<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CPI CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
CPI CORPORATION LOGO
May 8, 1998
DEAR CPI CORP. STOCKHOLDER:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of CPI Corp. The meeting will be held on Thursday, June 11, 1998, at 10:00 a.m.
(CDT) at CPI Corp., 1706 Washington Avenue, St. Louis, Missouri 63103.
I urge you to attend the meeting, if at all possible, since it provides an
opportunity for you to discuss CPI Corp. with its management, in person. If you
cannot personally attend, please vote your preference on the enclosed proxy card
and return it promptly.
It is important that your shares be voted, whether in person or by proxy.
Your participation in CPI Corp.'s business through its annual meetings is an
essential part of the Corporation's governance.
I look forward to seeing you.
Sincerely,
ALYN V. ESSMAN
--------------------------------------
ALYN V. ESSMAN
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
CPI CORP LOGO)
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO OUR STOCKHOLDERS:
The annual meeting of the stockholders of CPI Corp. (the "Corporation")
will be held on June 11, 1998, at 10:00 a.m., central daylight savings time, at
CPI Corp., 1706 Washington Avenue, St. Louis, Missouri 63103. The items of
business to be transacted at this meeting are as follows:
1. To elect a Board of Directors for the ensuing year;
2. To act upon a proposal to ratify the appointment of KPMG Peat Marwick
LLP as the Corporation's independent certified public accountants for
the fiscal year ending February 6, 1999;
3. To act upon a proposed annual incentive program for key executives to
further strengthen the alignment of executive compensation with
shareholder interests; and
4. To act upon such other and further business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has specified April 24, 1998, at the close of
business, as the record date for the purpose of determining the stockholders who
are entitled to receive notice of and to vote at the annual meeting. A list of
the stockholders entitled to vote at the annual meeting will be available for
examination by any stockholder at the meeting. For ten days prior to the annual
meeting, this stockholder list will also be available for inspection by
stockholders at the Corporation's offices at 1706 Washington Avenue, St. Louis,
Missouri 63103, during ordinary business hours.
The Proxy Statement for the annual meeting is set forth on the following
pages.
SO THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THIS MEETING, WE
URGE YOU TO PROMPTLY SIGN, DATE, AND RETURN YOUR PROXY EVEN IF YOU PLAN TO
ATTEND THE MEETING. IF YOU DO ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN
PERSON, THEREBY CANCELING THE PROXY. THE PROMPT RETURN OF PROXIES WILL SAVE THE
CORPORATION THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT
THE MEETING. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES, IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors
NELSON SIG
JANE E. NELSON
Secretary and General Counsel
Dated and mailed: May 8, 1998
<PAGE> 4
CPI CORP. LOGO
1706 WASHINGTON AVENUE
ST. LOUIS, MISSOURI 63103
PROXY STATEMENT OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS OF CPI CORP.
TO BE HELD ON JUNE 11, 1998
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement and the accompanying Proxy are being mailed beginning
May 8, 1998, to holders of common stock of CPI Corp., a Delaware corporation
(referred to herein collectively with its predecessor corporations as the
"Corporation" or the "Company"), in connection with the solicitation of Proxies
by the Board of Directors for the Annual Meeting of Stockholders to be held on
June 11, 1998, at 10:00 a.m., central daylight savings time, at CPI Corp., 1706
Washington Avenue, St. Louis, Missouri 63103, or at any adjournment thereof (the
"Meeting"). Proxies are solicited to provide all stockholders of the Corporation
with the opportunity to vote. Shares may only be voted at the Meeting if the
stockholder is present in person or represented by a Proxy.
The cost of preparing, mailing, and soliciting Proxies will be borne by the
Corporation. In addition to solicitations by the Corporation by mail, directors,
officers, and regular employees of the Corporation may solicit Proxies
personally and by telephone, facsimile, telegraph, or other means, for which
they will receive no compensation in addition to their normal compensation. The
Corporation has also retained Harris Trust and Savings Company, 111 West Monroe,
P.O. Box 755, Chicago, Illinois 60690-0755, to assist in the solicitation of
Proxies from stockholders, including brokerage houses and other custodians,
nominees, and fiduciaries and will pay that firm out-of-pocket expenses.
Arrangements will also be made with brokerage houses and other custodians,
nominees, and fiduciaries for the forwarding of solicitation material to the
beneficial owners of common stock held of record by such persons, and the
Corporation may reimburse them for their reasonable out-of-pocket and clerical
expenses.
The stockholder giving the Proxy may revoke it by (i) delivering a written
notice of revocation to the Secretary of the Corporation at the principal office
of the Corporation at the address set forth above at any time before the
commencement of the Meeting or any adjournment thereof; (ii) attending and
voting at the Meeting in person; or (iii) executing and delivering to the
Secretary of the Corporation a Proxy bearing a date and time later than that of
the Proxy to be revoked. Revocation of the Proxy will not affect any vote
previously taken.
The Meeting has been called for the purposes set forth in the Notice of
Annual Meeting (the "Notice") to which this Proxy Statement is appended. The
Board of Directors does not anticipate that matters other than those described
in the Notice will be brought before the Meeting for stockholder action, but if
any other matters properly come before the Meeting, votes thereon will be cast
by the Proxy holders in accordance with their best judgment. Any proposals of
stockholders intended to be presented at the 1999 Annual Meeting must be
received by the Company no later than January 8, 1999 for inclusion in the
Company's Proxy Statement and form of proxy.
If a stockholder wishes to give a Proxy to someone other than the persons
indicated on the accompanying Proxy, the stockholder must cross out both names
appearing on the Proxy and insert the
2
<PAGE> 5
name or names of another person or persons to act as Proxies. The signed Proxy
must be presented at the Meeting by the person or persons representing the
stockholder.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of common stock of the Corporation of record at the close of
business on April 24, 1998, are entitled to notice of, and to vote at, the
Meeting. Each share of common stock outstanding on the record date is entitled
to one vote on all matters properly coming before the Meeting. As of the close
of business on April 24, 1998, 9,930,827 shares of common stock were issued and
outstanding, and 50% of these shares constitutes a quorum, which must be present
in person or by Proxy at the Meeting to conduct business. At the Corporation's
1995, 1996 and 1997 annual meetings 90.88%, 88.3% and 89.06% respectively, of
the issued and outstanding shares of common stock were present and voting. The
Corporation has no issued and outstanding shares of any other class of stock.
Unless you indicate to the contrary, the persons named in the accompanying
Proxy will vote for:
(1) THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED HEREIN;
(2) THE RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE CORPORATION'S FISCAL YEAR 1998; AND
(3) APPROVAL OF AN ANNUAL INCENTIVE PROGRAM FOR KEY EXECUTIVES TO FURTHER
STRENGTHEN ALIGNMENT OF EXECUTIVE COMPENSATION WITH SHAREHOLDER
INTERESTS.
When a Proxy is returned to the Corporation properly signed and dated, the
persons designated as Proxies shall vote the shares represented by the Proxy in
accordance with the stockholder's directions. If a Proxy is signed, dated, and
returned without specifying choices on one or more matters presented to the
stockholders, the shares will be voted on such matter or matters as recommended
by the Corporation's Board of Directors.
Directors of the Company shall be elected by a plurality vote. All other
questions shall be determined by a majority of the votes cast thereon. Proxies
for shares marked "abstain" on a matter will be considered to be represented at
the meeting, but not voted, for these purposes. Shares registered in the names
of brokers or other "street name" nominees for which Proxies are voted on some
but not all matters will be considered to be represented at the meeting, but
will be considered to be voted only as to those matters actually voted.
