorganization, merger or
consolidation, in each case, with respect to which persons who
were the stockholders of CPI Corp. immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation or
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dissolution of CPI Corp. or of the sale of all or substantially
all of the assets of CPI Corp. For purposes of this Agreement,
the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person,"
as such term is used in Section 14(d) of the Exchange Act, other
than CPI Corp., the Corporation or an Affiliated Company or any
employee benefit plan(s) sponsored or maintained by the
Corporation or any Affiliated Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as may be amended from time to time.
(f) "Continuing Directors" shall have the meaning set
forth in Paragraph 3(G) of Article Ten of CPI Corp.'s Certificate
of Incorporation.
(g) "Fiscal Year" shall mean the Fiscal Year of the
Corporation.
(h) "Permanent Disability" shall mean the inability of
Executive to perform the services contemplated by Section 4
hereof for a period of at least one hundred eighty (180)
consecutive calendar days or for thirty-five (35) weeks (whether
or not consecutive) in any twelve (12) month period on account of
any sickness, injury or other infirmity or disability.
(i) "Retirement" shall mean the Executive's voluntary
or involuntary termination of employment with the Corporation
except for termination on account of (A) Cause as defined in
Subsection 6(b) hereof, (B) death or (C) Permanent Disability
before attaining age sixty-five (65).
(j) "Term of Employment" shall have the meaning set
forth in Section 3 hereof.
(k) "Vesting Percentage" shall mean the percentage of
Supplemental Retirement Benefits, death benefits, and disability
benefits in which Executive has a nonforfeitable interest (except
in the event of termination for Cause) based upon the number of
Years of Service Executive has completed, determined as follows:
<TABLE>
<CAPTION>
Completed Years of Service Vesting Percentage
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
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Notwithstanding anything herein to the contrary, if Executive's
employment with the Corporation terminates following a Change of
Control, unless such termination is for Cause, for purposes of
Subsections 5(g), 5(h), and 5(i) of this Agreement Executive
shall be deemed to have completed ten (10) Years of Service and
his or her Vesting Percentage shall be deemed to be 100%.
(l) "Year of Service" shall mean any Fiscal Year
during which the Executive has worked for the Corporation at
least one thousand (1,000) hours, including Fiscal Years prior to
the effective date of this Agreement.
2. Employment. The Corporation hereby employs and engages
the services of the Executive as one of its key executives
initially in the position of Executive Vice President, Human
Resources of the Corporation and its parent corporation, CPI Corp.
for the Term of Employment set forth in Section 3. The Executive
agrees to serve the Corporation for the Term of Employment as
provided herein.
3. Term of Employment. The Executive's Term of Employment
shall be a period commencing on the date hereof and ending one
(1) year thereafter; provided, however, that upon the expiration
of the aforesaid period (the "Expiration Date") and upon each
anniversary of the Expiration Date, the Term of Employment shall
automatically be extended for an additional one (1) year period
unless Executive or the Corporation notifies the other in writing
at least sixty (60) days prior to the commencement of such one
(1) year period of an intention to terminate this Agreement.
Notwithstanding anything herein to the contrary, the Term of
Employment shall terminate upon Executive's death or Permanent
Disability as set forth in subsection 6(a) hereof or upon the
Corporation's termination of Executive's employment for Cause
pursuant to subsection 6(b) hereof.
4. Position and Duties.
(a) Prior to a Change of Control, during the Term of
Employment, the Executive shall serve the Corporation in such
capacity as the Corporation may determine. After a Change of
Control, during the Term of Employment, the Executive's position,
authority and responsibilities, the type of work he or she is
asked to perform, and the status and stature of the people with
whom he or she is asked to work, shall be comparable to that
existing with respect to the Executive as of the date immediately
prior to the Change of Control, and after a Change of Control the
Executive's services shall be performed at the location where the
Executive was employed as of the date immediately prior to the
Change of Control, or at such other location as may be mutually
agreed between the Corporation and the Executive.
(b) The Executive agrees to devote his or her full
business time during normal business hours to the business and
affairs of the Corporation (except as otherwise provided herein)
and to use his or her best efforts to promote the interests of
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the Corporation and its Affiliated Companies and to perform
faithfully and efficiently the responsibilities assigned to
him or her in accordance with the terms of this Agreement to the
extent necessary to discharge such responsibilities, except for
(i) service on corporate, civic or charitable boards or
committees not significantly interfering with the performance of
such responsibilities and (ii) periods of vacation and sick
leave to which he or she is entitled. It is expressly understood
and agreed that the Executive's continuing service on any boards
and committees with which he or she shall be connected, as a
member or otherwise, as of the date hereof, or any such service
approved by the Corporation during the Term of Employment, shall
not be deemed to interfere with the performance of the
Executive's services to the Corporation pursuant to this
subparagraph 4(b).
5. Compensation and Other Conditions of Employment.
(a) Base Salary. During the Term of Employment, the
Executive shall receive an annual base salary (the "Base
Salary"), in equal installments payable weekly or at such other
intervals as salary is normally paid by the Corporation to its
employees, at an annual rate established by the Corporation and
any Affiliated Companies as of the date hereof. The Base Salary
shall be reviewed at least once each year and may be increased at
any time and from time to time by action of the Board of
Directors of CPI Corp., any committee thereof or any individual
having authority to take such action, in accordance with the
Corporation's regular practices. Any increase in the Base Salary
shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after such increase the Base Salary
shall not be reduced from such increased level.
(b) Annual Bonus. After a Change of Control, in
addition to the Base Salary, the Executive shall be awarded for
each Fiscal Year during the Term of Employment an annual bonus (the
"Annual Bonus") (pursuant to any bonus plan or program of the
Corporation, any incentive plan or program of the Corporation, or
otherwise) in cash at least equal to the highest bonus paid or
payable to the Executive in respect of any of the Fiscal Years
during the three Fiscal Years immediately prior to the date of
the Change of Control. Prior to a Change of Control, the amount
of the Executive's Annual Bonus shall be determined in accordance
with the Corporation's regular practice.
(c) Other Compensation Plans. After a Change of
Control, in addition to the Base Salary and Annual Bonus payable
as hereinabove provided, during the Term of Employment, the
Executive shall be entitled to participate in all other
compensation plans and programs, including, without limitation,
savings plans, stock option plans, and retirement plans of the
Corporation and its Affiliated Companies (collectively, the
"Savings Plans"), on a basis at least equivalent to that provided
by the Corporation and its Affiliated Companies to the Executive
under such programs immediately prior to the date of the Change
<PAGE>
of Control. Prior to a Change of Control, the Executive's
entitlement to participate in the Savings Plans shall be
determined in accordance with the Corporation's regular
practice. Prior to a Change of Control, nothing herein shall be
construed to prevent the Corporation from amending or altering
any such plans in accordance with the terms thereof. All
agreements between the Corporation and the Executive existing on
the date hereof providing for special pension, retirement or
similar benefits are continued by this Agreement.
(d) Benefit Plans. After a Change of Control, during
the Term of Employment, the Executive, his or her spouse, or his
or her dependents, as the case may be, shall be entitled to
receive all amounts which he or she, his or her spouse or his or
her dependents are or would have been entitled to receive as
benefits under all other benefit plans of the Corporation and its
Affiliated Companies, including, without limitation, medical,
dental, disability, group life, accidental death and travel
accident insurance plans and programs (collectively, the "Benefit
Plans") on a basis at least as favorable to the Executive as on
the date immediately prior to the date of the Change of Control.
Prior to a Change of Control, the Executive's and such other
persons' entitlement to participate in the Benefit Plans shall be
determined in accordance with the Corporation's regular practice.
(e) Expenses. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the regular policies and procedures of the Corporation.
(f) Office and Support Staff. After a Change of
Control the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive as of the date immediately prior to the
date of the Change of Control.
(g) Death Benefits. In the event of Executive's death
after completion of at least ten (10) Years of Service, unless
(1) Executive's employment with the Corporation was terminated
for Cause or (2) Executive (or his or her Beneficiary) is
entitled to receive Supplemental Retirement Benefits pursuant to
subsection 5(i), the Corporation shall pay to Executive's
Beneficiary an annual death benefit equal to forty percent (40%)
(but not to exceed $100,000) of Executive's annual Base Salary
(as defined in subsection 5(a) hereof) for the Fiscal Year of his
or her termination of employment with the Corporation in equal
monthly installments commencing with the month following the
month of Executive's death and ending with the later of (i) the
month in which Executive would have reached age sixty-five (65)
or (ii) the one-hundred twentieth (120th) month following the
month of Executive's death. In the event that Executive dies
before age 65 but has not completed at least ten (10) Years of
Service with the Corporation, death benefits shall be reduced to
an amount equal to the benefits determined under the preceding
sentence multiplied by the Vesting Percentage applicable to
Executive.
<PAGE>
(h) Disability Benefits. In the event of Executive's
Permanent Disability prior to attaining age 65 and prior to
termination of employment with the Corporation, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive annual disability
benefits equal to forty percent (40%) (but not to exceed
$100,000) of Executive's annual Base Salary for the Fiscal Year
in which the Executive terminated employment with the
Corporation, payable in equal monthly installments, commencing
with the month following the month in which Executive terminated
employment as a result of Permanent Disability and ending on the
earlier of (i) the month in which Executive reaches age 65 or
(ii) the month of his or her death. In the event that at the
time of Permanent Disability Executive has not completed at least
ten (10) Years of Service, the disability benefits shall be
reduced to an amount equal to the benefits determined under the
preceding sentence multiplied by the Vesting Percentage
applicable to Executive. Disability benefits pursuant to this
subsection (h) shall be reduced by any amounts paid to Executive
under the Corporation's long-term disability insurance policy,
but shall not be reduced for any payments received by Executive
from Social Security or from any disability insurance coverage
individually owned by Executive.
(i) Supplemental Retirement Benefits.
(1) In the event of Executive's Retirement after
completion of at least ten (10) Years of Service, unless
Executive's employment with the Corporation was terminated for
Cause, the Corporation shall pay Executive retirement benefits
for ten (10) years in an annual amount equal to forty percent
(40%) (but not to exceed $100,000) of Executive's annual Base
Salary for the Fiscal Year of his or her Retirement
("Supplemental Retirement Benefits"). In the event of
Executive's Retirement before completion of ten (10) Years of
Service, Corporation shall pay Executive retirement benefits on
the same terms as set forth in the preceding sentence except that
retirement benefits shall be reduced to an amount equal to
Supplemental Retirement Benefits multiplied by the Vesting
Percentage.
(2) Supplemental Retirement Benefits shall be
payable in one hundred twenty (120) equal monthly installments
commencing with the month following the later of (i) the month of
Executive's Retirement or (ii) the month during which Executive
reaches age sixty-five (65). If Executive dies prior to the end
of the one hundred twenty (120) month period during which
Supplemental Retirement Benefits are payable, Supplemental
Retirement Benefits shall be payable during the remainder of such
120-month period to his or her Beneficiary.
(3) Notwithstanding anything herein to the
contrary, in the event of Executive's termination of employment
with the Corporation prior to attaining age 65 as a result of
Permanent Disability, if Executive attains age 65 and his or her
employment with the Corporation was not terminated for Cause, the
<PAGE>
Corporation shall pay to Executive the Supplemental Retirement
Benefits set forth in this Subsection 5(i) in accordance with
Executive's Vesting Percentage, commencing as of the month
following the month in which Executive attains age 65; provided,
however, that any Supplemental Retirement Benefits paid pursuant
to this sentence shall be reduced by any amounts paid to
Executive under the Corporation's long-term disability insurance
policy (but shall not be reduced for any payments received by
Executive from Social Security or from any disability insurance
coverage individually owned by Executive) for the same period.
(j) Survivability of Death and Supplemental Retirement
Benefits. In the event of Executive's Retirement or death,
Executive's entitlement to death benefits pursuant to Subsection
5(g) hereof and Supplemental Retirement Benefits pursuant to
Subsection 5(i) hereof shall survive the Term of Employment and
Executive or his or her Beneficiary shall be entitled to such
death benefits and Supplemental Retirement Benefits based on the
same terms and conditions as would have been applicable had his
or her death or Retirement, as the case may be, occurred during
the Term of Employment.
6. Termination of Employment.
(a) Death or Permanent Disability. Except for the
obligations of the Corporation set forth in this Subsection 6
(a), this Agreement shall terminate automatically upon the
Executive's death or Permanent Disability. In the event of such
termination, the Corporation shall pay to the Executive's
Beneficiary or, in the event of Permanent Disability, the
Executive or his or her legal representative, all benefits and
Base Salary accrued through the date of termination, including,
without limitation, amounts payable under any plan referred to in
Subsection 5(d) plus any benefits to which Executive may be
entitled pursuant to Subsection 5(g), Subsection 5(h) or
Subsection 5(i) hereof.
(b) Cause. The Corporation may terminate the
Executive's employment for Cause. If the Executive's employment
is terminated for Cause, the Corporation shall pay the Executive
his or her full accrued Base Salary through the effective date of
the termination of his or her employment (which shall be no
earlier than the date of receipt of notice thereof) at the rate
in effect at the time of such termination, and the Corporation
shall have no further obligations to the Executive under this
Agreement.
(c) Notification Prior to One Year Extension. Either
Executive or the Corporation may terminate this Agreement by
notifying the other party in writing of an intention to do so at
least sixty (60) days prior to the commencement of a one-year
extension period described in Section 3 hereof.
(d) Payments for Involuntary Termination Without
Cause.
<PAGE>
(1) If prior to a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall pay Executive during the 24-month period
following such involuntary termination of employment an amount
equal to 200% of Base Salary for the Fiscal Year of termination,
payable in equal weekly installments or at such other intervals
as salary is normally paid by the Corporation to its employees.
The payment pursuant to this Subsection 6(d)(1) and any payments
to which Executive may be entitled pursuant to Subsections 5(g),
5(h), and 5(i) shall be in full discharge of any claims, actions,
demands or damages of every nature and description which
Executive might have or might assert against the Corporation or
any Affiliated Company in connection with or arising from the
termination of Executive's employment or the termination of this
Agreement.
(2) If following a Change of Control (i) the
Corporation terminates Executive's employment (other than for
Cause pursuant to Subsection 6(b) hereof), or (ii) the
Executive's employment terminates by reason of the Corporation's
termination of this Agreement pursuant to subsection 6(c) hereof,
the Corporation shall, at the time of such involuntary
termination, make a lump sum cash payment to Executive equal to
200% of his or her Base Salary for the Fiscal Year of
termination. In addition to the payment pursuant to this
Subsection 6(d)(2) and any payments to which Executive may be
entitled pursuant to Subsections 5(g), 5(h) and 5(i), Executive
shall be entitled to all remedies available under this Agreement
or at law in respect of any damages suffered by Executive as a
result of an involuntary termination of employment without Cause.
7. Gross-Up For Parachute Tax.
(a) General. In the event that following a Change of
Control Executive becomes entitled to any payments (whether
pursuant to this Employment Agreement or any other plan,
arrangement or agreement) from the Corporation in the nature of
compensation ("Parachute Payments") that in the opinion of a
certified public accounting firm (selected in the manner set
forth in Subsection 7(b)) or that under the provisions of a
notice of assessment from the Internal Revenue Service causes
imposition of the tax under Section 4999 of the Code or any
similar tax that may hereafter be imposed (the "Excise Tax"), the
Corporation shall pay Executive, at the time specified in
Subsection 7(d), the Gross-Up Payment (as determined in
accordance with Subsection 7(c)).
(b) Selection of C.P.A. Within fifteen (15) days
after any termination of Executive's employment following a
Change of Control, the majority of the Continuing Directors as of
the date immediately prior to the Change of Control shall select
a certified public accounting firm (the "C.P.A.") to determine
<PAGE>
the amount, if any, of the Excise Tax and the amount, if any, of
the Gross-Up Payments.
(c) Amount of Gross-Up Payments.
(1) The Gross-Up Payments shall be in an amount
such that the net amount retained by Executive with respect to
the Parachute Payments and Gross-Up Payments, after deduction of
any Excise Tax to which the Parachute Payments may be subject and
any federal, state, and local income taxes and Excise Tax upon
the Gross-Up Payments, shall be equal to the gross amount of the
Parachute Payments.
(2) For purposes of determining the amount of the
Gross-Up Payments, Executive shall be deemed to pay federal
income taxes at the applicable rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the applicable rate of
taxation for the calendar year in which the Gross-Up Payment is
to be made.
(3) In the event that the Excise Tax is
subsequently determined to exceed the amount taken into account
at the time the Gross-Up Payment is made pursuant to Subsection
7(d)(1) hereof (including any excess attributable to any
Parachute Payments the existence or amount of which could not be
accurately determined at the time of the Gross-Up Payment), the
Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest and addition to tax payable
with respect to such excess) within fifteen (15) days after the
amount of such excess is determined by the C.P.A. or by the
Internal Revenue Service (the "IRS") in a notice of assessment.
(d) Timing of Gross-Up Payments. Gross-Up Payments
other than Gross-Up Payments pursuant to Subsection 7(c)(3) shall
be paid not later than forty-five (45) days following payment of
any Parachute Payments to which the Gross-Up Payments are
attributable; provided, however, that if the amount of such
Gross-Up Payment or portion thereof cannot be finally determined
on or before such day, the Corporation shall pay to Executive on
such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the
applicable federal rate provided in Section l274(d) of the Code)
as soon as the amount thereof can be determined by the C.P.A.,
but in no event later than forty-five (45) days after payment of
such Parachute Payments.
(e) Corporation's Right to Designate Tax
Representative; Assignment of Refund Proceeds. If the IRS
proposes an assessment of the Excise Tax against Executive or
proposes an additional assessment of Excise Tax in excess of the
amount previously reported by Executive:
(1) Executive shall within five (5) days after
receipt from the IRS of notice of the proposed Excise Tax
assessment notify the Corporation in writing and furnish the
Corporation with copies of all correspondence from the IRS
relating to the proposed Excise Tax assessment.
<PAGE>
(2) The Corporation shall be authorized to
designate an attorney and/or accountant (the "Tax
Representative") to serve as Executive's exclusive representative
with respect to all proceedings with the IRS relating to the
proposed Excise Tax assessment, including but not limited to
negotiating a settlement or compromise of the proposed Excise Tax
assessment, filing a claim for refund with respect thereto, and
seeking judicial review of any disallowance of a claim for
refund. Executive hereby agrees to execute an appropriate power
of attorney authorizing the Tax Representative to represent
Executive with respect to the Excise Taxes. Executive further
agrees to take any other appropriate actions reasonably requested
by the Tax Representative in connection therewith; provided,
however, that the Corporation shall reimburse Executive for any
expenses incurred by Executive as a result of compliance with
such requests.
(3) If the Tax Representative files a claim for
refund of Excise Taxes with respect to which the Corporation has
made a Gross-Up Payment and such refund claim is allowed by the
IRS or by the final judgment of a court of competent
jurisdiction, Executive shall endorse the refund check payable to
the Corporation and shall send the refund check to the
Corporation not later than five (5) days after receipt from the
IRS.
(4) If the Corporation designates a Tax
Representative, the Corporation shall pay all of his or her
professional fees and expenses and hold Executive harmless from
any claims in connection therewith. The Tax Representative shall
keep Executive timely informed of all significant developments in
the Excise Tax matter and shall send to Executive copies of all
correspondence relating thereto.
(5) Notwithstanding anything herein to the
contrary, if the Corporation is in material breach of any of its
obligations pursuant to this Agreement, the Corporation's rights
pursuant to this Subsection 7(e) shall be extinguished and
Executive shall have the right to revoke any power of attorney
executed pursuant to this Subsection 7(e).
8. No Obligation to Mitigate Damages. The Executive shall
not be obligated to mitigate any damages by seeking other
employment or otherwise, and no amount payable hereunder and no
benefit or service credit for benefits shall be reduced in the
event that the Executive shall accept alternative employment.
9. Benefits Payable Only From Corporate Assets.
(a) No Trust. Nothing contained in this Agreement,
and no action taken pursuant to its provisions by either party
hereto shall create, or be construed to create, a trust of any
kind, or a fiduciary relationship between the Corporation and the
Executive or his or her Beneficiary.
(b) Executive's Status as Unsecured General Creditor.
The payment of any benefits hereunder to the Executive or his or
<PAGE>
her Beneficiary shall be made from assets which shall continue,
for all purposes, to be a part of the general assets of the
Corporation; no person shall have or acquire any interest in such
assets by virtue of the provisions of this Agreement. To the
extent that the Executive or his or her Beneficiary acquires a
right to receive payments from the Corporation under the
provisions hereof, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
(c) Recovery of Cost of Providing Benefits. In the
event that, in its discretion, the Corporation purchases an
insurance policy insuring the life of the Executive to enable the
Corporation to recover, in whole or in part, the cost of
providing any benefits hereunder, neither the Executive nor his
or her Beneficiary under this Agreement shall have or acquire any
rights whatsoever therein. The Corporation shall be the sole
owner and beneficiary of any such policy and, as such, shall
possess and may exercise all incidents of ownership therein.
10. Determination of Benefits and Claims Procedure. The
Corporation shall make all determinations as to rights to
benefits under this Agreement. Subject to and in compliance with
the specific procedures contained in the applicable regulations
promulgated under the Employee Retirement Income Security Act of
1974, as amended: (i) any decision by the Corporation denying a
claim for benefits under this Agreement by the Executive or his
or her Beneficiary shall be stated in writing by the Corporation
and delivered or mailed to the claimant; (ii) each such notice
shall set forth the specific reasons for the denial, written to
the best of the Corporation's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the
Corporation shall afford a reasonable opportunity to the claimant
whose claim for benefits has been denied for a review of the
decision denying such claim.
11. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any Affiliated Companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Corporation or any
Affiliated Companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or
program of the Corporation or any Affiliated Companies shall be
payable in accordance with the terms of such plan or program.
12. Full Settlement. After a Change of Control, the
Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. Unless
<PAGE>
it is finally determined by a court of competent jurisdiction
after all available appeals that the Corporation has validly
terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof, plus, in each case, interest compounded
quarterly, on the total unpaid amount determined be payable
hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Mercantile Bank, N.A.
in effect from time to time, for the period commencing on the
date of such contest and ending on the date on which the
Corporation shall pay such amount.
13. Covenants.
(a) Non-Competition.
