UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 6, 1999
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 __X__ NO _____.
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 4, 1999 ($27.00 per share): $252,827,298.
As of May 4, 1999, 9,906,506 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 6, 1999, 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 22, 1999 are
incorporated by reference into Part III of this Report.
<PAGE>
PAGE NUMBERS REFER TO PAPER DOCUMENT
<TABLE>
TABLE OF CONTENTS
PAGE
<S> <C>
PART I
- ------
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Results of Votes of Security Holders 8
PART II
- -------
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 9
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
- --------
Item 10. Directors, Executive Officers, Promoters,
and Control Persons of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 11
Item 13. Certain Relationships and Related
Transactions 11
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
and Reports on Form 8-K 12
Signatures 22
Independent Auditors Report 24
Schedule II Valuation and Qualifying Accounts 25
</TABLE>
<PAGE>
PART I
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. Founded in 1942, CPI Corp. became a publicly
held company in 1982 and currently operates professional
portrait studios throughout the United States, Canada and Puerto
Rico and posters, prints and framing outlets throughout the
United States. Unless the context otherwise requires, references
herein to the "Company" or "CPI Corp." mean CPI Corp., its
consolidated subsidiaries and their predecessor companies.
EXISTING BUSINESSES
- -------------------
For the fiscal year ended February 6, 1999, approximately
84% of net sales and substantially all of the 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.")
In addition, since the 1993 acquisition of Prints Plus,
Inc. ("Prints Plus"), the Company operates a wall decor
business. Prints Plus is a posters, prints and custom framing
retail chain with 152 stores located in malls throughout the
United States.
The Company's executive offices are located at 1706
Washington Avenue,St. Louis, Missouri, 63103-1790. CPI Corp.'s
telephone number is (314) 231-1575 and address on the world-wide
web is http://www.cpicorp.com.
OTHER BUSINESSES
- ----------------
In 1982, the Company started a photofinishing business and
continued operations until October 1996. The following is a
chronological listing of the Company's business activities in
the photofinishing business:
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<PAGE>
1982-1991 Expanded photofinishing business to include 334
locations operating under the name of CPI
Photofinishing.
August 1991- Acquired Fox Photo, Inc., which operated 305
locations under the name Fox Photo.
December 1992- Purchased operational assets of Pemtom, Inc.,
operating 25 locations under the name of Proex.
June 1996- Sold 50 one-hour photofinishing stores to Wolf
Camera, Inc.
October 1996- Established a joint venture with Eastman Kodak
Company by selling 51% interest in existing
photofinishing operations.
October 1997- Sold remaining 49% interest to Eastman Kodak
Company and entered into a two-year Non-
competition and Nonsolicitation Agreement in
which the Company agreed not to engage in the
retail photofinishing business and not to
employ previous photofinishing employees
without consent.
The Company, from 1988 until 1996, also operated an
Electronic Publishing division. In April 1996, the Company
announced its intentions to sell the assets of this division,
and in May of 1996, the sale was completed and the Company
classified the Electronic Publishing operation as a discounted
operation in fiscal year 1995 and reclassified the prior years'
financial statements to reflect this change.
RELATIONSHIP WITH SEARS
- -----------------------
The Company operates its 1,027 Sears Portrait Studio
locations under multiple license agreements. The agreements are
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, which included 38 Sears stores with
portrait studios. The Company 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, which started in 1959, is long-standing
and the Company has no reason to believe that Sears will
exercise its rights under the agreements to reduce materially
the scope of the Company's business with Sears.
In the United States, the Company and Sears have entered
into three license agreements (Sears, Off-Mall and Puerto Rico)
for fixed location studios as of January 1, 1999. These
agreements expire on December 31, 2003. The Sears and Puerto
Rico agreements provide for the Company to pay Sears a license
fee of 15% of total annual net sales for studios located in a
Sears store. The Off-Mall agreement provides for the Company to
4
<PAGE>
pay Sears a license fee of 7.5% of total annual net sales for
studios not located in a Sears store but located in retail
locations where Sears does not otherwise have a presence. Net
sales for all agreements are defined as gross sales less
customer returns, allowances and sales taxes. The Company
provides all studio furniture, equipment, fixtures and leasehold
improvements and conducts advertising at its own expense, and is
responsible for hiring, training and compensating the Company
employees and must indemnify Sears against all claims.
In Canada, all of the Company's studios operate under a
separate nonexclusive license agreement with Sears Canada, Inc.,
a subsidiary of Sears. The agreement, originally negotiated in
1977, 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, fixtures and leasehold improvements and conducts all
advertising at its own expense and is responsible for its
Canadian employees.
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.
FOR ADDITIONAL INFORMATION, SEE THE REGISTRANT'S 1998 ANNUAL
REPORT TO SHAREHOLDERS, EXHIBIT 13 OF THIS FILING, IN THE
DISCUSSION ENTITLED "SEARS AND CPI."
COMPETITION
- -----------
In the portrait photography business, the Company competes
with a number of companies that operate fixed-location,
traveling and freestanding photography studios. Independent
professional photographers 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.
In the wall decor segment, the Company competes with
numerous national, regional and local framing retailers serving
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 is competitive in
this segment by
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<PAGE>
offering a large selection of prints and frames, fast custom
framing service and competitive pricing.
SUPPLIER RELATIONSHIPS
- ----------------------
The Company purchases photographic paper and film for its
studio operations from two major manufacturers. The Company
purchases other equipment and supplies used in its studios 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 its relations with
suppliers are good.
SEASONALITY
- -----------
In the professional portrait photography business, sales
are seasonal, with the largest volume occurring in the 16-week
third and 12-week fourth fiscal quarters preceding and including
the Thanksgiving/Christmas season.
In the wall decor business, sales are seasonal, with the
largest volume occurring in the fourth fiscal quarter preceding
and including the Thanksgiving/Christmas season.
EMPLOYEES
- ---------
At February 6, 1999, the Company had approximately 8,178
employees. Approximately 5,221 of these employees were
part-time or temporary 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 I IS CONTAINED
IN THE REGISTRANT'S 1998 ANNUAL REPORT TO SHAREHOLDERS, EXHIBIT
13 OF THIS FILING, IN THE DISCUSSION OF THE COMPANY'S BUSINESS
SEGMENTS FOUND IN THE NOTES TO CONSOLIDATED STATEMENTS, ITEM 11
ENTITLED "INDUSTRY SEGMENT INFORMATION."
6
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information
concerning the Company's principal facilities:
<TABLE>
PRINCIPAL FACILITIES - CPI CORP.
<CAPTION>
APPROXIMATE
AREA IN PRIMARY OWNERSHIP
LOCATION SQUARE FEET USES OR LEASE
- ------------------- ------------ ------------------ ----------
<S> <C> <C> <C>
St. Louis, Missouri 270,000 Administration and Owned
Photoprocessing
St. Louis, Missouri 155,000 Parking Lots Owned
St. Louis, Missouri 78,312 Warehousing Leased(1)
St. Louis, Missouri 14,340 Printing 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
Concord, California 43,088 Administration, Leased(4)
Warehousing and
Manufacturing
<FN>
(1) Lease term expires on June 30, 1999.
(2) Lease term expires on November 30, 1999.
(3) Lease term expires on July 15, 2001.
(4) Lease term expires on March 31, 2002.
</FN>
</TABLE>
The Company operates 943 portrait studios in Sears stores
pursuant to the license agreement with Sears. See "BUSINESS
RELATIONSHIP WITH SEARS." The Company also operates 84 Sears
Portrait Studios located in shopping centers without Sears
stores, which are generally leased for at least three years with
some having renewal options. The 152 wall decor locations
operated by the company are generally in enclosed regional malls
with lease terms of ten years without renewal options.
7
<PAGE>
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. RESULTS OF VOTES OF SECURITY HOLDERS
No matters were submitted to stockholders for a vote during
the fourth quarter of fiscal year 1998.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information required under this Item is contained in the
Registrant's 1998 Annual Report to Shareholders, Exhibit 13 of
this filing, in the section entitled "Selected Quarterly
Financial Data," and will be contained in the Registrant's 1999
Proxy Statement, to be dated within 120 days of the end of the
Registrant's fiscal year 1998, and is incorporated herein by
reference.
As of April 8, 1999, the market price of the Registrant's
common stock was $23.6875 per share with 9,898,777 shares
outstanding and approximately 2,010 holders of record.
ITEM 6. SELECTED FINANCIAL DATA
Information required under this Item is contained in the
Registrant's 1998 Annual Report to Shareholders, Exhibit 13 of
this filing, in the section titled "Financial Highlights," 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 1998 Annual Report to Shareholders, Exhibit 13 of
this filing, in the sections entitled "Management's Discussion
and Analysis - Overview," "Management's Discussion and Analysis
- - Financial Condition," "Management's Discussion and Analysis -
Results of Operations," and "Management's Discussion and
Analysis of Cash Flows," and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market risks relating to the Company's operations result
primarily from changes in interest rates and changes in foreign
exchange rates. The Company's debt obligations have primarily
fixed interest rates, therefore, the Company's exposure to
changes in interest rates is minimal. The Company's exposure to
changes in foreign exchange rates relates to the Canadian
operations, which is minimal as these operations constitute less
than 4% of the Company's total assets, and less than 6% of the
Company's total sales.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required under this Item is contained in the
Registrant's 1998 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. Additional information
required under this Item is contained in this Annual Report to
Shareholders, Schedule II of this filing, in the section titled
"Valuation and Qualifying Account", and is incorporated herein
by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
10
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS OF THE REGISTRANT
Information required under this Item will be contained in
the Registrant's 1999 Proxy Statement, to be dated within 120
days of the end of the Registrant's fiscal year 1998, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in
the Registrant's 1999 Proxy Statement, to be dated within 120
days of the end of the Registrant's fiscal year 1998, 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 1999 Proxy Statement, to be dated within 120
days of the end of the Registrant's fiscal year 1998, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
11
<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 1998
Annual Report to Shareholders), and are incorporated
herein by reference.
(2) Financial Statements:
(a) Consolidated Balance Sheets as of February 6, 1999
and February 7, 1998
(b) Consolidated Statements of Earnings for the fiscal
years ended February 6, 1999, February 7, 1998 and
February 1, 1997
(c) Consolidated Statements of Changes in Stockholders'
Equity for the fiscal years ended February 6, 1999,
February 7, 1998 and February 1, 1997
(d) Consolidated Statements of Cash Flows for the
fiscal years ended February 6, 1999, February 7,
1998 and February 1, 1997
Information required under these items is contained in
the Registrant's 1998 Annual Report to Shareholders,
Exhibit 13 of this filing, under the sections titled
"Consolidated Balance Sheets," "Consolidated Statements
of Earnings," "Consolidated Statement 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 1998
Annual Report to Shareholders, Exhibit 13 of this
filing, under the section titled "Notes to Consolidated
Financial Statements," and is incorporated herein by
reference.
12
<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
(page 24), 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 or notes thereto.
(b) Reports on Form 8-K
On December 21, 1998, the Company filed Form 8-K Current
Report discussing the issuance of a press release which
announced: third quarter sales for Sears Portrait Studios
up 14.7% from last year. The increase, however, was
impacted by the shift of one week of seasonal sales from
the fourth quarter. The Wall Decor segment showed moderate
growth to $17.8 million from $17 million, and gross profit
was marginally higher.
(c) Index to Exhibits
13
<PAGE>
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>
(3.1) Articles of Annual Report 4/30/90 1-10204
Incorporation on Form 10-K
dated 4/27/90
(3.2) Bylaws Annual Report 4/30/90 1-10204
on Form 10-K
dated 4/27/90
(3.4) Amendment to Bylaws Form 8-K 8/3/95 0-11227
(3.5) Amendment to Bylaws Annual Report 5/2/97 1-10204
on Form
10-K405
dated 4/3/97
</TABLE>
14
<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>
(4.1) Articles of Annual Report 4/30/90 1-10204
Incorporation and on Form 10-K
Bylaws dated 4/27/90
(4.2) Note Agreement for Form 10-Q 9/3/93 1-10204
Series A Senior
Notes Due August 31,
2000 and Series B
Notes Due August 31,
2000
(4.3) Pledge Agreement Form 10-Q 9/3/93 1-10204
(4.4) Series A Senior Note Form 10-Q 9/3/93 1-10204
Due August 31, 2000,
No. R-A1
(4.5) Series B Senior Note Form 10-Q 9/3/93 1-10204
Due August 31, 2000,
No. R-B1
(4.6) Series B Senior Note Form 10-Q 9/3/93 1-10204
Due August 31, 2000,
No. R-B2
(4.7) CPI Corp. Shareholder Form 8-A 5/2/89 -
Rights Plan
(4.8) First Amendment to Form 10-Q 9/3/93 1-10204
CPI Corp. Shareholder
Rights Plan
</TABLE>
15
<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>
(4.9) Second Amendment to Form 8-K 8/3/95 0-11227
CPI Corp. Shareholder
Rights Plan
(4.10) First Amendment to Form 10-Q 9/2/94 1-10204
Note Agreement dated
2/24/94
(4.11) Second Amendment to Form 10-Q 9/2/94 1-10204
Note Agreement dated
6/14/94
(4.12) Note Agreement for Form 8-K 7/1/97 0-11227
CPI Corp. Senior
Notes dated June 16,
1997
(4.13) CPI Corp. 7.46% Form 8-K 7/1/97 0-11227
Senior Notes due
June 16, 2007,
PPN 12617# ACO
(4.14) CPI Corp. 7.46% Form 8-K 7/1/97 0-11227
Senior Notes due
June 16, 2007,
Security No. !Inv5641!
(4.15) Registration of Form S-8 3/31/98 002-86403
50,000 shares of
common to be issued
under the CPI Corp.
1981 Stock Bonus Plan
(4.16) Registration of Form S-8 3/31/98 002-86403
250,000 shares of
common stock to be
issued under the CPI
Corp. Employees Profit
Sharing Plan and Trust
</TABLE>
16
<PAGE>
EXHIBIT 10. MATERIAL CONTRACTS
[CAPTION]
<TABLE>
PAGE NUMBER
FORM 10-K
-------------
<S> <C>
(10.28) License Agreement 26
Sears, Roebuck and Co.
(10.29) License Agreement 27
Sears, Roebuck and Co.
(Off Mall)
(10.30) License Agreement 28
Sears Roebuck De Puerto Rico, Inc.
(10.31) License Agreement 29
Sears Canada, Inc.
(10.32) CPI. Corp 1998 Employee Profit 30
Sharing Plan and Trust
(10.33) First Amendment to CPI. Corp 31
Employee Profit Sharing Plan and Trust
</TABLE>
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
17
<PAGE>
EXHIBIT 10. MATERIAL CONTRACTS (Continued)
<TABLE>
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- -------------------------- ------------- -------- ------------
<S> <C> <C> <C>
(10.1) Employment Contract Annual Report 5/6/98 1-10204
Alyn V. Essman * on Form 10-K,
dated 4/9/98
(10.2) Employment Contract Annual Report 5/6/98 1-10204
Russell H. Isaak * on Form 10-K
dated 4/9/98
(10.3) Employment Contract Annual Report 5/6/98 1-10204
Patrick J. Morris * on Form 10-K
dated 4/9/98
(10.4) Employment Contract Annual Report 5/6/98 1-10204
Barry C. Arthur * on Form 10-K
dated 4/9/98
(10.5) Employment Contract Annual Report 5/6/98 1-10204
Fran Scheper * on Form 10-K
dated 4/9/98
(10.6) CPI Corp. 1981 Stock Annual Report 5/5/93 1-10204
Bonus Plan (As on Form 10-K,
Amended and Restated dated 4/30/93
on 2/3/91)
(10.7) Deferred Compensa- Annual Report 5/1/92 1-10204
tion and Stock on Form 10-K,
Appreciation Rights dated 4/24/92
(10.8) CPI Corp. Restricted Annual Report 5/1/92 1-10204
Stock Plan on Form 10-K,
dated 4/24/92
(10.9) Deferred Compensa- Annual Report 5/1/92 1-10204
tion and Retirement on Form 10-K,
Plan for Non- dated 4/24/92
Management Directors
<FN>
* Employment contract is automatically renewed and extended for
one year unless terminated by the Board of Directors or the
employee.
</FN>
</TABLE>
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<PAGE>
EXHIBIT 10. MATERIAL CONTRACTS (Continued)
<TABLE>
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- -------------------------- ------------- -------- ------------
<S> <C> <C> <C>
(10.10) CPI Corp. Stock Form S-8 7/28/92 33-50082
Option Plan (As
Amended and Restated
effective 2/2/92)
(10.11) Registration of Form 8-A 3/21/89 -
Securities on the New
York Stock Exchange
(10.12) CPI Corp. Shareholder Exhibit to 5/2/89 -
Rights Plan Form 8-A
(10.13) CPI Voluntary Stock Form D 3/31/93 -
Option Plan
(10.14) First Amendment to Form 10-Q 9/3/93 1-10204
CPI Corp. Shareholder
Rights Plan
(10.15) Second Amendment to Form 8-K 8/3/95 0-11227
CPI Corp. Shareholder
Rights Plan
(10.16) $60 Million Revolving Form 10-Q 9/1/95 1-10204
Credit Agreement
(10.17) $25 Million Revolving Form 10-Q 9/1/95 1-10204
Credit Note with
Mercantile Bank
(10.18) $20 Million Revolving Form 10-Q 9/1/95 1-10204
Credit Note with
Harris Trust & Savings
(10.19) $15 Million Revolving Form 10-Q 9/1/95 1-10204
Credit Note with
The Daiwa Bank
</TABLE>
19
<PAGE>
EXHIBIT 10. MATERIAL CONTRACTS (Continued)
<TABLE>
<CAPTION>
REGISTRATION
INFORMATION INCORPORATED DOCUMENT FILING COMMISSION
BY REFERENCE REFERRED TO DATE FILE NO.
- ---------------------------- ------------- -------- ------------
<S> <C> <C> <C>
(10.21) Employment Contract- Annual Report 5/3/95 1-10204
Jane E. Nelson ** on Form 10-K
dated 4/6/95
(10.22) CPI Consent to Annual Report 5/2/96 1-10204
Assignment and on Form 10-K
Assumption of $15 dated 4/4/96
Million Revolving
Credit Note
(10.23) Notification of Annual Report 5/2/96 1-10204
Assignment and on Form 10-K
Assumption of $15 dated 4/4/96
Million Credit Note
Agreement
(10.24) $40 Million Form 10-Q 12/8/97 1-10204
Revolving Credit
Agreement
(10.25) $17 Million Form 10-Q 8/29/97 1-10204
Revolving Credit
Note with Mercantile
Bank National
Association
(10.26) $13 Million Form 10-Q 8/29/97 1-10204
Revolving Credit
Note with Harris
Trust and Savings
(10.27) $10 Million Form 10-Q 8/29/97 1-10204
Revolving Credit
Note with The
Sumitomo Bank,
Limited
<FN>
** Employment contract is automatically renewed and extended for
one month unless terminated by the Board of Directors or the
employee.
</FN>
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Page Number
Form 10-K
-----------
<S> <C>
EXHIBIT 11. COMPUTATION OF EARNINGS PER COMMON SHARE 32
EXHIBIT 13. 1998 ANNUAL REPORT TO SHAREHOLDERS 34
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT 35
EXHIBIT 23. INDEPENDENT AUDITORS' CONSENT 36
EXHIBIT 27. FINANCIAL DATA SCHEDULE
</TABLE>
21
<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.
SIGNATURES OF DIRECTORS AND PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ------------------------ -------------
<S> <C> <C>
/s/ Alyn V. Essman Chairman of the Board, April 8, 1999
- ----------------------- Chief Executive Officer
(Alyn V. Essman) and Director (Principal
Executive Officer)
/s/ Milford Bohm Director April 8, 1999
- -----------------------
(Milford Bohm)
/s/ Mary Ann Krey Director April 8, 1999
- -----------------------
(Mary Ann Krey)
/s/ Lee Liberman Director April 8, 1999
- -----------------------
(Lee Liberman)
/s/ Nicholas L. Reding Director April 8, 1999
- -----------------------
(Nicholas L. Reding)
/s/ Martin Sneider Director April 8, 1999
- -----------------------
(Martin Sneider)
</TABLE>
22
<PAGE>
SIGNATURES OF DIRECTORS AND PRINCIPAL OFFICERS (Continued)
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ------------------------ -------------
<S> <C> <C>
/s/ Robert L. Virgil Director April 8, 1999
- -----------------------
(Robert L. Virgil)
/s/ Russell Isaak President and Director April 8, 1999
- -----------------------
(Russell Isaak)
/s/ Patrick J. Morris Senior Executive Vice April 8, 1999
- ----------------------- President and Director
(Patrick J. Morris)
/s/ Barry C. Arthur Vice President and April 8, 1999
- ----------------------- Treasurer (Principal
(Barry C. Arthur) Financial and
Accounting Officer)
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CPI Corp.:
Under date of April 8, 1999, we reported on the
consolidated balance sheets of CPI Corp. and subsidiaries as of
February 6, 1999 and February 7, 1998, 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 6, 1999, as contained in the
1998 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
1998 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 this 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 LLP
- -------------------------
KPMG LLP
St. Louis, Missouri
April 8, 1999
24
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
CPI CORP. CONSOLIDATED ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
FISCAL YEARS ENDED FEBRUARY 6, 1999, FEBRUARY 7, 1998
AND FEBRUARY 1, 1997 (in thousands of dollars)
<TABLE>
<CAPTION>
FEBRUARY 6, FEBRUARY 7, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning
of year $ 291 $ 382 $ 1,216
=========== =========== ===========
Balance at end
of year $ 302 $ 291 $ 382
=========== =========== ===========
</TABLE>
The majority of receivable amounts at year ending February 6,
1999, February 7, 1998 and February 1, 1997, respectively are
due from portrait studio customers for amounts collected or to
be collected, for which the Company assumes all credit risks.
Prior to February 1, 1997, 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.
25
EXHIBIT (10.28)
License Agreement - Sears, Roebuck and Co.
26
<PAGE>
SEARS, ROEBUCK AND CO.
LICENSE AGREEMENT
CONSUMER PROGRAMS
INCORPORATED
SEARS PORTRAIT STUDIOS
January 1, 1999
<PAGE>
(PAGE NUMBERS REFER TO PAPER DOCUMENT)
<TABLE>
TABLE OF CONTENTS
<S> <C>
I. GRANT OF LICENSE ................................. 5
1.1. License for On-Premises Operations .......... 5
1.2. Scope of License/Restrictions ............... 5
1.3. No Representations .......................... 5
II. USE OF SEARS MARKS ............................... 5
2.1 License to Use Sears Marks .................. 5
2.2 Communications with Third Parties ........... 6
2.3 No Challenge to Marks ....................... 6
2.4 No Rights to Marks .......................... 6
2.5 Registration of Marks ....................... 6
2.6 Injunctive Relief ........................... 7
2.7 Infringing Use .............................. 7
2.8 Limitations ................................. 7
2.9 Survival .................................... 7
III. TERM ............................................. 7
IV. FEES ............................................. 8
4.1 Amount ...................................... 8
4.2 Net Sales ................................... 8
4.3 Gross Sales ................................. 8
V. OPERATIONAL OBLIGATIONS OF LICENSEE .............. 8
5.1 Performance Standards ....................... 8
5.2 Business Conduct ............................ 8
5.3 Hours of Operation .......................... 9
5.4 Merchandise Standards ....................... 9
5.5 Pricing ..................................... 9
5.6 Discount Policy ............................. 9
5.7 Bonus Club .................................. 9
5.8 Customer Adjustment ......................... 9
5.9 Employee Standards .......................... 10
5.10 Licensee's Employees ........................ 10
5.11 Employee Compensation ....................... 10
5.12 Compliance with Labor Laws .................. 10
5.13 Compliance with Law ......................... 11
5.14 Year 2000 Compliance ........................ 11
5.15 Payment of Obligations ...................... 11
5.16 Licensee's Obligations ...................... 11
5.17 Liens ....................................... 12
VI. LICENSED BUSINESS AREA ........................... 12
6.1 Block Plan .................................. 12
6.2 Improvements ................................ 12
6.3 Operations .................................. 12
6.4 Condition of Licensed Business Area ......... 13
6.5 Changes of Location/Store Inventory ......... 13
2
<PAGE>
</TABLE>
<TABLE>
TABLE OF CONTENTS (continued)
<S> <C>
6.6 Remodeling .................................. 13
6.7 Electric/HVAC ............................... 13
6.8 Telephone ................................... 13
6.9 Yellow/White Page Listings .................. 14
6.10 Access to Licensed Business Area ............ 14
6.11 Effect of Store Leases ...................... 14
6.12 Waiver of Casualty Liability ................ 14
VII. ADVERTISING ...................................... 15
7.1 Advertising ................................. 15
7.2 Publicity ................................... 15
7.3 Forms ....................................... 15
VIII. LICENSED BUSINESS EQUIPMENT ..................... 16
8.1 Licensee's Equipment ........................ 16
8.2 Licensee's Point of Sale System ............. 16
8.3 Sears Card .................................. 16
IX. TRANSACTIONS AND SETTLEMENT ...................... 16
9.1 Checks ...................................... 16
9.2 Credit Sales ................................ 17
9.3 Sales Receipts .............................. 17
9.4 Settlement .................................. 18
9.5 Reports ..................................... 18
9.6 Audit Rights ................................ 18
9.7 Underreporting .............................. 18
9.8 Rights of Recoupment and Setoff ............. 19
X. CUSTOMER INFORMATION; CONFIDENTIALITY............. 19
10.1 Customer Information ........................ 19
10.2 Confidential Information .................... 20
XI. RELATIONSHIP OF PARTIES .......................... 20
XII. DEFENSE AND INDEMNITY ............................ 21
12.1 Defense ..................................... 21
12.2 Indemnity ................................... 21
XIII. INSURANCE ....................................... 22
13.1 Types of Insurance .......................... 22
13.2 No Cancellation Without Notice .............. 22
13.3 Certificates ................................ 23
13.4 Expiration/Non-Renewal ...................... 23
XIV. TERMINATION ...................................... 23
14.1 Mutual Right of Termination ................ 23
14.2 Termination of License by Sears With Notice . 23
14.3 Termination of License by Sears Without
Further Notice ............................. 24
14.4 Termination on Store Closing ................ 24
14.5 Effect of Termination ....................... 24
14.6 Survivability ............................... 25
XV. ASSIGNMENT AND SUBLICENSING ...................... 25
15.1 Assignment by Licensee ...................... 25
15.2 Assignment by Sears ......................... 25
</TABLE>
3
<PAGE>
<TABLE>
TABLE OF CONTENTS (continued)
<S> <C>
15.3 Binding Nature .............................. 26
XVI. MISCELLANEOUS .................................... 26
16.1 Cumulative Remedies ......................... 26
16.2 Severability ................................ 26
16.3 Governing Law ............................... 26
16.4 Entire Agreement ............................ 26
16.5 Headings .................................... 27
16.6 Notices ..................................... 27
EXHIBIT A ..................................... 29
DESIGNATED SEARS STORES ..................... 29
EXHIBIT B ..................................... 51
AUTHORIZED MERCHANDISE AND/OR SERVICES ...... 51
EXHIBIT C ..................................... 52
SEARS COMMISSION ............................ 52
EXHIBIT D ..................................... 53
ALLOCATION OF COSTS ......................... 53
</TABLE>
4
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (hereinafter referred to as "Agreement")
is entered into as of the 1st day of January, 1999, 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:
I. GRANT OF LICENSE
1.1. License for On-Premises Operations.
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
offering the goods and services listed on Exhibit B ("Licensed
Business"), only at the Sears locations described in Exhibit A
or in Location Riders attached ("Designated Sears Store(s)").
1.2. Scope of License/Restrictions.
Licensee shall use the Licensed Business area only
for the purpose authorized in this Agreement, and shall offer
for sale only those services and merchandise expressly
authorized by this Agreement as listed on Exhibit B attached
hereto and shall offer those services and merchandise only from
the Designated Sears Stores. Any changes, additions or
deletions of services or merchandise require the prior written
approval of Sears appropriate Licensing Manager ("Licensing
Manager").
1.3. No Representations.
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.
Except as otherwise set forth herein, Licensee is solely
responsible for any expenses it incurs related to this
Agreement, including, but not limited to, any increase in the
number of Licensee's employees or any expenditures for
additional facilities or equipment.
II. USE OF SEARS MARKS
2.1 License to Use Sears Marks.
Licensee shall operate the Licensed Business under
the name SEARS PORTRAIT STUDIO. Licensee shall use the name of
Sears only in connection with the operation of the Licensed
Business and only in a manner described herein or upon prior
written approval by Sears Licensing Manager. Licensee may use
the name Sears when communicating with customers or
5
<PAGE>
potential customers of the Licensed Business, or to identify
the location of the Licensed Business and in other instances
specifically approved by Sears. Licensee shall not begin any
business activity under this Agreement without Sears prior
written approval of any and all names that Licensee intends to
use in conjunction with the Licensed Business.
2.2 Communications with Third Parties.
Except in the case of communication permitted by
Paragraph 2.1, or as otherwise specifically approved by Sears,
Licensee shall not use the name of Sears, or any Sears
trademarks, service marks or trade names (the "Mark(s)"),
either orally or in writing, including, but not limited to, use
of any letterhead, checks, business cards, or contracts. All
communications with persons or entities other than customers or
potential customers of the Licensed Business shall be done
solely in Licensee's own name.
2.3 No Challenge to Marks.
Licensee shall not question, contest or challenge,
either during or after the Term of this Agreement, Sears
ownership of the Marks, or Sears ownership in any mailing
lists, credit files or other factual information compiled by
Sears and made available for use by Licensee ("Sears
Information"). Licensee shall claim no right, title or
interest in any Mark or Sears Information, except the right to
use the same pursuant to the terms and conditions of this
Agreement, and shall not register or attempt to register any
Mark.
2.4 No Rights to Marks.
Licensee recognizes and acknowledges that the use
of any Mark or Sears Information shall not confer upon Licensee
any proprietary rights to any Mark or Sears Information. Upon
expiration or termination of this Agreement, Licensee shall
immediately stop using all Marks and Sears Information, and
shall execute all documents Sears requests in order to confirm
Sears ownership, or to transfer to Sears any rights Licensee
may have acquired from Sears in any Mark or Sears Information.
Nothing in this Agreement shall be construed to bar Sears,
during or after expiration or termination of this Agreement,
from protecting its right to the exclusive ownership of Sears
Information or Marks against infringement or appropriation by
any party or parties, including Licensee.
2.5 Registration of Marks.
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, except for such trademarks, service
marks or trade names which are owned or licensed by Licensee
prior to execution of this Agreement, 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 "Marks". Licensee shall
cooperate in any such registration or application for
registration by Sears. No name or mark registered in the name
of Licensee or any of Licensee's affiliates and used in
conjunction with the Licensed Business shall be used for any
other purpose without the written consent of Sears.
6
<PAGE>
2.6 Injunctive Relief.
Licensee acknowledges that the Marks and Sears
Information 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 in the event of
breach of this Section II by Licensee there would be no
adequate remedy at law and preliminary or permanent injunctive
relief would be appropriate.
2.7 Infringing Use.
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 in the
minds of the public to those sold by Licensee and which bear or
are promoted in association with the Marks or any names,
symbols, emblems, or designs or colors which would be
confusingly similar in the minds of the public to the Marks,
Licensee shall promptly notify Sears. Sears may, at its sole
expense, take such action as it determines, in its sole
discretion, is appropriate. Licensee shall 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.
2.8 Limitations.
Licensee shall not file suit using Sears name.
Licensee shall not use the services of a collection agency or
undertake any legal proceeding against any customer without the
prior written approval of Sears Licensing Manager.
2.9 Survival.
The provisions of this Section II shall survive
the expiration or termination of this Agreement.
III. TERM
The term of this Agreement ("Term") shall be for a five (5)
year period beginning on January 1, 1999, and ending at the
close of business on December 31, 2003, unless sooner
terminated under any of the provisions of this Agreement.
7
<PAGE>
IV. FEES
4.1 Amount.
Licensee shall pay Sears a commission ("Sears
Commission") which is set forth on Exhibit C attached hereto.
4.2 Net Sales.
"Net Sales" means Gross Sales from operation of the
Licensed Business, less sales taxes, returns and allowances.
4.3 Gross Sales.
"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.
V. OPERATIONAL OBLIGATIONS OF LICENSEE
5.1 Performance Standards.
Licensee shall provide Sears with copies of its
written procedures and policies establishing minimum standards
of quality, performance and customer service. Licensee shall
immediately advise Sears of any changes in its standards.
Without limiting Paragraph 5.8, Licensee shall observe no less
than such minimum standards of quality, performance and
customer service. Sears may visit the Licensed Business area
at any reasonable time during business hours for the purpose of
verifying Licensee's compliance with its standards of quality,
performance and customer service.
Licensee shall conduct its operations in a courteous and
efficient manner and shall present a neat, business like
appearance, including adherence by Licensees' employees to a
reasonable dress code. Licensee shall abide by all safety and
security rules and regulations of Sears in effect from time to
time.
5.2 Business Conduct.
Licensee shall also conduct its operations in an
honest and ethical manner at all times. In dealing with Sears
associates and Sears customers, Licensee shall adhere to the
highest ethical standards, including those standards described
in the "A Guide To Business Conduct For Sears Licensed Business
Associates" as provided to Licensee and updated from time to
time.
8
<PAGE>
5.3 Hours of Operation.
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, unless otherwise
agreed to by Sears Licensing Manager and Licensee.
5.4 Merchandise Standards.
Licensee shall maintain a stock of good quality
merchandise as necessary to assure efficient operation of the
Licensed Business. Licensee shall maintain merchandise
presentation standards consistent with Sears own standards.
5.5 Pricing.
Except as noted, Sears shall have 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, however, Licensee also
shall participate in Sears national storewide sales and/or
merchandise price off events. Licensee shall not charge
customers for estimates or proposals.
5.6 Discount Policy.
Sales made under this Agreement shall be offered
for sale by Licensee to the employees of Sears (to include
other eligible family members) at the same discount which
Sears allows its own employees on purchases of similar
merchandise as fully described in Sears Courtesy Discount
Guide. Licensee's employees who are exclusively employed to
service the Licensed Business shall be entitled to receive the
same discount on purchases made from Sears; provided, however,
that the employees, but not their family members, are entitled
to receive the discount. Misuse of the Sears discount policy
by any employee of Licensee could result in Sears request that
Licensee remove an employee from the Licensed Business pursuant
to Paragraph 5.10 of this Agreement.
5.7 Bonus Club.
Licensee shall accept Sears Card Bonus Club Bonus
Certificates. Sears shall reimburse Licensee for such bonus
certificates provided Licensee has followed prescribed
procedures.
5.8 Customer Adjustment.
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
9
<PAGE>
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. Sears may deduct the
amounts of any such adjustments from the sales receipts held
by Sears as described in Paragraph 9.4. Licensee shall
maintain files pertaining to customer complaints and their
adjustment and make such files available to Sears.
5.9 Employee Standards.
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.
5.10 Licensee's Employees.
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 Sears may
request at any time that Licensee remove from the Licensed
Business any employee who is objectionable to Sears because of
risk of harm or loss 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 determines not to remove
such employee, Sears may terminate any affected location by
giving thirty (30) days notice to Licensee.
5.11 Employee Compensation.
Licensee shall pay in a timely manner and is
solely responsible for so paying, for all salaries and other
compensation of its employees and shall make all necessary
salary deductions and withholdings from its employees' salaries
and other compensation. Licensee shall pay in a timely manner,
and 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 withholding of income
tax laws on all salary and other compensation of its employees.
5.12 Compliance with Labor Laws.
Licensee shall comply with any other contract and
all Federal, state and local laws, ordinances, rules and
regulations regarding its employees, including, but not limited
to, Federal or state laws or regulations regarding minimum
compensation, overtime and equal opportunities for employment.
Without limiting the foregoing, Licensee shall comply with the
terms of the Federal Civil Rights Acts, Age Discrimination in
Employment Act, Occupational Safety and Health Act, the Federal
Fair Labor Standards Act, and the Americans with
10
<PAGE>
Disabilities 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.
5.13 Compliance with Law.
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, but not limited to, all rules and
regulations of the Federal Trade Commission. In addition,
Licensee represents and warrants that Licensee and all
subcontractors and agents involved in the production or
delivery of the merchandise to be sold in connection with the
Licensed Business shall strictly adhere to all applicable laws,
regulations, and prohibitions of the United States and all
country(ies) in which such merchandise is produced or delivered
with respect to the operation of their production facilities
and their other businesses and labor practices, including
without limitation, laws, regulations and prohibitions
governing the working conditions, wages and minimum age of
the work force. Licensee further represents and warrants that
such merchandise shall not be produced or manufactured, in
whole or in part, by convict or forced labor.
5.14 Year 2000 Compliance.
Licensee represents and warrants that its point of
sale system utilizes and includes four digit year elements
(e.g. 1999, 2000, etc.) and that the use, entry or creation of
dates before, on or after January 1, 2000 will neither cause
failure nor produce incorrect results in the transmission of
data to Sears settlement system, nor cause interruption to or
disruption of the Licensed Business.
5.15 Payment of Obligations.
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.
Licensee shall promptly pay all its obligations, including
those for labor and material, and shall not allow any liens to
attach to any Sears or customer's property as a result of
Licensee's failure to pay such sums.
5.16 Licensee's Obligations.
Licensee shall 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.
11
<PAGE>
5.17 Liens.
Licensee shall not allow any liens, claims or
encumbrances to attach against any of the Designated Sears
Stores. In the event any lien, claim or encumbrance so
attaches or is threatened, Licensee shall immediately take all
necessary action to cause such lien, claim or encumbrance to be
satisfied and released, or Sears, may either terminate this
Agreement or charge Licensee or withhold from sales receipts
all expenses, including attorneys' fees, incurred by Sears in
removing and/or resolving such liens or claims.
VI. LICENSED BUSINESS AREA
6.1 Block Plan.
The defined area of space provided by Sears for
the operation of the Licensed Business ("Block Plan") will be
submitted for each Designated Sears Store to Licensee.
Licensee shall be solely responsible for providing final plans
for the Licensed Business area and Licensee shall authorize
Sears to prepare the final blueprint plans in accordance with
Exhibit D. All costs and expenses related to such plans,
including, but not limited to, blueprints, shall be borne by
Licensee. The expense of preparing the initial space assigned
to any Licensed Business location shall be allocated between
parties as described in Exhibit D attached hereto and hereafter
made a part of this Agreement. 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. All improvements or installations which vary from
Sears standard specifications shall be at Licensee's sole
expense.
6.2 Improvements.
All permanent improvements to the Licensed
Business area shall become the property of Sears at the
expiration or termination of this Agreement. At the expiration
or termination of this Agreement, or if Licensee vacates or
abandons the Licensed Business, Licensee shall convey to Sears,
without charge, good title to such improvements free from
any and all liens, charges, encumbrances and rights of third
parties.
6.3 Operations.
If the Licensed Business is not fully operational
within thirty (30) days after Sears has made the Licensed
Business area ready for Licensee as a result of delay by
Licensee, Sears may, at Sears sole option, terminate this
Agreement and have no further obligation to Licensee, and
Licensee shall reimburse Sears within ten (10) days after
receipt of an invoice, for Sears cost, of constructing the
Licensed Business area and of putting such space back to its
condition immediately prior to the commencement of such
construction.
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6.4 Condition of Licensed Business Area.
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.
6.5 Changes of Location/Store Inventory.
Sears shall have the right, in its sole
discretion, to change the location, dimensions 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 Store(s). In the event Sears decides to
change the location of the Licensed Business, Sears shall move
Licensee's Equipment to the new location and prepare the new
space for occupancy by Licensee and the expense shall be
allocated between the parties as described on Exhibit D. If a
change in location is requested or initiated by Licensee, then
Licensee shall bear all expense involved in moving Licensee's
Equipment and the expense for preparing the new space for
occupancy by Licensee shall be allocated between the parties as
described on Exhibit D. 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.
6.6 Remodeling
Licensee shall remodel the Licensed Business area
per the terms of Exhibit D and the expense of such remodel
shall be divided between the parties as described on Exhibit
D.
6.7 Electric/HVAC.
Sears shall furnish, at reasonable hours, and
except as otherwise provided, without expense to Licensee,
reasonable amounts of heat, light, air conditioning 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, air conditioning and electric power, regardless of
the cause of such failure. All claims for such injury or
damage are expressly waived by Licensee. The allocations of
costs to bring such utilities to the Licensed Business location
are described on Exhibit D.
6.8 Telephone.
Sears will arrange for local telephone service by
providing a single Direct Inward Dial Telephone line ("Sears
Phone Line") for the Licensed Business location(s). In stores
that have not been remodeled, Sears will provide a Sears Phone
to the cash register area for the Licensed Business location
(s). In new and remodeled stores as described in Exhibit D,
Sears
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shall provide a single Sears Phone to the cash register area
and one extension phone line ("Sears Extension Line") in each
camera room.
Sears shall bear the cost of outbound local and toll-free calls
and provide compatible telephone hardware for the Sears Phone
Line and the Sears Extension Lines. If Licensee requires
additional phone lines ("Additional Phone(s)") to be installed
in the Licensed Business location(s), Licensee shall arrange
with the appropriate telephone company for such installation
and all installation costs and monthly service associated with
any such Additional Phone(s) are to be paid by Licensee.
Licensee shall arrange with the appropriate telephone
company for direct billing to Licensee of all long distance
calls made in the Licensed Business location(s).
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.
6.9 Yellow/White Page Listings.
All white and yellow page telephone listings for
the Licensed Business shall be approved by Sears prior to
placement; provided, however, approval is not required for
listings consisting only of Licensee's name and address as
authorized in Paragraph 2.1. Sears may, at its sole option,
require that any telephone number listed in any telephone
directory using Sears name is billed through a Sears store or
office.
6.10 Access to Licensed Business Area.
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 General 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.
6.11 Effect of Store Leases.
If any Designated Sears Store is leased to Sears
or is the subject of an easement agreement, this Agreement
shall be subject to all of the terms, agreements and
conditions contained in such lease or easement agreement. In
case 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.
6.12 Waiver of Casualty Liability.
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
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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, 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; except for damage caused by Sears gross negligence.
VII. ADVERTISING
7.1 Advertising.
Licensee shall advertise and actively promote the
Licensed Business. Licensee shall at all times adhere to Sears
Licensed Business Marketing Manual as provided to Licensee and
updated from time to time ("Marketing Manual"). Prior to use
in connection with the Licensed Business, Licensee shall submit
to Sears Marketing Manager, Licensed Businesses, or his
designee, (a) all signs and advertising copy (including, but
not limited to, sales brochures, telemarketing scripts,
newspaper advertisements, radio and television commercials),
and (b) all sales promotional plans and devices. Licensee
shall not use any such advertising material or sales
promotional plan or device without the prior written approval
of Sears Marketing Manager. Sears has the right, in its sole
discretion, to disapprove or require modification of any or all
such advertising forms and other materials. Licensee shall not
engage in any Internet advertising without the prior written
consent of Sears Marketing Manager. Sears shall have the right
to audit Licensee's advertising materials and practices to
determine Licensee's compliance with this Agreement, including
but not limited to compliance with all laws.
7.2 Publicity.
Licensee shall not issue any publicity or press
release regarding its contractual relations with Sears or
regarding the Licensed Business, and shall 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 from Sears Licensing
Manager and Sears Public Relations Manager. Licensee shall at
all times adhere to Sears written policies regarding
interaction with the media as contained in the Marketing
Manual.
7.3 Forms.
Prior to use in connection with the Licensed
Business, Licensee shall submit all customer contract forms,
guarantee certificates and other forms and materials to Sears
Licensing Manager for approval. Licensee shall not utilize any
forms or related materials that have not been approved in
advance by Sears Licensing Manager.
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VIII. LICENSED BUSINESS EQUIPMENT
8.1 Licensee's Equipment.
Entirely at its own expense, Licensee shall in-
stall furniture, fixtures and equipment 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.
8.2 Licensee's Point of Sale System.
At its own expense, Licensee shall furnish a point
of sale system and peripheral devices, including, but not
limited to printers, bar-code scanning devices, and electronic
signature capture devices ("Licensee's POS"). Licensee's POS
shall have the capability of processing Sears Card and any
other credit cards Sears may accept from time to time.
At such time as Licensee's POS interfaces with the Sears in-
store processor("Sears ISP), Licensee's POS shall be compatible
with the Sears ISP, and Licensee's POS shall have substantially
the same capabilities as the point of sale system used by Sears
in its own merchandise departments to the extent applicable to
the operation of the Licensed Business. This transition will
occur no later than June 30, 2000. Licensee shall also be
responsible for upgrading Licensee's POS to be compatible with
enhancements and changes in functionality made to the Sears
ISP. Sears shall be responsible for the cost of installing and
maintaining a Sears data line to the Licensed Business
location. Subject to Licensee's fulfillment of its obligations
under this paragraph, Sears shall also be responsible for the
cost of developing and maintaining the third party interface
software that is necessary to support the integration of
Licensee's POS with the Sears ISP.
8.3 Sears Card.
At such time when Licensee's POS interfaces with
the Sears ISP as described in Paragraph 8.2, Licensee agrees to
accept and process Sears Card payments from customers at
Licensee's POS, and upon written approval from Sears Licensing
Manager, Licensee will be authorized to open Sears Card instant
credit accounts ("Rapid Credit") for customers.
IX. TRANSACTIONS AND SETTLEMENT
9.1 Checks.
All checks or money orders which Licensee accepts
from customers shall be made payable to Sears, Sears, Roebuck
and Co. or Sears Portrait Studio. Licensee shall make certain
that all checks are filled out correctly and are verified in
accordance with Sears policies in effect from time to time.
Checks which are deficient in any manner 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.
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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 sus-
tained 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 shall make
whatever effort it deems reasonable to collect all such checks
prior to charging back such checks to Licensee.
9.2 Credit Sales.
With the approval of the Credit Central designated
by Sears, sales may be made by Licensee on such of Sears
regularly established credit plans 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. Licensee agrees to accept third party credit
cards as designated by Sears from time to time. Licensee may
not distribute or solicit any customer applications for any
third party credit cards in the Licensed Business.
At such time when Licensee's POS interfaces with the Sears ISP
as described in Paragraph 8.2, Sears shall pay Licensee's third
party merchant discount fees for using third party credit
cards, as long as Licensee's balance of sale for third party
credit does not exceed the Sears full-line stores balance of
sale for third party credit for that Sears fiscal year. If
Licensee's balance of sale for third party credit exceeds the
Sears full-line stores balance of sale for third party credit
for that Sears fiscal year, Licensee will reimburse Sears one
and one half percent (1.5%) of all third party credit sales
over the Sears full-line stores average balance of sale for
third party credit. Sears shall have the right to withhold such
third party credit fees owed to Sears, from the next regular
settlement after the close of that fiscal year.
Licensee shall 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.
9.3 Sales Receipts.
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 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.
Sears may retain out of such receipts the proper amount of the
Sears Commission payable under this
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Agreement together with any other sums due Sears from Licensee.
The remaining balance shall be payable to Licensee at the
regular settlement set forth in Paragraph 9.4.
9.4 Settlement.
A settlement between the parties shall be made at
the end of each Sears fiscal month for all 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.
Such advances shall be deducted and reconciled in the next
regular settlement. All settlements and advances shall be made
by electronic funds transfer (EFT) to a bank account designated
by Licensee. For all transactions entered into the Sears
system for settlement purposes, and until such time when
Licensee's POS interfaces with the Sears ISP as described in
Section 8.2, Sears will pay transaction fees for any processing
service with whom Sears has an agreement to provide access for
the point of sale settlement system to the appropriate Sears
credit system.
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.
9.5 Reports.
If requested by Sears, Licensee shall provide to
Sears reports of sales and income and Sears commissions paid in
the manner and form prescribed by Sears, together with any
other information Sears may require for its records or auditing
purposes. If requested by Sears, Licensee shall promptly
submit its financial report to Sears 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 for such
fiscal year and balance sheet at the end of such fiscal year,
and shall be prepared in accordance with generally accepted
accounting principles. If Licensee is a publicly held
corporation, this requirement may be fulfilled by submission of
Licensee's Annual Report on Form 10-K. Sears shall not
disclose any such information that is not available to the
public to any third parties without Licensee's prior consent.
9.6 Audit Rights.
Licensee shall keep and maintain books and records
that accurately reflect the sales made by Licensee under this
Agreement and the expenses that Licensee incurs in performing
under this Agreement. Sears shall have the right at any
reasonable time to review and audit the books and records of
Licensee regarding this Agreement. Such books and records
shall be kept and maintained according to generally accepted
accounting principles.
9.7 Underreporting.
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If an audit reveals that sales were under-reported
at any Licensed Business location being audited, by more than
five percent (5%) of the total sales which were actually
reported by such location, then the cost of such audit shall be
charged to such Licensed Business location. If a sampling of
Licensee's records at a Licensed Business location, using
standard audit practices, reveals that sales have been under-
reported by more than five percent (5%) of the total sales
which were actually reported by such Licensed Business
location, then such Licensed Business location shall at its
option, (a) pay Sears for all under-reported sales for each
year audited by annualizing the rate by which sales were under-
reported in the audit sample plus an administrative fee which
shall be calculated by multiplying the annualized under-
reported commissions by the percent of under-reported sales; or
(b) pay the actual amount of any under-reported sales based on
a complete audit of the books and records (at Licensee's
expense) relating to such Licensed Business location, including
a comprehensive audit of all such books and records for the
then-current year and if Sears so elects, a comprehensive audit
(at Licensee's expense) of prior years plus an administrative
fee which shall be calculated by multiplying the audited annual
under-reported commission by the percent of under-reported
sales. Each audited location shall be subject to another audit
(at Licensee's expense) one (1) year after the initial audit.
If this audit reveals that sales were again under-reported by
more than five percent (5%), Licensee shall pay Sears for these
sales as per the above except that, due to the increased
expenses incurred by Sears in continued monitoring of the
Licensed Business, the administrative fee shall be doubled.
All under-reported sales equal to or less than five percent
(5%) of total sales actually reported by such Licensed Business
location, shall be reimbursed to Sears, as appropriate, based
on the actual amounts of such under-reports.
Sears, at its sole option, may also charge interest on all
under-reported sales at the rate of prime (as published in the
Wall Street Journal as of the date of the completion of the
audit) plus one percent (1%). Licensee, at its expense, shall
develop and implement a program to conduct internal audits of
the Licensed Business to verify accuracy of sales and
commissions.
9.8 Rights of Recoupment and Setoff.
Sears shall have the right to reduce, withhold or
set-off against any payment due Licensee hereunder any
liability or obligation which Licensee may have to Sears. Any
Licensee liabilities or obligations which remain outstanding
after any exercise of Sears right of set-off shall be paid by
Licensee promptly upon demand by Sears. Sears rights under
this Paragraph are cumulative, shall be in addition to all
other rights, remedies available at law or in equity, and shall
survive the expiration or termination of this Agreement.
X. CUSTOMER INFORMATION; CONFIDENTIALITY
10.1 Customer Information.
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The Sears Information and 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 (collectively, the "Customer
Information"), are deemed exclusively owned by Sears. Licensee
shall not use, permit use, disclose or permit disclosure 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 written request by
Sears during the Term and on expiration or 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. Licensee
acknowledges that there is no adequate remedy at law for
violation by Licensee of this Section X and, in case of breach
of this Section X, preliminary or permanent injunctive relief
would be appropriate.
10.2 Confidential Information.
Information furnished by Sears to Licensee or
which becomes known to Licensee through Licensee's operation of
the Licensed Business or Licensee's relationship with Sears is
confidential and proprietary to Sears (collectively, the
"Confidential Information"). All such Confidential Information
shall be held in utmost confidence by Licensee. All
Confidential Information, including, but not limited to,
information regarding Sears stores, and any other information
not specifically designated by Sears for release to the public
that may come into the possession of Licensee during the Term
of this Agreement shall be delivered to the appropriate
Licensing Manager at Sears upon request by Sears, and Licensee
shall not make or retain copies or portions of the Confidential
Information. The terms and content of this Agreement,
including but not limited to, exhibits attached hereto, and any
other agreements entered into pursuant to this Agreement shall
at all times remain confidential and shall not be revealed to
any third party by Licensee without the prior written consent
of Sears except to the extent (a) permitted by this Agreement,
(b) required by law or any court, or (c) made to a court or
mediator in connection with a dispute between the parties.
The provisions of this Section X shall survive the expiration
or termination of this Agreement.
XI. RELATIONSHIP OF PARTIES
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.
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XII. DEFENSE AND INDEMNITY
12.1 Defense.
Licensee shall defend all allegations asserted in
any claim, action, lawsuit or proceeding (even though such
allegations may be false, fraudulent or groundless) against
Sears, its affiliates and subsidiaries, and/or Sears
subsidiaries or affiliates, directors, officers, employees,
agents, independent contractors, parents, subsidiaries and
affiliates which contains any allegations of liability 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 the Licensed Business, lack of repair in
or about the area occupied by the Licensed Business, operations
of or defect 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 directors, officers, employees,
agents or independent contractors, whether or not such act is
within the scope of the authority or employment of such
persons. Licensee shall use counsel satisfactory to Sears in
defense of such allegations. Sears may, at its election, take
control of the defense and investigation of any claims, may
employ and engage attorneys of its own choice to manage and
defend such claims, at Licensee's cost, risk and expense,
provided that Sears and its counsel shall proceed with
diligence and good faith with respect thereto. The provisions
of this Paragraph shall survive the expiration or termination
of this Agreement.