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
Nine directors are to be elected at the Meeting, each to serve for a term
of one year and thereafter until their successors are duly elected and
qualified. All of the following nine nominees are presently directors of the
Corporation: Messrs. Bohm, Essman, Isaak, Liberman, Morris, Reding, Sneider and
Virgil and Ms. Krey.
Unless authority to vote is withheld, the enclosed Proxy will be voted for
the election of the nominees as directors of the Corporation. If any one or more
of the nominees becomes unavailable for election, which is not anticipated, the
holders of the Proxies, acting pursuant to the authority granted by the Proxy,
will vote for such person or persons as may be designated by the Board of
Directors.
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<PAGE> 6
The name of each nominee, the year each present director first joined the
Board, and the nominees' principal occupations and ages are:
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE PRINCIPAL OCCUPATION AGE
---- -------- -------------------------------------- ---
<S> <C> <C> <C>
Milford Bohm 1942 Managing Partner of Milford Bohm and 76
Associates, personal investments
Alyn V. Essman 1968 Chairman and Chief Executive Officer 66
of the Corporation
Russell Isaak 1992 President of the Corporation 55
Mary Ann Krey 1994 Chief Executive Officer, Krey 50
Distributing Co., an Anheuser-Busch
beer distributor in St. Charles and
Lincoln Counties, Missouri
Lee M. Liberman 1982 Chairman Emeritus of the Board of 76
Laclede Gas Company, a St. Louis,
Missouri public utility
Patrick J. Morris 1997 Senior Executive Vice President of the 58
Corporation and President of the
Corporation's Portrait Studio
Division
Nicholas L. Reding 1992 Vice Chairman of the Board of Monsanto 63
Company, a St. Louis, Missouri
based manufacturer of chemicals,
pharmaceuticals, agricultural and
food products
Martin Sneider 1994 Adjunct Professor of Retailing at 55
Washington University of St. Louis,
Missouri
Robert L. Virgil 1982 Principal, Edward Jones, a full 63
service retail brokerage firm
located in St. Louis, Missouri
</TABLE>
Mr. Bohm founded the predecessor of the Corporation in 1942 and was
employed by the Corporation from that time until his retirement in February 1988
in various positions, including Chief Executive and Chairman until 1973, and
then as Chairman of an officers' committee until his election as Chairman
Emeritus in 1978. Since his retirement from CPI, Mr. Bohm has served as Managing
Partner of Milford Bohm & Associates.
Mr. Essman joined the Corporation in 1956 as Controller. He was appointed
President in 1969 and has served as Chairman and Chief Executive Officer of the
Corporation since 1973. He currently chairs the Corporation's Executive
Committee of officers.
Mr. Isaak joined the Corporation as Controller in 1972. He became the
Corporation's Chief Financial Officer in 1978 and was appointed Vice
President/Finance in 1979 and Executive Vice President-Finance/Administration in
February 1982. Effective February 1992, he was appointed President of the
Corporation and is also a member of the Corporation's Executive Committee of
officers.
Ms. Krey has served as Chief Executive Officer of Krey Distributing Co., an
Anheuser-Busch beer distributor in the metropolitan St. Louis market since 1986.
She is a trustee of Washington University in St. Louis and serves as a director
of Commerce Bancshares, Inc., Laclede Gas Company, Masco Corporation and a
number of other organizations in Missouri.
4
<PAGE> 7
Mr. Liberman is Chairman Emeritus of Laclede Gas Company, a St. Louis,
Missouri public utility. He served as Chairman of the Board of that company from
April 23, 1976 until his retirement from the Board on January 27, 1994. He is
also a director of Falcon Products, Inc., Furniture Brands, Inc. (formerly known
as INTERCO Incorporated) and DT Industries.
Mr. Morris has served as Senior Executive Vice President of the Corporation
and as a member of the Office of the President since February 1992. He became
President of the Corporation's Portrait Studio Division in October of 1997. He
joined the Corporation in 1985 as Executive Vice President- Marketing. He also
serves on the Corporation's Executive Committee of officers.
Mr. Reding is Vice Chairman of the Board of Monsanto Company, a St. Louis,
Missouri based manufacturer of chemicals, pharmaceuticals, agricultural and food
products sold worldwide. From 1990 through 1992 he served as Executive Vice
President of Monsanto, with responsibility for environment, safety, health and
manufacturing operations. From 1986 until 1990, he served as President of
Monsanto Agricultural Company, an operating unit of Monsanto Company. Mr. Reding
joined Monsanto in 1956. He also serves as a director of Monsanto Company,
Multifoods Corp. and Meredith Corp.
Mr. Sneider, Adjunct Professor of Retailing at Washington University of St.
Louis, Missouri, served as President of Edison Brothers Stores, Inc., a St.
Louis, Missouri based company that operates numerous specialty chains
nationwide, from 1987 until April of 1995. He also serves as a director of
Agribrands International, Incorporated, and is Chairman of the Board of Trustees
of St. Louis Children's Hospital. In November of 1995, Edison Brothers filed for
protection under Chapter 11 of the federal bankruptcy code.
Mr. Virgil is a principal with Edward Jones, a full service retail
brokerage firm located in St. Louis, Missouri. Prior to accepting that position
in 1993, Mr. Virgil served as Executive Vice Chancellor of University Relations
and Dean of the John M. Olin School of Business of Washington University in St.
Louis. He joined the Washington University faculty in 1964. He also serves as a
director of General American Life Insurance Company, Maritz, Inc. and OmniQuip
International, Inc.
EXECUTIVE OFFICERS
Following is a list of all individuals who served as Corporate Executive
Officers during 1997, together with their respective ages and the positions in
which they have served the Corporation:
Alyn V. Essman (66)......... Chief Executive Officer. Mr. Essman joined the
Corporation in 1956 as Controller. He was
appointed President in 1969 and has served as
Chairman and Chief Executive Officer of the
Corporation since 1973. He currently chairs the
Corporation's Executive Committee of officers.
Russell Isaak (55).......... President. Mr. Isaak joined the Corporation as
Controller in 1972. He became the Corporation's
Chief Financial Officer in 1978 and was appointed
Vice President/Finance in 1979 and Executive Vice
President-Finance/Administration in February
1982. In February 1992 he was appointed President
of the Corporation and is also a member of the
Corporation's Executive Committee of officers.
Patrick J. Morris (58)...... Senior Executive Vice President and President,
Portrait Studio Division. Mr. Morris joined the
Corporation in May 1985 as its Executive Vice
President-Marketing. Effective February 1992, he
was appointed Senior Executive Vice President. In
October 1997, he became President of the
Corporation's Portrait Studio Division. Mr.
Morris is a member of the Office of the President
and of the Executive Committee of officers.
5
<PAGE> 8
Barry C. Arthur (55)........ Executive Vice President-Finance and Chief
Financial Officer. Mr. Arthur joined the
Corporation in 1965 as an accountant and
subsequently became Controller. In 1981, he was
appointed Treasurer, and in July 1983, he was
named Vice President-Finance. Mr. Arthur was
appointed to his current position effective
February 1992. He is a member of the Executive
Committee of officers.
Jane E. Nelson (48)......... Secretary and General Counsel. Ms. Nelson joined
the Corporation in 1988 as Assistant General
Counsel and subsequently served as Associate
General Counsel and Assistant Secretary. She was
promoted to her current position in February
1993.
Fran Scheper (52)........... Executive Vice President-Human Resources. Ms.