(1) Executive recognizes that during the course
of Executive's employment with the Corporation, Executive has
been and will be instructed about and become acquainted with
confidential information of the Corporation, including, without
limitation, customer lists, methods of sales, the existence and
contents and terms of this Agreement, methods of sales
procurement, sales procurement techniques, sales procedures and
equipment/supply information, equipment and supply acquisition
procedures and processes and sources, customer evaluation
procedures, customer maintenance and supply maintenance
procedures and corresponding information relating to persons,
firms and corporations which are or may become customers of the
Corporation and, further, companies from which the Corporation
obtains various products and supplies for sale, resale and
distribution to customers of the Corporation. This confidential
information further includes, but is not limited to, customer
identity, supplier identity and terms, purchase terms, sales
techniques, purchase conditions and rates, customer needs,
billing procedures and processes, contacts and customer
information. Further, Executive agrees and acknowledges that the
development and assemblage and maintenance of the customer base
of the Corporation has taken extraordinary time, money,
resources, training, and effort by the Corporation and its
employees.
(2) Executive agrees that he or she will not
during the Term of Employment and for a period of two (2) years
following cessation of his or her employment at the Corporation
("Restricted Period"), for any cause or reason, directly or
indirectly:
(A) engage in any business in competition
with the Corporation and its Affiliates or supply and sell to
present customers, former customers and prospects of the
Corporation and its Affiliates; or
<PAGE>
(B) own, manage, operate, control, advise,
be employed by, consult, or materially participate in, or be
materially involved in any manner with the ownership, management,
operation or control of, individually or through any other entity
or device, any business that competes with the business then
conducted by the Corporation or any Affiliate; provided, however,
that mere ownership as an investor of not more than five percent
(5%) of the securities of a corporation or other business
enterprise shall not in and of itself be deemed to violate this
Section 13(b)(2)(B).
(b) Nondisclosure of Confidential Information.
(1) Executive will not, except as authorized by
the Corporation in writing, during or at any time after the
termination of Executive's employment with the Corporation,
directly or indirectly, use for himself or herself or others, or
disclose, communicate, divulge, furnish to, or convey to any
other person, firm, or corporation, any secret or confidential
information, knowledge or data of the Corporation or that of
third parties obtained by Executive during the period of his or
her employment with the Corporation. Such information, knowledge
or data includes, without limitation, the following:
(A) Secret or confidential matters of a
technical nature such as, but not limited to, methods, know-how,
formulations, compositions, processes, discoveries, machines,
inventions, computer programs, and similar items or research
projects involving such items,
(B) Secret or confidential matters of a
business nature such as, but not limited to, marketing policies
or strategies, information about costs, price lists, purchasing
and purchasing policies, profits, market, sales or lists of
customers, customer history information, and
(C) Secret or confidential matters
pertaining to future developments such as, but not limited to,
research and development or future marketing or merchandising.
(2) Executive, upon termination of his or her
employment with the Corporation, or at any other time upon the
Corporation's request, shall deliver promptly to the Corporation
all manuals, letters, notes, notebooks, reports, formulations,
computer programs and similar items, memoranda, lists of
customers, customer history information and all other materials
and copies thereof relating in any way to the Corporation's
business and in any way obtained by Executive during the term of
employment with the Corporation which are in his or her
possession or under his or her control; and Executive will not
make or retain any copies of any of the foregoing and will so
represent to the Corporation upon termination of his or her
employment.
(c) Inducement.
(1) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
use any confidential information for the purposes of inducing or
attempting to induce any present, former, or prospective customer
<PAGE>
of the Corporation or its Affiliates to become a customer of
Executive or any person, firm, or corporation, or business
association with which Executive is affiliated in any capacity
with respect to the markets supplied by the Corporation or its
Affiliates.
(2) Executive agrees that during the Term of
Employment and during the Restricted Period, Executive shall not
directly or indirectly solicit for employment or employ any of
the Corporation's employees to work for Executive or any business
association with which/whom Executive is affiliated, or to work
for any other company in the markets supplied by the Corporation
or its Affiliates.
(f) Interest of Parties. Executive agrees that the
duration of the limitations set forth in this Section 13 are
reasonable under the circumstances, considering Executive's
position with the Corporation and other relevant factors, and
that this will not constitute a serious handicap to Executive in
securing future employment.
(g) Disclosure to Corporation. Executive shall
promptly communicate and disclose to the Corporation all
information, observations and data obtained by Executive in the
course of Executive's employment. All written materials, records
and documents made by Executive or coming into Executive's
possession during the Term of Employment concerning any
inventions, products, processes or equipment, manufactured, used,
developed, investigated or considered by the Corporation or any
Affiliated Companies shall be the property of the Corporation,
and upon termination of the Term of Employment, or upon request
of the Corporation during the Term of Employment, Executive
shall promptly deliver the same to the Corporation. Executive
agrees to render to the Corporation such reports of the
activities of the business undertaken by Executive or conducted
under Executive's direction during the Term of Employment as the
Corporation may reasonably request.
(h) Inventions.
(1) Executive shall promptly communicate and
disclose in writing to the Corporation all those inventions and
developments whether patentable or not, as well as patents and
patent applications (hereinafter collectively called
"Inventions"), made, conceived, developed or purchased by
Executive, or under which Executive acquires the right to grant
licenses or to become licensed, alone or jointly with others,
during the Term of Employment, which have arisen or may arise out
of Executive's employment, or relate to any matters pertaining
to, applicable to, or useful in connection with, the business or
affairs of the Corporation or any Affiliated Companies. All of
Executive's right, title and interest in, to and under all such
inventions, licenses and rights to grant licenses shall be the
sole property of the Corporation. Any such inventions disclosed
to anyone by Executive within one (1) year after the termination
<PAGE>
of the Term of Employment for any cause whatsoever shall be
deemed to have been made or conceived by Executive during the
Term of Employment.
(2) As to all such inventions, Executive shall,
upon request of the Corporation, during the Term of Employment or
thereafter:
A. Execute all documents which the
Corporation shall deem necessary or proper to
enable it to establish title to such inventions,
or other rights, and to enable it to file and
prosecute applications for letters patent of the
United States and any foreign country; and
B. Do all things (including the giving of
evidence in suits and other proceedings) which the
Corporation shall deem necessary or proper to
obtain, maintain or to assert patents for any and
all such inventions or to assert its rights in any
inventions not patented.
All expenses incident to any action required by the Corporation
or taken on its behalf pursuant to the provisions of this
paragraph shall be borne by the Corporation including without
limitation a reasonable payment for Executive's time and expenses
involved in case he or she is not then in its employ.
(i) Litigation. Executive agrees that during the Term
of Employment or thereafter, Executive shall do all things,
including the giving of evidence in suits and other proceedings,
which the Corporation shall deem necessary or proper to obtain,
maintain or assert rights accruing to the Corporation during the
Term of Employment and in connection with which Executive has
knowledge, information or expertise. All reasonable expenses
incurred by Executive during the Term of Employment or thereafter
in fulfilling the duties set forth in this Section, shall be
reimbursed by the Corporation to the full extent legally
appropriate including, without limitation, a reasonable payment
for Executive's time in the event this Agreement has terminated
prior to the time Executive renders such assistance, advice and
counsel.
14. Equity. The parties hereto agree that the services to
be rendered by Executive are special, unique and of an
extraordinary character. In the event of the breach by Executive
of any of the provisions of this Agreement, the Corporation, in
addition and as a supplement to such other rights and remedies as
may exist in its favor, may apply to any court of law or equity
having jurisdiction to enforce the specific performance of this
Agreement, and/or may apply for injunctive relief against any act
which would violate any of the provisions of this Agreement.
15. Effect on Prior Agreements. This Agreement shall
supersede and replace any and all prior employment agreements
entered into between Executive and the Corporation or any
Affiliated Company, including but not limited to that certain
<PAGE>
Employment Agreement dated February 2, 1992. This Agreement
contains the entire understanding of the parties hereto with
respect to the subject matter hereof.
16. No Assignment.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be
assignable by the Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives and Beneficiary.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors. The
Corporation shall require any successor to all or substantially
all of the business and/or assets of the Corporation, whether
direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform if no
such succession had taken place.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision or clause were omitted.
18. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) In the event that litigation is required to
enforce any provision of this Agreement, subject to the
provisions of Section 12 hereof, the prevailing party shall be
entitled to reasonable attorneys fees.
<PAGE>
(c) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Fran Scheper
2319 Whitshire Drive
St. Louis, MO 63129
If to the Corporation:
Consumer Programs, Incorporated
1706 Washington Avenue
St. Louis, Missouri 63103
Attention: Russ Isaak, President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(d) This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof.
(e) The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in duplicate, all as of the day and year first above
written.
CONSUMER PROGRAMS INCORPORATED
By /s/ Russell Isaak
-------------------------------
President
By /s/ Fran Scheper
-------------------------------
Fran Scheper
Executive Vice President,
Human Resources
EXHIBIT (11)
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE
FISCAL YEARS ENDED FEBRUARY 4, 1995, FEBRUARY 5, 1994
AND FEBRUARY 6, 1993
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Common shares outstanding
at beginning of
fiscal period 16,978,869 16,955,730 16,929,102
Shares issued during
the period -
weighted average 23,371 18,624 23,338
Shares issuable under
employee stock plans -
weighted average 17,709 26,670 26,403
Dilutive effect of
exercise of certain
stock options 0 0 5,858
Less: Treasury stock -
weighted average (2,918,492) (2,335,070) (2,308,918)
------------ ------------ ------------
Weighted average number
of common and common
equivalent shares 14,101,457 14,665,954 14,675,783
============ ============ ============
Net earnings applicable
to common shares $14,822,078 $13,236,456 $22,614,861
============ ============ ============
Earnings per common
share $ 1.05 $ .90 $ 1.54
============ ============ ============
</TABLE>
EXHIBIT (13)
1994 ANNUAL REPORT TO SHAREHOLDERS
Following is CPI Corp.'s 1994 Annual Report to Shareholders
required by item 601 of Regulation S-K. The original Report was
prepared in paper format and has been reformatted here to comply
with the electronic filing requirements of the Securities and
Exchange Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system.
<PAGE>
(Front cover of Annual Report to Shareholders)
CPI Corp.
1994 Annual Report to Shareholders
(Pictures: five pictures of an infant going from an unfocused
presentation to a focused presentation)
(Pictures: five pictures of a boy with a dog from a focused
presentation to an unfocused presentation)
Acclaimed consumer service,
enhanced through imaging technology.
<PAGE>
AT A GLANCE
- -----------
With over 1,800 retail locations, CPI Corp. is the market leader in
two segments of the photography industry-preschool portrait
photography and one-hour photofinishing. Other business segments
include the sale of value-priced posters, prints and frames, and a
chain of high-tech copy stores offering a range of electronic
imaging services. Following three years of declining profits due
mainly to intense competition in CPI's core business, portrait
photography, the Company recorded a turnaround in earnings in 1994.
Management believes that long-term profits will increase as a
result of the following:
LEADING POSITION IN THE HIGHLY COMPETITIVE PRESCHOOL PORTRAIT
PHOTOGRAPHY MARKET
*As the exclusive Sears Portrait Studios operator, CPI continues
a 34-year partnership, with 904 studios in all major Sears
stores in the U.S. and Canada, and 109 studios in non-Sears
shopping centers.
*Despite the high level of competition, the Company has
maintained its market position while concurrently developing new
marketing programs employing digital imaging technology to
significantly enhance products and elevate customer service to
a new level. Beginning in 1993, the technology-based programs
were installed in all U.S. studios as the first phase of a $125
million development program that will essentially reposition the
business.
*Enthusiastic customer response to the new programs has resulted
in significant gains in segment sales and earnings. Further
growth is anticipated as a result of continuing enhancement and
expansion of the programs.
LEADING POSITION IN THE INCREASINGLY COMPETITIVE, FRAGMENTED
ONE-HOUR PHOTOFINISHING MARKET
*From a start-up venture in 1982, this business has developed
into CPI's second major segment.
*Through a combination of new store openings and acquisitions,
the most significant of which was over 300 Fox Photo labs in
1991, the division has expanded to its present 660 locations,
the largest such operation in the U.S. While photofinishing is
the primary customer service, significant revenues are generated
from additional services and products provided to those
customers.
*Responding to significantly increased competition from mass
merchants, new technology and marketing programs are being
tested that could allow the Company to reposition its
photofinishing business into a high-service, innovative market
leader.
<PAGE>
RECENT ENTRY INTO THE WALL DECOR INDUSTRY WITH ACQUISITION OF
PROFITABLE RETAIL CHAIN
*Prints Plus is the leading company-owned U.S. retailer of
posters, prints and framing service, offering unparalleled
product selection tailored to each market's tastes, plus
"while-you-wait" framing service.
*Acquired in May 1993, the new business contributed significantly
to CPI's 1993 and 1994 operating earnings.
*The business has the potential to develop into a third major
segment, with plans for the addition of 15 to 20 locations
annually in prime mall locations over the next several years.
CONCEPTUAL DEVELOPMENT IN THE DIGITAL GRAPHICS INDUSTRY
*Applying its skill in managing remote retail locations, CPI is
developing a chain of high-tech copy stores.
*Two experimental concept stores are broadly exploring digital
graphics technology, including applications appropriate to CPI's
other businesses.
Capital for the expansion and upgrading of CPI's various businesses
will come from operating cash flow, which has averaged $45.5
million over the past five years, with supplemental funding
provided by the 1993 private note placement and available
short-term bank financing.
<PAGE>
ACCOMPLISHMENTS AND HIGHLIGHTS
- ------------------------------
1994 ACCOMPLISHMENTS
*Halted three-year decline in after-tax earnings, with 33.3%
increase over 1993.
*Completed installation of new digital imaging technology and
associated marketing programs in all Sears Portrait Studios in
the U.S. Very favorable customer acceptance resulted in gains in
preschool portraits market share, segment sales and earnings.
Began installation in Canadian studios, with completion expected
by second quarter 1995.
*Expanded Prints Plus operation with the net addition of 18 new
locations, with similar expansion planned for 1995 and beyond.
The division made a significant contribution to 1994 corporate
profits and has the potential for significant continuing growth.
*Continued stock buy-back program with repurchase of 900,000
common shares, reducing balance of shares remaining for
acquisition under the Company's current program to 1.2 million
shares.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (in millions of dollars, except percents and
per share data)
<CAPTION>
One Year Five Year
1994 1993 % Change 1989 %Change*
<S> <C> <C> <C> <C> <C>
Sales
Portrait
Studios $275.5 $237.9 15.8 % $260.5 1.1
Photofinishing 191.2 187.2 2.1 % 76.4 20.1
Wall Decor 49.9 34.6 44.3 % - -
Other Products
and Services 16.6 15.8 5.0 % 13.6 4.0
Total $533.2 $475.5 12.1 % $350.5 8.8 %
Operating income
Portrait
Studios $ 39.1 $ 30.0 30.4 % $ 65.6
Photofinishing 4.5 7.0 (34.4)% 3.1
Wall Decor 5.5 5.0 10.2 % -
Other Products
and Services (3.5) (3.9) 8.3 % (5.6)
Earnings after
taxes $ 14.8 $ 11.1** 33.3 % 30.9 (13.7)%
Average shares
outstanding
(millions) 14.1 14.7 (3.9) % 15.7
Per Share
Earnings before
accounting
change $ 1.05 $ 0.76** 38.2 % $ 1.97 (11.8)%
Dividends 0.56 0.56 - 0.42
Tangible book
value 8.00 7.84 2.0 8.17
Price
High $ 21.88 $ 20.75 - $33.88
Low 13.88 13.88 - 21.00
<FN>
* compound annual rate 1989-1994
**Excluding $2.1 million credit for accounting change
</FN>
</TABLE>
<PAGE>
Charts: Portrait Studio sales and earnings increased significantly
in 1994 with the introduction of new marketing programs, while
Photofinishing results reflected an increasingly competitive retail
environment. The new Wall Decor segment and Other Products and
Services segment both recorded improved performance.
<TABLE>
SEGMENT RESULTS IN MILLIONS OF DOLLARS - SALES
<CAPTION>
Portrait Photo- Wall
Studios finishing Decor Other
<S> <C> <C> <C> <C>
1994 $276 $191 $ 50 $ 17
1993 $238 $187 $ 35 $ 16
1989 $261 $ 76 $ -- $ 14
</TABLE>
<TABLE>
SEGMENT RESULTS IN MILLIONS OF DOLLARS - OPERATING INCOME
<CAPTION>
Portrait Photo- Wall
Studios finishing Decor Other
<S> <C> <C> <C> <C>
1994 $39.1 $4.5 $5.5 $(3.5)
1993 $30.0 $7.0 $5.0 $(3.9)
1989 $65.6 $3.1 $ -- $(5.6)
</TABLE>
<PAGE>
OVERVIEW
- --------
A FOCUSED APPROACH TO SPECIALTY RETAILING
Over CPI's retailing history of more than 50 years, a focused
management philosophy has evolved consisting of:
* pursuit of market leadership;
* innovative marketing programs;
* partnering with leaders in retailing and technology;
* performance incentives for top managers; and
* reinvestment of cash flows to support growth initiatives.
BUSINESS PHILOSOPHY
The depth of experience and leadership skills of senior management
are focused on producing long-term results for CPI. Although the
Company has seen profits decline over the past three years, actions
were taken in the context of maintaining market leadership and
improving its competitive advantage--both aimed at generating
sustainable growth in earnings per share. Strong cash flows
continue to be a cornerstone of CPI's program to produce higher
returns to shareholders through a combination of expansion and
acquisitions.
DISTINCT DIFFERENCES
CPI differs from typical retailers in several significant aspects:
* CPI has historically been at the forefront in developing and
implementing new consumer marketing programs that enhance products
and services through the application of advanced technology.
* Whereas most retailers focus on the display and resale of
products, CPI's businesses focus more on providing high value-added
services. These services employ state-of-the-art technology and
yield gross margins above industry norms. This has required a
significant investment in production equipment, much of which was
developed internally on a proprietary basis.
* The management of inventory is a continuing challenge for most
retailers. The three typical problems in this area are onerous
working capital requirements, obsolescence and shrinkage. Three of
CPI's businesses have significant freedom from each of these.
Inventory consists primarily of production materials related to
work in progress and is relatively small compared to that of
typical retailers. Therefore, it is less burdensome on working
capital. Obsolescence is not a factor because CPI's services take
the form of personalized products, i.e., a customer's vacation
pictures or portraits of a customer's baby. Finally, shrinkage is
almost non-existent because the pictures are valuable only to the
purchaser.
* CPI's two major businesses-portrait studios and one-hour
photofinishing-are probably less negatively affected by general
economic downturns than are many retailers. This is because much of
the Company's activity is driven by time-specific personal events,
such as birthdays, graduations, vacations or holidays. Customers do
not casually defer purchases for such occasions.
<PAGE>
The Company, however, has an open mind to investment in more
traditional retail businesses if they offer high profit potential
and can employ complementary management abilities. In May 1993, CPI
made such an investment with the acquisition of the Prints Plus
chain of wall decor stores that offer prints, posters and custom
framing. While inventory is more of a factor, the business still
offers high value-added margin potential.
CPI will continue to pursue new avenues of growth in high-margin
consumer businesses which are:
* responsive to promotional marketing;
* expandable on a broad geographic scale;
* operated as small retail units;
* controllable with system-wide monitoring; and
* focused on high value-added services.
By adding its operating experience and financial strength to new
retailing opportunities, the Company can continue to build on its
solid base while ensuring long-term growth.
Chart below: Since 1984, the compound annual sales growth rate
has averaged 12.2% through 1994.
<TABLE>
SALES IN MILLIONS OF DOLLARS
<CAPTION>
Dollars
<S> <C>
1984 $ 169
1985 $ 198
1986 $ 254
1987 $ 283
1988 $ 318
1989 $ 351
1990 $ 374
1991 $ 415
1992 $ 449
1993 $ 476
1994 $ 533
</TABLE>
<PAGE>
<TABLE>
EARNINGS* AND DIVIDENDS IN MILLIONS OF DOLLARS
<CAPTION>
Earnings Dividends
<S> <C> <C>
1984 $ 10.3 $ --
1985 $ 13.9 $ 0.8
1986 $ 19.4 $ 1.4
1987 $ 25.8 $ 2.7
1988 $ 31.9 $ 4.1
1989 $ 30.9 $ 6.6
1990 $ 33.6 $ 7.7
1991 $ 27.1 $ 8.4
1992 $ 22.6 $ 8.2
1993 $ 11.1 $ 8.2
1994 $ 14.8 $ 7.9
<FN>
*Excluding $2.1 million credit for 1993 accounting change
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
(Pictures: on this page is a picture of a chart showing Stock
Trading Price and Volume provided by Standard and Poor's as of
April 17, 1995.)
Symbol/ Market: CPY (NYSE)
Market Price: 17 5/8 (4/17/95)
Price Range: 21 7/8-13 3/4
(12 months ended 4/17/95)
Market Capitalization: $244.3 million (4/17/95)
Shares Outstanding: 13,862,985 (4/17/95)
12 Months Earnings Per Share: $1.05 (FY '94)
Dividend Rate: $0.56 per share
Current P/E: 16.8 (4/17/95)
<TABLE>
FINANCIAL RATIOS FYE
<CAPTION>
2/4/95 2/5/94
<S> <C> <C>
Income from Operations 5.1% 4.0%
Tax Rate 37.0% 40.0%
Net Earnings 2.8% 2.8%
Return on Assets 4.8% 5.6%
Return on Equity 8.4% 7.7%
</TABLE>
SALES AND EARNINGS--From the initial public offering in 1982
through fiscal 1990, CPI averaged a compound annual growth in sales
of 16.2% and in earnings per share from operations of 19.1%. Net
earnings as a percentage of sales averaged 8.1% during this period,
and the average return on equity was 30.2%. The growth was due
primarily to the aggressive expansion of the Sears Portrait Studios
operation and, secondarily, to the 1982 launch and subsequent
development of the CPI Photo Finish division. Although sales
continued to increase from 1991 through 1993, primarily due to
acquisitions, earnings declined in each of the three years as a
result of an increasingly competitive retail environment and, to a
lesser degree, the nation's continuing economic malaise.
FISCAL 1994--CPI's net sales increased 12.1% to $533.2 million from
$475.5 million, primarily due to significant growth in the Portrait
Studio segment, plus the full-year contribution of the Prints Plus
business. After-tax earnings from operations were $14.8 million
compared to 1993 earnings of $11.1 million. Earnings per share from
operations were $1.05 in 1994 versus $0.76 in 1993. Including a
credit from an accounting change, 1993 net earnings and net
earnings per share were $13.2 million and $0.90, respectively.