12.2 Indemnity.
Licensee shall hold harmless and indemnify Sears
and Sears directors, officers, employees, agents, independent
contractors, parents, subsidiaries and affiliates from and
against any and all claims, demands, actions, lawsuits,
proceedings, liabilities, losses, costs and expenses
(including, without limitation, fees and disbursements of
counsel incurred by Sears in any claim, demand, lawsuit, or
proceeding between Licensee and Sears or between Sears and any
third party or otherwise), 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 the
Licensed Business, 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 directors, officers, employees, agents or
independent contractors, whether or not such act is within the
scope of the authority or employment of such persons. The
provisions of this Paragraph shall not apply to the extent any
injury or damage is caused solely by Sears negligence. The
provisions of this Paragraph shall survive the expiration or
termination of the Agreement.
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XIII. INSURANCE
13.1 Types of Insurance.
Licensee shall, at its sole expense, obtain and
maintain during the Term of this Agreement the following
policies of insurance from companies having a rating of at
least A-VII or better in the current Best's Insurance Reports
published by A.M. Best Company 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:
(a) Worker's Compensation insurance covering all
costs, benefits and liabilities under Workers Compensation and
similar laws which may accrue in favor of any person employed
by Licensee for all states in which Licensee operates, and
Employer's Liability insurance with limits of liability of at
least $100,000 per accident or disease and $500,000 aggregate
by disease. Such insurance shall contain a waiver of subro-
gation in favor of Sears. Limits of liability requirements for
Employer's Liability may be satisfied by a combination of
Employer's Liability and Umbrella Excess Liability policies.
(b) Commercial General Liability insurance,
including but not limited to, premises/operations liability,
contractual liability, personal and advertising injury
liability, and products and completed operations liability,
with limits of at least $1,000,000 for bodily injury and
property damage combined. Sears shall be named as an
additional insured. Limits of liability requirements may be
satisfied by a combination of Commercial General Liability
and Umbrella Excess Liability policies.
(c) Motor Vehicle Liability insurance, for owned,
non-owned and hired motor vehicles used in connection with the
Licensed Business, with limits of at least $1,000,000 for
bodily injury and property damage combined. If only private
passenger vehicles are owned or shall be used in conjunction
with this Agreement, $500,000 combined single limit of
liability is acceptable. If no vehicles are owned or leased by
Licensee, the Commercial General Liability insurance shall be
extended to provide insurance for non-owned and hired motor
vehicles. Limits of liability requirements may be satisfied by
a combination of Motor Vehicle Liability and Umbrella Excess
Liability policies.
(d) "All Risk" Property insurance upon all
building improvements and supplies on the premises, including
those perils generally covered on a "Cause of Loss - Special
Form", including fire, extended coverage, windstorm, vandalism,
malicious mischief, sprinkler leakage, water damage, accidental
collapse, in an amount equal to at least 90% of the full
replacement cost, with a coverage extension for increased cost
of construction, including a waiver of subrogation in favor of
Sears.
(e) Fidelity insurance with limits of liability of
at least $50,000.
13.2 No Cancellation Without Notice.
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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 written
notice to Sears Certificate Management Services, c/o Near North
Technology Services, P.O. Box 811310, Chicago, Illinois
60681-1310, or other address of which Licensee is notified.
13.3 Certificates.
Licensee shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to
execution of this Agreement and upon each policy renewal during
the Term of this Agreement. If Licensee does not provide Sears
with such certificates of insurance or, in Sears opinion, such
policies do not afford adequate protection for Sears, Sears
shall so advise Licensee, and if Licensee does not furnish
evidence of acceptable coverage within five (5) days, Sears
shall have the right to immediately terminate this Agreement
upon written notice to Licensee.
13.4 Expiration/Non-Renewal.
If Licensee's policies of insurance expire or are
canceled during the Term of this Agreement or are materially
modified, Licensee shall promptly notify Sears of such
expiration, cancellation or material modification. If such
policies of insurance are materially modified such that, in
Sears opinion, such policies do not afford adequate
protection to Sears, Sears shall so advise Licensee. If
Licensee does not furnish evidence of acceptable replacement
coverage within five (5) days after the expiration or
cancellation of coverage or the notification from Sears that
modified policies are not sufficient, Sears shall have the
right, at its option, to immediately terminate this Agreement
upon written notice to Licensee.
Any approval by Sears of any of Licensee's insurance policies
shall not relieve Licensee of any responsibility under this
Agreement, including liability for claims in excess of
described limits.
XIV. TERMINATION
14.1 Mutual Right of Termination.
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 written notice. The notice shall specify the termination
date.
14.2 Termination of License by Sears With Notice.
This Agreement shall terminate effective upon
delivery of notice of termination to Licensee if Licensee, or
its owner(s): (a) abandons or fails to actively operate the
License Business or fails to commence operation of his Licensed
Business as required in Paragraph 6.3 of
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this Agreement; (b) surrenders or transfers control of the
Licensed Business without Sears prior written consent; (c) has
made any material misrepresentation or omission in his
application; (d) is convicted of or pleads no contest to a
felony, or engages in any conduct that is likely to adversely
affect the reputation of Licensee, the Licensed Business or
Sears; (e) makes an unauthorized transfer of the Licensed
Business; (f) makes any unauthorized use, duplication or
disclosure of the Confidential Information or Customer
Information; (g) fails to secure and maintain appropriate
insurance coverage as set forth in Section XIII; (h) a
petition is filed either by or against Licensee in any
bankruptcy or insolvency proceeding, or if any property of
Licensee passes into the hands of any receiver, assignee,
officer of the law or creditor; or (i) materially misuses or
makes an unauthorized use of any Sears Mark.
14.3 Termination of License by Sears Without Further
Notice.
This Agreement shall terminate without further
action by Sears or notice to Licensee if Licensee or its
owners(s):
(a) fails to make payment of any Sears Commissions
or any other amounts due Sears, and does not correct such
failure within ten (10) days after written notice of such
failure is delivered to Licensee; or
(b) fails to comply with any other provision of
this Agreement or any mandatory specification, standard or
operating procedures as prescribed by Sears and does not
correct such failure within thirty (30) days after written
notice of such failure to comply is delivered to Licensee.
14.4 Termination on Store Closing.
Sears may, solely at Sears discretion, terminate
this Agreement with respect to 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.
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, without penalty and without
liability for any damages as a result of such termination,
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.
14.5 Effect of Termination.
Upon the termination of this Agreement by
expiration of time or otherwise, Licensee shall, immediately
pay all amounts owed to Sears, cease use of all Sears Marks,
the Confidential Information and Customer Information and, at
its expense, immediately remove all
24
<PAGE>
of Licensee's Equipment from Sears premises and shall, without
delay and, at Licensee's expense, repair any damage to Sears
premises caused by such removal. Upon the termination of this
Agreement by expiration of time or otherwise, the expense to
return the Licensed Business area to the condition Sears made
it ready for use by the Licensee shall be allocated per the
terms of Exhibit D.
14.6 Survivability.
No termination of this Agreement, by expiration of
time or otherwise, shall relieve the parties of obligations
arising before expiration or termination or arising upon or
after expiration or termination of this Agreement.
XV. ASSIGNMENT AND SUBLICENSING
15.1 Assignment by Licensee.
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 and
Licensee shall not sub-license the license granted herein to
any person or entity. 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 deemed such a
prohibited transfer.
15.2 Assignment by Sears.
This Agreement is fully transferable by Sears and
shall inure to the benefit of any transferee or other legal
successor to Sears interest herein.
25
<PAGE>
15.3 Binding Nature.
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.
XVI. MISCELLANEOUS
16.1 Cumulative Remedies.
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.
16.2 Severability.
If any provision in this Agreement is held to be
invalid, illegal or unenforceable by a court of competent
jurisdiction, 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.
16.3 Governing Law.
This Agreement shall be interpreted and governed
by the internal substantive laws of the State of Illinois,
without regard to its conflict of law principles. This Agree-
ment shall not be effective until it has been received and
executed by Sears in Hoffman Estates, Illinois. The federal
and/or state courts of Illinois shall have personal and subject
matter jurisdiction over, and the parties each hereby submit to
the venue of such courts with respect to, any dispute arising
pursuant to this Agreement, and all objections to such
jurisdiction and venue are hereby waived.
16.4 Entire Agreement.
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 duly
authorized representatives of Licensee and Sears, and no person
has or shall have the authority to supplement, modify or amend
this Agreement in any other manner. This Agreement shall be
effective when signed by Sears.
26
<PAGE>
16.5 Headings.
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.
16.6 Notices.
All notices provided for or which may be given in
connection with this Agreement shall be in writing and given by
personal delivery, certified mail with postage prepaid and
return receipt requested or its equivalent, such as private
express courier, or by facsimile transmission (with a
confirmation copy sent by regular mail). Notices given by
Licensee to Sears shall be addressed to:
SEARS, ROEBUCK AND CO.
Attention: Licensing Manager,
Licensed Businesses,
Department 725 E3-378B
3333 Beverly Road
Hoffman Estates, Illinois 60179
Notices given by Sears to Licensee shall be addressed to:
CONSUMER PROGRAMS INCORPORATED
Attention: Senior Vice President of Administration
1706 Washington Avenue
St. Louis, Missouri 63103
Notices if so sent by mail shall be deemed to have been given
when deposited in the mail or with the private courier. All
changes of address must be communicated to the other party in
writing.
-[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]-
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or
caused this Agreement to be executed on their behalf by duly
authorized officers or representatives.
SEARS, ROEBUCK AND CO.
By: /s/ Ken E. Hux
-----------------------------
Its: Vice President and General
Manager, Licensed Businesses
LICENSEE
By: /s/ Alyn V. Essman
------------------------------
Its: Chairman and Chief Executive
Officer
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1001 11C43 WESTMINSTER CO
1003 01Y50 SALEM NH
1004 01Y82 GARDEN CITY NY
1005 01M26 LAKE WALES FL
1006 01M41 OCALA FL
1007 01Y72 BRANDON FL
1008 11C89 LOS ANGELES CA
1009 11847 SEATTLE WA
1010 11859 CHICAGO IL
1012 11836 DES MOINES IA
1013 01C59 GLEN BURNIE MD
1014 01Z05 ENFIELD CT
1015 01Y92 VERO BEACH FL
1016 01818 LITTLE ROCK AR
1017 01482 HOUSTON TX
1018 11R89 LOS ANGELES CA
1019 11Y85 PLEASANTON CA
1020 11868 CHICAGO IL
1022 11Y93 OMAHA NE
1024 01Z06 FALLS CHURCH VA
1025 01E87 DANVILLE VA
1026 01E22 MEMPHIS TN
1027 11Y81 EL PASO TX
1028 11E04 HOLLYWOOD CA
1029 11794 SPOKANE WA
1030 11869 CHICAGO IL
1031 11C42 DENVER CO
1032 11EG3 BROOKLYN CTR MN
1033 01Q02 N ATTLEBORO MA
1034 01R53 PITTSBURGH PA
1035 01EH3 AUGUSTA GA
1038 11Z07 SPOKANE WA
1039 11Y95 OAKLAND CA
</TABLE>
29
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1040 11N68 EAU CLAIRE WI
1041 11EC7 OMAHA NE
1042 01M31 JOPLIN MO
1043 01V65 MERIDEN CT
1044 01C55 JERSEY CITY NJ
1045 01E81 DURHAM NC
1048 11C33 PASADENA CA
1050 11N52 MOLINE IL
1051 01Y91 STRONGSVILLE OH
1052 11EG2 ST PAUL MN
1053 01V81 SAUGUS MA
1055 01Q16 CORAL SPRINGS FL
1056 01791 MOBILE AL
1057 01427 DALLAS TX
1059 11850 SEATTLE WA
1060 11EA6 CHUBBUCK ID
1062 11EF7 BROOKFIELD WI
1063 01V12 WEST HARTFORD CT
1064 01Q12 LANGEHORNE PA
1065 01E29 GLENN ALLAN VA
1066 01Y25 JACKSONVILLE FL
1067 01483 HOUSTON TX
1068 11EK3 PALMDALE CA
1069 11851 REDMOND WA
1070 11R19 MANKATO MN
1071 11C44 DENVER CO
1072 11EJ2 WATERLOO IA
1074 01Y12 WALDORF MD
1075 01N02 DAYTONA BEACH FL
1076 01R99 LEWISVILLE TX
1077 01879 SHREVEPORT LA
1078 11Y37 MESA AZ
1079 11790 PORTLAND OR
1081 11EJ7 HEATH OH
1082 11EF8 GREENDALE WI
1083 01V29 WARWICK RI
1084 01487 PHILADELPHIA PA
1086 01862 BATON ROUGE LA
</TABLE>
30
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1087 01Y23 HOUSTON TX
1088 11C98 GLENDALE CA
1089 11C74 ANCHORAGE AK
1090 11870 CHICAGO IL
1091 01825 OKLAHOMA CITY OK
1092 11Y98 WESTLAND MI
1093 01V51 SPRINGFIELD MA
1094 01C52 HACKENSACK NJ
1096 01866 PENSACOLA FL
1097 01C70 SAN ANTONIO TX
1099 11852 FEDERAL WAY WA
1100 11773 FLINT MI
1101 11467 OVERLAND PARK KS
1102 11EF5 MILWAUKEE WI
1103 01V13 ALBANY NY
1104 01Y84 MARLBOROUGH MA
1105 01Y86 OCOEE FL
1106 01860 JACKSON MS
1109 11N33 LYNNWOOD WA
1110 11N07 PORTAGE MI
1111 11N62 COLORADO SPGS CO
1112 11EG5 MINNETONKA MN
1113 01V42 ORANGE CT
1114 01C05 BROOKLYN NY
1115 01R67 CHATTANOOGA TN
1116 01863 MONROE LA
1117 01480 FT WORTH TX
1118 11EA1 SALT LAKE CITY UT
1119 11M06 PORTLAND OR
1120 11Z02 COLUMBUS OH
1121 11798 INDEPENDENCE MO
1122 11EG6 MAPLEWOOD MN
1123 01V41 DEDHAM MA
1124 01C02 BAYSHORE NY
1125 01M02 MIAMI FL
1126 01865 MONTGOMERY AL
1127 01484 HOUSTON TX
1129 11848 TACOMA WA
</TABLE>
31
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1130 11E60 JANESVILLE WI
1131 11C45 LITTLETON CO
1132 11EG7 BURNSVILLE MN
1133 01V82 LEOMINSTER MA
1135 01E27 RICHMOND VA
1136 01810 BIRMINGHAM AL
1137 01761 AUSTIN TX
1139 11849 TUKWILA WA
1140 11N17 GRAND RAPIDS MI
1141 11C41 AURORA CO
1142 11EG8 EDEN PRAIRIE MN
1143 01Z10 BROOKLYN NY
1145 01C40 COLUMBUS GA
1146 01Z04 MEMPHIS TN
1147 01Y99 BATON ROUGE LA
1149 11Z03 WHITTIER CA
1150 11803 COLUMBUS OH
1151 01C31 TULSA OK
1154 01V21 WHITEHALL PA
1155 01R40 KENNESAW GA
1158 11C47 HONOLULU OAHU HI
1159 11R35 FAIRFIELD CA
1161 11C71 WICHITA KS
1163 01V83 BURLINGTON MA
1166 01EE1 MERIDIAN MS
1167 01762 SAN ANTONIO TX
1168 11837 N HOLLYWOOD CA
1170 11E80 LANSING MI
1171 01N98 SPRINGFIELD MO
1172 11Y41 BLOOMINGDALE IL
1174 01752 UPPER DARBY PA
1175 01M43 MERRITT ISLAND FL
1176 01492 PASADENA TX
1177 01C11 ARLINGTON TX
1178 11E07 SANTA MONICA CA
1179 11Y88 CANOGA PARK CA
1180 11C46 WATERFORD MI
1181 11P16 KANSAS CITY MO
</TABLE>
32
<TABLE>
EXHIBIT A
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1182 11Y24 ST PETERS MO
1185 01E84 ASHEVILLE NC
1186 01E21 MEMPHIS TN
1187 01477 MESQUITE TX
1189 11C88 WEST COVINA CA
1193 01V37 WATERFORD CT
1195 01M03 FT LAUDERDALE FL
1197 01475 HOUSTON TX
1199 11Y94 SAN MATEO CA
1202 11Y63 BEAVERCREEK OH
1204 01Y21 FREEHOLD NJ
1205 01EB4 POMPANO BEACH FL
1206 01819 NO LITTLE ROCK AR
1207 01788 RICHARDSON TX
1208 11C92 FRESNO CA
1209 11Y90 LONG BEACH CA
1211 01N91 OKLAHOMA CITY OK
1213 01V79 AUBURN MA
1216 01E19 MEMPHIS TN
1217 01C83 CORPUS CHRISTI TX
1220 11EH8 TOLEDO OH
1221 11M61 COLORADO SPGS CO
1224 01V39 HARRISBURG PA
1225 01C39 ORLANDO FL
1226 01795 METAIRIE LA
1227 01756 DALLAS TX
1228 11C93 SACRAMENTO CA
1229 11EA9 BOISE ID
1234 01Z19 OWINGS MILLS MD
1236 01760 TULSA OK
1237 01C30 HOUSTON TX
1238 11826 MT VIEW CA
1243 01V77 HANOVER MA
1244 01V57 YORK PA
1245 01E76 CHARLOTTE NC
1247 01C62 LUBBOCK TX
1248 11C96 HAYWARD CA
1250 11802 LINCOLN PARK MI
</TABLE>
33
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1253 01V78 PEABODY MA
1254 01815 WILMINGTON DE
1257 01E11 FRIENDSWOOD TX
1261 01861 MIDWEST CITY OK
1263 01V18 WATERBURY CT
1264 01C06 HICKSVILLE NY
1265 01426 VIRGINIA BEACH VA
1266 01808 BIRMINGHAM AL
1267 01C72 FT WORTH TX
1268 11C16 BUENA PARK CA
1270 11493 CRESTWOOD MO
1271 11M86 LITTLETON CO
1273 01V35 HOLYOKE MA
1274 01Y80 RICHMOND VA
1275 01N42 ATLANTA GA
1277 01E12 SAN ANTONIO TX
1278 11C17 TORRANCE CA
1280 11ED5 SPRINGDALE OH
1283 01V55 BRAINTREE MA
1284 01E24 ALEXANDRIA VA
1285 01R41 ORLANDO FL
1286 01797 GRETNA LA
1287 11758 ALBUQUERQUE NM
1288 11EK4 STOCKTON CA
1290 11874 NILES IL
1294 01C54 WATCHUNG NJ
1295 01856 ST PETERSBURG FL
1297 01E14 HURST TX
1298 11C38 RIVERSIDE CA
1300 11876 OAK BROOK IL
1301 11EA5 PROVO UT
1303 01V69 DANBURY CT
1304 01494 SILVER SPRINGS MD
1305 01M42 SAVANNAH GA
1306 01M45 HATTIESBURG MS
1307 01EB9 ABILENE TX
1309 11Y87 DOWNEY CA
1310 01893 ELYRIA OH
</TABLE>
34
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1313 01V76 NASHUA NH
1314 01C09 NEW BRUNSWICK NJ
1315 01N84 CHATTANOOGA TN
1316 01E17 ANTIOCH TN
1317 11827 EL PASO TX
1318 11C95 BAKERSFIELD CA
1321 11N67 PEORIA IL
1323 01V47 MIDDLETOWN NY
1325 01E95 CHARLESTON SC
1327 01E37 BAYTOWN TX
1328 11EG9 LAS VEGAS NV
1330 11EL2 EVANSVILLE IN
1333 01V45 POUGHKEEPSIE NY
1334 01842 PITTSBURGH PA
1335 01E59 GREENSBORO NC
1336 01EE2 LAKE CHARLES LA
1337 01M32 PLANO TX
1338 11793 TUCSON AZ
1343 01Y30 CAMBRIDGE MA
1344 01844 PITTSBURGH PA
1345 01EB5 HIALEAH FL
1347 01E68 LAFAYETTE LA
1350 01894 MENTOR OH
1353 01V14 DEWITT NY
1354 01768 WILLOW GROVE PA
1355 01792 ALTAMONTE SPGS FL
1357 01M34 AUSTIN TX
1358 11C12 CHULA VISTA CA
1364 01C56 LAKE GROVE NY
1365 01EB3 MIAMI FL
1367 01P05 WACO TX
1368 11C97 CONCORD CA
1370 11779 COLUMBUS OH
1375 01E86 WINSTON-SALEM NC
1377 01M46 HOUSTON TX
1378 11C34 ORANGE CA
1380 11872 CHICAGO IL
1385 01N43 ATLANTA GA
</TABLE>
35
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1386 01785 GOODLETTSVILLE TN
1387 01829 AMARILLO TX
1388 11C28 COSTA MESA CA
1390 11C84 ANN ARBOR MI
1395 01N97 KNOXVILLE TN
1397 01EL8 ODESSA TX
1398 11C37 SAN BERNARDINO CA
1401 11E65 WICHITA KS
1403 01V72 NATICK MA
1404 01C57 MASSAPEQUA NY
1405 01E85 FAYETTEVILLE NC
1407 01883 BEAUMONT TX
1408 11806 SACRAMENTO CA
1410 01N10 CANTON OH
1414 01C58 NANUET NY
1415 01838 CLEARWATER FL
1417 01R23 HUMBLE TX
1424 01495 BETHESDA MD
1427 01R80 SAN ANTONIO TX
1430 01892 MIDDLEBERG HTS OH
1434 01C10 WAYNE NJ
1435 01E94 MACON GA
1437 01R61 ARLINGTON TX
1438 11C13 EL CAJON CA
1440 11781 COLUMBUS OH
1443 01V68 MANCHESTER CT
1444 01C03 WHITE PLAINS NY
1445 01E28 RICHMOND VA
1448 11E50 OXNARD CA
1450 11774 ROSEVILLE MI
1454 01812 BENSALEM PA
1455 01E70 WILMINGTON NC
1457 01Y69 WOODLANDS TX
1458 11M55 SCOTTSDALE AZ
1460 11771 LIVONIA MI
1463 01V26 S BURLINGTON VT
1464 01816 DEPTFORD NJ
1465 01839 TAMPA FL
</TABLE>
36
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1468 11C19 CUPERTINO CA
1470 11EE3 GREENWOOD IN
1473 01Z22 SELINSGROVE PA
1474 01N37 YOUNGSTOWN OH
1478 11C18 SAN BRUNO CA
1483 01Z16 VOORHEES NJ
1484 01V34 READING PA
1485 01E93 ORANGE PARK FL
1487 01Y78 CEDAR PARK TX
1488 11C65 SAN JOSE CA
1490 11772 TROY MI
1494 01817 MOORESTOWN NJ
1495 01E25 FORT MEYERS FL
1500 11414 ST ANN MO
1504 01N28 WILLIAMSVILLE NY
1505 01769 TAMPA FL
1508 11C36 NORTHRIDGE CA
1510 11C86 CALUMET CITY IL
1514 01N25 NIAGARA FALLS NY
1515 01E69 CHARLOTTE NC
1518 11E05 CERRITOS CA
1520 01887 AKRON OH
1524 01N27 ROCHESTER NY
1525 01820 COLUMBIA SC
1528 11E32 SAN RAFAEL CA
1530 01896 RICHMOND HGTS OH
1534 01V50 SCRANTON PA
1535 01E18 PLANTATION FL
1538 11807 CITRUS HEIGHTS CA
1540 11EE5 INDIANAPOLIS IN
1544 01Y79 REGO PARK NY
1545 01E75 SPARTANBURG SC
1548 11801 LAGUNA HILLS CA
1554 01V22 MAYS LANDING NJ
1555 01Y76 SANFORD FL
1558 11EA2 MURRAY UT
1560 11ED2 DAYTON OH
1564 01N38 NILES OH
</TABLE>
37
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1565 01N46 MORROW GA
1568 11C94 CARSON CA
1570 11832 SCHAUMBURG IL
1574 01C53 MIDDLETOWN NJ
1575 01C23 HAMPTON VA
1578 11C48 AIEA OAHU HI
1580 11ED8 LEXINGTON KY
1584 01N23 VICTOR NY
1585 01EC4 TALLAHASSEE FL
1588 11M54 PHOENIX AZ
1590 11EK9 SAGINAW MI
1594 01840 MONACA PA
1595 01N32 GREENVILLE SC
1598 11E09 CITY OF INDSTY CA
1600 11EE6 INDIANAPOLIS IN
1604 01767 LANDOVER MD
1608 11800 WESTMINSTER CA
1610 11EC9 CINCINNATI OH
1614 01C04 LIVINGSTON NJ
1615 01C77 CHESAPEAKE VA
1618 11C64 MODESTO CA
1620 11877 VERNON HILLS IL
1623 01V15 CLAY NY
1624 01C08 STATEN ISLAND NY
1625 01EJ1 SARASOTA FL
1628 11M57 MESA AZ
1630 11787 FLORISSANT MO
1634 01C85 BALTIMORE MD
1635 01EB8 JACKSONVILLE FL
1638 11E08 BREA CA
1640 11C21 FAIRVIEW HGTS IL
1642 11EE9 TOPEKA KS
1644 01V25 LANCASTER PA
1645 01N92 BOCA RATON FL
1646 01Y40 PINEVILLE NC
1648 11821 N SAN DIEGO CA
1650 11833 MERRILLVILLE IN
1654 01786 MEDIA PA
</TABLE>
38
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1655 01EB2 MIAMI FL
1658 11N16 SANTA ROSA CA
1660 11804 AURORA IL
1664 01C61 PARAMUS NJ
1665 01M44 GAINESVILLE FL
1668 11EF2 LAS VEGAS NV
1670 01888 AKRON OH
1675 01N96 KNOXVILLE TN
1678 11EJ8 CARLSBAD CA
1680 11EE7 INDIANAPOLIS IN
1684 01Y74 WOODBRIDGE NJ
1685 01R16 DULUTH GA
1688 11N35 SALINAS CA
1690 11C32 CHESTERFIELD MO
1694 01E38 ERIE PA
1695 01Y62 ALPHARETTA GA
1698 11N80 NEWARK CA
1700 11C29 DEARBORN MI
1705 01EB7 W PALM BEACH FL
1708 11M53 PHOENIX AZ
1710 01897 NORTH OLMSTED OH
1714 01846 GREENSBURG PA
1715 01M96 MIAMI FL
1718 11EA3 OGDEN UT
1720 11C27 STERLING HGTS MI
1722 11Y55 BLOOMINGTON MN
1728 11M49 TUCSON AZ
1730 11867 FLORENCE KY
1733 01Y77 YONKERS NY
1734 01C81 LAWRENCEVILLE NJ
1738 11M62 KANEOHE OAHU HI
1740 11E31 JOLIET IL
1744 01V80 OCEAN NJ
1748 11R38 MONTCLAIR CA
1750 11C67 ORLAND PK IL
1754 01E10 GAITHERSBURG MD
1755 01Y56 BOYNTON BEACH FL
1758 11C20 ESCONDIDO CA
</TABLE>
39
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1760 11822 NOVI MI
1764 01E15 ROCKAWAY NJ
1765 01R47 PALM BCH GRDNS FL
1768 11M56 PHOENIX AZ
1770 01895 NORTH RANDALL OH
1773 01V48 SALISBURY MD
1775 01EB6 PEMBROKE PINES FL
1780 11N61 SPRINGFIELD IL
1784 01E46 JOHNSON CITY NY
1788 11Y39 RICHMOND CA
1790 11E16 OKOLONA KY
1794 01C07 EAST NORTHPORT NY
1800 11EL6 MISHAWAKA IN
1804 01N88 BARBOURSVILLE WV
1805 01E82 RALEIGH NC
1810 11EC8 CINCINNATI OH
1814 01N31 FAIRFAX VA
1820 11N79 WEST DUNDEE IL
1824 01845 WEST MIFFLIN PA
1830 11N58 FT WAYNE IN
1834 01N89 NORTH WALES PA
1838 11Y38 BURBANK CA
1840 11M35 CHICAGO RIDGE IL
1844 01M36 COLUMBIA MD
1850 11778 LOUISVILLE KY
1853 01814 WILMINGTON DE
1854 01M39 PARKVILLE MD
1863 01E62 JOHNSTOWN PA
1864 01M47 COCKEYSVILLE MD
1868 11Y58 MORENO VALLEY CA
1874 01C87 BURLINGTON NJ
1884 01R03 KING OF PRUSSIA PA
1894 01N26 ROCHESTER NY
1921 11830 MATTESON IL
1924 01R08 VALLEY STREAM NY
1944 01R10 YORKTOWN HGTS NY
1954 01EC1 CHARLESTON WV
1955 01N83 LAKELAND FL
</TABLE>
40
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
1958 11Y75 SAN JOSE CA
1974 01E89 ROANOKE VA
1978 11EJ9 RENO NV
1980 11M25 LAFAYETTE IN
1984 01N24 BUFFALO NY
1985 01R01 HIGH POINT NC
1998 11Y52 MONTEBELLO CA
1999 11Y57 VALENCIA CA
2003 01Y08 ROCHESTER NY
2004 01Q09 BOWIE MD
2010 11EL4 MANSFIELD OH
2012 11R66 MONROE MI
2013 01N36 NEW CASTLE PA
2016 01EH4 HAMMOND LA
2020 11EH9 TOLEDO OH
2021 11Z09 ALTON IL
2022 11Z21 COUNCIL BLUFFS IA
2023 01V74 CONCORD NH
2024 01N21 ANNAPOLIS MD
2025 01M80 DOTHAN AL
2026 01R37 SLIDELL LA
2028 11N93 HEMET CA
2029 11881 UNION GAP WA
2030 11Y03 ELIZABETHTOWN KY
2031 11Z01 FOND DU LAC WI
2032 11R81 HOLLAND MI
2033 01Y22 MASSENA NY
2035 01Y19 COLUMBIA SC
2036 01N03 JACKSON TN
2040 11N74 BATTLE CREEK MI
2041 11Y36 ST CHARLES IL
2042 11R88 AMES IA
2043 01Q03 KINGSTON MA
2044 01R70 MANASSAS VA
2045 01R49 MUSKOGEE OK
2046 01N04 JONESBORO AR
2048 11R82 CHICO CA
2049 11855 EVERETT WA
</TABLE>
41
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2050 11N06 JACKSON MI
2051 11E99 BELLEVUE NE
2052 11N49 FT DODGE IA
2055 01R60 MORRISTOWN TN
2056 01899 MARY ESTHER FL
2057 01R96 SHAWNEE OK
2058 11C50 INDIO CA
2059 11Y97 TRACY CA
2060 11ED3 DAYTON OH
2061 11Z18 DEFIANCE OH
2062 11N69 FORSYTH IL
2064 01N95 COLONIAL HGTS VA
2065 01M90 BRUNSWICK GA
2068 11E48 VISALIA CA
2069 11E55 E WENATCHEE WA
2070 11M65 COLUMBUS IN
2072 11R34 MARION IN
2073 01V63 WOONSOCKET RI
2074 01Y66 STROUDSBURG PA
2075 01E77 CONCORD NC
2077 01E03 TYLER TX
2078 11E91 YUMA AZ
2080 01R86 NEW PHILADLPHIA OH
2082 11P10 FARGO ND
2086 01P06 COLUMBUS MS
2087 01898 ALEXANDRIA LA
2088 11EL9 SANTA MARIA CA
2089 11E44 CHEHALIS WA
2090 11ED7 FRANKFORT KY
2092 11N12 APPLETON WI
2094 01Q15 MARTINSVILLE VA
2095 01Q18 AIKEN SC
2097 01Q06 PARIS TX
2104 01E96 ST CLAIRSVILLE OH
2105 01E83 BURLINGTON NC
2106 01M70 TUPELO MS
2109 11EA8 TWIN FALLS ID
2112 11N13 GREEN BAY WI
</TABLE>
42
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2113 01R85 SCHENECTADY NY
2114 01N40 WASHINGTON PA
2119 11858 SALEM OR
2122 11N48 DUBUQUE IA
2124 01R92 DUBOIS PA
2125 01M88 VALDOSTA GA
2126 01M83 HOT SPRINGS AR
2130 11N18 ELKHART IN
2131 11P08 SALINA KS
2134 01R94 CHEEKTOWAGA NY
2138 11E51 SANTA BARBARA CA
2140 11M28 ANDERSON IN
2143 01V61 PRESQUE ISLE ME
2145 01R98 PORT CHARLOTTE FL
2146 01P02 CAPE GIRARDEAU MO
2147 01805 IRVING TX
2148 11R32 KAHULUI MAUI HI
2149 11E39 BELLINGHAM WA
2150 11M66 ADRIAN MI
2152 11M10 MINOT ND
2155 01Q17 MIAMI FL
2156 01M87 MARYVILLE TN
2160 11ED6 CLARKSVILLE IN
2161 11N47 CORALVILLE IA
2164 01V56 CAMILLUS NY
2165 01Q11 MOREHEAD CITY NC
2166 01R30 HUNTSVILLE AL
2173 01Y18 SARATOGA SPGS NY
2175 01R07 GREENVILLE NC
2176 11P03 PADUCAH KY
2177 01EJ5 WICHITA FALLS TX
2179 11EK1 MEDFORD OR
2180 11R63 TRAVERSE CITY MI
2181 11Z20 MT VERNON IL
2182 11Z24 LAWRENCE KS
2183 01V33 S PORTLAND ME
2186 01M40 OXFORD AL
2191 11E79 LINCOLN NE
</TABLE>
43
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2195 01Q05 TITUSVILLE FL
2196 01N05 GAUTIER MS
2197 01C78 TEXAS CITY TX
2198 11M19 HANFORD CA
2200 11EG1 RACINE WI
2202 11Q13 BOULDER CO
2203 01V60 BRUNSWICK ME
2205 01Z13 COOKEVILLE TN
2206 01Y17 FAIRFIELD AL
2207 11R12 ROSWELL NM
2208 11R15 SANTA FE NM
2209 11R56 LEWISTON ID
2210 11Z26 GARDEN CITY KS
2212 11E90 CEDAR RAPIDS IA
2215 01M97 KEY WEST FL
2216 01E78 PINE BLUFF AR
2219 11E57 LACEY WA
2220 11Z11 ST GEORGE UT
2221 01R33 BARTLESVILLE OK
2224 01Y06 CHAMBERSBURG PA
2225 01M74 GOLDSBORO NC
2226 01Y13 MURFREESBORO TN
2227 01E43 LAKE JACKSON TX
2228 11C51 EL CENTRO CA
2231 01P04 FT SMITH AR
2232 11N15 MADISON WI
2233 01V43 BROCKTON MA
2235 01Y61 HOMESTEAD FL
2236 01M91 DECATUR AL
2238 11EC2 YUBA CITY CA
2239 11857 VANCOUVER WA
2241 01N87 FAYETTEVILLE AR
2242 11M21 BILLINGS MT
2244 01V49 HANOVER PA
2245 01M17 MELBOURNE FL
2247 01M52 LAREDO TX
2252 11N50 MASON CITY IA
2254 01V59 LEBANON PA
</TABLE>
44
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2255 01Z25 ORANGEBURG SC
2256 01EH5 BILOXI MS
2258 11N55 SAN LUIS OBISPO CA
2259 11N19 MISSOULA MT
2265 01M82 JOHNSON CITY TN
2271 11N86 FT COLLINS CO
2272 11EF6 MILWAUKEE WI
2278 11EA7 IDAHO FALLS ID
2279 11N99 BEND OR
2281 11N63 PUEBLO CO
2283 01V30 SWANSEA MA
2284 01R87 BLOOMSBURG PA
2288 11EK2 ANTIOCH CA
2289 11N90 ROSEBURG OR
2290 11N73 MICHIGAN CITY IN
2291 01M89 ENID OK
2293 01V58 AUGUSTA ME
2298 11E49 MERCED CA
2299 11E54 ABERDEEN WA
2301 11799 KANSAS CITY MO
2304 01Y26 WESTOVER WV
2305 01N78 ANDERSON SC
2306 01E36 GADSDEN AL
2308 11E52 SANTA CRUZ CA
2309 11853 SILVERDALE WA
2311 01823 NORMAN OK
2315 01Q10 JENSEN BEACH FL
2316 01EH2 FLORENCE AL
2318 11EK6 THOUSAND OAKS CA
2319 11E56 KELSO WA
2323 01V70 HYANNIS MA
2324 01N39 STEUBENVILLE OH
2326 01M95 GREENVILLE MS
2328 11R13 SIERRA VISTA AZ
2329 11E58 KENNEWICK WA
2330 11Y64 PUYALLUP WA
2331 11P07 JEFFERSON CITY MO
2332 11M09 GRAND FORKS ND
</TABLE>
45
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2335 01E63 CLARKSVILLE TN
2338 11EJ4 REDDING CA
2339 11E61 SPRINGFIELD OR
2341 11P09 CASPER WY
2342 11EF9 KENOSHA WI
2343 01V64 LANESBORO MA
2344 01M71 STATE COLLEGE PA
2345 01Y53 CLEVELAND TN
2348 11R09 PRESCOTT AZ
2349 11Q01 COEUR D ALENE ID
2352 11N09 ST CLOUD MN
2353 01V46 KINGSTON NY
2354 01EK7 PARKERSBURG WV
2358 11M18 FLAGSTAFF AZ
2360 11N82 QUINCY IL
2361 11M22 GRAND JUNCTION CO
2362 11M30 DANVILLE IL
2365 01Q14 SUMTER SC
2368 11R59 LIHUE KAUAI HI
2371 11P12 CHEYENNE WY
2372 11M94 SHEBOYGAN WI
2373 01V32 N DARTMOUTH MA
2374 01V67 VINELAND NJ
2375 01Q08 COLUMBIA TN
2376 01Y31 OAK RIDGE TN
2380 11N08 BAY CITY MI
2381 01EC3 LAWTON OK
2382 11N14 MADISON WI
2385 01Y04 MERAUX LA
2388 11R27 HILO HAWAII HI
2389 11E45 BURLINGTON WA
2390 11N76 SPRINGFIELD OH
2392 11880 DES MOINES IA
2398 11R46 LONGMONT CO
2402 11N20 BISMARCK ND
2412 11EJ3 RAPID CITY SD
2414 01M85 HAGERSTOWN MD
2415 01Y70 CENTERVILLE GA
</TABLE>
46
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2419 11EE8 ALBANY OR
2420 11M14 MARION OH
2421 11P15 GRAND ISLAND NE
2422 11N01 SIOUX CITY IA
2425 01M24 BRISTOL VA
2430 11P18 MANHATTAN KS
2432 11N34 LA CROSSE WI
2435 01M73 CHARLOTTESVILLE VA
2443 01V36 MANCHESTER NH
2450 11EL5 LIMA OH
2451 11N94 GREELEY CO
2453 01V19 GLENS FALLS NY
2454 01Q07 CHESAPEAKE VA
2460 11M67 LOGANSPORT IN
2463 01V20 LEWISTON ME
2465 01E74 GASTONIA NC
2470 11M63 WAUSAU WI
2473 01V75 AUBURN NY
2480 11P14 COLUMBIA MO
2482 11EK8 FT GRATIOT MI
2484 01V40 POTTSTOWN PA
2487 01M04 KILEEN TX
2494 01E41 ALTOONA PA
2497 01E67 BROWNSVILLE TX
2500 11R50 DULUTH MN
2505 01R52 GAINESVILLE GA
2507 01E98 MCALLEN TX
2510 11M20 SANDUSKY OH
2515 01E73 HICKORY NC
2517 01EC5 SAN ANGELO TX
2524 01V31 TOMS RIVER NJ
2527 11M68 LAS CRUCES NM
2533 01R48 PLATTSBURGH NY
2537 01E97 HARLINGEN TX
2544 01E64 SHARON PA
2546 01R51 BOWLING GREEN KY
2547 01E01 COLLEGE STATION TX
2550 11M07 ZANESVILLE OH
</TABLE>
47
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2555 01Y29 CRYSTAL RIVER FL
2557 01E71 LONGVIEW TX
2564 01R97 ITHACA NY
2565 01M58 BRADENTON FL
2567 01E13 TEXARKANA TX
2570 11M29 MUNCIE IN
2574 11Q04 PHILLIPSBURG NJ
2577 01R18 LUFKIN TX
2583 01V23 BANGOR ME
2584 01EJ6 LAKEWOOD NY
2587 01889 DENTON TX
2590 11E66 HUTCHINSON KS
2593 01V44 NEWBURGH NY
2595 01P11 AUBURN AL
2597 11M77 FARMINGTON NM
2599 11R25 WALLA WALLA WA
2600 11N71 TERRE HAUTE IN
2602 11N11 ROCHESTER MN
2603 01V16 NEW HARTFORD NY
2604 01V24 WILKES BARRE PA
2610 11M12 PIQUA OH
2614 01E23 UNIONTOWN PA
2615 01R02 DALTON GA
2617 01N54 VICTORIA TX
2623 01Y73 RUTLAND VT
2624 01V27 CAMP HILL PA
2627 01N77 SHERMAN TX
2628 11N64 EUREKA CA
2635 01M92 ROCKY MOUNT NC
2637 01884 PORT ARTHUR TX
2642 11Y47 MIDLAND MI
2644 01V53 PENSDALE PA
2645 01R91 ASHEBORO NC
2650 11R44 LEAVENWORTH KS
2654 01V62 DOVER DE
2657 01N53 MIDLAND TX
2663 01V71 PORTSMOUTH NH
2664 01M05 FREDERICK MD
</TABLE>
48
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2674 01M72 INDIANA PA
2677 01864 BOSSIER CITY LA
2683 01R43 WATERTOWN NY
2684 01V54 FRACKVILLE PA
2694 01M64 FREDERICKSBURG VA
2695 01M59 NAPLES FL
2696 01EH7 HOUMA LA
2704 01M50 MT HOPE WV
2705 01M76 FLORENCE SC
2710 11N56 KOKOMO IN
2712 11EF1 ST JOSEPH MO
2714 01M51 BLUEFIELD WV
2724 01M48 BUTLER PA
2730 11N57 FT WAYNE IN
2734 01M60 CRANBERRY PA
2744 01N29 HORSEHEADS NY
2745 01Y67 LEESBURG FL
2750 11Y02 LANCASTER OH
2755 01M75 JACKSONVILLE NC
2760 11M38 DAVENPORT IA
2764 01C60 BRONX NY
2774 01M84 CUMBERLAND MD
2784 01R20 WINCHESTER VA
2785 01P13 MYRTLE BEACH SC
2790 11M13 FINDLAY OH
2796 01N22 TUSCALOOSA AL
2800 11M15 RICHMOND IN
2802 11N65 BOURBONNAIS IL
2805 01E92 PANAMA CITY FL
2806 01M37 MEMPHIS TN
2807 01E72 ROCK HILL SC
2808 11M16 GREAT FALLS MT
2814 01Y44 MARTINSBURG WV
2815 01N81 ALBANY GA
2819 11Y48 FAIRBANKS AK
2820 11N72 BLOOMINGTON IN
2823 01Y46 BALTIMORE MD
2824 01Y43 CARY NC
</TABLE>
49
<PAGE>
EXHIBIT A
<TABLE>
DESIGNATED SEARS STORES (continued)
<CAPTION>
SEARS # STUDIO# CITY STATE
- ------- ------- -------------------- -----
<S> <C> <C> <C>
2825 01M78 KINGSPORT TN
2826 01N30 BRIDGEPORT WV
2829 11E53 VICTORVILLE CA
2835 01E88 LYNCHBURG VA
2840 11N66 BLOOMINGTON IL
2844 01Y65 SHELBY NC
2845 01M01 ATHENS GA
2850 11M23 CHILLICOTHE OH
2854 01R21 ASHLAND KY
2855 01M33 CHARLESTON SC
2865 01N85 UNION CITY GA
2872 11N51 SIOUX FALLS SD
2875 01784 FRANKLIN TN
2885 01M69 PORT RICHEY FL
2888 11R11 CLOVIS NM
2895 01R05 ROME GA
2902 11Y27 COON RAPIDS MN
2910 11M11 GALESBURG IL
2920 11N70 CHAMPAIGN IL
2922 11M08 MARION IL
2930 11N75 MUSKEGAN MI
2931 11Y68 MATTOON IL
2932 01Y54 ASHTABULA OH
2933 01Y09 NEW HYDE PARK NY
2934 01Y51 TAUNTON MA
2935 01Z12 STATESVILLE NC
2940 11ED9 FRANKLIN OH
2950 11EL3 OWENSBORO KY
2960 11EL7 BENTON HARBOR MI
2963 01R57 WESTMINSTER MD
2965 01Z14 WILSON NC
2980 11R95 CHICAGO IL
2985 01R84 CHRISTIANBURG VA
2990 11N60 ROCKFORD IL
3244 01R54 FLUSHING NY
</TABLE>
50
<PAGE>
EXHIBIT B
AUTHORIZED MERCHANDISE AND/OR SERVICES
The following items, merchandise lines and/or services are
authorized for sale by Licensee in the Licensed Business:
1. Portrait photography service and photographs
2. Passport photography service and photographs
3. Portrait-related retail merchandise (e.g., frames,
mats, albums, greeting cards)
4. Portrait-related promotional merchandise for customer
give-aways
5. Digital images (e.g. Portrait Creations(TM), proof
sheets, portrait restoration)
6. Internet archiving services
51
<PAGE>
EXHIBIT C
SEARS COMMISSION
Licensee shall pay to Sears a commission ("Sears Commission")
which, for each Designated Sears Store, shall be a sum equal to
ten percent (10%) of total annualized net sales for each
Designated Sears Store at which total annualized net sales are
less than $50,000 and fifteen percent (15%) of total annualized
net sales for each Designated Sears Store at which total
annualized 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
Designated Sears Store with annual net sales of less than
$50,000.
52
<PAGE>
EXHIBIT D
ALLOCATION OF COSTS
TYPICAL COST ANALYSIS
The Licensed Business shall be built and constructed in
accordance with the plans and specifications prepared and will
include agreed upon standards for the cost of construction.
Items in accordance with the plans and specifications are
listed on a Typical Cost Analysis (TCA) attached as part of
Exhibit D. The TCA is based on the current Annual Edition of
Means Repair & Remodeling Cost Data. Sears and Licensee agree
that this Exhibit D will be updated bi-annually and mutually
agreed upon to reflect subsequent Annual Editions of Means
Repair & Remodeling Cost Data and to reflect modification of
typical designs and modifications. The TCA cost will be
represented as a dollar-cost per square foot ratio.
FINANCIAL RESPONSIBILITIES
The financial responsibilities and standard costs are described
in the TCA. Items that are classified as "Sears Costs" (S) on
the TCA, shall be Sears responsibility and items that are
classified as "Licensee Costs" (L/B) shall be Licensee's
responsibility. A cost estimate, known as the Estimated/Actual
Buildout (EAB) may be required to determine the viability or
scope of a project.
Sears will remit payment for the total cost of all projects
directly to contractors or workmen performing such work and
will invoice Licensee for its share of the expense, at the end
of Sears fiscal year. Sears shall make a settlement adjustment
thirty (30) days after notifying Licensee of the project close
out for the year 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 December 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 the end
of the month settlement adjustment following the above
mentioned sixty (60) days.
Material Charge Backs. When, due to shortages or delays,
Licensee provides standard construction materials that are
Sears financial responsibility, Licensee will remit payment
directly to the supplier(s) and will invoice Sears for the
expense. The amount of any such invoice submitted by Licensee
to Sears shall be deducted from the amount payable by
Licensee at the time of Project year close out (Sears Billing).
Punch List Charge Backs. Provided the conditions set forth
below are met, Licensee shall select and employ the services of
a general contractor to complete any remaining punch list
items:
(1) Sears General Contractor is no longer on the job
site;
53
<PAGE>
(2) Licensee has issued written punch list to Sears;
(3) A period of at least 30 days has elapsed for Sears to
complete punch list items;
(4) Licensee has provided the cost estimates to Sears
prior to scheduling any work and such cost estimates have been
approved by the Quality/Evaluation Manager, Licensed
Businesses; and
(5) The General Contractor retained by Licensee shall be
bondable and shall meet all applicable licensing, permitting,
insurance and approval requirements established by Sears and/or
the governmental bodies of the jurisdiction in which the
project is located.
Licensee shall remit payment directly to any general contractor
retained by Licensee to complete punch list items and shall
invoice Sears for the aggregate amounts paid to the general
contractor.
The amount of any such invoices submitted to Sears shall be
deducted from the total Licensee cost at the project close out
(i.e. Sears billing).
Change Order Request Procedures.
Change Orders prior to Licensee installation:
- Licensee shall submit a written request for a
written quotation from Sears for the costs of
implementing a proposed change order.
- Within a reasonable time after receipt of
Licensee's request, Sears Project Manager shall
return a written quotation for change order to
Licensee.
- Licensee shall approve and return change order
amount to Sears for approval.
- Sears shall submit approval to Sears Project
Manager and Licensee within a reasonable time.
- The cost of any change orders after the project is
bid by the contractor shall be borne by the party
requesting such change.
Change Orders during Licensee installation:
- Licensee shall submit written request for a
written quotation from Sears for the costs of
implementing a proposed change order.
- Within a reasonable time after receipt of
Licensee's request, Sears Project Manager shall
submit change order cost to Licensee for approval.
- Licensee shall approve and return change order
amount to Sears for approval.
- Sears shall submit approval to Sears Project
Manager and Licensee within a reasonable time.
- The cost of any change orders after the project is
bid by the contractor shall be borne by the party
requesting such change.
54
<PAGE>
GENERAL RESPONSIBILITIES
Licensee shall be responsible for all furniture, trade fixtures
(display units, cabinets, and counters), trade equipment
(cameras, lighting units, and computers), Licensee's POS and
peripheral devices (printers, bar-code scanning devices,
electronic signature capture devices) and any other items not
listed on the TCA.
Sears shall be responsible for all costs associated with
bringing electrical panel and service, air conditioning,
heating and ventilation ducts into the Licensed Business area.
The expense of purchasing and installing all electrical
fixtures and equipment (including, but not limited to
circuit boxes, dedicated outlets, lighting fixtures and all
necessary electrical connections within the area occupied by
the Licensed Business. All air conditioning work required by
Licensee shall be designed and installed by Sears. Licensee
shall provide mechanical drawing identifying the number and
location of supply/return air diffuser required. This work
shall include, without limitation, connections to supply/return
air lines, duct work, supply and return air diffusers, and any
circuitry/controls required for the operation of said air
conditioning system, and shall be allocated in accordance with
the TCA and further outlined in Exhibit D. Any responsibility
not provided for in the TCA or Exhibit D shall be negotiated in
good faith by Sears and Licensee.
Licensee shall be responsible for any additional leasehold
improvements, included, but not limited to electrical wiring,
lighting, air conditioning, heating or ventilation ducts which
Licensee feels are required to change or improve the utility
service to the Licensed Business area to a level that is
greater than the service provided to rest of the Designated
Sears Store.
NEW DEPARTMENT
Licensee's share of the cost will be determined by applying the
TCA to the Usable Space.
For purposes of this Agreement, "Usable Space" means net square
footage of the area dedicated for the operation of the Licensed
Business.
REMODEL PROJECTS
Sears Update Projects - Update Projects initiated by
Sears Construction (D/824), budget a fixed cost per square foot
for store remodeling. Sears shall bear all costs of carpeting
and repainting (including removal of existing wallcovering) for
each Update Project. Sears will do nothing beyond the scope of
the Update Project unless requested by Licensee. If Licensee
requests, and Sears agrees, that additional work should be done
within the Licensed Business area, Sears and Licensee agree to
share equally the construction costs related to the Update
Project. If Sears requests additional work within the Licensed
Business area, the costs shall be allocated as follows:
(a) If there is a decrease in Usable Space for the
Licensed Business area of 10% or more, the TCA cost factor
shall be applied to the reduced Usable Space, and Sears
shall pay Licensee the sum of Fifteen Hundred Dollars ($1500);
or
55
<PAGE>
(b) If there is no change, a decrease of less than 10%,
or an increase in Usable Space, the construction costs related
to the Update Project shall be shared equally by Sears and
Licensee.
Sears Remodel/Local Projects - If Sears requests or
initiates a Change of Location of a Licensed Business location
that has previously been subject to a Change of Location during
the term of this Agreement, Sears shall bear all construction
costs related to such Change of Location and shall pay Licensee
the sum of Fifteen Hundred Dollars ($1500) for incidental
costs incurred in such a Change of Location. If a Change of
Location results in a(n):
Decrease in Space-- Sears shall bear all
construction 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.
or
Increase in Space-- The Licensee's share of the TCA
will be applied to only the increase in space (new square
footage). The Licensee's share of the TCA will be
charged to Licensee if space has been requested and
approved by Licensee.
Licensee Remodel/Local Projects - Projects requested by
Licensee and approved by Sears. The Licensee's share of the TCA
will be applied to the total Usable Space assigned to
Licensee.
All exceptions to the above will be agreed on prior to the
completion of final plans for construction. Any changes after
approval of final plans by both parties shall be the
responsibility of the party making the change.