Scheper joined the Corporation in 1967 as
Personnel Assistant. She was promoted to
Assistant Personnel Director in 1982 and in
January 1987 became Vice President-Human
Resources. She was appointed to her current
position in February 1992 and is a member of the
Executive Committee of officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the Company's best knowledge, the following table sets forth beneficial
owners of more than five percent of the common stock of the Corporation.
<TABLE>
<CAPTION>
(3)
(1) (2) AMOUNT AND (4)
TITLE NAME AND ADDRESS OF NATURE OF PERCENT
OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock New South Capital Management 1,302,219(1) 11%
1000 Ridgeway Loop Road, Suite 233
Memphis, Tennessee 38120
Common Stock First Pacific Advisors, Inc. 1,245,650(2) 10.5%
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
Common Stock Ryback Management Corporation 956,900(3) 8.1%
7711 Carondelet Avenue
St. Louis, Missouri 63105
</TABLE>
- ---------------
(1) As reported on its Schedule 13G, dated February 12, 1998, New South Capital
Management, an Investment Adviser registered under Section 203 of the
Investment Advisers Act of 1940, was the owner of 1,302,219 shares as of
December 31, 1997, representing approximately 11% of the total shares
outstanding on that day. New South Capital Management has sole voting power
for 1,233,230 of the shares, shared voting power for 68,989 shares and sole
dispositive power for all 1,320,219 shares.
(2) As reported on its Schedule 13G, dated February 10, 1998, First Pacific
Advisors, Inc. ("First Pacific"), an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, beneficially owned
1,245,650 shares, or approximately 10.5% of the total shares outstanding on
December 31, 1997. First Pacific has shared voting power with respect to
504,350 of the shares and shared dispositive power with respect to all
1,245,650 shares.
(3) As reported in its 13G dated, January 23, 1998, Ryback Management
Corporation, an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940 held sole voting and dispositive power as to
956,900 shares as of December 31, 1997, constituting 8.1% of the outstanding
shares on that date. The shares are held by Ryback Management Corporation in
a fiduciary capacity for Lindner Growth Fund, a registered investment
company.
6
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
Information is set forth below regarding beneficial ownership of Common
Stock of the Company as of April 24, 1998 by (i) each person who is a director
and nominee; (ii) each executive officer named in the Summary Compensation Table
on page 13; and (iii) all directors and executive officers as a group. Except as
otherwise noted, each person has sole voting and investment power as to his or
her shares.
<TABLE>
<CAPTION>
(3)
AMOUNT AND NATURE (4)
(1) (2) OF BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ------------------------ ----------------- --------
<S> <C> <C> <C>
Common Stock Barry C. Arthur 54,904(a)(b) *
Common Stock Milford Bohm 30,000(c) *
Common Stock Alyn V. Essman 625,115(a)(b)(d) 6.29%
Common Stock Russell Isaak 300,943(a)(b) 3.03%
Common Stock Mary Ann Krey 1,000(c) *
Common Stock Lee Liberman 400(c) *
Common Stock Patrick J. Morris 153,049(a)(b)(d) 1.54%
Common Stock Nicholas Reding 1,200(c) *
Common Stock Fran Scheper 9,251(a)(b)(d) *
Common Stock Martin Sneider 500(c) *
Common Stock Robert Virgil 600(c) *
Common Stock 17 Directors and Executive Officers as a Group 1,215,979(a)(b)(e) 12.24%
</TABLE>
- ---------------
* Percentage does not exceed one percent.
(a) Includes the following shares which such persons have the right to acquire
within 60 days after April 24, 1998 upon the exercise of employee stock
options: Mr. Arthur: 52,000; Mr. Essman: 310,000; Mr. Isaak: 180,000; Mr.
Morris: 140,000; Ms. Scheper: 9,000; and directors and executive officers as
a group: 724,240. The exercise prices for all options exercisable within 60
days range from $15.50 to $35.00. Market Value as of April 24, 1998 was
$26.56.
(b) Excludes 851 shares for Mr. Arthur; 19 shares for Mr. Isaak; 450 shares for
Mr. Morris; 745 shares for Ms. Scheper; and 5,253 shares for directors and
executive officers as a group, all held under the CPI Corp. Employees Profit
Sharing Plan and Trust. With respect to such shares, the executives have
neither voting power nor investment power.
(c) Excludes Phantom Stock Rights, which are based on value of common stock, and
Growth Units for Deferred Compensation, which are based on book value, as
follows: Mr. Bohm: 4,429 Growth Units; Mr. Liberman: 23,662 Growth Units;
Ms. Krey: 1,200 Phantom Stock Rights and 3,824 Growth Units; Mr. Reding:
1,600 Phantom Stock Rights and 3,541 Growth Units; Mr. Sneider: 1,200
Phantom Stock Rights; and Mr. Virgil: 3,600 Phantom Stock Rights and 4,435
Growth Units. See page 8 for further explanation of Phantom Stock Rights and
Growth Units.
(d) Excludes 40,000 shares beneficially owned by Mr. Essman's wife, as to which
he expressly disclaims beneficial ownership.
(e) Excludes 40,727 shares beneficially owned by members of the immediate family
of certain executive officers as to which those executives expressly
disclaim beneficial ownership.
7
<PAGE> 10
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended February 7, 1998 ("fiscal year 1997"), the
Corporation's Board of Directors met 12 times. All directors attended more than
75% of the meetings that they were eligible to attend.
The Board of Directors has four committees: the Audit, the Compensation,
the Nominating and Governance, and the Finance and Investment Committees. The
Audit Committee's members are Messrs. Virgil (Chairman) and Bohm and Ms. Krey.
The Committee held four meetings during the last fiscal year. The Audit
Committee is responsible for reviewing the financial statements of the
Corporation and the scope of work of its independent auditors. The Committee
also evaluates recommendations of the auditors, recommends areas of review to
the Corporation's management, and reviews and evaluates the Corporation's
accounting policies, reporting practices, and internal controls.
The Compensation Committee's members are Messrs. Liberman (Chairman),
Reding and Sneider. The Committee held six meetings during the last fiscal year
and acted by unanimous consent on nine occasions. The Compensation Committee
reviews annually the performance of principal officers, establishes annual
salaries and incentives for principal officers and reviews periodically
compensation and benefit programs. The Compensation Committee also serves as the
Stock Option Committee under the Corporation's 1991 Stock Option Plan and under
the Voluntary Stock Option Plan and as the governing committee under the
Restricted Stock Plan.
The Nominating and Governance Committee's members are Messrs. Reding
(Chairman), and Liberman and Ms. Krey. During fiscal year 1997, this Committee
held one meeting. The Nominating and Governance Committee is charged with
nominating qualified members for the Corporation's Board of Directors and
monitoring developments in governance of publicly held companies. The Nominating
and Governance Committee will consider nominees recommended by security holders.
Any security holder who desires to recommend a prospective nominee should
forward the name, address and telephone number of such prospective nominee,
together with a description of the nominee's qualifications and relevant
business and personal experience, to the Corporation's Secretary.
The Finance and Investment Committee, whose members are Messrs. Bohm
(Chairman), Sneider and Virgil, met three times during fiscal year 1997. This
Committee reviews dividend policy, financing plans, investment policy and
investment performance. It also makes recommendations to management as necessary
to insure that the Company's pension and profit sharing plans meet the business
needs of the Company and are adequately funded.