<PAGE>
Portrait Studios sales in 1994 increased 15.8% to $275.5 million
from $237.9 million, while operating earnings grew to $39.1 million
from $30.0 million. Management believes the segment more than
maintained its leading position in the preschool portrait market,
as total sittings increased somewhat in the face of continuing
intensely competitive conditions. Operating margins as a percentage
of sales grew to 14.2%, up from last year's 12.6%.
Photofinishing sales increased by 2.1%, to $191.2 million
from $187.2 million. Operating earnings declined to $4.5 million
from $7.0 million, mainly due to competitive pricing pressure
combined with a shift in sales mix to lower-margin products.
Sales in the new Wall Decor segment-Prints Plus-were
$49.9 million in 1994, up from $34.6 million in the partial year of
1993. Operating earnings were $5.5 million versus $5.0 in 1993,
which, due to the May 30, 1993 acquisition date, did not include
results from the early, seasonally slow period of the year.
Other Products and Services sales were $16.6 million versus
$15.8 million in 1993. The segment's operating loss was reduced by
$300,000 as improving performance in the newer markets more than
offset lower profits in the California locations.
FINANCIAL STRENGTH--Cash flows from operations have historically
been strong, even in the recent down period, and have enabled CPI
to protect shareholder value through expansion and acquisitions,
and to return excess cash in the form of dividends and repurchase
of shares. Cash disbursements in 1994 included $77.1 million in
capital expenditures, $7.9 million in dividends and $16.0 million
in stock repurchases.
STOCKHOLDERS' EQUITY--From $22.8 million at the end of fiscal 1982,
shareholders' equity reached $166.0 million in 1994, primarily
through retained earnings. Cash returned to shareholders consisted
of cumulative dividends of $56.0 million since the initiation of a
regular quarterly payment in December 1985 and $74.5 million used
to purchase Company stock since the stock repurchase plan was
authorized in September 1988.
<PAGE>
Chart: At the end of fiscal 1994, the Company's equity totaled
$166.0 million. Through the repurchase of 3.3 million shares
beginning in 1988, shareholders' proportionate ownership has
increased by 24.1%. Cash flows have historically remained strong,
even in periods of declining earnings.
<TABLE>
EQUITY AND CASH FLOW FROM OPERATIONS IN MILLIONS OF DOLLARS
<CAPTION>
Cash Flow Equity
<S> <C> <C>
1984 $ 18 $ 45
1985 $ 33 $ 61
1986 $ 33 $ 94
1987 $ 47 $ 117
1988 $ 50 $ 137
1989 $ 56 $ 133
1990 $ 53 $ 152
1991 $ 54 $ 160
1992 $ 38 $ 172
1993 $ 40 $ 176
1994 $ 42 $ 166
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS
- -------------------
(Pictures: on this page is a picture of Alyn V. Essman captioned:
"Alyn V. Essman, CPI Chairman of the Board and Chief Executive
Officer.")
Although we would be quite reluctant to make a judgment this
soon, with the passage of time we may look back on 1994 as a
watershed year in CPI's history. Following a three-year pitched
competitive battle in which we were able to maintain market share
in our core portrait photography business, while concurrently
testing and developing new technology-based marketing programs, we
emerged with a greater customer base, recorded a turnaround in
previously declining segment sales and profits, and increased
satisfaction and motivation of our retail staff through good
customer service.
In so doing, we made enormous strides toward our goal--a near
revolution in the way we conduct our portrait business. In
attaining that goal, we will enter a different competitive arena,
moving from the price-driven, low-margin market segment to the
service-driven segment which encompasses more potential customers.
These customers, our research indicates, are likely to spend
substantially more for portraits and related products than those
attracted mainly by price, and therefore represent a greater profit
opportunity.
At the heart of this potentially dramatic transformation are two
intertwined factors that have long been key to CPI's success--the
application of new technology in the marketing of consumer services
and the dedicated performance of our retail associates.
As described in recent annual reports, for some time we have been
conducting extensive research in digital imaging technology as it
applies to our several businesses. In the past three years, a
special task force has focused intensely on our portrait studio
operations, exploring customer attitudes and concerns, and testing
a host of marketing approaches in an effort to satisfy customer
preferences identified by the research, particularly those related
to quality and selection. Using what we learned from these tests,
we have introduced new technology into the studio process in such
a way that allows the customer and the photographer to focus on her
child and on the quality of the portraits. The quality of that
experience, and its importance, has been proven by the uniformly
favorable response of our many customers, affirmed by the number
and nature of the orders they have placed, and by a heightened
sense of self-fulfillment witnessed in, and expressed by, our
employees.
Although the new technology is now operational in all of our U.S.
studios, and soon will be in Canada, we must take further steps
before we complete the repositioning and realize the full benefits
<PAGE>
of our new marketing program. The most important step involves a
significant improvement in the studio environment by upgrading the
physical facilities. With Sears' participation, we remodeled 160
locations in 1994, greatly increasing their size, improving their
functionality and enhancing their aesthetics. Our upgrade of the
remaining studios will be coordinated with Sears' schedule for
remodeling its stores, which spans the next four years. The new
environment, in conjunction with the cumulative experience and
continued training of our studio personnel in working with the new
technology, will allow us to optimize the customers' experience
during the crush of activity in the coming Christmas season.
Our Photofinishing segment has also experienced increasingly
strong competitive pressure in the past few years, as various types
of mass merchandisers have added one-hour photo processing
services, promoted at very low prices. Using the portrait studio
repositioning process as a strategic model, we are now
concentrating on ways to differentiate our photofinishing service
from that of these competitors. In mid-1994, we formed a new task
force, called the Strategic Imaging Group, with the objective of
developing programs that provide consumers new personalized options
in processing their film through the application of emerging
digital imaging technology. The task force is conducting tests
involving a variety of new technology-based marketing programs, and
although it is too early to form any precise conclusions, we are
hopeful that we can introduce program improvements in 1996.
The electronic publishing industry is, by definition, based on
digital imaging technology. Although our copy service stores have
all along offered some services using this technology, we are
examining ways to increase the scope of its applications to new
consumer and business services. To this end, in our Atlanta market
we have outfitted one store with additional state-of-the-art
equipment to offer such services, using lessons learned in our
Chicago pilot test location. Based on positive results from this
line extension, we are expanding selected elements of the program
to a location in each of our copy service markets.
In addition to these technology-based projects, we are committed
to the continuing aggressive rollout of our profitable Prints Plus
division. Based on the results we have seen thus far, plus the
gains in return that economies of scale should provide, an increase
of our investment in this business of up to twenty percent annually
will be warranted. We believe that Prints Plus has the potential to
become our third major operating segment.
Implementing these projects in our two major divisions will, of
course, require capital investments totaling many million dollars.
We have already committed to the basic portrait studio development,
and have recently increased its capital budget somewhat to provide
for further enhancements. If a thorough analysis of the
photofinishing project indicates that we would receive a good
return on that investment, we are also prepared to move forward
<PAGE>
there. Our balance sheet, combined with our ongoing cash flow,
affords us the financial strength to undertake these actions.
In the past we have invested resources in our business that,
while not of the same absolute magnitude, were proportionate to our
equity base at the time. Those investments have delivered more than
satisfactory returns in most instances. We are confident that,
following the same principles that supported those decisions, we
can continue to contribute to the long-term profitability of CPI
and to the lasting benefit of CPI shareholders.
April 17, 1995
/s/ Alyn V. Essman
Alyn V. Essman
Chart: In 1994, CPI made significant capital investments in new
technology, store remodeling and new store openings; repurchased
$16 million of common stock; and paid dividends total $7.9 million.
These activities were funded through cash flow and conversion of
short-term investments, plus beginning cash.
<TABLE>
1994 CASH SOURCES AND USES IN MILLIONS OF DOLLARS-CASH SOURCES
<CAPTION>
1994
<S> <C>
Beginning cash $ 36.1
Cash flows $ 42.5
Borrowings $ 6.5
Other $ 0.4
Short-term investments $ 34.3
</TABLE>
<TABLE>
1994 CASH SOURCES AND USES IN MILLIONS OF DOLLARS-USES OF CASH
<CAPTION>
1994
<S> <C>
Capital expenditures $ 77.1
Stock repurchase $ 16.0
Dividends $ 7.9
Other $ 0.4
Short-term investments $ 9.2
FYE '94 cash $ 9.2
</TABLE>
<PAGE>
SEARS PORTRAIT STUDIOS
- ----------------------
(Pictures: on this page is a picture of a young child with the
caption "CPI's major business is professional portrait photography
of babies, children, adults and family groups in 1,013 permanent
studios, which CPI operates in the U.S., Puerto Rico and Canada as
Sears' exclusive portrait photography concessionaire.")
THE PRE-SCHOOL PORTRAIT MARKET
The Company believes it is the largest participant in the over $1
billion portrait market of children under six years old. Although
earlier U.S. Census Bureau population projections predicted
declining preschool population through the year 2000, for the past
five years the birth rate has been above four million annually,
supporting what should be a strong market over the next several
years. It is worth noting that the greatest percentage increase is
in a segment of the market CPI believes to be the most active
purchasers of portraits. Moreover, the population of grandparents,
the most common recipients of photos, is growing as Americans live
longer. The Company gains access to the preschool market through
the children's mothers, who usually make the decision to purchase
portraits. The typical customer is a mother under 35 years old,
with one or two preschool children, and is a member of a
middle-income family. Research indicates that she values
photographers who are friendly and work well with children,
taking the time to make sure each photograph satisfies her needs.
CPI-SEARS RELATIONSHIP
CPI is Sears' exclusive portrait service and its leading
concessionaire, with the over 30-year relationship benefiting both
companies. Throughout this long period, CPI and Sears have worked
together in creating the mass portrait market, progressing from
traveling photographers to permanent studios, developing
pre-printed full-color portrait packages, and introducing services
based on state-of-the-art technology such as the new Portrait
Preview System(servicemark). As evidence of its ongoing
contributions and importance to Sears, CPI was again in 1994
awarded the prestigious "Partners in Progress" award, the tenth
such recognition in the past twelve years. Even more noteworthy,
Sears also honored CPI with the first "Chairman's Award" ever to be
awarded to a Sears Licensed Business, reflecting the significance
of the new ground-breaking, technology-based marketing program.
The trust and integrity that the Sears name confers is a powerful
asset in CPI's dealings with customers. Also, using Sears' daily
cash management and accounting systems offers CPI valuable control
mechanisms. Through its relationship with CPI, Sears enjoys
substantial license fees and significant additional advertising
exposure of the Sears name, with only minimal investment of its own
capital and management resources. Sears provides floor space and
basic services, while CPI recruits, trains and manages its own
personnel, develops and executes its own advertising and marketing
<PAGE>
plans, and makes its own investment in improvements, including all
studio furniture, equipment and fixtures. In 1994, CPI spent $40.8
million, representing 14.8% of sales, in advertising the Sears name
in connection with the portrait studios, primarily directed to
women with young children, a highly valued customer base for Sears.
CPI's marketing staff places much of its advertising under the same
low media rates that Sears pays.
(Pictures: on this page is a picture of the recently awarded
"Chairman's Award" with the following caption: "CPI was recently
honored by Sears with the first "Chairman's Award" ever to be
awarded to a Sears Licensed Business. The award, designated the
"1994 Product Development Source of the Year," recognized CPI's
accomplishment in developing and implementing the revolutionary
"Portrait Preview System," in which highly trained, very involved
associates employ state-of-the-art digital imaging technology to
provide clearly superior products and consumer services. Customer
response has been very enthusiastic, resulting in significant sales
increases in a year in which overall industry performance appears
to be relatively flat. In addition, there are also two other
pictures showing a customer with her child and pictures and a
customer, her child, an employee and the "Portrait Preview
System.")
RECENT DEVELOPMENTS
With CPI's Sears program as a model, competition in the U.S.
preschool photography market began increasing dramatically in 1990.
Concessionaires to other large chain retailers began converting
their traveling photography operations to permanent studios, while
also installing studios in new stores being opened by the
retailers. The expansion continued unabated through 1994, as the
number of permanent, directly competing studios increased from just
over 600 to about 2,500 over the five-year period. During the same
time span, the number of Sears studios in the U.S. increased only
from 840 to 894, including studios added in malls without a Sears
store.
The competitive expansion has been supported by increasingly
aggressive promotions offering more and more portraits at very low
prices, with the large advertised packages decreasing the
probability that a customer would purchase additional portraits,
thereby significantly capping the profit potential from additional
sales. In the face of such competition, CPI chose to respond with
aggressive promotional campaigns to maintain its leading position
in the preschool market. Concurrently, the Company began testing
and developing new technology-based marketing programs and new
products with the objective of attaining a significant, lasting
competitive advantage. It should be noted that from the very
beginning of this initiative, the architecture of the computer
system was designed to allow for expansion far into the future.
In mid-1992, CPI formed a full-time Studio Strategic Development
(SSD) Task Force and charged it with developing new strategies to
<PAGE>
allow the Sears Portrait Studios to better respond to customers'
desires. Extensive consumer research revealed that while some
portrait photography customers selected a studio solely on the
basis of a large number of portraits at a low price, there were
more customers who based their decision on factors such as portrait
quality, freedom of choice, prompt delivery, and a pleasant studio
environment. This larger group also indicated that they would
likely spend more on portraits than the price-oriented shoppers.
The SSD group, drawing on CPI's five-year experience in digital
imaging, embarked on an extensive series of marketing tests,
creating new tools and processes to provide customers with a more
rewarding, friendlier studio experience and developing new products
to heighten customer interest.
Based on positive results of these tests, conducted throughout
1993, the Company committed to the installation of new digital
imaging technology in all studios as the first phase in a five-year
upgrade program. The rollout in the U.S. studios, which was begun
in March 1994 and completed by the end of October, was supported by
the most comprehensive employee training program in CPI's history.
Charts: In the five years from the end of 1989 through 1994, the
number of Sears Portrait Studios in the U.S. increased by less than
7%, while the number of competitive permanent locations more than
quadrupled, primarily due to the conversion of traveling
photography operations to permanent studios.
<TABLE>
COMPARATIVE GROWTH OF PERMANENT STUDIO LOCATIONS FROM 1989 TO 1994
<CAPTION>
K-Mart JCPenney Wal-Mart Sears
<S> <C> <C> <C> <C>
1989 344 270 4 840
1990 461 350 10 867
1991 669 470 26 877
1992 1,040 500 190 885
1993 1,262 517 440 872
1994 1,375 541 581 894
</TABLE>
1994 OPERATING RESULTS
With the introduction of the new marketing programs, which were
enthusiastically received by customers and studio personnel alike,
portrait sittings were at an all-time record level, and sales
increased 15.8% to $275.5 million from the prior year's $237.9
million. Operating income was up 30.4%, totaling $39.1 million
versus $30.0 million, reversing a three-year decline, while
operating margin grew from 12.6% to 14.2%, the first year-to-year
increase since 1988.
<PAGE>
OUTLOOK
The new digital imaging technology provides ultimate flexibility
that enables the photographer to actively involve the customer in
selecting her favorite expressions and poses of her child. In this
process, the photographer is a creative partner working in the
interest of the customer. After the sitting, the customer can make
an immediate selection from the video screen or take home a set of
full-color proofs of the selected poses and order later. This
allows her to exercise her own opinion and choices, to clearly
understand her options in a comfortable environment and to share
her experiences with her friends and family. In 1994, the vast
majority of CPI's customers in the upgraded studios placed an order
at the time of the sitting.
To further enhance the total portrait experience, the Company is
significantly improving the functionality and ambiance of the
studios, increasing their size and installing new custom fixtures
and furniture. The decor features rich, vibrant colors, bold
graphics and dramatic lighting. A selection of fresh posing
backgrounds, new camera room lighting and new child-themed props
have also been added. Recognizing the importance of this endeavor,
Sears and CPI entered into a new 5-year licensing agreement and are
working together to coordinate the studio remodeling with Sears'
previously announced $4 billion capital expenditure program in
which the retailer is upgrading and remerchandising its stores.
In 1994, 160 studios were remodeled and nearly that many are
scheduled for 1995. The upgraded design will also be incorporated
in new studios located in fifteen to twenty new stores that Sears
will open or acquire in 1995, and about ten new studios in malls
that do not have a Sears store. Capacity will be further expanded
by the installation of additional camera rooms in existing studios
to meet increasing customer demand. The remaining 500-plus U.S.
locations will be completed in conjunction with the Sears
store-remodeling schedule. Installation of the new technology in
the Canadian studios will be accomplished by May 1995. By the end
of the decade, CPI's investment, including new technology,
training, studio remodeling, added enhancements and new locations,
will total over $125 million. The project is being funded from the
August 1993 private note placement, continuing cash flow from
operations, and short-term bank financing.
The Company anticipates further increases in portrait studio
contributions with the rollout of a new marketing approach, called
Custom Portraits by Sears, which was tested in three major markets
in 1994. The tests focused on the value-added market segment, and
resulted in increased sales. Under the new program, the customer--
free of any sales pressure--can select virtually any combination of
poses, sizes and backgrounds, and only the ordered portraits are
produced and delivered. Previously, additional portraits were
produced in the hope that the customer would purchase more than
just the advertised offer. Eliminating speculative production is
delivering significant savings in manufacturing costs.
<PAGE>
(Pictures: on this page are three pictures showing a remodeled
Sears Portrait Studio.)
Customer and employee response to the repositioning program has
been extremely positive, mainly due to the friendlier, low-stress
transaction. Full implementation of Custom Portraits by Sears,
including further intensive training of all supervisory and studio
personnel, is scheduled to be completed by June 1995. Then, with
the new program firmly in place, the studio division will be
well-prepared to serve the surge of customers during the
all-important 1995 holiday season. Management believes that the
positive studio experience could also lead to an increase in repeat
and referral customers, possibly permitting a reduction in
advertising expenses, further contributing to improved earnings.
In January 1995, in order to better facilitate the operating
transition, the eastern and western divisions of Sears Portrait
Studios were consolidated into a single operating unit capable of
responding to the industry's highly competitive environment in a
more sharply focused, timely manner. The restructuring will also
result in increased operating efficiencies compared to the previous
dual-divisional structure.
Although competition in the industry may very well continue at an
intense level in the foreseeable future, CPI management believes
that the Company's repositioned marketing activities, supported by
its financial strength, technological capability and emphasis on
enhanced customer service, will enable it to continue to build on
the studio segment's recent achievements and significantly increase
its contribution to overall profits.
<PAGE>
Charts: The Sears Portrait Studios have recorded a long history of
growth in total revenues as a result of added locations combined
with increases in average sales per location. Following a period of
declining results, due primarily to an increasingly competitive
environment, sales and operating margin improved somewhat in 1994
with the introduction of new marketing programs.
<TABLE>
REVENUE GROWTH IN MILLIONS OF DOLLARS
<CAPTION>
Dollars
<S> <C>
1984 $ 127
1985 $ 142
1986 $ 178
1987 $ 195
1988 $ 219
1989 $ 235
1990 $ 253
1991 $ 251
1992 $ 256
1993 $ 238
1994 $ 275
</TABLE>
<TABLE>
OPERATING EARNINGS AS A PERCENT OF SALES
<CAPTION>
Percent
<S> <C>
1984 24.0%
1985 26.7%
1986 27.0%
1987 27.7%
1988 28.2%
1989 26.7%
1990 25.1%
1991 23.1%
1992 18.9%
1993 12.6%
1994 14.2%
</TABLE>
<PAGE>
PHOTO FINISHING
- ---------------
(Pictures: on this page is a picture showing the various products
available at the Company's Photo Finishing stores: film, cameras,
enlargements, photo albums, frames, double picture prints or
reprints, personalized photo calendars and mugs.)
CPI, the nation's largest owner/operator of photofinishing
minilabs, entered the business in 1982 and, through a combination
of new store openings and acquisitions, has expanded the operation
to its present size and sales volume. The most significant
acquisition, that of Fox Photo, Inc. in 1991, added over 300
locations and almost doubled the size of the business. With
subsequent openings and acquisitions, including 25 Proex locations
in 1992 and 21 Fotomat labs in 1993, the segment's 1994 year-end
total stood at 660 locations.
THE MINILAB MARKET
In 1993, the most recent full year reported by the Photo Marketing
Association (PMA), total retail amateur photofinishing sales were
$5.5 billion, the same as in 1992. Stand-alone minilabs held a 25%
share, down slightly from the prior year's 26%, with revenues of
$1.4 billion. Total industry rolls processed increased by 2%, while
the stand-alone minilab segment's share declined to 15% from 16%.
Although 1994 totals are not yet available, PMA surveys indicate
that total industry roll processing continued to increase, with
preliminary results showing a gain of 3% for the first nine months
of the year.
In the past few years, the one-hour retail photofinishing industry
has become increasingly competitive as mass merchandisers,
supermarkets and drug store chains have added one-hour
photofinishing service. In 1992, each of these three segments
recorded slight gains in market share, although in 1993 only mass
merchandisers showed an increase. Wal-Mart and Eckerd Drug have
been especially active in expanding one-hour service, and Qualex
(Eastman Kodak's subsidiary), the dominant wholesale lab operator,
had by year-end 1994 placed over 1,400 one-hour microlabs in
supermarkets and mass merchant outlets throughout the nation.
As a partial consequence of this expansion, the industry has
undergone a consolidation process over the past several years. In
just the two-year 1992-93 period, specialty retailers--primarily
stand-alone minilab operators--closed about 1,500 locations, while
mass merchandise retailers opened a like number over the same
period. In the face of this increased competition, CPI's minilab
business has maintained sales levels, but suffered margin declines.
1994 OPERATING RESULTS
Over the past year, the division continued to maintain its market
share at the expense of profits. Revenues in 1994 increased to
$191.2 million from $187.2 million in 1993, as more significant
<PAGE>
growth was restricted by the increasingly competitive environment
in the industry. Operating earnings declined to $4.5 million from
$7.0 million, primarily because of the expense of two major
marketing tests, plus a slight shift in the sales mix from
photofinishing services into lower margin products, such as film,
cameras and accessories. As the division absorbed non-cash expenses
totaling $17.6 million in 1994, cash flow remained strong in spite
of the lower earnings.
(Pictures: on this page is a picture showing a sample of Photo
Finishing advertising of the new "Smart Color" technology.)
OUTLOOK
CPI is devoting significant marketing activities to increasing
revenues and gaining roll-processing market share from other
competing types of photofinishers. Beginning in 1993, tests were
conducted on a variety of new programs, each presenting a pricing
and operating strategy believed to be appropriate to the
competitive environment in a particular market. Based on trends
indicated by those still-ongoing tests, the programs were expanded
in 1994 to include additional markets. If test results prove to be
positive over the long term, the programs could be rolled out to
include most, if not all, high-competition markets.