ADDITIONAL CAMERA ROOMS
The construction cost of new camera rooms shall be shared
equally between Sears and Licensee, and the total TCA cost
shall be applied to a standard of 500 square feet.
MAINTENANCE OF FACILITIES
Sears shall be responsible for all costs associated with the
regular maintenance of the physical facility of the Designated
Sears Stores, including electrical service, air conditioning,
heating, ventilation, standard lighting (including standard
light bulbs), ceiling tiles, drywall repair, paint, and carpet.
The cost to replace any of the general construction items due
to age and/or normal wear shall be allocated in accordance with
the TCA. Licensee shall be responsible for all costs associated
with maintaining Licensee's Equipment and Licensee's POS in
good order and repair.
56
<PAGE>
<TABLE>
TYPICAL COST ANALYSIS
NEW STORE
PORTRAIT STUDIO (2 CAMERA ROOM) June 1998
GROSS AREA - 1428 SF
<CAPTION>
UNIT
ITEM QUANTITY UNIT COST TOTAL
- ---------------------------- -------- ---- ------- -------
<S> <C> <C> <C> <C>
S 10'Partitions 220 LF 30.00 6,600
S Wall insulation - SF 0.40 -
S Doors 2 EA 700.00 1,400
S Cabinets, upper and lower - LF 175.00 -
S Vanity - EA 300.00 -
S Acoustical ceiling 1428 SF 1.50 2,142
S Ceiling insulation - SF 0.60 -
S Paint walls 3000 SF 0.50 1,500
S Paint doors 2 EA 100.00 200
LB Wallcovering 240 SF 1.60 384
LB Carpeting 182 SY 18.00 3,284
S Base 300 LF 1.20 360
LB Shock pad 24 SY 5.00 122
S Fire protection 1428 SF 1.50 2,142
S HVAC ductwork 1428 SF 5.00 7,140
LB 225 amp 120/208 PA 1 EA 1800.00 1,800
S Light fixtures 10 EA 150.00 1,500
LB Dedicated circuits 8 EA 200.00 1,600
LB Track lighting 70 LF 38.50 2,695
LB Wall washer - EA 150.00 -
LB Light bar 4 LF 50.00 200
LB Exit lights 1 EA 150.00 150
LB Light switch 8 EA 125.00 1,000
LB Duplex outlets 19 EA 108.00 2,052
LB Phone outlet 4 EA 365.00 1,460
LB Triple duplex recept 2 EA 150.00 300
LB Floor outlets 1 EA 300.00 300
LB Quad outlet 2 EA 130.00 260
LB Data 5 EA 50.00 250
S Cash register 1 EA 536.00 536
S Baffle 19 LF 20.00 380
LB Chair rail 101 LF 5.00 505
LB Architectural services 1428 LS 2.00 2,856
S/LB G.C.O.H. and fee 1 LS 6673.26 6,468
-------
$49,586
=======
New Store COST/SF 34.72
Remodel in warehouse space $/SF 38.97
Remodel in retail or office
space $/SF 39.47
Remodel in existing license
business (Low to High) $/SF 19.24
</TABLE>
57
<PAGE>
<TABLE>
TYPICAL COST ANALYSIS (continued)
NEW STORE
PORTRAIT STUDIO (2 CAMERA ROOM) June 1998
GROSS AREA - 1428 SF
<CAPTION>
ITEM SEARS L.B.
- ---------------------------- ------- ------------
<S> <C> <C> <C>
S 10' Partitions 6,600 -
S Wall insulation - -
S Doors 1,400 -
S Cabinets, upper and lower - -
S Vanity - -
S Acoustical ceiling 2,142 -
S Ceiling insulation - -
S Paint walls 1,500 -
S Paint doors 200 -
LB Wallcovering - 384
LB Carpeting - 3,284
S Base 360 -
LB Shock pad - 122
S Fire protection 2,142 -
S HVAC ductwork 7,140 -
LB 225 amp 120/208 PA - 1,800
S Light fixtures 1,500 -
LB Dedicated circuits - 1,600
LB Track lighting - 2,695
LB Wall washer - -
LB Light bar - 200
LB Exit lights - 150
LB Light switch - 1,000
LB Duplex outlets - 2,052
LB Phone outlet - 1,460
LB Triple duplex recept - 300
LB Floor outlets - 300
LB Quad outlet - 260
LB Data - 250
S Cash register 536 -
S Baffle 380 -
LB Chair rail - 505
LB Architectural services - 2,856
S/LB G.C.O.H. and fee 6,673 -
-------- -------
$30,573 $19,219 $49,792
======== =======
New Store 21.41 13.46
Remodel in warehouse space 23.41 15.71 39.12
Remodel in retail or office
space 23.91 15.71 39.62
Remodel in existing license
business (Low to High) 22.91 15.71 38.62
</TABLE>
58
EXHIBIT (10.29)
License Agreement - Sears, Roebuck and Co.
(Off-Mall)
27
<PAGE>
SEARS, ROEBUCK AND CO.
LICENSE AGREEMENT
(OFF MALL)
CONSUMER PROGRAMS INCORPORATED
SEARS PORTRAIT STUDIOS
JANUARY 1, 1999
1
<PAGE>
(PAGE NUMBERS REFER TO PAPER DOCUMENT)
<TABLE>
TABLE OF CONTENT
<S> <C>
I. GRANT OF LICENSE .................................... 4
1.1 License for Off-Premises Operations ............ 4
1.2 Scope of License/Restrictions .................. 4
1.3 No Representations ............................. 4
II. USE OF SEARS MARKS .................................. 5
2.1 License to Use Sears Marks ..................... 5
2.2 Communications with Third Parties .............. 5
2.3 No Challenge to Marks .......................... 5
2.4 No Rights to Marks ............................. 5
2.5 Registration of Marks .......................... 5
2.6 Injunctive Relief .............................. 6
2.7 Infringing Use ................................. 6
2.8 Limitations .................................... 6
2.9 Survival ....................................... 6
III. TERM ................................................ 7
IV. FEES ................................................ 7
4.1 Amount ......................................... 7
4.2 Net Sales ...................................... 7
4.3 Gross Sales .................................... 7
V. OPERATIONAL OBLIGATIONS OF LICENSEE ................. 7
5.1 Performance Standards .......................... 7
5.2 Business Conduct ............................... 7
5.3 Customer Adjustment ............................ 8
5.4 Employee Standards ............................. 8
5.5 Licensee's Employees ........................... 8
5.6 Employee Compensation .......................... 8
5.7 Compliance with Law ............................ 8
5.8 Payment of Obligations ......................... 9
5.9 Year 2000 Compliance ........................... 9
5.10 No Sears Obligations ........................... 9
VI. DESIGNATED LOCATIONS ................................ 9
6.1 Condition of Designated Locations .............. 9
6.2 Telephone ...................................... 9
6.3 Yellow/White Page Listings ..................... 10
VII. ADVERTISING ......................................... 10
7.1 Advertising .................................... 10
7.2 Publicity ...................................... 10
7.3 Forms .......................................... 10
VIII. LICENSED BUSINESS EQUIPMENT ......................... 11
8.1 Licensee's Equipment ........................... 11
8.2 Licensee's Point of Sale System ................ 11
IX. TRANSACTIONS AND SETTLEMENT ......................... 11
9.1 Checks ......................................... 11
9.2 Credit Sales ................................... 11
9.3 Settlement ..................................... 12
</TABLE>
2
<PAGE>
<TABLE>
TABLE OF CONTENT (continued)
<S> <C>
9.4 Reports ........................................ 12
9.5 Audit Rights ................................... 13
9.6 Underreporting ................................. 13
9.7 Rights of Recoupment and Setoff ................ 14
X. CUSTOMER INFORMATION; CONFIDENTIALITY ............... 14
10.1 Customer Information ........................... 14
10.2 Confidential Information ....................... 14
XI. RELATIONSHIP OF PARTIES ............................. 15
XII. DEFENSE AND INDEMNITY ............................... 15
12.1 Defense ........................................ 15
12.2 Indemnity ...................................... 16
XIII. INSURANCE ........................................... 16
13.1 Types of Insurance ............................. 16
13.2 No Cancellation Without Notice ................. 17
13.3 Certificates ................................... 17
13.4 Expiration/Non-Renewal ......................... 17
XIV. TERMINATION ......................................... 18
14.1 Mutual Right of Termination .................... 18
14.2 Termination of License by Sears With Notice .... 18
14.3 Termination of License by Sears Without
Further Notice ............................... 18
14.4 Survivability .................................. 19
XV. ASSIGNMENT AND SUBLICENSING ......................... 19
15.1 Assignment by Licensee ......................... 19
15.2 Assignment by Sears ............................ 19
15.3 Binding Nature ................................. 19
XVI. MISCELLANEOUS ....................................... 19
16.1 Cumulative Remedies ............................ 19
16.2 Severability ................................... 20
16.3 Governing Law .................................. 20
16.4 Entire Agreement ............................... 20
16.5 Headings ....................................... 20
16.6 Notices ........................................ 20
EXHIBIT A ......................................... 23
EXHIBIT B ......................................... 26
EXHIBIT C ......................................... 27
</TABLE>
3
<PAGE>
LICENSE AGREEMENT
(OFF MALL)
THIS LICENSE AGREEMENT (hereinafter referred to as "Agreement")
is entered into as of the 1st day of January, 1999, 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:
I. GRANT OF LICENSE
1.1 License for Off-Premises Operations.
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
offering the goods and services listed on Exhibit B ("Licensed
Business"), only at the locations described in Exhibit A or
in Location Riders attached ("Designated Locations(s)").
1.2 Scope of License/Restrictions.
Licensee shall use the Designated Locations only
for the purposes authorized in this Agreement, and shall offer
for sale only those services and merchandise listed on Exhibit
B attached hereto. Any changes, additions or deletions of
services or merchandise require the prior written approval of
Sears designated Licensing Manager ("Licensing Manager").
1.3 No Representations.
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 solely responsible for any expenses it incurs
related to this Agreement, including, but not limited to, any
increase in the number of Licensee's employees or any
expenditures for the Designated Locations or for additional
facilities or equipment.
4
<PAGE>
II. USE OF SEARS MARKS
2.1 License to Use Sears Marks.
Licensee shall operate the Licensed Business under
the name SEARS PORTRAIT STUDIO. Licensee shall use the name of
Sears only in connection with the operation of the Licensed
Business and only in a manner described herein or upon prior
written approval by Sears Licensing Manager. Licensee may use
the name Sears when communicating with customers or potential
customers of the Licensed Business, or to identify the location
of the Licensed Business and in approved advertising.
2.2 Communications with Third Parties.
Except in the case of communication permitted by
Section 2.1, or as otherwise specifically approved by Sears,
Licensee shall not use the name of Sears, or any Sears
trademarks, service marks or trade names (the "Mark(s)"),
either orally or in writing, including, but not limited to, use
on any letterhead, checks, business cards, or contracts. All
communications with persons or entities other than customers or
potential customers of the Licensed Business shall be done
solely in Licensee's own name.
2.3 No Challenge to Marks.
Licensee shall not question, contest or challenge,
either during or after the Term of this Agreement, Sears
ownership of the Marks, or Sears ownership in any mailing
lists, credit files or other factual information compiled by
Sears and made available for use by Licensee ("Sears
Information"). Licensee shall claim no right, title or
interest in any Mark or Sears Information, except the right to
use the same pursuant to the terms and conditions of this
Agreement, and shall not register or attempt to register any
Mark.
2.4 No Rights to Marks.
Licensee recognizes and acknowledges that the use
of any Mark or Sears Information shall not confer upon Licensee
any proprietary rights to any Mark or Sears Information. Upon
expiration or termination of this Agreement, Licensee shall
immediately stop using all Marks and Sears Information, and
shall execute all documents Sears requests in order to confirm
Sears ownership, or to transfer to Sears any rights Licensee
may have acquired from Sears, in any Mark or Sears Information.
Nothing in this Agreement shall be construed to bar Sears,
during or after the Term of this Agreement, from protecting its
right to the exclusive ownership of Sears Information or Marks
against infringement or appropriation by any party or parties,
including Licensee.
2.5 Registration of Marks.
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, except for such trademarks, service
5
<PAGE>
marks or trade names which are owned or licensed by Licensee
prior to execution of this Agreement, 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 "Marks". Licensee shall
cooperate in any such registration or application for
registration by Sears. No name or mark registered in the name
of Licensee or any of Licensee's affiliates and used in
conjunction with the Licensed Business shall be used for any
other purpose without the written consent of Sears.
2.6 Injunctive Relief.
Licensee acknowledges that the Marks and Sears
Information 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 in the event of
breach of this Section II by Licensee there would be no
adequate remedy at law and preliminary or permanent injunctive
relief would be appropriate.
2.7 Infringing Use.
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 in
the minds of the public to those sold by Licensee and which
bear or are promoted in association with the Marks or any
names, symbols, emblems, designs or colors which would be
confusingly similar in the minds of the public to the Marks,
Licensee shall promptly notify Sears. Sears may, at its sole
expense, take such action as it determines, in its sole
discretion, is appropriate. Licensee shall 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 section, 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.
2.8 Limitations.
Licensee shall not file suit using Sears name.
Licensee shall not use the services
of a collection agency or undertake any legal proceeding
against any customer without the
prior written approval of Sears Licensing Manager.
2.9 Survival.
The provisions of this Section II shall survive the
expiration or termination of this Agreement.
6
<PAGE>
III. TERM
The term of this Agreement ("Term") shall be for a
five (5) year period beginning on January 1, 1999, and ending
at the close of business on December 31, 2003, unless sooner
terminated under any of the provisions of this Agreement.
IV. FEES
4.1 Amount.
Licensee shall pay Sears a commission ("Sears
Commission") which is set forth on Exhibit C attached hereto.
4.2 Net Sales
"Net Sales" means Gross Sales from operation of the
Licensed Business, less sales taxes, returns and allowances.
4.3 Gross Sales.
"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.
V. OPERATIONAL OBLIGATIONS OF LICENSEE
5.1 Performance Standards.
Licensee shall provide Sears with copies of its
written procedures and policies establishing minimum standards
of quality, performance and customer service, which shall
be subject to Sears approval, and Licensee shall abide by such
standards at all times. Licensee shall immediately advise
Sears of any changes in its standards. Licensee shall
operate the Licensed Business in a courteous and efficient
manner and shall present a neat, business like appearance at
the Designated Locations, including adherence by Licensees'
employees to a reasonable dress code.
5.2 Business Conduct.
Licensee shall operate the Licensed Business in an
honest and ethical manner at all times.
7
<PAGE>
5.3 Customer Adjustment.
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. Sears may deduct the amounts of any
such adjustments from the sales receipts held by Sears as
described in Section 9.3. Licensee shall maintain files
pertaining to customer complaints and their adjustment and make
such files available to Sears.
5.4 Employee Standards.
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.
5.5 Licensee's Employees.
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.
5.6 Employee Compensation.
Licensee is solely responsible for paying, all
salaries and other compensations of its employees and Licensee
shall make all necessary salary deductions and withholdings
from its employees' compensation. Licensee is solely
responsible for 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 withholding of income tax laws on all
salary and other compensation of its employees.
5.7 Compliance with Law.
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, but not limited to, all rules
and regulations of the Federal Trade Commission. In addition,
Licensee represents and warrants that Licensee and all
subcontractors and agents
8
<PAGE>
involved in the production or delivery of the merchandise to be
sold in connection with the Licensed Business shall strictly
adhere to all applicable laws, regulations, and prohibitions of
the United States and all country(ies) in which such
merchandise is produced or delivered with respect to the
operation of their production facilities and their other
businesses and labor practices, including without limitation,
laws, regulations and prohibitions governing the working
conditions, wages and minimum age of the work force. Licensee
further represents and warrants that such merchandise shall not
be produced or manufactured, in whole or in part, by convict or
forced labor.
5.8 Payment of Obligations.
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.
5.9 Year 2000 Compliance.
Licensee represents and warrants that its point of
sale system utilizes and includes four digit year elements
(e.g. 1999, 2000, etc.) and that the use, entry or creation of
dates before, on or after January 1, 2000 will neither cause
failure nor produce incorrect results in the transmission of
data to Sears settlement system, nor cause interruption to or
disruption of the Licensed Business.
5.10 No Sears Obligations.
Licensee shall 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 in not responsible for any
obligations incurred by Licensee.
VI. DESIGNATED LOCATIONS
6.1 Condition of Designated Locations.
Licensee shall, at its expense, keep the Designated
Locations in a thoroughly clean and neat condition and shall
maintain Licensee's Equipment in good order and repair.
6.2 Telephone.
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
9
<PAGE>
numbers to Sears or to any party Sears designates, and Licensee
shall immediately notify the Telephone Company of any such
transfer.
6.3 Yellow/White Page Listings.
All white and yellow page telephone listings for
the Licensed Business shall be approved by Sears prior to
placement; provided, however, approval is not required for
listings consisting only of the Licensed Business name and
address as authorized in Section 2.1.
VII. ADVERTISING
7.1 Advertising.
Licensee shall advertise and actively promote the
Licensed Business. Licensee shall at all times adhere to Sears
Licensed Business Marketing Manual as provided to Licensee and
updated from time to time ("Marketing Manual"). Prior to use
in connection with the Licensed Business, Licensee shall submit
to Sears Marketing Manager, Licensed Businesses, or his
designee any and all of the following materials containing,
using or referring to the Sears Marks:, (a) all signs and
advertising copy (including, but not limited to, sales
brochures, telemarketing scripts, newspaper advertisements,
radio and television commercials), and (b) all sales
promotional plans and devices containing the Sears Marks.
Licensee shall not use any such advertising material or sales
promotional plan or device containing the Sears Marks without
the prior written approval of Sears Marketing Manager.
Sears has the right, in its sole discretion, to disapprove or
require modification of any or all such advertising forms and
other materials. Licensee shall not engage in any Internet
advertising without the prior written consent of Sears
Marketing Manager. Sears shall have the right to audit
Licensee's advertising materials and practices to determine
Licensee's compliance with this Agreement, including but not
limited to compliance with all laws.
7.2 Publicity.
Licensee shall not issue any publicity or press
release regarding its contractual relations with Sears or
regarding the Licensed Business, and shall 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 from Sears Licensing
Manager and Sears Public Relations Manager. Licensee shall at
all times adhere to Sears written policies regarding
interaction with the media as contained in the Marketing
Manual.
7.3 Forms.
Prior to use in connection with the Licensed
Business, Licensee shall submit all customer contract forms,
guarantee certificates and other forms and materials to Sears
Licensing Manager for approval.
10
<PAGE>
VIII. LICENSED BUSINESS EQUIPMENT
8.1 Licensee's Equipment.
Entirely at its own expense, Licensee shall install
furniture, fixtures and equipment as necessary for the
efficient operation of the Licensed Business ("Licensee's
Equipment").
8.2 Licensee's Point of Sale System.
At its own expense, Licensee shall furnish a point
of sale system and peripheral devices, including, but not
limited to printers, bar-code scanning devices, and electronic
signature capture devices ("Licensee's POS"), and Licensee
shall be responsible for all installation charges, phone line
charges and data line charges for such system. Licensee's
POS shall have the capability of processing Sears Card and any
other credit cards Sears may accept from time to time.
Licensee's POS shall have the capability of transmitting
sales data to the Sears off-premise settlement system, as
described in section 9.3.
IX. TRANSACTIONS AND SETTLEMENT
9.1 Checks.
All checks or money orders which Licensee accepts
from customers shall be made payable to Sears, Sears, Roebuck
and Co. or Sears Portrait Studio. 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. Licensee may establish
a bank account in the name Consumer Programs Incorporated d/b/a
Sears Portrait Studio or CPI Images LLC d/b/a Sears Portrait
Studio, solely for clearing customer checks. In no event shall
Licensee have or obtain check blanks in such name.
9.2 Credit Sales.
With the approval of the Credit Central designated
by Sears, sales may be made by Licensee on such of Sears
regularly established credit plans 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. Licensee shall accept Sears Card
Bonus Club Bonus Certificates. Sears shall
11
<PAGE>
reimburse Licensee for such bonus certificates provided
Licensee has followed prescribed procedures.
Licensee agrees to accept third party credit cards as
designated by Sears from time to time, and Licensee is
responsible for the payment of any applicable discount fee or
merchant's fee for such third party credit cards. Licensee may
not distribute or solicit any customer applications for any
third party credit cards in the Licensed Business.
Licensee shall 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.
9.3 Settlement.
Licensee will submit the total dollar amount of
transactions, including sales taxes, through the Sears
settlement system. Sears Credit Card and third party credit
card transactions will be entered into the Sears settlement
system as they occur. Cash transactions may be entered once
daily as a single cash transaction.
A settlement between the parties shall be made at the end of
each Sears fiscal month for all 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 ninety-two and one-half percent (92 1/2%)
of Net Sales weekly. Such advances shall be deducted and
reconciled in the next regular settlement. All settlements and
advances shall be made by electronic funds transfer
(EFT) to a bank account designated by Licensee. Sears will pay
the transaction fees for any processing service with whom Sears
has an agreement to provide access for the Sears off-premise
settlement system to the appropriate Sears credit system.
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.
9.4 Reports.
If requested by Sears, Licensee shall provide to
Sears reports of sales and income and Sears commissions paid in
the manner and form prescribed by Sears, together with any
other information Sears may require for its records or auditing
purposes. If requested by Sears, Licensee shall promptly
submit its financial report to Sears 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 for such
fiscal year and balance sheet at the end of such fiscal year,
and shall be prepared in accordance with generally accepted
accounting principles. If Licensee is a
12
<PAGE>
publicly held corporation, this requirement may be fulfilled by
submission of Licensee's Annual Report on Form 10-K. Sears
shall not disclose any such information that is not available
to the public to any third parties without Licensee's prior
consent.
9.5 Audit Rights.
Licensee shall keep and maintain books and records
that accurately reflect the sales made by Licensee under this
Agreement and the expenses that Licensee incurs in
performing under this Agreement. Sears shall have the right at
any reasonable time to review and audit the books and records
of Licensee regarding this Agreement. Such books and records
shall be kept and maintained according to generally accepted
accounting
principles.
9.6 Underreporting.
If an audit reveals that sales were under-reported
at any Licensed Business location being audited, by more than
five percent (5%) of the total sales which were actually
reported by such location, then the cost of such audit shall be
charged to such Licensed Business location. If a sampling of
Licensee's records at a Licensed Business location, using
standard audit practices, reveals that sales have been
under-reported by more than five percent (5%) of the total
sales which were actually reported by such Licensed Business
location, then such Licensed Business location shall at its
option, (a) pay Sears for all under-reported sales for each
year audited by annualizing the rate by which sales were
under-reported in the audit sample plus an administrative fee
which shall be calculated by multiplying the annualized
under-reported commissions by the percent of under-reported
sales; or (b) pay the actual amount of any under-reported sales
based on a complete audit of the books and records (at
Licensee's expense) relating to such Licensed Business
location, including a comprehensive audit of all such books and
records for the then-current year and if Sears so elects, a
comprehensive audit (at Licensee's expense) of prior years plus
an administrative fee which shall be calculated by multiplying
the audited annual under-reported commission by the percent of
under-reported sales. Each audited location shall be subject
to another audit (at Licensee's expense) one (1) year after the
initial audit. If this audit reveals that sales were again
under-reported by more than five percent (5%), Licensee shall
pay Sears for these sales as per the above except that, due to
the increased expenses incurred by Sears in continued
monitoring of the Licensed Business, the administrative fee
shall be doubled.
All under-reported sales equal to or less than five percent
(5%) of total sales actually reported by such Licensed Business
location, shall be reimbursed to Sears, as appropriate,
based on the actual amounts of such under-reports.
Sears, at its sole option, may also charge interest on all
under-reported sales at the rate of prime (as published in the
Wall Street Journal as of the date of the completion of the
audit) plus one percent (1%). Licensee, at its expense, shall
develop and implement a program to conduct internal audits of
the Licensed Business to verify accuracy of sales and
commissions.
13
<PAGE>
9.7 Rights of Recoupment and Setoff.
Sears shall have the right to reduce, withhold or
set-off against any payment due Licensee hereunder any
liability or obligation which Licensee may have to Sears. Any
Licensee liabilities or obligations which remain outstanding
after any exercise of Sears right of set-off shall be paid by
Licensee promptly upon demand by Sears. Sears rights
under this Section are cumulative, shall be in addition to all
other rights, remedies available at law or in equity, and shall
survive the expiration or termination of this Agreement.
X. CUSTOMER INFORMATION; CONFIDENTIALITY
10.1 Customer Information.
The Sears Information and 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 (collectively, the "Customer
Information"), are deemed exclusively owned by Sears. Licensee
shall not use, permit use, disclose or permit disclosure 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 written request by
Sears during the Term and on expiration or 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. Licensee
acknowledges that there is no adequate remedy at law for
violation by Licensee of this Section X and, in case of breach
of this Section X, preliminary or permanent injunctive relief
would be appropriate.
10.2 Confidential Information.
Information furnished by Sears to Licensee or which
becomes known to Licensee through Licensee's operation of the
Licensed Business or Licensee's relationship with Sears
is confidential and proprietary to Sears (collectively, the
"Confidential Information"). All such Confidential Information
shall be held in utmost confidence by Licensee. All
Confidential Information, including, but not limited to,
information regarding Sears stores, and any other information
not specifically designated by Sears for release to the public
that may come into the possession of Licensee during the Term
of this Agreement shall be delivered to the appropriate
14
<PAGE>
Licensing Manager at Sears upon request by Sears, and
Licensee shall not make or retain copies or portions of the
Confidential Information.
The terms and content of this Agreement, including but not
limited to, exhibits attached hereto, and any other agreements
entered into pursuant to this Agreement shall at all times
remain confidential and shall not be revealed to any third
party by Licensee without the prior written consent of Sears
except to the extent (a) permitted by this Agreement, (b)
required by law or any court, or (c) made to a court or
mediator in connection with a dispute between the parties.
The provisions of this Section X shall survive the expiration
or termination of this Agreement.
XI. RELATIONSHIP OF PARTIES
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.
XII. DEFENSE AND INDEMNITY
12.1 Defense.
Licensee shall defend all allegations asserted in
any claim, action, lawsuit or proceeding (even though such
allegations may be false, fraudulent or groundless) against
Sears, its affiliates and subsidiaries, and/or Sears
subsidiaries or affiliates, directors, officers, employees,
agents, independent contractors, parents, subsidiaries and
affiliates which contains any allegations of liability 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 the Licensed Business, lack of repair in
or about the area occupied by the Licensed Business, operations
of or defect 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 directors, officers,
employees, agents or independent contractors, whether or not
such act is within the scope of the authority or employment of
such persons. Licensee shall use counsel satisfactory to Sears
in defense of such allegations. Sears may, at its election,
take control of the defense and investigation of any
claims, may employ and engage attorneys of its own choice to
manage and defend such claims, at Licensee's cost, risk and
expense, provided that Sears and its counsel shall proceed with
diligence and good faith with respect thereto. The provisions
of this Section shall survive the expiration or termination of
this Agreement.
15
<PAGE>
12.2 Indemnity.
Licensee shall hold harmless and indemnify Sears
and Sears directors, officers, employees, agents, independent
contractors, parents, subsidiaries and affiliates from and
against any and all claims, demands, actions, lawsuits,
proceedings, liabilities, losses, costs and expenses
(including, without limitation, fees and disbursements of
counsel incurred by Sears in any claim, demand, lawsuit, or
proceeding between Licensee and Sears or between Sears and any
third party or otherwise), 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 the
Licensed Business, 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 directors, officers, employees, agents or
independent contractors, whether or not such act is within the
scope of the authority or employment of such persons. The
provisions of this Section shall not apply to the extent any
injury or damage is caused solely by Sears negligence. The
provisions of this Section shall survive the expiration or
termination of the Agreement.
XIII. INSURANCE
13.1 Types of Insurance.
Licensee shall, at its sole expense, obtain and
maintain during the Term of this Agreement the following
policies of insurance from companies having a rating of at
least A-VII or better in the current Best's Insurance Reports
published by A.M. Best Company 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:
(a) Worker's Compensation insurance covering all
costs, benefits and liabilities under Workers Compensation and
similar laws which may accrue in favor of any person employed
by Licensee for all states in which Licensee operates, and
Employer's Liability insurance with limits of liability of at
least $100,000 per accident or disease and $500,000 aggregate
by disease. Such insurance shall contain a waiver of
subrogation in favor of Sears. Limits of liability
requirements for Employer's Liability may be satisfied by a
combination of Employer's Liability and Umbrella Excess
Liability policies.
(b) Commercial General Liability insurance,
including but not limited to, premises/operations liability,
contractual liability, personal and advertising injury
liability, and products and completed operations liability,
with limits of at least $1,000,000 for bodily injury and
property damage combined. Sears shall be named as an
additional insured. Limits of liability requirements may be
satisfied by a combination of Commercial General Liability and
Umbrella Excess Liability policies.
16
<PAGE>
(c) Motor Vehicle Liability insurance, for owned,
non-owned and hired motor vehicles used in connection with the
Licensed Business, with limits of at least $1,000,000 for
bodily injury and property damage combined. If only private
passenger vehicles are owned or shall be used in conjunction
with this Agreement, $500,000 combined single limit of
liability is acceptable. If no vehicles are owned or leased by
Licensee, the Commercial General Liability insurance shall be
extended to provide insurance for non-owned and hired motor
vehicles. Limits of liability requirements may be satisfied by
a combination of Motor Vehicle Liability and Umbrella Excess
Liability policies.
(d) "All Risk" Property insurance upon all building
improvements and supplies on the premises, including those
perils generally covered on a "Cause of Loss - Special Form",
including fire, extended coverage, windstorm, vandalism,
malicious mischief, sprinkler leakage, water damage, accidental
collapse, in an amount equal to at least 90% of the full
replacement cost, with a coverage extension for increased cost
of construction, including a waiver of subrogation in favor of
Sears.
(e) Fidelity insurance with limits of liability of
at least $50,000.
13.2 No Cancellation Without Notice.
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 written
notice to Sears Certificate Management Services, c/o Near North
Technology Services, P.O. Box 811310, Chicago, Illinois
60681-1310, or other address of which Licensee is notified.
13.3 Certificates.
Licensee shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to
execution of this Agreement and upon each policy renewal
during the Term of this Agreement. If Licensee does not
provide Sears with such certificates of insurance or, in Sears
opinion, such policies do not afford adequate protection for
Sears, Sears shall so advise Licensee, and if Licensee does not
furnish evidence of acceptable coverage within five (5) days,
Sears shall have the right to immediately terminate this
Agreement upon written notice to Licensee.
13.4 Expiration/Non-Renewal.
If Licensee's policies of insurance expire or are
canceled during the Term of this Agreement or are materially
modified, Licensee shall promptly notify Sears of such
expiration, cancellation or material modification. If such
policies of insurance are materially modified such that, in
Sears opinion, such policies do not afford adequate
protection to Sears, Sears shall so advise Licensee. If
Licensee does not furnish evidence of acceptable replacement
coverage within five (5) days after the expiration or
cancellation of coverage or the notification from Sears that
modified policies are not sufficient, Sears shall have the
right, at its option, to immediately terminate this Agreement
upon written notice to Licensee.
17
<PAGE>
Any approval by Sears of any of Licensee's insurance policies
shall not relieve Licensee of any responsibility under this
Agreement, including liability for claims in excess of
described limits.
XIV. TERMINATION
14.1 Mutual Right of Termination.
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 written notice. The notice shall specify the termination
date.
14.2 Termination of License by Sears With Notice.
This Agreement shall terminate effective upon
delivery of notice of termination to Licensee if Licensee, or
its owner(s): (a) abandons or fails to actively operate the
License Business; (b) surrenders or transfers control of the
Licensed Business without Sears prior written consent; (c) has
made any material misrepresentation or omission in its
application to Sears; (d) is convicted of or pleads no contest
to a felony, or engages in any conduct that is likely to
adversely affect the reputation of Licensee, the Licensed
Business or Sears; (e) makes any unauthorized use, duplication
or disclosure of the Confidential Information or Customer
Information; (f) fails to secure and maintain appropriate
insurance coverage as set forth in Section XIII; (g) a petition
is filed either by or against Licensee in any bankruptcy or
insolvency proceeding, or if any property of Licensee passes
into the hands of any receiver, assignee, officer of the law or
creditor; (h) materially misuses or makes an unauthorized use
of any Sears Mark; or (i) is in default under either of the
License Agreements, entered into concurrently herewith by
Licensee and Sears, for operation of the Licensed Business in
Sears full-line retail stores in the United States and Puerto
Rico.
14.3 Termination of License by Sears Without Further
Notice.
This Agreement shall terminate without further
action by Sears or notice to Licensee if Licensee or its
owners(s):
(a) fails to make payment of any Sears Commissions
or any other amounts due Sears, and does not correct such
failure within ten (10) days after written notice of such
failure is delivered to Licensee; or
(b) fails to comply with any other provision of
this Agreement and does not correct such failure within thirty
(30) days after written notice of such failure to comply is
delivered to Licensee.
18
<PAGE>
14.4 Survivability.
No termination of this Agreement, by expiration of
time or otherwise, shall relieve the parties of obligations
arising before expiration or termination or arising upon or
after expiration or termination of this Agreement.
XV. ASSIGNMENT AND SUBLICENSING
15.1 Assignment by Licensee.
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 and
Licensee shall not sub-license the license granted herein to
any person or entity. 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 deemed such a
prohibited transfer.
15.2 Assignment by Sears.
This Agreement is fully transferable by Sears and
shall inure to the benefit of any transferee or other legal
successor to Sears interest herein.
15.3 Binding Nature.
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.
XVI. MISCELLANEOUS
16.1 Cumulative Remedies.
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.
19
<PAGE>
16.2 Severability.
If any provision in this Agreement is held to be
invalid, illegal or unenforceable by a court of competent
jurisdiction, 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.
16.3 Governing Law.
This Agreement shall be interpreted and governed by
the internal substantive laws of the State of Illinois, without
regard to its conflict of law principles. This Agreement shall
not be effective until it has been received and executed by
Sears in Hoffman Estates, Illinois. The federal and/or state
courts of Illinois shall have personal and subject matter
jurisdiction over, and the parties each hereby submit to the
venue of such courts with respect to, any dispute arising
pursuant to this Agreement, and all objections to such
jurisdiction and venue and hereby waived.
16.4 Entire Agreement.
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 duly
authorized representatives of Licensee and Sears, and no person
has or shall have the authority to supplement, modify or amend
this Agreement in any other manner. This Agreement shall
be effective when signed by Sears.
16.5 Headings.
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.
16.6 Notices.
All notices provided for or which may be given in
connection with this Agreement shall be in writing and given by
personal delivery, certified mail with postage prepaid and
return receipt requested or its equivalent, such as private
express courier, or by facsimile transmission (with a
confirmation copy sent by regular mail). Notices given by
Licensee to Sears shall be addressed to:
SEARS, ROEBUCK AND CO.
Attention: Licensing Manager,
Licensed Businesses,
Department 725 E3-378B
3333 Beverly Road
Hoffman Estates, Illinois 60179
20
<PAGE>
Notices given by Sears to Licensee shall be addressed to:
CONSUMER PROGRAMS INCORPORATED
Attention: Senior Vice President of Administration
1706 Washington Avenue
St. Louis, Missouri 63103
Notices if so sent by mail shall be deemed to have been given
when deposited in the mail or with the private courier. All
changes of address must be communicated to the other party in
writing.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or
caused this Agreement to be executed on their behalf by duly
authorized officers or representatives.
SEARS, ROEBUCK AND CO.
By: /s/ Ken E. Hux
-------------------------------
Its: Vice President and General
Manager, Licensed Businesses
LICENSEE
By: /s/ Alyn V. Essman
-------------------------------
Its: Chairman and Chief Executive
Officer
<PAGE>
<TABLE>
EXHIBIT A. DESIGNATED LOCATIONS
<CAPTION>
STUDIO
# MALL NAME ADDRESS CITY ST ZIP
- ----- ---------------- ---------------- ---------- ---- ---
<S> <C> <C> <C> <C> <C>
02K02 LAUREL CENTER 14762 BALT WASH LAUREL MD 20707
BLVD
02K10 EASTLAND MALL SUITE A 23A TULSA OK 74134
02K11 LOCKPORT MALL SPACE 111 LOCKPORT NY 14095
02K13 SOUTH MALL ROOM 709 ALLENTOWN PA 18103
02K27 LAUREL MALL SPACE 29A HAZELTON PA 18201
02K42 CHELTENHAM SQUARE SPACE 360 PHILADELPHIA PA 19150
02K43 YODER PLAZA SUITE B NEWPORTNEWS VA 23602
02K44 HARFORD MALL SPACE H-15 BEL AIR MD 21014
02K46 NORTHTOWN MALL SPACE E7 SPRINGFIELD MO 65803
02KA1 NORTHWAY S/C 3717 N 16TH ST ORANGE TX 77632
02KA2 CARLISLE PLAZA 472 CARLISLE CARLISLE PA 17013
MALL PLAZA MALL
02KA3 PRINCE GEORGE SPACE 1444 HYATTSVILLE MD 20782
PLAZA
02KB1 VALLEY MALL SPACE 600 HARRISONBURG VA 22801
02KB5 THE PLAZA SPACE 868 NEW ORLEANS LA 70127
02KD4 BRISTOL COMMONS SPACE J BRISTOL CT 06010
02KD7 GANSETT S/C SPACES 84 & 86 E.PROVIDENCE RI 02916
02KD9 PARKWAY CENTER 1165 MCKINNEY PITTSBURGH PA 15220
MALL
02KE6 IMPERIAL PLAZA SUITES A4 & A5 PHILADELPHIA PA 19134
S/C
02KE7 HERNDON CENTER 414 ELDEN STREET HERNDON VA 22070
02KF1 MEADOWBROOK SPACE 10 FREEPORT NY 11520
COMMONS
02KF3 SUNVET MALL 5801 SUNRISE HWY HOLBROOK NY 11741
02KF5 RIVERTOWNE #48 OXON HILL MD 20745
COMMONS
02KF6 WHITMAN PLAZA 500 WEST OREGON PHILADELPHIA PA 19148
AVENUE
02KG6 CONCOURSE PLAZA SUITE 72 BRONX NY 10451
02KG7 SHERIDAN PLAZA 5121 SHERIDAN ST HOLLYWOOD FL 33021
02KH2 K-MART SHOPPING SPACE #3 HAMILTON NJ 08610
PLAZA
02KH3 SAWMILL SQUARE SPACE E9 LAUREL MS 39440
S/C
12428 MAPLE HILLS MALL 5130 W MAIN ST KALAMAZOO MI 49009
</TABLE>
23
<PAGE>
<TABLE>
EXHIBIT A. DESIGNATED LOCATIONS (continued)
<CAPTION>
STUDIO
# MALL NAME ADDRESS CITY ST ZIP
- ----- ---------------- ---------------- ---------- ---- ---
<S> <C> <C> <C> <C> <C>
12433 LAKEHURST MALL SPACE C2L WAUKEGAN IL 60085
12436 EVERGREEN SQUARE SPACE 15 PEORIA IL 61614
S/C
12446 ROGERS PLAZA 28 & MICHAEL WYOMING MI 49509
STREETS SW
12D47 WESTLAND MALL SPACE 222 W BURLINGTON IA 52655
12D49 SOUTH COUNTY SP 80 S.LIND- ST LOUIS MO 63129
BERGH/I-270
12K04 METRO NORTH MALL 400 NORTHWEST KANSAS CITY MO 64155
BARRY RD
12K06 WONDERLAND MALL 29655 PLYMOUTH LIVONIA MI 48150
RD
12K12 SOUTHWYCK MALL SPACE 825 TOLEDO OH 43614
12K16 SIERRA VISTA S/C SPACE C58 CLOVIS CA 93612
12K24 LAKEWOOD MALL SPACE 108A LAKEWOOD CTR WA 98499
SPACE
12K26 PERU MALL B 20 PERU IL 61354
12K29 NORTH COUNTY 10859 W FERGUSON MO 63136
FESTIVAL FLORISSANT
12K31 QUINCY PLACE 1110 QUINCY AVE OTTUMWA IA 52501
MALL
12K32 LANSING MALL 5768 W SAGINAW LANSING MI 48917
HWY
12K34 MUSCATINE MALL SPACE 41 MUSCATINE IA 52761
12K37 RANDHURST CENTER SPACE 2037 MT PROSPECT IL 60056
12K47 HAMILTON SPACE 1790D HAMILTON OH 45011
CROSSINGS
12K48 4130 1/2 EAST BURTON MI 48509
COURT ST
12KA6 COTTONWOOD AREA Q-INSIDE GLEN CARBON IL 62034
STATION DELIVERY
12KA7 COUNTY FAIR MALL 1264 E GIBSON RD WOODLAND CA 95776
SP A103
12KA8 CENTERPOINT MALL 1201 THIRD COURT STEVENS WI 54481
SP C 4 POINT
12KA9 PANORAMA MALL 9 PANORAMA MALL PANORAMA CA 91402
SP54 CITY
12KB3 SOUTH GRAND SPACE C2 ST LOUIS MO 63118
SQUARE
12KB4 THE MEADOWS SPACE 14 FREEPORT IL 61032
12KB6 LEMON GROVE SPACE A17 LEMON GROVE CA 91945
PLAZA
12KB8 STATER BROTHERS SPACE K BARSTOW CA 92311
CTR
12KC1 INLAND EMPIRE SPACE B & C FONTANA CA 92335
CENTER
12KC4 MOUNTAIN PLAZA 2090 SPACE B SIMI VALLEY CA 93065
</TABLE>
24
<PAGE>
<TABLE>
EXHIBIT A. DESIGNATED LOCATIONS (continued)
<CAPTION>
STUDIO
# MALL NAME ADDRESS CITY ST ZIP
- ----- ---------------- ---------------- ---------- ---- ---
<S> <C> <C> <C> <C> <C>
12KC5 TRI CITY CENTER 825 TRI CITY REDLANDS CA 92373
CENTER
12KC6 FOOTHILLS PARK SPACE G7 PHOENIX AZ 85044
PLACE
12KC7 1068 WEST LANCASTER CA 93534
AVENUE K
12KC8 HIGHLAND RIDGE 3274 HIGHLAND CINCINNATI OH 45213
PLAZA AVE
12KC9 TUSTIN MARKET SPACE 2925 TUSTIN CA 92680
PLACE
12KD1 HOPS AT PALOS STORE 241 ROLLING CA 90274
VERDES HILLS
12KD2 THE GROVE 1300 UNIT#I W DOWNER'S IL 60516
75TH ST GROVE
12KD5 SEQUOIA STATION SPACE D1-106 REDWOOD CA 94064
CTR CITY
12KD8 SOUTHLAND 3983A 7TH STREET LOUISVILLE KY 40216
TERRACE S/C ROAD
12KE3 CHARLESTON SPACE C2 LAS VEGAS NV 89110
COMMONS
12KE4 GATEWAY PLAZA SUITE 203 VALLEJO CA 94591
12KE5 EAST HILLS SPACE 104 BAKERSFIELD CA 93306
PAVILLION
12KE9 MARKET STREET SPACE 3590 W.VALLEY UT 84119
CENTER CITY
12KF2 COUNTRYSIDE SPACE B10 TURLOCK CA 95380
PLAZA
12KF4 WEST AURORA 1951 W GALENA AURORA IL 60506
PLAZA BLVD
12KF8 REGENCY PLAZA SPACE A7 ST CHARLES MO 63303
MALL
12KF9 EVANSTON PLAZA SPACE 11 EVANSTON IL 60202
12KG1 MIDVALE S/C SPACE 113 TUCSON AZ 85746
12KG2 NORTH VALLEY P/C SUITE 122 PEORIA AZ 85382
12KG3 MANCHESTER 13945 MANCHESTER TOWN&COUNTRY MO 63011
ROAD
12KG4 SWEETWATER T/C 1536-B SWEET- NATIONAL CA 91950
WATER ROAD CITY
12KG5 ATEISCO PLAZA SPACE G1 ALBUQUERQUE NM 87105
12KG8 SOMERSET MALL SPACE 10 SOMERSET KY 42501
12KG9 EASTLAND CENTER 18000 VERNIER HARPER WOODS MI 48225
ROAD
12KH1 NORTHLAND CENTER SPACE 792 SOUTHFIELD MI 48075
12KH4 RICHMOND CENTER 6674 CLAYTON RICHMOND MO 63117
ROAD HEIGHTS
12R31 WESTERN HILLS SPACE 144 CINCINNATI OH 45211
PLAZA
</TABLE>
25
<PAGE>
EXHIBIT B
AUTHORIZED MERCHANDISE AND/OR SERVICES
The following items, merchandise lines and/or services are
authorized for sale by Licensee in the Licensed Business.
1. Portrait photography service and photographs
2. Passport photography service and photographs
3. Portrait-related retail merchandise (e.g., frames, mats,
albums, greeting cards)
4. Portrait-related promotional merchandise for customer
give-aways
5. Digital images (e.g. Portrait Creations(TM), proof sheets,
portrait restoration)
6. Internet archiving services
26
<PAGE>
EXHIBIT C
SEARS COMMISSION
Licensee shall pay to Sears a commission ("Sears Commission")
which shall be a sum equal to seven and one-half percent (7
%) of Net Sales.
27
EXHIBIT (10.30)
License Agreement - Sears Roebuck De Puerto Rico, Inc.
28
<PAGE>
SEARS ROEBUCK DE PUERTO RICO, INC.
LICENSE AGREEMENT
CONSUMER PROGRAMS
INCORPORATED
SEARS PORTRAIT STUDIOS
January 1, 1999
<PAGE>
(PAGE NUMBERS REFER TO PAPER DOCUMENT)
<TABLE>
TABLE OF CONTENTS
<S> <C>
I. GRANT OF LICENSE ................................... 5
1.1 License for On-Premises Operations ............ 5
1.2 Scope of License/Restrictions ................. 5
1.3 No Representations ............................ 5
II. USE OF SEARS MARKS ................................. 6
2.1 License to Use Sears Marks .................... 6
2.2 Communications with Third Parties ............. 6
2.3 No Challenge to Marks ......................... 6
2.4 No Rights to Marks ............................ 6
2.5 Registration of Marks ......................... 7
2.6 Injunctive Relief ............................. 7
2.7 Infringing Use ................................ 7
2.8 Limitations ................................... 7
2.9 Survival ...................................... 8
III. TERM ............................................... 8
IV. FEES ............................................... 8
4.1 Amount ........................................ 8
4.2 Net Sales ..................................... 8
4.3 Gross Sales ................................... 8
V. OPERATIONAL OBLIGATIONS OF LICENSEE ................ 8
5.1 Performance Standards ......................... 8
5.2 Business Conduct .............................. 9
5.3 Hours of Operation ............................ 9
5.4 Merchandise Standards ......................... 9
5.5 Pricing ....................................... 9
5.6 Discount Policy ............................... 9
5.7 Bonus Club .................................... 10
5.8 Customer Adjustment ........................... 10
5.9 Employee Standards ............................ 10
5.10 Licensee's Employees .......................... 10
5.11 Employee Compensation ......................... 11
5.12 Compliance with Labor Laws .................... 11
5.13 Compliance with Law ........................... 11
5.14 Year 2000 Compliance .......................... 11
5.15 Payment of Obligations ........................ 12
5.16 Licensee's Obligations ........................ 12
5.17 Liens ......................................... 12
VI. LICENSED BUSINESS AREA ............................. 12
6.1 Block Plan .................................... 12
6.2 Improvements .................................. 12
6.3 Operations .................................... 13
6.4 Condition of Licensed Business Area ........... 13
6.5 Changes of Location/Store Inventory ........... 13
</TABLE>
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<TABLE>
TABLE OF CONTENTS (continued)
<S> <C>
6.6 Remodeling .................................... 13
6.7 Electric/HVAC ................................. 13
6.8 Telephone ..................................... 14
6.9 Yellow/White Page Listings .................... 14
6.10 Access to Licensed Business Area .............. 14
6.11 Effect of Store Leases ........................ 15
6.12 Waiver of Casualty Liability .................. 15
VII. ADVERTISING ........................................ 15
7.1 Advertising ................................... 15
7.2 Publicity ..................................... 15
7.3 Forms ......................................... 16
VIII. LICENSED BUSINESS EQUIPMENT ........................ 16
8.1 Licensee's Equipment .......................... 16
8.2 Licensee's Point of Sale System ............... 16
8.3 Sears Card .................................... 16
IX. TRANSACTIONS AND SETTLEMENT ........................ 17
9.1 Checks ........................................ 17
9.2 Credit Sales .................................. 17
9.3 Sales Receipts ................................ 18
9.4 Settlement .................................... 18
9.5 Reports ....................................... 18
9.6 Audit Rights .................................. 19
9.7 Underreporting ................................ 19
9.8 Rights of Recoupment and Setoff ............... 20
X. CUSTOMER INFORMATION; CONFIDENTIALITY .............. 19
10.1 Customer Information .......................... 20
10.2 Confidential Information ...................... 20
XI. RELATIONSHIP OF PARTIES ............................ 21
XII. DEFENSE AND INDEMNITY .............................. 21
12.1 Defense ....................................... 21
12.2 Indemnity ..................................... 22
XIII. INSURANCE .......................................... 22
13.1 Types of Insurance ............................ 22
13.2 No Cancellation Without Notice ................ 23
13.3 Certificates .................................. 23
13.4 Expiration/Non-Renewal ........................ 23
XIV. TERMINATION ........................................ 24
14.1 Mutual Right of Termination ................... 24
14.2 Termination of License by Sears With Notice ... 24
14.3 Termination of License by Sears Without
Further Notice ............................... 24
14.4 Termination on Store Closing .................. 25
14.5 Effect of Termination ......................... 25
14.6 Survivability ................................. 25
XV. ASSIGNMENT AND SUBLICENSING ........................ 25
15.1 Assignment by Licensee ........................ 25
15.2 Assignment by Sears ........................... 26
</TABLE>
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<TABLE>
TABLE OF CONTENTS (continued)
<S> <C>
15.3 Binding Nature ................................ 26
XVI. MISCELLANEOUS ...................................... 26
16.1 Cumulative Remedies ........................... 26
16.2 Severability .................................. 26
16.3 Governing Law ................................. 26
16.4 Arbitration ................................... 26
16.5 Entire Agreement .............................. 27
16.6 Headings ...................................... 27
16.7 Notices ....................................... 27
EXHIBIT A ....................................... 30
DESIGNATED SEARS STORES ....................... 30
EXHIBIT B ....................................... 31
AUTHORIZED MERCHANDISE AND/OR SERVICES ........ 31
EXHIBIT C ....................................... 32
SEARS COMMISSION .............................. 32
EXHIBIT D ....................................... 33
ALLOCATION OF COSTS ........................... 33
</TABLE>
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LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into
as of the 1st day of January, 1999, by SEARS ROEBUCK DE PUERTO
RICO, INC., a Delaware corporation ("Sears"), and CONSUMER
PROGRAMS INCORPORATED, a Missouri corporation ("Licensee").
Sears and Licensee hereby agree as follows:
I. GRANT OF LICENSE
1.1. License for On-Premises Operations.
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
offering the goods and services listed on Exhibit B ("Licensed
Business"), only at the Sears locations described in Exhibit A
or in Location Riders attached ("Designated Sears Store(s)").
1.2. Scope of License/Restrictions.
Licensee shall use the Licensed Business area only
for the purpose authorized in this Agreement, and shall offer
for sale only those services and merchandise expressly author-
ized by this Agreement as listed on Exhibit B attached hereto
and shall offer those services and merchandise only from the
Designated Sears Stores. Any changes, additions or deletions of
services or merchandise require the prior written approval of
Sears appropriate Licensing Manager ("Licensing Manager").
1.3. No Representations.
(a) 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 solely responsible for any expenses it incurs
related to this Agreement, including, but not limited to, any
increase in the number of Licensee's employees or any
expenditures for additional facilities or equipment.
(b) Licensee acknowledges that, by entering into
this Agreement, Licensee seeks to provide services for
customers of Sears and Licensee shall not be required to create
or develop an independent customer base. Licensee further
acknowledges that customers of Sears who use Licensee's
services likely seek such services because of the commercial
reputation of Sears, rather than the commercial reputation of
Licensee. Licensee represents and warrants that Licensee has
considered the acknowledgments made in this provision of the
Agreement in determining the commission rate set forth in this
Agreement.
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II. USE OF SEARS MARKS
2.1 License to Use Sears Marks.
Licensee shall operate the Licensed Business under
the name SEARS PORTRAIT STUDIO. Licensee shall use the name of
Sears only in connection with the operation of the Licensed
Business and only in a manner described herein or upon prior
written approval by Sears Licensing Manager. Licensee may use
the name Sears when communicating with customers or potential
customers of the Licensed Business, or to identify the location
of the Licensed Business and in other instances specifically
approved by Sears. Licensee shall not begin any business
activity under this Agreement without Sears prior written
approval of any and all names that Licensee intends to use in
conjunction with the Licensed Business.
2.2 Communications with Third Parties.
Except in the case of communication permitted by
Paragraph 2.1, or as otherwise specifically approved by Sears,
Licensee shall not use the name of Sears, or any Sears
trademarks, service marks or trade names (the "Mark(s)"),
either orally or in writing, including, but not limited to, use
of any letterhead, checks, business cards, or contracts. All
communications with persons or entities other than customers or
potential customers of the Licensed Business shall be done
solely in Licensee's own name.