COMPENSATION OF DIRECTORS
Each director who is not an officer receives a retainer of $10,000 per year
plus $850 for each Board and committee meeting he or she attends. Directors who
are also officers receive no retainer or other compensation for service as
directors.
Effective April 4, 1991, the Corporation established the CPI Corp. Deferred
Compensation and Retirement Plan for Non-Management Directors (the "Directors'
Plan"). Participation in the Directors' Plan is limited to directors who are not
employees of the Corporation. The plan is administered by a committee composed
of directors who are employees and the Chief Financial Officer and the General
Counsel of the Company. The committee may amend, modify, or terminate the plan
at any time.
The Directors' Plan has compensation deferral and phantom stock components.
Under the deferral components, a participating director must irrevocably elect
before the beginning of a fiscal year to defer up to all (but not less than
$5,000) of his or her retainer, fee, and other compensation for such fiscal
year. The director also selects a deferral period of not less than three years,
although the deferral period will be shortened by the director's death, total
and permanent disability, or resignation
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<PAGE> 11
or retirement from the Board or any other termination of Board service. At the
time of the election to defer, the director must also choose to receive the
deferred amount in a lump sum or in a specified number of installments, not to
exceed ten. All such amounts are payable in cash.
During fiscal year 1997 the Directors deferred income and received dividend
equivalents as follows: Mr. Liberman deferred a total of $26,150 in retainer and
fees and received dividend equivalents in the amount of $12,023.51. Mr. Reding
deferred a total of $23,600 in retainer and fees and received dividend
equivalents in the amount of $2,440.47. Mr. Virgil deferred $25,300 in retainer
and fees and received dividend equivalents in the amount of $2,731.54. Mr. Bohm
deferred a total of $25,300 in retainer and fees and received dividend
equivalents in the amount of $2,723.80. Ms. Krey deferred a total of $21,900 in
retainer and fees and received dividend equivalents in the amount of $2,364.77.
Growth Units on deferred amounts were credited at $11.98 per unit for deferrals
during fiscal year 1997 and will be credited at approximately $10.33 for
deferrals during the current fiscal year. Mr. Sneider did not defer his retainer
or any fees for 1997 and did not receive any dividend equivalents. He received a
total of $27,850 in retainer and fees.
Under the Directors' Plan, the participants also receive 400 Phantom Stock
Rights ("Stock Rights") annually for service as a non-management director.
(Until 1995, the annual award for each non-management Director was 200 Phantom
Stock Rights.) This component of Directors' compensation is particularly
important because it is tied to shareholder value. Under the Plan, the value of
each Phantom Stock Right as of the date of award is the fair market value of one
share of common stock on the date preceding the date of award. The value at
maturity is equal to the average fair market value of the common stock for the
six month period immediately preceding maturity. As of June 1997, Messrs. Bohm,
Liberman, Reding, Sneider and Virgil and Ms. Krey were each awarded 400 Phantom
Stock Rights for one year of Board service completed on the day prior to their
reelection at the 1997 Annual Meeting of Shareholders.
The Phantom Stock Rights mature on the earliest of the director's (i)
death, (ii) total and permanent disability, (iii) reaching age 65 if the
participant is no longer a director, (iv) resignation or retirement from the
Board or any other termination of Board service after age 65, or (v) reaching
age 70 (but in no event in the case of (iii) and (v) less than six months after
the date of the award). Before the maturity of his or her Phantom Stock Rights,
a participant must irrevocably elect to receive a lump sum payment or to defer
payment of all or part of the amount pursuant to the deferred compensation
component of the plan described above. Payments are made only in cash.
During fiscal year 1997, the 400 Rights credited to Mr. Liberman
automatically matured and, pursuant to his deferral election, were credited to
his deferred compensation account. Mr. Liberman's Rights matured at $23.036 (the
average fair market value of the Corporation's common stock for the six month
period preceding maturity); accordingly, $9,214.32 was credited to Mr.
Liberman's deferred compensation account. Growth Units on the deferred amounts
were credited at $11.98 per unit. The 400 Rights credited to Mr. Bohm in 1997
automatically matured at $23.036 per Right and, Mr. Bohm elected to receive a
payment of $9,214.32.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Corporation believes that the reporting executives and Directors
complied with all reporting requirements of Section 16(a) of the Exchange Act.
9
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS:
GENERAL COMPENSATION POLICY
Executive compensation at CPI Corp. and its subsidiaries is based on a
variety of factors which reflect contributions to corporate performance and
enhance total return to stockholders. Executive compensation packages include
base salary, annual performance-based bonus, stock options, company
contributions to a stock ownership program, and earnings on Growth Units from
bonuses and base salary deferred from prior years under the Corporation's
Deferred Compensation and Stock Appreciation Rights Plan and the Corporation's
Key Executive Deferred Compensation Plan.
The Compensation Committee, with the support of the Board, continued to
adhere to the following objectives in awarding executive compensation in 1997,
each of which the Board believes contributes to stockholder value:
1. paying for performance, both long-term and short-term;
2. increasing emphasis on variable incentive compensation, as opposed to
base compensation;
3. recognizing and rewarding the executive's contributions as reflected in
the performance of his or her unit and in the performance of the
Corporation as a whole;
4. providing a competitive and equitable compensation program to attract,
retain and motivate key executives; and
5. importantly, aligning stockholder, management and employee interests.
All compensation actions taken in 1997 were in concert with the principles
identified in the Corporation's General Compensation Policy described above. In
particular, compensation awarded in 1997 furthers the Compensation Committee's
desire to shift emphasis from base salaries to at-risk compensation which, in
the Committee's opinion, strengthens the alignment between executive
compensation and shareholder interests.
BASE SALARY
The base salaries paid to the Corporation's executives are based on a
number of factors, including an evaluation of the individual's effectiveness in
performing his or her responsibilities, comparison to salaries paid by other
companies to their executives who hold similar positions, internal equity,
tenure in position, overall responsibility, knowledge, and special assignments.
A review of the Corporation's Executive Compensation package conducted by Towers
Perrin and completed in December, 1994, included a comparison of the
Corporation's base salaries, bonuses and long-term incentives to market data for
general industry, consumer products and specialty retail organizations relative
to sales size. On the basis of that comparison, Towers Perrin reported that base
salaries paid to the Chief Executive Officer, the President and the Senior
Executive Vice President were at the high end of the comparable range as of the
date of comparison. The base salaries of these executives were subsequently
reduced for fiscal year 1995, and frozen at that level for fiscal years 1996 and
1997. Base compensation for the Chairman and Chief Executive Officer and the
President remains frozen at the 1995 level for 1998. The base salary of the
Senior Executive Vice President was increased in recognition of his assumption
of additional duties in late 1996 and his subsequent appointment as President of
the Corporation's Portrait Studio Division. His base salary, and that of all
other members of the Executive Committee of Officers, will remain frozen in 1998
at their 1997 levels. Towers Perrin further reported that compensation paid to
other Company executives generally fell below the median paid for comparable
positions in general industry, consumer products and specialty retail
organizations.
10
<PAGE> 13
BASE SALARY DEFERRAL
In 1995, the Compensation Committee adopted the Key Executive Deferred
Compensation Plan, under which certain key executives may defer up to 50% of
base salary. For the year in which base salary is deferred, the executive will
earn interest on the amount deferred at a rate that mirrors the rate of growth
in book value for the preceding year. In the year subsequent to the year of
deferral, the amount deferred and interest are divided by book value to
determine the number of Growth Units to be credited to the executive. The
executive's account is then credited with annual earnings on the Growth Units,
based on increases in the Corporation's book value, as adjusted for any dilutive
effect of the Company's repurchase of stock. Interest paid in the year of
deferral and earnings on Growth Units are subject to an interest rate floor
based on the average 30 year U.S. Treasury bond rate for the deferral period.