Mid-year in 1994, a new task force called the Strategic Imaging
Group (SIG) was formed and charged with the objective--similar to
that previously given the portrait studio SSD group--of developing
applications of digital imaging technology to provide consumers
with new options in film processing. In particular, the task force
is looking to develop personalized services with strong customer
appeal, but which mass merchants, for various reasons, cannot offer
or choose not to offer. With the development of these programs, it
is hoped that the business can be repositioned relative to
competition in order to regain margin leadership.
Concurrent with these exploratory efforts, the division is
investing in new technology to enhance presently offered services.
New digital scanners, which improve product quality and customer
service, will be installed in about 400 of the division's locations
in 1995. The application of this new technology, which is totally
supportive of the programs being developed by the SIG task force,
is called "Smart Color."
In 1994, as in recent years, 34 minilabs were closed when, as their
leases came up for renewal, their long-term profit outlook was
judged to be marginal. During the same 1994 period, 17 new labs
were opened. Equipment from the closed locations was relocated to
the new minilabs. Plans call for opening approximately 10 new
minilabs in 1995, all in existing markets to take advantage of
economies of scale in advertising and field management.
In weighing these various considerations, management is looking
beyond the present competitive marketplace largely characterized by
<PAGE>
commodity pricing, and giving careful consideration to the rich
potential that could lead to the development of unique, innovative
product and service offerings.
Chart: Since 1983, revenues have grown from less than $6.0
million to $191.2 million in 1994
<TABLE>
CPI PHOTOFINISHING REVENUE GROWTH IN MILLIONS OF DOLLARS
<CAPTION>
Dollars
<S> <C>
1984 $ 28
1985 $ 41
1986 $ 51
1987 $ 61
1988 $ 69
1989 $ 76
1990 $ 82
1991 $ 121
1992 $ 169
1993 $ 187
1994 $ 191
</TABLE>
<PAGE>
WALL DECOR
- ----------
(Pictures: on this page is a picture of a Prints Plus retail
store.)
CPI's 1993 acquisition of Prints Plus represents a major
opportunity for the development of a third strong operating
segment. Prints Plus is the leading non-franchise posters, prints
and framing retailer in the U.S., operating 120 locations in prime
regional shopping malls throughout the country. It is a well-run
company with a strong, experienced management team whose
operational criteria and practices parallel those of CPI. As such,
the new business represents a good strategic fit with CPI's
existing capabilities and provides an opportunity for advantageous
investment of the Company's resources.
In 1994, the first full year following acquisition, Prints Plus
recorded sales of $49.9 million and produced operating earnings
totaling $5.5 million. Due to the seasonal nature of the wall decor
industry, a majority of the sales and profits are generated in the
fourth quarter surrounding the holiday season. Accordingly, it
should be pointed out that when making comparisons, the chain's
1994 improvement in earnings was actually greater than appeared,
since the 1993 earnings of $5.0 million did not include the early,
seasonally slow period. It is gratifying that the new business
turned in improving results almost immediately.
Each store displays an unparalleled selection of posters and prints
that reflects current decorating trends. While Prints Plus offers
products for all age groups, artistic taste among age groups and
geographic regions are different. Consequently, the merchandise mix
of each location is tailored to a customer profile for the area
that reflects trends, artistic tastes and buying characteristics
within each age group.
Marketing efforts thus far have centered on in-store programs
strongly supported by visual displays. Plans for 1995 include the
addition of direct mail test programs in selected markets, with the
objective of increased customer traffic. Implementation of these
new programs will be facilitated by the upgraded point-of-sale
system.
In providing framing service, Prints Plus offers a significant
advantage over most competitors. Prints Plus provides
"while-you-wait" custom framing for everyday value pricing that few
competitors can match. Based on recent consumer research, the
selection of frame styles and finishes is also being expanded.
With a strong, experienced Prints Plus management team in place,
CPI, in its first full year of operating its newest business,
immediately expanded the operation by adding a net of 18 new
<PAGE>
locations in 1994. Like the original stores, the additions are in
prime locations within regional malls, access to which is aided by
the Company's ongoing contacts with mall developers through its CPI
Photo Finish and Sears Portrait Studio divisions. Based on the
positive results Prints Plus has delivered to date, plus increasing
returns expected as a result of economies of scale, management
plans to increase investment in the business through the continuing
addition of new locations, funding the expansion with ongoing cash
flow.
<PAGE>
ELECTRONIC PUBLISHING
- ---------------------
(Pictures: on this page is a picture of two business people
holding a color banner produced by a large-format color printer at
one of the Company's electronic publishing stores.)
CPI entered the electronic publishing industry in the second
quarter of 1988 with the acquisition of a group of copy stores in
California. In the past five to ten years, the electronic
publishing business has evolved, through new technology, from
simple black-and-white photocopying into a wide range of services,
including digital color copying, binding and desktop publishing.
New locations have been added in California, and the division has
been expanded under CPI's proprietary Copy USA(trademark) identity
in Atlanta, Dallas and St. Louis.
1994 OPERATING RESULTS
Revenues in 1994 were $16.6 million, an increase of 5.0% over 1993,
as double-digit growth in the division's Copy USA stores offset
further decline in certain of the acquired CopyMat(trademark)
California locations, which continued to feel the effects of the
state's economic problems. Overall sales per store benefited by
the closure of four marginal locations. The division's operating
loss was reduced 8.3% due to increased operating efficiencies and
improving performance in the newer markets that more than offset
lower profits in the California stores.
OUTLOOK
Although the division, operating under a new management team, may
not reach profitability this year, losses should continue to
decline. Sales growth is anticipated in all markets, including
California, as a number of new programs tested in 1994 are
implemented. These include a highly focused direct mail program,
the addition of an outside sales force, an emphasis on color
through selected premium-quality jobs using a new generation of
color copiers and large-format color printers, and the addition of
special services developed in the Image Explosion(trademark) pilot
test in Chicago.
PROBING THE FUTURE OF DIGITAL IMAGING
In order to maintain a leadership position in all of its
businesses, CPI is investing in research and development in the
exploration of digital imaging technology. The Company is exploring
new consumer and business services that employ this technology to
scan, modify and print diverse graphic elements in the creation of
new composite graphics products. Two retail locations, called Image
Explosion(trademark), are operating in Chicago and Atlanta as pilot
tests in which staff designers assist customers in creative
projects. Three distinct markets are being addressed:
Businesses...
by providing full creative service in the design and production of
<PAGE>
high quality full-color brochures, slide presentations, posters and
other products that were previously too expensive or time consuming
using conventional production methods. This concept is especially
applicable to limited-quantity projects.
Graphics Professionals...
by providing technical and design assistance using state-of-the-art
workstations and output devices.
Consumers...
by scanning, modifying and combining photos, slides, drawings and
text to create personalized products, such as posters and greeting
cards, at affordable prices.
In addition to these services, which are likely to be primarily
appropriate to CPI's copy stores, other Image Explosion activities
will contribute to the conceptual development of new products and
services that can be better delivered to customers through the
Company's portrait studio or photofinishing operations. Given the
merging of technologies, it may also be that some services could be
common to all of these businesses through the overlap of customer
bases. In any event, CPI, with its understanding of ongoing
advances in imaging technology and its network of 1,800-plus stores
that are known for imaging services, will be at the forefront in
meeting consumer demand.
<PAGE>
FINANCIAL BACKGROUND AND TRENDS
- -------------------------------
In the planning, execution and evaluation of its long-term
strategies to maximize shareholder value, CPI management focuses
on:
* maximizing cash flow generated internally;
* reinvestment of a portion of excess cash into new and existing
businesses at a rate of return which exceeds the Company's
cost of capital.
* returning a portion of cash to shareholders through stock
repurchases and dividends.
* raising additional capital only when it can meet or exceed
shareholder return expectations.
The following comments should be used in conjunction with the table
below and the summary on page 16. (Page reference is for published
paper copy of the Annual Report. This summary shows 11 years of
financial history and is found at the end of the "Financial
Background and Trends" section and before the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" section.)
THE TRANSITION FROM PAST PERFORMANCE TO THE FUTURE
During the past decade, there have been numerous changes in the
overall business environment, as well as in CPI's capital structure
and business strategies. CPI's 10-year performance was
characterized by double-digit growth rates in sales, total assets
and total equity. That time period reflected the analysis of new
business opportunities; the investment of cash flow to fund
expansion; management's resolve to offset competition; and a
program to protect and strengthen its market franchise. During that
period, profit margins on continuing operations averaged 7.2%,
return on assets averaged 15.1% and return on equity averaged
23.4%.
<TABLE>
GROWTH RATE
<CAPTION>
1984-1993 1984-90 1991-93 1994
<S> <C> <C> <C> <C>
Sales 13.7% 16.1% 8.3% 12.1%
Total assets 17.8% 20.5% 11.8% -1.7%
Total equity 17.7% 23.7% 5.0% -5.4%
</TABLE>
<PAGE>
<TABLE>
AVERAGE NET RETURNS
<CAPTION>
1984-1993 1984-90 1991-93* 1994
<S> <C> <C> <C> <C>
Sales 7.2% 8.2% 4.6% 2.8%
Total assets 15.1% 17.8% 8.9% 4.8%
Total equity 23.4% 27.9% 12.8% 8.4%
<FN>
* Excluding $2.1 million credit for 1993 accounting change
</FN>
</TABLE>
<TABLE>
5-YEAR REVENUE GROWTH IN MILLIONS OF DOLLARS
<CAPTION>
Portrait Photo- Wall
Studios finishing Decor Other
<S> <C> <C> <C> <C>
1990 $ 279.1 $ 81.6 $ -- $ 13.2
1991 $ 279.0 $ 121.4 $ -- $ 14.1
1992 $ 264.4 $ 169.2 $ -- $ 15.8
1993 $ 237.9 $ 187.2 $ 34.6 $ 15.8
1994 $ 275.5 $ 191.2 $ 49.9 $ 16.6
</TABLE>
Caption on the above chart:
- -1994 marked a reversal in Portrait Studio revenue decline with
annual gain of 15.8%.
- -New Wall Decor segment accounted for most of the balance of 1994
growth.
- -Upward trend in overall revenues expected to continue in 1995.
<PAGE>
<TABLE>
EARNINGS* AND DIVIDENDS PER SHARE
<CAPTION>
Earnings
Per Share Dividends
<S> <C> <C>
1990 $ 2.19 $ 0.50
1991 $ 1.80 $ 0.56
1992 $ 1.54 $ 0.56
1993 $ 0.76* $ 0.56
1994 $ 1.05 $ 0.56
<FN>
*Excluding $2.1 million credit for 1993 accounting change
</FN>
</TABLE>
Caption on the above chart:
- -Earnings per share increased 38.2% to $1.05 in 1994, reversing a
three-year decline.
- -CPI maintained a constant dividend of $0.56 since 1991.
- -With improving profitability, long-term dividend payout ratio
should return to less than 40% of earnings.
<TABLE>
RETURN ON EQUITY*
<CAPTION>
Return on
Equity*
<S> <C>
1990 $ 25.3%
1991 $ 17.9%
1992 $ 14.1%
1993 $ 6.5%*
1994 $ 8.4%
<FN>
*Excluding $2.1 million credit for 1993 accounting change
</FN>
</TABLE>
Caption on the above chart:
- -Return on equity turned up in 1994 to approximately 8.4%.
- -Management believes that ROE will return to double-digit level as
a result of new marketing programs and reinvestment of cash flows
in expanding operations.
<PAGE>
1984-1990--HIGH GROWTH, HIGH PROFIT
The period between 1984 and 1990 was one of rapid and profitable
growth, driven by aggressive expansion of Sears Portrait Studios
and the rapid development of the Photofinishing segment. During
this seven-year period, sales grew at a compound rate of 16.1% and
net margins increased to an average of 8.2%. CPI's average returns
on assets and equity, of 17.8% and 27.9% respectively, were well
above the 10-year averages. Earnings per share also increased at a
compound annual rate of 18% to $2.19 from $0.69.
1991-1993--EXPLOSIVE GROWTH IN PORTRAIT STUDIO COMPETITION
The years 1991 through 1993 marked the advent of explosive growth
in portrait studio competition. Facing new competitive pressures in
its core business, the Company continued to fund development
projects, make acquisitions, expand the Photofinishing segment and
repurchase stock. Declining profit margins in Portrait Studios were
mainly responsible for lower average growth rates and returns. For
the three-year period, sales compounded at an 8.3% rate, largely
due to acquisitions. Growth of total assets averaged 11.8% and
equity grew at a more modest rate of 5.0%. Equity growth would
have averaged 7.8% if the Company had not purchased 623,000 shares
of stock. Net profit margins averaged 4.6% (excluding $2.1 million
credit for 1993 accounting change) of sales. The adverse business
environment resulted in a decline in net earnings to $0.76 per
share in 1993 from $2.19 per share in 1990.
During this same period, cumulative operating cash flow was $131.9
million. Combined with $60.0 million from a private placement of
notes, the Company financed $108.9 million in acquisitions, $65.9
million in capital expenditures, $24.8 million in cash dividends,
and $14.7 million in stock repurchases, leaving $66.4 million in
cash, cash equivalents and short-term investments and a modest debt
ratio of 34.1%.
1994--THE EARLY STAGES OF A REBOUND
Although still faced with competitive challenges in its two main
businesses, CPI produced the first annual earnings gain in four
years, driven mainly by improved sales and profitability in
portrait studios. The associated charts on these two pages
illustrate the Company's transition over the past several years,
with increasing resources being focused on expansion of the new
portrait studio photography system and further development of the
Prints Plus retail concept, both of which can be expected to
contribute to increasing profit margins in the years ahead. The
Company remains committed to improving profitability in
Photofinishing.
<PAGE>
<TABLE>
IDENTIFIABLE ASSETS IN MILLIONS OF DOLLARS
<CAPTION>
Portrait Photo- Wall
Studios finishing Decor Other Cash* Corp.
<S> <C> <C> <C> <C> <C> <C>
1990 $ 53.0 $ 46.2 $ -- $ 13.5 $ 88.3 $ 17.7
1991 $ 54.0 $ 115.1 $ -- $ 13.8 $ 31.2 $ 24.7
1992 $ 49.4 $ 133.2 $ -- $ 12.6 $ 21.0 $ 21.7
1993 $ 62.7 $ 125.0 $ 20.2 $ 11.3 $ 66.4 $ 20.2
1994 $ 110.9 $ 118.6 $ 27.1 $ 11.1 $ 14.3 $ 18.4
<FN>
* Cash, cash equivalents and short-term investments
</FN>
</TABLE>
Caption on the above chart:
- -Growth in Portrait Studios continued in 1994, with further
expansion ahead.
- -Prints Plus (Wall Decor) will continue to receive additional
resources.
<TABLE>
CAPITAL EXPENDITURES IN MILLIONS OF DOLLARS
<CAPTION>
Portrait Photo- Wall
Studios finishing Decor Other Corp.
<S> <C> <C> <C> <C> <C>
1990 $ 7.1 $ 5.5 $ -- $ 3.0 $ 4.6
1991 $ 8.9 $ 23.9 $ -- $ 2.5 $ 5.3
1992 $ 2.4 $ 18.7 $ -- $ 1.6 $ 4.6
1993 $ 19.0 $ 10.1 $ 14.1 $ 1.6 $ 0.6
1994 $ 57.3 $ 10.3 $ 8.0 $ 2.4 $ 0.9
</TABLE>
Caption on the above chart:
- -Although Portrait Studios and Prints Plus (Wall Decor) now command
the majority of capital expenditures, Photofinishing will also
increase with addition of new technology.
<PAGE>
<TABLE>
WEIGHTED AVERAGE SHARES OUTSTANDING IN MILLIONS
<CAPTION>
Shares
Outstanding
<S> <C>
1990 $ 15.4
1991 $ 15.1
1992 $ 14.7
1993 $ 14.7
1994 $ 14.1
</TABLE>
Caption on the above chart:
- -To date, 3.3 million shares have been repurchased since 1988,
leaving 1.2 million shares available under the current authorized
program.
- -Management will continue to repurchase shares as appropriate to
return excess cash to shareholders.
<PAGE>
<TABLE>
Selected Financial Data From 1994-1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Per Share:
Sales $ 37.81 $ 32.42 $ 30.62
Assets 21.93 20.92 16.25
Equity 12.12 12.01 11.75
Earnings 1.05 0.90 1.54
Dividends 0.56 0.56 0.56
Prices: high 21.88 20.75 26.38
low 13.88 13.88 15.00
P/E range: high 20.83 23.06 17.13
low 13.21 15.42 9.74
Dividend yield 3.13% 3.23% 2.71%
Income Data (million $):
Net sales $533.2 $475.5 $449.4
Income from operations 27.4 18.8 34.8
Net interest & other income(expense) (3.9) (0.3) 1.7
Pre-tax earnings 23.5 18.5 36.5
Income taxes 8.7 7.4 13.9
Earnings before accounting change 14.8 11.1 22.6
Accounting change - 2.1 -
Net earnings from
continuing operations $ 14.8 $ 13.2 $ 22.6
Avg. shares outstanding
(in million shares) 14.1 14.7 14.7
Balance Sheet (million $):
Current assets $ 82.0 $127.8 $ 73.2
Cash and equivalents 9.2 36.1 21.0
Net fixed assets 159.1 114.3 97.6
Total assets $300.5 $305.8 $237.8
Employed assets 291.3 269.7 216.8
Current liabilities 69.8 65.2 56.8
Long-term debt 59.7 59.8 0.3
Stockholders' equity 166.0 175.5 171.9
Employed equity 156.8 139.4 151.0
Funds Flow Data (million $):
From operations $ 42.4 $ 39.7 $ 38.1
Used for investments (52.0) (75.4) (35.6)
From (used for) financing (15.3) 51.6 (10.2)
Effect of exchange rate changes (0.3) (0.8) (1.3)
Change in cash & cash equivalents (26.9) 15.1 (9.0)
Capital expenditures*
(excluding acquisitions) 77.1 30.4 13.3
Acquisitions* - 14.7 23.9
Ratio Analysis:
Net margin (1) 2.8 2.8 5.0
Asset turnover (2)** 1.74x 2.00x 1.88x
Return on assets (3)** 4.84% 5.56% 9.46%
Financial leverage (4)** 1.74x 1.38x 1.49x
Return on equity (5)** 8.42% 7.67% 14.10%
Retention rate (6) 0.465 0.381 0.637
Implied growth rate (7) 3.92% 2.92% 8.98%
<FN>
* To maintain capacity
** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1992-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
<TABLE>
Selected Financial Data From 1991-1989
<CAPTION>
1991 1990 1989
<S> <C> <C> <C>
Per Share:
Sales $ 27.44 $ 24.31 $ 22.33
Assets 16.25 14.48 12.74
Equity 10.90 10.04 8.63
Earnings 1.80 2.19 1.97
Dividends 0.56 0.50 0.42
Prices: high 34.75 32.88 33.88
low 21.88 24.25 21.00
P/E range: high 19.31 15.01 18.51
low 12.15 11.07 11.48
Dividend yield 1.98% 1.75% 1.53%
Income Data (million $):
Net sales $414.5 $373.9 $350.5
Income from operations 39.2 47.0 42.7
Net interest & other income(expense) 4.1 6.5 5.6
Pre-tax earnings 43.3 53.5 48.3
Income taxes 16.2 19.9 17.4
Earnings before accounting change 27.1 33.6 30.9
Accounting change - - -
Net earnings from
continuing operations $ 27.1 $ 33.6 $ 30.9
Avg. shares outstanding
(in million shares) 15.1 15.4 15.7
Balance Sheet (million $):
Current assets $ 83.6 $130.2 $106.4
Cash and equivalents 30.0 84.5 68.7
Net fixed assets 97.7 80.7 81.4
Total assets $238.9 $218.7 $196.5
Employed assets 208.9 134.2 127.8
Current liabilities 67.0 51.4 47.8
Long-term debt 0.6 0.5 0.3
Stockholders' equity 160.3 151.7 133.1
Employed equity 130.3 67.3 64.4
Funds Flow Data (million $):
From operations $ 54.1 $ 53.0 $ 55.9
Used for investments (89.7) (22.2) (17.6)
From (used for) financing (18.7) (15.3) (32.1)
Effect of exchange rate changes (0.2) 0.3 -
Change in cash & cash equivalents (54.5) 15.8 6.2
Capital expenditures*
(excluding acquisitions) 22.3 18.1 21.1
Acquisitions* 70.2 1.2 0.8
Ratio Analysis:
Net margin (1) 6.5 9.0 8.8
Asset turnover (2)** 1.90x 1.90x 1.78x
Return on assets (3)** 12.35% 17.10% 15.66%
Financial leverage (4)** 1.44x 1.48x 1.44x
Return on equity (5)** 17.78% 25.31% 25.55%
Retention rate (6) 0.689 0.773 0.771
Implied growth rate (7) 12.25% 19.57% 17.39%
<FN>
* To maintain capacity
** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1992-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
<TABLE>
Selected Financial Data From 1988-1986
<CAPTION>
1988 1987 1986
<S> <C> <C> <C>
Per Share:
Sales $ 19.02 $ 16.92 $ 15.50
Assets 12.03 10.14 8.45
Equity 8.34 7.02 5.69
Earnings 1.91 1.54 1.18
Dividends 0.25 0.165 0.085
Prices: high 22.25 27.75 21.88
low 17.25 12.75 11.88
P/E range: high 12.29 19.01 19.71
low 9.53 8.73 10.70
Dividend yield 1.27% 0.81% 0.50%
Income Data (million $):
Net sales $318.1 $283.2 $254.4
Income from operations 47.0 43.0 38.3
Net interest & other income(expense) 5.7 3.2 1.0
Pre-tax earnings 52.7 46.2 39.3
Income taxes 20.8 20.4 19.9
Earnings before accounting change 31.9 25.8 19.4
Accounting change - - -
Net earnings from
continuing operations $ 31.9 $ 25.8 $ 19.4
Avg. shares outstanding
(in million shares) 16.7 16.7 16.4
Balance Sheet (million $):
Current assets $104.5 $ 90.5 $ 60.2
Cash and equivalents 62.5 53.1 29.5
Net fixed assets 78.0 68.8 68.0
Total assets $197.0 $168.7 $139.3
Employed assets 134.5 115.6 109.7
Current liabilities 47.3 39.9 36.1
Long-term debt 0.5 0.2 0.4
Stockholders' equity 136.6 116.7 93.8
Employed equity 74.1 63.7 64.2
Funds Flow Data (million $):
From operations $ 49.7 $ 47.4 $ 32.7
Used for investments (30.9) (23.3) (30.6)
From (used for) financing (9.7) (0.7) 12.7
Effect of exchange rate changes 0.4 0.1 0.1
Change in cash & cash equivalents 9.5 23.5 14.9
Capital expenditures*
(excluding acquisitions) 19.3 13.6 16.4
Acquisitions* 11.0 3.2 15.5
Ratio Analysis:
Net margin (1) 10.0 9.1 7.6
Asset turnover (2)** 1.89x 2.03x 2.58x
Return on assets (3)** 18.90% 18.47% 19.61%
Financial leverage (4)** 1.44x 1.49x 1.61x
Return on equity (5)** 27.22% 27.52% 31.57%
Retention rate (6) 0.863 0.888 0.924
Implied growth rate (7) 23.52% 24.44% 29.17%
<FN>
* To maintain capacity
** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1992-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
<TABLE>
Selected Financial Data From 1985-1984
<CAPTION>
1985 1984
<S> <C> <C>
Per Share:
Sales $ 12.85 $ 10.98
Assets 6.47 5.33
Equity 4.01 2.95
Earnings 0.90 0.67
Dividends 0.050 -
Prices: high 12.75 11.88
low 7.88 7.06
P/E range: high 14.17 17.73
low 8.76 10.54
Dividend yield 0.48% -
Income Data (million $):
Net sales $198.3 $168.9
Income from operations 26.7 19.1
Net interest & other income(expense) 0.2 (0.7)
Pre-tax earnings 26.9 18.4
Income taxes 13.0 8.1
Earnings before accounting change 13.9 10.3
Accounting change - -
Net earnings from
continuing operations $ 13.9 $ 10.3
Avg. shares outstanding
(in million shares) 15.4 15.4
Balance Sheet (million $):
Current assets $ 36.6 $ 21.5
Cash and equivalents 14.7 2.0
Net fixed assets 55.6 51.9
Total assets $ 98.7 $ 80.5
Employed assets 84.1 78.5
Current liabilities 30.5 31.1
Long-term debt 0.4 0.7
Stockholders' equity 61.2 44.6
Employed equity 46.5 42.6
Funds Flow Data (million $):
From operations $ 33.2 $ 17.9
Used for investments (13.8) (37.1)
From (used for) financing (6.6) 7.9
Effect of exchange rate changes (0.1) -
Change in cash & cash equivalents 12.7 (11.3)
Capital expenditures*
(excluding acquisitions) 9.8 14.9
Acquisitions* 3.9 23.2
Ratio Analysis:
Net margin (1) 7.0 6.1
Asset turnover (2)** 2.46x 2.84x
Return on assets (3)** 17.22% 17.32%
Financial leverage (4)** 1.81x 1.73x
Return on equity (5)** 31.17% 29.96%
Retention rate (6) 0.945 1.00
Implied growth rate (7) 29.46% 29.96%
<FN>
* To maintain capacity
** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1992-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The Company's four business segments are Portrait Studios,
Photofinishing, Wall Decor and Other Products and Services. The
Other Products and Services segment consists primarily of the
electronic publishing operations. To establish a framework for
discussion, financial data has been selected which summarizes the
Company's operating results for fiscal years 1994, 1993 and 1992.