2.3 No Challenge to Marks.
Licensee shall not question, contest or challenge,
either during or after the Term of this Agreement, Sears owner-
ship of the Marks, or Sears ownership in any mailing lists,
credit files or other factual information compiled by Sears
and made available for use by Licensee ("Sears Information").
Licensee shall claim no right, title or interest in any Mark or
Sears Information, except the right to use the same pursuant to
the terms and conditions of this Agreement, and shall not
register or attempt to register any Mark.
2.4 No Rights to Marks.
Licensee recognizes and acknowledges that the use
of any Mark or Sears Information shall not confer upon Licensee
any proprietary rights to any Mark or Sears Information. Upon
expiration or termination of this Agreement, Licensee shall
immediately stop using all Marks and Sears Information, and
shall execute all documents Sears requests in order to confirm
Sears ownership, or to transfer to Sears any rights Licensee
may have acquired from Sears in any Mark or Sears Information.
Nothing in this Agreement shall be construed to bar Sears,
during or after expiration or termination of this Agreement,
from protecting its right to the exclusive ownership of Sears
Information or Marks against infringement or appropriation by
any party or parties, including Licensee.
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2.5 Registration of Marks.
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, except for such trademarks, service
marks or trade names which are owned or licensed by Licensee
prior to execution of this Agreement, 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 "Marks". Licensee shall
cooperate in any such registration or application for
registration by Sears. No name or mark registered in the name
of Licensee or any of Licensee's affiliates and used in
conjunction with the Licensed Business shall be used for any
other purpose without the written consent of Sears.
2.6 Injunctive Relief.
Licensee acknowledges that the Marks and Sears
Information 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 in the event of
breach of this Section II by Licensee there would be no
adequate remedy at law and preliminary or permanent injunctive
relief would be appropriate.
2.7 Infringing Use.
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 in the
minds of the public to those sold by Licensee and which bear or
are promoted in association with the Marks or any names,
symbols, emblems, or designs or colors which would be
confusingly similar in the minds of the public to the Marks,
Licensee shall promptly notify Sears. Sears may, at its sole
expense, take such action as it determines, in its sole
discretion, is appropriate. Licensee shall cooperate and
assist in such pro- test 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.
2.8 Limitations.
Licensee shall not file suit using Sears name.
Licensee shall not use the services of a collection agency or
undertake any legal proceeding against any customer without the
prior written approval of Sears Licensing Manager.
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2.9 Survival.
The provisions of this Section II shall survive the
expiration or termination of this Agreement.
III. TERM
The term of this Agreement ("Term") shall be for a
five (5) year period beginning on January 1, 1999, and ending
at the close of business on December 31, 2003, unless sooner
terminated under any of the provisions of this Agreement.
IV. FEES
4.1 Amount.
Licensee shall pay Sears a commission ("Sears
Commission") which is set forth on Exhibit C attached hereto.
4.2 Net Sales.
"Net Sales" means Gross Sales from operation of the
Licensed Business, less sales taxes, returns and allowances.
4.3 Gross Sales.
"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.
V. OPERATIONAL OBLIGATIONS OF LICENSEE
5.1 Performance Standards.
Licensee shall provide Sears with copies of its
written procedures and policies establishing minimum standards
of quality, performance and customer service. Licensee shall
immediately advise Sears of any changes in its standards.
Without limiting Paragraph 5.8, Licensee shall observe no less
than such minimum standards of quality, performance and
customer service. Sears may visit the Licensed Business area
at any reasonable time during business hours for the purpose of
verifying Licensee's compliance with its standards of quality,
performance and customer service.
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Licensee shall conduct its operations in a courteous and
efficient manner and shall present a neat, business like
appearance, including adherence by Licensees' employees to a
reasonable dress code. Licensee shall abide by all safety and
security rules and regulations of Sears in effect from time to
time.
5.2 Business Conduct.
Licensee shall also conduct its operations in an
honest and ethical manner at all times. In dealing with Sears
associates and Sears customers, Licensee shall adhere to the
highest ethical standards, including those standards described
in the "A Guide To Business Conduct For Sears Licensed Business
Associates" as provided to Licensee and updated from time to
time.
5.3 Hours of Operation.
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, unless otherwise
agreed to by Sears Licensing Manager and Licensee.
5.4 Merchandise Standards.
Licensee shall maintain a stock of good quality
merchandise as necessary to assure efficient operation of the
Licensed Business. Licensee shall maintain merchandise
presentation standards consistent with Sears own standards.
5.5 Pricing.
Except as noted, Sears shall have 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, however, Licensee also
shall participate in Sears national storewide sales and/or
merchandise price off events. Licensee shall not charge
customers for estimates or proposals.
5.6 Discount Policy.
Sales made under this Agreement shall be offered
for sale by Licensee to the employees of Sears (to include
other eligible family members) at the same discount which
Sears allows its own employees on purchases of similar
merchandise as fully described in Sears Courtesy Discount
Guide. Licensee's employees who are exclusively employed to
service the Licensed Business shall be entitled to receive the
same discount on purchases made from Sears; provided, however,
that the employees, but not their family members, are entitled
to receive the discount. Misuse of the Sears discount policy
by any employee of Licensee could result in Sears request that
Licensee remove an employee from the Licensed Business pursuant
to Paragraph 5.10 of this Agreement.
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5.7 Bonus Club.
Licensee shall accept Sears Card Bonus Club Bonus
Certificates. Sears shall reimburse Licensee for such bonus
certificates provided Licensee has followed prescribed
procedures.
5.8 Customer Adjustment.
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.
Sears may deduct the amounts of any such adjustments from the
sales receipts held by Sears as described in Paragraph 9.4.
Licensee shall maintain files pertaining to customer complaints
and their adjustment and make such files available to Sears.
5.9 Employee Standards.
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.
5.10 Licensee's Employees.
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 Sears may
request at any time that Licensee remove from the Licensed
Business any employee who is objectionable to Sears because of
risk of harm or loss 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 determines not to remove
such employee, Sears may terminate any affected location by
giving thirty (30) days notice to Licensee.
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5.11 Employee Compensation.
Licensee shall pay in a timely manner and is solely
responsible for so paying, for all salaries and other
compensation of its employees and shall make all necessary
salary deductions and withholdings from its employees' salaries
and other compensation. Licensee shall pay in a timely manner,
and 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 withholding of income
tax laws on all salary and other compensation of its employees.
5.12 Compliance with Labor Laws.
Licensee shall comply with any other contract and
all Federal, state and local laws, ordinances, rules and
regulations regarding its employees, including, but not limited
to, Federal or state laws or regulations regarding minimum
compensation, overtime and equal opportunities for employment.
Without limiting the foregoing, Licensee shall comply with the
terms of the Federal Civil Rights Acts, Age Discrimination in
Employment Act, Occupational Safety and Health Act, the Federal
Fair Labor Standards Act, and the Americans with Disabilities
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.
5.13 Compliance with Law.
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, but not limited to, all rules and
regulations of the Federal Trade Commission. In addition,
Licensee represents and warrants that Licensee and all
subcontractors and agents involved in the production or
delivery of the merchandise to be sold in connection with the
Licensed Business shall strictly adhere to all applicable laws,
regulations, and prohibitions of the United States and all
country(ies) in which such merchandise is produced or delivered
with respect to the operation of their production facilities
and their other businesses and labor practices, including
without limitation, laws, regulations and prohibitions
governing the working conditions, wages and minimum age of
the work force. Licensee further represents and warrants that
such merchandise shall not be produced or manufactured, in
whole or in part, by convict or forced labor.
5.14 Year 2000 Compliance.
Licensee represents and warrants that its point of
sale system utilizes and includes four digit year elements
(e.g. 1999, 2000, etc.) and that the use, entry or creation of
dates before, on or after January 1, 2000 will neither cause
failure nor produce incorrect results in the transmission of
data to Sears settlement system, nor cause interruption to or
disruption of the Licensed Business.
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5.15 Payment of Obligations.
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.
Licensee shall promptly pay all its obligations, including
those for labor and material, and shall not allow any liens to
attach to any Sears or customer's property as a result of
Licensee's failure to pay such sums.
5.16 Licensee's Obligations.
Licensee shall 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 in not responsible for any
obligations incurred by Licensee.
5.17 Liens.
Licensee shall not allow any liens, claims or
encumbrances to attach against any of the Designated Sears
Stores. In the event any lien, claim or encumbrance so
attaches or is threatened, Licensee shall immediately take all
necessary action to cause such lien, claim or encumbrance to be
satisfied and released, or Sears, may either terminate this
Agreement or charge Licensee or withhold from sales receipts
all expenses, including attorneys' fees, incurred by Sears in
removing and/or resolving such liens or claims.
VI. LICENSED BUSINESS AREA
6.1 Block Plan.
The defined area of space provided by Sears for the
operation of the Licensed Business ("Block Plan") will be
submitted for each Designated Sears Store to Licensee.
Licensee shall be solely responsible for providing final plans
for the Licensed Business area and Licensee shall authorize
Sears to prepare the final blueprint plans in accordance with
Exhibit D. All costs and expenses related to such plans,
including, but not limited to, blueprints, shall be borne by
Licensee. The expense of preparing the initial space assigned
to any Licensed Business location shall be allocated between
parties as described in Exhibit D attached hereto and hereafter
made a part of this Agreement. 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. All improvements or installations which vary from
Sears standard specifications shall be at Licensee's sole
expense.
6.2 Improvements.
All permanent improvements to the Licensed Business
area shall become the property of Sears at the expiration or
termination of this Agreement. At the expiration or
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termination of this Agreement, or if Licensee vacates or
abandons the Licensed Business, Licensee shall convey to Sears,
without charge, good title to such improvements free from any
and all liens, charges, encumbrances and rights of third
parties.
6.3 Operations.
If the Licensed Business is not fully operational
within thirty (30) days after Sears has made the Licensed
Business area ready for Licensee as a result of delay by
Licensee, Sears may, at Sears sole option, terminate this
Agreement and have no further obligation to Licensee, and
Licensee shall reimburse Sears within ten (10) days after
receipt of an invoice, for Sears cost, of constructing the
Licensed Business area and of putting such space back to its
condition immediately prior to the commencement of such
construction.
6.4 Condition of Licensed Business Area.
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.
6.5 Changes of Location/Store Inventory.
Sears shall have the right, in its sole discretion,
to change the location, dimensions 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 Store(s). In the event Sears decides
to change the location of the Licensed Business, Sears shall
move Licensee's Equipment to the new location and prepare the
new space for occupancy by Licensee and the expense shall
be allocated between the parties as described on Exhibit D. If
a change in location is requested or initiated by Licensee,
then Licensee shall bear all expense involved in moving
Licensee's Equipment and the expense for preparing the new
space for occupancy by Licensee shall be allocated between the
parties as described on Exhibit D. 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.
6.6 Remodeling.
Licensee shall remodel the Licensed Business area
per the terms of Exhibit D and the expense of such remodel
shall be divided between the parties as described on Exhibit
D.
6.7 Electric/HVAC.
Sears shall furnish, at reasonable hours, and
except as otherwise provided, without expense to Licensee,
reasonable amounts of heat, light, air conditioning 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
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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, air
conditioning and electric power, regardless of the cause of
such failure. All claims for such injury or damage are
expressly waived by Licensee. The allocations of costs to bring
such utilities to the Licensed Business location are described
on Exhibit D.
6.8 Telephone.
Sears will arrange for local telephone service by
providing a single Direct Inward Dial Telephone line ("Sears
Phone Line") for the Licensed Business location(s). In
stores that have not been remodeled, Sears will provide a Sears
Phone to the cash register area for the Licensed Business
location(s). In new and remodeled stores as described in
Exhibit D, Sears shall provide a single Sears Phone to the cash
register area and one extension phone line ("Sears Extension
Line") in each camera room.
Sears shall bear the cost of outbound local and toll-free calls
and provide compatible telephone hardware for the Sears Phone
Line and the Sears Extension Lines. If Licensee requires
additional phone lines ("Additional Phone(s)") to be installed
in the Licensed Business location(s), Licensee shall arrange
with the appropriate telephone company for such installation
and all installation costs and monthly service associated with
any such Additional Phone(s) are to be paid by Licensee.
Licensee shall arrange with the appropriate telephone
company for direct billing to Licensee of all long distance
calls made in the Licensed Business location(s).
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.
6.9 Yellow/White Page Listings.
All white and yellow page telephone listings for
the Licensed Business shall be approved by Sears prior to
placement; provided, however, approval is not required for
listings consisting only of Licensee's name and address as
authorized in Paragraph 2.1. Sears may, at its sole option,
require that any telephone number listed in any telephone
directory using Sears name is billed through a Sears store or
office.
6.10 Access to Licensed Business Area.
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 General 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.
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6.11 Effect of Store Leases.
If any Designated Sears Store is leased to Sears or
is the subject of an easement agreement, this Agreement shall
be subject to all of the terms, agreements and conditions
contained in such lease or easement agreement. In case 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.
6.12 Waiver of Casualty Liability.
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, 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; except
for damage caused by Sears gross negligence.
VII. ADVERTISING
7.1 Advertising.
Licensee shall advertise and actively promote the
Licensed Business. Licensee shall at all times adhere to Sears
Licensed Business Marketing Manual as provided to Licensee and
updated from time to time ("Marketing Manual"). Prior to use
in connection with the Licensed Business, Licensee shall submit
to Sears Marketing Manager, Licensed Businesses, or his
designee, (a) all signs and advertising copy (including, but
not limited to, sales brochures, telemarketing scripts,
newspaper advertisements, radio and television commercials),
and (b) all sales promotional plans and devices. Licensee
shall not use any such advertising material or sales
promotional plan or device without the prior written approval
of Sears Marketing Manager. Sears has the right, in its sole
discretion, to disapprove or require modification of any or all
such advertising forms and other materials. Licensee shall not
engage in any Internet advertising without the prior written
consent of Sears Marketing Manager. Sears shall have the right
to audit Licensee's advertising materials and practices to
determine Licensee's compliance with this Agreement, including
but not limited to compliance with all laws.
7.2 Publicity.
Licensee shall not issue any publicity or press
release regarding its contractual relations with Sears or
regarding the Licensed Business, and shall refrain from making
any reference to this Agreement or to Sears in any prospectus,
annual report or other filing required
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by Federal or state law, or in the solicitation of business,
without obtaining Sears prior written approval of such action
from Sears Licensing Manager and Sears Public Relations
Manager. Licensee shall at all times adhere to Sears written
policies regarding interaction with the media as contained in
the Marketing Manual.
7.3 Forms.
Prior to use in connection with the Licensed
Business, Licensee shall submit all customer contract forms,
guarantee certificates and other forms and materials to Sears
Licensing Manager for approval Licensee shall not utilize any
forms or related materials that have not been approved in
advance by Sears Licensing Manager.
VIII. LICENSED BUSINESS EQUIPMENT
8.1 Licensee's Equipment.
Entirely at its own expense, Licensee shall install
furniture, fixtures and equipment 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.
8.2 Licensee's Point of Sale System
At its own expense, Licensee shall furnish a point
of sale system and peripheral devices, including, but not
limited to printers, bar-code scanning devices, and electronic
signature capture devices ("Licensee's POS"). Licensee's POS
shall have the capability of processing Sears Card and any
other credit cards Sears may accept from time to time.
At such time as Licensee's POS interfaces with the Sears
in-store processor ("Sears ISP"), Licensee's POS shall be
compatible with the Sears ISP, and Licensee's POS shall have
substantially the same capabilities as the point of sale system
used by Sears in its own merchandise departments to the extent
applicable to the operation of the Licensed Business. This
transition will occur no later than June 30, 2000. Licensee
shall also be responsible for upgrading Licensee's POS to be
compatible with enhancements and changes in functionality
made to the Sears ISP. Sears shall be responsible for the cost
of installing and maintaining a Sears data line to the Licensed
Business location. Subject to Licensee's fulfillment of its
obligations under this paragraph, Sears shall also be
responsible for the cost of developing and maintaining the
third party interface software that is necessary to support the
integration of Licensee's POS with the Sears ISP.
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8.3 Sears Card.
At such time when Licensee's POS interfaces with
the Sears ISP as described in Paragraph 8.2, Licensee agrees to
accept and process Sears Card payments from customers at
Licensee's POS, and upon written approval from Sears Licensing
Manager, Licensee will be authorized to open Sears Card instant
credit accounts ("Rapid Credit") for customers.
IX. TRANSACTIONS AND SETTLEMENT
9.1 Checks.
All checks or money orders which Licensee accepts
from customers shall be made payable to Sears, Sears, Roebuck
and Co. or Sears Portrait Studio. Licensee shall make certain
that all checks are filled out correctly and are verified in
accordance with Sears policies in effect from time to time.
Checks which are deficient in any manner 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.
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 sus-
tained 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 shall make
whatever effort it deems reasonable to collect all such checks
prior to charging back such checks to Licensee.
9.2 Credit Sales.
With the approval of the Credit Central designated
by Sears, sales may be made by Licensee on such of Sears
regularly established credit plans 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 connec-
tion 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. Licensee agrees to accept third party credit
cards as designated by Sears from time to time. Licensee may
not distribute or solicit any customer applications for any
third party credit cards in the Licensed Business.
At such time when Licensee's POS interfaces with the Sears ISP
as described in Paragraph 8.2, Sears shall pay Licensee's third
party merchant discount fees for using third party credit
cards, as long as Licensee's balance of sale for third party
credit does not exceed the Sears full-line stores
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balance of sale for third party credit for that Sears fiscal
year. If Licensee's balance of sale for third party credit
exceeds the Sears full-line stores balance of sale for third
party credit for that Sears fiscal year, Licensee will
reimburse Sears one and one half percent (1.5%) of all third
party credit sales over the Sears full-line stores average
balance of sale for third party credit. Sears shall have the
right to withhold such third party credit fees owed to Sears,
from the next regular settlement after the close of that fiscal
year.
Licensee shall 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.
9.3 Sales Receipts.
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 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.
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 the regular settlement set
forth in Paragraph 9.4.
9.4 Settlement.
A settlement between the parties shall be made at
the end of each Sears fiscal month for all 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. Such advances shall be deducted and reconciled in the
next regular settlement. All settlements and advances shall be
made by electronic funds transfer (EFT) to a bank account
designated by Licensee. For all transactions entered into the
Sears system for settlement purposes, and until such time when
Licensee's POS interfaces with the Sears ISP as described
in Section 8.2, Sears will pay transaction fees for any
processing service with whom Sears has an agreement to provide
access for the point of sale settlement system to the
appropriate Sears credit system.
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.
9.5 Reports.
If requested by Sears, Licensee shall provide to
Sears reports of sales and income and Sears commissions paid in
the manner and form prescribed by Sears, together with any
other information Sears may require for its records or auditing
purposes. If requested by Sears,
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Licensee shall promptly submit its financial report to Sears
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 for such fiscal year and balance sheet at the
end of such fiscal year, and shall be prepared in accordance
with generally accepted accounting principles. If Licensee is
a publicly held corporation, this requirement may be
fulfilled by submission of Licensee's Annual Report on Form
10-K. Sears shall not disclose any such information that is
not available to the public to any third parties without
Licensee's prior consent.
9.6 Audit Rights.
Licensee shall keep and maintain books and records
that accurately reflect the sales made by Licensee under this
Agreement and the expenses that Licensee incurs in performing
under this Agreement. Sears shall have the right at any
reasonable time to review and audit the books and records of
Licensee regarding this Agreement. Such books and records
shall be kept and maintained according to generally accepted
accounting principles.
9.7 Underreporting.
If an audit reveals that sales were under-reported
at any Licensed Business location being audited, by more than
five percent (5%) of the total sales which were actually
reported by such location, then the cost of such audit shall be
charged to such Licensed Business location. If a sampling of
Licensee's records at a Licensed Business location, using
standard audit practices, reveals that sales have been
under-reported by more than five percent (5%) of the total
sales which were actually reported by such Licensed Business
location, then such Licensed Business location shall at its
option, (a) pay Sears for all under-reported sales for each
year audited by annualizing the rate by which sales were under-
reported in the audit sample plus an administrative fee which
shall be calculated by multiplying the annualized under-
reported commissions by the percent of under-reported sales; or
(b) pay the actual amount of any under-reported sales based on
a complete audit of the books and records (at Licensee's
expense) relating to such Licensed Business location, including
a comprehensive audit of all such books and records for the
then-current year and if Sears so elects, a comprehensive audit
(at Licensee's expense) of prior years plus an administrative
fee which shall be calculated by multiplying the audited annual
under-reported commission by the percent of under-reported
sales. Each audited location shall be subject to another audit
(at Licensee's expense) one (1) year after the initial audit.
If this audit reveals that sales were again under-reported by
more than five percent (5%), Licensee shall pay Sears for these
sales as per the above except that, due to the increased
expenses incurred by Sears in continued monitoring of the
Licensed Business, the administrative fee shall be doubled.
All under-reported sales equal to or less than five percent
(5%) of total sales actually reported by such Licensed Business
location, shall be reimbursed to Sears, as appropriate, based
on the actual amounts of such under-reports.
Sears, at its sole option, may also charge interest on all
under-reported sales at the rate of prime (as published in the
Wall Street Journal as of the date of the completion of the
audit) plus one
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percent (1%). Licensee, at its expense, shall develop and
implement a program to conduct internal audits of the Licensed
Business to verify accuracy of sales and commissions.
9.8 Rights of Recoupment and Setoff.
Sears shall have the right to reduce, withhold or
set-off against any payment due Licensee hereunder any
liability or obligation which Licensee may have to Sears. Any
Licensee liabilities or obligations which remain outstanding
after any exercise of Sears right of set-off shall be paid by
Licensee promptly upon demand by Sears. Sears rights under
this Paragraph are cumulative, shall be in addition to all
other rights, remedies available at law or in equity, and shall
survive the expiration or termination of this Agreement.
X. CUSTOMER INFORMATION; CONFIDENTIALITY
10.1 Customer Information.
The Sears Information and 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 (collectively, the "Customer
Information"), are deemed exclusively owned by Sears. Licensee
shall not use, permit use, disclose or permit disclosure
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 written request by
Sears during the Term and on expiration or 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. Licensee
acknowledges that there is no adequate remedy at law for
violation by Licensee of this Section X and, in case of breach
of this Section X, preliminary or permanent injunctive relief
would be appropriate.
10.2 Confidential Information.
Information furnished by Sears to Licensee or which
becomes known to Licensee through Licensee's operation of the
Licensed Business or Licensee's relationship with Sears is
confidential and proprietary to Sears (collectively, the
"Confidential Information"). All such Confidential Information
shall be held in utmost confidence by Licensee. All
Confidential Information, including, but not limited to,
information regarding Sears stores, and any other
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information not specifically designated by Sears for release to
the public that may come into the possession of Licensee during
the Term of this Agreement shall be delivered to the
appropriate Licensing Manager at Sears upon request by Sears,
and Licensee shall not make or retain copies or portions of the
Confidential Information.
The terms and content of this Agreement, including but not
limited to, exhibits attached hereto, and any other agreements
entered into pursuant to this Agreement shall at all times
remain confidential and shall not be revealed to any third
party by Licensee without the prior written consent of Sears
except to the extent (a) permitted by this Agreement, (b)
required by law or any court, or (c) made to a court or
mediator in connection with a dispute between the parties.
The provisions of this Section X shall survive the expiration
or termination of this Agreement.
XI. RELATIONSHIP OF PARTIES
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.
XII. DEFENSE AND INDEMNITY
12.1 Defense.
Licensee shall defend all allegations asserted in
any claim, action, lawsuit or proceeding (even though such
allegations may be false, fraudulent or groundless) against
Sears, its affiliates and subsidiaries, and/or Sears
subsidiaries or affiliates, directors, officers, employees,
agents, independent contractors, parents, subsidiaries and
affiliates which contains any allegations of liability 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 the Licensed Business, lack of repair in
or about the area occupied by the Licensed Business, operations
of or defect 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 directors, officers, employees,
agents or independent contractors, whether or not such act is
within the scope of the authority or employment of such
persons. Licensee shall use counsel satisfactory to Sears in
defense of such allegations. Sears may, at its election, take
control of the defense and investigation of any claims, may
employ and engage attorneys of its own choice to manage and
defend such claims, at Licensee's cost, risk and expense,
provided that Sears and its counsel shall proceed with
diligence and good faith with respect thereto. The provisions
of this Paragraph shall survive the expiration or termination
of this Agreement.
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12.2 Indemnity.
Licensee shall hold harmless and indemnify Sears
and Sears directors, officers, employees, agents, independent
contractors, parents, subsidiaries and affiliates from and
against any and all claims, demands, actions, lawsuits,
proceedings, liabilities, losses, costs and expenses
(including, without limitation, fees and disbursements of
counsel incurred by Sears in any claim, demand, lawsuit, or
proceeding between Licensee and Sears or between Sears and any
third party or otherwise), 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 the
Licensed Business, 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 directors, officers, employees, agents or
independent contractors, whether or not such act is within the
scope of the authority or employment of such persons. The
provisions of this Paragraph shall not apply to the extent any
injury or damage is caused solely by Sears negligence. The
provisions of this Paragraph shall survive the expiration or
termination of the Agreement.
XIII. INSURANCE
13.1 Types of Insurance.
Licensee shall, at its sole expense, obtain and
maintain during the Term of this Agreement the following
policies of insurance from companies having a rating of at
least A-VII or better in the current Best's Insurance Reports
published by A.M. Best Company 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:
(a) Worker's Compensation insurance covering all
costs, benefits and liabilities under Workers Compensation and
similar laws which may accrue in favor of any person employed
by Licensee for all states in which Licensee operates, and
Employer's Liability insurance with limits of liability of at
least $100,000 per accident or disease and $500,000 aggregate
by disease. Such insurance shall contain a waiver of
subrogation in favor of Sears. Limits of liability
requirements for Employer's Liability may be satisfied by a
combination of Employer's Liability and Umbrella Excess
Liability policies.
(b) Commercial General Liability insurance,
including but not limited to, premises/operations liability,
contractual liability, personal and advertising injury
liability, and products and completed operations liability,
with limits of at least $1,000,000 for bodily injury and
property damage combined. Sears shall be named as an
additional insured. Limits of liability requirements may be
satisfied by a combination of Commercial General Liability
and Umbrella Excess Liability policies.
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(c) Motor Vehicle Liability insurance, for owned,
non-owned and hired motor vehicles used in connection with the
Licensed Business, with limits of at least $1,000,000 for
bodily injury and property damage combined. If only private
passenger vehicles are owned or shall be used in conjunction
with this Agreement, $500,000 combined single limit of
liability is acceptable. If no vehicles are owned or leased by
Licensee, the Commercial General Liability insurance shall be
extended to provide insurance for non-owned and hired motor
vehicles. Limits of liability requirements may be satisfied by
a combination of Motor Vehicle Liability and Umbrella Excess
Liability policies.
(d) "All Risk" Property insurance upon all building
improvements and supplies on the premises, including those
perils generally covered on a "Cause of Loss - Special Form",
including fire, extended coverage, windstorm, vandalism,
malicious mischief, sprinkler leakage, water damage, accidental
collapse, in an amount equal to at least 90% of the full
replacement cost, with a coverage extension for increased cost
of construction, including a waiver of subrogation in favor of
Sears.
(e) Fidelity insurance with limits of liability of
at least $50,000.
13.2 No Cancellation Without Notice.
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 written
notice to Sears Certificate Management Services, c/o Near North
Technology Services, P.O. Box 811310, Chicago, Illinois
60681-1310, or other address of which Licensee is notified.
13.3 Certificates.
Licensee shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to
execution of this Agreement and upon each policy renewal during
the Term of this Agreement. If Licensee does not provide Sears
with such certificates of insurance or, in Sears opinion, such
policies do not afford adequate protection for Sears, Sears
shall so advise Licensee, and if Licensee does not furnish
evidence of acceptable coverage within five (5) days, Sears
shall have the right to immediately terminate this Agreement
upon written notice to Licensee.
13.4 Expiration/Non-Renewal.
If Licensee's policies of insurance expire or are
canceled during the Term of this Agreement or are materially
modified, Licensee shall promptly notify Sears of such
expiration, cancellation or material modification. If such
policies of insurance are materially modified such that, in
Sears opinion, such policies do not afford adequate protection
to Sears, Sears shall so advise Licensee. If Licensee does not
furnish evidence of acceptable replacement coverage within five
(5) days after the expiration or cancellation of coverage or
the notification from Sears that modified policies are not
sufficient, Sears shall have the right, at its option, to
immediately terminate this Agreement upon written notice to
Licensee.
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Any approval by Sears of any of Licensee's insurance policies
shall not relieve Licensee of any responsibility under this
Agreement, including liability for claims in excess of
described limits.
XIV. TERMINATION
14.1 Mutual Right of Termination.
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 written notice. The notice shall specify the termination
date.
14.2 Termination of License by Sears With Notice.
This Agreement shall terminate effective upon
delivery of notice of termination to Licensee if Licensee, or
its owner(s): (a) abandons or fails to actively operate the
License Business or fails to commence operation of his Licensed
Business as required in Paragraph 6.3 of this Agreement; (b)
surrenders or transfers control of the Licensed Business
without Sears prior written consent; (c) has made any material
misrepresentation or omission in his application; (d) is
convicted of or pleads no contest to a felony, or engages in
any conduct that is likely to adversely affect the reputation
of Licensee, the Licensed Business or Sears; (e) makes an
unauthorized transfer of the Licensed Business; (f) makes any
unauthorized use, duplication or disclosure of the Confidential
Information or Customer Information; (g) fails to secure and
maintain appropriate insurance coverage as set forth in Section
XIII; (h) a petition is filed either by or against Licensee in
any bankruptcy or insolvency proceeding, or if any property of
Licensee passes into the hands of any receiver, assignee,
officer of the law or creditor; or (i) materially misuses or
makes an unauthorized use of any Sears Mark.
14.3 Termination of License by Sears Without Further
Notice.
This Agreement shall terminate without further
action by Sears or notice to Licensee if Licensee or its
owners(s):
(a) fails to make payment of any Sears Commissions
or any other amounts due Sears, and does not correct such
failure within ten (10) days after written notice of such
failure is delivered to Licensee; or
(b) fails to comply with any other provision of
this Agreement or any mandatory specification, standard or
operating procedures as prescribed by Sears and does not
correct such failure within thirty (30) days after written
notice of such failure to comply is delivered to Licensee.
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14.4 Termination on Store Closing.
Sears may, solely at Sears discretion, terminate
this Agreement with respect to 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.
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, without penalty and without
liability for any damages as a result of such termination,
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.
14.5 Effect of Termination.
Upon the termination of this Agreement by
expiration of time or otherwise, Licensee shall, immediately
pay all amounts owed to Sears, cease use of all Sears Marks,
the Confidential Information and Customer Information and, at
its expense, immediately remove all of Licensee's Equipment
from Sears premises and shall, without delay and, at Licensee's
expense, repair any damage to Sears premises caused by such
removal. Upon the termination of this Agreement by expiration
of time or otherwise, the expense to return the Licensed
Business area to the condition Sears made it ready for use by
the Licensee shall be allocated per the terms of Exhibit D.
14.6 Survivability.
No termination of this Agreement, by expiration of
time or otherwise, shall relieve the parties of obligations
arising before expiration or termination or arising upon or
after expiration or termination of this Agreement.
XV. ASSIGNMENT AND SUBLICENSING
15.1 Assignment by Licensee.
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 and
Licensee shall not sub-license the license granted herein to
any person or entity. 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 deemed such a
prohibited transfer.
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15.2 Assignment by Sears.
This Agreement is fully transferable by Sears and
shall inure to the benefit of any transferee or other legal
successor to Sears interest herein.
15.3 Binding Nature.
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.
XVI. MISCELLANEOUS
16.1 Cumulative Remedies.
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.
16.2 Severability.
If any provision in this Agreement is held to be
invalid, illegal or unenforceable by a court of competent
jurisdiction, 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.
16.3 Governing Law.
This Agreement shall be interpreted and governed by
the internal substantive laws of the State of Illinois, without
regard to its conflict of law principles. This Agreement shall
not be effective until it has been received and executed by
Sears in Hoffman Estates, Illinois.
16.4 Arbitration.
The parties agree to attempt to resolve any
disputes which arise under this Agreement. In any case where a
dispute cannot be resolved between the parties, the parties
agree to submit the dispute for binding arbitration in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"); provided, however
that this section shall not limit Sears right to obtain any
provisional remedy, including, without limitation, injunctive
or other equitable relief, from any court of competent
jurisdiction, as may be
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necessary to protect Sears Marks, or other property rights.
Such arbitration shall be conducted by a single arbitrator in
the English language in San Juan, Puerto Rico, and the arbitra-
tor shall apply the substantive law as provided for in Section
16.3 of this Agreement. The parties shall agree upon an arbi-
trator; provided, however, that if an arbitrator cannot be
agreed upon within thirty (30) days, the arbitrator shall be
appointed as provided in the AAA Commercial Arbitration Rules.
The parties may offer such evidence as is relevant and material
to the dispute and shall produce such evidence as the arbitra-
tor may deem necessary to an understanding and determination of
the dispute. Judgment upon the arbitration award may be entered
in any federal or state court having jurisdiction thereof.
16.5 Entire Agreement.
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 duly
authorized representatives of Licensee and Sears, and no person
has or shall have the authority to supplement, modify or amend
this Agreement in any other manner. This Agreement shall be
effective when signed by Sears.
16.6 Headings.
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.
16.7 Notices.
All notices provided for or which may be given in
connection with this Agreement shall be in writing and given by
personal delivery, certified mail with postage prepaid and
return receipt requested or its equivalent, such as private
express courier, or by facsimile transmission (with a
confirmation copy sent by regular mail). Notices given by
Licensee to Sears shall be addressed to:
SEARS ROEBUCK DE PUERTO RICO, INC.
Attention: President
P.O. Box 3670302
San Juan, Puerto Rico 00936-7302
with a copy to:
SEARS, ROEBUCK AND CO.
Attention: Vice President and General Manager,
Licensed Businesses
Department 725 E3-359B
3333 Beverly Road
Hoffman Estates, Illinois 60179
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Notices given by Sears to Licensee shall be addressed to:
CONSUMER PROGRAMS INCORPORATED
Attention: Senior Vice President of Administration
1706 Washington Avenue
St. Louis, Missouri 63103
Notices if so sent by mail shall be deemed to have been given
when deposited in the mail or
with the private courier. All changes of address must be
communicated to the other party in
writing.
- -[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]-
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IN WITNESS WHEREOF, the parties have executed this Agreement or
caused this Agreement to be executed on their behalf by duly
authorized officers or representatives.
SEARS, ROEBUCK DE PUERTO RICO, INC.
By: /s/ David F. Lauflin
-------------------------------
David F. Lauflin
President
LICENSEE
By: /s/ Alyn V. Essman
-------------------------------
Alyn V. Essman
Its: Chairman and Chief
Executive Officer
<PAGE>
EXHIBIT A
DESIGNATED SEARS STORES
<TABLE>
SEARS PORTRAIT STUDIOS PUERTO RICO LOCATIONS
<CAPTION>
Sears # Studio # City
<S> <C> <C> <C>
1085 03R77 CAGUAS, PR
1905 03R71 HATOREY, PR
1915 03R73 BAYAMON, PR
1925 03R72 CAROLINA, PR
1935 03R76 MAYAGUEZ, PR
1945 03R75 PONCE, PR
2355 03R79 HATILLO, PR
</TABLE
30
<PAGE>
EXHIBIT B
AUTHORIZED MERCHANDISE AND/OR SERVICES
The following items, merchandise lines and/or services are
authorized for sale by Licensee in the Licensed Business:
1. Portrait photography service and photographs
2. Passport photography service and photographs
3. Portrait-related retail merchandise (e.g., frames,
mats, albums, greeting cards)
4. Portrait-related promotional merchandise for customer
give-aways
5. Digital images (e.g. Portrait Creations(TM), proof
sheets, portrait restoration)
6. Internet archiving services
31
<PAGE>
EXHIBIT C
SEARS COMMISSION
Licensee shall pay to Sears a commission ("Sears Commission")
which, for each Designated Sears Store, shall be a sum equal to
ten percent (10%) of total annualized net sales for each
Designated Sears Store at which total annualized net sales are
less than $50,000 and fifteen percent (15%) of total annualized
net sales for each Designated Sears Store at which total
annualized 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
Designated Sears Store with annual net sales of less than
$50,000.
32
<PAGE>
EXHIBIT D
ALLOCATION OF COSTS
TYPICAL COST ANALYSIS
The Licensed Business shall be built and constructed in
accordance with the plans and specifications prepared and will
include agreed upon standards for the cost of construction.
Items in accordance with the plans and specifications are
listed on a Typical Cost Analysis (TCA) attached as part of
Exhibit D. The TCA is based on the current ANNUAL EDITION OF
MEANS REPAIR & REMODELING COST DATA. Sears and Licensee agree
that this Exhibit D will be updated bi-annually and mutually
agreed upon to reflect subsequent ANNUAL EDITIONS OF MEANS
REPAIR & REMODELING COST DATA and to reflect modification of
typical designs and modifications. The TCA cost will be
represented as a dollar-cost per square foot ratio.
FINANCIAL RESPONSIBILITIES
The financial responsibilities and standard costs are described
in the TCA. Items that are classified as "Sears Costs" (S) on
the TCA, shall be Sears responsibility and items that are
classified as "Licensee Costs" (L/B) shall be Licensee's
responsibility. A cost estimate, known as the Estimated/Actual
Buildout (EAB) may be required to determine the viability or
scope of a project.
Sears will remit payment for the total cost of all projects
directly to contractors or workmen performing such work and
will invoice Licensee for its share of the expense, at the end
of Sears fiscal year. Sears shall make a settlement adjustment
thirty (30) days after notifying Licensee of the project close
out for the year 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 December 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 the end
of the month settlement adjustment following the above
mentioned sixty (60) days.
MATERIAL CHARGE BACKS. When, due to shortages or delays,
Licensee provides standard construction materials that are
Sears financial responsibility, Licensee will remit payment
directly to the supplier(s) and will invoice Sears for the
expense. The amount of any such invoice submitted by Licensee
to Sears shall be deducted from the amount payable by
Licensee at the time of Project year close out (Sears Billing).
PUNCH LIST CHARGE BACKS. Provided the conditions set forth
below are met, License shall select and employ the services of
a general contractor to complete any remaining punch list
items:
(1) Sears General Contractor is no longer on the job site;
33
<PAGE>
(2) Licensee has issued written punch list to Sears;
(3) A period of at least 30 days has elapsed for Sears to
complete punch list items;
(4) Licensee has provided the cost estimates to Sears
prior to scheduling any work and such cost estimates have been
approved by the Quality/Evaluation Manager, Licensed
Businesses; and
(5) the General Contractor retained by Licensee shall be
bondable and shall meet all applicable licensing, permitting,
insurance and approval requirements established by Sears
and/or the governmental bodies of the jurisdiction in which the
project is located.
Licensee shall remit payment directly to any general contractor
retained by Licensee to complete punch list items and shall
invoice Sears for the aggregate amounts paid to the general
contractor.
The amount of any such invoices submitted to Sears shall be
deducted from the total Licensee cost at the project close out
(i.e. Sears billing).
CHANGE ORDER REQUEST PROCEDURES.
Change Orders prior to Licensee installation:
- Licensee shall submit a written request for a written
quotation from Sears for the costs of implementing a
proposed change order.
- Within a reasonable time after receipt of Licensee's
request, Sears Project Manager shall return a written
quotation for change order to Licensee.
- Licensee shall approve and return change order amount
to Sears for approval.
- Sears shall submit approval to Sears Project Manager
and Licensee within a reasonable time.
- The cost of any change orders after the project is bid
by the contractor shall be borne by the party
requesting such change.
Change Orders during Licensee installation:
- Licensee shall submit written request for a written
quotation from Sears for the costs of implementing a
proposed change order.
- Within a reasonable time after receipt of Licensee's
request, Sears Project Manager shall submit change
order cost to Licensee for approval.
- Licensee shall approve and return change order amount
to Sears for approval.
- Sears shall submit approval to Sears Project Manager
and Licensee within a reasonable time.
- The cost of any change orders after the project is bid
by the contractor shall be borne by the party
requesting such change.
34
<PAGE>
GENERAL RESPONSIBILITIES
Licensee shall be responsible for all furniture, trade fixtures
(display units, cabinets, and counters), trade equipment
(cameras, lighting units, and computers), Licensee's POS and
peripheral devices (printers, bar-code scanning devices,
electronic signature capture devices) and any other items not
listed on the TCA.
Sears shall be responsible for all costs associated with
bringing electrical panel and service, air conditioning,
heating and ventilation ducts into the Licensed Business area.
The expense of purchasing and installing all electrical
fixtures and equipment (including, but not limited to
circuit boxes, dedicated outlets, lighting fixtures and all
necessary electrical connections within the area occupied by
the Licensed Business. All air conditioning work required by
Licensee shall be designed and installed by Sears. Licensee
shall provide mechanical drawing identifying the number and
location of supply/return air diffuser required. This work
shall include, without limitation, connections to supply/return
air lines, duct work, supply and return air diffusers, and any
circuitry/controls required for the operation of said air
conditioning system, and shall be allocated in accordance with
the TCA and further outlined in Exhibit D. Any responsibility
not provided for in the TCA or Exhibit D shall be negotiated in
good faith by Sears and Licensee.
Licensee shall be responsible for any additional leasehold
improvements, included, but not limited to electrical wiring,
lighting, air conditioning, heating or ventilation ducts which
Licensee feels are required to change or improve the utility
service to the Licensed Business area to a level that is
greater than the service provided to rest of the Designated
Sears Store.
NEW DEPARTMENT
Licensee's share of the cost will be determined by applying the
TCA to the Usable Space.
For purposes of this Agreement, "Usable Space" means net square
footage of the area dedicated for the operation of the Licensed
Business.
REMODEL PROJECTS
Sears Update Projects - Update Projects initiated by Sears
Construction (D/824), budget a fixed cost per square foot for
store remodeling. Sears shall bear all costs of carpeting
and repainting (including removal of existing wallcovering) for
each Update Project. Sears will do nothing beyond the scope of
the Update Project unless requested by Licensee. If Licensee
requests, and Sears agrees, that additional work should be done
within the Licensed Business area, Sears and Licensee agree to
share equally the construction costs related to the Update
Project. If Sears requests additional work within the Licensed
Business area, the costs shall be allocated as follows:
(a) If there is a decrease in Usable Space for the
Licensed Business area of 10% or more, the TCA cost
factor shall be applied to the reduced Usable Space,
and Sears shall pay Licensee the sum of Fifteen
Hundred Dollars ($1500); or
35
<PAGE>
(b) If there is no change, a decrease of less than 10%, or
an increase in Usable Space, the construction costs
related to the Update Project shall be shared equally
by Sears and Licensee.
Sears Remodel/Local Projects - If Sears requests or
initiates a Change of Location of a Licensed Business location
that has previously been subject to a Change of Location during
the term of this Agreement, Sears shall bear all construction
costs related to such Change of Location and shall pay Licensee
the sum of Fifteen Hundred Dollars ($1500) for incidental
costs incurred in such a Change of Location. If a Change of
Location results in a(n):
Decrease in Space-- Sears shall bear all construction
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.
or
Increase in Space-- The Licensee's share of the TCA
will be applied to only the increase in space (new square
footage). The Licensee's share of the TCA will be charged to
Licensee if space has been requested and approved by Licensee.
Licensee Remodel/Local Projects - Projects requested by
Licensee and approved by Sears. The Licensee's share of the TCA
will be applied to the total Usable Space assigned to
Licensee.
All exceptions to the above will be agreed on prior to the
completion of final plans for construction. Any changes after
approval of final plans by both parties shall be the
responsibility of the party making the change.
ADDITIONAL CAMERA ROOMS
The construction cost of new camera rooms shall be shared
equally between Sears and Licensee, and the total TCA cost
shall be applied to a standard of 500 square feet.
MAINTENANCE OF FACILITIES
Sears shall be responsible for all costs associated with the
regular maintenance of the physical facility of the Designated
Sears Stores, including electrical service, air conditioning,
heating, ventilation, standard lighting (including standard
light bulbs), ceiling tiles, drywall repair, paint, and carpet.
The cost to replace any of the general construction items due
to age and/or normal wear shall be allocated in accordance with
the TCA. Licensee shall be responsible for all costs associated
with maintaining Licensee's Equipment and Licensee's POS in
good order and repair.
36
<PAGE>
</TABLE>
<TABLE>
TYPICAL COST ANALYSIS
NEW STORE
PORTRAIT STUDIO (2 CAMERA ROOM) June 1998
GROSS AREA - 1428 SF
<CAPTION>
UNIT
ITEM QUANTITY UNIT COST TOTAL
- ---------------------------- -------- ---- ------- -------
<S> <C> <C> <C> <C>
S 10'Partitions 220 LF 30.00 6,600
S Wall insulation - SF 0.40 -
S Doors 2 EA 700.00 1,400
S Cabinets, upper and lower - LF 175.00 -
S Vanity - EA 300.00 -
S Acoustical ceiling 1428 SF 1.50 2,142
S Ceiling insulation - SF 0.60 -
S Paint walls 3000 SF 0.50 1,500
S Paint doors 2 EA 100.00 200
LB Wallcovering 240 SF 1.60 384
LB Carpeting 182 SY 18.00 3,284
S Base 300 LF 1.20 360
LB Shock pad 24 SY 5.00 122
S Fire protection 1428 SF 1.50 2,142
S HVAC ductwork 1428 SF 5.00 7,140
LB 225 amp 120/208 PA 1 EA 1800.00 1,800
S Light fixtures 10 EA 150.00 1,500
LB Dedicated circuits 8 EA 200.00 1,600
LB Track lighting 70 LF 38.50 2,695
LB Wall washer - EA 150.00 -
LB Light bar 4 LF 50.00 200
LB Exit lights 1 EA 150.00 150
LB Light switch 8 EA 125.00 1,000
LB Duplex outlets 19 EA 108.00 2,052
LB Phone outlet 4 EA 365.00 1,460
LB Triple duplex recept 2 EA 150.00 300
LB Floor outlets 1 EA 300.00 300
LB Quad outlet 2 EA 130.00 260
LB Data 5 EA 50.00 250
S Cash register 1 EA 536.00 536
S Baffle 19 LF 20.00 380
LB Chair rail 101 LF 5.00 505
LB Architectural services 1428 LS 2.00 2,856
S/LB G.C.O.H. and fee 1 LS 6673.26 6,468
-------
$49,586
=======
New Store COST/SF 34.72
Remodel in warehouse space $/SF 38.97
Remodel in retail or office
space $/SF 39.47
Remodel in existing license
business (Low to High) $/SF 19.24
</TABLE>
37
<PAGE>
<TABLE>
TYPICAL COST ANALYSIS (continued)
NEW STORE
PORTRAIT STUDIO (2 CAMERA ROOM) June 1998
GROSS AREA - 1428 SF
<CAPTION>
ITEM SEARS L.B.
- ---------------------------- ------- ------------
<S> <C> <C> <C>
S 10' Partitions 6,600 -
S Wall insulation - -
S Doors 1,400 -
S Cabinets, upper and lower - -
S Vanity - -
S Acoustical ceiling 2,142 -
S Ceiling insulation - -
S Paint walls 1,500 -
S Paint doors 200 -
LB Wallcovering - 384
LB Carpeting - 3,284
S Base 360 -
LB Shock pad - 122
S Fire protection 2,142 -
S HVAC ductwork 7,140 -
LB 225 amp 120/208 PA - 1,800
S Light fixtures 1,500 -
LB Dedicated circuits - 1,600
LB Track lighting - 2,695
LB Wall washer - -
LB Light bar - 200
LB Exit lights - 150
LB Light switch - 1,000
LB Duplex outlets - 2,052
LB Phone outlet - 1,460
LB Triple duplex recept - 300
LB Floor outlets - 300
LB Quad outlet - 260
LB Data - 250
S Cash register 536 -
S Baffle 380 -
LB Chair rail - 505
LB Architectural services - 2,856
S/LB G.C.O.H. and fee 6,673 -
-------- -------
$30,573 $19,219 $49,792
======== =======
New Store 21.41 13.46
Remodel in warehouse space 23.41 15.71 39.12
Remodel in retail or office
space 23.91 15.71 39.62
Remodel in existing license
business (Low to High) 22.91 15.71 38.62
</TABLE>
38
EXHIBIT (10.31)
License Agreement - Sears Canada, Inc.
29
<PAGE>
THIS LICENSE AGREEMENT made in triplicate this 6th day of
April, 1977, between SIMPSONS-SEARS LIMITED, a Company
incorporated under the laws of Canada (hereinafter called
"Sears") and CHROMALLOY PHOTOGRAPHIC INDUSTRIES LIMITED, a
Company incorporated under the laws of Ontario, (hereinafter
called "Licensee") which said parties, in consideration of the
promises, undertakings and commitments of each party to the
other as set forth herein, hereby mutually agree as follows:
1. LICENSE: Sears hereby licenses Licensee to have the
privilege of conducting and operating, pursuant to the terms,
provisions and conditions contained in this agreement, a
photography concession department (hereinafter called
"Department") in certain of Sears retail stores for the
purpose of producing photographic portraits, passport
photographs, photographic copy and restoration work, the sale
of frames and related items, and for no other purpose
whatsoever. The name of such service shall appear as "Sears
Portrait Studio" in advertising and in-store signing.
2. LOCATIONS: This License Agreement authorizes Licensee to
operate said photography concession departments in those
retail stores of Sears as Licensee and Sears shall mutually
agree in writing and as are designated in Location Approval
Rider attached hereto from time to time and marked Schedule
"A".
3. TERM: The initial term of this License Agreement shall
be for one (1) year commencing the 6th day of April, 1977, and
this Agreement shall continue to be effective from year to
year thereafter, except that either party may, at any time
during the initial term or any renewal thereof, by giving
sixty (60) days written notice, terminate this agreement.
4. If any one or more of the premises in which said
departments are located are under lease to Sears, then the
rights granted to Licensee under this agreement shall also be
subject to all the terms, agreements and conditions and to any
cancellation privileges contained in said lease or leases and
for any other shopping center agreements applicable to Sears;
and in the event of termination of any such lease or leases by
expiration of time, or otherwise during the continuance of
this agreement, then the rights granted to Licensee under this
agreement shall likewise terminate as to such department.
5. SEARS COMMISSION:
(a) In consideration of the privilege herein granted to
Licensee to conduct and operate said Department under the
terms, provisions and conditions of this License Agreement,
Licensee in addition to its other undertaking herein, shall
pay to Sears, and Sears shall be entitled to receive from
Licensee, a commission (herein called "Sears Commission")
<PAGE>
which shall be a sum equal to fifteen percent (15%) of
Licensee's net sales of Sears Portrait Studio each month.
(b) NET SALES DEFINED: Licensee's said "Net Sales" are
herein defined to mean gross sales of merchandise and services
made in, upon or from said Department, less returns and
allowances.
6. (a) SALES RECEIPTS: At the close of each business day,
the amount of the gross sales of Licensee, and the returns and
allowances made during said day by Licensee in, upon or from
said Department shall be reported by Licensee to the head
cashier of said retail store of Sears, and, when making such
daily reports, Licensee shall deliver therewith to said
cashier all money derived from such sales; and an account
thereof shall be kept by both Licensee and Sears. Sears shall
have the right to retain out of such receipts the proper
amount of the Sears Commission payable hereunder together with
any other sums that may be due Sears from Licensee.
(b) SETTING OF ACCOUNTS: A setting of accounts between
the parties shall be made promptly after the end of each
calendar month for the receipts and any authorized credit
sales of said Department during such calendar month. Sears
shall have the right at any reasonable time to inspect and
audit the books and records of Licensee with respect to the
business conducted by Licensee in said Department. Said books
and records shall be kept and maintained according to standard
and generally acceptable accounting practices. The Store
Manager of said retail store and Licensee may agree to make
settlement at more frequent intervals.
7. CHANGES OF LOCATION: Sears shall have the right to
change the location, dimensions and amount of space for said
Department from time to time during the term of this License
Agreement in accordance with Sears judgement as to what
arrangements will be most satisfactory for the general good of
all departments of its said retail store and at which said
Department shall be conducted and operated hereunder. In the
event Sears desires that the location of said Department be so
changed Sears will, at its expense, move Licensee's Equipment
used in said Department to the new location of said
Department.
8. (a) CASH REGISTER: Sears shall, at its expense, furnish
a cash register and stand for use in said Department during
the term hereof, it being understood and agreed that such cash
register shall be of a size and design satisfactory to Sears
and that such cash register shall at all times be and remain
the property of Sears.
<PAGE>
(b) LICENSEE'S EQUIPMENT: Licensee shall, entirely at
its expense, install in said Department all such furniture,
fixtures and equipment as may be necessary and proper for the
operation of the business to be conducted therein pursuant to
this License Agreement (such furniture, fixtures and equipment
being herein for convenience referred to as "Licensee's
Equipment"). Said Licensee's Equipment and the size, design
and location thereof shall at all times be subject to Sears
approval. SEARS AT ITS OWN EXPENSE WILL ERECT THE ROUGH WALLS
(PERIMETER AND INSIDE) FINISHING AND DECORATING SAID WALLS, AS
WELL AS INSTALLING CARPETING OR OTHER FLOORING OF THE STUDIO.