Dividend equivalents are paid on the Growth Units at the same rate dividends are
paid to stockholders. Book value decreased from $12.64 in 1995 to $11.98 for
year end 1996 and to $10.33 for year end 1997. Mr. Arthur was credited with 739
growth units in 1997 for base salary deferral in 1996, plus $350.55 in interest.
Of the named executives, only Mr. Arthur deferred base salary in 1997.
ANNUAL BONUS
In conjunction with lowering base salaries in 1995 and in furtherance of
efforts to align stockholder and executive interests, shareholders approved the
Compensation Committee's proposal to increase the bonus potential for the
Chairman and Chief Executive Officer (Mr. Essman) and executives in the Office
of the President (Messrs. Isaak and Morris). This restructuring of base salary
and annual incentives provided for potential total compensation comparable to
1994, but with a significantly greater emphasis on performance based
compensation. The Compensation Committee established bonus targets based on the
Corporation's earnings per share at the commencement of the fiscal year. Each of
the named executives earned a bonus pursuant to the annual bonus plan for 1997.
SPECIAL BONUS
The Compensation Committee awarded special cash bonuses in 1997 to the
Chairman and Chief Executive Officer, the President and the Senior Executive
Vice President in recognition of their leadership in the Corporation's
successful exit from its photofinishing business and the profit realized from
the sale of that segment.
RESTRICTED STOCK
The Executive Vice President, Finance/Chief Financial Officer and the
Executive Vice President, Human Resources were awarded restricted stock in
recognition of their respective contributions in the sale of the Corporation's
photofinishing segment. The shares vest in increments of one-third each year at
the end of fiscal years 1998, 1999 and 2000.
STOCK OPTIONS
The named executive officers and other key executives were awarded options
based on the Corporation's 1997 fiscal year earnings performance. Like the
annual cash bonus plan, option bonus targets were established by the
Compensation Committee at the commencement of the fiscal year. The number of
options awarded to each executive was determined by dividing 46% of his or her
base salary for 1997 by the fair market value of the Corporation's common stock
at the end of fiscal year 1997.
GROWTH UNITS ON DEFERRED COMPENSATION
Under the Corporation's Deferred Compensation and Stock Appreciation Rights
Plan, which was approved by shareholders in 1992, an executive who elects to
defer up to 50% of his or her annual incentive bonus receives Growth Units.
Executives earn appreciation on these Growth Units based on increases in the
Corporation's book value, as adjusted for any dilutive effect of the Company's
repurchase of stock. Earnings adjustments are subject to an interest rate floor
based on the average
11
<PAGE> 14
30 year U. S. Treasury bond rate for the years of deferral. Executives also
receive dividend equivalents at the same rate that dividends are paid to
stockholders. Non-dividend Growth Units were credited to the Chief Executive
Officer and the other named executive officers in fiscal year 1997 for bonuses
earned in prior years and deferred as follows: Mr. Arthur--466; Mr.
Essman--6,622; Mr. Isaak--237; Mr. Morris--2,685 and Ms. Scheper--451.
COMPANY CONTRIBUTIONS TO STOCK OWNERSHIP PROGRAM
All employees, including the named executives, who meet minimum age and
service requirements, are eligible to contribute up to 15% of their base
salaries to their individual accounts in the Corporation's Profit Sharing Plan.
The Corporation matches each participant's voluntary contributions up to an
amount equal to a maximum of 5% of salary with corporate stock in an amount
equal to 50% of the participant's contributions. An employee who contributed 5%
of base compensation would receive stock equal to 2.5% of his or her
compensation. Although each of the named executive officers was eligible to
participate in the Program, only Mr. Morris, Mr. Arthur and Ms. Scheper
participated in the Profit Sharing Plan in 1997. Participation in this Plan is
subject to discrimination testing prescribed by federal regulations. As a result
of this testing, participation by highly compensated executives is limited to a
very small percentage. Accordingly, the remaining named executives have elected
not to participate in the plan.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Essman's compensation is based on the policies and programs described
above for all executives and includes base salary and annual and long-term
incentives. For 1997, his base salary remained frozen at $600,000 (as it has
since 1994), after reduction from $775,000 as part of the Committee's
restructuring of compensation to shift emphasis to at-risk compensation. His
base salary will remain frozen through 1998. Mr. Essman's bonus for 1997 is a
combination of an annual incentive bonus based on the Corporation's earnings for
1997 and a special bonus in recognition of his leadership in the sale of the
Corporation's photofinishing segment. He was also awarded stock options pursuant
to the annual stock option bonus plan adopted in 1992.
COMPLIANCE WITH IRC SECTION 162(M)
While the Compensation Committee believes the $1 million limitation on
deductibility imposed by Section 162(m) has had limited application to
compensation paid to the Company's executives, the Committee's current intent
remains to preserve full deductibility of executive compensation. The overall
compensation program, as earlier described, has been designed to be heavily
related to the Corporation's earnings performance, and the annual incentive plan
to be submitted to shareholders for approval at the 1998 Annual Meeting, if
approved, should enable the Company to avail itself of deductions for all
executive compensation paid through the current fiscal year. The Corporation's
Key Executive Deferred Compensation Plan, adopted in 1995, should also enhance
the Corporation's ability to maintain full deductibility of executive
Compensation.
THE CPI CORP. COMPENSATION COMMITTEE
LEE LIBERMAN, CHAIR NICHOLAS REDING MARTIN SNEIDER
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the named executive
officers for each of the last three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------------
(4) SECURITIES
ANNUAL COMPENSATION (3) RESTRICTED UNDERLYING
---------------------------- OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) SARS COMPENSATION
- ------------------------- ---- ------ ----- ------------ ---------- ---------- ------------
($) ($) ($) ($) (#) ($)
(A) (B) (C) (D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C> <C> <C>
Alyn V. Essman, 1997 600,000 494,182(2) 80,145 0 11,530(5) 48(7)
Chairman and Chief 1996 600,000 0 0 0 0 173(7)
Executive Officer 1995 600,000(1) 150,000(2) 0 0 13,136(6) 161(7)
Russell Isaak, 1997 400,000 329,455 0 0 7,687(5) 168(7)
President 1996 400,000 0 0 0 0 173(7)
1995 400,000 100,000 0 0 8,475(6) 161(7)
Patrick J. Morris, 1997 375,000 308,864 0 0 7,206(5) 2,980(8)
Senior Executive 1996 312,980 0 0 0 0 1,788(9)
Vice President 1995 300,000(1) 75,000(2) 0 0 5,932(6) 679(10)
Barry C. Arthur, 1997 179,000(1) 86,380(2) 0 8,000 3,440(5) 4,698(8)
Executive Vice 1996 170,000(1) 8,500 0 0 0 3,710(9)
President--Finance 1995 160,000(1) 25,000(2) 0 0 2,542(6) 881(10)
Fran Scheper, 1997 179,000 86,380 0 6,000 3,440(5) 3,873(8)
Executive Vice 1996 170,000 8,500 0 0 0 2,923(9)
President Human 1995 160,000 25,000 0 0 2,542(5) 1,916(10)
Resources
</TABLE>
- ---------------
(1) Cash amounts earned in fiscal year, even if deferred under the
Corporation's Key Executive Deferred Compensation Plan adopted in 1995.