The 1992 fiscal year ended February 6, 1993 included a 53 week
period, whereas fiscal years 1994 and 1993, ended February 4, 1995
and February 5, 1994, respectively, covered 52 week periods.
<PAGE>
<TABLE>
Selected Financial Data
1994 Versus 1993
(In thousands except per share amounts)
<CAPTION>
FY 1994 Amount Percent FY 1993
52 Weeks Change Change 52 Weeks
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
Net sales:
Portrait Studios $ 275,477 $ 37,540 15.8% $ 237,937
Photofinishing 191,187 3,977 2.1 187,210
Wall Decor 49,944 15,331 44.3 34,613
Other Products and
Services 16,547 787 5.0 15,760
---------- --------- ----------
Total net sales $ 533,155 $ 57,635 12.1% $ 475,520
========== ========= ==========
Operating earnings:
Portrait Studios $ 39,073 $ 9,103 30.4% $ 29,970
Photofinishing 4,571 (2,401) (34.4) 6,972
Wall Decor 5,491 510 10.2 4,981
Other Products and
Services (3,519) 320 8.3 (3,839)
---------- --------- ----------
Total operating
earnings 45,616 7,532 19.8 38,084
General corporate
expenses 18,223 (324) (1.8) 17,899
Severance and early
retirement benefits - 1,400 100.0 1,400
---------- --------- ----------
Income from operations 27,393 8,608 45.8 18,785
Net interest income
(expense) (4,339) (3,550) (449.9) (789)
Other income 474 (50) (9.5) 524
---------- --------- ----------
Earnings before income
taxes and cumulative
effect of accounting
change 23,528 5,008 27.0 18,520
Income tax expense 8,706 1,302 17.6 7,404
---------- --------- ----------
Earnings before
cumulative effect of
accounting change 14,822 3,706 33.3 11,116
Cumulative effect of
accounting change - (2,120) (100.0) 2,120
---------- --------- ----------
Net earnings $ 14,822 $ 1,586 12.0% $ 13,236
========== ========= ==========
Earnings per common
share:
Earnings before
cumulative effect of
accounting change $ 1.05 $ 0.29 38.2% $ 0.76
Cumulative effect of
accounting change - (0.14) (100.0) 0.14
---------- --------- ----------
Net earnings $ 1.05 $ 0.15 16.7% $ 0.90
========== ========= ==========
Weighted average number
of common and common
equivalent shares
outstanding 14,101 (565) (3.9)% 14,666
========== ========= ==========
Dividends per share $ 0.56 $ - - $ 0.56
========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
Selected Financial Data
1993 Versus 1992
(In thousands except per share amounts)
<CAPTION>
FY 1993 Amount Percent FY 1992
52 Weeks Change Change 53 Weeks
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net sales:
Portrait Studios $ 237,937 $(26,421) (10.0)% $ 264,358
Photofinishing 187,210 18,014 10.6 169,196
Wall Decor 34,613 34,613 100.0 -
Other Products and
Services 15,760 (66) 0.4 15,826
---------- --------- ----------
Total net sales $ 475,520 $ 26,140 5.8% $ 449,380
========== ========= ==========
Operating earnings:
Portrait Studios $ 29,970 $(18,471) 38.1% $ 48,441
Photofinishing 6,972 (2,637) (27.4) 9,609
Wall Decor 4,981 4,981 100.0 -
Other Products and
Services (3,839) 294 7.1 (4,133)
---------- --------- ----------
Total operating
earnings 38,084 (15,833) (29.4) 53,917
General corporate
expenses 17,899 1,183 6.2 19,082
Severance and early
retirement benefits 1,400 (1,400) (100.0) -
---------- --------- ----------
Income from operations 18,785 (16,050) (46.1) 34,835
Net interest income
(expense) (789) (1,803) (177.8) 1,014
Other income 524 (150) (22.3) 674
---------- --------- ----------
Earnings before income
taxes and cumulative
effect of accounting
change 18,520 (18,003) (49.3) 36,523
Income tax expense 7,404 (6,504) (46.3) 13,908
---------- --------- ----------
Earnings before
cumulative effect of
accounting change 11,116 (11,499) (50.8) 22,615
Cumulative effect of
accounting change 2,120 2,120 100.0 -
---------- --------- ----------
Net earnings $ 13,236 $ (9,379) (41.5)% $ 22,615
========== ========= ==========
Earnings per common
share:
Earnings before
cumulative effect of
accounting change $ 0.76 $ (0.78) (50.6)% $ 1.54
Cumulative effect of
accounting change 0.14 0.14 100.0 -
---------- --------- ----------
Net earnings $ 0.90 $ (0.64) (41.6)% $ 1.54
========== ========= ==========
Weighted average number
of common and common
equivalent shares
outstanding 14,666 (10) (0.1)% 14,676
========== ========= ==========
Dividends per share $ 0.56 $ - - $ 0.56
========== ========= ==========
</TABLE>
<PAGE>
Two significant events that affected operating results in the last
two fiscal years are described as follows:
STUDIO ENHANCEMENT PROGRAM
In March 1994, the Company announced a five-year studio enhancement
program to provide customers an improved level of service at Sears
Portrait Studios. This program includes the introduction of a new
freeze-frame digital imaging camera system, which allows both the
photographer and the customer to view images and provides for the
capability of providing color proofs to customers at the time of
photography; the installation of new backgrounds, lighting
equipment and props; the enlargement and renovation of studios; and
the implementation of a new point-of-sale system. The program is
designed to enhance the quality of the experience and the
photographic portraits available to customers.
The estimated cost of the studio enhancement program has been
increased to $125 million, with $54.9 million spent in 1994 and
$71.4 million spent to date. The new camera system installation,
which is expected to cost $62.2 million, was completed in all U.S.
Sears Portrait Studios by September 1994 and will be completed in
the Canadian operation by June 1995. The studio enlargement and
renovation program, with an expected cost of $42.3 million, is
approximately 16.4% completed. The new point-of-sales system has
been installed in all studios at a cost of $9.5 million and other
various enhancements, with an estimated cost of $11.0 million, are
approximately 46.2% completed. Portrait Studio depreciation expense
has increased $5.8 million in 1994 over 1993 levels due primarily
to the studio enhancement program and is expected to increase an
additional $5.4 million in 1995.
PRINTS PLUS ACQUISITION
On May 30, 1993, the Company acquired Prints Plus, a wall decor
chain, from Melville Corporation for approximately $14.7 million.
The acquired chain, which included 103 stores located in malls
throughout the United States, operates a retail business selling
prints, posters and custom framing. The acquisition was recorded
using the purchase method of accounting and, accordingly, the
results of operations have been included in the Company's
consolidated financial statements effective May 30, 1993.
RESULTS OF OPERATIONS
REVENUES
Sales increased 12.1% to $533.2 million in 1994 from $475.5 million
in 1993, as each business segment recorded higher sales. Portrait
Studios contributed substantially to the sales increase, reaching
record levels and reversing a three-year decline. The newly
acquired Wall Decor segment also contributed a major share of the
<PAGE>
sales increase, advancing 44.3% to $49.9 million in 1994, due
primarily to the inclusion of an entire year's sales in current
year results and to sales added from the net addition of 18 new
locations during 1994. Both Photofinishing and Other Products and
Services segments had modest sales improvement during 1994. The
5.8% sales increase in 1993 over 1992 sales of $449.4 million was
mainly due to the sales added from the acquired Prints Plus and
Proex operations. The increase was partially offset by one less
week of sales in 1993 and by a decline in Portrait Studio sales
attributable to lower comparable sales in the Sears Portrait Studio
operation and the discontinued sales from the Wal-Mart traveling
studio business and Portraits of Distinction studios. Combined
sales from the Wal-Mart traveling studio business and the Portraits
of Distinction studios amounted to $7.3 million in 1992, the year
the Company completed its withdrawal from these businesses.
Portrait Studio sales were $275.5 million, $237.9 million and
$264.4 million for fiscal years 1994, 1993 and 1992, respectively,
increasing 15.8% in 1994 after declining 10.0% in 1993. The Company
believes the installation of the new digital imaging camera system
in all U.S. Sears Portrait Studios played a major role in increased
sales in 1994. Customer response through increased sittings and
higher customer sales averages helped to push sales to record
levels in U.S. Sears Portrait Studios. Additionally, the sales
process was accelerated in 1994 to the time of photography, since
most customers now approve proofs and order portraits from the new
freeze-frame video monitors during the photography session rather
than at time of delivery of portraits. Portrait Studio sales
declined 10.0% to $237.9 million in 1993 from $264.4 million in
1992. Factors contributing to this decline included: the withdrawal
from the Wal-Mart traveling and the Portraits of Distinction
businesses, which had sales of $7.3 million in 1992; 52 weeks of
sales in 1993 as compared to 53 weeks in 1992; the closing of 42
portrait studios due primarily to Sears store closings in 1993 and
aggressive pricing in a highly competitive marketplace, which
resulted in a lower customer sales average. During the 1993 fiscal
year, the Company held its market share in terms of customers
photographed and opened 33 portrait studios, 29 of which are
located outside of Sears stores.
Photofinishing sales rose 2.1% in 1994 to $191.2 million from
$187.2 million in 1993, following a 10.6% gain from $169.2 million
in 1992. Photofinishing includes the sales and operating results of
CPI Photo Finish and Fox Photo, and Proex since its acquisition in
December 1992. Small increases in roll volume and average sales per
roll accounted for the small sales increase in the 1994 fiscal year
as compared to the previous year. Inclusion of the full-year sales
of the acquired Proex operation accounted for approximately half of
the sales gain in 1993 as compared to 1992.
Sales of the Wall Decor segment, operating under the trade names
"Prints Plus" and "Prints and Posters," were $49.9 million in 1994
and $34.6 million in 1993. The Wall Decor segment was acquired on
<PAGE>
May 30, 1993, and sales and operating results are included as of
that date. Wall Decor sales in 1994 include the full-year results
of the acquired operation. Additionally, the Company opened a net
of 18 new locations during 1994 which contributed to the sales
increase.
The Other Products and Services segment includes the electronic
publishing business which operates under three trade names, Copy
Mat, Copy USA and Image Explosion. Sales were $16.5 million, $15.8
million and $15.8 million in fiscal years 1994, 1993 and 1992,
respectively. The sales increase in 1994 can be attributed to the
inclusion of the Image Explosion unit in consolidated results.
Before 1994, the Company was a minority owner of Imageland, the
predecessor to Image Explosion, and accounted for its results under
the equity method of accounting.
OPERATING INCOME
Income from operations increased 45.8% to $27.4 million in 1994,
reversing a three-year decline in operating income. The turnaround
in operating income is primarily due to increased Portrait Studio
and Wall Decor operating earnings and the absence of the $1.4
million provision for severance and early retirement benefits
recorded in 1994, partially offset by a decline in Photofinishing
operating earnings. Income from operations declined 46.1% in 1993
to $18.8 million from $34.8 million in 1992 primarily due to a
38.1% reduction in Portrait Studio operating earnings.
Portrait Studio operating earnings were $39.1 million, $30.0
million and $48.4 million with operating margins of 14.2%, 12.6%
and 18.3% for fiscal years 1994, 1993 and 1992, respectively. The
Company believes the installation of the new freeze-frame digital
imaging system played a major role in the increased operating
earnings in 1994 as customer response, through increased numbers of
portrait sittings and higher sales averages, has validated the
earlier tests of the system. The new photography system was
installed in all U.S. Sears Portrait Studios by September 1994 and
is scheduled to be installed in the remaining Canadian locations by
June 1995. With the new photography system, the Company is able to
substantially reduce the number of portraits produced since the
customers now approve proofs and order portraits at the time of
photography rather than evaluating and selecting portraits from the
finished products. While the Company received some benefit in
1994 for the reduction in the number of portraits produced, a
further reduction is expected in 1995. Additionally, the Company
has been able to sell color proof sheets to some customers, which
has led to higher average sales per customer. However, as a result
of the new photography system, depreciation costs increased $5.8
million and training costs increased $870,000 in 1994 over the
prior year. Taken together, these factors contributed to improved
operating margins in 1994 for the Portrait Studio operation
reversing several years of margin declines. In an effort to
maintain market share, the Company had aggressively priced products
<PAGE>
and increased content in advertised promotions, which led to a
deterioration of profit margins in both fiscal year 1993 and 1992.
Additionally, in fiscal year 1993, operating earnings were
penalized by the extensive testing of products, services and
pricing in an effort to better understand customer needs.
Photofinishing operating earnings declined 34.4% in 1994 to $4.6
million after declining 27.4% in 1993 to $7.0 million from $9.6
million in 1992. The two-year decline in operating earnings
resulted primarily from the competitive pricing of photographic
prints and processing services. Additionally, operating earnings in
1994 were penalized by two marketing tests, which together
accounted for $1.6 million of the decline in operating earnings as
compared to the prior year.
The newly acquired wall decor operation has contributed to
operating earnings with $5.5 million in 1994, the first full year
with the Company, and $5.0 million in 1993. Traditionally, the wall
decor business is seasonally slow in the earlier quarters of the
year, with a majority of sales generated during the fourth quarter
surrounding the holiday season. For this reason, the 1993 earnings
were disproportionately high due to the partial-year inclusion of
the new wall decor operation, which was acquired during the second
fiscal quarter.
NET EARNINGS
Net earnings increased 12.0% to $14.8 million in 1994 due primarily
to increased operating earnings, reduced corporate expenses and the
absence of the $1.4 million charge for severance and early
retirement benefits recorded in 1993, partially offset by higher
interest expense. Additionally, fiscal year 1993 included a $2.1
million cumulative benefit from a change in accounting principles
discussed below under Income Taxes. Earnings before the cumulative
effect of the accounting change increased 33.3% in fiscal year
1994. In 1993, net earnings declined 41.5% to $13.2 million, with
net earnings before the benefit of the accounting change declining
50.8% to $11.1 million from $22.6 million in 1992. A decline in
operating income in 1993 was a major factor in the earnings
decline. Interest expense has increased substantially in the last
two fiscal years due to increased borrowings to fund the Company's
capital expenditure programs, the Prints Plus and Proex
acquisitions and the Company's stock repurchase program discussed
below. In fiscal year 1993, the Company entered into a $60.0
million long-term debt agreement, which has substantially increased
borrowing costs. The Company also entered into an interest rate
swap agreement which, due to the increase in short-term interest
rates, has resulted in an $860,000 charge to interest expense in
1994, after an $87,000 reduction in 1993. The swap agreement, which
expires on August 28, 1995, has been recorded at market value.
Earnings per share before the change in accounting principles were
$1.05, $0.76 and $1.54 for fiscal years 1994, 1993 and 1992,
<PAGE>
respectively. After the cumulative effect of the change in
accounting principles, net earnings were $0.90 in fiscal year 1993.
Earnings per share in fiscal year 1994 reflect a reduction in the
effective income tax rate and a reduction in the number of shares
outstanding as a result of the stock repurchase program.
INCOME TAXES
The effective income tax rate was 37.0% in 1994 compared to 40.0%
in 1993 and 38.1% in 1992. The decrease in the 1994 effective
income tax rate resulted primarily from an increase in targeted job
and foreign tax credits. The increase in the 1993 effective income
tax rate resulted primarily from an increase in nondeductible
amortization expense related to the intangible assets resulting
from acquisitions, the Omnibus Budget Reconciliation Act of 1993
and reduced tax credits from the restoration of the Company's
corporate headquarters. Net earnings in 1993 include a $2.1 million
cumulative benefit from a change in accounting principles. The
accounting change resulted from adoption of the provisions of
Statement of Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," on a prospective basis. In adopting SFAS No. 109,
the Company has changed its method of accounting for income taxes
from the deferred method to the asset and liability method.
LIQUIDITY AND CAPITAL RESOURCES
Total assets were $300.5 million, $305.8 million and $237.8 million
for fiscal years ending February 4, 1995, February 5, 1994 and
February 6, 1993, respectively. Cash and cash equivalents amounted
to $9.2 million, $36.1 million and $21.0 million representing 3.1%,
11.8% and 8.8% of total assets at the end of 1994, 1993 and 1992,
respectively. Working capital declined in 1994 to $12.2 million
from $62.6 million in 1993 due primarily to funds used in the
Company's capital expenditure programs.
The table below shows assets by line of business. Corporate assets
consist primarily of the Company's headquarters and surrounding
property, cash and marketable securities.
<PAGE>
<TABLE>
Identifiable Assets
(dollars in thousands)
<CAPTION>
1994 % Total 1993 % Total
<S> <C> <C> <C> <C>
Portrait Studios $110,890 36.9 % $ 62,694 20.5 %
Photofinishing 118,592 39.5 125,044 40.9
Wall Decor 27,094 9.0 20,215 6.6
Other Products and
Services 11,135 3.7 11,276 3.7
Corporate:
Cash and marketable
securities 14,350 4.8 66,356 21.7
Other 18,420 6.1 20,211 6.6
--------- ------- --------- -------
Total $300,481 100.0 % $305,796 100.0 %
========= ======= ========= =======
</TABLE>
On August 31, 1993, the Company entered into an agreement with two
insurance companies for the private placement of senior notes in
the amount of $60.0 million. The notes mature over a seven-year
period with an average maturity of 5.42 years, with the first
principal payment due August 31, 1996. Interest on the notes is
payable semi-annually at an average effective rate of 6.44%. The
Note Agreement requires the Company to maintain certain financial
ratios and to comply with certain restrictive covenants. Future
dividend payments could be restricted if the Company does not meet
certain earnings requirements. Additionally, the Company has
negotiated an increase in its revolving credit agreement to $50.0
million. Short-term borrowings amounted to $6.9 million on February
4, 1995, under the revolving credit agreement.
Stockholders' equity declined 5.4% to $166.0 million in 1994 after
increasing 2.1% to $175.5 million in 1993, net of treasury stock
repurchases of $16.0 million and $657,000 in 1994 and 1993,
respectively. The 3.5% decrease in stockholders' equity since 1992
is primarily due to treasury stock repurchases exceeding the
retained earnings increases of $11.9 million after consideration of
dividends. On September 28, 1988, the Company's Board of Directors
authorized the Company to purchase up to 2,500,000 shares of CPI
Corp. common stock. On April 2, 1992, the Company's Board of
Directors authorized the purchase of an additional 2,000,000 shares
of CPI Corp. common stock. Under its stock repurchase program, the
Company has acquired 3,302,463 shares for $74.5 million as of
February 4, 1995. In fiscal years 1994, 1993 and 1992, 938,655
shares, 40,655 shares and 101,210 shares were purchased for $16.0
million, $657,000 and $2.3 million, respectively.
<PAGE>
The following table sets forth selected financial data regarding
capital resources and liquidity for the Company's last three fiscal
years:
<TABLE>
Selected Financial Data Regarding Capital Resources and Liquidity
for the Company's Last Three Fiscal Years
<CAPTION>
Fiscal Year
(in thousands of dollars)
1994 1993 1992
<S> <C> <C> <C>
Net cash flow provided
by operations $ 42,454 $ 39,679 $ 38,158
--------- --------- ---------
Investing activities:
Short-term investments 25,131 (30,286) 1,254
Capital expenditures (77,146) (30,363) (13,274)
Acquisitions - (14,731) (23,942)
Other (1,684) (47) 295
--------- --------- ---------
Net investing (53,699) (75,427) (35,667)
--------- --------- ---------
Financing activities:
Short-term debt 6,850 - -
Long-term debt (318) 60,006 (275)
Proceeds from issuance of
common stock 2,073 438 599
Cash dividends (7,930) (8,198) (8,206)
Treasury stock purchases (15,975) (657) (2,332)
--------- --------- ---------
Net financing (15,300) 51,589 (10,214)
--------- --------- ---------
Effect of exchange rate changes
on cash and cash equivalents (311) (749) (1,291)
--------- --------- ---------
Increase (decrease) in cash
and cash equivalents $ (26,856) $ 15,092 $ (9,014)
========== ========= =========
</TABLE>
During the period 1992 through 1994, the Company generated $120.3
million in internal funds from operations. Investments during this
period amounted to $164.8 million including capital expenditures of
$120.8 million and acquisitions amounting to $38.7 million.