If Sears arranges for the installation of any of Licensee's
Equipment, or any other items which are Licensee's obligation
hereunder, Licensee shall promptly reimburse Sears for the
cost of the installation of such items upon receipt by
Licensee from Sears of a statement therefor.
(c) PROHIBITED LIENS: Licensee shall not allow, suffer
or permit any liens, claims or encumbrances to attach to or
against any of said Licensee's Equipment, or, by reason of the
installation of Licensee's Equipment, to or against the
premises in or upon which the same shall have installed; and
in the event any lien, claim or encumbrance should attach to
any such Licensee's Equipment or such premises, Licensee shall
immediately take all such steps as may be necessary to cause
such lien or encumbrance to be released and discharged.
(d) CONDITIONS OF DEPARTMENT: At all times during the
term hereof, Licensee shall, at its expense, keep said
Department in a thoroughly clean and neat condition and shall
maintain said Licensee's Equipment in good order and repair
and shall make such repairs or replacements as may be deemed
necessary either by Licensee or Sears.
9. (a) DEPARTMENT EMPLOYEES:
(1) Licensee shall have no authority to employ persons
on behalf of Sears and no employees of Licensee shall be
deemed to be employees or agents of Sears, said employees at
all times remaining Licensee's employees. Licensee shall have
the sole and exclusive control over Licensee's labour
relations policies and policies relating to wages, hours,
working conditions, or conditions of employment of Licensee's
employees, and the sole and exclusive right to hire, transfer,
suspend, lay off, recall, promote, assign, discipline, adjust
grievances and discharge said employees, provided, however,
that at any time Sears so requests, Licensee will give
consideration to the transfer from any Sears store of any
employee who is objectionable to Sears for reasons of health,
safety and/or security of Sears customers, employees or
merchandise and/or whose manner impairs Sears customer
relations.
<PAGE>
(2) Licensee agrees to assume complete responsibility
for all salaries and other compensation of all of Licensee's
employees and will make all necessary deductions and
withholdings from said employees' salaries and other
compensation, file such returns as may be required, and
assumes full responsibility for the payment of any and all
contributions, taxes, assessments, and agrees to meet all
other Federal and Provincial requirements.
(3) (a) Licensee further agrees and warrants that
Licensee will comply with any other Federal, Provincial or
Local law or regulation regarding compensation, hours of work
or other conditions of employment including but not limited to
Federal or Provincial laws or regulations regarding minimum
compensation, overtime and equal opportunities for employment.
(b) Licensee agrees and warrants that said employees while
present in Sears store will comply with any and all Federal,
Provincial and Local laws, regulations and ordinances
applicable to Licensee.
(c) Licensee agrees to protect, defend, indemnify
and hold Sears harmless from and against all claims (including
lawyers' fees and penalties) made against Sears:
(1) by employees of Licensee for salaries and other
compensation;
(2) by employees of Licensee under the Workmen's
Compensation Act of any Province, if applicable;
(3) with regard to employees of Licensee, arising out of
any party responsible therefor (including Sears):
(i) failing to pay contributions, taxes, or
assessments due under Federal or Provincial
laws;
(ii) failing to make reports or failing to comply
with any other requirements of said laws;
(iii) failing to comply with any other Federal or
Provincial laws or regulations regarding
compensation, hours of work or other conditions
of employment including but not limited to
Federal, Provincial or Local laws or regulations
regarding minimum compensation, overtime and
equal opportunities for employment;
(iv) failing to comply with any other Federal,
Provincial or Local law, regulation or
ordinance.
10. (a) MERCHANDISE AND SERVICES: During the term hereof,
Licensee shall maintain in said Department a complete stock of
merchandise to be sold therein, the quantity and quality
thereof being subject to the approval of Sears. The
merchandise and services to be sold in said Department shall
<PAGE>
be sold to the public at reasonable prices. Licensee
expressly covenants that such prices shall not exceed those of
competitors for merchandise and services of a quality similar
to those offered for sale in said Department and that prices
shall be plainly marked on all merchandise offered for sale in
said Department.
(b) UNAUTHORIZED SALES: Licensee covenants that during
the term of this License Agreement, the space occupied by said
Department shall not be used for any purpose other than for
the purpose expressly authorized in this License Agreement,
and that no services will be rendered and no merchandise will
be handled in said Department except such services and
merchandise as are ordinarily rendered and handled in the
conduct of such Department and which are approved as to their
nature by Sears Store Manager.
(c) CUSTOMER ADJUSTMENTS: All of the work and services
performed by Licensee in said Department shall be up to a high
standard of workmanship and all the merchandise sold in such
Department shall be of high quality. Licensee shall at all
times maintain the general policy of satisfaction or money
refunded to customers and shall adjust all complaints of, and
controversies with customers, with respect to said Department
or to services rendered or merchandise sold therein. In any
case in which said adjustment is unsatisfactory to the
customer, Sears reserves and shall have the right at
Licensee's expense, to make such further adjustment as Sears
may deem necessary under the circumstances and any adjustment
made by Sears shall be conclusive and binding upon Licensee
and Licensee shall abide by and comply with such adjustment.
(d) SEARS EMPLOYEES DISCOUNT: Such merchandise and
services shall be offered for sale by Licensee to the
employees of Sears at the same fifteen percent (15%) discount
which Sears allows its own employees on purchases of
merchandise.
(e) CASH AND CREDIT SALES: All sales made in said
Department shall be made for cash only; provided, however,
that with the approval of the Store Manager or the Credit
Manager of the retail store of Sears at which the Department
is operated hereunder, sales may be made by Licensee on such
of Sears regularly established credit plans as may be first
approved by such Store Manager or Credit Manager. No part of
the carrying charges which may be made by Sears in connection
with any credit sale shall be payable to or credited in any
way to Licensee. Licensee shall not be responsible for or
charged with any credit losses on such credit sales. Licensee
shall make no reference in any advertising of the service that
Sears credit services are available.
<PAGE>
(f) CHEQUES: If cheques should be accepted by Licensee
or its employees in payment for services rendered or sales
made in said Department, it is agreed that any and all losses
which may be sustained by reason of non-payment of such
cheques upon presentment, shall be borne and charged to
Licensee, and Sears shall have no liability with respect
thereto.
11. (a) HOURS, RULES, NAME: Said Department shall be kept
open for business and operated during the same business hours
in which the said retail store of Sears is open for business
except to the extent prevented by circumstances beyond the
control of Sears or Licensee. In order to protect customers
and the respective employees of Sears and Licensee on the
store premises, Licensee agrees to conduct Licensee's
operations in an honest, courteous, and efficient manner and
to abide by safety rules and regulations of Sears in effect
from time to time. Licensee shall not use its names or any
other name in connection with conduct and operation of such
Department without the consent of Sears. Licensee shall
conduct said Department under the name "Sears Portrait
Studio".
(b) ACCESS TO DEPARTMENT: Licensee and Sears shall have
the access to said Department at all times as said Sears
retail store is open to customers for business and at all such
other times as the Store Manager of said Sears retail store
shall authorize and approve. Said Store Manager shall be
furnished with keys too said Department and shall have access
thereto at all times.
12. ADVERTISING: Licensee shall advertise and actively
promote the business conducted by such Department. It is
expressly understood and agreed that all signs, advertising
copy and all sales promotional plans and devices which may be
utilized with respect to said Department, shall be first
submitted for approval to SEARS DEPARTMENT 702-0, Toronto, or
to such other person said SEARS DEPARTMENT 702-0 shall
designate, 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.
Licensee shall at no time during this License Agreement or at
any time thereafter issue any publicity or press releases
regarding this License Agreement or Licensee's activities
hereunder unless Licensee obtains the prior written approval
of such publicity or press releases from SEARS DEPARTMENT
702-0.
<PAGE>
13. (a) UTILITIES: Sears shall furnish, without expense to
Licensee, a reasonable amount of heat, light, electric power
and normal rubbish disposal for the operation of said
Department at reasonable hours except when prevented by
strikes, accidents, or the making of repairs to the heating,
lighting and electric power systems, and except when prevented
by other causes beyond the control of Sears; however, 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 being hereby
expressly waived by Licensee. The expense for installing
light, ventilation, and power lines, which may be required in
order to bring such utilities up to (but not within) such
Department shall be borne and paid by Sears, and the expense
of purchasing and installing all fixtures and equipment within
the confines of such Department, including, but without
limitation to, all necessary electrical connections for said
Department, and also including the subsequent maintenance of
such fixtures and equipment shall be borne and paid by
Licensee.
(b) TELEPHONE: If requested by Licensee, Sears will
arrange for the furnishing of telephone service for said
Department, and Licensee shall bear and pay the entire cost of
the installation of the telephone equipment necessary to
provide said service. Licensee shall also bear and pay the
entire cost of the telephone service furnished said
Department, including the prorata cost of the operation of the
switchboard at said retail store.
14. LICENSEE'S PURCHASES: All purchases and contracts in
connection with the conduct and operation of said Department
shall be made by Licensee in its own name. Under no
circumstances will Licensee make any purchases or incur any
obligation or expense of any kind in the name of Sears.
Licensee shall promptly pay all the obligations of such
Department and will hold Sears free and harmless from any and
all claims and liabilities incurred by Licensee in the conduct
and operation of such Department. Upon request by Sears,
Licensee shall furnish Sears with the names of all parties
from whom Licensee purchases merchandise for sale in said
Department, as well as the names of all other parties with
whom Licensee may have any business or contractual relations
in connection with the conduct of the business of said
Department.
15. LICENSES, LAWS, ORDINANCES: Licensee shall, at its
expense, obtain all permits and licenses which may be required
under any applicable Federal, Provincial or Local law,
ordinance, rule or regulation by virtue of anything done in
the conduct of said Department and in the performance of this
<PAGE>
License Agreement, and Licensee shall in the conduct of said
Department and in the performance of this License Agreement
comply fully with all applicable Federal, Provincial and Local
laws, ordinances, rules and regulations.
16. FEES, TAXES: Licensee shall, at its expense, pay,
collect and remit or discharge all License fees, business,
use, sales, or other similar or different taxes or assessments
which may be charged or levied by reason of anything done in
the conduct of said Department and in the performance of this
License Agreement, excluding, however, all taxes and
assessments applicable to Sears income from Sears Commission
hereunder or applicable to Sears property.
If the Licensee is not separately assessed by the taxing
authorities, Licensee shall be responsible to Sears for that
portion of taxes on the occupied area, calculation to be based
on the area occupied to the total area of the demised premises
assessed for such tax.
Should the period of occupancy be less than a full
taxation year, then such taxes shall be pro-rated accordingly.
17. SEARS LIEN: Licensee hereby grants and gives to Sears
and Sears shall at all times have, a first charge and lien
upon all of Licensee's Equipment in said Department as
security for the payments herein provided to be made by
Licensee to Sears, and for the due performance and observance
of all the other covenants and agreements of Licensee in any
of said payments or in any of Licensee's covenants herein
contained, with or without notice and without in any manner
affecting any other remedies that Sears may have by reason
thereof, to terminate this License Agreement, to take
possession of said Department and of Licensee's Equipment and
all other property therein, to exclude Licensee from said
Department, and at Licensee's expense, to remove from the
respective premises if Sears the said property of Licensee or
to purchase or to sell such of Licensee's Equipment and other
property in or at said Department as may be necessary in order
to pay Sears all amounts due or to become due Sears from
Licensee and to cure all other defaults of Licensee hereunder.
18. (a) RIGHT TO TERMINATE ON DEFAULT OF LICENSEE: This
License Agreement is not transferable by Licensee in whole or
in part without Sears prior written consent. Any transfer or
attempt to transfer hereof by Licensee, either expressly or by
operation of law, without Sears prior written consent, shall,
at the option of Sears, without any notice whatsoever,
immediately terminate this License Agreement. In the event
any bankruptcy or insolvency proceedings should be commenced
by or against Licensee, or if any property of Licensee passes
<PAGE>
into the hands of any receiver, assignee, officer of the law
or creditor, or it Licensee vacates, abandons or ceases to
operate any said Department, or in any event Licensee should
fail or refuses after three (3) days' written notice from
Sears to comply with any agreement or conditions of this
License Agreement, then, in any such event Sears shall have
the right immediately to terminate this License Agreement with
respect to said Department operated hereunder, with or without
notice to Licensee, whereupon Sears may, at its option,
enforce the rights, remedies and liens mentioned in Paragraph
16 hereof, without, however, affecting any other rights or
remedies which Sears may have by reason thereof. Licensee
agrees too pay and discharge all costs and expenses including,
but without limitation to, Lawyer's fees, which may be
incurred by Sears in enforcing the terms of this License
Agreement.
(b) RIGHT OF TERMINATION AFTER FIRE: In the event that
the store of Sears at which said Department is conducted
hereunder should be damaged by fire or any other casualty in
such manner that the space occupied by said Department should
be untenantable, this License Agreement may be terminated with
respect to said Department by either party hereto, effective
as of the date of the casualty, by giving to the other party
written notice of such termination within twenty (20) days
after the happening of such casualty. If such notice is not
given, then this License Agreement shall not so terminate, but
shall remain in full force and effect, and the parties hereto
shall cooperate with each other so that said Department may
resume the conduct of business as soon as possible after the
happening of said casualty.
(c) MUTUAL RIGHT OF TERMINATION: Either party hereto
shall have the right to terminate this License Agreement with
respect to said Department in any or all of the Sears retail
stores designated in Location Approval Rider at any time
hereafter by giving to the other party at least sixty (60)
days prior written notice of such termination.
19. SEARS OPTION TO PURCHASE LICENSEE'S EQUIPMENT: In the
event of the termination of this License Agreement with
respect to said Department by expiration of time or otherwise,
Sears shall have the right, privilege and option, but not the
obligation, to purchase from Licensee, and Licensee shall
convey and sell to Sears, such items of said Licensee's
Equipment as Sears may designate in a written notice delivered
to Licensee at least twenty (20) days prior to the effective
date of such termination. The purchase price of any items
which may be purchased by Sears hereunder shall be equal to
the original cost of such items to Licensee less all liens and
indebtedness against the same and less depreciation at the
rate of ten percent (10%) per annum from the date of
<PAGE>
installation of each item so purchased until the effective
date of such termination, and Licensee will give Sears good
and valid bills of sale therefor.
20. REMOVAL OF LICENSEE'S EQUIPMENT: Upon the termination of
this License Agreement with respect to said Department by
expiration of time or otherwise, if Licensee is not then in
default under this Agreement, Licensee shall, at its expense,
immediately remove all of Licensee's said Equipment (except
such of Licensee's Equipment as may be purchased by Sears as
hereinbefore provided) from the premises of Sears and shall,
without delay and at Licensee's expense, repair any damage
caused by such removal.
21. INDEMNITY BY LICENSEE:
(a) Licensee agrees that Sears shall not be liable for
any damage to Licensee or any property whatsoever of Licensee
in said Department because of the alleged negligence, act of
omission of Sears or of any tenant, licensee or occupant of
the premises at which said Department may be located, or
because of any damage caused by any casualty, including but
not limited to, fire, water, snow, steam, gas, odours, in or
from said store or store premises, or because of the leaking
of any plumbing, or because of any accident or event which may
occur in said store or upon said premises, or because of any
alleged lack of repair in or about said store or store
premises, or because of the alleged acts or omissions of any
janitors or other persons in or about said store or store
premises, Licensee hereby releasing and waiving any and all
claims therefor. Sears shall not be liable for the
safekeeping or safe delivery of any property of Licensee or of
any customer of Licensee in or upon any of the said store
premises, nor for any loss or damage thereto, by fire, theft,
accident, breakage or any other cause whatsoever.
(b) 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, 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 said Department (including, without limitation of
the foregoing, goods sold, work done, services rendered or
products utilized therein, lack of repair in or about said
Department, operation of or defects in any machinery or
equipment used or located in said Department) 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.
<PAGE>
22. INSURANCE:
(a) Licensee hereby agrees and covenants that it shall,
at its sole expense, obtain and maintain during the term of
this License Agreement the following policies of insurance
from companies satisfactory to Sears and containing provisions
and being in amounts satisfactory to Sears and adequate to
fully protect Sears as well as Licensee from and against all
expenses, claims actions, liabilities and losses arising out
of the subjects covered by said policies of insurance:
(1) Fire Insurance upon Licensee's fixtures,
furniture, equipment and merchandise in the
Department for the full insurable value
thereof.
(2) Workmen's Compensation, if applicable, and
Employer's Liability Insurance (with limits of
not less than $100,000) covering all persons
employed or working in said Department.
(3) Public Liability Insurance covering all
expenses, claims, actions, liabilities,
damages and losses arising out of the
alleged death of or injury to persons and
damage to property (with limits of not less
than $1,000,000 inclusive) and containing a
Contractual Liability endorsement expressly
covering Licensee's liability to Sears
assumed by Licensee in this License Agreement.
(b) All such aforesaid policies of insurance shall
expressly provide that they shall not be subject to
cancellation except upon at least thirty (30) days' prior
written notice to Sears. Licensee shall, if requested by
Sears, furnish Sears with copies of such policies or
certificates thereof. If in Sears' opinion any of said
policies do not adequately protect Sears, then Sears shall
have the right, at its option, to obtain additional insurance
at the expense of Licensee.
23. REMEDIES CUMULATIVE: It is agreed that the remedies
herein provided in case of any default or breach by Licensee
of this License Agreement are cumulative and shall not affect
in any manner any other remedies that Sears may have by reason
of such default or breach by Licensee.
24. ASSIGNS: The provisions of this License 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, it being expressly
stipulated that nothing herein contained shall authorize the
assignment of this License Agreement by Licensee.
<PAGE>
25. OTHER AGREEMENTS: It is understood and agreed that this
agreement shall terminate immediately, at Sears' sole option,
without cost or penalty, if any claim is made that this
agreement in any way contravenes any previous agreements
entered into by Sears, provided that Sears shall first conduct
a thorough investigation of such claim, and shall give
Licensee notice of such claim and shall disclose to Licensee
the results of such investigation.
26. NOTICES: All notices herein provided for or which may be
given in connection with this License Agreement shall be in
writing and given either in person or by certified mail with
postage pre-paid or by registered mail with postage pre-paid
and return receipt requested.
If any such notice be given by Licensee to Sears, it
shall be addressed to:
Simpsons-Sears Limited,
Attention: Vice President Operating, D/702-0,
222 Jarvis Street,
Toronto, Ontario. M5B 2B8
and if given by Sears to Licensee such notice shall be
addressed to:
Chromalloy Photographic Industries Ltd.,
2792 Slough Street,
Mississauga, Ontario. L4T 1G3
Attention: Mr. A. Almond,
Executive Vice-President.
and such notices shall be deemed to have been given when
deposited in the mail.
27. ENTIRE AGREEMENT: It is mutually understood and agreed
that this License Agreement sets forth the entire agreement
and understanding between the parties hereto with respect to
the subject matter hereof, and that this License Agreement
shall not be supplemented, modified or amended except by a
written instrument signed by Licensee (or by a duly authorized
officer of Licensee if Licensee is a corporation) and by a
duly authorized officer or agent of Sears, and that no person
has or shall have the authority to supplement, modify or amend
this License Agreement in any other manner.
28. RELATIONSHIP BETWEEN PARTIES: It is understood and
agreed that nothing contained in or done pursuant to this
License Agreement shall be construed as creating a
partnership, agency or joint venture, and, except as may be
otherwise expressly provided in this License Agreement,
<PAGE>
neither party shall become bound by any representation, act or
omission of the other party hereto.
29. SEARS NAME: Sears hereby grants to the Licensee, the
limited right and permission to use the trademarks and
tradenames "Simpsons-Sears" and "Sears", which are owned by
Sears, in connection with the conduct of the Licensee's
business pursuant to this Agreement. Licensee covenants and
warrants that said trademarks and tradenames are and shall
remain the sole and exclusive property of Sears and that
Licensee shall not in any way whatsoever acquire any right or
interest in such trademarks and tradenames other than
expressly set forth herein. Upon the expiration or
termination of this Agreement, Licensee shall cease to use the
names "Simpsons-Sears" and "Sears" for any purpose whatsoever
and shall promptly destroy all letterheads, advertising
materials or other devices, signs, logos and similar
paraphernalia which depict the "Simpsons-Sears" and "Sears"
logos, or which in any way indicates that Licensee is
conducting business in conjunction with Sears.
30. HEADINGS: The headings or title captions in this License
Agreement have been placed thereon for the mere convenience of
the parties, and shall not be considered in any construction
or interpretation of this License Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands and affixed their seals as of the day and year
first above written the corporate party or parties by its or
their proper officers or agents duly authorized thereunto.
SIMPSONS-SEARS LIMITED
/s/ T. R. Hammond
-----------------------
Vice-President
CHROMALLOY PHOTOGRAPHIC
INDUSTRIES LIMITED
/s/ A. J. Almond
-----------------------
President
<PAGE>
SCHEDULE "A"
- ------------
LOCATION APPROVAL RIDER
- -----------------------
To Licensee Agreement dated the 6th day of April, 1977,
made between SIMPSONS-SEARS LIMITED (Sears) and CHROMALLOY
PHOTOGRAPHIC INDUSTRIES LIMITED (Licensee).
Sears retail stores in which Sears authorizes Licensee to
operate photography concession Department:
Calgary-North Hill
Edmonton-Kingsway
Kitchener
Sarnia
Windsor
Victoria
<PAGE>
SCHEDULE "A"
- ------------
LOCATION APPROVAL RIDER
- -----------------------
To License Agreement dated the 6th day of April, 1977,
made between SIMPSONS-SEARS LIMITED (Sears) and CHROMALLOY
PHOTOGRAPHIC INDUSTRIES LIMITED (Licensee).
Sears retail stores in which Sears authorizes Licensee to
operate photography concession departments:
Calgary-North Hill
Edmonton-Kingsway
Guelph
Kitchener
Moncton
Red Deer
Saint John
St. John's
Sarnia
Toronto-Markham
Windsor
Vancouver-Burnaby
Vancouver-Capilano
Vancouver-Harbour Centre
Vancouver-Richmond
Vancouver-Surrey
Victoria
Schedule "A" Location Approval Rider hereby amended this
24th day of July, 1978.
SIMPSONS-SEARS LIMITED
/s/ T. R. Hammond
------------------------
Vice-President
CHROMALLOY PHOTOGRAPHIC
INDUSTRIES LIMITED
/s/ A. J. Almond
------------------------
President
<PAGE>
SCHEDULE "A"
- ------------
LOCATION APPROVAL RIDER
- -----------------------
To License Agreement dated the 6th day of April 1977,
made between SIMPSONS-SEARS LIMITED (Sears) and CHROMALLOY
PHOTOGRAPHIC INDUSTRIES LIMITED (Licensee).
Sears retail stores in which Sears authorizes Licensee to
operate Photography Concession Departments:
Calgary-Chinook Centre
Calgary-North Hill
Chilliwack
Cornwall
Edmonton-Bonnie Doon
Edmonton-Kingsway
Guelph
Hamilton-Centre
Kamloops
Kelowna
Kitchener
Lethbridge
Moncton
Ottawa-Carlingwood
Ottawa-Hull
Prince George
Red Deer
Saint John
St. John's
Sarnia
Thunder Bay
Toronto-Markham
Toronto-Mississauga
Toronto-Newmarket
Vancouver-Burnaby
Vancouver-Capilano
Vancouver-Harbour Centre
Vancouver-Richmond
Vancouver-Surrey
Victoria
Windsor
Schedule "A" Locatio Approval Rider hereby amended this
27th day of February, 1980.
SIMPSONS-SEARS LIMITED
/s/ T. R. Hammond
------------------------
Vice-President
CHROMALLOY PHOTOGRAPHIC
INDUSTRIES LIMITED
/s/ Lynette King
------------------------
President
<PAGE>
EXHIBIT (10.32)
CPI. Corp 1998 Employee Profit Sharing Plan and Trust
30
<PAGE>
CPI CORP.
EMPLOYEES PROFIT SHARING PLAN AND TRUST
(As Amended and Restated Effective January 1, 1998)
<PAGE>
<PAGE NUMBERS REFER TO PAPER DOCUMENT)
<TABLE>
TABLE OF CONTENTS
<CAPTION>
ARTICLE Page
<S> <C>
I NAME, PURPOSE AND DEFINITIONS ....................... 3
II SERVICE ............................................. 7
III PLAN PARTICIPATION ................................. 10
IV CONTRIBUTIONS ....................................... 11
V ALLOCATIONS AND ACCOUNTS ............................ 20
VI VALUATION OF ACCOUNTS ............................... 23
VII ENTITLEMENT TO BENEFITS ............................. 24
VIII DISTRIBUTION OF BENEFITS ............................ 25
IX SPENDTHRIFT TRUST AND QUALIFIED DOMESTIC
RELATIONS ORDERS .................................... 33
X ADMINISTRATION ...................................... 35
XI THE TRUSTEE ......................................... 37
XII INVESTMENTS ......................................... 41
XIII GENERAL PROVISIONS REGARDING FIDUCIARIES ............ 44
XIV AMENDMENT AND TERMINATION ........................... 46
XV MERGER, DISSOLUTION AND ADOPTION .................... 47
XVI MISCELLANEOUS PROVISIONS ............................ 47
XVII ROLLOVERS AND TRANSFERS ............................. 48
XVIII TOP-HEAVY PROVISIONS ................................ 49
XIX SPECIAL PROVISIONS FOR 1997 TENDER OFFER ............ 51
XIX DIRECTED TRUSTEE .................................... 51
XXI SPECIAL EFFECTIVE DATES ............................. 52
</TABLE>
2
<PAGE>
CPI CORP.
EMPLOYEES PROFIT SHARING PLAN AND TRUST
(As Amended and Restated Effective January 1, 1998)
Effective as of September 9, 1980, CPI Corp., a Delaware
corporation (hereinafter referred to as the "Company"),
established a profit sharing plan and trust which was there-
after amended and restated and thereafter further amended.
The Company now deems it advisable to make certain further
amendments to that plan and trust effective as of January 1,
1998, except as otherwise provided in Article XXI or elsewhere in
this document, and to restate the plan and trust in its entirety
by the adoption of this document.
ARTICLE I
NAME, PURPOSE AND DEFINITIONS
Section 1.1. Name. This Plan and Trust shall be known as
the "CPI Corp. Employees Profit Sharing Plan and Trust."
Section 1.2. Purpose. The Company has established this Plan
and Trust to encourage its Employees to continue in its employ,
to induce desirable persons to enter its employ in the
future, to permit its Employees to accumulate tax-deferred
savings for their own retirement, and to give its Employees a
definite interest in the successful operation of the Company's
business by permitting them to share in its profits and to
acquire a proprietary interest in the Company. Consequently, the
Company's contributions to the Plan shall be made in Qualifying
Employer Securities which, unless otherwise directed by the
Company, shall be retained in the Plan and Trust unless and until
distributed in accordance with the terms hereof. The Plan is
intended to meet the requirements of the Internal Revenue Code of
1986 and the Employee Retirement Income Security Act of 1974 (as
both may be amended from time to time) and to comply fully with
the requirements of these laws in effect.
Section 1.3. Definitions. Whenever used herein, the
following words and phrases shall have the meanings ascribed to
them in this Section, unless otherwise specifically defined or
unless the context clearly otherwise requires:
(a) Accrued Benefit: The total amount credited to one
or more accounts maintained for a Participant or
Beneficiary.
<PAGE>
(b) Active Participant: Any Employee of the Company
who has satisfied the eligibility requirements of the
Plan. An Employee will cease to be an Active Participant
in the Plan if he ceases to be an Employee of the Company
or if he becomes covered by a collective bargaining agree-
ment to which the Company is a party or by which it is
bound and with respect to which retirement benefits were
the subject of good faith bargaining.
(c) Affiliate: Any corporation which, together with
CPI Corp., is a member of a controlled group of corpor-
tions, as defined in Section 414(b) of the Code; any
trade or business (whether or not incorporated) which,
together with CPI
3
Corp., is a member of a group of trades or businesses
under common control, as defined in Section 414(c) of the
Code; any corporation, partnership or other organization
which, together with CPI Corp., is a member of an
affiliated service group, as defined in Section 414(m) of
the Code; and any other corporation, partnership or other
organization required to be aggregated with CPI Corp.
pursuant to Regulations under Section 414(o) of the Code.
(d) After-tax Contribution Account: The account main-
tained for a Participant to record his voluntary aftertax
contributions made to the Trust pursuant to paragraph (a)
of Section 4.1, and adjustments relating thereto.
(e) Beneficiary: The person or persons who, by the
terms of this Plan and Trust, may become entitled to a
benefit hereunder in case of the death of a Participant.
(f) Code: The Internal Revenue Code of 1986, as
amended from time to time.
(g) Company: CPI Corp. together with any Affiliate
of, or successor to CPI Corp. (or any Affiliate thereof),
which shall adopt and assume the obligations of this Plan
and Trust. However, if another Company has adopted the
Plan and Trust, the term "Company," for purposes of the
provisions of this Plan relating to its management and
administration, shall refer only to CPI Corp.
(h) Company Contribution Account: The account
maintained for a Participant to record his share of
matching Company contributions made to the Trust pursuant
to Section 4.2, and adjustments relating thereto.
<PAGE>
(i) Compensation: Subject to the provisions of
subparagraphs (i), (ii) and (iii) below, all of the
Compensation (as that term is defined in Section 415(c)(3)
of the Code and the Regulations thereunder) paid to an
Employee by the Employer in a Plan Year, including,
without limitation, salary, wages, commissions, tips,
bonuses, overtime pay and other items of taxable
remuneration.
(i) For purposes of Section 4.1 and Section 4.2,
Compensation shall consist of only salary, wages,
commissions and amounts included under subparagraph
(ii).
(ii) Compensation shall also include amounts
contributed on behalf of an Employee pursuant to a
salary reduction agreement to this Plan or to any
other cash or deferred arrangement under Section
401(k) of the Code, simplified employee pension under
Section 408(k) of the Code, tax sheltered annuity
under Section 403(b) of the Code, and/or cafeteria
plan under Section 125 of the Code. Except as
provided in the preceding sentence, all contributions
to this Trust and any contribution or payment
to any other trust, fund or plan providing retire-
ment, pension, profit sharing, health, welfare,
death, insurance or similar benefits shall not be
included in Compensation.
(iii) The Compensation of any Participant taken
into account under the Plan for any Plan Year shall
not exceed $150,000 (as indexed for cost of living
adjustments provided for under the Code) (the "Annual
Maximum").
4
(j) Effective Date: The Effective Date of this
amended and restated Plan and Trust is January 1, 1998;
however, certain provisions of the Plan and Trust shall be
effective as of such other dates as are specified in
Article XXI and in other sections of the Plan. The
provisions of this Plan and Trust shall only apply to an
Employee who terminates employment on or after the
Effective Date. Except as otherwise expressly provided
herein, the rights and benefits, if any, of a former
Employee shall be determined under the provisions of the
Prior Plan in effect on the date his employment
terminated.
<PAGE>
(k) Employee: Any person employed by the Employer. In
addition, a person (a "Leased Employee") who is not an
Employee under the preceding sentence but who provides
services to the Employer, shall, except to the extent
otherwise provided in the Regulations, be considered an
Employee with respect to such services if: (i) The
services are provided pursuant to an agreement between the
Employer and any other person or entity (the "Leasing
Organization"); (ii) such Leased Employee has performed
services for the Employer (or for the Employer and related
persons as defined in Section 144(a)(3) of the Code) on a
substantially full-time basis for a period of at least 1
year; and (iii) such services are performed under the
primary direction or control of the Employer. However, a
Leased Employee shall not be considered an Employee if:
(i) He is covered by a money purchase pension plan main-
tained by the Leasing Organization which has a
nonintegrated employer contribution rate of at least 10%
of compensation (including amounts contributed on behalf
of the Leased Employee pursuant to a salary reduction
agreement to one or more plans under Section 401(k),
Section 408(k), Section 403(b) and/or Section 125 of the
Code), full and immediate vesting, and each employee of
the Leasing Organization immediately participates in such
plan (except those who perform substantially all of their
service for the Leasing Organization and those whose
compensation from the Leasing Organization for each year
during the 4-year period ending with the Plan Year is less
than $1,000); and (ii) Leased Employees do not constitute
more than 20% of the Employer's nonhighly compensated work
force, as defined in Section 414(n)(5)(C)(ii) of the Code.
(l) Employer: CPI Corp. and any Affiliates of it.
(m) ERISA: The Employee Retirement Income Security
Act of 1974, as amended from time to time.
(n) Former Participant: A Participant whose
employment with the Company has terminated or who has
become covered by a collective bargaining agreement to
which the Company is a party or by which it is bound and
with respect to which retirement benefits were the subject
of good faith bargaining, but whose Accrued Benefit has
not been fully distributed and/or forfeited.
(o) Highly Compensated Employee: Any Employee who
performed services for the Employer during the Plan Year
and who:
(i) Was at any time during such Plan Year or
the preceding Plan Year a 5% owner (within the
meaning of Section 416(i)(1) of the Code) of the
<PAGE>
Company or any Affiliate; or
5
(ii) for the preceding Plan Year received
Compensation from the Employer in excess of $80,000
(as indexed for cost of living adjustments provided
for under the Code).
The determination of who is a Highly Compensated Employee
shall be made in accordance with Section 414(q) of the
Code and the Regulations thereunder.
(p) Key Employee: Any Employee who, at any time
during the Plan Year is or, in any of the 4 preceding Plan
Years, was:
(i) An officer of the Employer having
Compensation from the Employer for such Plan Year in
excess of 50% of the dollar limitation in effect for
such Plan Year under Section 415(b)(1)(A) of the
Code;
(ii) one of the 10 Employees owning (or
considered as owning within the meaning of Section
318 of the Code) the largest percentage interest in
the Company or any Affiliate and having Compensation
from the Employer for such Plan Year in excess of the
dollar limitation in effect for such Plan Year under
Section 415(c)(1)(A) of the Code;
(iii) a 5% owner of the Company or any Affiliate;
or
(iv) a 1% owner of the Company or any Affiliate
having annual Compensation from the Employer in
excess of $150,000.
For purposes of subparagraph (i) above, no more than 50
Employees (or, if lesser, the greater of 3 or 10% of the
Employees) shall be treated as officers. For purposes of
subparagraph (ii) above, if 2 Employees have the same
interest in the Employer, the Employee having the greater
Compensation shall be treated as having a larger interest.
The Beneficiary of a Key Employee is also a Key Employee.
The determination of who is a Key Employee shall be made
in accordance with Section 416(i)(1) of the Code and the
Regulations thereunder.
(q) Non-key Employee: Any Employee or Beneficiary who
is not a Key Employee.
<PAGE>
(r) Normal Retirement Date: The date on which a
Participant attains 65 years of age.
(s) Participant: Any Active Participant or any Former
Participant who has an Accrued Benefit in the Plan.
(t) Plan: This agreement, together with any and all
amendments or supplements hereto.
(u) Plan Year: The 12-consecutive month period
commencing on January 1 of each year and ending on
December 31 of the same year.
(v) Pre-tax Contribution Account: The account
maintained for a Participant to record tax deductible
contributions made to the Trust by the Company
6
on his behalf and pursuant to his election as described in
paragraph (b) of Section 4.1, and adjustments relating
thereto.
(w) Prior Plan: This profit sharing plan and trust as
maintained by the Company and in effect immediately prior
to the Effective Date, and any predecessor plans
maintained by the Employer.
(x) Qualifying Employer Security: Stock issued by CPI
Corp. or any corporate affiliate.
(y) Regulations: The Internal Revenue Service
Regulations, as amended from time to time.
(z) Trust: This agreement, together with any and all
amendments or supplements hereto, and the Trust
established hereunder.
(aa) Trustee: Effective January 1, 1998, Barry
Arthur. Effective February 1, 1998, American Express
Trust Company and its successor or successors as Trustee
hereunder.
(bb) Valuation Date: The last day of each Plan Year
shall be the Annual Valuation Date. The Company has also
designated any date that the New York Stock Exchange is
open for business as an interim Valuation Date pursuant to
the provisions of Section 6.2.
Section 1.4.Other Definitions. In addition to the above
definitions, certain words and phrases used in the Plan are
defined in other portions of the Plan.
<PAGE>
ARTICLE II
SERVICE
Section 2.1. Hour of Service. Subject to the provisions of
Section 2.2, the term "Hour of Service" means, with respect to
any Employee:
(a) Each hour for which an Employee is directly or
indirectly paid or entitled to payment by the Employer for
the performance of duties for the Employer during the
applicable computation period;
(b) each hour for which an Employee is directly or
indirectly paid or entitled to payment by the Employer for
reasons (such as vacation, sickness, disability, layoff,
jury duty, military duty or leave of absence) other than
for the performance of duties (up to a maximum of 501
hours for any single continuous period during which the
Employee performs no duties);
(c) each hour for which back pay, irrespective of
mitigation of damage, has been either awarded or agreed to
by the Employer.
The same Hours of Service shall not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under
paragraph (c). With respect to Hours of Service, the rules of
paragraphs (b) and (c)
7
of Section 2530.200b-2 of the Department of Labor Regulations are
incorporated in this Section 2.1 by this reference.
Section 2.2. 1 Year Break in Service. The term "1 Year"
Break in Service" means, with respect to any Employee, any Plan
Year during which such Employee completes 500 or fewer Hours of
Service. Solely for the purpose of determining whether an
Employee has incurred a 1 Year Break in Service, Hours of Service
shall include, to the extent not included under Section 2.1, the
hours described below that the Employee is:
(a) Absent from active employment with the Employer
by reason ofjury duty or by reason of service in the Armed
Forces of the United States of America;
(b) on any other unpaid Employer-approved absence
granted under rules uniformly applied by it; or
(c) absent from active employment for any period:
<PAGE>
(i) By reason of the pregnancy of the Employee;
(ii) by reason of the birth of a child of the
Employee;
(iii) by reason of the placement of a child with
the Employee in connection with the adoption of such
child by the Employee; or
(iv) for purposes of caring for such child for a
period beginning immediately following such birth or
placement.
The number of Hours of Service to be credited under paragraphs
(a), (b) or (c) above shall be the number of Hours of Service
that would otherwise have been credited to the Employee but for
such absence, or, in any case where the Employer is unable to
determine such number of Hours of Service, 8 Hours of Service per
normal workday of absence. The same hours shall not be
credited as Hours of Service under more than 1 of such
paragraphs. The Hours of Service credited under paragraph (c)
shall be credited to the Plan Year in which the absence begins if
necessary to prevent a 1 Year Break in Service in that Plan Year,
otherwise to the following Plan Year. No credit for Hours of
Service will be given under paragraph (c) unless the Company
receives such timely information as it may reasonably require to
establish that the absence is for reasons described in paragraph
(c) and the number of days for which there was such an absence.
Section 2.3. Year of Service - Eligibility. For purposes of
eligibility to participate in the Plan, the term "Year of
Service" means, with respect to any Employee, any Plan Year
during which such Employee completes at least 1,000 Hours of
Service with the Employer, subject to the following:
(a) Initial Eligibility: For purposes of Section 3.1
and paragraph (c) of this Section 2.3:
(i) The term Year of Service shall not include
any Plan Year commencing prior to the date on which
an Employee first completes an Hour of Service; and
(ii) the 12-consecutive-month period commencing
on the date on which an Employee first completes an
Hour of Service shall be deemed to be a
8
Year of Service if he completes at least 1,000 Hours
of Service during such 12-consecutive-month period.
<PAGE>
(b) Service After 1 Year Break in Service: Except as
otherwise provided in Section 3.2, if an Employee incurs a
1 Year Break in Service, service before such break shall
be disregarded until he has completed 1,000 Hours of
Service in:
(i) The 12-consecutive-month period commencing
on the date he first completes an Hour of Service
following his reemployment by the Employer; or
(ii) in any Plan Year commencing after such
date.
(c) Nonvested Participants: If an Employee or Parti-
cipant does not have a nonforfeitable right to any portion
of his Accrued Benefit in his Company Contribution
Account, and if the number of his consecutive 1 Year
Breaks in Service equals or exceeds the greater of 5 or
the aggregate number of his Years of Service, as modified
by paragraph (a) above, his Years of Service prior to such
break shall be disregarded, and he shall be considered as
a new Employee. In computing Years of Service prior to
such break, Years of Service which could have been disre-
garded under the provisions of this paragraph (c) by
reason of any prior breaks in service shall be
disregarded.
Section 2.4. Years of Service - Vesting. For purposes of
determining the nonforfeitable percentage of a Participant's
Accrued Benefit derived from Company contributions pursuant to
Section 7.6, the term "Years of Service" means the period of
years and fractions of years, based on days, commencing on the
date an Employee first completes an Hour of Service, and, in the
case of an Employee who is reemployed following a Period of
Severance of more than 12 months, commencing on the first date he
again completes an Hour of Service, and ending on the
date a Period of Severance begins; however, for purposes of
determining vesting, an Employee shall also be credited with days
during any Period of Severance not exceeding 12 months.
Section 2.5. Period of Severance. The term "Period of
Severance" means a continuous period of time during which an
Employee is not employed by the Employer, beginning on the
date the Employee retires, quits, or is discharged and ending on
the date on which he again performs an Hour of Service. If no
more than 1 Year of Service is required for participation in
the Plan, and if an Employee has a Period of Severance at a time
when he has completed at least 1 Year of Service but no
percentage of his Accrued Benefit derived from Company
contributions is nonforfeitable, his Years of Service prior to
such Period of Severance shall be disregarded if the length of
his Period of Severance equals or exceeds the longer of 60
<PAGE>
months or the length of his Years of Service completed before the
date such Period of Severance began (not including in such Years
of Service any Year of Service previously excluded be- cause of
an earlier Period of Severance). Further, a Partici-pant's Years
of Service after a Period of Severance exceeding 60 months shall
be disregarded for the purpose of determining the nonforfeitable
percentage of his Accrued Benefit derived from Company
contributions which accrued before such Period of Severance.
Section 2.6. Maternity or Paternity Absence. If an Employee
is absent from active employment for maternity or paternity
reasons, the 12-consecutive-month period commencing on the first
anniversary of the first day of such absence shall
not constitute a Period of Severance exceeding 12 months. An
absence from active employment for maternity or paternity reasons
shall mean an absence:
(a) By reason of the pregnancy of the Employee;
9
(b) by reason of the birth of a child of the
Employee;
(c) by reason of the placement of a child with the
Employee in connection with the adoption of such child by
the Employee or Participant; or
(d) for purposes of caring for such child for a
period beginning immediately following such birth or
placement.
No credit will be given under this Section 2.6 unless the Company
receives such timely information as it may reasonably require to
establish that an absence is for maternity or paternity reasons.
Section 2.7. Predecessor Employer Service. Service with
Prints Plus shall be deemed to be service with the Employer for
both eligibility and vesting purposes for those Employees
who became Employees of the Employer as a result of its
acquisition of Prints Plus in 1993. Service with Fotomat,
Corporation shall be deemed to be service with the Employer for
both eligibility and vesting purposes for those Employees who
became Employees of the Employer as a result of its acquisition
of Fotomat, Corporation in 1993.
Section 2.8. Service with Fox Photo, Inc. Prior service
with Fox Photo, Inc. shall be deemed to be service with the
Employer for both eligibility and vesting purposes for those
Employees who became Employees of the Company as a result of
<PAGE>
its acquisition of Fox Photo, Inc. in 1991. In addition, service
with Fox Photo, Inc. after the Company's sale of Fox Photo, Inc.
on October 4, 1996 (the "Closing Date") shall be deemed to be
service with the Employer for vesting purposes for Participants
who ceased to be Employees of the Employer and Active
Participants in the Plan as a result of such sale but continued
to be employees of Fox Photo, Inc. after the Closing Date for the
limited period until the assets of the Plan attributable to
employees of Fox Photo, Inc. were or are transferred to a new
qualified plan for such employees in a plan-to-plan transfer.
ARTICLE III
PLAN PARTICIPATION
Section 3.1. Commencement of Participation. Each former
Employee who retired or terminated employment while covered under
the Prior Plan shall continue to be entitled to the
same benefits under this Plan to which he was entitled under the
Prior Plan, and such benefits shall continue to be governed by
the provisions of the Prior Plan. In addition, each Employee who
was an active participant in the Prior Plan on the Effective Date
shall be deemed to have met the requirements to become an Active
Participant in this Plan as of the Effective Date. Each other
Employee of the Company except Leased Employees (as defined in
paragraph (k) of Section 1.3) and except Employees covered by a
collective bargaining agreement to which the Company is a party
or by which it is bound and with respect to which retirement
benefits are the subject of good faith bargaining, shall become
an Active Participant in the Plan on the Effective Date or on the
first day of any pay period thereafter, if:
(a) He has completed 1 Year of Service;
(b) he has attained at least 21 years of age; and
10
(c) the date on which he first completed an Hour of
Service (excluding any Hours of Service disregarded under
paragraph (c) of Section 2.3) occurred at least 12 months
prior thereto.
Section 3.2. Continued Participation. Except as
specifically provided in paragraph (c) of Section 2.3, a former
Employee or Participant whose employment terminates or who
becomes ineligible to be an Active Participant pursuant to
paragraph (b) of Section 1.3 after he has once met the service
requirement of Section 3.1 shall not be required to again meet
that requirement upon his resumption of employment or upon his
ceasing to be so ineligible, as the case may be.
<PAGE>
Section 3.3. No Guaranty and Facts Regarding Eligibility.
Participation in the Plan shall not constitute a guaranty or
contract of employment with the Company. With respect to the
facts determining the eligibility or noneligibility of any
Employee to participate, the Trustee shall be fully protected in
relying on information furnished by the Company and shall not be
required to make any further inquiry of fact.
ARTICLE IV
CONTRIBUTIONS
Section 4.1. Participant Contributions. Each Employee who
becomes an Active Participant in this Plan and Trust shall have
such contributions made to the Plan on his behalf pursuant to the
provisions of this Section 4.1 as he shall elect from time to
time. The aggregate amount an Active Participant shall be
permitted to have contributed to the Plan on his behalf for
any Plan Year under this Section 4.1 shall not exceed 15% of such
Participant's Compensation for such Plan Year.
(a) After-tax Contributions: After-tax Contributions
may only be made to the Plan through January 31, 1998.
Thereafter, no such contributions shall be made. An
Active Participant who elects prior to February 1, 1998 to
make after-tax contributions to the Plan agrees that he
will contribute to the Plan not less than 1% nor more than
15% (rounded to the nearest 1%) of his Compensation from
the Company through January 31, 1998, and expressly
authorizes the Company to withhold from his Compensation
and to contribute to the Plan such amounts as shall equal
said percentage. All such contributions shall be subject
to the requirements and limitations of Section 4.10.
(b) Pre-tax Contributions: An Active Participant who
elects to have pre-tax contributions made to the Plan
agrees that as long as such election remains in effect the
Company shall deduct a percentage not less than 1% nor
more than 15% (rounded to the nearest 1%) from his
Compensation from the Company, as periodically payable to
him, and shall contribute such amount to the Plan on his
behalf. Each election shall be an express authorization
for the reduction by the Company of his Compensation by
such amounts as shall equal the percentage elected and the
contribution of such amounts to the Plan and Trust. All
such contributions shall be subject to the requirements
and limitations of Section 4.8 and Section 4.9.
If and to the extent necessary to comply with the remaining
requirements of this Article IV, the Company may limit the
amounts a Participant may elect to have contributed pursuant to
this
11
<PAGE>
Section 4.1 and/or distribute any or all such amounts in
accordance with the remaining provisions of this Article IV.
Section 4.2. Company Contributions. Subject to Section 4.3,
for each Plan Year the Company shall make a contribution to the
Trust on behalf of each Participant who made a contribu-tion for
such Plan Year under Section 4.1 and who either (a) was still an
Employee of the Employer at the close of such Plan Year and had
not withdrawn his contribution for such Plan Year before the
close of such Plan Year, or (b) ceased to be an Employee during
such Plan Year due to death or due to normal, early or disability
retirement under Section 7.1, Section 7.3 or Section 7.2, unless
such retired Participant (or the Beneficiary of a deceased Former
Participant) elected to have some or all of his interest in the
Plan distributed to him prior to the end of such Plan Year. The
amount of the Company contribution for each such Participant
shall be equal to 50% of the lesser of (a) the total amount
contributed by or on behalf of such Participant pursuant to
Section 4.1 for such year or (b) 5% of such Participant's
Compensation for such year. The total contribution to the Plan
and Trust for any Plan Year shall be allocated and charged to
each Company by aggregating the total amounts allocated under
Section 5.1 to each Partici-pant who was an Employee of such
Company and had a contribution made on his behalf; provided,
however, that if any such Participant was employed by more than
one Company during a Plan Year, the amount allocated to such
Participant under Section 5.1 shall be allocated and charged to
each such Company in proportion to such Participant's
Compensation from each such Company for such Plan Year.
Contributions made by the Company shall be subject to the
requirements of Section 4.10.
Section 4.3. Contributions Out of Profits. No contribu-tion
shall be made pursuant to Section 4.2 except out of the Company's
current or accumulated earnings or profits. However, in the case
of any "affiliated group" within the meaning Section 1504 of the
Code, if any Company is prevented from making a contribution
which it would otherwise have made under the Plan (including any
contribution which would be charged and allocated to it under
Section 4.2), by reason of having no current or accumulated
earnings or profits or because such earnings or profits are less
than the contribution which it would otherwise have made, then so
much of the contribution which such Company was so prevented from
making may be made by one or more of the other Companies to the
extent of current or accumulated earnings or profits, except that
such contribution by each such other Company shall be limited,
where all such Companies do not file a consolidated return, to
that proportion of its total current and accumulated earnings or
profits remaining after adjustment for its contribution
deductible without regard to this sentence which the total
prevented contribution bears to the total current and accumulated
<PAGE>
earnings or profits of all of the Companies remaining after
adjustment for all contributions deductible without regard to
this sentence. Contributions to the Plan made pursuant to
Section 4.1 shall be made without regard to whether or not the
Company has current or accumulated earnings or profits.
Notwithstanding the preceding sentence, the Plan and Trust is
designed to qualify as a profit sharing plan for purposes of all
applicable provisions of the Code.
Section 4.4. Rules for Making Elections. The Company shall
establish uniform rules and procedures governing the percentage
or amount of Compensation which may be contributed
and the time and manner in which the elections authorized in
Section 4.1 may be made, changed and/or revoked. To the extent
permitted under procedures established by the Company from time
to time, such elections may be accomplished by any electronic or
telephonic means not otherwise prohibited by law.
Section 4.5. When Contributions are Due. All amounts
withheld from the pay of Participants pursuant to Section 4.1
shall be paid over and delivered by the Company to the Trustee
promptly on a monthly or more frequent basis as soon as is
administratively feasible, and in no event
12
later than 12 months after the end of the Plan Year for which
they were made. Contributions made to the Plan and Trust by the
Company for any Plan Year pursuant to Section 4.2 may be made in
1 or more installments. Any contribution for a Plan Year made
after the end of such Plan Year shall be paid over not later than
the time prescribed by law for filing the
federal income tax return of the Company (including extensions
thereof) for its taxable year with or within which such Plan Year
ends.
Section 4.6. No Reversion. The entire amount of all monies
and Qualifying Employer Securities so paid or made available by
the Company to the Trustee under the preceding Sections of this
Article IV shall constitute an irrevocable contribution by the
Company to this Trust, and the Company shall have no further
rights or claims to said funds other than the right to require
the Trustee to hold, use and administer said funds for the
benefit of the Participants and their
Beneficiaries in accordance with the provisions of this Trust.
Notwithstanding the foregoing:
(a) Any contribution made by the Company by a mistake
of fact shall be returned to the Company, upon its
request, within 1 year after such contribution was made;
and
(b) each contribution of the Company shall be
<PAGE>
conditioned upon its deductibility under Section 404 of
the Code, and if a deduction is disallowed with respect to
any contribution, it shall be returned to the Company,
upon its request, within 1 year after the disallowance of
the deduction.
Section 4.7. Acceptance by Trustee. The Trustee may
accept any amount paid to the Trustee by the Company without any
responsibility or necessity on the part of the Trustee to
check or otherwise determine if the amount so paid was properly
authorized and paid in accordance with the provisions hereof.
Section 4.8. Maximum Pre-tax Contributions. The amount
contributed in any taxable year of a Participant on his behalf to
this Plan pursuant to paragraph (b) of Section 4.1, when
added to all other amounts contributed on his behalf in such year
pursuant to a salary reduction agreement or other deferral
mechanism to any other cash or deferred arrangement under Section
401(k) of the Code, simplified employee pension under Section
408(k) of the Code, simple retirement account under Section
408(p) of the Code, tax-sheltered annuity under Section 403(b) of
the Code, eligible deferred compensation plan under Section 457
of the Code and/or plan under Section 501(c)(18) of the Code,
shall not exceed the dollar limitation contained in Section
402(g) of the Code in effect on the first day of such taxable
year.