(2) Cash amounts earned for the respective fiscal year, even if deferred under
the Corporation's Deferred Compensation and Stock Appreciation Rights Plan.
(3) The amounts in this column represent above-market earnings on deferred
compensation paid during the fiscal year.
(4) Awarded at the close of fiscal year 1997 in recognition of executive's
contribution in sale of the photofinishing segment.
(5) Options awarded in 1998 for 1997 performance under an annual option bonus
program for key executives adopted in 1992.
(6) Options awarded in 1995 for 1994 performance under an annual option bonus
program for key executives adopted in 1992.
(7) Life insurance premiums.
(8) Life insurance premiums of $168 for Mr. Morris, $698 for Mr. Arthur, and
$538 for Ms. Scheper plus employer contributions of stock to the profit
sharing plan in the following amounts: Morris- $2,812; Arthur-$4,000; and
Scheper-$3,335.
(9) Life insurance premiums of $173 for Mr. Morris, Mr. Arthur and Ms. Scheper
plus employer contributions of stock to the profit sharing plan in the
following amounts: Morris-$1,615; Arthur- $3,537; and Scheper-$2,750.
(10) Life insurance premiums of $161 for Mr. Morris, Mr. Arthur and Ms. Scheper,
plus employer contributions of stock to the profit sharing plan in the
following amounts: Morris-$518; Arthur- $720; and Scheper-$1,755.
13
<PAGE> 16
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option grants
made in the last fiscal year to the individuals named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS EXERCISE
GRANTED TO OR BASE POTENTIAL REALIZED VALUE
OPTIONS EMPLOYEES IN PRICE EXPIRATION ASSUMED ANNUAL RATE OF STOCK
NAME GRANTED FISCAL YEAR ($/SHARE) DATE APPRECIATION FOR OPTION TERM
- ---- ------- ------------ --------- ---------- ----------------------------
(2) 0% 5%(4) 10%(4)
(#) ($) ($) ($)
(A) (B) (C) (D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C> <C> <C>
Alyn V. Essman 11,530 13.48% $23.94 2/08/04 0 $ 93,854 $ 212,959
Russell Isaak 7,687 8.98% $23.94 2/08/04 0 $ 62,587 $ 141,988
Patrick J. Morris 7,206 8.43% $23.94 2/08/04 0 $ 58,670 $ 133,103
Barry C. Arthur 3,440 4.02% $23.94 2/08/04 0 $ 28,008 $ 63,541
Fran Scheper 3,440 4.02% $23.94 2/08/04 0 $ 28,008 $ 63,541
All Stockholders(1) n/a* n/a n/a n/a 0 $80,507,738 $182,644,595
All 25 Optionees 85,512(3) 100% 0 $ 696,229 $ 1,579,506
Gain for all 25
Optionees as % of All
Stockholder Gain n/a n/a n/a n/a 0 .86% .86%
</TABLE>
- ---------------
* not applicable
(1) Gain for all stockholders was determined based on the 9,887,090 shares
outstanding on February 7, 1998, the date when the majority of options were
granted, a price per share equal to the exercise price of $23.94 for all
options granted to the named executive officers and 89% of all options
awarded, and a 6 year term.
(2) Options earned for 1997 performance under an annual bonus program for key
executives adopted in 1992. The options become exercisable four years after
the date of grant and expire six years after the date of grant.
(3) Includes 42,248 awarded to executives not named in the table on the same
date and on the same terms as those awarded to named executives. On April
14, 1997, 8,000 options with an exercise price of $17.13 were awarded to an
officer. These options vest in increments of one-fourth of the total award,
commencing 1998, and expire in 2005. On September 4, 1997, 1,961 options
were awarded to an officer with an exercise price of $25.50, vesting in 25%
increments over the succeeding four years and expiring in 2003.
(4) Pre-tax gain. The amounts shown for 5% and 10% appreciation are projections
required by SEC rules and are not intended to forecast possible future
appreciation, if any, of the stock price of the Company. The Company did not
use an alternative formula for a grant date valuation because the Company is
not aware of any formula which will determine with reasonable accuracy a
present value based on future unknown factors. The market price used for
calculating potential realizable value for options awarded to the named
executives is the closing price listed in The Wall Street Journal, which was
the closing price on the last business day preceding each award, as follows:
April 13, 1997-$17.13; September 3, 1997-$25.50; and February 6,
1998-$23.94.
14
<PAGE> 17
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information concerning option and SAR
exercises in the last fiscal year, and options and SARs remaining unexercised at
February 7, 1998, by the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
(1) NUMBER OF VALUE OF UNEXERCISED
SHARES ACQUIRED UNEXERCISED IN-THE-MONEY
ON EXERCISE OPTIONS/SARS OPTIONS/SARS
OF OPTIONS/ AT FISCAL AT FISCAL
# OF SECURITIES YEAR-END (#) YEAR-END ($)
UNDERLYING VALUE EXERCISABLE/ EXERCISABLE/
NAME SARS REALIZED UNEXERCISABLE* UNEXERCISABLE*
---- --------------- -------- ----------------- --------------------
$
(A) (B) (C) (D) (E)(3)
<S> <C> <C> <C> <C>
Alyn V. Essman 0/0 0/0 310,000/68,328(2) $1,085,388/$390,988
Russell Isaak 0/0 0/0 180,000/40,105(2) $560,200/$222,396
Patrick J. Morris 0/0 0/0 140,000/37,081(2) $490,175/$199,025
Barry C. Arthur 0/0 0/0 52,000/14,433(2) $84,030/$75,673
Fran Scheper 0/0 0/0 9,000/24,433(2) $67,335/$176,323
</TABLE>
- ---------------
* No SARs were held at fiscal year end.
(1) No options were exercised by the named executives in 1997. There were no
outstanding SARs in fiscal year 1997.
(2) Exercisable options include options acquired by the named executives in
exchange for voluntary salary reductions in 1993 and 1994 pursuant to the
Corporation's Voluntary Stock Option Plan and those issued on February 2,
1992 with an exercise price of $30.00 and $35.00. As of April 24, 1998,
market value was $26.56.
(3) Value of exercisable in-the-money options does not reflect voluntary salary
reductions in 1993 and 1994 in the following total amounts for which the
options were granted: Mr. Essman-$387,500; Mr. Isaak-$200,000; Mr.
Morris-$175,000; Mr. Arthur-$30,000; and Ms. Scheper-$22,500. After
factoring in the voluntary salary reductions, the net values of the
in-the-money exercisable options held by the named executives are: Mr.
Essman-$697,888; Mr. Isaak-$360,200; Mr. Morris- $315,175; Mr.
Arthur-$54,030; and Ms. Scheper-$44,835.
RETIREMENT PLAN
The following table shows the estimated annual pension benefit payable to a
covered participant at normal retirement age (65) under the Corporation's
qualified Retirement Plan and Trust.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION 10 15 20 25 30 35 40
- ------------ -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 30,000 $3,000 $4,500 $ 6,000 $ 7,500 $ 9,000 $10,500 $12,000
50,000 5,000 7,500 10,000 12,500 15,000 17,500 20,000
100,000 5,279 7,918 10,557 13,196 15,836 18,475 21,114
150,000 5,279 7,918 10,557 13,196 15,836 18,475 21,114
250,000 5,279 7,918 10,557 13,196 15,836 18,475 21,114
</TABLE>
(All dollar amounts in the above chart are annualized.)