Acquisitions consisted primarily of the Proex and Prints Plus
businesses with acquired property and equipment amounting to $24.7
million and intangible assets resulting from purchase transactions
amounting to $14.0 million. The Studio Enhancement Program
accounted for $54.9 million or 71.1% of the capital expenditures.
Financing activities during this period included short-term debt
increases of $6.9 million, additional long-term debt of $59.4
million due primarily to the placement of Senior Notes for $60.0
<PAGE>
million, the repurchase of $19.0 million of treasury stock and the
payment of $24.3 million in dividends. The effect of exchange rate
changes on cash and cash equivalents amounted to $2.4 million. The
net result of these transactions amounted to a $20.8 million
decrease in cash and cash equivalents during the three-year period.
Planned capital expenditures for fiscal year 1995 are expected to
continue at a very high level, estimated at $50.0 million. Included
in the fiscal year 1995 capital spending plans are: the
continuation of the Studio Enhancement Program, the addition of
stores to the Wall Decor segment and equipment upgrades and
enhancements in the photofinishing operation. The Company believes
it has sufficient liquidity over the course of the fiscal year to
fund this planned capital expenditure program, but recognizes that,
for certain periods during the fiscal year, seasonal capital needs
may approach current borrowing capacity. To bolster seasonal
borrowing capacity, the Company is seeking a $10.0 million addition
to its revolving credit agreement, bringing the total to $60.0
million. Net interest expense is expected to be approximately $5.2
million in fiscal year 1995, a $900,000 increase over 1994 levels,
which will result primarily from borrowings under the revolving
credit agreement and senior note agreements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS--ASSETS
FOR FEBRUARY 4, 1995 AND FEBRUARY 5, 1994
<CAPTION>
February 4, 1995 February 5, 1994
---------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 4,023,435 $ 4,304,171
Short-term investments 10,326,347 62,051,741
Receivables, less allowance
of $1,277,094 and
$918,346 respectively 23,119,562 21,057,245
Inventories 33,943,140 28,530,382
Deferred costs applicable
to unsold portraits 172,645 2,822,123
Prepaid expenses and other
current assets 10,152,414 9,005,393
Deferred income taxes, net 244,910 -
------------- -------------
Total current assets 81,982,453 127,771,055
------------- -------------
Net property and equipment 159,125,536 114,328,773
Other assets:
Intangible assets 56,362,451 60,944,867
Other long-term assets 3,010,636 2,751,641
------------- -------------
Total assets $300,481,076 $305,796,336
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS--LIABILITIES AND STOCKHOLDER'S EQUITY
FOR FEBRUARY 4, 1995 AND FEBRUARY 5, 1994
<CAPTION>
February 4, 1995 February 5, 1994
---------------- ----------------
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 6,850,000 $ -
Current maturities of
long-term obligations 127,506 292,468
Accounts payable 27,137,106 32,849,291
Accrued expenses and other
liabilities 25,884,038 21,046,068
Income taxes 9,768,352 8,767,222
Deferred income taxes, net - 2,232,429
------------- -------------
Total current liabilities 69,767,002 65,187,478
------------- -------------
Long-term obligations, less
current maturities 59,742,426 59,810,789
Other liabilities 4,346,139 4,848,151
Deferred income taxes, net 625,388 441,445
Stockholders' equity:
Preferred stock, no par value,
1,000,000 shares authorized,
no shares issued and
outstanding - -
Preferred stock, Series A,
no par value - -
Common stock, $0.40 par
value, 50,000,000 shares
authorized; 17,123,599 and
16,978,869 shares
outstanding at
February 4, 1995 and
February 5, 1994,
respectively 6,849,440 6,791,548
Additional paid-in capital 31,277,872 29,262,531
Retained earnings 206,439,841 199,547,800
Cumulative foreign currency
translation adjustment (2,279,278) (1,381,524)
------------- -------------
242,287,875 234,220,355
Treasury stock at cost,
3,302,463 and 2,363,808
shares at February 4, 1995
and February 5, 1994,
respectively (74,531,219) (58,556,032)
Unamortized deferred
compensation - restricted
stock (1,756,535) (155,850)
------------- -------------
Total stockholders' equity 166,000,121 175,508,473
------------- -------------
Total liabilities and
stockholders' equity $300,481,076 $305,796,336
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS--
FOR FISCAL YEARS ENDED FEBRUARY 4, 1995, FEBRUARY 5, 1994,
AND FEBRUARY 6, 1993
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $533,154,691 $475,520,119 $449,379,933
Cost and expenses:
Cost of sales
(exclusive of
depreciation expense
shown below) 152,258,689 135,794,817 115,390,384
Selling,
administrative
and general expenses 315,607,704 286,079,408 270,395,184
Depreciation 32,349,268 27,236,816 24,431,160
Amortization 5,546,288 6,223,898 4,327,873
Severance and early
retirement expense - 1,400,000 -
------------- ------------- ------------
505,761,949 456,734,939 414,544,601
------------- ------------- ------------
Income from operations 27,392,742 18,785,180 34,835,332
Net interest income
(expense) (4,338,497) (789,213) 1,013,524
Other income 473,434 524,489 674,005
------------- ------------- ------------
Earnings before income
taxes and cumulative
effect of accounting
change 23,527,679 18,520,456 36,522,861
Income tax expense 8,705,601 7,404,000 13,908,000
------------- ------------- ------------
Earnings before
cumulative effect of
accounting change 14,822,078 11,116,456 22,614,861
Cumulative effect of
accounting change - 2,120,000 -
------------- ------------- ------------
Net earnings $ 14,822,078 $ 13,236,456 $ 22,614,861
============= ============= ============
Earnings per common
share:
Earnings before
cumulative effect
of accounting
change $ 1.05 $ 0.76 $ 1.54
Cumulative effect of
accounting change - 0.14 -
------------- ------------- ------------
Net earnings $ 1.05 $ 0.90 $ 1.54
============= ============= ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - COMMON
STOCK AND ADDITIONAL PAID-IN CAPITAL
<CAPTION>
Additional
Common Paid-In
Stock Capital
------------- -------------
<S> <C> <C>
Balance at February 1, 1992 $ 6,771,641 $ 28,244,564
Issuance of common stock:
Profit sharing plan and trust
(12,093 shares) 4,838 292,977
Stock bonus plan (6,824 shares) 2,729 173,973
Employee stock plans
(7,711 shares) 3,084 131,812
Foreign currency translation - -
Dividends ($.56 per
common share) - -
Net earnings - -
Purchase of treasury stock,
at cost - -
Amortization of deferred
compensation-restricted stock - -
------------- -------------
Balance at February 6, 1993 $ 6,782,292 $ 28,833,326
============= =============
Issuance of common stock:
Profit sharing plan and trust
(15,475 shares) 6,190 303,000
Stock bonus plan (3,664 shares) 1,466 71,805
Employee stock plans
(4,000 shares) 1,600 54,400
Foreign currency translation - -
Dividends ($.56 per common
share) - -
Net earnings - -
Purchase of treasury stock,
at cost - -
Amortization of deferred
compensation - restricted
stock - -
------------- -------------
Balance at February 5, 1994 $ 6,791,872 $ 29,262,531
============= =============
Issuance of common stock:
Profit sharing plan and trust
(19,887 shares) 7,955 327,182
Stock bonus plan (3,694 shares) 1,476 55,764
Employee stock plans
(121,150 shares) 48,461 1,632,395
Foreign currency translation - -
Dividends ($.56 per common
share) - -
Net earnings - -
Purchase of treasury stock,
at cost - -
Amortization of deferred
compensation - restricted
stock - -
------------- -------------
Balance at February 4, 1995 $ 6,849,440 $ 31,277,872
============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -
RETAINED EARNINGS AND CUMULATIVE FOREIGN CURRENCY TRANSACTION
ADJUSTMENT
Cumulative
Foreign
Currency
Retained Transaction
Earnings Adjustment
------------- -------------
<S> <C> <C>
Balance at February 1, 1992 $180,100,468 $ 966,957
Issuance of common stock:
Profit sharing plan and trust
(12,093 shares) - -
Stock bonus plan (6,824 shares) - -
Employee stock plans
(7,711 shares) - -
Foreign currency translation - (1,056,558)
Dividends ($.56 per
common share) (8,205,860) -
Net earnings 22,614,861 -
Purchase of treasury stock,
at cost - -
Amortization of deferred
compensation-restricted stock - -
------------- -------------
Balance at February 6, 1993 $194,509,469 $ (89,601)
============= =============
Issuance of common stock:
Profit sharing plan and trust
(15,475 shares) - -
Stock bonus plan (3,664 shares) - -
Employee stock plans
(4,000 shares) - -
Foreign currency translation - (1,291,923)
Dividends ($.56 per common
share) (8,198,125) -
Net earnings 13,236,456 -
Purchase of treasury stock,
at cost - -
Amortization of deferred
compensation - restricted
stock - -
------------- -------------
Balance at February 5, 1994 $199,547,800 $ (1,381,524)
============= =============
Issuance of common stock:
Profit sharing plan and trust
(19,887 shares) - -
Stock bonus plan (3,694 shares) - -
Employee stock plans
(121,150 shares) - -
Foreign currency translation - (897,754)
Dividends ($.56 per common
share) (7,930,037) -
Net earnings 14,822,078 -
Purchase of treasury stock,
at cost - -
Amortization of deferred
compensation - restricted
stock - -
------------- -------------
Balance at February 4, 1995 $206,439,841 $ (2,279,278)
============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -
TREASURY STOCK AT COST, UNAMORTIZED DEFERRED COMPENSATION -
RESTRICTED STOCK AND TOTAL
Deferred
Treasury Compensation-
Stock, Restricted
At Cost Stock
------------- ------------
<S> <C> <C>
Balance at February 1, 1992 $(55,566,495) $ (242,565)
Issuance of common stock:
Profit sharing plan and trust
(12,093 shares) - -
Stock bonus plan (6,824 shares) - -
Employee stock plans
(7,711 shares) - (45,786)
Foreign currency translation - -
Dividends ($.56 per
common share) - -
Net earnings - -
Purchase of treasury stock,
at cost (2,332,359) -
Amortization of deferred
compensation-restricted stock - 97,501
------------- -------------
Balance at February 6, 1993 $(57,898,854) $ (190,850)
============= =============
Issuance of common stock:
Profit sharing plan and trust
(15,475 shares) - -
Stock bonus plan (3,664 shares) - -
Employee stock plans
(4,000 shares) - (56,000)
Foreign currency translation - -
Dividends ($.56 per common
share) - -
Net earnings - -
Purchase of treasury stock,
at cost (657,178) -
Amortization of deferred
compensation - restricted
stock - 91,000
------------- -------------
Balance at February 5, 1994 $(58,556,032) $ (155,850)
============= =============
Issuance of common stock:
Profit sharing plan and trust
(19,887 shares) - -
Stock bonus plan (3,694 shares) - -
Employee stock plans
(121,150 shares) - (1,680,856)
Foreign currency translation - -
Dividends ($.56 per common
share) - -
Net earnings - -
Purchase of treasury stock,
at cost (15,975,187) -
Amortization of deferred
compensation - restricted
stock - 80,171
------------- -------------
Balance at February 4, 1995 $(74,531,219) $ (1,756,535)
============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -
TREASURY STOCK AT COST, UNAMORTIZED DEFERRED COMPENSATION -
RESTRICTED STOCK AND TOTAL
<CAPTION>
Total
------------
<S> <C>
Balance at February 1, 1992 $160,274,570
Issuance of common stock:
Profit sharing plan and trust
(12,093 shares) 287,815
Stock bonus plan (6,824 shares) 176,702
Employee stock plans
(7,711 shares) 89,110
Foreign currency translation (1,056,558)
Dividends ($.56 per
common share) (8,205,860)
Net earnings 22,614,861
Purchase of treasury stock,
at cost (2,332,359)
Amortization of deferred
compensation-restricted stock 97,501
-------------
Balance at February 6, 1993 $171,945,782
=============
Issuance of common stock:
Profit sharing plan and trust
(15,475 shares) 309,190
Stock bonus plan (3,664 shares) 73,271
Employee stock plans
(4,000 shares) -
Foreign currency translation (1,291,923)
Dividends ($.56 per common
share) (8,198,125)
Net earnings 13,236,456)
Purchase of treasury stock,
at cost (657,178)
Amortization of deferred
compensation - restricted
stock 91,000
-------------
Balance at February 5, 1994 $175,508,473
=============
Issuance of common stock:
Profit sharing plan and trust
(19,887 shares) 335,137
Stock bonus plan (3,694 shares) 57,240
Employee stock plans
(121,150 shares) -
Foreign currency translation (897,754)
Dividends ($.56 per common
share) (7,930,037)
Net earnings 14,822,078
Purchase of treasury stock,
at cost (15,975,187)
Amortization of deferred
compensation - restricted
stock 80,171
-------------
Balance at February 4, 1995 $166,000,121
=============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - F.Y. ENDED FEBRUARY 4, 1995
<CAPTION>
F.Y. 1994
-------------
<S> <C>
Cash flows provided by operating activities $ 42,453,689
Cash flows provided by (used in)
financing activities:
Proceeds from the issuance of short-term
borrowings 6,850,000
Proceeds from issuance of long-term borrowings -
Repayment of long-term obligations (318,125)
Issuance of common stock to employee stock plan 2,073,233
Cash dividends (7,930,037)
Purchase of treasury stock (15,975,187)
-------------
Cash flows provided by (used in)
financing activities (15,300,116)
-------------
Cash flows provided by (used in)
investing activities:
Purchases of short-term investments (9,171,808)
Proceeds from maturing of short-term investments 34,303,034
Additions to property and equipment (77,146,032)
Acquisitions:
Property and equipment -
Intangible assets -
Long-term investments -
Issuance of restricted stock (1,684,689)
-------------
Cash flows used in investing activities (53,699,495)
-------------
Effect of exchange rate changes on cash
and equivalents (310,524)
-------------
Net increase (decrease) in cash and
cash equivalents (26,856,446)
Cash and cash equivalents at beginning of year 36,070,354
-------------
Cash and cash equivalents at end of year $ 9,213,908
=============
RECONCILIATION OF NET EARNINGS TO CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES
Net earnings $ 14,822,078
Adjustments for items not requiring cash:
Depreciation and amortization 37,895,556
Deferred income taxes (2,293,396)
Deferred compensation (502,012)
Other (1,622,834)
Decrease (increase) in current assets:
Receivables and inventories (7,475,075)
Deferred costs applicable to unsold portraits 2,649,478
Prepaid expenses and other current assets (1,147,021)
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities (874,215)
Income taxes 1,001,130
-------------
Cash flows provided by operating activities $ 42,453,689
=============
Supplemental cash flow information:
Interest paid $ 4,513,112
=============
Income taxes paid $ 9,318,426
=============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - F.Y. ENDED FEBRUARY 5, 1994
<CAPTION>
F.Y. 1993
-------------
<S> <C>
Cash flows provided by operating activities $ 39,678,979
Cash flows provided by (used in)
financing activities:
Proceeds from the issuance of short-term
borrowings -
Proceeds from issuance of long-term borrowings 60,372,660
Repayment of long-term obligations (366,418)
Issuance of common stock to employee stock plan 438,461
Cash dividends (8,198,125)
Purchase of treasury stock (657,178)
-------------
Cash flows provided by (used in)
financing activities 51,589,400)
-------------
Cash flows provided by (used in)
investing activities:
Purchases of short-term investments (43,731,997)
Proceeds from maturing of short-term investments 13,446,439
Additions to property and equipment (30,362,715)
Acquisitions:
Property and equipment (13,629,943)
Intangible assets (1,101,639)
Long-term investments 8,826
Issuance of restricted stock (56,000)
-------------
Cash flows used in investing activities (75,427,029)
-------------
Effect of exchange rate changes on cash
and equivalents (749,074)
-------------
Net increase (decrease) in cash and
cash equivalents 15,092,276
Cash and cash equivalents at beginning of year 20,978,078
-------------
Cash and cash equivalents at end of year $ 36,070,354
=============
RECONCILIATION OF NET EARNINGS TO CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES
Net earnings $ 13,236,456
Adjustments for items not requiring cash:
Depreciation and amortization 33,460,714
Deferred income taxes (3,663,872)
Deferred compensation (647,188)
Other (2,678,969)
Decrease (increase) in current assets:
Receivables and inventories (9,540,628)
Deferred costs applicable to unsold portraits 950,594
Prepaid expenses and other current assets (648,701)
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities 9,225,394
Income taxes (14,821)
-------------
Cash flows provided by operating activities $ 39,678,979
=============
Supplemental cash flow information:
Interest paid $ 302,486
=============
Income taxes paid $ 9,828,416
=============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - F.Y. ENDED FEBRUARY 6, 1993
<CAPTION>
F.Y. 1992
-------------
<S> <C>
Cash flows provided by operating activities $ 38,158,135
Cash flows provided by (used in)
financing activities:
Proceeds from the issuance of short-term
borrowings -
Proceeds from issuance of long-term borrowings -
Repayment of long-term obligations (275,480)
Issuance of common stock to employee stock plan 599,413
Cash dividends (8,205,860)
Purchase of treasury stock (2,332,359)
-------------
Cash flows provided by (used in)
financing activities (10,214,286)
-------------
Cash flows provided by (used in)
investing activities:
Purchases of short-term investments (782,325)
Proceeds from maturing of short-term investments 2,037,089
Additions to property and equipment (13,274,473)
Acquisitions:
Property and equipment (11,056,700)
Intangible assets (12,885,268)
Long-term investments 340,783
Issuance of restricted stock (45,786)
-------------
Cash flows used in investing activities (35,666,680)
-------------
Effect of exchange rate changes on cash
and equivalents (1,291,338)
-------------
Net increase (decrease) in cash and
cash equivalents (9,014,169)
Cash and cash equivalents at beginning of year 29,992,247
-------------
Cash and cash equivalents at end of year $ 20,978,078
=============
RECONCILIATION OF NET EARNINGS TO CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES
Net earnings $ 22,614,861
Adjustments for items not requiring cash:
Depreciation and amortization 28,759,033
Deferred income taxes (2,193,923)
Deferred compensation (908,539)
Other (812,277)
Decrease (increase) in current assets:
Receivables and inventories (1,161,292)
Deferred costs applicable to unsold portraits 761,130
Prepaid expenses and other current assets 568,911
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities (9,143,019)
Income taxes (326,750)
-------------
Cash flows provided by operating activities $ 38,158,135
=============
Supplemental cash flow information:
Interest paid $ 166,044
=============
Income taxes paid $ 14,934,061
=============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of CPI Corp. (the Company)
include the accounts of CPI Corp. and all of its majority or wholly
owned subsidiaries, partnerships and joint ventures. All
significant intercompany transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year ends on the first Saturday in February.
The Company designates its fiscal year by the calendar year in
which the fiscal year begins. Accordingly, fiscal year 1994 ended
February 4, 1995, fiscal year 1993 ended February 5, 1994 and
fiscal year 1992 ended February 6, 1993. The 1994 and 1993 fiscal
years are comprised of 52 weeks, while the 1992 fiscal year is
comprised of 53 weeks.
TRANSLATION OF FOREIGN CURRENCY
Assets and liabilities of foreign operations are translated into
U.S. dollars at the exchange rate in effect on the balance sheet
date, while equity accounts are translated at historical rates.
Income and expense accounts are translated at the average rates in
effect during each fiscal period. The Company recognizes its
Canadian operating results are subject to variability arising from
foreign exchange rate movements. The Company does not believe such
risk is material to the results of operations or the financial
position of the Company and as such does not engage in derivative
activities in order to hedge against the foreign currency
fluctuations.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents
consist primarily of cash on hand and highly liquid investments
with insignificant interest-rate risk and original maturities of
three months or less at date of acquisition. Remaining short-term
investments consist of investments with original maturities beyond
three months but less than twelve months.
SHORT-TERM INVESTMENTS
Short-term investments consist of treasury bills, bankers
acceptances, commercial paper, term deposits, government agency
notes, repurchase agreements and government money market funds
which are stated at cost, adjusted for discount accretion and
premium amortization.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115 (SFAS No. 115),
"Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 expands the required use of fair-value accounting for
investments in debt and equity securities, and allows debt
<PAGE>
securities to be classified as "held-to-maturity" and reported in
the financial statements at amortized cost only if the reporting
entity has the positive intent and ability to hold those securities
to maturity. Furthermore, SFAS No. 115 clarifies that securities
which might be sold in response to changes in market interest
rates, changes in security prepayment risk, increases in liquidity
needs or other similar factors cannot be classified as
"held-to-maturity." The Company adopted SFAS No. 115 on February 6,
1994. The adoption of SFAS No. 115 did not have an effect on the
financial position of the Company as securities in the Company's
portfolio are short-term in nature and were classified as
"held-to-maturity."
Total interest income for fiscal years 1994, 1993 and 1992 was $1.0
million, $1.2 million and $1.2 million, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost of
the majority of inventories being determined by the first-in,
first-out (FIFO) method and the remainder by the last-in, first-out
(LIFO) method.
REVENUE RECOGNITION
Portrait Studio sales revenue is recognized at the time the
customer approves photographic proofs and makes a firm commitment
for a portrait order. Incremental costs of production are accrued
at the time sales revenue is recognized. Appropriate reserves for
cancelability are maintained by the Company.
DEFERRED COSTS APPLICABLE TO UNSOLD PORTRAITS
Deferred costs applicable to unsold portraits consist of direct
costs associated with the photography function for portraits
produced and not approved or firmly committed to by the customer at
the time of portrait sitting. Such costs are charged to selling,
general and administrative expense when the customer accepts or
declines the portraits.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repair
and maintenance are expensed as incurred. When properties are
disposed of, the related cost and accumulated depreciation are
removed from the accounts, and gains or losses on the dispositions
are reflected in results of operations. Depreciation is computed
principally using the straight-line method over estimated service
lives of the respective assets. A summary of estimated useful lives
is as follows:
<PAGE>
<TABLE>
<S> <C>
Building improvements 15 to 19 years
Leasehold improvements 5 to 15 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 5 to 8 years
</TABLE>
RETIREMENT PLAN
The Company has a noncontributory defined-benefit retirement plan
covering substantially all full-time employees. Pension expense,
which is funded as accrued, includes current costs and amortization
of prior service costs over a period of ten years.