(a) If for any taxable year any such aggregate
pre-tax contributions are made on behalf of a Participant
in excess of the applicable dollar limitation ("Excess
Deferrals"), the Participant may request distribution of
such excess by notifying the Company, in writing, no later
than March 15 of the year following the taxable year in
which the Excess Deferrals were made. Such notice shall
specify the amount of the Excess Deferrals to be
distributed from the Plan and shall state that such
distribution is required to avoid exceeding the dollar
limitation for the taxable year in which the contributions
were made. Upon receiving such notice, or upon the
Company's independent determination that the limitation
has been exceeded, any Excess Deferrals, plus any income
and minus any loss allocable thereto, shall be distributed
to the Participant no later than April 15 of the year
following the taxable year in which the Excess Deferrals
were made.
13
(b) The amount of Excess Deferrals to be distributed
to any Participant pursuant to this Section 4.8 shall be
reduced by the amount of Excess Contributions made on
behalf of such Participant for the Plan Year beginning
<PAGE>
with or within such taxable year which have been
previously distributed to such Participant pursuant to
Section 4.9.
(c) The income or loss allocable to Excess Deferrals
for the Plan Year in which they were made and up to the
date of the corrective distribution shall be determined
using the methods described in paragraphs (g) and (h) of
Section 4.9 in accordance with applicable Regulations.
Section 4.9. Limitations on Pre-tax Contributions for Highly
Compensated Employees. If the pre-tax contributions allocated to
the accounts of Participants for any Plan Year are such that an
Acceptable Deferral Percentage Ratio (as defined below) is not
achieved for the Plan Year, the Company shall distribute to
Participants who are Highly Compensated
Employees any excess amounts contributed on behalf of such
Participants pursuant to paragraph (b) of Section 4.1 for that
Plan Year ("Excess Contributions"), plus the income and minus any
loss allocable thereto, within 2 and one-half months following
the close of the Plan Year in which such
contributions were made in such amounts and in the manner
determined under this Section 4.9. Any such distributions shall
not require the consent of the Participants on whose behalf the
contributions were made and shall be made in accordance with the
applicable provisions of the Code (including Section 401(k)(3) of
the Code) and the Regulations thereunder.
(a) An Acceptable Deferral Percentage Ratio shall
mean a relationship between the Average Deferral
Percentage ("ADP") (as defined below) for such Plan Year
for the group of Active Participants who are Highly
Compensated Employees for such Plan Year and the ADP for
the preceding Plan Year for the group of Active
Participants for such preceding Plan Year who were not
Highly Compensated Employees for such preceding Plan Year
("all other Active Participants") which satisfies either
of the following tests:
(i) The ADP for the group of Highly Compensated
Employees is not more than 125% of the ADP of all
other Active Participants (the "Basic Limit"); or
(ii) the ADP for the group of Highly Compensated
Employees does not exceed the ADP of all other Active
Participants by more than 2 percentage points, and
the ADP for the group of Highly Compensated Employees
is not more than 200% of the ADP of all other Active
Participants.
<PAGE>
In applying the foregoing tests, the Company may elect to
use the current Plan Year instead of the preceding Plan
Year for purposes of identifying the group of all other
Active Participants and determining the Deferral
Percentages and the ADP for such group. Any such election
shall not be changed except as provided by the Secretary
of the Treasury.
(b) For each Active Participant, a "Deferral
Percentage" shall be determined each year by dividing the
sum of the amounts contributed on his behalf to his
Pre-tax Contribution Account (excluding any Excess
Deferrals if the Participant is not a Highly Compensated
Employee) for the current or preceding Plan Year, as
applicable, by his Compensation for such Plan Year. The
Deferral Percentage of a
14
Participant who has had no amounts contributed to his
Pre-tax Contribution Account for a Plan Year shall be
zero. The ADP for a specified group of Employees shall be
the average of the Deferral Percentages for each Active
Participant in such group.
(c) If any pre-tax contributions are made on behalf
of any Highly Compensated Employee to 1 or more other cash
or deferred arrangements sponsored by the Employer, all
such contributions shall be considered in determining his
Deferral Percentage, with all such cash or deferred
arrangements ending with or within the same calendar year
being treated as a single arrangement.
(d) If this Plan must be aggregated with 1 or more
other plans of the Employer for this or any other such
plan to satisfy the requirements of Section 401(k),
Section 401(a)(4), or Section 410(b) of the Code, the
Deferral Percentages shall be determined as if all such
plans were a single plan, provided that all such plans
have the same Plan Year.
(e) The amount of Excess Contributions to be
distributed for any Plan Year to any Participant who is a
Highly Compensated Employee shall be determined by
following a two step process. First, the aggregate amount
of Excess Contributions shall be calculated by following a
leveling method (the "Percentage Leveling Method") under
which the Deferral Percentage of the Highly Compensated
Employee with the highest Deferral Percentage shall be
reduced to the extent necessary to reach an Acceptable
Deferral Percentage Ratio or to cause his Deferral
Percentage to equal the next highest Deferral Percentage
<PAGE>
of a Highly Compensated Employee, and by repeating this
process until an Acceptable Deferral Percentage Ratio is
achieved. The aggregate amount of Excess Contributions to
be returned shall then be calculated by adding the dollar
amounts by which each Highly Compensated Employee's
elective contributions must be reduced using the
Percentage Leveling Method to achieve an Acceptable
Deferral Percentage Ratio. Second, the aggregate amount
of Excess Contributions to be returned as so calculated
shall be allocated among and distributed to the Highly
Compensated Employees by following the "Dollar Leveling
Method" under which the elective contributions of the
Highly Compensated Employee with the highest dollar amount
of elective contributions shall be reduced to the extent
necessary to cause the dollar amount of his elective
contributions to equal the next highest dollar amount
of elective contributions of a Highly Compensated
Employee, and by repeating this process until all of the
Excess Contributions have been returned.
(f) The amount of Excess Contributions to be
distributed to any Participant pursuant to this Section
4.9 shall be reduced by any Excess Deferrals previously
distributed to such Participant pursuant to Section 4.8
for the Participant's taxable year ending with or within
the Plan Year.
(g) The income or loss allocable to Excess
Contributions for the Plan Year in which they were made
shall be determined in accordance with either of the
following methods, provided that the same method is used
on a uniform and consistent basis for all corrective
distributions for a given Plan Year:
(i) The "Fractional Method", whereby the income
or loss allocable to the Participant's Pre-tax
Contribution Account for the Plan Year in which such
Excess Contributions were made is multiplied by a
fraction, the numerator of which is such
Participant's Excess Contributions for such Plan Year
and the
15
denominator of which is the value of the
Participant's Pre-tax Contribution Account as of the
last day of the preceding Plan Year after all
allocations and adjustments have been made as of such
date for such preceding Plan Year; or
<PAGE>
(ii) any reasonable method which is normally
used by the Plan for allocating income or losses to
Participants' accounts.
(h) The income or loss allocable to Excess
Contributions for the period after the end of the Plan
Year in which such Excess Contributions were made up
to the date of the corrective distribution (the "Gap
Period") shall be determined in accordance with one of the
following methods, provided that the same method is used
on a uniform and consistent basis for all corrective
distributions for a given Plan Year:
(i) The income or loss for the Gap Period shall
be deemed to be zero;
(ii) the income or loss for the Gap Period shall
be deemed to be 10% of the amount determined under
paragraph (g)(i) of this Section 4.9 multiplied by
the number of whole calendar months between the end
of the Plan Year and the date of the corrective
distribution, counting the month of distribution if
distribution occurs after the 15th day of such month;
(iii) the income or loss for the Gap Period shall
be determined by applying the Fractional Method to
the income or loss allocable to the Participant's
Pre-tax Contribution Account for the Gap Period; or
(iv) the income or loss for the Gap Period shall
be determined in accordance with any reasonable
method which is normally used by the Plan for
allocating income or losses to Participants'
accounts.
Section 4.10. Limitations on After-tax and Matching
Contributions for Highly Compensated Employees. If the matching
contributions allocated to the Company Contribution
Accounts (and, for 1997 and 1998, the after-tax contributions
allocated to the After-tax Contribution Accounts) of Participants
for any Plan Year are such that an Acceptable
Contribution Percentage Ratio (as defined below) is not achieved
for the Plan Year, the Company may forfeit (if otherwise
forfeitable under the terms of the Plan) and/or distribute to
Participants who are Highly Compensated Employees any excess
amounts contributed by the Company pursuant to Section 4.2 for
that Plan Year (and, for 1997 and 1998, by Participants under
paragraph (a) of Section 4.1) ("Excess Aggregate Contributions"),
plus the income and minus any
loss allocable to such amounts, within 2 1/2 months following the
close of the Plan Year for which such contributions were made in
such amounts and in the manner determined under this Section
<PAGE>
4.10. Any such distribution shall not require the consent of the
Participants on whose behalf the contributions were made and
shall be made in accordance with the applicable provisions of the
Code (including Section 401(m)(6) of the Code) and the
Regulations thereunder.
(a) An Acceptable Contribution Percentage Ratio shall
mean a relationship between the Average Contribution
Percentage ("ACP") (as defined below) for such Plan Year
for the group of Active Participants who are Highly
Compensated Employees for such Plan Year and the ACP for
the preceding Plan Year for the group of all other Active
Participants for the preceding Plan Year which satisfies
either of the following tests:
16
(i) The ACP for the group of Highly Compensated
Employees is not more than 125% of the ACP of all
other Active Participants (the "Basic Limit"); or
(ii) the ACP for the group of Highly Compensated
Employees does not exceed the ACP of all other Active
Participants by more than 2 percentage points, and
the ACP for the group of Highly Compensated Employees
is not more than 200% of the ACP of all other Active
Participants.
In applying the foregoing tests, the Company may elect to
use the current Plan Year instead of the preceding Plan
Year for purposes of identifying the group of all other
Active Participants and determining the Contribution
Percentages and the ACP for such group. Any such election
shall not be changed except as provided by the Secretary
of the Treasury.
(b) For each Active Participant, a "Contribution
Percentage" shall be determined each year by dividing the
sum of the contributions allocated to his Company
Contribution Account (and, for 1997 and 1998, to his
After-tax Contribution Account) for the applicable Plan
Year by his Compensation for such Plan Year. The
Contribution Percentage of a Participant who has had no
amounts contributed to either such account for a Plan Year
shall be zero (except to the extent the last sentence of
this paragraph (b) may apply). The ACP for a specified
group of Employees shall be the average of the
Contribution Percentages for each Active Participant in
such group. If the requirements of Section 1.401(m)-1(b)
(5) of the Regulations are met, the Company may include in
the numerator for purposes of determining a Participant's
Contribution Percentage for a Plan Year some or all of the
<PAGE>
contributions allocated to his Pre-tax Contribution
Account for such Plan Year, but to the extent such
contributions are included for that purpose, they may not
otherwise be taken into account to satisfy the
requirements of Section 401(a)(4) and Section 401(k)(3) of
the Code, as set forth in the ADP test described in
Section 4.9.
(c) If any voluntary after-tax contributions or
Employer matching contributions are made on behalf of any
Highly Compensated Employee to 1 or more other qualified
plans sponsored by the Employer, all such contributions
shall be considered in determining his Contribution
Percentage.
(d) If this Plan must be aggregated with 1 or more
other plans of the Employer for this or any other such
plan to satisfy the requirements of Section 401(m),
Section 401(a)(4), or Section 410(b) of the Code, the
Contribution Percentages shall be determined as if all
such plans were a single plan, provided that all such
plans have the same Plan Year.
(e) The amount of Excess Aggregate Contributions to
be forfeited and/or distributed for any Plan Year to any
Participant who is a Highly Compensated Employee shall be
determined by following a two step process. First, the
aggregate amount of Excess Aggregate Contributions shall
be calculated by following the Percentage Leveling Method
under which the Contribution Percentage of the Highly
Compensated Employee with the highest Contribution
Percentage shall be reduced to the extent necessary to
reach an Acceptable Contribution Percentage Ratio or to
cause his Contribution Percentage to equal the next
highest Contribution Percentage of a
17
Highly Compensated Employee, and by repeating this process
until an Acceptable Contribution Percentage Ratio is
achieved. The aggregate amount of Excess Aggregate
Contributions shall then be calculated by adding the
dollar amounts by which each Highly Compensated Employee's
matching contributions (and, for 1997 and 1988, after-tax
contributions) must be reduced using the Percentage
Leveling Method to achieve an Acceptable Contribution
Percentage Ratio. Second, the aggregate amount of Excess
Aggregate Contributions as so calculated shall be
allocated among the Highly Compensated Employees by
following the Dollar Leveling Method under which the
matching (and after-tax) contributions of the Highly
Compensated Employee with the highest dollar amount
<PAGE>
of matching (and after-tax) contributions are reduced to
the extent necessary to cause the dollar amount of his
matching (and after-tax) contributions to equal the next
highest dollar amount of matching (and after-tax)
contributions of a Highly Compensated Employee, and by
repeating this process until all of the Excess Aggregate
Contributions have been returned and/or forfeited.
(f) The income or loss allocable to Excess Aggregate
Contributions for the Plan Year in which they were made
shall be determined in accordance with either of the
following methods, provided that the same method is used
on a uniform and consistent basis for all corrective
distributions for a given Plan Year:
(i) The "Fractional Method," whereby the income
or loss allocable to the Participant's After-tax
Contribution Account and/or Company Contribution
Account (depending upon from which account or
accounts the corrective distributions were made) for
the Plan Year in which such Excess Aggregate
Contributions were made is multiplied by a fraction,
the numerator of which is such Participant's Excess
Aggregate Contributions for such Plan Year and the
denominator of which is the value of the
Participant's After-tax Contribution Account and/or
his Company Contribution Account, as appropriate, as
of the last day of the preceding Plan Year after all
allocations and adjustments have been made as of such
date for such preceding Plan Year; or
(ii) any reasonable method which is normally
used by the Plan for allocating income or losses to
Participants' accounts.
(g) The income or loss allocable to Excess Aggregate
Contributions for the period after the end of the Plan
Year in which such Excess Aggregate Contributions were
made up to the date of the corrective distribution (the
"Gap Period") shall be determined in accordance with one
of the following methods, provided that the same method is
used on a uniform and consistent basis for all corrective
distributions for a given Plan Year:
(i) The income or loss for the Gap Period shall
be deemed to be zero;
(ii) the income or loss for the Gap Period shall
be deemed to be 10% of the amount determined under
paragraph (f)(i) of this Section 4.10 multiplied by
the number of whole calendar months between the end
of the Plan Year and the date of the corrective
<PAGE>
distribution, counting the month of distribution if
distribution occurs after the 15th day of such month;
18
(iii) the income or loss for the Gap Period shall
be determined by applying the Fractional Method to
the income or loss allocable to the Participant's
After-tax Contribution Account and/or Company
Contribution Account, as appropriate, for the Gap
Period; or
(iv) the income or loss for the Gap Period shall
be determined in accordance with any reasonable
method which is normally used by the Plan for
allocating income or losses to Participants'
accounts.
Section 4.11. Multiple Use of Alternative Limitations. If
for any Plan Year neither the ADP test calculated pursuant to
Section 4.9 nor the ACP test calculated pursuant to Section 4.10
can be satisfied using the Basic Limit described in subparagraph
(a)(i) of each such Section, respectively, then the sum of (a)
the ADP of the group of Active Participants who are Highly
Compensated Employees and (b) the ACP of the group of Active
Participants who are Highly Compensated Employees shall not
exceed the "Aggregate Limit". For purposes of determining the
Aggregate Limit, the ADP and the ACP of Highly Compensated
Employees shall be determined after the distribution of any
Excess Contributions or Excess Aggregate Contributions required
by Section 4.9 or Section 4.10, respectively. The Aggregate
Limit shall mean the greater of:
(a) The sum of:
(i) 125% of the greater of the ADP or the ACP
of all other Active Participants, plus
(ii) the lesser of 2 percentage points above, or
200% of, the lesser of the ADP or the ACP of all
other Active Participants; or
(b) the sum of:
(i) 125% of the lesser of the ADP or the ACP of
all other Active Participants, plus
(ii) the lesser of 2 percentage points above, or
200% of, the greater of the ADP or the ACP of all
other Active Participants.
<PAGE>
In the event that the Aggregate Limit is exceeded, Excess
Aggregate Contributions made for such Plan Year and allocated to
the accounts of Highly Compensated Employees, plus the income and
minus any loss allocable to such Excess Aggregate Contributions,
shall be distributed within 2 and one-half months following the
close of the Plan Year for which such contributions were made,
using the method set forth in Section 4.10, to the extent
necessary to reduce the ACP of the Highly
Compensated Employees so that, when added to the ADP of the
Highly Compensated Employees, the sum is not greater than the
Aggregate Limit.
Section 4.12. Form of Contributions. The Company's
contribution shall be made in Qualifying Employer Securities,
except that the Company shall make cash contributions to the
extent that cash is required to be distributed in lieu of
fractional shares pursuant to Section 8.13.
19
ARTICLE V
ALLOCATIONS AND ACCOUNTS
Section 5.1. Allocation of Participant Contributions.
(a) After-tax Contributions: Subject to the
limitations contained in Section 5.4, after-tax
contributions made to the Trust by Participants pursuant
to paragraph (a) of Section 4.1 shall be allocated to the
respective After-tax Contribution Accounts of the
Participants who contributed such amounts to the Trust.
(b) Pre-tax Contributions: Subject to the
limitations contained in Section 5.4, pre-tax
contributions made to the Trust by the Company on behalf
of Participants pursuant to paragraph (b) of Section 4.1
shall be allocated to the respective Pre-tax Contribution
Accounts of the Participants who elected to have such
amounts so contributed to the Trust.
Section 5.2. Allocation of Company Contributions. Subject
to the limitations contained in Section 5.4, the contributions
made by the Company to the Trust for a Plan Year pursuant to
Section 4.2 shall be allocated to the respective Company
Contribution Accounts of the Participants on whose behalf such
contributions were made.
Section 5.3. Separate Accounts. The Trustee shall create
and maintain an After-tax Contribution Account for each
Participant who elected to make contributions to this Trust under
paragraph (a) of Section 4.1 prior to February 1, 1998,
<PAGE>
and shall credit such account with all voluntary after-tax
contributions made by such Participant. The Trustee shall also
create and maintain a Pre-tax Contribution Account for each
Participant who elects to have contributions made on his behalf
under paragraph (b) of Section 4.1, and shall credit such account
with all pre-tax contributions made on behalf of such
Participant. The Trustee shall also create and maintain
a Company Contribution Account for each Participant to which the
Company's contributions made pursuant to Section 4.2 and
allocated to such Participant shall be credited, along with a
subaccount to which cash dividends allocable to such Participant
shall be credited. If a Participant incurs a Period of Severance
exceeding 60 months, and if the nonforfeitable portion of his
Accrued Benefit in his Company Contribution Account which accrued
prior to said Period
of Severance is not distributed in full, and if he again becomes
an Active Participant, separate Company Contribution Accounts
shall be provided for his pre-severance and post-severance
Accrued Benefit. If the Participant made any after-tax
contributions prior to January 1, 1987, a subaccount shall be
maintained reflecting all such contributions credited to his
After-tax Contribution Account as of December 31, 1986. The
creation of such accounts and subaccounts is primarily for
accounting purposes and does not require a segregation of assets
or funds to any such account.
Section 5.4. Limitations on Annual Additions. For purposes
of this Section 5.4, the following words and phrases shall have
the following meanings:
(a) Affiliate: As defined in paragraph (c) of
Section 1.3 but subject to the modifications of Section
414(b) and Section 414(c) of the Code described in
Section 415(h) of the Code.
(b) Annual Addition: With respect to each Plan Year,
the total contributions (including any excess elective
contributions returned to the Participant pursuant to the
provisions of Section 4.8) and forfeitures allocated to
a Participant's
20
accounts in this and any other Defined Contribution Plans
maintained by the Employer. Notwithstanding the
foregoing, for Plan Years commencing prior to 1987, only
the lesser of (i) 2 of a Participant's after-tax
contributions or (ii) the amount of his after-tax
contributions in excess of 6% of his Compensation for such
Plan Year shall be included in his Annual Addition for
such year. If applicable, for purposes of the dollar
limitation but not the percentage limitation, both (i)
<PAGE>
amounts allocated after March 31, 1984, to an individual
medical account (as defined in Section 415(l)(2) of the
Code) which is a part of a pension or annuity plan
maintained by the Employer, and (ii) amounts derived from
contributions paid or accrued after 1985 in taxable years
ending after such date which are attributable to
post-retirement medical benefits allocated to the
separate account of a Key Employee under a welfare benefit
fund (as defined in Section 419(e) of the Code) maintained
by the Employer shall be included in a Participant's
Annual Addition.
(c) Compensation: As defined in Section 415(c)(3)
of the Code and the Regulations thereunder.
(d) Defined Benefit Plan: A plan which is not a
Defined Contribution Plan. For purposes of applying the
limitations of this Section 5.4, all Defined Benefit Plans
(whether or not terminated) of the Employer shall be
treated as one Defined Benefit Plan.
(e) Defined Benefit Plan Fraction: For any Plan
Year, a fraction, the numerator of which is the projected
annual benefit of the Participant under all Defined
Benefit Plans maintained by the Employer, and the
denominator of which is the lesser of (i) 125% of $90,000
(indexed for cost of living adjustments provided for under
the Code), or (ii) 140% of the Participant's average
Compensation for the 3-consecutive calendar years of
service with the Employer which produce the highest
average.
(f) Defined Contribution Plan: A plan which provides
for one or more individual accounts for each Participant
and benefits based solely on the amounts contributed to
each Participant's account, and any income, expenses,
gains, losses and forfeitures which may be allocated
thereto. For purposes of applying the limitations of this
Section 5.4, all Defined Contribution Plans (whether or
not terminated) of the Employer shall be treated as one
Defined Contribution Plan.
(g) Defined Contribution Plan Fraction: For any Plan
Year, a fraction, the numerator of which is the sum of the
Annual Additions to the Participant's account for such
Plan Year and all prior Plan Years, and the denominator of
which is the sum of the lesser of the following amounts
determined for such Plan Year and for each prior Plan Year
of service with the Employer: (i) 125% of $30,000
(indexed for cost of living adjustments provided for under
the Code); or (ii) 35% of the Participant's Compensation
for the Plan Year. The Annual Addition for any Plan Year
<PAGE>
beginning before January 1, 1987 shall not be recomputed
to treat all of a Participant's voluntary contributions as
Annual Additions. If the Participant was a Participant as
of the first day of the first Limitation Year beginning
after December 31, 1986 in any Prior Plan which was in
existence on May 6, 1986, the numerator of the Defined
Contribution Plan Fraction shall be adjusted if the sum of
this fraction and the Defined Benefit Plan Fraction would
otherwise exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to the product of (i) the
excess of the sum of the fractions over 1.0 times (ii) the
denominator of the Defined Contribution Plan Fraction
shall be
21
permanently subtracted from the numerator of the
Defined Contribution Plan Fraction. The adjustment is
calculated using the fractions as they would be computed
as of the end of the last Limitation Year beginning before
January 1, 1987 and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but
using the limitations applicable under Section 415 of the
Code to the first Limitation Year beginning on or after
January 1, 1987.
(h) Employer: As defined in paragraph (l) of Section
1.3 but using the definition of Affiliate set forth in
paragraph (a) above.
(i) Limitation Year: The Plan Year.
Notwithstanding any other provision contained herein, the total
Annual Addition made to the account of a Participant for any Plan
Year shall not exceed the lesser of (a) $30,000 (or, if
greater, 25% of the dollar limitation in effect for such Plan
Year under Section 415(b)(1)(A) of the Code), or (b) 25% of the
Participant's Compensation for such Plan Year. In addition, if
in any Plan Year a Participant in this Plan also participates in
a Defined Benefit Plan maintained by the Employer, the sum of the
Defined Benefit Plan Fraction and the Defined Contribution Plan
Fraction, both computed as of the close of the Plan Year, shall
not exceed 1.0. At the election of the Company, special
transitional rules may apply for both the Defined Benefit Plan
Fraction and the Defined Contribution Plan Fraction for Employees
who were Participants in the Prior Plan as of December 31, 1982.
If any Annual Addition exceeds any limitation contained in this
Section 5.4, first the after-tax contributions made by such
Participant for the Plan Year pursuant to paragraph (a) of
Section 4.1 which caused such excess shall be returned to the
Participant, and then, if necessary, the pre-tax contributions
<PAGE>
made on behalf of such Participant for such Plan Year pursuant to
paragraph (b) of Section 4.1 which caused such excess shall be
returned to the Participant. If, after returning all such
contributions for such Plan Year, an excess still exists, such
excess shall be held in a suspense account and applied to reduce
the contribution of the Company for such Plan Year and for each
succeeding Plan Year until exhausted. If more than 1 Company has
contributed to the account of a Participant in a Plan Year, any
such excess shall be applied to reduce the contributions of such
Companies in proportion to the amount of contributions made by
each such Company and allocated to such Participant.
Section 5.5. Dividends. Notwithstanding any other provision
of this Plan and Trust, any cash dividend on Qualifying Employer
Securities held by the Trust and allocated to the accounts of
Participants shall be credited to the respective Company
Contribution Accounts to which the Qualifying Employer Securities
are credited. Such dividends shall be invested and reinvested as
directed by Participants pursuant to Section 12.4. Except as
hereinafter set forth, such dividends and all earnings thereon
shall at all times be fully nonforfeitable and shall be
distributed in accordance with the provisions of Article VIII,
provided, however, that in cases where such dividends and
earnings are less than $1.00 and represent the entire
nonforfeitable Accrued Benefit with respect to a Participant,
such dividends and earnings shall be forfeited and applied in
accordance with Section 8.9. Dividends on Qualifying Employer
Securities held by the Trust and not allocated to the accounts of
Participants shall be invested as directed by the Company and
such dividends and earnings thereon shall be used to provide cash
distributions in lieu of fractional shares.
22
ARTICLE VI
VALUATION OF ACCOUNTS
Section 6.1. Valuation Date. The last day of each Plan Year
shall be the Annual Valuation Date as of which the value of each
Participant's share in the Trust shall be determined. As soon as
possible, but in any event within a reasonable period after the
Trustee shall have received the Company's contribution for any
Plan Year, or within a reasonable period of time after the
expiration of the time permitted to the Company to make payment
of its contribution as provided in Section 4.5, whichever shall
first occur, the Trustee shall appraise the fair market value of
all property and funds of the Trust as of the close of such Plan
Year and prepare a written account. Such written account shall
set forth all investments, receipts, disbursements and other
<PAGE>
transactions of the Trust for or during such Plan Year and shall
contain an itemized schedule of all Trust property and funds
showing in each case the appraised fair market value thereof as
of the close of such Plan Year and an itemized schedule of all
liabilities of the Trust as of the close of the Plan Year.
Section 6.2. Interim Valuation. As of any time during the
Plan Year that the Company deems it necessary, the Company shall
direct the Trustee to revalue the Trust upon the basis of
the then market value of the assets in the Trust. Such interim
Valuation Date shall be substituted for the valuation as of the
end of the preceding Plan Year, or for any more recent interim
Valuation Date, in determining the amounts in the accounts of
Participants and their Beneficiaries for all purposes of the
Plan. Whenever reference is made in the Plan to the account as
of the end of the preceding Plan Year, it shall mean as of the
most immediately preceding interim Valuation Date.
Section 6.2. Allocation of Earnings. All earnings, gains,
and losses of the Trust for each Plan Year shall be allocated
among the accounts and subaccounts on the books of the Trust
as of each Valuation Date in proportion to the respective
balances of such accounts and subaccounts as of the immediately
preceding Valuation Date; provided, however, that if any portion
of a Participant's Accrued Benefit is held in any directed
account pursuant to Section 12.4, such portion of his Accrued
Benefit shall share only in the earnings, gains and losses of the
investment funds held in such directed account.
Section 6.4. Value of Accrued Benefit upon Termination. For
the purpose of determining the value of the Accrued Benefit of
each Participant in the event of the death, retirement, or other
termination of employment or participation of such Participant,
the value of such Participant's Accrued Benefit shall be the
value thereof as of the last Valuation Date preceding his death,
retirement, or other termination of employment or participation,
after giving effect to any credits and/or debits thereto made as
of the said Valuation Date in accordance with any of the
foregoing provisions of this Plan and Trust, and to any other
credits and/or debits made to his Accrued Benefit subsequent to
such last preceding Valuation Date pursuant to any of the
provisions of this Plan and Trust.
Section 6.5. Valuation of Qualifying Employer Securities.
The value of Qualifying Employer Securities for all purposes of
this Plan and Trust shall be determined in good faith by
the Company based on all relevant factors. The Trustee shall
have no responsibility for the determination of such value or
liability therefrom.
Section 6.6. Unit Accounting. The Trustee or the Contract
Administrator may, for administrative purposes, establish unit
<PAGE>
values for one or more investment funds (or any portion
thereof) and maintain the accounts setting forth each
Participant's interest in each such investment fund (or portion
thereof) in terms of such units, all in accordance with such
rules and procedures as the Trustee or Contract Administrator
shall deem to be fair, equitable and administratively
practicable. In the event
23
that unit accounting is thus established for any investment fund
(or any portion thereof) the value of a Participant's interest in
that investment fund (or any portion thereof) at any time shall
be an amount equal to the then value of a unit in such investment
fund (or any portion thereof) multiplied by the number of units
then credited to the Participant.
ARTICLE VII
ENTITLEMENT TO BENEFITS
Section 7.1. Normal Retirement Date. Each Participant shall
have the right, at his option, to retire at any time from and
after his Normal Retirement Date; provided, that until such
retirement or other termination of employment thereafter his
right to full participation as a Participant hereunder shall
continue. If a Participant's employment with the Employer is
terminated on or after his Normal Retirement Date (other than
termination by reason of his death), his entire Accrued Benefit
shall thereafter be fully nonforfeitable and shall be distributed
in accordance with the provisions of Section 8.1.
Section 7.2. Disability Retirement Prior to Normal
Retirement Date. The Company will permit a Participant to retire
prior to his Normal Retirement Date in any case in which it is
determined by a duly licensed physician selected by the Company
that, because of ill health, accident, disability or general
inability because of age, the Participant is no longer able,
properly and satisfactorily, to perform his regular duties as an
Employee. The foregoing provisions of this Section 7.2 shall be
administered in such manner that all Participants are treated
similarly under similar circumstances. If a Participant's
employment with the Employer is terminated pursuant to this
Section 7.2, his entire Accrued Benefit shall thereafter be fully
nonforfeitable and shall be distributed in accordance with the
provisions of Section 8.1.
Section 7.3. Early Retirement. Each Participant shall have
the right, at his option, to retire at any time after he has
attained 55 years of age and completed 15 Years of Service. If
a Participant's employment is terminated after he has satisfied
the aforesaid age and service requirements (other
<PAGE>
than termination by reason of his death), his entire Accrued
Benefit shall thereafter be nonforfeitable and shall be
distributed in accordance with the provisions of Section 8.1.
For purposes of this Section 7.3, Years of Service shall be
determined under Section 2.4 without regard to the provisions of
Section 2.5.
Section 7.4. Death. Upon the death of a Participant while
in the employ of the Employer, his entire Accrued Benefit shall
thereafter be fully nonforfeitable and shall be distributed in
accordance with the provisions of Section 8.2.
Section 7.5. Termination for Other Reasons. If a
Participant's employment with the Employer is terminated other
than as described in the preceding Sections of this Article VII,
he shall have a nonforfeitable interest in all of his Accrued
Benefit in his After-tax Contribution Account and his Pre-tax
Contribution Account and in the following percentage of his
Accrued Benefit in his Company Contribution Account (other than
dividends credited to such account as provided in Section 5.5):
24
<TABLE>
<CAPTION>
Years of Service Nonforfeitable Percentage
- ---------------- -------------------------
<S> <C>
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
</TABLE>
Said nonforfeitable percentage shall be distributed in accordance
with the provisions of Section 8.3
Section 7.6. Lost Distributees. If a Former Participant or
his Beneficiary cannot be located for a period of 2 years after
the benefits payable with respect to such Former Participant
could be distributed under the provisions of this Plan and Trust
without the consent of the Participant or Beneficiary, the
Accrued Benefit of such Former Participant which has not already
been forfeited pursuant to the provisions of Section 8.9 shall be
forfeited as of the next Annual Valuation Date. Any Accrued
Benefit forfeited in accordance with the foregoing provision
shall be reinstated if a claim is made by the Former Participant
or Beneficiary. Notwithstanding any other provision of this Plan
and Trust, the amounts to be reinstated may come from earnings
<PAGE>
and gains of the Trust, Company contributions and forfeitures.
ARTICLE VIII
DISTRIBUTION OF BENEFITS
Section 8.1. Retirement. Subject to the remaining
provisions of this Article VIII, upon the termination of
employment of any Participant on account of normal, early or
disability retirement pursuant to Section 7.1, Section 7.3 or
Section 7.2, the Company shall direct the Trustee to distribute
the Accrued Benefit of such Participant in one or more of the
following methods:
(a) In a lump sum;
(b) in annual or more frequent periodic payments of
not less than $10.00 each, until the entire Accrued
Benefit has been fully and completely distributed;
provided, however, that if such Participant shall die
prior to having received all of his Accrued Benefit, then
and in that event the Company shall direct the Trustee to
distribute the remaining balance of such deceased
Participant's Accrued Benefit in accordance with the
provisions of Section 8.2. Until distributed in full, the
Accrued Benefit of such Participant shall be subject to
the valuation adjustments described in Article VI.
To the extent the distribution qualifies as an Eligible Rollover
Distribution (as defined below), the Participant may also elect
to have a portion or all of such distribution paid in the form of
a direct rollover to another Eligible Retirement Plan (as defined
below) designated by the Participant in accordance with the
provisions of Section 402 of the Code and Section 401(a)(31) of
the Code. An Eligible Rollover Distribution shall mean any
distribution of all or any portion of a Participant's Accrued
Benefit other than: (i) A distribution that is 1 in a series of
substantially equal periodic payments made for the life (or life
expectancy) of the Participant or joint lives (or joint life
expectancy) of the Participant and his designated Beneficiary, or
for a specified period of 10 years or more; (ii) any portion of
a distribution required under Section 8.6, Section 8.7 or Section
8.8 of the Plan; and (iii) any
25
portion of a distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Qualifying Employer Securities). An
Eligible Retirement Plan shall mean an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an
<PAGE>
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code.
Section 8.2. Death. Upon the death of a Participant prior
to his retirement or other termination of employment, or prior to
commencement of his benefits, the Company shall direct
the Trustee to distribute his Accrued Benefit to his surviving
spouse or, if there is no surviving spouse or the surviving
spouse consents or such consent is not required, to his
designated Beneficiary or Beneficiaries, if any, otherwise to the
duly appointed, qualified and acting personal representative,
executor or administrator of the estate of such deceased
Participant.
(a) Beneficiary Designation: Each Participant may,
from time to time, designate in writing to the Company the
name or names of any Beneficiary or Beneficiaries and/or
contingent Beneficiary entitled to receive any benefits
which may be payable under the Trust in the event of his
death. Any such designation may be changed or revoked by
a Participant at any time and from time to time by
appropriate instrument signed in writing and delivered to
the Company.
(b) Consent of Spouse: Any designation by a married
Participant of a Beneficiary or Beneficiaries other than
his spouse under the foregoing provisions of this Section
8.2 shall not be effective unless: (i) The designation
either designates a specific Beneficiary, including any
class of Beneficiaries or contingent Beneficiaries, which
may not be changed without the spouse's further consent,
or expressly permits the Participant to change his
Beneficiary designation without the spouse's further
consent; (ii) the spouse of the Participant consents in
writing to such designation; (iii) such consent
acknowledges the effect of such designation; (iv) if the
designation permits the Participant to change his
Beneficiary without the spouse's further consent, the
consent acknowledges that the spouse has a right to
limit consent to a specific Beneficiary and voluntarily
relinquishes that right; and (v) such consent is witnessed
by a Plan representative or a notary public. However,
the spouse's consent shall not be required if it is
established to the satisfaction of a Plan representative
that it cannot be obtained because there is no spouse,
because the spouse cannot be located or because of such
other circumstances as the Regulations may prescribe.
<PAGE>
(c) Commencement of Distribution: If the
Participant's Accrued Benefit exceeds or at any time
exceeded $5,000, distribution to his surviving
spouse, if any, shall not commence prior to the later of
what would have been the Participant's Normal Retirement
Date or the date the Participant would have attained 62
years of age, unless the Company provides the surviving
spouse with notice of the payment options available and
the right to defer distribution and obtains the spouse's
written consent to distribution. Such notice and consent
shall satisfy the notice and consent requirements set
forth in Section 8.4.
(d) Method of Distribution: Distribution shall be
made to the Beneficiary in 1 or more of the methods
described in Section 8.1; provided, however, that the
direct rollover option shall be available only to a
Beneficiary who is the Participant's surviving spouse or
his former spouse who is the Alternate Payee under a
Qualified Domestic Relations Order (both as defined in
Section 9.2 of the Plan); and, provided further, that with
respect to a Beneficiary who is a surviving spouse (but
not with
26
respect to a former spouse who is an Alternate
Payee), the Eligible Retirement Plan must be an individual
retirement account or individual retirement annuity.
Section 8.3. Termination of Employment. If a Participant's
employment terminates other than because of his death, his
disability pursuant to Section 7.2, or after he has met the
requirements for normal or early retirement pursuant to Section
7.1 or Section 7.3, the nonforfeitable portion of his Accrued
Benefit shall be distributed to him by the Trustee at the
direction of the Company in accordance with Section 8.1 at his
Normal Retirement Date. Distribution may be advanced to a date
earlier than his Normal Retirement Date if the Former
Participant so elects, in writing, in accordance with the
requirements of Section 8.4. If the nonforfeitable portion of a
Former Participant's Accrued Benefit does not exceed $5,000 and
has never exceeded such amount, the Company may direct the
Trustee to distribute such benefit in a lump sum as promptly as
feasible following termination of his employment with or without
his consent, subject to his right to elect the direct rollover
option described in Section 8.1 in lieu of such lump sum payment.
If a Former Participant dies prior to having received any part or
all of the nonforfeitable portion of his Accrued Benefit, the
Company shall direct the Trustee to distribute the remaining
balance thereof in accordance with Section 8.2. Until
distributed in full, the Accrued Benefit of
<PAGE>
any such Former Participant shall be subject to the valuation
adjustment described in Article VI.
Section 8.4. Payment Elections. The Company shall direct
the Trustee to distribute the Accrued Benefit of a Participant in
accordance with any written request filed by the Participant or
his Beneficiary specifying the method or methods permitted under
this Article VIII by which he desires distribution. If a
Participant's Accrued Benefit exceeds or at any time exceeded
$5,000 and he becomes entitled to distribution for any reason at
any time prior to the later of his Normal Retirement Date or the
date he attains 62 years of age, such benefit shall not
be distributed unless the Company provides the Participant with
notice of the payment options available to him and obtains his
written consent to distribution. Such consent shall be valid
only if: (a) The notice includes a general description of the
material features and an explanation of the relative values of
the optional forms of benefit available under the Plan, including
the direct rollover option described in Section 8.1; (b) the
notice advises the Participant of his right to defer
distribution; and (c) the consent is signed after such notice has
been received and no more than 90 days before payment commences.
Such consent shall not be required if distribution commences on
account of or after the death of the Participant.
Section 8.5. Commencement of Benefits. Except as other-wise
provided in Section 8.3, any distribution under Section 8.1,
Section 8.2 or Section 8.3 shall generally be payable as soon as
administrative feasible following the Participant's retirement,
death or other termination of employment. The Participant may
elect to postpone the distribution of his Accrued Benefit to a
later date, but not later than the Participant's Required
Beginning Date as defined in Section 8.6. Unless otherwise
elected by the Participant, payment of benefits shall commence no
later than 60 days after the close of the Plan Year in which
occurs the latest of: (a) The Participant's attainment of age 65
(or the Participant's Normal Retirement Date, if earlier) (b) the
Participant's employment with the Employer terminates, or (c) the
10th anniversary of the Participant's participation in the Plan
occurs; provided however, that if the amount of benefits cannot
be ascertained by such date, payment shall be retroactive to such
date, after ascertainment, and shall commence not later than 60
days after the amount is ascertained. The failure of a
Participant to consent to a distribution as required by Section
8.4 shall be deemed to be an election to postpone payment
sufficient to satisfy this Section 8.5.
<PAGE>
Section 8.6. Required Beginning Date. In accordance with
Section 401(a)(9) of the Code and the Regulations thereunder,
distribution of a Participant's Accrued Benefit shall commence no
later than his "Required Beginning Date," determined as follows:
27
(a) General Rule: The Required Beginning Date of a
Participant who is not a 5% owner shall be the first day
of April of the calendar year following the calendar year
in which the later of his retirement or attainment of age
70 and one-half occurs.
(b) 5% Owners: The Required Beginning Date of a
Participant who is a 5% owner (as defined in Section
416(i) of the Code but without regard to whether the Plan
is top-heavy) with respect to the Plan Year in which the
Employee attains age 70 1/2 shall be the first day of April
following the calendar year in which he attains age 70 1/2.
Once distributions have begun to a 5% owner under this
Section, they shall continue to be distributed even if he
ceases to be a 5% owner in a subsequent year.
(c) Transition Rule: If the Required Beginning Date
of a Participant who is not a 5% owner occurred prior to
1997 under the provisions of this Section 8.6 in effect
under the Prior Plan and such Participant has not retired,
such Participant may but is not required to elect to have
his Required Beginning Date deferred to the date
determined under paragraph (a).
Section 8.7. Non Lump Sum Distributions. If not made in a
lump sum payment, distributions may only be made over one of the
following periods (or a combination thereof) in accordance with
Section 401(a)(9) of the Code and the Regulations thereunder:
(a) The life of the Participant;
(b) the life of the Participant and a designated
Beneficiary;
(c) a period certain not extending beyond the life
expectancy of the Participant; or
(d) a period certain not extending beyond the joint
and last survivor expectancy of the Participant and a
designated Beneficiary.
If the Participant's entire Accrued Benefit is to be distributed
pursuant to (c) or (d) above, the amount to be distributed for
each year, commencing with the calendar year in which the
Participant's Required Beginning Date occurs, must be at least an
<PAGE>
amount equal to the quotient obtained by dividing the entire
Accrued Benefit by the life expectancy of the Participant or the
joint and last survivor expectancy of the Participant and
designated Beneficiary. Life expectancy and joint and last
survivor expectancy shall be computed by the use of the return
multiples contained in Section 1.72-9 of the Regulations. For
purposes of this computation, the life
expectancy of the Participant and spouse may be recalculated no
more frequently than annually; however, the life expectancy of a
nonspouse Beneficiary may not be recalculated. If the spouse
is not the designated Beneficiary, the method of distribution
selected must assure that more than 50% of the present value of
the amount available for distribution will be paid within the
life expectancy of the Participant. If the spouse is not the
designated Beneficiary, the method of distribution selected must
assure a minimum annual payment for each year, beginning with the
calendar year in which the Participant's Required Beginning Date
occurs, in an amount determined in accordance with Section
1.401(a)(9)-2 of the Regulations.
Section 8.8. Death Distribution Provisions. If a
Participant dies after distribution of his Accrued Benefit has
commenced, the remaining portion of such Accrued Benefit shall
continue to be distributed at least as rapidly as under the
method of distribution being used prior to his death. If a
Participant dies before distribution of his Accrued Benefit has
commenced, the entire Accrued Benefit shall be distributed no
later than the last day of the calendar year in which the 5th
anniversary of the
28
Participant's death occurs, except to the extent that an election
is made to receive distributions in accordance with (a) or (b)
below and Section 401(a)(9) of the Code and the Regulations
thereunder:
(a) If any portion of the Participant's Accrued
Benefit is payable to a designated Beneficiary,
distributions may be made in substantially equal
installments over the life or life expectancy of the
designated Beneficiary commencing no later than the last
day of the calendar year following the calendar year of
the Participant's death; and
(b) if the designated Beneficiary is the
Participant's surviving spouse, the date distributions are
required to begin shall not be earlier than the last day
of the calendar year in which the Participant would have
attained age 70 1/2, and, if the spouse dies before payments
<PAGE>
begin, subsequent distributions shall be made as
if the spouse had been the Participant.
For purposes of this Section 8.8, life expectancy shall be
calculated by use of the return multiples specified in Section
1.72-9 of the Regulations based on the attained age of the
Beneficiary as of his birthday in the calendar year of
distribution. Life expectancy of a surviving spouse may be
recalculated annually; however, in the case of any other
designated Beneficiary, such life expectancy shall be calculated
at the time payment first commences without further
recalculation. Furthermore, for purposes of this Section 8.8,
any amount paid to a child of the Participant shall be treated as
if it had been paid to the surviving spouse if the amount becomes
payable to the surviving spouse when the child reaches the age of
majority.
Section 8.9. Forfeitures. If a distribution is made from
the Plan and Trust to any Participant, pursuant to Section 8.3 or
pursuant to any other provision of this Plan and Trust, at
a time when the nonforfeitable percentage of his Accrued Benefit
in his Company Contribution Account is less than 100% and prior
to the time that he incurs a Period of Severance exceeding 60
months, the Company shall comply with the requirements of either
paragraph (a) or paragraph (b) of this Section 8.9, or a
combination thereof, pursuant to uniform rules so that all
Participants are treated similarly under similar circumstances.
(a) Cash Out: The portion of such Participant's
Accrued Benefit which has not yet become nonforfeitable
may be forfeited in the Plan Year in which the
distribution occurs; provided, however, that if the
Participant resumes employment covered under this Plan on
or before the date he incurs a Period of Severance
exceeding 60 months following the date of distribution,
his Accrued Benefit shall be restored. Notwithstanding
any other provision of this Plan, the amounts to be
so restored may come from other forfeitures, Company
contributions, or Trust earnings. For purposes of this
Section 8.9, if the value of the nonforfeitable portion of
a Participant's Accrued Benefit is $0.00, he shall be
deemed to have received a distribution of such Accrued
Benefit upon termination of his employment. If the amount
distributed to the Participant is less than the entire
nonforfeitable portion of his Accrued Benefit in his
Company Contribution Account, the part of such Accrued
Benefit which is not nonforfeitable that may be forfeited
in the Plan Year of distribution shall be the total
portion of such Accrued Benefit which is not
nonforfeitable
29
<PAGE>
multiplied by a fraction, the numerator of which is the
amount of the distribution and the denominator of which is
the total nonforfeitable portion of such Accrued Benefit.
(b) Special Account: If at the end of the Plan Year
in which the distribution occurs the entire portion of his
Accrued Benefit which is not nonforfeitable has not been
forfeited in accordance with the provisions of paragraph
(a) of this Section 8.9, then, thereafter, at any relevant
time, the nonforfeitable amount of such Participant's
Accrued Benefit in his Company Contribution Account shall
be not less than an amount ("X") determined by the
formula X = P(AB+D) - D where: P is the nonforfeitable
percentage at the relevant time; AB is the Accrued Benefit
in his Company Contribution Account at the relevant time;
D is the amount of the distribution; and the relevant time
is when he incurs a Period of Severance exceeding 60
months. At the end of the Plan Year when any terminated
Participant incurs a Period of Severance exceeding 60
months, that portion, if any, of his Accrued Benefit to
which he has not acquired a nonforfeitable interest and
which has not already been forfeited pursuant to paragraph
(a) of this Section 8.9 shall be forfeited.
Any amount so forfeited pursuant to the foregoing provisions of
this Section 8.9 or pursuant to any other provisions of this Plan
and Trust shall be applied to reduce the contribution of the
Company which originally contributed the amount so forfeited for
the Plan Year in which the forfeiture occurs and for each
succeeding Plan Year until exhausted; and that portion, if any,
of the Participant's Accrued Benefit to which he had acquired a
nonforfeitable interest, if not already
distributed, shall be distributed to him as provided in Section
8.3. If more than 1 Company has contributed amounts which are
forfeited by a Participant, such amounts shall be applied to
reduce the contributions of such Companies in proportion to the
amount of contributions made by each such Company and allocated
to such Participant.
Section 8.10. Restrictions on Distribution of Pre-tax
Contributions. The portion of a Participant's Accrued Benefit
allocated to his Pre-tax Contribution Account shall not be
distributed to the Participant or his Beneficiary prior to his
termination of employment, death or disability, except under the
following circumstances:
<PAGE>
(a) Termination of the Plan without the establishment
by the Employer of another Defined Contribution Plan that
is a "successor plan" as defined in Section
1.401(k)-1(d)(3) of the Regulations;
(b) the disposition by the Employer to an unrelated
corporation of substantially all of the assets (within the
meaning of Section 409(d)(2) of the Code) used in a trade
or business of such Employer if the Employer continues to
maintain this Plan after the disposition, but only with
respect to former Employees who continue employment with
the unrelated corporation acquiring such assets;
(c) the disposition by the Employer to an unrelated
entity of such Employer's interest in a subsidiary (within
the meaning of Section 409(d)(3) of the Code) if such
Employer continues to maintain this Plan, but only with
respect to former Employees who continue employment with
such subsidiary;
(d) the Participant's attainment of age 59 1/2;
(e) the hardship of the Participant as described in
Section 8.11.
Distributions that may be made pursuant to 1 or more of the
foregoing distributable events (other than that described in
paragraph (a) above) shall be subject to the consent requirements
of Section 8.4.
Section 8.11. Distribution on Account of Financial Hardship.
In the event of financial hardship (as defined below), a
Participant may file a written request with the Company for
distribution
30
of a portion of his Accrued Benefit in his Pre-tax Contribution
Account. If the Company determines that distribution can be made
consistent with the requirements of this Section 8.11 and all
applicable laws, the Company shall direct the Trustee to and the
Trustee shall, upon the written direction of the Company,
distribute to the Participant such amounts, in such manner, and
at such times as the Company shall direct, and the Accrued
Benefit of such Participant shall be reduced by the amount or
amounts so distributed. Hardship distributions shall be subject
to the following requirements:
(a) Financial hardship shall mean an immediate and
heavy financial need of the Participant where such
Participant lacks other available resources and the
distribution is necessary to satisfy the financial need.
<PAGE>
(b) The following financial needs shall be considered
immediate and heavy:
(i) Deductible medical expenses (within the
meaning of Section 213(d) of the Code) of the Participant,
the Participant's spouse, children or dependents;
(ii) the purchase (excluding mortgage payments)
of a principal residence for the Participant;
(iii) payment of tuition and related fees for up
to the next 12 months of post-secondary education for the
Participant, the Participant's spouse, children or
dependents;
(iv) the need to prevent eviction of the
Participant from, or a foreclosure on the mortgage of, the
Participant's principal residence; or
(v) such other immediate and heavy financial
needs as the Commissioner of the Internal Revenue Service
may specify through the publication of revenue rulings or
other notices of general applicability.
(c) A distribution shall be considered to be necces-
sary to satisfy an immediate and heavy financial need of
the Participant if:
(i) The Participant has first obtained all
distributions, other than hardship distributions, and
all nontaxable loans available to him under all
qualified plans maintained by the Employer;
(ii) all contributions made on behalf of the
Participant pursuant to 1 or more salary reduction
agreements and all nondeductible Employee contribu-
tions to all qualified plans maintained by the
Employer are suspended for 12 months after the
Participant's receipt of the hardship distribution;
(iii) the distribution is not in excess of the
amount of the immediate and heavy financial need
(plus any taxes payable on account of such
distribution); and
(iv) the Participant does not make any further
contributions pursuant to a salary reduction agree-
ment to this or any other qualified plan maintained
by the Employer for the Participant's taxable year
immediately following the year in which the hardship
<PAGE>
distribution occurs in excess of the
31
applicable limit under Section 402(g) of the Code for
such taxable year less the amount contributed on
behalf of such Participant pursuant to 1 or more
salary reduction agreements for the taxable year in
which the hardship distribution occurred.
(d) Earnings accrued on a Participant's Pre-tax
Contribution Account shall not be distributed pursuant to
this Section 8.11.
Section 8.12. Withdrawal or Application of After-tax
Contributions. Subject to the provisions of this Section 8.12,
a Participant may withdraw his Accrued Benefit derived from his
after-tax contributions at any time in accordance with uniform
rules established by the Company from time to time. For the 1998
Plan Year, any withdrawal from his Accrued Benefit derived
from the Participant's after-tax contributions shall be deemed to
be made first from contributions for such Plan Year and must be
of the entire amount of such contributions. Any additional
withdrawals or withdrawals made in subsequent years must be of at
least the lesser of $500 or 100% of the total Accrued Benefit
derived from the Participant's after-tax contributions for prior
Plan Years. For tax accounting purposes, withdrawals shall be
charged first against after-tax contributions made prior to 1987,
until exhausted, then against the Accrued Benefit derived from
after-tax contributions made after 1986, until exhausted, and
finally against earnings, if any, on
contributions made prior to 1987. A Participant may also direct
that all or any part of his Accrued Benefit derived from his own
after-tax contributions may be withdrawn and applied
against any withholding required because of a distribution to
such Participant under Section 8.14. Any such direction shall
be made at such time and in accordance with such rules as the
Company shall establish. Except as specifically otherwise
provided in the preceding two sentences, any such application
shall be deemed a withdrawal and all provisions of this Plan and
Trust relating to the withdrawal of a Participant's Accrued
Benefit derived from his own after-tax contributions shall be
applicable to such application.