The Corporation maintains a defined benefit Retirement Plan (the "Plan")
for all qualifying employees of the Corporation. Remuneration in the Pension
Plan Table includes annual base salary and bonus as reported in the Summary and
Compensation Table; executive earnings for 1997 in excess of $54,371 are not
included in calculation of the annual benefits payable under the Plan. As of the
end of the 1997 fiscal year, the years of credited service for purposes of
computing retirement benefits
15
<PAGE> 18
under the Plan for the named executives are as follows: Alyn V. Essman-41,
Russell Isaak-25, Patrick J. Morris-12, Barry C. Arthur-32 and Fran Scheper-30.
The Plan entitles a participant to a normal monthly retirement benefit upon
retirement after age 65 equal to 1% of average monthly gross earnings from and
after January 1, 1995, multiplied by the number of years of the participant's
service, provided, however, that through 1994 compensation in excess of $50,000
in any year is not counted for purposes of determining such benefits. Effective
as of 1995, the $50,000 ceiling is increased annually to reflect a cost of
living adjustment for years 1995 through 1997. Effective January 1, 1998, for
plan years commencing after 1997, compensation in excess of $100,000 will not be
included. Alternatively, a participant may elect to convert his normal form of
benefit to a Contingent Annuitant Option, which provides for an actuarially
adjusted retirement benefit payable to the participant during his lifetime and
for the continuation of benefit payments to the beneficiary after the
participant's death, or an Option for Life Annuity with Guaranteed Number of
Monthly Payments, which provides for an actuarially adjusted retirement benefit
payable to the participant during his life with a guaranty that not less than a
guaranteed number of monthly retirement benefit payments will be paid first to
the participant and then to his beneficiary. The Plan provides for a lesser
benefit for early retirement beginning at age 55. Benefits are fully vested
after five years of service. The Corporation periodically makes actuarially
determined contributions to the Plan. No deductions are made for social security
benefits.
The named executive officers are also entitled to receive supplemental
retirement benefits pursuant to their employment agreements, as discussed more
fully below.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
During fiscal year 1997, the Corporation employed the named executives
under employment agreements that establish base compensation, bonus and
remuneration in the event of a Change of Control. Through fiscal year 1997 under
these agreements, if the Corporation terminated an executive's employment other
than for cause before a Change of Control, the Corporation was obligated to pay
the executive two years' base compensation over the two year period. The
Corporation has no such obligation if the executive resigns or is terminated for
cause. Effective with fiscal year 1998, the Corporation's obligation to the
executive officers in the event of involuntary termination (other than for
cause) has been reduced to continuation of Base Salary for six months. If the
Corporation terminates an executive's employment other than for cause after a
Change of Control, the Corporation must pay the executive a lump sum equal to
two years' base compensation. In the event the named executive officers are
terminated (other than for cause) during fiscal 1998 as a result of a Change of
Control, the executives would receive the following lump sum payments: Alyn V.
Essman--$1,200,000; Russell Isaak--$800,000; Patrick J. Morris--$750,000; Barry
C. Arthur--$358,000; and Fran Scheper--$358,000.
If a Change of Control occurs but employment is not terminated, the
executive is to continue in a position comparable to that held before the Change
of Control. The executive's base salary cannot be reduced at any time during the
term of the agreement, and after a Change of Control the executive's bonus
cannot be less than the highest bonus the executive received during any of the
three completed fiscal years preceding the Change of Control. The executive is
also entitled to continue to participate in compensation plans and programs and
benefit plans that are at least equivalent to those provided by the Corporation
before the Change of Control.
Under their employment agreements, the named executive officers are
entitled to receive supplemental retirement benefits equal to 40% of their
highest base salary from and after fiscal year 1997, not to exceed $150,000
annually for twenty years. These payments commence on the later of (i) age 65 or
(ii) the date of retirement. The Corporation's aggregate liability for these
benefits will be offset in part by the proceeds of life insurance, for which the
Corporation is the named beneficiary. The Corporation made insurance premium
payments in fiscal year 1997 of $62,292, $32,902, $38,064,
16
<PAGE> 19
$17,781 and $42,496 on Messrs. Essman, Isaak, Morris and Arthur and Ms. Scheper,
respectively. Beneficiaries of a named executive officer who dies prior to
retirement receive annually 40% of the executive's highest base salary from and
after 1997, not to exceed $150,000 for twenty years after the date of the
executive's death. An officer who becomes disabled receives annually, in
addition to the amount payable on death or retirement, 40% of his or her highest
base salary from and after 1997, not to exceed $150,000, until the earlier of
(i) the date of his or her death or (ii) the date he or she attains age 65.
Supplemental retirement, death and disability benefits are pro rated if the
qualifying event occurs prior to the executive's tenth anniversary of employment
by the Company. The supplemental retirement and death benefits provided for
under the employment contracts survive the term of employment, unless the
executive is terminated for cause (as defined in the agreement). Mr. Bohm, a
director of the Corporation and a retired officer, received payment of $100,000
under this plan during fiscal 1997.
Certain of the Corporation's employee benefit plans provide for the
acceleration of the payment of certain benefits upon a Change of Control,
including the Restricted Stock Plan and the Deferred Compensation and Stock
Appreciation Rights Plan and the Key Executive Deferred Compensation Plan. The
employment agreements provide that if such accelerated benefits plus the amount
payable under the employment agreement in the event of a Change of Control
result in the imposition of an excise tax under Section 4999 of the Internal
Revenue Code or any similar tax, the amount of such tax shall be added to the
amount paid the executive under the agreement. The amount of this additional
payment is to be determined by an independent certified public accounting firm
selected by members of the Corporation's Board of Directors who are Continuing
Directors as defined in the Corporation's Certificate of Incorporation.
(Continuing directors are those persons who were directors in 1987 or were
nominated by Continuing Directors and who are not affiliates or associates of
the person or entity that effects the Change of Control.)
17
<PAGE> 20
COMPARISON OF TEN-YEAR CUMULATIVE RETURN*
CPI CORP., S&P 500 STOCK INDEX, AND RUSSELL 2000
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CPI CORP. S&P 500 RUSSELL 2000
<S> <C> <C> <C>
JAN '88 100 100 100
JAN '89 125 120 125
JAN '90 134 137 126
JAN '91 171 148 122
JAN '92 156 182 176
JAN '93 133 201 200
JAN '94 99 227 237
JAN '95 98 229 223
JAN '96 100 312 288
JAN '97 131 394 342
JAN '98 174 498 403
</TABLE>
The Russell 2000 index was selected because it encompasses similarly-sized
companies to CPI, as well as diversified companies, like CPI.
- ---------------
* Total return assumes reinvestment of dividends and $100 invested as of the
measurement date in the Corporation's common stock, the S&P 500 and the
Russell 2000. The measurement dates for purposes of determining the stock
price for CPI Corp. correspond to the fiscal year-end (i.e. the Saturday
preceding the first Sunday in February of each year reflected). The
corresponding measurement dates for the S&P 500 and the Russell 2000 are
January 31st of each of the years reflected.
RATIFICATION OF INDEPENDENT AUDITORS (PROXY ITEM NO. 2)
The Board of Directors has selected KPMG Peat Marwick LLP, independent
certified public accountants, to audit the accounts of the Corporation and its
subsidiaries for its current fiscal year ending February 6, 1999. Although the
appointment of independent public accountants is not required to be approved by
the stockholders, the Board believes that stockholders should participate in the
appointment through ratification. If a majority of the stockholders voting do
not ratify the appointment, the Board will reconsider the appointment. No member
of KPMG Peat Marwick LLP, or any associate thereof, has any financial interest
in the Corporation or in its subsidiaries.