INTANGIBLE ASSETS
Intangible assets acquired through acquisitions were accounted for
by the purchase method of accounting and include the excess of cost
over fair value of net assets acquired, favorable lease rights,
covenants not to compete and a signing bonus. The excess of cost
over fair value of net assets acquired and favorable lease rights
are being amortized on a straight-line basis over periods ranging
from five to forty years. The covenants and signing bonus not to
compete are being amortized on a straight-line basis over the
respective periods of the agreements, which range from one to five
years.
The Company analyzes excess of cost over fair-value of net assets
acquired periodically to determine whether any impairment has
occurred in the value of such assets. Based upon the anticipated
future income and cash from operations, in the opinion of Company
management, there has been no impairment.
INCOME TAXES
The Company adopted SFAS No. 109, "Accounting For Income Taxes," in
1993 on a prospective basis. SFAS No. 109 requires the Company to
account for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to the differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date. The Company
recognized the cumulative effect as of February 7, 1993 of $2.1
million in net earnings as a cumulative change in accounting
principle.
Prior to the adoption of SFAS No. 109, deferred income taxes were
recognized to reflect the effect of timing differences in the
recognition of income and expense items for income tax and
financial reporting purposes.
<PAGE>
EARNINGS PER COMMON SHARE AND OTHER SHARE INFORMATION
Earnings per common share are computed by dividing net earnings by
the sum total of the weighted average number of shares of common
stock outstanding plus contingently issuable shares under the
employee stock plans. Fully diluted earnings per common share are
not presented, as the differences between primary and fully diluted
earnings per common share are not material.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
the 1994 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," and SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,"
require the Company to disclose estimated fair values for its
financial instruments. A financial instrument is defined as cash or
a contract that both imposes on one entity a contractual obligation
to deliver cash or another financial instrument to a second entity
and conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity.
2. ACQUISITIONS
On December 1, 1992, the Company acquired the operating assets of
Pemtom, Inc., a Minneapolis-based company consisting of 25
photofinishing locations operating under the name of Proex, 15 of
which offer added services through adjacent Proex Portrait Studios,
for approximately $19.0 million. In a separate, but related
transaction, the Company secured the services of the Pemtom, Inc.
management team for $4.8 million. Specifically, five contracts
totaling $800,000 were expensed over a one-year period between
fiscal years 1992 and 1993, and $4.0 million is being amortized
over the three-year lives of the remaining two contracts starting
in fiscal year 1992. The acquisition was recorded as a purchase
and, accordingly, the results of operations of Proex have been
included in the Company's consolidated financial statements since
the effective date of the acquisition. The excess of the purchase
price over the net liabilities assumed (goodwill) was approximately
$6.7 million and is being amortized using the straight-line method
over a 40-year period. The unaudited proforma results of operations
for the fiscal year ended February 6, 1993, assuming the
acquisition occurred as of the beginning of the fiscal year, were
not materially different than reported results.
On May 30, 1993, the Company finalized the acquisition of the
Prints Plus wall decor chain from the Melville Corporation for
approximately $14.7 million. The acquired 103 store chain, located
in malls throughout the United States, operates a prints, posters
and framing business with annual sales in excess of $40.0 million.
In addition, the Company entered into a non-compete agreement with
Melville Corporation for cash consideration aggregating $1.1
<PAGE>
million which is being amortized over the three-year term. The
stores will continue to be operated under the trade name "Prints
Plus."
The acquisition was recorded using the purchase method of
accounting and the results of operations of Prints Plus have been
included in the Company's consolidated financial statements since
the effective date of the acquisition.
3. DISCONTINUED OPERATIONS
On February 3, 1992, the Company announced its intention not to
renew existing contracts between the Portraits of Distinction
Studios and the host department store chains. The Company also
announced that it was not renewing its existing contract with
Wal-Mart, Inc., which allowed the Company to provide portrait
photography service through regional Wal-Mart stores.
The Company completed the closedown of the Portraits of Distinction
Studios and Wal-Mart Pictureland operations in fiscal year 1992.
There were no sales for the discontinued businesses in fiscal years
1994 and 1993. Net sales of the discontinued businesses for fiscal
year 1992 was $7.3 million.
4. PROPERTY AND EQUIPMENT
The following table sets forth a summary of the Company's property
and equipment (amounts in thousands):
<TABLE>
Summary of the Company's Property and Equipment for
Fiscal Years 1994 and 1993
<CAPTION>
1994 1993
<S> <C> <C>
Property and equipment, at cost:
Land and land improvements $ 2,913 $ 3,073
Building improvements 26,460 26,789
Leasehold improvements 37,955 33,435
Machinery and equipment 180,054 128,575
Furniture and fixtures 61,505 55,568
--------- ---------
308,887 247,440
Less accumulated depreciation 149,761 133,111
--------- ---------
Net property and equipment $159,126 $114,329
========= =========
</TABLE>
<PAGE>
The Company leases various premises and equipment under
noncancellable operating lease agreements with initial terms in
excess of one year and expiring at various dates through fiscal
2005. Substantially all leases require the Company to pay
maintenance, insurance and taxes.
At February 4, 1995, minimum rental payments under operating leases
with initial terms in excess of one year are as follows (amounts in
thousands):
<TABLE>
Minimum Rental Payments Under Operating Leases With Initial
Terms in Excess of One Year at February 4, 1995
<CAPTION>
Fiscal Year
<S> <C>
1995 $ 43,953
1996 34,555
1997 26,784
1998 19,218
1999 12,196
Thereafter 21,574
---------
$158,280
=========
</TABLE>
Rental expense during fiscal years 1994, 1993 and 1992 on all
operating leases was $33.8 million, $30.0 million and $24.3
million, respectively.
5. INVENTORIES
Inventories consist of the following components (amounts in
thousands):
<TABLE>
Components of Inventories for Fiscal Years 1994 and 1993
<CAPTION>
1994 1993
<S> <C> <C>
Raw materials and supplies $ 33,887 $ 27,981
Portraits-in-process 56 549
--------- ---------
$ 33,943 $ 28,530
========= =========
</TABLE>
The Company accounts for certain raw material inventories of film,
paper, chemicals and portraits-in-process under the LIFO method.
Such inventories aggregated approximately $1.5 million and $1.7
<PAGE>
million at February 4, 1995 and February 5, 1994, respectively. The
excess of replacement cost of these inventories over their stated
LIFO value was $413,000 and $425,000 at February 4, 1995 and
February 5, 1994, respectively.
Portraits-in-process include the cost of film, laboratory labor,
paper, processing chemicals and supplies and other items directly
associated with the production of portraits that have not been
approved or committed to by the customer and have not been
recognized as sales.
6. ADVERTISING
The Company expenses the production costs of advertising the first
time the advertising takes place, except for direct-response
advertising, which is capitalized and amortized over its expected
period of future benefits.
Direct-response advertising consists primarily of direct mail
advertisements that include order coupons for the Company's
products. The capitalized costs of the advertising are amortized
over the expected period of future benefits following the delivery
of the direct mail in which it appears.
At February 4, 1995, $941,000 of advertising was reported as a
capitalized cost for direct-response advertising and classified
within other assets. Advertising expense was $51.0 million in
fiscal year 1994.
7. INTANGIBLE ASSETS
Intangible assets and related amortization are as follows
(amounts in thousands):
<TABLE>
Intangible Assets and Related Amortization for
Fiscal Years 1994 and 1993
<CAPTION>
Unamortized Amortization
Balance at -----------------------
February 4, 1995 1994 1993 1992
<S> <C> <C> <C> <C>
Excess of cost over
fair value of net
assets acquired $53,621 $1,478 $1,598 $1,502
Favorable lease rights 212 120 194 329
Covenants not to compete 1,418 1,118 1,114 913
Signing bonus 1,111 1,333 2,000 355
-------- ------- ------- -------
$56,362 $4,049 $4,906 $3,099
======== ======= ======= =======
</TABLE>
Accumulated amortization of intangible assets was $14.1 million and
$10.1 million at February 4, 1995 and February 4, 1994,
respectively.
<PAGE>
8. CREDIT AGREEMENTS AND OUTSTANDING DEBT
On August 31, 1993, the Company privately placed senior notes in
the amount of $60.0 million (the "Note Agreement") with two
insurance companies. The notes, issued pursuant to the Note
Agreement, mature over a seven-year period with an average maturity
of 5.42 years and with the first principal payment due at the end
of the third year. Interest on the notes is payable semi-annually
at an average effective fixed rate of 6.44%. The Note Agreement
requires the Company maintain certain financial ratios and comply
with certain restrictive covenants including a limitation on
dividend payments, purchase of treasury stock and certain
restricted investments are not to exceed $25.0 million plus 50% of
net earnings (or less 100% of net losses) credited at the end of
each fiscal year. The Company incurred $459,000 in issuance costs
associated with the private placement of the notes. These costs are
being amortized ratably over the seven-year life of the notes.
The Company concurrently renegotiated its Revolving Credit
Agreement (the "Credit Agreement") with a domestic bank,
establishing the same financial covenants as those set forth in the
Note Agreement. This Credit Agreement has interest rates set at the
prevailing prime interest rate or at a lower rate quoted by the
bank. A commitment fee of 0.1875% per annum is payable on the
unused portion of the Credit Agreement. The Company is not required
to maintain compensating balances in connection with the Credit
Agreement. On June 14, 1994, the Company amended the Credit
Agreement, extending its term until August 31, 1996 and, on
November 9, 1994, again amended the Credit Agreement, changing the
principal amount that can be borrowed from $25.0 million to $50.0
million and modifying certain financial covenants.
As of February 4, 1995, the Company had outstanding letters of
credit for the principal amount of $4.1 million.
The Company's performance of the conditions of the Note Agreement
and the Credit Agreement and the underlying notes issued under both
agreements is secured by a pledge of the stock of the Company's
direct subsidiaries. The Company anticipates this pledged stock to
be released as the Company has achieved the stipulated financial
ratios required by both agreements to release the stock.
The Company's debt obligations consist of the following
(amounts in thousands):
<PAGE>
<TABLE>
Long-Term Obligations as of February 4, 1995 and February 5, 1994
<CAPTION>
February 4, February 5,
1995 1994
<S> <C> <C>
Senior notes, net of unamortized
issuance costs $ 59,662 $ 59,577
Revolving credit agreement 6,850 -
Notes payable and obligations
under capital leases 208 526
Less current maturities 6,978 292
--------- ---------
$ 59,742 $ 59,811
========= =========
</TABLE>
Aggregate maturities of long-term debt for the next five fiscal
years are as follows (amounts in thousands):
<TABLE>
Aggregate Long-Term Debt Maturities as of February 4, 1995
<CAPTION>
<S> <C>
1995 $ 128
1996 5,000
1997 10,000
1998 15,000
1999 15,000
Thereafter 15,080
-------
$60,208
========
</TABLE>
Interest expense for fiscal years 1994, 1993 and 1992 was $5.3
million, $2.0 million and $169,000, respectively.
9. FINANCIAL INSTRUMENTS
To manage its exposure to fluctuations in interest rates, the
Company entered into an interest rate swap agreement (the "swap
agreement") for a notional principal amount of $40.0 million,
maturing August 28, 1995. Swap agreements involve the exchange of
interest obligations on fixed and floating interest-rate debt
without the exchange of the underlying principal amount. During
1994, the Company determined, due to changes in its liquidity
needs, the swap agreement did not meet the criteria for treatment
as a hedged financial instrument. Accordingly, the swap agreement
is recorded at its market value with an unrealized loss recorded in
the Company's results of operations. The differential paid or
received on the swap agreement is recognized as an adjustment
to interest expense. The swap agreement provides a fixed rate of
<PAGE>
4.54% with a floating rate payment equal to the 6-month London
Interbank Offered Rate (LIBOR) determined on a semi-annual basis
with settlement occurring on a specific date. For fiscal years 1994
and 1993, the rate realized averaged 5.70% and 4.00%, respectively.
Net interest expense on the swap agreement was $927,000 for fiscal
year 1994 while the swap agreement resulted in income of $87,000 in
fiscal year 1993. While the Company has credit risk associated with
this financial instrument, no loss is anticipated due to
nonperformance by the counterparties to these agreements.
The Company has not entered into any other derivative instruments
or off-balance-sheet transactions.
10. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following
(amounts in thousands):
<TABLE>
Accrued Expenses and Other Liabilities for
Fiscal Years 1994 and 1993
<CAPTION>
February 4, 1995 February 5, 1994
<S> <C> <C>
Accrued employment costs $ 13,732 $ 9,247
Sales taxes payable 2,690 3,005
Accrued advertising expense 2,222 3,640
Accrued license fees 3,163 2,380
Accrued interest 2,473 1,728
Other 1,604 1,046
--------- ---------
$ 25,884 $ 21,046
========= =========
</TABLE>
11. INCOME TAXES
In the first fiscal quarter of 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes," on a prospective basis,
resulting in an increase to net income for the fiscal year ended
February 5, 1994 of $2.1 million.
<PAGE>
Earnings before income taxes and the cumulative effect of
accounting change follows (amounts in thousands):
<TABLE>
Earnings Before Income Taxes by U.S. and Canadian Sources
(amounts in thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
U.S. $ 21,619 $ 15,163 $ 31,427
Canada 1,908 3,357 5,096
--------- --------- ---------
$ 23,527 $ 18,520 $ 36,523
========= ========= =========
</TABLE>
Income tax expense (benefit) was comprised of the following
(amounts in thousands):
<TABLE>
Components of Income Taxes for
Fiscal Years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $ 9,144 $ 7,567 $ 9,602
State and local 1,684 963 2,528
Canada 171 926 1,833
--------- --------- ---------
10,999 9,456 13,963
Deferred (2,294) (2,052) (55)
--------- --------- ---------
$ 8,705 $ 7,404 $ 13,908
========= ========= =========
</TABLE>
The following reconciles the differences between the federal
corporate statutory rate and the Company's effective income tax
rate (amounts in thousands):
<TABLE>
Reconciliation Between Income Taxes
for Fiscal Years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Taxes at U.S. federal corporate
statutory rate $ 8,235 $ 6,482 $12,455
State and local income taxes,
net of federal tax benefit 933 467 1,678
Other (463) 455 (225)
-------- -------- --------
$ 8,705 $ 7,404 $13,908
======== ======== ========
</TABLE>
<PAGE>
The sources of the tax effects for the temporary differences that
give rise to the deferred tax assets and liabilities were as
follows (amounts in thousands):
<TABLE>
Sources of Tax Effects for Fiscal Years 1994 and 1993
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax assets:
Deferred compensation and other
employee benefits, due to accrual
for financial reporting purposes $ 1,631 $ 2,144
Expense accruals, due to accrual
for financial reporting purposes 240 197
Accounts receivable, due to allowance
for doubtful accounts 483 249
Inventory costs capitalized - 172
Net operating loss carryforward 752 -
Amortization of intangibles 1,278 -
Other 126 94
-------- --------
Total gross deferred tax assets 4,510 2,856
-------- --------
Valuation allowance - -
-------- --------
Total gross deferred tax assets 4,510 2,856
-------- --------
Deferred tax liabilities:
Property and equipment, due
to depreciation (3,373) (2,746)
Deferred cost of unsold portraits - (1,098)
Employee pension plan, due to accrual
for financial reporting purposes (1,150) (828)
Revenue recognition - (686)
Intangible assets, due to period
of amortization (214) (107)
Other (153) (65)
-------- --------
Total deferred tax liabilities (4,890) (5,530)
-------- --------
Net deferred tax liabilities $ (380) $(2,674)
======== ========
Current deferred income taxes $ 245 $(2,232)
======== ========
Long-term deferred income taxes $ (625) $ (442)
======== ========
</TABLE>
A valuation allowance would be provided on deferred tax assets when
it is more likely than not that some portion of the assets will not
be realized. The Company has not established a valuation allowance
as of February 4, 1995, due to management's belief that all
<PAGE>
criteria for recognition have been met, including the existence of
a history of taxes paid sufficient to support the realization of
deferred tax assets.
For 1992, the deferred tax provisions, which were calculated
according to Accounting Principles Board Opinion No. 11, represent
the effects of timing differences between financial and income tax
reporting. The sources of timing differences which gave rise to
deferred income taxes and the related tax effects in fiscal year
1992 are as follows (amounts in thousands):
<TABLE>
Timing Differences for Taxes for Fiscal Year 1992
<CAPTION>
Fiscal 1992
<S> <C>
Difference between tax and book depreciation $ (1,919)
Cash basis adjustment for certain income items (252)
Cash basis adjustment for certain expense items 2,116
-----------
$ (55)
===========
</TABLE>
At February 4, 1995, the Company has available net operating loss
carryforwards of approximately $1.9 million for federal income tax
purposes that expire beginning in 2004 and ending in 2009.
United States income taxes have not been provided on $14.1 million
of undistributed earnings of the Canadian subsidiary because of the
Company's intention to reinvest these earnings. The determination
of unrecognized deferred U.S. tax liability for undistributed
earnings of international subsidiaries is not practicable. However,
it is estimated that foreign withholding taxes of $1.4 million may
be payable if such earnings were distributed.
12. RETIREMENT PLAN
The Company maintains a qualified, noncontributory pension plan
that covers all full-time employees meeting certain age and service
requirements. The plan provides pension benefits based on an
employee's length of service and the average compensation earned
from the earlier of the hire date or January 1, 1985 (if January 1,
1985 precedes the hire date) to the retirement date. The Company's
funding policy is to contribute annually at least the minimum
amount required by government funding standards, but not more than
is tax deductible.
<PAGE>
Net periodic pension expense of the defined benefit plan for 1994,
1993 and 1992 was as follows (amounts in thousands):
<TABLE>
Net Periodic Pension Expense of the Defined Benefit Plan
for Fiscal Years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 1,064 $ 935 $ 701
Interest cost on projected
benefit obligation 1,148 1,052 911
Return on plan assets (351) (921) (811)
Net amortization and deferral (611) (56) (79)
-------- -------- --------
Net periodic pension expense $ 1,250 $ 1,010 $ 722
======== ======== ========
</TABLE>
Plan assets consist primarily of cash equivalents, a marketable
equity securities fund, guaranteed interest contracts, immediate
participation guarantee contracts and government bonds.
The following table sets forth the funded status at December 31,
1994, December 31, 1993 and December 31, 1992 (amounts in
thousands):
<TABLE>
Funded Status of Defined Benefit Plan as of December 31, 1994,
December 31, 1993 and December 31, 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Actuarial present value of
vested benefit obligation $ 12,174 $ 12,810 $ 10,351
========= ========= =========
Accumulated benefit obligation $ 12,675 $ 14,335 $ 11,357
========= ========= =========
Projected benefit obligation (14,247) (16,703) (12,344)
Plan assets at fair value 15,371 14,599 13,250
Plan assets in excess of
(less than) projected
benefit obligations 1,124 (2,104) 906
Unrecognized net (gain) loss 172 3,165 (195)
Unrecognized prior service cost 449 561 673
Net transition obligation 25 28 31
--------- --------- ---------
Prepaid pension cost recognized
in the consolidated
balance sheet $ 1,770 $ 1,650 $ 1,415
========= ========= =========
</TABLE>
<PAGE>
Assumptions used in the above determinations were as follows:
<TABLE>
Assumptions on Funded Status at December 31, 1994,
December 31, 1993 and December 31, 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate in determining
benefit obligations 8.5% 7.0% 8.0%
Rate of increase in
compensation levels 6.0% 6.0% 6.0%
Expected long-term rate of
return on assets 8.0% 8.0% 8.0%
</TABLE>
13. EMPLOYEE STOCK PLANS
DEFERRED COMPENSATION AND STOCK APPRECIATION RIGHTS PLAN
In January 1986, the Company's Board of Directors approved a
deferred-compensation and stock-appreciation-rights plan designed
to attract and retain certain key employees. Under the
deferred-compensation plan, eligible employees are granted the
opportunity to defer the payment of a portion of their
compensation. Under the stock-appreciation-rights plan, eligible
employees are granted the right to receive a cash payment from the
Company equal to the excess of the market value of a share of
common stock of the Company at the payment date over the initial
value at the issuance date. The rights become payable after five
years following the effective date of the grant. The stock-
appreciation-rights plan was amended on November 7, 1991 such that
the outstanding rights as of November 6, 1991 shall not be higher
than the excess of $22.38 per share over the initial value at the
issuance date. In the event an employee retires, their rights under
the deferred-compensation plan and the stock-appreciation-rights
plan may become payable. There were no stock appreciation rights
granted during fiscal years 1994, 1993 and 1992. For the 1991
fiscal year, approximately 23,700 stock appreciation rights were
granted under this plan. During the 1994 fiscal year, no stock
appreciation rights payments were made under this plan. For fiscal
years 1993 and 1992, $7,000 and $10,000, respectively, were paid
under this plan.
RESTRICTED STOCK PLAN
In January 1988, the Company's Board of Directors adopted the CPI
Corp. Restricted Stock Plan with an effective date of February 7,
1988. Under the plan, 250,000 shares of CPI common stock are
reserved for issuance to key employees. In fiscal year 1992, 1,761
restricted shares were issued and were vested in fiscal year 1993.
In fiscal year 1993, 4,000 restricted shares were issued and vest
ratably over a four-year period. In fiscal year 1994, 121,419
restricted shares were issued and vest over a three-year period. Of
the grants issued, no shares were forfeited in fiscal years 1994,
<PAGE>
1993 and 1992. As of February 4, 1995, 58,347 shares are reserved
for issuance under this plan.
PROFIT SHARING PLAN
Under the Company's profit-sharing plan, employees who work 1,000
hours or more annually, have one year of service and who are at
least age 21 may elect to invest from 1% to 15% of their base
compensation in a trust fund, the assets of which are invested in
securities other than Company stock. Effective January 1, 1994, the
Company amended the Plan to set the Company match at 50% of the
employee's investment contributions, equal to a maximum of 5% of
the employee's base compensation, as long as the Company remains
profitable. An additional 10% match was granted for fiscal year
1994 fourth-quarter contributions up to a maximum of 5% of a
participating employee's fourth-quarter base compensation for
employees who increased, joined or rejoined the 401(k) during the
fiscal year 1994 fourth quarter. The Company's matching
contributions are made in shares of its common stock which vest
over a maximum of five years, depending on the employee's length of
service with the Company. The difference between the market value
of forfeited shares at the dates of their original contribution and
their market value at the dates used to satisfy subsequent
requirements have been charged to expense, with a corresponding
credit to additional paid-in capital. The Company provided 19,887
and 15,475 shares to satisfy its obligations under the plan for
fiscal years 1993 and 1992, respectively, and estimates that 40,459
shares will be required to satisfy its obligations under the plan
for fiscal year 1994. For fiscal year 1994, the Company match was
50%. For fiscal years 1993 and 1992, the Company matched the
employee's investment at a rate of 30%.