Section 8.13. Form of Distribution. Distributions under
this Plan and Trust of the portion of a Participant's Accrued
Benefit consisting of Qualifying Employer Securities contributed
by the Company shall generally be made in whole shares of
Qualifying Employer Securities and cash in lieu of any fractional
shares. The Participant may, however, elect to have the Trustee
sell the Qualifying Employer Securities
<PAGE>
allocated to his account on the open market and distribute the
proceeds to the Participant in cash. A cash distribution may be
reduced by brokerage fees incurred by the Trustee in making such
sale. Distribution of the remaining portion of a Participant's
Accrued Benefit may be made in cash and/or any other property.
Section 8.14. Distributions During Employment.
Notwithstanding any other provision of this Plan and Trust,
distributions may be made to Plan Participants who are active
Employees in accordance with the following terms:
(a) From and after the 5th anniversary of the
commencement of his participation in the Plan, each
Participant shall have the right to elect at any time
to have a portion or all of his nonforfeitable Accrued
Benefit in his Company Contribution Account distributed to
him. However: (i) In no event shall the amount
distributed be less than the lesser of $500 or 100% of the
total nonforfeitable portion of the Participant's Accrued
Benefit in his Company Contribution Account; and (ii) if
the Participant has not been a Participant for at
least 5 full Plan Years, in no event shall the amount
distributed exceed the portion of his Accrued Benefit in
his Company Contribution Account which has been in
the Plan and Trust for at least 2 years.
32
(b) If: (i) An Employee who is eligible to
participate in the Plan has not contributed to the Plan
for 2 years and has no balance in his Pre-Tax
Contribution Account and his After-tax Contribution
Account; (ii) such Employee has been a Participant for at
least 5 full Plan Years or his Accrued Benefit derived
from Company contributions has been in the Plan for at
least 2 years; and (iii) his Accrued Benefit derived from
Company contributions is fully nonforfeitable and
does not exceed and has never exceeded $5,000, such
Employee's Accrued Benefit' may be distributed to him in a
lump sum as soon as feasible after fulfillment of the
foregoing conditions.
(c) A Participant who continues to be an Employee of
the Employer after he has attained age 59 1/2 may elect in
writing to commence distribution of any part or all of his
Accrued Benefit any time after he attains age 59 and one-
half.
<PAGE>
ARTICLE IX
SPENDTHRIFT TRUST AND QUALIFIED DOMESTIC RELATIONS ORDERS
Section 9.1. Prohibition Against Alienation. Each and every
distribution, transfer or payment of any of the Trust funds, or
property into which the same may be converted, either of
principal or income, made by the Trustee shall be made only to
the persons entitled thereto under the provisions of this Plan
and Trust (or, in the case of any minor Beneficiary, to the legal
guardian of such minor or the minor directly, as the Company may
determine) and not to any assignee or transferee of any such
person, and shall be free from anticipation or alienation,
voluntary or involuntary. No money or other property, whether
principal or income, payable or distributable under the
provisions of this Trust, shall be pledged, assigned,
transferred, sold or in any manner whatsoever anticipated,
charged or encumbered by any Participant or by any of the
Beneficiaries, heirs, executors or administrators of any
Participant, nor shall the same be liable in any manner, while in
the possession of the Trustee, for the debts, obligations or
liabilities of any such person, voluntary or involuntary, or for
any claim, legal, equitable or otherwise, against any such
person, including claims for alimony or for the support of any
spouse, and any attempted assignment, anticipation or other
disposition of any such interest shall be not merely voidable,
but absolutely null and void. The foregoing provisions of this
Section 9.1 shall apply to the creation, assignment, or
recognition of a right to any benefit payable with respect
to a Participant pursuant to a domestic relations order except
that such provisions shall not apply to a domestic relations
order that is determined to be a Qualified Domestic Relations
Order as described in Section 9.2.
Section 9.2. Compliance with Qualified Domestic Relations
Orders. Notwithstanding the provisions of Section 9.1, the
Company shall direct the Trustee to comply with a domestic
relations court order calling for the distribution of all or a
portion of a Participant's nonforfeitable Accrued Benefit to any
current or former spouse, child or other dependent of the
Participant (the "Alternate Payee") if such order is determined
to be a Qualified Domestic Relations Order within the meaning of
Section 414(p) of the Code. A domestic relations order shall be
determined to be a Qualified Domestic Relations Order if each of
the following conditions is met:
(a) The order specifies the name and last known mailing
address of the Participant and the name and mailing address of
each Alternate Payee covered by the order.
33
<PAGE>
(b) The order specifies the amount or percentage of
the Participant's nonforfeitable Accrued Benefit to be
paid by the Plan to each such Alternate Payee, or the
manner in which such amount is to be determined.
(c) The order specifies the number of payments or
period to which such order applies.
(d) The order specifies that it applies to the Plan.
(e) The order does not require payment of any type or
form of benefit, or any option, not otherwise provided
under the Plan.
(f) The order does not require the Plan to provide
increased contributions.
(g) The order does not require the payment of
benefits under the Plan to an Alternate Payee which are
required to be paid to another Alternate Payee under
another order previously determined to be a Qualified
Domestic Relations Order.
For purposes of this Section 9.2, a domestic relations order
shall mean any judgment, decree, or order, including approval of
a property settlement, which relates to the provision of child
support, alimony payments, or marital property rights to a
spouse, child, or other dependent of a Participant and which is
made pursuant to state domestic relations law (including
community property law). Notwithstanding the restriction in
paragraph (e) above, even if a Participant continues to be an
Employee of the Employer, a Qualified Domestic Relations Order
may require payments to an Alternate Payee to commence on the
earlier of: (a) The date on which the Participant is entitled to
a distribution under the Plan; or (b) the later of (i) the date
the Participant attains age 50 or (ii) the earliest date on which
the Participant could commence benefits under the Plan if he
separated from service with the Employer, and the amount of such
payments to the Alternate Payee shall be calculated as if the
Participant had retired on the date on which such payments
commence under the Qualified Domestic Relations Order. A
domestic relations order may require payment of benefits to an
Alternate Payee in any form in which benefits may be paid to the
Participant under the Plan. In the case of a domestic relations
order entered prior to 1985, the Company shall treat such order
as a Qualified Domestic Relations Order if the Plan is paying
benefits pursuant to such order on such date, and may treat such
order as a Qualified Domestic Relations Order even if it does not
meet the requirements of Section 414(p) of the Code.
<PAGE>
Section 9.3. Procedure to Determine Status and Notice. When
the Company receives a domestic relations order which purports to
be a Qualified Domestic Relations Order, the
Company shall promptly notify the Participant and any Alternate
Payee of the receipt of such order and of the procedures for
determining the qualified status of domestic relations orders.
Upon the receipt of the domestic relations order, the Company
shall have at least 60 days, or such other reasonable time period
as may be prescribed by Regulations, within which to determine
whether the court order is a Qualified Domestic Relations Order.
While the status of the order is being reviewed by the Company
(or by a court of competent jurisdiction) to determine whether it
is qualified, the Company shall direct the Trustee to separately
account for the amounts which would be payable to an Alternate
Payee during such period if the order was a Qualified Domestic
Relations Order. If within the 18-month period beginning with
the date on which the first payment would be required to be made
under the domestic relations order it is determined by the
Company to be a Qualified Domestic Relations Order, the Company
shall direct the Trustee to pay any amount separately accounted
for, plus interest, to the Alternate Payee. If within the
18-month period it is determined that the domestic relations
order is not qualified or if the issue is not resolved, the
Company shall direct the Trustee to pay any amount separately
accounted for, plus interest, to the person or persons who would
have been entitled to such
34
amount had there been no order. Any determination that an order
is a Qualified Domestic Relations Order which is made after the
close of the 18-month period shall apply prospectively only.
When the Company determines whether the domestic relations order
is qualified, it shall notify the Participant and each Alternate
Payee of its determination.
Section 9.4. Distribution Pursuant to QDRO. Notwithstanding
any other provision of this Plan and Trust, if some or all of a
Participant's Accrued Benefit is required by the terms of a
Qualified Domestic Relations Order to be distributed to an
Alternate Payee, the Alternate Payee's portion of the benefit
shall be distributed in accordance with the terms of the
Qualified Domestic Relations Order any time after entry of such
order and the election of the Alternate
Payee, even if the Participant is still an Employee of the
Employer and the Participant's benefit would not otherwise be
distributable under the terms of this Plan. Any such election by
the Alternate Payee shall be subject to the notice and consent
requirements of Section 8.4.
<PAGE>
ARTICLE X
ADMINISTRATION
Section 10.1. Authority. Except to the extent the Company
otherwise designates pursuant to the provisions of Section 10.5,
the Company shall be the Plan administrator and the
named fiduciary as defined in Section 402(a)(1) of ERISA and
shall have authority to control and manage the operation and
administration of the Plan.
Section 10.2. Rights, Powers and Duties. The Company shall
have such discretionary authority as may be necessary to
discharge its responsibilities under the Plan, including, without
limitation, the following powers, rights and duties:
(a) To interpret and construe the provisions of the
Plan;
(b) to adopt such rules of procedure and regulations
as are consistent with the provisions of the Plan and as
it deems necessary and proper;
(c) to establish and carry out a funding policy and
method consistent with the purposes of the Plan and the
requirements of applicable law, as may be appropriate from
time to time;
(d) to select the investment funds among which
Participants may direct the investment of their accounts;
(e) to direct the Trustee with respect to the voting,
purchase, retention and sale of Qualifying Employer
Securities as described in paragraph (l) of Section 11.1;
(f) to determine all questions relating to the
eligibility, benefits and other Plan rights of Employees,
Participants and Beneficiaries;
(g) to maintain and keep adequate records concerning
the Plan and concerning its proceedings and acts in such
form and detail as the Company may decide;
35
(h) to employ agents, attorneys, actuaries,
accountants or other persons (who may also be employed by
or represent the Company or the Trustee) for such
purposes as the Company considers necessary or desirable;
(i) to engage the services of a Contract
Administrator in accordance with the provisions of Section
<PAGE>
10.8; and
(j) to designate any officer or other Employee of the
Company or any other individual to carry out any of the
Company's duties, including all or any part of its
authority to manage and control the operation and
administration of the Plan. The Company shall furnish the
Trustee with the names and specimen signatures of any such
officer, Employee or individual and shall promptly notify
the Trustee of the termination of authority of any such
person. A written statement signed by any such person may
be relied upon by the Trustee or any other person.
Section 10.3. Application of Rules. In operating and
administering the Plan, the Company shall apply all rules of
procedure and regulations adopted by the Company in a uniform
and nondiscriminatory manner so that all Employees, Participants
and Beneficiaries are treated similarly under similar
circumstances.
Section 10.4. Delegation to Committee. The Company shall
have the right to designate a committee consisting of at least 2
persons to carry out any and/or all of its responsibilities of
control and management of the operation and administration of the
Plan. If, but only if, the Company designates such a committee,
the remaining provisions of this Section 10.4 shall be
applicable. A member of the committee may resign at any time by
mailing to the Company a written notice of resignation addressed
to the Company or by delivering written notice of such
resignation to the Company. The Company may remove any member of
the committee by written notice mailed or delivered to such
member. Any such resignation or removal shall occur
on the date specified in the notice, but not less than 30 nor
more than 60 days following the date of delivery or mailing of
such notice, provided, however, that such notice period may be
waived by the party receiving the notice. In the event of the
death, removal or resignation of a member of the committee, the
Company may appoint a successor unless such death, resignation or
removal results in the committee having less than 2 members, in
which event the Company shall appoint such a successor. The
committee shall act by a majority of its members either at a
meeting or by a written consent without a meeting. The committee
may appoint a Secretary and Chairman. The Company shall furnish
the Trustee with the names and specimen signatures of the members
of the committee and shall promptly notify the Trustee of the
termination of office of any member of the committee and the
appointment of a successor. Any written statement or direction
signed by a majority of the members of the committee may be
relied upon by the Trustee or any other person.
<PAGE>
Section 10.5. Plan Administrator and Named Fiduciary. In
addition to the Company's right to delegate under paragraph (j)
of Section 10.2 and Section 10.4, the Company may also
designate any individual described in paragraph (j) of Section
10.2 or the committee described in Section 10.4 as the Plan
administrator or named fiduciary.
Section 10.6. Indemnification. The Company shall indemnify
the committee described in Section 10.4 (including each member
thereof), and any and all other officers, Employees or directors
of the Company to whom it or the committee has delegated any
fiduciary duties, against any and all claims, losses, damages,
expenses, and liabilities arising from their responsibilities in
connection with the Plan, unless the same is determined to be due
to gross negligence or willful misconduct.
36
Section 10.7. Expenses. Eligible expenses incurred by the
Company or the Trustee with respect to the employment of agents,
attorneys, actuaries, administrators or other persons pursuant to
the terms and provisions hereof, including expenses incurred with
respect to maintaining the Plan and Trust's qualified and exempt
status, respectively, shall be paid from the Trust fund unless
paid by the Company.
Section 10.8. Contract Administrator. Pursuant to the terms
of a written agreement the Company may engage the services of an
independent company which provides professional plan
administration services (a "Contract Administrator") to perform,
without discretionary authority or control, certain
administrative functions required for proper administration of
the Plan. Such administrative duties shall be performed within
the framework of policies, interpretations, rules, practices and
procedures made by the Company or other Plan fiduciary and in
accordance with the written agreement between the parties. Any
action made or taken by the Contract Administrator may be
appealed by an affected Participant to the Company in accordance
with the claims review procedures provided in Section 10.10.
Decisions which require interpretation of
Plan provisions shall be deferred to the Company or other Plan
fiduciary for resolution. The Contract Administrator shall not
be considered a fiduciary of the Plan with respect to services it
provides as Contract Administrator.
Section 10.9. Claims Procedure. Claims for benefits shall
be filed with the Company on forms supplied by it. If a claim is
denied, in whole or in part, the claimant shall be furnished
with notice of the denial within 90 days of the date that the
initial claim was filed. However, if special circumstances
require an extension, written notice of an extension (which may
<PAGE>
not exceed 90 days) shall be given to the claimant prior to the
end of the initial 90-day period. The written denial of any
claim shall contain the specific reasons for the denial, a
reference to the pertinent Plan provisions on which the denial
was based, a description of any additional materials required for
the claimant to perfect the claim (with an explanation of why
such material is necessary), and an explanation of the claims
review procedures of Section 10.10.
Section 10.10. Claims Review. Any Participant or
Beneficiary who has had a claim denied, in whole or in part, may
appeal, in writing, to the Company. The appeal must be filed
with the Company not later than 60 days after the claimant has
received notice of the denial of his claim. The Company shall
furnish the claimant a written decision regarding the appeal
within 60 days from the date the appeal was filed. If special
circumstances require additional time for processing the appeal,
a decision on appeal shall be made as soon as possible, but in no
event later than 120 days following the date on which the appeal
was filed.
ARTICLE XI
THE TRUSTEE
Section 11.1. General Powers. Except to the extent that the
Trustee is designated as a Directed Trustee in accordance with
the provisions of Article XX, and subject to other provisions of
this Plan and Trust, including the provisions in paragraph (e) of
Section 10.2 giving the Company the right of direction with
respect to certain matters involving Qualifying Employer
Securities, the provisions of Section 12.4 relating to the rights
of Participants to direct the investment of their accounts, and
the provisions of Section 12.2 relating to the appointment of an
investment manager, the Trustee shall have exclusive authority
and discretion to manage and control the assets of the Plan, and
shall have the following powers, rights and duties in addition to
those provided elsewhere herein or by law:
37
(a) To have the custody and care of all securities,
funds and other property of the Trust fund, and to
receive, hold and administer all funds and property
deposited with the Trustee from time to time by the
Company, and the income therefrom, and to hold uninvested
or to invest and reinvest said amounts from time to time
in property of any kind whatsoever, real or personal,
domestic or foreign, including, without limitation,
stocks, common and preferred, shares or participations in
any common fund, trust or participation certificates,
<PAGE>
interests in investment companies whether open-end or
closed-end, options, leaseholds, fee titles, bonds, notes,
debentures, mortgages, deeds of trust and real estate.
(b) To sell, exchange, convey, transfer or otherwise
dispose of any property held by the Trustee, by private
contract or at public auction, for cash or on credit and
no person dealing with the Trustee shall be bound to see
to the application of the purchase money or to inquire
into the validity, expediency or propriety of any such
sale or other disposition.
(c) To vote upon any stocks, bonds or other
securities, to give general or special proxies or limited
powers of attorney with or without power of substitution;
to exercise any conversion privileges, subscription rights
or other options and to make any payments incidental
thereto; to oppose, to consent to or otherwise to
participate in corporate reorganizations or other changes
affecting corporate securities and to delegate
discretionary powers and to pay any assessments or charges
in connection therewith; to deposit the securities of any
issuers in any voting trust or with any protective or like
committee or trustee; and generally to exercise any of the
powers of an owner with respect to stocks, bonds,
securities or other property held by the Trust funds.
(d) To settle, compromise or arbitrate any claim,
debt or obligation due to or from the Trustee, to pay,
satisfy and collect judgments, to commence, defend, settle
or otherwise dispose of actions or suits at law or in
equity and to represent the Trust in all suits or legal
proceedings in any court of law or before any other body
or tribunal; provided, however, that the Trustee shall not
be required to institute or continue litigation unless the
Trustee is in possession of adequate funds for that
purpose or indemnified to its satisfaction by the Company
against counsel fees and all other expenses and
liabilities to which the Trustee may be subjected by any
such action.
(e) To make, execute, acknowledge and deliver any and
all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to
carry out the powers herein granted.
(f) To make, execute, incur, enter into and perform
contracts, agreements, obligations and evidences of
indebtedness of the Trust; to execute, deliver or endorse
negotiable or nonnegotiable obligations of or belonging to
the Trust; to borrow money upon such terms and conditions
as the Trustee shall deem advisable and to pledge any part
<PAGE>
of the Trust as security therefor.
(g) To cause any property of the Trust to be issued,
held or registered in the name of the Trustee without
qualification or description, or in the Trustee's
name as Trustee hereunder, or in the name of a nominee or
nominees without qualification or description; and to hold
such property unregistered or in a condition which will
enable the transfer of title by delivery.
38
(h) To collect all the income and profits of the
Trust, and to pay all taxes, assessments and other legal
charges upon all property belonging to the Trust, and all
expenses growing out of the preservation and
administration of the Trust; and to determine the method
of accounting.
(i) To select depositories and/or custodians, which
may include the Trustee or any bank or trust company
affiliated with the Trustee, for the deposit, care,
custody and safekeeping of any and all funds, securities
and/or property of the Trust.
(j) To keep such books and records, and prepare and
render such reports as are herein provided.
(k) To invest and reinvest all or any part of the
Trust through the medium of any common, collective or
commingled trust fund maintained by the Trustee, as the
same may have heretofore been or may hereafter be
established or amended, for the collective investment of
funds held by the Trustee in a fiduciary capacity for
plans qualified under the provisions of Section 401(a) and
exempt under the provisions of Section 501(a) of the Code.
During such period of time as an investment through any
such medium shall exist, the Declaration of Trust of such
fund (the "Declaration of Trust") shall constitute a part
of this Plan and Trust. Notwithstanding any other
provision of the Plan and Trust, the Trustee may commingle
the assets from the Trust with the money of trusts created
by others, by causing such assets to be invested as a part
of any one or more of the collective funds created by the
Declaration of Trust and assets of this Trust so added to
any of the collective funds at any time shall be subject
to all of the provisions of the Declaration of Trust as it
may be amended from time to time.
(l) As and to the extent so directed by the Company,
to invest any portion or all of the Trust fund in
Qualifying Employer Securities, and, as and when directed
<PAGE>
by the Company, to acquire, sell, or vote any such
securities upon such terms and conditions and in such
manner as the Company shall direct; provided, however,
that if such securities are purchased from or sold to the
Company or any other party in interest (as defined in
Section 3(14) of ERISA), any such purchase or sale shall
be for adequate consideration and no commission shall be
paid by the Trust fund with respect thereto. The Trustee
shall have no liability for the voting, purchase,
retention or sale of Qualifying Employer Securities made
pursuant to the Company's direction or for any action
taken or not taken by the Trustee with respect to
Qualifying Employer Securities if the Company fails to
direct the Trustee as required by paragraph (e) of Section
10.2.
(m) Generally, to do and perform all acts and things
which the Trustee in the Trustee's absolute discretion may
deem necessary or appropriate for the proper and
advantageous preservation and administration of the Trust
in the same manner and to the same extent as an individual
might or could do with respect to his own property.
Section 11.2. Books of Account. The Trustee shall keep
books of account which shall show all receipts and expenditures
and shall be a complete record of the operation of the Trust;
and the Company may at any time demand of the Trustee an
accounting with respect to any and all accounts upon agreeing to
pay the necessary expenses of same.
39
Section 11.3. Judicial Settlement. The Trustee shall be
entitled at any time to have ajudicial settlement of the
Trustee's account. The Trustee may from time to time file with
the Company a statement or accounting of the Trustee's acts
hereunder and the Company may enter into an agreement approving
and allowing the same, and any such agreement shall be final,
binding and conclusive upon all persons and parties hereto or
claiming any interest hereunder and shall be a full discharge and
acquittance of the Trustee with respect to the matters set forth
in such statement or accounting.
Section 11.4. Limited Purpose. The Trustee is a party to
this agreement solely for the purposes set forth herein and to
perform the acts set forth herein, and no obligation or duty
shall be expected or required of the Trustee except as expressly
stated in this agreement.
Section 11.5. Dispute over Payment. In the event that any
dispute shall arise as to the persons as to whom payment and the
delivery of any funds or property shall be made by the
<PAGE>
Trustee, the Trustee may retain such payment and/or postpone such
delivery until adjudication of such dispute shall have been made
in a court of competent jurisdiction and/or the Trustee shall
have been indemnified against loss to the Trustee's satisfaction.
Section 11.6. Indemnification. The Company shall indemnify,
defend and otherwise hold harmless the Trustee, to the extent
allowed by law, for any loss, claim, liability, penalty,
surcharge or related expense arising out of or in connection with
any act or omission of the Company or other fiduciary with
respect to the Plan and Trust, including, without limitation, any
direction to the Trustee by the Company or other Plan fiduciary
or Participant which the Trustee
is required to follow under the terms hereof. The Trustee shall
not be entitled to indemnity, however, in any case in which the
Trustee itself is guilty of negligence or willful misconduct or
breach of the Trustee's fiduciary duty. The foregoing shall not
be construed to relieve the Trustee from the performance of any
duty it may have hereunder to any Participants and Beneficiaries.
Section 11.7. Fees and Expenses. The Trustee's fees for
administering this Trust shall be determined in accordance with
its published schedule of charges in effect at the time its
services are rendered, unless otherwise agreed upon by the
Company and the Trustee. If there is no such schedule, the
Trustee's fees shall be such as may be mutually agreed upon by
the Company and the Trustee; provided, however, that in the event
the Trustee is an Employee of the Company, the Trustee shall not
receive a fee. The Trustee's fees and any and all necessary
expenses incurred by the Trustee in administering this Trust
shall be paid from the Trust fund unless paid by the Company. If
the Trustee is a trust company or other financial institution,
the Trustee may, with the consent of the Company, as part of the
Trustee's compensation for services provided to the Plan and
Trust, receive the earnings from any uninvested cash awaiting
investment into or distributions from the Trust. The Trustee may
hold such uninvested cash without incurring any liability for the
payment of earnings on such uninvested cash.
Section 11.8. Resignation or Removal of Trustee. Any
Trustee may resign by mailing to the Company a written notice of
resignation addressed to the Company or by delivering written
notice of such resignation to the Company. The Company may
remove any Trustee appointed by it by written notice of such
removal mailed to such Trustee or by delivering written notice to
such Trustee. Such resignation or removal shall take effect on
the date specified in the letter of removal but not less than 30
nor more than 60 days following the date of mailing or delivery
of such notice if it be not mailed, provided, however, that such
notice period may be waived by the
<PAGE>
party receiving such notice. Upon such resignation or removal,
any and all expenses incurred by the Trustee in connection with
the settlement of such Trustee's accounts shall be paid from the
Trust fund unless paid by the Company.
40
Section 11.9. Successor Trustee. In no event shall the
death, resignation or removal of a Trustee terminate this Trust.
The Company shall have the duty of forthwith appointing a
successor Trustee in the event of the death, resignation or
removal of all of the then acting Trustees or the sole then
acting Trustee, which successor Trustee shall be any individual
and/or bank and/or trust company it may desire. Every successor
Trustee shall have all of the same full powers, rights, duties
and obligations as are herein specified with respect to each
original Trustee hereunder.
ARTICLE XII
INVESTMENTS
Section 12.1. General. Except to the extent that the
Trustee is designated as a Directed Trustee in accordance with
the provisions of Article XX, and subject to the other provisions
of this Article XII, the Trustee shall be authorized and
empowered to invest and reinvest the principal and income of the
Trust in such securities or in such property, real or personal,
as the Trustee shall, in its discretion, deem appropriate.
Section 12.2. Appointment of Investment Manager. The
Company may appoint an investment manager or managers to manage
any assets of the Plan, which may include the power to acquire
and dispose of any of such assets. Any such investment manager
must be registered as an investment adviser under the Investment
Advisers Act of 1940, a bank as defined in that act, or an
insurance company qualified to perform services relating to the
management, acquisition and disposition of the Plan assets under
the laws of more than one state, and must
acknowledge in writing that he or it is a fiduciary with respect
to the Plan.
Section 12.3. Protection of Trustee. In the event that an
investment manager is appointed pursuant to Section 12.2, the
Trustee shall follow the direction of the investment manager
regarding the investment and reinvestment of the assets of the
Plan under the management of the investment manager, and the
Trustee shall have no responsibility for the investment and
reinvestment of such assets. The Trustee shall be under no duty
or obligation to review any investments to be acquired, held or
disposed of pursuant to such direction nor to make
<PAGE>
any recommendations with respect to the disposition or continued
retention of any such investment. The Trustee shall have no
liability or responsibility for acting or not acting pursuant to
the direction of, or failing to act in the absence of any
direction from, the investment manager. The Company shall
indemnify the Trustee and hold it harmless from and against any
claim or liability which may be asserted against the Trustee
arising out of or in connection with any act or omission of the
investment manager or which may be asserted against the Trustee
by reason of its acting or not acting pursuant to any direction
from the investment manager or failing to act in the absence of
any such direction, in accordance with the provisions of Section
11.6.
Section 12.4. Participant Direction of Investments. Each
Participant shall have the right to direct the investment,
reinvestment, exchange, or disposal of the amount standing to his
credit in his After-tax Contribution Account, his Pre-tax
Contribution Account and any rollover account established
pursuant to Section 17.3 among such investment funds as may be
available from time to time under uniform rules and procedures
established by the Company. In the limited circumstances
described in Section 12.5 and Section 12.6, a Participant shall
also have the right to direct the investment of assets other than
Qualifying Employer Securities held in his Company Contribution
Account. The rules and procedures established by the Company
shall prescribe the investment funds available and the time and
manner in which any election may be made, modified and/or revoked
by a Participant. The investment funds and the rules and
procedures for election may be modified from time to time by the
Company. To the extent permitted under the procedures
established by the Company, such elections may be
41
accomplished by any electronic or telephonic means not otherwise
prohibited by law. The Trustee shall act in
accordance with the Participant's directions to the extent such
directions are consistent with then applicable rules and
procedures and applicable law, and shall have no duty to question
any direction or to review any securities or other property or to
make any suggestions in connection therewith. To the extent
permitted by law, the Trustee shall have no liability for any
loss of any kind which may result by reason of its actions taken
in accordance with the directions of the
Participant and in accordance with then applicable rules and
procedures. If and to the extent a Participant does not direct
the Trustee with respect to investment of his accounts in
accordance with applicable rules and procedures, such accounts
shall be invested in such fund or funds selected by the Company
from time to time as the default investment fund for undirected
assets. Notwithstanding any other provision of this Plan and
<PAGE>
Trust, in no event shall any portion of the Participant's own
contributions or his Accrued Benefit resulting from his own
contributions be invested in Qualifying Employer Securities.
Section 12.5. Voluntary Diversification of Company
Contribution Account. A Participant who has satisfied the age
and service requirements for early retirement as described
in Section 7.3 shall have the right to begin diversifying the
assets in his Company Contribution Account into assets other than
Qualifying Employer Securities. Once a Participant meets such
requirements, and once each calendar year thereafter, the
Participant may elect to have up to 25% of the Qualifying
Employer Securities then allocated to his Company Contribution
Account sold by the Trustee and invested as directed by the
Participant in accordance with the provisions of Section 12.4.
The Participant cannot thereafter reinvest the proceeds within
the Trust in Qualifying Employer Securities.
Section 12.6. Proceeds from Sale of Qualifying Employer
Securities in Tender Offer. From time to time the Company has
offered and may in the future offer to buy back a specified
number of its issued and outstanding shares by offering all of
its shareholders an opportunity to tender their shares for
purchase by the Company in a tender offer (a "Tender Offer"). If
and to the extent that the Company accepts the tender of
Qualifying Employer Securities held by the Trust, all proceeds
from the sale of Qualifying Employer Securities allocated to a
Participant's Company Contribution Account shall be invested by
the Trustee in accordance with the investment elections then in
effect for such Participant with respect to dividends allocated
to his Company Contribution Account. Thereafter, the Participant
shall have the right to redirect the investment of the portion of
his Company Contribution Account that is no longer invested in
Qualifying Employer Securities among the investment funds
available from time to time in accordance with the provisions of
Section 12.4.
Section 12.7. Loans to Participants. The Trustee shall, if
so requested by a Participant and directed by the Company, make
a loan from the Trust to the Participant. All such loans shall
be subject to the following requirements:
(a) In granting or denying requests for loans, the
Company shall act in a uniform and nondiscriminatory
manner so that loans are available to all Participants on
a reasonably equivalent basis.
(b) Loans shall not be available to Participants who
are Highly Compensated Employees in amounts greater than
the amounts available to other Participants.
<PAGE>
(c) Each loan, when added to the outstanding balance
of all other loans to the Participant from the Trust or
from any other qualified plan maintained by the Employer,
shall not exceed the lesser of:
42
(i) $50,000, reduced by the excess (if any) of
the highest outstanding balance of such loans to such
Participant during the 1-year period ending on the
day before the date on which such loan is to be made,
over the outstanding balance of such loans to such
Participant on the date on which such loan is to be
made; or
(ii) 50% of the nonforfeitable Accrued Benefit
of such Participant determined as of the most recent
Valuation Date.
(d) Each loan shall be evidenced by a promissory note
signed by the Participant.
(e) Each loan shall be adequately secured, and, for
this purpose, notwithstanding the provisions of Section
9.1, the Participant shall grant the Trustee a security
interest in his Accrued Benefit or in such other
collateral, or both, as the Company shall deem necessary
in order to secure repayment of the loan. If the loan is
secured by the Participant's Accrued Benefit, the
Participant shall consent, in writing, within the 90-day
period before the loan is made, to the making of the loan
and to any reduction of his Accrued Benefit which may
thereafter be required in order to satisfy the
Participant's obligation to the Plan. Unless the
Participant directs otherwise, the loan shall be deemed to
be secured by that portion of his Accrued Benefit in his
Pre-tax Contribution Account only if his Accrued Benefit
in all of his other accounts is not sufficient to
adequately secure the loan.
(f) Each loan shall bear a reasonable rate of
interest.
(g) Each loan shall be repaid by payroll deduction
while the borrower is an Employee and shall be immediately
due and payable in full in the event the borrower
terminates employment with the Company. Each loan shall
be repayable at such time and on such terms and conditions
as shall be specified by the Company, but all loans shall
require a substantially level amortization, and payment
shall be made not less frequently than quarterly. The
repayment period shall not extend beyond the earlier of 5
<PAGE>
years or the Participant's Normal Retirement Date;
provided, however, that the repayment period may extend to
the earlier of 30 years or the Participant's Normal
Retirement Date if the Participant certifies that the
proceeds of the loan will be used to acquire a dwelling
unit which within a reasonable time will be used as the
principal residence of the Participant.
(h) Neither the Company nor the Trustee shall be
accountable for any loss sustained by reason of any action
taken pursuant to this Section 12.7. Furthermore, all
fiduciary responsibility with respect to the making of the
loan shall be borne by the Participant.
(i) Unless otherwise paid by the Participant, all
costs, fees or expenses incurred in connection with a loan
shall be paid from and against the Participant's
accounts, and all repayments of principal and interest
shall be credited to the Participant's accounts.
(j) If the Participant dies prior to repaying the
loan in full, the Company may (but need not) direct the
Trustee to assign the promissory note
43
signed by the Participant and all collateral therefor to
the Participant's Beneficiary, and the Trustee shall then
be discharged from any further duties or responsibilities
concerning the loan.
(k) The amount and terms of any loan shall be further
limited if and to the extent necessary (based upon facts
believed to be true by the Company) to prevent a loan from
being treated as a taxable distribution to the Participant
under Section 72(p) of the Code.
(l) In the event of default, the Participant's
Accrued Benefit shall not be used to satisfy said loan, by
foreclosure or otherwise, until the occurrence of any
event which would permit distribution of such Accrued
Benefit in accordance with the provisions of Article VIII.
(m) The summary plan description or a separate loan
policy provided to Participants shall include the
following additional information with respect to
Participant loans, and such information shall be
incorporated into the Plan by this reference:
(i) The identity of the person or position
authorized to administer the Participant loan
program;
<PAGE>
(ii) the procedure for applying for loans from
the Plan;
(iii) the basis on which loans to Participants
will be approved or denied;
(iv) limitations (if any) on the types and
amounts of loans offered;
(v) the procedure for determining a reasonable
rate of interest;
(vi) the types of collateral which may secure a
loan to a Participant; and
(vii) the events constituting default and the
steps that will be taken to preserve Plan assets in
the event of such default.
ARTICLE XIII
GENERAL PROVISIONS REGARDING FIDUCIARIES
Section 13.1. Discharge of Duties. Any fiduciary may serve
in more than one fiduciary capacity with respect to the Plan.
Each fiduciary shall discharge such fiduciary's duties with
respect to the Plan solely in the interest of the Participants
and Beneficiaries, and, as applicable to such duties:
(a) For the exclusive purpose of providing benefits
to Participants and their Beneficiaries and defraying
reasonable expenses of administering the Plan;
44
(b) with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like
character and with like aims;
(c) except to the extent inconsistent with the Plan's
purpose of having all Company contributions made in
Qualifying Employer Securities which are to be retained
unless otherwise directed by the Company, by diversifying
the investments of the Plan so as to minimize the risk of
large losses, unless under the circumstances it is clearly
prudent not to do so; and
<PAGE>
(d) in accordance with the documents and instruments
governing the Plan insofar as such documents and
instruments are consistent with the provisions of ERISA.
Section 13.2. Bonding. All persons handling funds of the
Trust fund shall be bonded in such form and amount as required by
ERISA. The cost of such bonding shall be paid by the
Company, or if it fails to do so, by the Trust fund.
Section 13.3. Insurance. The Plan and Trust may obtain and
maintain insurance policies for itself and/or any fiduciary to
cover liability or losses occurring by reason of the act or
omissions of a fiduciary, provided such insurance shall permit
recourse by the insurer against the fiduciary in the case of a
breach of a fiduciary obligation by such fiduciary. The cost of
such insurance shall be paid by the Trust fund unless paid by the
Company. In addition, the Company or any fiduciary may, at its
or his own cost, purchase such insurance for such fiduciary's own
account.
Section 13.4. Nonliability. No fiduciary shall:
(a) Have any liability for any act or omission of any
other person or entity except to the extent otherwise
required by ERISA;
(b) be personally liable or answerable for any debts
or liabilities of this Plan and Trust; or
(c) be liable for any acts or omissions of any
predecessor or successor.
Section 13.5. ERISA Section 404(c) Plan. The Plan is
intended to constitute a plan described in Section 404(c) of
ERISA and Section 2550.404c-1 of the Department of Labor
Regulations. To the extent permitted by law, all fiduciary
responsibility with respect to the selection of investments for
the portion of any Participant's accounts which are subject to
investment direction shall be allocated to the Participant who
directs the investment and neither the Trustee nor the Company
shall be accountable for any losses which are the direct and
necessary result of investment directions given by any
Participant.
45
<PAGE>
ARTICLE XIV
AMENDMENT AND TERMINATION
Section 14.1. Amendment. Subject to the provisions of
Section 14.2, the Company shall have the right to amend this Plan
and Trust at any time and from time to time and all parties
hereto or claiming any interest hereunder shall be bound thereby;
provided, however, that no amendment shall:
(a) Permit any part of the assets of the Trust to be
diverted to purposes other than for the exclusive benefit
of Participants or their Beneficiaries;
(b) permit any portion of such assets to revert to or
become property of the Company except as provided in
Section 4.6;
(c) increase the duties or liabilities of the Trustee
without its written consent; or
(d) reduce any Participant's Accrued Benefit, by
eliminating an optional form of distribution (except as
permitted in the Regulations) or otherwise, other than to
the extent permitted by Section 412(c)(8) of the Code.
Any such amendment shall be adopted by resolution of the
committee designated by the Company under Section 10.4, or by
resolution of the Company's Board of Directors. Any such
amendment shall apply prospectively unless the amendment
specifically designates that it is to have retroactive
application and the retroactive application is permissible under
the provisions of ERISA and the Code.
Section 14.2. Amendment to Vesting Schedule. In the event
of any amendment to the provisions in Section 7.5 setting forth
a Participant's nonforfeitable percentage of his Accrued
Benefit derived from Company contributions, then, as of the date
such amendment is adopted, the Plan, as amended, shall provide
that, in the case of each Participant on the later of the date
the amendment is adopted or the date the amendment is effective,
the nonforfeitable percentage (determined as of such date) of
such Participant's Accrued Benefit derived from Company
contributions is not less than such percentage computed without
regard to such amendment as of the later of the date such
amendment is adopted or becomes effective. In addition, in the
event of any such amendment, each affected Participant who has
completed at least 3 Years of Service prior to the end of the
election period (as hereinafter defined) may elect, during such
election period, to have the nonforfeitable percentage of his
Accrued Benefit derived from Company
contributions determined without regard to such amendment;
<PAGE>
provided, however, that no election need be provided for any
Participant whose nonforfeitable percentage under the Plan, as
amended, at any time cannot be less than such percentage
determined without regard to such amendment. The election period
shall commence on the date that the amendment is adopted and
shall end on the latest of the following dates: the date which
is 60 days after the day the amendment is adopted; the date which
is 60 days after the day the amendment becomes effective; or the
date which is 60 days after the day the Participant is issued
written notice of the amendment. For
purposes of this Section 14.2, Years of Service shall be
determined under the general definition of Section 2.4 without
regard to the provisions of Section 2.5. Any such election made
by a Participant shall be irrevocable.
Section 14.3. Termination. Notwithstanding anything to the
contrary herein contained, the Company reserves the right to
terminate this Plan and Trust in its entirety, such termination
to become effective upon receipt by the Trustee of a written
instrument of termination signed on behalf of the
46
Company by its President or Vice President and attested by its
Secretary or Assistant Secretary. Within a reasonable period of
time after receipt of such instrument of termination, or within
a reasonable period of time after actual termination without such
a written instrument, the Trustee shall dispose of the Trust fund
in the manner directed by the Company in accordance with Section
8.1. Notwithstanding anything to the contrary herein contained,
in the event of such termination, partial termination or complete
discontinuance of contributions by the Company to this Trust,
each affected Employee shall thereupon acquire a nonforfeitable
interest in his entire Accrued Benefit.
ARTICLE XV
MERGER, DISSOLUTION AND ADOPTION
Section 15.1. Merger. In the event that a Company shall
lose its existence by merger into or consolidation with any other
entity or entities, the entity or entities into which it is
merged, or the resulting entity or entities, may continue this
Plan and Trust upon executing a proper supplemental agreement
with the Trustee. In the case of any merger or consolidation
with, or the transfer of assets and liabilities to, any other
plan, provision shall be made so that each Participant and
Beneficiary of the Plan on the date thereof would, if such other
plan then terminated, receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater
than the benefit he would have been
<PAGE>
entitled to receive immediately prior to the merger,
consolidation or transfer if this Plan had been then terminated.
Section 15.2. Loss of Existence. In the event that a
Company is legally dissolved or legally declared bankrupt or
insolvent, or in the event that any Company shall lose its
existence by merger into or consolidation with another entity or
entities and if, in this last event, the entity or entities into
which it is merged or the resulting entity or entities shall not
agree to continue this Plan and Trust by proper agreement with
the Trustee, then, upon any of such events, this
Plan and Trust shall automatically terminate with respect to such
Company, and the Trustee shall dispose of the Accrued Benefit of
each Participant who is an Employee or former Employee of such
Company in the manner directed by the Company in the Company's
sole discretion in accordance with Section 8.1.
Section 15.3. Adoption by Affiliates. Any Affiliate may
adopt this Plan and Trust and thereby become a party hereto if
CPI Corp. approves.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1. Addresses. A Former Participant shall keep
the Company informed as to his address. The Company, the Plan
administrator and the Trustee shall not be required to do
anything further than sending all papers, notices, payments or
the like to the last address given them by the Former Participant
unless they can be shown to have acted in bad faith, having had
actual knowledge of the Former Participant's whereabouts.
Section 16.2. Impossibility. If it becomes impossible for
the Company or the Trustee to perform any act under this Plan,
that act shall be performed which, in the judgment of the
Company or the Trustee, as the case may be, will most nearly
carry out the intent and purpose of this Plan. Any individual or
entity in any way interested in this Plan and Trust shall be
bound by any acts performed under such conditions.
47
Section 16.3. Necessary Acts. All parties to this
agreement, or claiming any interest hereunder, agree to perform
any and all acts and execute any and all documents and papers
which are necessary or desirable for carrying out any provisions
of this Plan and Trust.
<PAGE>
Section 16.4. Discharge of Trustee. The Trustee shall be
fully discharged from all liability for any amount paid to a
Participant, Beneficiary or anyone else in accordance with the
provisions hereof, and the Trustee shall be under no obligation
or duty to see to the application of any monies so paid.
Section 16.5. Underscored References. The underscored
references contained herein are included only for convenience,
and they shall not be construed as a part of this Plan and Trust
or in any respect affecting or modifying its provisions.
Section 16.6. Number and Gender. The masculine and neuter,
wherever used herein, shall refer to either the masculine, neuter
or feminine; and, unless the context otherwise requires, the
singular shall include the plural and the plural the singular.
Section 16.7. Governing Law. This Plan shall generally be
construed and administered in accordance with the laws of the
State of Missouri to the extent that such laws are not
preempted by the laws of the United States of America; provided
however, that provisions relating to the Trust and administration
of the Trust shall be construed and administered in accordance
with the laws of the State of Minnesota to the extent that such
laws are not preempted by the laws of the United States of
America.
Section 16.8. Binding Effect. This Plan and Trust shall be
binding upon the heirs, executors, administrators, distributees,
successors and assigns of all parties hereto, present and future.
ARTICLE XVII
ROLLOVERS AND TRANSFERS
Section 17.1. Rollovers from Other Plans. An Employee
otherwise eligible to participate in the Plan, regardless of
whether he has satisfied any age and service requirement of
Section 3.1, who has had his interest in a plan which meets the
requirements of Section 401(a) of the Code distributed to him, or
has had his interest in an individual retirement account
described in Section 408(d)(3)(A)(ii) of the Code distributed to
him, or who is entitled to an eligible rollover distribution as
defined in Section 402(f)(2)(A) of the Code from another
qualified plan, may, in accordance with procedures approved by
the Company, roll over the distribution so received to the
Trustee or have such distribution transferred to the Trustee as
a direct rollover.
<PAGE>
Section 17.2. Transfers from Other Plans. An Employee
otherwise eligible to participate in the Plan, regardless of
whether he has satisfied any age and service requirement of
Section 3.1, who is entitled to have his entire interest in a
plan which meets the requirements of Section 401(a) of the Code
distributed to him in a single sum may, in accordance with
procedures approved by the Company, have such amount transferred
directly from such plan to the Trustee; provided, however, that
no such transfer from a Defined Benefit Plan, a Defined
Contribution Plan subject to Section 412 of the Code, or a
Defined Contribution Plan subject to Section 401(a)(11) and
Section 417 of the Code with respect to that Participant, shall
be permitted unless such transfer constitutes an "elective
transfer" within the meaning of Section 1.411(d)(4)-3(b) of the
Regulations.
48
Section 17.3. Separate Account. A separate account shall be
created and maintained for an Employee for any amount transferred
to the Trustee under Section 17.1 or Section 17.2. For an
Employee who is otherwise eligible to participate in the Plan but
who has not yet completed the requirements of Section 3.1, such
account shall represent his sole interest in the Plan until he
becomes an Active Participant. Such account shall be invested as
directed by the Participant in accordance with the provisions of
Section 12.4. The creation of any such account is for accounting
purposes and shall not require a segregation of assets or funds
to any such account.
Section 17.4. Nonforfeitability. The entire amount in an
account described in Section 17.3 shall be fully nonforfeitable
at all times.
Section 17.5. Distribution. The amount standing to the
credit of a Participant or Employee in an account described in
Section 17.3 shall be distributed in accordance with the
provisions of Article VIII at the time distribution of his
Accrued Benefit derived from Company contributions commences, or,
if he is not entitled to receive any benefits derived from
Company contributions at the time his employment with the Company
terminates, in accordance with the provisions of Section 8.3.
ARTICLE XVIII
TOP-HEAVY PROVISIONS
Section 18.1. Definitions. For purposes of this Article
XVIII, the following words and phrases shall have the following
meanings:
<PAGE>
(a) Accrued Benefit: As defined in paragraph (a) of
Section 1.3, but, except to the extent provided in the
Regulations, excluding the balance in any account
described in Section 17.3. In determining the Accrued
Benefit or the present value of the cumulative accrued
benefit in one or more Defined Benefit Plans (as defined
in paragraph (d) of Section 5.4) for any Employee, (i)
such Accrued Benefit and present value shall be increased
by the aggregate distributions made with respect to such
Employee under this Plan (and under any other plan of
the Employer with respect to the determination of a
Top-heavy Group) during the 5-year period ending on the
Determination Date, and (ii) such Accrued Benefit and
present value of an Employee who is a Non-key Employee but
who was a Key Employee in a prior year or who has
performed no services for the Employer at any time during
the 5-year period ending on the Determination Date shall
not be taken into account.
(b) Determination Date: With respect to any Plan
Year, the last day of the preceding Plan Year, or, in the
case of the first Plan Year of the Plan, the last day of
such Plan Year.
(c) Permissive Aggregation Group: A group of
qualified plans of the Employer not required to be
included in a Required Aggregation Group but whose
inclusion would not cause such group to fail to meet the
requirements of Section 401(a)(4) or Section 410 of the
Code.
(d) Required Aggregation Group: Each qualified plan
of the Employer in which a Key Employee participates (or
participated at any time during the 5-year period ending
on the Determination Date) and each other qualified plan
(whether or
49
not terminated) of the Employer which enables
any such plan to meet the requirements of Section
401(a)(4) or Section 410 of the Code.
(e) Top-heavy Plan: With respect to any Plan Year,
this Plan if as of the Determination Date: (i) The
aggregate Accrued Benefits under the Plan of Key Employees
exceed 60% of the aggregate Accrued Benefits under the
Plan of all Employees; or (ii) the Plan is part of a
Required Aggregation Group that is a Top-heavy Group.
Notwithstanding the foregoing, in no event shall the Plan
be considered a Top-heavy Plan for any Plan Year in which
it is part of a Required Aggregation Group or Permissive
<PAGE>
Aggregation Group which is not a Top-heavy Group.
(f) Top-heavy Group: A Required Aggregation Group or
a Permissive Aggregation Group in which as of the
Determination Date the sum of (i) the aggregate of the
Accrued Benefits of Key Employees in all Defined
Contribution Plans (as defined in paragraph (f) of Section
5.4) included in such group and (ii) the present value of
the cumulative accrued benefits of Key Employees under all
Defined Benefit Plans included in such group exceeds 60%
of a similar sum determined for all Employees. For
purposes of making the foregoing determination for any
Defined Benefit Plan, the accrued benefit of each Non-key
Employee shall be determined under the method which is
used for accrual purposes for all such plans of the
Employer, or, if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional rule of Section
411(b)(1)(C) of the Code. When plans with different
Determination Dates are aggregated, the Determination
Dates that fall within the same calendar year shall be
used.
Section 18.2. Applicability. The provisions of this Article
XVIII shall be effective for any Plan Year in which the Plan is
determined to be a Top-heavy Plan and shall supersede any
conflicting provisions in the Plan.
Section 18.3. Minimum Company Contribution. Except to the
extent a minimum contribution is not required under the
Regulations because a minimum benefit has been provided to each
Non-key Employee under another plan of the Employer, the minimum
Company contribution (including forfeitures) allocated for any
such Plan Year to each Non-key Employee who is an Active
Participant and who was an Employee of the Employer at the end of
such Plan Year, regardless whether such Non-key Employee
completed 1,000 Hours of Service in such Plan Year, shall be not
less than the lesser of (a) 3% of such Non-key Employee's
Compensation for such Plan Year or (b) the largest percentage of
Compensation allocated to any Key Employee for
such Plan Year under this Plan and all other Defined Contribution
Plans which are a part of its Required Aggregation Group, if any.
Pre-tax contributions and Company matching contributions
allocated to Key Employees under paragraph (b) of Section 5.1 and
Section 5.2 of this Plan or under any other Defined Contribution
Plan in its Required Aggregation Group shall be included for
purposes of determining the largest percentage of Compensation
allocated to any Key Employee for a Plan Year. Pre-tax
contributions and Company matching contributions allocated to any
Non-key Employee shall not, however, be considered for purposes
of determining whether
the minimum contribution requirement of this Section 18.3 is
<PAGE>
satisfied with respect to such Non-key Employee.
Section 18.4. Impact on Limitation on Annual Additions.
100% shall be substituted for 125% where it appears in
paragraphs (e) and (g) of Section 5.4, unless for such Plan Year:
(a) The aggregate Accrued Benefits of Key Employees do not exceed
90% of the aggregate Accrued Benefits of all Employees, (b) 4%
percent is substituted for 3% in Section 18.3 as the minimum
Company
50
allocation, and (c) except to the extent provided in the
Regulations, all other plans in the Required Aggregation Group,
if any, meet the minimum benefit requirements of Section 416(c)
of the Code, as modified by Section 416(h) of the Code.
ARTICLE XIX
SPECIAL PROVISIONS FOR 1997 TENDER OFFER
Section 19.1. Tender Offer. Effective December 8, 1997 and
for the limited period through January 7, 1998, the Company
offered to buy back a specified number of its issued and
outstanding shares by offering all of its shareholders an
opportunity to tender their shares for purchase by the Company
in a tender offer (the "1997 Tender Offer"). The provisions of
this Article XIX shall apply only for the duration of the 1997
Tender Offer.
Section 19.2. Powers of Trustee. Notwithstanding any other
provision of this Plan and Trust, including but not limited to
paragraph (e) of Section 10.2, paragraph (l) of Section 11.1 and
Article XX, the Company shall have no right or power to direct
the Trustee with respect to the tender or sale of Qualifying
Employer Securities to the Company in connection with the 1997
Tender Offer. The Trustee shall have sole power and fiduciary
responsibility for responding to the 1997 Tender Offer with
respect to Qualifying Employer Securities held in the Trust,
including but not limited to the decisions (a) to tender or not
to tender shares to the Company, (b) the number of such shares to
be tendered to the Company, if any, and (c) the price at which
the shares shall be tendered to the Company, provided that in no
event shall such shares be tendered to the Company for less than
adequate consideration as such term is defined in ERISA. The
Trustee may but shall not be required to retain the services of
a qualified independent fiduciary to advise the Trustee with
respect to responding to the 1997 Tender Offer.
<PAGE>
Section 19.3. Allocation of Tendered Shares and Proceeds
from Sale. If and to the extent that the Company accepts the
Trustee's tender of some but less than all of the Qualifying
Employer Securities held by the Trust, the Qualifying Employer
Securities sold to the Company shall be drawn from the Company
Contribution Accounts of all Participants, including both
Active Participants and Former Participants, pro rata based on
the number of shares allocated to each such account on December
31, 1997 (excluding shares contributed to the Plan after such
date and allocated to Participant accounts as of such date as
Company matching contributions for 1997). Any amounts received
by the Trustee from the sale of Qualifying Employer Securities
to the Company shall be allocated pro rata among the respective
Company Contribution Accounts of the Participants from whose
accounts such Qualifying Employer Securities were drawn and
invested in accordance with the provisions of Section 12.6.
ARTICLE XX
DIRECTED TRUSTEE
Section 20.1. Directed Trustee. The provisions of this
Article XX shall apply if and to the extent that the Trustee has
been appointed by the Company to function as a Directed Trustee
and shall supersede any contrary provisions of the Plan and
Trust. Notwithstanding the provisions of Article XI or any other
provision of this Plan and Trust, if the Trustee is a Directed
Trustee, the Company or other Plan fiduciary designated by the
Company and not the Trustee shall have
51
exclusive authority and complete discretion and control over the
investment and management of the assets of the Trust with respect
to the matters described in this Article XX.