18
<PAGE> 21
A representative of KPMG Peat Marwick LLP will be present at the Meeting
and will be given the opportunity to make a statement and to answer any
questions any stockholder may have with respect to the financial statements of
the Corporation for the fiscal year ended February 7, 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR FISCAL 1998.
The affirmative vote of the majority of the shares present in person or
represented by proxy at the Annual Meeting is required for ratification of this
appointment.
PROPOSED ANNUAL INCENTIVE PROGRAM FOR KEY EXECUTIVES
(PROXY ITEM NO. 3)
In 1995, the Compensation Committee restructured executive compensation
packages to strengthen alignment of executive compensation with shareholder
value by increasing emphasis on at-risk compensation. The restructuring featured
potential for total compensation comparable to that for 1994, but with reduced
base salaries and an annual incentive plan for fiscal years 1995 through 1997
that increased maximum bonus potential from 30% to 80% of base pay. The bonus
plan was approved by stockholders at the Corporation's 1995 Annual Meeting.
For fiscal year 1998, the Compensation Committee affirmed its commitment to
strengthening the link between shareholder value and executive compensation. For
the current fiscal year, the Committee has adopted a preestablished, objective,
performance based formula for awarding annual incentives to the Chairman and
Chief Executive Officer, the President and the Senior Executive Vice President/
President-Portrait Studio Division. All bonuses for fiscal year 1998 will be
determined by reference to preestablished earnings levels and the corresponding
percentages of base salary earned. Like the bonus plan approved by shareholders
for fiscal years 1995 through 1997, the bonus potential ranges from 0% to 80% of
base salary. No bonus will be payable unless earnings exceed those of 1997. A
very substantial increase will be required for the executive to earn the maximum
bonus amount. The Compensation Committee believes that the actual targets
reflect confidential business information, the disclosure of which would
adversely affect the Corporation. No bonus will be paid to these executives
except in accordance with the preestablished formula adopted by the Committee,
and the Committee will certify attainment of the preestablished targets prior to
awarding any bonuses under this program.
NEW PLAN BENEFITS
ANNUAL INCENTIVE PLAN FOR 1998
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($)
----------------- ---------------
<S> <C>
Mr. Essman, Chairman and Chief Executive Officer $0 to $480,000
Mr. Isaak, President $0 to $320,000
Mr. Morris, Senior Executive Vice
President/President-Portrait Studio Division $0 to $280,000
</TABLE>
No other executives or employees of the Corporation are eligible for
benefits under the proposed plan.
The Committee seeks shareholder approval on this annual incentive program
for the three most highly compensated executives of the Corporation because it
believes that continuing to place greater emphasis on at-risk compensation will
best serve the interests of shareholders, as well as those of the Corporation.
In addition, with shareholder approval of the annual incentive plan adopted by
the Compensation Committee, any amounts paid to executives under the plan will
be excluded from calculations of total compensation subject to the $1 million
ceiling on deductibility under Section 162(m) of the Internal Revenue Code.
19
<PAGE> 22
The Board of Directors will present the following resolution to the
stockholders for action at the 1998 Annual Meeting:
RESOLVED, that an annual incentive plan for fiscal year 1998 for the
Chairman and Chief Executive Officer, the President, and the Senior
Executive Vice President/President-Portrait Studio Division, authorizing
annual bonuses ranging from 0% to 80% of base salaries, with the following
maximum bonus amounts: Mr. Essman-$480,000; Mr. Isaak-$320,000; and Mr.
Morris-$280,000; upon attainment of predetermined, objective earnings
targets established by the independent Directors who serve on the
Compensation Committee, is hereby approved by the stockholders of the
Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
The affirmative vote of the majority of the votes cast at the meeting by
the stockholders entitled to vote thereon shall be sufficient for the approval
of the proposed annual incentive plan for the Chairman and Chief Executive
Officer, the President, and the Senior Executive Vice President/
President-Portrait Studio Division, as described above.
OTHER INFORMATION
Proxies, ballots, and voting tabulations identifying stockholders are
secret and will not be available to anyone, except as necessary to meet legal
requirements.
The Corporation's Annual Report to stockholders, including financial
statements, was mailed simultaneously with this Proxy Statement on or about May
8, 1998, to stockholders of record as of April 24, 1998.
A COPY OF THE CORPORATION'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K MAY BE OBTAINED WITHOUT CHARGE FROM THE SECRETARY OF THE
CORPORATION UPON WRITTEN REQUEST TO HER AT 1706 WASHINGTON, ST. LOUIS, MISSOURI
63103.
By Order of the Board of Directors,
JANE E. NELSON
JANE E. NELSON
Secretary and General Counsel
Dated: May 8, 1998
20
<PAGE> 23
CPI CORP.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- JUNE 11, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CPI CORP.
The undersigned, revoking all previous proxies, hereby appoints Alyn V.
Essman and Russell Isaak or either of them as Proxy or Proxies of the
undersigned, each with the power to appoint his substitute, to vote, as
designated below, all of the shares of Common Stock of CPI Corp. (the
"Corporation") held of record by the undersigned on April 24, 1998, at the
annual meeting of stockholders to be held at 10 a.m. central daylight time on
June 11, 1998, at CPI Corp., 1706 Washington, St. Louis, Mo. 63103, and at any
adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED IN THE SPACES PROVIDED THEREFOR
OR, IF NO SUCH SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE ELECTION OF ALL
DIRECTORS AND FOR ITEMS 2 AND 3.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued, and to be signed, on the other side.)
- --------------------------------------------------------------------------------
[CPI CORP. LETTERHEAD]
May 6, 1998
DEAR CPI CORP. STOCKHOLDER:
You are cordially invited and encouraged to attend the 1998 Annual
Meeting of Stockholders of CPI Corp. The meeting will be held on Thursday,
June 11, 1998, at 10:00 a.m., central daylight time at the offices of CPI
Corp., 1706 Washington Avenue, St. Louis, Missouri.
If you cannot personally attend the meeting, please vote your
preference on the proxy card attached above and return it promptly. Your
participation in CPI Corp.'s business, whether in person or by proxy, is an
important part of the Corporation's governance.
I look forward to and appreciate your participation in CPI's 1998
Annual Meeting of Stockholders.
Very Truly Yours,
/s/ Alyn V. Essman
-------------------------------
ALYN V. ESSMAN
Chairman of the Board and
Chief Executive Officer
4105--CPI CORP.
<PAGE> 24
<TABLE>
<S><C>
[ ]
1. Election of Directors-- For Withhold For All 3. Approval of Resolution to provide
Nominees: Milford Bohm, Alyn V. Essman, All All Except for Annual Incentive Program for For Against Abstain
Russell Isaak, Mary Ann Krey, Lee M. / / / / / / Chairman and Chief Executive / / / / / /
Liberman, Patrick J. Morris, Nicholas L. Officer, President and Senior
Reding, Martin Sneider, Robert L. Virgil. Executive Vice President.
_________________________________________
(Except Nominee(s) Written Above.)
For Against Abstain
2. Ratification of appointment of KPMG / / / / / / In their sole discretion, the Proxies are authorized to vote
Peat Marwick LLP as the Corporation's upon such other business as may properly come before the
independent certified public annual meeting or any adjournment thereof.
accountants.
SIGN
HERE _______________________________________________________
(Please sign exactly as name appears hereon)
SIGN
HERE _______________________________________________________
Executors, administrators, trustees, etc., should
so indicate when signing
Dated: _______________________________________________, 1998
</TABLE>
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