STOCK BONUS PLAN
Under the Company's stock-bonus plan, shares of the Company's
common stock are reserved for issuance to key employees, based on
attainment by the Company of predefined earnings levels established
annually. Each year, employees receive one-third of the shares
which were awarded in each of the previous three years. For the
1994 and 1993 fiscal years, 3,694 and 3,678 shares, respectively,
were issued under this plan. No original awards were made under
this plan in fiscal year 1993. In fiscal year 1994 and 1992, there
were discretionary awards of 725 and 6,355 shares, respectively. Of
the 725 shares awarded in fiscal 1994, 475 shares were forfeited
due to terminations. As of February 4, 1995, 59,799 shares are
reserved for issuance under this plan.
Expenses related to the profit-sharing and stock-bonus plans are
accrued in the year to which the awards relate, based on the fair
market value of the Company's common stock to be issued, determined
as of the date earned. The cumulative appreciation related to stock
appreciation rights, determined at the end of each period, is
allocated on a ratable basis over the five-year vesting period.
Expenses related to the restricted stock plan are accrued
periodically, based on the fair market value of the Company's
<PAGE>
common stock on the grant date. Expenses recognized for fiscal
1994, 1993 and 1992 with respect to these plans were $1.3 million,
$370,000 and $597,000, respectively.
INCENTIVE STOCK OPTION PLAN
The Company has a non-qualified incentive stock-option plan, under
which certain key officers might receive options to acquire shares
of the Company's common stock. Twenty-five percent of options
granted become exercisable at the end of each of the second through
fifth years of continuous employment from the date of the grant,
and unexercised options expire after six years. No compensation
expense is recognized under the plan, since the exercise price
equals or exceeds the fair market value of the Company's common
stock at the date of grant. Activity in the plan is summarized as
follows:
<TABLE>
Activity in Incentive Stock Plan in Fiscal Year 1992
<CAPTION>
1992
Number of Per Share
Shares Option Price
<S> <C> <C>
Outstanding at beginning of year 5,950 $14.38-$15.80
Exercised (5,950) $14.38-$15.80
=======
Outstanding at end of year - $14.38-$15.80
=======
Exercisable at end of year - $14.38-$15.80
=======
</TABLE>
There was no activity under the Incentive Stock Plan in 1994 and
1993. As of the date of expiration of the plan, September 11, 1991,
there were 306,177 shares authorized but not issued.
STOCK OPTION PLAN
The Company has a non-qualified stock-option plan, under which
certain officers and key employees may receive options to acquire
shares of the Company's common stock. Awards of stock options and
the terms and conditions of such awards are subject to the
discretion of the Stock Option Committee created under the plan and
consisting of members of the Compensation Committee of the Board of
Directors, all of whom are disinterested directors. The plan was
approved by stockholders on June 11, 1991 and the issuance of
additional shares was ratified by stockholders on June 13, 1992. A
total of 1,700,000 shares has been authorized for issuance under
the plan. As of February 4, 1995, the Stock Option Committee has
awarded options on the terms set forth below:
<PAGE>
<TABLE>
Options Awarded Under the Stock Option Plan for 1994
<CAPTION>
1994
Number of Per Share
Shares Option Price
<S> <C> <C>
Outstanding at beginning
of year 1,189,162 $21.75-$35.00
22,992 $15.63-$17.00
----------
Total outstanding at
beginning of year 1,212,154
Granted 597,108 $13.88-$18.63
- -
----------
Total granted 597,108
Cancelled (300,000) $30.00-$35.00
(809) $24.00
(6,442) $17.00-$17.75
----------
Total cancelled (307,251)
Outstanding at end of year 888,353 $21.75-$35.00
613,658 $13.88-$18.63
----------
Total outstanding at end of year 1,502,011
==========
</TABLE>
<TABLE>
Options Awarded Under the Stock Option Plan for 1994
<CAPTION>
1993
Number of Per Share
Shares Option Price
<S> <C> <C>
Outstanding at beginning
of year 1,156,620 $21.75-$35.00
- -
----------
Total outstanding at
beginning of year 1,156,620
Granted 40,000 $30.00-$35.00
22,992 $15.63-$17.00
----------
Total granted 62,992
Cancelled (7,458) $21.75-$35.00
- -
- -
----------
Total cancelled (7,458)
Outstanding at end of year 1,189,162 $21.75-$35.00
22,992 $15.63-$17.00
----------
Total outstanding at end of year 1,212,154
==========
</TABLE>
Under the plan, 655,139 options granted become exercisable at a
rate of one-fourth to one-third a year commencing one year after
award and expiring from four to five years after award. An
additional 846,872 options granted under the plan are cliff-vested
and become exercisable from four to five years after award and
expire six to seven years after award. As of February 4, 1995,
there were 197,989 shares reserved for issuance under this plan and
345,283 shares exercisable.
<PAGE>
VOLUNTARY STOCK OPTION PLAN
The Company has a non-qualified voluntary stock-option plan, under
which certain key officers may receive options to acquire shares of
the Company's common stock in exchange for a voluntary reduction in
base salary. The plan was approved by stockholders on June 11, 1993
and was effective March 18, 1993. Options were granted as
participants elected, pursuant to their Stock Option Agreement, to
reduce their compensation for fiscal years 1993 and 1994. A total
of 1,000,000 shares has been authorized for issuance. As of
February 4, 1995, 240,284 options at an exercise price of $18.38
for 1993 salary reduction and 263,883 options at an exercise price
of $15.50 for 1994 salary reduction have been awarded. Options
granted are exercisable after three years and expire at the end of
eight years.
14. INDUSTRY SEGMENT INFORMATION
The Company is engaged in developing and marketing products and
services for consumers in the United States and Canada through a
network of centrally managed retail locations. The Company operates
in four business segments: Portrait Studios, Photofinishing, Wall
Decor and Other Products and Services.
The Portrait Studios segment operates a professional portrait
photography business, primarily through fixed location studios. The
Photofinishing segment provides photofinishing services, primarily
for amateur photographers, and sells film and other camera
accessories. The Wall Decor segment markets an assortment of custom
print reproductions and related accessories and provides custom
framing services. The Other Products and Services industry segment
consists of an electronic publishing business and other specialty
services. Sales and operating earnings segment information is
included in "Management Discussion and Analysis of Financial
Condition and Results of Operations" and is incorporated by
reference herein from the table on page 17 of this document (page
reference is for published paper copy of the Annual Report). The
following table sets forth certain information about each of these
industry segments (amounts in thousands):
<PAGE>
<TABLE>
Selected Industry Segment Information for Fiscal Years 1994,
1993 and 1992 (amounts in thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION:
Portrait Studios $ 12,121 $ 6,332 $ 6,015
Photofinishing 17,557 19,655 17,019
Wall Decor 2,918 2,578 -
Other Products and Services 2,285 1,833 2,784
Corporate 3,015 3,063 2,941
--------- --------- ---------
$ 37,896 $ 33,461 $ 28,759
========= ========= =========
Identifiable assets:
Portrait Studios $110,890 $ 62,694 $ 49,353
Photofinishing 118,592 125,044 133,156
Wall Decor 27,094 20,215 -
Other Products and Services 11,135 11,276 12,607
Corporate 32,770 86,567 42,635
--------- --------- ---------
$300,481 $305,796 $237,751
========= ========= =========
Capital expenditures:
Portrait Studios $ 57,329 $ 18,960 $ 2,378
Photofinishing 10,347 10,147 18,688
Wall Decor 8,030 14,057 -
Other Products and Services 2,423 1,570 1,640
Corporate 884 625 4,560
--------- --------- ---------
$ 79,013 $ 45,359 $ 27,266
========= ========= =========
</TABLE>
Substantially all of the Company's Portrait Studio business
operates in the United States under a Sears, Roebuck and Co.
("Sears") license agreement that is terminable by either the
Company or Sears upon 90 days notice. Except in connection with
store closings, Sears has never terminated the operations of any of
the Company's portrait studios. The Company's relationship with
Sears is long-standing, and management has no reason to believe
that Sears will exercise its rights under the agreement to
materially reduce the scope of the Company's business with Sears.
15. STOCK REPURCHASE PLAN
The Company's Board of Directors announced on September 29, 1988,
that it had authorized the Company to purchase up to 2,500,000
shares, or approximately 15%, of its outstanding common stock. In
addition, on April 2, 1992, the Company's Board also authorized the
purchase of an additional 2,000,000 shares of Company common stock.
The Board has authorized purchases at management's discretion from
time to time at acceptable market prices. Acquired shares are held
<PAGE>
as treasury stock and will be available for general corporate
purposes. As of February 4, 1995, the Company had purchased
3,302,463 shares of stock for $74.5 million at an average stock
price of $22.57.
16. STOCKHOLDER RIGHTS PLAN
On May 1, 1989, the Board of Directors of the Company declared a
dividend distribution of one preferred stock purchase right for
each outstanding share of common stock. The rights were issued
under a Rights Plan, which entitles holders of common stock to
purchase one one-hundredth of a share of Series A Participating
Preferred Stock in the Company, or an acquirer of the Company, in
the event of certain hostile efforts, as defined in the Rights
Plan, to gain control of the Company. The rights issued expire on
May 11, 1999, unless redeemed earlier. On August 26, 1993, the
Board of Directors of the Company amended the Company's Stockholder
Rights Plan. As a result of the amendment, the rights will be
exercisable if any person or group (other than certain entities
affiliated with the Company) becomes the beneficial owner of 15% or
more of the Company's common stock. Under the original Stockholder
Rights Plan the rights were exercisable at 20% of CPI common stock.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, RECEIVABLES,
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The carrying amounts approximate fair value at February 4, 1995,
due to the short maturity of these financial instruments.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The fair value of the Company's debt is estimated based on quoted
market prices for similar debt issues with the same remaining
maturities. On February 4, 1995, the carrying value and estimated
fair market value of the Company's debt was $66.7 million and $61.9
million, respectively.
INTEREST RATE SWAP AGREEMENT
The carrying value of $774,000 represents the estimated liability
if the Company were to terminate its position under the agreement
and approximates the fair value of the interest rate swap based on
LIBOR rates currently available to the Company.
<PAGE>
18. CONTINGENCIES
The Company is a defendant in various lawsuits arising in the
natural course of business. It is the opinion of management that
the ultimate liability, if any, resulting from the resolution of
such lawsuits will not have a material effect on the consolidated
financial position or the results of operations of the Company.
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
- ---------------------------------
The Company's portrait photography business is seasonal, with the
largest sales volume during the third and fourth quarters, the
period preceding and including the Thanksgiving and Christmas
seasons. Additionally, in the first quarter of 1993, a provision of
$1.6 million before taxes ($0.9 million after taxes) was recorded
to cover the cost of certain early-retirement and employee-
reduction programs. Also in the first quarter of 1993, the Company
adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," resulting in a
one-time increase in net earnings of $2.1 million.
The following table sets forth selected financial data for the
quarters of the Company's fiscal years ended February 5, 1994,
February 6, 1993 and February 1, 1992. Although this information is
unaudited, in the opinion of the Company, it reflects all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for
such periods.
Since April 17, 1989, the Company's common stock has been traded on
the New York Stock Exchange under the symbol CPY. Prior to that
time, it was traded on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") under the symbol CPIC. The
adjacent table sets forth the high and low last-sale prices of the
common stock reported by the New York Stock Exchange or NASDAQ
during the Company's last three fiscal years.
<PAGE>
<TABLE>
Selected Quarterly Financial Data
(in thousands except per share amounts)
<CAPTION>
Quarter Ended
---------------------------------------
Apr. 30, July 23, Nov. 12, Feb. 4,
1994 1994 1994 1995
(12 wks) (12 wks) (16 wks) (12 wks)
<S> <C> <C> <C> <C>
Fiscal Year 1994
Net sales $100,104 $104,651 $175,404 $152,995
Earnings before income
taxes (loss) $ (4,147) $ 2,721 $ 6,226 $ 18,728
Net earnings (loss) $ (2,487) $ 1,632 $ 3,832 $ 11,846
Earnings per common
share (loss) $ (0.17) $ 0.11 $ 0.28 $ 0.86
Weighted average number
of common and common
equivalent shares 14,581 14,342 13,829 13,744
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
Stock Price and Volume
High $ 16.63 $ 18.13 $ 21.88 $ 20.50
Low $ 14.50 $ 14.25 $ 17.25 $ 13.88
Volume (thousands) 1,361 1,922 2,376 1,313
</TABLE>
<PAGE>
<TABLE>
Selected Quarterly Financial Data
(in thousands except per share amounts)
<CAPTION>
Quarter Ended
---------------------------------------
May 1, July 24, Nov. 13, Feb. 5,
1993 1993 1993 1994
(12 wks) (12 wks) (16 wks) (12 wks)
<S> <C> <C> <C> <C>
Fiscal Year 1993
Net sales $ 88,790 $ 95,386 $145,320 $146,024
Earnings (loss) before
income taxes and
cumulative effect of
accounting change $ (4,246) $ 3,459 $ 5,588 $ 13,718
Earnings (loss) before
cumulative affect
of accounting change $ (2,538) $ 2,067 $ 3,353 $ 8,235
Net earnings (loss) $ (418) $ 2,067 $ 3,353 $ 8,235
Earnings per common
share
Cumulative affect of
accounting change $ 0.14 $ - $ - $ -
Net earnings $ (0.03) $ 0.14 $ 0.23 $ 0.56
Weighted average number
of common and common
equivalent shares 14,663 14,680 14,673 14,645
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
Stock Price and Volume
High $ 20.75 $ 16.75 $ 18.25 $ 17.88
Low $ 16.00 $ 14.00 $ 13.88 $ 14.38
Volume (thousands) 1,790 3,153 1,731 2,309
</TABLE>
<PAGE>
<TABLE>
Selected Quarterly Financial Data
(in thousands except per share amounts)
<CAPTION>
Quarter Ended
---------------------------------------
Apr. 25, July 18, Nov. 7, Feb. 6,
1992 1992 1992 1993
(12 wks) (12 wks) (16 wks) (13 wks)
<S> <C> <C> <C> <C>
Fiscal Year 1992
Net sales $ 92,636 $ 92,637 $126,468 $137,639
Earnings before income
taxes $ 3,491 $ 5,968 $ 9,907 $ 17,156
Net earnings $ 2,181 $ 3,646 $ 6,180 $ 10,608
Earnings per common
share $ 0.15 $ 0.25 $ 0.42 $ 0.72
Weighted average number
of common and common
equivalent shares 14,727 14,672 14,655 14,658
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
Stock Price and Volume
High $ 25.88 $ 26.38 $ 19.75 $ 21.63
Low $ 22.50 $ 19.50 $ 15.00 $ 16.00
Volume (thousands) 1,991 2,014 2,280 4,019
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors and Stockholders
CPI Corp.:
We have audited the accompanying consolidated balance sheets of CPI
Corp. and subsidiaries as of February 4, 1995 and February 5, 1994,
and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the fiscal years
in the three-year period ended February 4, 1995. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of CPI Corp. and subsidiaries at February 4, 1995 and
February 5, 1994, and the results of their operations and their
cash flows for each of the fiscal years in the three-year period
ended February 4, 1995, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
April 6, 1995
<PAGE>
DIRECTORS AND OFFICERS
- ----------------------
MILFORD BOHM*
Retired founder and Chairman Emeritus, CPI Corp.
ALYN V. ESSMAN
Chairman of the Board and Chief Executive Officer, CPI Corp.
RUSSELL ISAAK
President, CPI Corp.
MARY ANN KREY*
Chief Executive Officer, Krey Distributing Co.
LEE LIBERMAN
Chairman Emeritus, Laclede Gas Company
NICHOLAS L. REDING
Vice Chairman, Monsanto Company
MARTIN SNEIDER
Co-Chairman--Executive Committee, Edison Brothers Stores, Inc.
ROBERT L. VIRGIL*
Principal, Edward D. Jones & Co.
*Member of the Audit Committee of the Board of Directors
ALYN V. ESSMAN
Chairman, Chief Executive Officer
OFFICE OF THE PRESIDENT
RUSSELL ISAAK--President
DAVID E. APRIL--Senior Executive Vice President
PATRICK J. MORRIS--Senior Executive Vice President
JANE E. NELSON
Secretary and General Counsel
CORPORATE OFFICERS
BARRY ARTHUR--Executive Vice President, Finance-Chief Financial
Officer
EDMUND J. CHASE--Executive Vice President, Strategic Development
WILLIAM F. CRONIN--Executive Vice President, Marketing
FRAN SCHEPER--Executive Vice President, Human Resources
RICHARD TARPLEY--Executive Vice President, Manufacturing
DIVISION PRESIDENTS
R. L. BECK--CPI /Fox Photo Finish
THEODORE DE BUHR II--CPI Electronic Publishing
ARTHUR PADOVESE--Prints Plus
HARRY STECHER--Sears Portrait Studios and Canadian Operations
<PAGE>
INVESTOR INFORMATION
- --------------------
MOST RECENT ANALYST REPORTS
McDonald & Company, Jeffrey S. Stein, September 7, 1994
Morgan Keegan & Co., Craig T. Weichmann, December 22, 1994
Smith Barney, Peter J. Enderlin, December 29, 1994
Value Line, Phillip M. Seligman, March 3, 1995
STOCK TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10004
AUTOMATIC DIVIDEND REINVESTMENT
The automatic dividend reinvestment plan is a convenient way for
shareholders to increase their investment in the Company, with all
brokerage commissions and service charges paid by CPI Corp. Cash
contributions in the amount of $10 to $10,000 per quarter can also
be made toward the purchase of additional shares. For a plan
description, enrollment card or other information, write or call
the Shareholder Service Department at CPI Corporate Headquarters.
AT THE COMPANY
Alyn V. Essman
Chairman
CPI Corp., 1706 Washington Avenue, St. Louis, MO 63103-1717
(314) 231-1575, Extension 3240
AT THE FINANCIAL RELATIONS BOARD, INC.
George Zagoudis
Senior Associate and Account Group Supervisor
John Hancock Center, 875 N. Michigan Avenue, Chicago, IL 60611
(312) 266-7800
David Mandy
Associate and Market Intelligence Executive
675 Third Avenue, New York, NY 10017, (212) 661-8030
ANNUAL MEETING/CORPORATE HEADQUARTERS
The annual meeting of stockholders' will convene at 10:00 a.m.,
Tuesday, June 13, 1995 at the Corporate Headquarters, 1706
Washington Avenue, St. Louis, MO 63103-1717.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
St. Louis, MO
CPI Corp.
1706 Washington Avenue, St. Louis, Missouri 63103-1717,
(314) 321-1575
NYSE: CPY
EXHIBIT (21)
<TABLE>
SUBSIDIARIES OF THE REGISTRANT AS OF FEBRUARY 4, 1995
<CAPTION>
STATE/PROVINCE COUNTRY
-------------- ------------
<S> <C> <C>
CPI Corp. Delaware United States
Consumer Programs Holding, Inc. Delaware United States
Consumer Programs, Incorporated Missouri United States
d/b/a Sears Portrait Studios
CPI Brands, Inc. Delaware United States
Consumer Programs Partner,Inc. Delaware United States
Fox Photo, Inc. Delaware United States
d/b/a CPI Photo Finish One
Hour Photo
d/b/a CPI Photo Finish One
Hour Photo, Inc.
d/b/a Fox Photo 1-Hour Lab
d/b/a Fox PHoto 1-Hour Lab, Inc.
Fox Photo Partner, Inc. Delaware United States
Proex Photo Systems, Inc. Missouri United States
d/b/a Proex Portrait & Photo
d/b/a Proex Photo & Lab
d/b/a Proex Photo
d/b/a Mainstreet Portraits
CPI Prints Plus, Inc. Delaware United States
Ridgedale Prints Plus, Inc. Minnesota United States
d/b/a Prints Plus
Prints Plus, Inc. California United States
d/b/a Prints Plus
d/b/a Prints & Posters
</TABLE>
<PAGE>
<TABLE>
SUBSIDIARIES OF THE REGISTRANT AS OF FEBRUARY 4, 1995 (CONTINUED)
<CAPTION>
STATE/PROVINCE COUNTRY
-------------- ------------
<S> <C> <C>
Color Laser Corp. Delaware United States
d/b/a Image Explosion
CPI Photo Finish, Inc. Delaware United States
CPI Copy Services, Inc. Missouri United States
d/b/a CopyMat
d/b/a Copy USA
d/b/a Raging Fingers
d/b/a Image Explosion
CPI Technology Corp. Missouri United States
CPI Corp. Canada Ontario Canada
d/b/a Sears Portrait Studios
</TABLE>
EXHIBIT (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
CPI Corp.:
We consent to incorporation by reference in the registration
statement No. 33-50082 on Form S-8 of CPI Corp. of our report dated
April 6, 1995, relating to the consolidated balance sheets of CPI
Corp. and subsidiaries as of February 4, 1995 and February 5, 1994
and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the fiscal years in
the three-year period ended February 4, 1995, and all related
schedules, which report appears in the 1994 annual report on Form
10-K of CPI Corp.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG PEAT MARWICK LLP
St. Louis, Missouri
April 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-04-1995
<PERIOD-END> FEB-04-1995
<CASH> 4,023
<SECURITIES> 10,326
<RECEIVABLES> 24,397
<ALLOWANCES> 1,277
<INVENTORY> 33,943
<CURRENT-ASSETS> 81,982
<PP&E> 308,887
<DEPRECIATION> 149,761
<TOTAL-ASSETS> 300,481
<CURRENT-LIABILITIES> 69,767
<BONDS> 0
<COMMON> 6,849
0
0
<OTHER-SE> 159,151
<TOTAL-LIABILITY-AND-EQUITY> 300,481
<SALES> 533,155
<TOTAL-REVENUES> 533,155
<CGS> 152,259
<TOTAL-COSTS> 505,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,296
<INCOME-PRETAX> 23,528
<INCOME-TAX> 8,706
<INCOME-CONTINUING> 14,822
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 14,822
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