Section 20.2. Selection of Investment Funds and Direction of
Investments. Except to the extent an investment manager has been
appointed under Section 12.2, the Company or other Plan fiduciary
designated by the Company shall have the sole authority and
discretion to select the investment funds available for
investment of Trust assets from time to time and to direct the
Trustee with respect to the purchase and sale of Trust assets.
In addition, individual Participants shall have the right to
direct the investment of certain of their accounts in accordance
with the provisions of Section 12.4. The Trustee shall follow
the directions of the Company, other Plan fiduciary or
Participant, provided, however, that the Trustee shall have no
obligation to comply with any such direction to the extent such
direction is not consistent with the provisions of this Plan and
Trust or with applicable law regulating the investment and
management of assets of a qualified employees
<PAGE>
trust.
Section 20.3. Voting Rights. The Company or other Plan
fiduciary designated by the Company shall direct the Trustee with
respect to the exercise (or non exercise) of any and all
voting, proxy or other rights described in paragraph (c) of
Section 11.1 pertaining to Trust assets. The Trustee shall have
no power, responsibility or duty to exercise any such rights
except as directed by the Company or other Plan fiduciary.
Section 20.4. Contracts and Disputes. The Company or other
Plan fiduciary designated by the Company shall direct the Trustee
with respect to the entry into any contracts, agreements or
obligations described in paragraph (f) of Section 11.1 and with
respect to the commencement, defense or settlement of claims or
disputes as described in paragraph (d) of Section 11.1. The
Trustee shall have no power, responsibility or duty with respect
to such matters on behalf of the Plan and Trust except as
directed by the Company or other Plan fiduciary.
Section 20.5. Protection of Trustee. If and to the extent
that the Trustee is a Directed Trustee, the Trustee shall follow
the direction of the Company or other designated Plan fiduciary
regarding the investment and reinvestment of the assets of the
Trust and the exercise of such voting, proxy and other rights and
obligations pertaining thereto. The Trustee shall be under no
duty or obligation to question any direction, review any decision
made by another Plan fiduciary or review any investments to be
acquired, held or disposed of pursuant to such direction, nor to
make any recommendations with respect to any such decision or
with respect to the disposition or continued retention of any
such investment. The Trustee shall have no responsibility or
liability for results arising from the Trustee's compliance with
the direction of any designated
Plan fiduciary which are made in accordance with the terms hereof
and which are not contrary to the provisions of any applicable
law regulating the investment and management of the assets of a
qualified employees trust, and the Trustee shall have no
liability or responsibility for failing to act in the absence of
direction. The Trustee shall be entitled to indemnification by
the Company to the extent permitted by law in accordance with the
provisions of Section 11.6.
<PAGE>
ARTICLE XXI
SPECIAL EFFECTIVE DATES
Section 21.1. Exceptions to Effective Date. The general
Effective Date of this amended and restated Plan and Trust shall
be January 1, 1998. However, certain changes required by the
Small Business Job Protection Act (SBJPA) and certain other
changes in the Plan and Trust shall
52
be effective as of the dates stated in this Article XXI and
otherwise in the Plan. Provisions which are effective as of
dates prior to January 1, 1998 shall be deemed to be added to the
Prior Plan or substituted for the corresponding provisions of the
Prior Plan as of such dates.
Section 21.2. Definitions. The following definitions set
forth in Section 1.3 of Article I shall be effective January 1,
1997 to comply with the SBJPA:
(a) Compensation (elimination of family aggregation
rules).
(b) Employee (definition of Leased Employee).
(c) Highly Compensated Employee.
Section 21.3. Elective Deferrals and Discrimination Testing.
The following Sections in Article IV shall be effective January
1, 1997 to comply with the SBJPA:
(a) Section 4.8. Maximum Pre-tax Contributions.
Amended to add reference to Section 408(p).
(b) Section 4.9. Limitations on Pre-tax
Contributions for Highly Compensated Employees. Amended
to modify the ADP test.
(c) Section 4.10. Limitations on After-tax and
Matching Contributions for Highly Compensated Employees.
Amended to modify the ACP test.
Section 21.4. Required Beginning Date. The provisions of
Section 8.6 shall be effective January 1, 1997 to comply with the
SBJPA.
Section 21.5. Qualified Military Service. Notwithstanding
any other provision of the Plan, periods of qualified military
service (as defined in Section 414(u)(5) of the Code) shall be
credited and contributions shall be made to the Plan with
<PAGE>
respect to such service in accordance with the requirements of
Section 414(u) of the Code and the Regulations thereunder. The
provisions of this Section 21.5 shall be effective January 1,
1995.
Section 21.6. Trustee. The appointment of American Express
Trust Company as a Directed Trustee shall be effective February
1, 1998. Consistent with the provisions of Section
13.4, American Express Trust Company shall have no responsibility
or liability for any action (or omission) of the Trustee under
this Plan and Trust prior to the effective date of its
appointment as Trustee.
53
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Plan and Trust this ______ day of January, 1998.
CPI CORP.
By: /s/ Alyn V. Essman
----------------------------
Title: Chairman and Chief
Executive Officer
For the Profit Sharing Plan Committee
"Company"
By: /s/ Barry Arthur
------------------------------
"Directed Trustee"
AMERICAN EXPRESS TRUST COMPANY
By: /s/ Kevin Weiss
-------------------------------
Title: Vice President, Senior Trust
Officer
"Directed Trustee"
54
EXHIBIT (10.33)
First Amendment to CPI. Corp Employee Profit
Sharing Plan and Trust
31
<PAGE>
FIRST AMENDMENT TO
CPI CORP.
EMPLOYEES PROFIT SHARING PLAN AND TRUST
(As Amended and Restated Effective January 1, 1998)
Pursuant to the provisions of Section 14.1 of Article XIV of
the CPI Corp. Employees Profit Sharing Plan and Trust (the
"Plan"), and pursuant to resolutions of the Profit Sharing Plan
Committee, the Plan is hereby amended in the following respect
effective January 1, 1999:
Section 4.12, Form of Contributions, is amended in its
entirety to read as follows:
The Company's contribution shall be made in Qualifying
Employer Securities, except: (a) the Company shall make
cash contributions to the extent cash is required to be
distributed in lieu of fractional shares pursuant to
Section 8.13; and (b) the Company may, in its sole
discretion, contribute in cash any amounts the Company
is required to contribute under Section 4.2 which are
determined to be Excess Aggregate Contributions as
defined in Section 4.10 which must be distributed to
Participants from the Plan in accordance with the
requirements of Section 4.10 or Section 4.11 within 2 1/2
months following the close of the Plan Year for which
they were made, and, in the event such contributions
are made in cash, the corresponding distributions shall
also be made in cash.
IN WITNESS WHEREOF, the Profit Sharing Plan Committee has
caused this instrument to be adopted on behalf of CPI Corp. this
10 day of March, 1999, effective January 1, 1999.
CPI CORP.
By:/s/ Alyn V. Essman
-------------------
Title: Chairman of the Board
For the Profit Sharing Plan
Committee
EXHIBIT (11)
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE--DILUTED
FISCAL YEARS ENDED FEBRUARY 6, 1999, FEBRUARY 7, 1998
AND FEBRUARY 1, 1997 (in thousands except per share amounts)
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Common shares outstanding
at beginning of
fiscal period 17,499 17,239 17,169
Shares issued during
the period -
weighted average 144 166 60
Shares issuable under
employee stock plans -
weighted average 39 38 45
Dilutive effect of
exercise of certain
stock options 243 186 53
Less: Treasury stock -
weighted average (7,708) (5,758) (3,809)
--------- --------- ---------
Weighted average number
of common and common
equivalent shares 10,217 11,871 13,518
========= ========= =========
Net earnings applicable
to common shares $ 21,944 $ 12,713 $ 14,363
========= ========= =========
Earnings per common share $2.15 $1.07 $1.06
========= ========= =========
</TABLE>
32
<PAGE>
Options to purchase 182,500 and 182,500 shares of common stock
at $30.00 and $35.00 per share, respectively, were outstanding
during 1998 but were not included in the computation of diluted
EPS because the options' exercise price was greater than the
average market price of the common shares. The options, which
expire on February 2, 2003 and February 2, 2004, respectively,
were still outstanding at the end of fiscal year 1998.
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE--BASIC
FISCAL YEARS ENDED FEBRUARY 6, 1999, FEBRUARY 7, 1998
AND FEBRUARY 1, 1997 (in thousands except per share amounts)
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Common shares outstanding
at beginning of
fiscal period 17,499 17,239 17,169
Shares issued during
the period -
weighted average 144 166 60
Less: Treasury stock -
weighted average (7,708) (5,758) (3,809)
--------- --------- ---------
Weighted average number
of common and common
equivalent shares 9,935 11,647 13,420
========= ========= =========
Net earnings applicable
to common shares $ 21,944 $ 12,713 $ 14,363
========= ========= =========
Earnings per common share $2.21 $1.09 $1.07
========= ========= =========
</TABLE>
33
EXHIBIT (13)
1998
ANNUAL REPORT TO SHAREHOLDERS
34
<PAGE>
(Front cover of Annual Report to Shareholders)
(Pictures: on this page is a collage of eight pictures. These
pictures showcase new photography techniques and new props, as
well as non-traditional portraits. Starting with the top left
corner and proceeding counter clockwise the portraits are:
--young child with new book prop
--confirmation portrait
--group of three children with new background and chair props
--young child with new lighting
--graduation portrait
--group of three boys with the new background and props
--teenage girl with younger girl
--engagement portrait.)
CPI CORP.
1998 Annual Report
<PAGE>
(Inside Cover)
(PAGE NUMBERS REFER TO PAPER DOCUMENT)
<TABLE>
Contents
- --------
<S> <C>
2-3 1998 at a glance / financial results
4-6 Report to our shareholders
7-8 Sears and CPI
10-13 Management's discussion and analysis - overview
14-16 Management's discussion and analysis - results of
operation
17 Management's discussion and analysis - financial
condition & cash flows
18 Consolidated statements of earnings
19 Consolidated balance sheets
20-21 Consolidated statements of cash flows
22 Consolidated statements of changes in stockholders
equity
23-39 Notes to consolidated financial statements
40 Independent auditors' report
41 Selected quarterly financial data
42 Financial highlights
43 Directors and officers
44 Investor information
</TABLE>
<PAGE>
(This page is translucent with the following phrase starting
below the center:)
Soaring toward
higher returns
on our
investment
in people
and
technology
SEARS
Portrait Studio
(The page behind and partially visible through the translucent
paper has an oval picture with a Sears photographer on the left,
a mother in the middle and a child on the right enjoying a
portrait session.)
<PAGE>
1998 AT A GLANCE
Sales in CPI's primary business, Sears Portrait Studios,
increased 7.2% to $325.5 million in the 52 weeks of 1998 compared
to $303.7 million in the 53 weeks of 1997, with 9.4% growth in
the second half over the prior year's comparable period. For the
full year, if revenues were reported on a comparable 52-week
basis, total revenues would have increased 8.6%. Operating
earnings declined 0.7% due primarily to increased employment
costs incurred to improve customer service, plus higher expenses
related to further system and product development.
Wall Decor segment sales increased a slight 1.5% to $64.0
million, with operating earnings of $1.0 million compared to a
loss of $1.0 million in the prior year, partly due to the
introduction of several successful new products, combined with
lower cost of sales.
Net earnings increased 72.6%, due in part to the efforts of the
sale of the Company's interest in its photofinishing business,
in
contrast to losses related to that business in the prior year.
2
<PAGE>
<TABLE>
FINANCIAL RESULTS (in millions of dollars or shares except
percents/per share data)
<CAPTION>
1998 1997 1997-1998 1993
(52 wks) (53 wks) % Change (52 wks)
-------- -------- --------- --------
<S> <C> <C> <C> <C>
SALES
Portrait studios $325.5 $303.7 7.2 % $237.9
Photofinishing - - - 187.2
Wall decor 64.0 63.0 1.5 % 34.6
Total $389.5 $366.7 6.2 % $459.7
- --------------------------------------------------------------
OPERATING EARNINGS
Portrait studios $ 44.3 $ 44.6 (0.7)% $ 29.3
Photofinishing - - - 7.0
Wall decor 1.0 (1.0) 203.9 % 5.0
Total operating
earnings 45.3 43.6 3.8% 41.3
Net earnings 21.9 12.7 72.6 % 15.1**
- --------------------------------------------------------------
AVERAGE SHARES
OUTSTANDING* 10.2 11.8 (13.9)% 14.7
- --------------------------------------------------------------
PER SHARE
Earnings* $ 2.15 $ 1.07 100.9 % $ 1.03
Dividends 0.56 0.56 - 0.56
Tangible book value 11.75 10.26 14.5 % 7.84
Price:
High 27.44 28.00 20.75
Low 18.12 15.88 13.88
- --------------------------------------------------------------
<FN>
* assuming dilution
** includes $2.1 million credit for accounting change
</FN>
</TABLE>
3
<PAGE>
(Pictures: on this page are three pictures. Beginning at the
top and proceeding clockwise the pictures are:
-- a picture of a mother and an infant
-- a picture of an infant
-- an associate displaying for customers portraits using the
Portrait Preview System (SM).)
A REPORT TO OUR SHAREHOLDERS
On the cover of our 1997 Annual Report were these words: "...to
report growing rewards from our actions of the past several
years..." In that report we related how, over a period of about
five years, we invested heavily in our core business - the Sears
Portrait Studios - in order to create a new paradigm that would
rise above the competitive fray within the portrait studio
industry. Although our overall results for 1997 showed only
marginal improvement, due in part to our exit from the
photofinishing industry, a significant increase in portrait
studio operating earnings convinced us that our strategic plan,
though only partially implemented, would produce positive
returns over the long term.
We are pleased to report that the sales performance of the
portrait studios in 1998, especially in the second half, more
than confirmed our expectations. The results in the fourth
quarter Christmas season broke all sales records, even though
all of our major competitors were promoting at all-time low
prices. By way of contrast, our studios offered the highest
quality imaging products in a friendly environment at
appropriately higher prices, and customers, in a classic case of
product differentiation, responded in record numbers.
Central to these results was an evolution we have achieved in the
culture of our entire organization, in which the concept of total
dedication to customer service is symbolized by the phrase, "We
get the picture (SM)." We arrived at this concept by talking to
thousands of customers in order to better understand their
anxieties related to the studio experience, and to learn and
respond to their needs. Then we engaged in intensive discussions
with our field employees to determine how headquarters support
groups could aid them in any way in
4
<PAGE>
(Picture: on this page is a picture of an ISP Workbook and the
following tables:)
<TABLE>
PORTRAIT STUDIO SEGMENT
<CAPTION>
Sales Profit
(in millions) Margin %
-------------- --------
<S> <C> <C>
1998 $325.5 13.6
1997 303.7 14.7
1996 289.8 12.3
1995 279.6 15.2
1994 276.4 13.9
1993 237.9 12.6
1992 264.4 18.3
1991 279.0 20.3
1990 279.1 23.7
1989 260.5 25.2
</TABLE>
<TABLE>
CPI CORP.
<CAPTION>
EBITDA Net Earnings
(in millions) (in millions)
------------- -------------
<S> <C> <C>
1998 $ 64.4 21.9
1997 60.4 12.7
1996 58.8 14.4
1995 73.2 17.7
1994 66.5 16.6
1993 53.4 15.1
1992 65.9 24.8
1991 67.6 29.7
1990 68.6 35.0
1989 67.0 33.8
</TABLE>
CAPTION ON THE ABOVE CHARTS:
- - As CPI rebuilt its portrait studio business, studio profit
margins fell to half of historic highs due to heavy
investment in the business, made possible by generally
consistent cash flows. EBITDA (net income before interest,
income taxes, depreciation and amortization) averaged over
$64 million since 1989, even though earnings varied
significantly.
their studio operations. Our findings touched the very core of
our company, and now, at every level, people are focusing on the
<PAGE>
unique interests of those whom they serve, wit ultimate
concentration on studio employees serving customers.
With the positive results of 1997 and 1998 portrait studio
operations, we have begun to harvest the investments we made
since 1993. Those investments were initially directed to
technology-based programs and extensive studio remodeling.
Through 1998, we had committed $131.2 million in funding such
infrastructure. While we continue to invest in those areas, in
the past two years we have intensified our investments in our
people through extensive training programs, increased
compensation and more selective recruiting. As expected, these
investments in people cost us some margin in 1998, but we are
confident we will regain it over the long term. Our continuing
objective is to elevate the level of customer service and
continue the sales increases. Follow-up consumer research
confirms our confidence.
In an initiative designed to improve customer service still
further, we are introducing an exciting new studio compensation
plan early in 1999. Called ISP (for Independent Study Program),
the plan offers employees a series of structured lessons covering
portrait quality, photographic skills and studio operations. In
the portrait quality segment, employees capture digital images on
disks and send them to headquarters for grading and feedback,
while the other segments are conducted in-studio by skilled
reviewers, who are specially trained senior studio managers.
Following the successful completion of the lessons, our employees
realize salary increases. We believe ISP, which
5
(Picture: on this page is a picture of Alyn V. Essman, CPI
Corp.'s chairman and chief executive officer.)
will increase employment expense by about $3 - 4 million over
normal increases, will represent yet another "product"
improvement that further widens the gap between our company and
other competitors in the portrait studio industry.
While encouraged by our progress to date, we are fully aware of
the continuing effort required to maintain our unique market
position. To that end, for more than two years we have been
working on a new software platform that will ultimately integrate
all studio activities. The first phase of the system, called SAS
(for Store Automated System), will be rolled out in mid-1999 and
will result in increased studio operating efficiency, freeing our
employees to focus more intently on customer service. The second
phase will be implemented in the year 2000 and will provide the
basis for future generations of digital technology. Installing
SAS will require some rather specific hardware and program
upgrades, which we estimate will involve capital investments of
<PAGE>
approximately $10 million in 1999 and $22 million in 2000.
In summary, since 1993 we have directed the preponderance of our
capital resources and the skill and ever-increasing enthusiasm
of our people toward the objective of continuing improvement of
the total portrait studio experience for our customer. We know
that this objective is elusive and never fully attained, but
based on feedback from our customers and careful analysis of
recent sales increases, we believe we are on our way!
April 8, 1999
BY: /s/ Alyn V. Essman
----------------------------------------
Alyn V. Essman
CPI chairman and chief executive officer
6
(Pictures: on this page are two pictures. The first is a
picture of a membership card to the SmileSavers Plan with the
caption: "Recently introduced, the SmileSavers Plan is designed
to increase repeat visits and develop long-term customer
loyalty." The second is a picture of a newly remodeled Sears
Portrait Studio with the caption: "Through 1998, over 600 Sears
Portrait Studios have been remodeled and enlarged, and the new
design is routinely incorporated in newly opened Sears stores.")
SEARS AND CPI
CPI is Sears' exclusive portrait service and one of its leading
licensed businesses, sharing a 40-year relationship that
has been beneficial to 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 Portrait Preview System (SM).
As evidence of its ongoing contributions and importance to Sears,
CPI has been awarded the prestigious "Partners in Progress" award
in thirteen of the past sixteen years - most recently in 1998 -
and, in 1995, Sears bestowed on CPI the first "Partners in
Progress" award ever in accorded a concessionaire in Canada.
Still more noteworthy, in 1994 Sears honored CPI with the first
"Chairman's Award" given a Sears licensed business in recognition
of the significance of the Portrait Preview marketing program.
Sears has provided strong support of CPI's studio remodeling
program, coordinating the rollout with their own $4 billion
<PAGE>
store upgrade program. Through 1998, over 600 studios have been
remodeled and enlarged, and the new design is routinely
incorporated in newly opened Sears stores. An increase of
almost 80% in the size of the average remodeled studio has
provided space for many additional camera rooms, expanding the
overall capacity. Further support was demonstrated in January
1999 by a new five-year licensing agreement that provides for
integration of CPI's new SAS studio software platform with the
Sears store operating system.
7
(Picture: on this page is a picture of three family members
viewing the child's portraits on the internet in the comfort of
their home using myportraits.com internet services captioned:
"www.myportraits.com On their home computers, customers can
view, order and e-mail their portraits to friends and family.
(available in selected test markets)".)
In the process of rebuilding its portrait studio business, CPI
management has maintained a careful balance in its application of
resources, supplementing ongoing cash flow from operations with
prudent borrowing. Having further narrowed the focus to its core
business with the sale of the photofinishing division to Kodak,
CPI has applied excess cash to the repurchase of common stock,
significantly increasing shareholder value.
Judicious Application of Resources
<TABLE>
CASH SOURCES 1993-1998 (in millions of dollars)
<CAPTION>
<S> <C> <C>
A. FY '93 beginning balance $ 21.0
- -------------------------------------------------------
B. Cash flow-operations 271.8
C. Joint venture formation and sale 100.0
D. Long-term senior debt 58.9
E. 2-year Kodak non-compete 10.0
F. Employee stock plans 13.1
------
453.8
------
Total available cash 474.8
</TABLE>
<TABLE>
APPLICATION OF CASH 1993-1998 (in millions of dollars)
<CAPTION>
<S> <C> <C>
A. Capital expenditures 224.2
B. Stock repurchases 113.3
C. Dividends 43.5
D. Acquisitions 14.7
E. Other* 3.1
------
Total applied cash 398.8
- -----------------------------------------------------
F. FY '98 ending balance $ 76.0
<FN>
* Exchange rate effect and restricted stock
</FN>
</TABLE>
8
<PAGE>
(PAGE NUMBERS REFER TO PAPER DOCUMENT)
<TABLE>
Financial Information
- ---------------------
<S> <C>
10-13 Management's discussion and analysis - overview
14-16 Management's discussion and analysis - results of
operation
17 Management's discussion and analysis - financial
condition & cash flows
18 Consolidated statements of earnings
19 Consolidated balance sheets
20-21 Consolidated statements of cash flows
22 Consolidated statements of changes in
stockholders' equity
23-39 Notes to consolidated financial statements
40 Independent auditors' report
41 Selected quarterly financial data
42 Financial highlights
43 Directors and officers
44 Investor information
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - OVERVIEW
- -----------------------------------------------
FISCAL YEARS
CPI Corp.'s (the "Company's") fiscal year ends the first Saturday
of February. Accordingly, fiscal years 1998 and 1996 ended
February 6, 1999 and February 1, 1997, respectively, and
consisted of 52 weeks. Fiscal year 1997 ended February 7, 1998
and consisted of 53 weeks. Throughout MANAGEMENT'S DISCUSSION
AND ANALYSIS and NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
reference to 1998, 1997 or 1996 will mean the fiscal year ended
February 6, 1999, February 7, 1998 and February 1, 1997,
respectively.
BUSINESS SEGMENTS
The Company has operations in two business segments: Portrait
Studios and Wall Decor. The Portrait Studios segment, which
functions as the exclusive operator of Sears Portrait Studios,
has 1,027 locations in the United States, Canada and Puerto Rico.
The Wall Decor segment, which operates under the name Prints Plus
and offers value-priced posters, prints, frames and framing
services, operates in 152 locations throughout the United States.
Until October 4, 1996, when the Company entered into a joint
venture with Eastman Kodak Company ("Kodak"), the Company
operated a third business segment, Photofinishing, which operated
under the Fox Photo, CPI Photo Finish, and Proex names. On
October 2, 1997, the Company sold its remaining interest in the
Photofinishing joint venture to Kodak. (See "Joint Venture" for
further discussion.)
YEAR 2000 ISSUE
The Year 2000 (Y2K) issue is primarily the result of computer
software and hardware using two digits rather than four to define
the applicable year. For example, the year "00" may be
recognized as 1900 rather than 2000 and may result in computers
and computer applications failing or creating erroneous results.
In reviewing Y2K issues, the Company has identified four areas of
primary concern:
1.) the administrative offices and laboratories located
in St. Louis, Missouri; Las Vegas, Nevada; Thomaston,
Connecticut and Mississauga, Ontario (Canada)
(referred to as "Home Office");
2.) the individual locations of the Photography segment,
which operate under the name "Sears Portrait Studios,"
(referred to as "SPS Field");
3.) the administrative support office and individual
locations of the Wall Decor segment, which operate
under the name "Prints Plus" (referred to as "Prints
Plus") and
4.) third party vendors or suppliers.
<PAGE>
Home Office
- -----------
Due in part to Y2K issues in older systems, fully-compliant Y2K
basic operating and data-base systems were put in place in the
Home Office by the end of the first quarter of 1998. In
addition, due to this change, all financial systems in the Home
Office were reviewed by year-end 1997 and new financial systems,
including Y2K compliance upgrades, were substantially installed
by the end of 1998 for an estimated cost of $3.4 million. An
additional $394,000 will be spent by the end of second quarter
1999 to complete the final changes to all financial systems.
Laboratory, telephone and physical plant systems and equipment as
well as all personal computers in the Home Office have been
tested for Y2K issues and, after an analysis of the test results
is made, new or upgraded systems and equipment will be obtained
by mid-1999 at an estimated cost of $555,000.
10
SPS Field
- ----------
In 1996, as part of the Company's on-going long-range planning
and development process, the Company began the process of
updating the point-of-sale system used in the SPS Field
operations. Development of the new system, which included Y2K
compliance, continued through 1997 and, starting in second
quarter of 1999, the Company expects to install the software and
hardware for the new point-of-sale system in the SPS Field
locations. Full implementation of the new system is expected to
be completed by third quarter of 1999. At the same time the new
point-of-sale system is rolled-out, upgraded software used in
thesales stations and camera rooms of the SPS Field locations
will be installed at negligible cost.
Prints Plus
- -----------
Although the hardware used to operate the point-of-sale system
utilized by Prints Plus locations is Y2K compliant, the software
used is not and is currently being rewritten. The expected
completion date and rollout of the Y2K compliant point-of-sale
system software for Prints Plus is the end of August. In
addition, the upgrading of all financial and merchandise
distribution systems utilized by Prints Plus is expected to be
completed by June 1999. Total estimated cost for Y2K compliance
for all of Prints Plus is estimated to be $420,000.
Third Party
- -----------
The Company has material relationships with several large
companies providing goods and services to the Photography and
Wall Decor segments:
<PAGE>
--Sears, Roebuck and Company, the licensor of Sears
Portrait Studios, the Company's primary line of business;
--Eastman Kodak Company, a provider of photographic film and
paper, dye sublimation paper and related equipment and
supplies;
--Sony Corporation, a provider of dye sublimation paper and
related equipment and supplies;
--MCI, a telecommunications company which provides communi-
cation links between the Company and its remote locations
as well as telephone services in the Home Office;
--United Parcel Services, Roadway Package Services and
Airborne Express Services, companies which handle the
transportation of finished products to and from the Home
Office and individual locations;
--Mercantile Bank N.A. of St. Louis and Harris Trust and
Savings Bank, financial institutions which provide credit
facilities and other banking services;
--Prudential Insurance Company and the Guardian Insurance
Company, holders of the Company's senior debt.
All of these companies have published material indicating their
awareness of the Y2K issue and the steps they are taking to
remedy the problem. However, although the Company does not
anticipate service interruptions from its major third party
suppliers and vendors, no assurance can be given that the Company
will not experience supply disruptions due to Y2K issues.
Contingency Plans
- -----------------
Taking the previous information into consideration, while the
Company has already begun implementing changes as a result of its
Y2K assessment, a full assessment of the Y2K issues will not be
completed until June 1999. After all changes are implemented and
testing of the new systems or related equipment is completed, the
Company will develop contingency plans for possible Y2K
compliance problems. The Company expects to have the contingency
plans in place for Home Office by June 1999 and SPS Field and
Prints Plus by September 1999.
ENVIRONMENTAL MATTERS
The operations of the Company, like those of similar businesses,
are subject to various Federal, state and local laws and
regulations with respect to environmental matters, including air
and water quality, and other regulations intended to protect
public health and the environment. At present, the Company has
not been identified as a potentially responsible party under the
Comprehensive Environmental Responses, Compensation and Liability
Act and has not established any reserves or liabilities relating
to environmental matters.
11
<PAGE>
STOCK REPURCHASE
The Company's Board of Directors has authorized the Company to
purchase up to 4,500,000 shares of its outstanding common stock
through purchases at management's discretion from time to time
atacceptable market prices. Under this authorization, during
1998 and 1997, the Company purchased 252,214 and 60,284 shares of
stock for $5.4 million and $1.2 million at an average stock price
of $21.25 and $19.37, respectively. Acquired shares are held as
treasury stock and will be available for general corporate
purposes.
In addition, the Company has engaged in two separate
transactions involving the repurchase of stock during the
reporting periods covered by this Annual Report. In 1996,
theCompany completed a Dutch Auction tender offer by purchasing
2,250,000 shares of the Company's common stock at $19.00 per
share for $43.6 million. The Company used the proceeds received
in the formation of the joint venture to finance the tender
offer.
Also, in 1997, the Company completed another Dutch Auction tender
offer by purchasing 1,999,215 shares of the Company's common
stock at $23.00 per share for $46.5 million. To finance the
tender offer, the Company used the proceeds from:
-- the $10.0 million two-year Noncompete Agreement,
-- the repayment of a $4.0 million note held by the Company
from the joint venture, and
-- other working capital and cash from operations.
The weighted average shares outstanding have been adjusted to
reflect the changes in shares outstanding resulting from the
repurchase of the Company's common stock.
JOINT VENTURE
In 1996, the Company sold 51% of the outstanding shares of Fox
Photo, Inc. ("Fox") to Kodak for $56.1 million in cash, which
resulted in a pre-tax gain of $6.2 million. On the same date,
the Company entered into collateral agreements with Fox and
Kodak, including agreements under which the Company provided
certain administrative services and management services to Fox
(the "Service Agreement" and the "Consulting Agreement"). The
ownership of the joint venture was accounted for under the equity
method and was reflected as an investment in the Fox joint
venture.
In selling the 51% interest in Fox to Kodak, the Company believed
the joint venture would continue indefinitely based on a shared
vision of the potential opportunities to be realized from
combining the strengths of the two shareholders. While the
parties provided for an exit from the joint venture after the end
of 1998, the Company was focused on the long-term development
<PAGE>
of the joint venture and considered those provisions merely
insurance against the then-unlikely risk that the joint venture
would not succeed. The original agreement did not contain a
noncompete provision because neither party considered it
necessary at the time the agreement was negotiated.
Unexpectedly, within the first six months of operation, the joint
venture encountered a series of problems that severely diminished
the prospects of achieving its original vision. These problems
included significant deterioration in sales and profits from
projections in the first-year operating plan; higher than
expected costs in experimental markets; and the divergence of
shareholder philosophies, objectives and strategies.
After struggling with these and other problems for several
months, the Company and Kodak concluded that joint ownership of
Fox was no longer tenable or desirable and the parties began to
negotiate the terms of dissolution of the joint venture. The
original termination provisions set forth in the October 1996
Shareholders Agreement were not the basis for the joint venture's
termination. The sale by the Company of its
12
remaining 49% interest in Fox was negotiated on an arms-length
basis over three to four months in the context of the changed
circumstances and relationships.
In 1997, the Company sold its remaining 49% interest in Fox to
Kodak for a $43.9 million non-interest bearing promissory note
(the "Promissory Note") due on January 4, 1999 (the "Disposition
Transaction"). As a result of the sale, the Company recorded a
pre-tax loss of $4.2 million in 1997. Due to the non-interest
bearing nature of the Promissory Note, a discount of $3.9 million
was established and was amortized into income until the maturity
of the Promissory Note. During 1998 and 1997, $2.8 million and
$1.1 million, respectively, in amortization related to the
Promissory Note was recognized.
In connection with the dissolution of the cooperative
relationship between the Company and Kodak, the Company and Kodak
agreed that the Company could pose a competitive threat to Fox.
The Company remained committed to further development and
commercialization of its proprietary technology, including the
Photo Preview and Photo Proof Systems that were featured in joint
venture test markets, as well as a store automation system that
was originally designed to meet Fox specifications. The Company
also possesses more than 50 years of retail management experience
and knowledge of the most successful and vulnerable Fox markets
and concepts.
<PAGE>
Accordingly, as part of the Disposition Transaction, the Company
entered a two-year Noncompetition and Nonsolicitation Agreement
(the "Noncompete Agreement") with Fox under which the Company
agreed not to engage in the retail photofinishing business and,
subject to certain exceptions, not to employ Fox employees
without consent. The Company received $10.0 million cash
consideration for entering into the Noncompete Agreement which
will be amortized into income over the two-year period of the
agreement.
For 1998 and 1997, amortization related to the two-year
Noncompete Agreement was $5.0 million and $1.8 million,
respectively. Prospectively, in fiscal year 1999, the Company
will recognize $3.2 million in amortization for the two-year
Noncompete Agreement.
In conjunction with the dissolution of the joint venture, the
Company and Fox also agreed to immediately terminate the
Consulting Agreement and terminated the Service Agreement as of
February 1998.
PHOTOFINISHING STORE SALE
In June 1996, the Company announced the sale to Wolf Camera, Inc.
of 50 one-hour photofinishing stores located in Florida, Georgia,
Illinois and Tennessee for $1.9 million. The Company did not
recognize a material gain or loss on the sale of these assets.
FORWARD LOOKING STATEMENTS
The statements contained in this report which are not historical
facts are forward-looking statements that involve risks and
uncertainties. Management wishes to caution the reader that
these forward-looking statements, such as the Company's outlook
for Sears Portrait Studios and Prints Plus, readiness, expectant
costs and contingency planning regarding Year 2000 issues, future
cash requirements and capital expenditures, are only predictions
or expectations; actual events or results may differ materially
as a result of risks facing the Company. Such risks include, but
are not limited to customer demand for the Company's products and
services, the overall level of economic activity in the Company's
major markets, competitors' actions, manufacturing interruptions,
dependence on certain suppliers, changes in the Company's
relationship with Sears, Roebuck & Company and the condition and
strategic planning of Sears, Roebuck & Company, fluctuations in
operating results, the attractions and retention of qualified
personnel, Year 2000 compliance issues and other risks as may be
described in the Company's filings with the Securities and
Exchange Commission, including its Form 10-K for the year ended
February 6, 1999.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS-RESULTS OF OPERATIONS
- ----------------------------------------------------------
NET SALES
Portrait Studios 1998 net sales were up 7.2% over 1997 as a
result of higher average sales per customer, due in part to a
price increase and from greater customer acceptance of various
portrait programs, and from increased customer traffic in the
portrait studios, partially offset by only 52 weeks of sales
reported in 1998 compared to 53 weeks in 1997. The 53rd week in
1997 represented $3.8 million, or 1.3%, of the net sales for
1997. If net sales were reported on a comparable 52-week basis
for 1998 and 1997, sales would have increased 8.6% year-over-
year. Portrait Studios 1997 net sales were up 4.8% over 1996 as
a result of the inclusion of the 53rd week and an increase in
sales per customer being slightly offset by a decline in customer
volume. Again, if net sales were reported on a comparable 52-
week basis for 1997 and 1996, sales would have increased 3.5%
year-over-year.
Wall Decor 1998 net sales were up 1.5% over 1997 as a result of
favorable customer response to new products offered in the Wall
Decor stores partially offset by only 52 weeks of sales reported
in 1998 compared to 53 weeks reported in 1997. The 53rd week in
1997 represented $459,000, or 0.7%, of the net sales for 1997.
If net sales were reported on a comparable 52-week basis for 1998
and 1997, sales would have increased 2.2% year-over-year. Wall
Decor 1997 net sales were up 0.6% over 1996 as a result of the
inclusion of the 53rd week.
The decreases in net sales for the Photofinishing segment for
1997 from 1996 was due to the formation of the joint venture in
October 1996.
Total net sales for 1998 were up 6.2% over 1997 as a result of
increased sales in both Portrait Studios and Wall Decor, offset
slightly by the exclusion of a 53rd week of sales in 1998. If
net sales were reported on a comparable 52-week basis for 1998
and 1997, sales would have increased 7.5% year-over-year. Total
net sales for 1997 were down 21.5% from 1996 reflecting an
increase in sales for both Portrait Studios and Wall Decor, in
part due to the inclusion of a 53rd week of sales, offset by the
exclusion of sales for the Photofinishing segment as a result of
the formation of the joint venture in 1996.
<PAGE>
<TABLE>
NET SALES (in thousands of dollars)
Fifty-two weeks ended February 6, 199 and fifty-three weeks
ended February 7, 1998
<CAPTION>
1998 versus 1997
favorable (unfavorable)
-----------------------
1998 amount percent 1997
change change
<S> <C> <C> <C> <C>
Portrait Studios $325,547 $ 21,881 7.2% $303,666
Wall Decor 63,963 928 1.5 63,035
Photofinishing - - - -
-------- ---------- ------- --------
Total net sales $389,510 $ 22,809 6.2% $366,701
======== ========== ======= ========
</TABLE>
<TABLE>
NET SALES (in thousands of dollars)
Fifty-three weeks ended February 7, 1998 and fifty-two weeks
ended February 1, 1997
<CAPTION>
1997 versus 1996
favorable (unfavorable)
-----------------------
1997 amount percent 1996
change change
<S> <C> <C> <C> <C>
Portrait Studios $303,666 $ 13,826 4.8% $289,840
Wall Decor 63,035 359 0.6 62,676
Photofinishing - (114,518) (100.0) 114,518
-------- ---------- -------- --------
Total net sales $366,701 $(100,333) (21.5)% $467,034
======== ========== ======== ========
</TABLE>
14
<PAGE>
OPERATING EARNINGS
Portrait Studios 1998 operating earnings, which had 52 weeks,
were down 0.7% from 1997, which had 53 weeks, as a result of
higher other expenses, resulting from increased system and
product development, and increased employment costs. Increased
employment costs resulted from necessary wage increases in a
tight labor market and Portrait Studios movement towards improved
customer servicing, which resulted in increased labor hours. In
1997, which had 53 weeks compared to 52 weeks in 1996, the 25.1%
increase in Portrait Studios operating earnings was due primarily
to increased sales and reduced manufacturing costs resulting from
the favorable renegotiation of purchasing contracts; offset
slightly by increases in employment costs, due to increased
training for newer technologies, and advertising, due to
increased television network advertising and direct marketing.
Wall Decor 1998 operating earnings were up over 1997 as a result
of higher same-store sales and reduced cost of goods sold due to
lower purchasing costs for resale products. Wall Decor 1997
operating earnings, representing 53 weeks, were down 129.6% from
1996, a 52-week year, as a result of decreased same-store sales
and higher employment and occupancy expenses.
Operating earnings for the Photofinishing segment for 1997 and
1996 are not comparable due to the formation of the joint venture
in October 1996.
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Fifty-two weeks ended February 6, 1999 and fifty-three weeks
ended February 7, 1998
<CAPTION>
1998 versus 1997
favorable (unfavorable)
-----------------------
1998 amount percent 1997
change change
<S> <C> <C> <C> <C>
Operating earnings:
Portrait Studios $ 44,276 $ (321) (0.7%) $ 44,597
Wall Decor 1,002 1,966 203.9 (964)
Photofinishing - - - -
-------- --------- -------- ---------
Total operating
earnings 45,278 1,645 3.8 43,633
General corporate
expenses 15,918 (483) 3.1 15,435
Interest in joint
venture - 3,304 100.0 (3,304)
Gain (Loss) on sale
of interest in
Photofinishing
segment - 4,189 100.0 (4,189)
Interest expense 4,627 (157) (3.5) 4,470
Interest income 3,709 1,240 50.2 2,469
Other income 5,317 3,124 142.5 2,193
--------- --------- ------- ---------
Earnings before
income taxes $ 33,759 $ 12,862 61.5% $ 20,897
========= ========= ======= =========
</TABLE>
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Fifty-three weeks ended February 7, 1998 and fifty-two weeks
ended February 1, 1997
<CAPTION>
1997 versus 1996
favorable (unfavorable)
-----------------------
1997 amount percent 1996
change change
<S> <C> <C> <C> <C>
Operating earnings:
Portrait Studios $ 44,597 $ 8,941 25.1% $ 35,656
Wall Decor (964) (4,216) (129.6) 3,252
Photofinishing - (82) (100.0) 82
--------- --------- ------- ---------
Total operating
earnings 43,633 4,643 11.9 38,990
General corporate
expenses 15,435 3,183 17.1 18,618
Interest in joint
venture (3,304) (2,819) (581.2) (485)
Gain (Loss) on sale
of interest in
Photofinishing
segment (4,189) (10,369) (167.8) 6,180
Interest expense 4,470 (192) (4.5) 4,278
Interest income 2,469 1,960 385.1 509
Other income 2,193 1,692 337.7 501
-------- -------- -------- ---------
Earnings before
income taxes $ 20,897 $ (1,902) (8.3)% $ 22,799
========= ========= ======== =========
</TABLE>
15
NET EARNINGS
Net earnings before taxes for 1998 were up 61.5% over 1997 as a
result of: increased operating earnings; an increase in interest
income, which reflected the amortized discount from the Kodak
Promissory Note of $2.8 million in 1998 compared to $1.1 million
in 1997; an increase in other income, which reflected the
amortization of the Noncompete Agreement of $5.0 million in 1998
compared to $1.8 million in 1997 ; and the absence in 1998 of
both the Company's share of operating losses from its interest in
the Fox joint venture and the subsequent loss on the sale of the
Company's remaining 49% interest in the Fox joint venture.
<PAGE>
In 1997, net earnings before taxes decreased 8.3% from 1996 as a
result of the sale of the remaining 49% interest in the joint
venture, which resulted in a loss of $4.2 million compared to the
$6.2 million gain recorded from the sale of the initial 51% of
the Photofinishing business recorded in 1996. This decrease was
offset slightly by the $1.8 million recognition of amortization
for the Noncompete Agreement and $1.1 million recognition of the
discount on the Kodak Promissory Note.
Other changes in net earnings in 1997 from 1996 were attributable
to improved operating earnings; lower corporate expenses, which
resulted from the allocation of administrative expenses to the
joint venture under the Service and Consulting Agreements; and
higher interest income, which resulted from the Company having
higher levels of invested cash throughout the year; partially
offset by an increase in the loss recorded for the Company's
interest in the joint venture.
The effective income tax rates were 35.0%, 39.2% and 37.0% in
1998, 1997 and 1996, respectively. The 1997 effective income tax
rate variance from 1998 and 1996 was due to the differences in
the investment basis of the joint venture for financial and
Federal income tax reporting purposes. The 1998 effective rate
is also lower due to the implementation of state tax planning
strategies that have resulted in lower state income taxes.
EARNINGS PER SHARE
Unless otherwise indicated, net earnings per share (EPS) shall
refer to diluted EPS in MANAGEMENT'S DISCUSSION AND ANALYSIS, the
financial statements and footnotes of the Company.
EPS was $2.15 for 1998 compared to $1.07 in 1997 reflecting the
positive increase in earnings previously discussed in the Net
Earnings discussion as well as the absence of losses from the
Company's interest in the Fox joint venture, loss on the sale of
the remaining 49% interest in the joint venture and the effect of
other related joint venture transactions previously discussed.
In addition, EPS was affected by the repurchase of 252,214 shares
of stock during 1998 and 1,999,215 shares repurchased late in
fiscal 1997, which combined to result in a 13.9% decrease in the
weighted average number of common and common equivalent shares
outstanding for 1998 from 1997.
EPS was $1.07 for 1997 as compared to $1.06 in 1996. The loss
attributable to the sale of the remaining 49% of the joint
venture and related transactions previously discussed was $0.11
per share (assuming dilution) as compared to the $0.29 per share
(assuming dilution) gain attributable to the sale of the initial
51% interest in the Photofinishing business recorded in 1996.
In addition, EPS in 1997 was also affected by the repurchase of
2,250,000 shares of stock in November 1996 and 1,999,215 shares
<PAGE>
of stock in January 1998, which resulted in a 12.2% decrease in
the weighted average number of common and common equivalent
shares outstanding for 1997 from 1996.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION
- ----------------------------------------------------------
ASSETS
In 1998, total assets increased 2.6% from 1997, due to increased
cash and cash equivalents attributable to positive cash flows,
offset slightly by the reduction of net property and equipment,
due to depreciation and amortization costs exceeding additions.
LIABILITIES
In 1998, total liabilities decreased 6.7% from 1997 due primarily
to a decrease in other liabilities, which resulted from the
amortization of $5.0 million of the Noncompete Agreement in 1998.
Prospectively, for fiscal year end 1999, the Company will
amortize $3.2 million, the remaining balance of the Noncompete
Agreement.
STOCKHOLDERS' EQUITY
Stockholders' equity was up 14.1% in 1998 from 1997 due mainly to
an increase in retained earnings resulting from the 1998 net
earnings. This increase was partially offset by the purchase of
the Company's common stock and the distribution of quarterly
dividends.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CASH FLOWS
- -------------------------------------------------
During the period 1996 through 1998, the Company generated $139.6
million in internal funds from operations. Investing activities
during this three-year period amounted to $38.5 million including
capital expenditures of $71.5 million, which were offset by the
$43.9 million proceeds received from the Kodak Promissory Note,
$10.0 million proceeds received from the two-year Noncompete
Agreement and the $56.1 million received from the initial sale of
51% of Fox Photo, Inc. Financing activities during this time
included the repurchase of $96.7 million in treasury stock and
the payment of $19.6 million in dividends. The net result of
these transactions was a $67.7 million increase in cash and cash
equivalents during the three-year period.
Planned capital expenditures for fiscal year 1999 are expected to
be approximately $30.0 million. Included in fiscal year 1999
capital spending plans are the addition and remodeling of stores
in the Portrait Studios and Prints Plus segments and equipment
upgrades and enhancements in the Company's information systems,
<PAGE>
including the roll-out of the first phase of the Store Automation
System.
Through operating cash flows and existing cash and cash
equivalents, the Company believes it has sufficient liquidity
over the course of the coming year to meet cash requirements for
operations, planned capital expenditures and dividends to
shareholders.
17
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars except share and per share amounts)
Fifty-two weeks ended February 6, 1999, fifty-three weeks ended
February 7, 1998 and fifty-two weeks ended February 1, 1997
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 389,510 $ 366,701 $ 467,034
Costs and expenses:
Cost of sales (exclusive
of depreciation expense
shown below) 56,399 57,782 110,013
Selling, administrative
and general expenses 274,001 250,743 298,703
Depreciation 28,561 27,793 34,454
Amortization 1,189 2,185 3,492
----------- ----------- ----------
360,150 338,503 446,662
----------- ----------- ----------
Income from operations 29,360 28,198 20,372
Interest expense 4,627 4,470 4,278
Interest income 3,709 2,469 509
Interest in joint venture - (3,304) (485)
Gain (loss) on sale of
interest in Photo-
finishing segment - (4,189) 6,180
Other income 5,317 2,193 501
----------- ----------- ----------
Earnings before income
taxes 33,759 20,897 22,799
Income tax expense 11,815 8,184 8,436
----------- ----------- ----------
Net earnings $ 21,944 $ 12,713 $ 14,363
=========== =========== ===========
Net earnings per share -
diluted $ 2.15 $ 1.07 $ 1.06
=========== =========== ===========
Weighted average number
of common and common
equivalent shares
outstanding - diluted 10,216,975 11,871,013 13,518,480
=========== =========== ===========
Net earnings per share -
basic $ 2.21 $ 1.09 $ 1.07
=========== =========== ===========
Weighted average number
of common and common
equivalent shares
outstanding - basic 9,934,993 11,647,307 13,419,740
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS - ASSETS
(in thousands of dollars except share and per share amounts)
<CAPTION>
February 6, February 7,
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 76,000 $ 15,292
Receivables, less allowance of
$302 and $291, respectively 10,374 11,665
Notes receivable - 41,085
Inventories 19,071 18,044
Prepaid expenses and other
current assets 8,194 8,139
Deferred tax assets 32 180
--------- ---------
Total current assets 113,671 94,405
--------- ---------
Net property and equipment 111,148 124,718
Other assets, net of amortization of
$1,244 and $1,206, respectively 9,874 9,638
--------- ---------
Total assets $234,693 $228,761
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS-LIABILITIES AND STOCKHOLDERS'
EQUITY
(in thousands of dollars except share and per share amounts)
<CAPTION>
February 6, February 7,
1999 1998
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,641 $ 13,565
Accrued employment costs 14,256 14,087
Sales taxes payable 2,461 3,093
Accrued advertising expense 2,054 2,541
Accrued expenses and other liabilities 4,644 5,142
Income taxes 2,720 9,014
--------- ---------
Total current liabilities 35,776 47,442
--------- ---------
Long-term obligations, less current
maturities 59,559 59,482
Other liabilities 14,444 17,314
Deferred income taxes 8,398 2,431
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;
17,730,100 and 17,499,137 shares
outstanding at February 6, 1999 and
February 7, 1998, respectively 7,092 6,999
Additional paid-in capital 41,605 37,614
Retained earnings 242,409 226,032
Accumulated other comprehensive income (3,363) (2,751)
--------- ---------
287,743 267,894
Treasury stock at cost, 7,864,261 and
7,612,047 shares at February 6, 1999
and February 7, 1998, respectively (171,184) (165,789)
Unamortized deferred compensation-
restricted stock (43) (13)
--------- ---------
Total stockholders' equity 116,516 102,092
--------- ---------
Total liabilities and stockholders'
equity $234,693 $228,761
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Fifty-two weeks ended February 6, 1999, fifty-three weeks ended
February 7, 1998 and fifty-two weeks ended February 1, 1997
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows provided by
operating activities $38,986 $46,753 $53,840
Cash flows used in financing
activities:
Repayment of short-term
borrowings - - (2,875)
Proceeds from issuance of
long-term debt - 60,646 -
Repayment of long-term
obligations - (56,273) (5,000)
Issuance of common stock to
employee stock plans 4,084 4,434 1,240
Cash dividends (5,567) (6,586) (7,473)
Purchase of treasury stock (5,395) (47,653) (43,603)
-------- -------- --------
Cash flows used in
financing activities (6,878) (45,432) (57,711)
-------- -------- --------
Cash flows provided by (used
in) investing activities:
Additions to property and
equipment (14,991) (21,749) (34,728)
Proceeds from note receivable 43,900 - -
Noncompete agreement - 10,000 -
Advance (to) payment from
venture - 4,000 (4,000)
Proceeds from sale of Fox
common stock - - 56,100
Issuance of restricted stock (53) - -
-------- -------- --------
Cash flows provided by
(used in) investing
activities 28,856 (7,749) 17,372
-------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents (256) (203) 91
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 60,708 (6,631) 13,592
Cash and cash equivalents at
beginning of year 15,292 21,923 8,331
-------- -------- --------
Cash and cash equivalents at
end of year $76,000 $15,292 $21,923
======== ======== ========
Supplemental cash flow
information:
Interest paid $ 4,481 $ 5,024 $ 4,468
======== ======== ========
Income taxes paid $12,350 $ 8,790 $ 9,366
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
20
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
Fifty-two weeks ended February 6, 1999, fifty-three weeks
ended February 7, 1998 and fifty-two weeks ended February 1, 1997
RECONCILIATION OF NET EARNINGS TO CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net earnings $21,944 $12,713 $14,363
Adjustments for items not
requiring cash:
Depreciation and amortization 29,750 29,978 37,946
Deferred income taxes 6,129 (4,000) 3,351
Deferred revenue 1,266 - -
Interest in joint venture - 3,304 485
Gain (loss) on sale of interest
in Photofinishing segment - 4,189 (6,180)
Amortization of noncompete
agreement (5,000) (1,772) -
Amortization of discount on
note receivable (2,815) (1,051) -
Other (817) (3,959) (1,888)
Decrease (increase) in current
assets:
Receivables and inventories 264 2,949 (509)
Assets held for resale - - 5,055
Prepaid expenses and other
current assets (54) 965 (631)
Increase (decrease) in current
liabilities:
Accounts payable, accrued
expenses and other
liabilities (5,372) (429) 5,566
Income taxes (6,309) 3,866 (3,718)
-------- -------- --------
Cash flows provided by operating
activities $38,986 $46,753 $53,840
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands of dollars except share and per share amounts)
Fifty-two weeks ended February 6, 1999, fifty-three weeks
ended February 7, 1998 and fifty-two weeks ended February 1,
1997
<CAPTION>
Add'l
Common paid-in Retained
stock capital earnings
------- -------- ---------
<S> <C> <C> <C>
Balance at February 3, 1996 $6,868 $32,071 $213,015
------- -------- ---------
Issuance of common stock
(69,471 shares) 28 1,212 -
Comprehensive income
Net earnings - - 14,363
Foreign currency translation - - -
Comprehensive income - - -
Dividends ($0.56 per common
share) - - (7,473)
Purchase of treasury stock, at
cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at February 1, 1997 $6,896 $33,283 $219,905
------- -------- ---------
Issuance of common stock
(260,264 shares) 103 4,331 -
Comprehensive income
Net earnings - - 12,713
Foreign currency translation - - -
Comprehensive income - - -
Dividends ($0.56 per common
share) - - (6,586)
Purchase of treasury stock, at
cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at February 7, 1998 $6,999 $37,614 $226,032
------- -------- ---------
Issuance of common stock 93 3,991 -
(230,963 shares)
Comprehensive income
Net earnings - - 21,944
Foreign currency translation - - -
Comprehensive income - - -
Dividends ($0.56 per common
share) - - (5,567)
Purchase of treasury stock, at
cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at February 6, 1999 $7,092 $41,605 $242,409
======= ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued) (in thousands of dollars except share and per share
amounts) Fifty-two weeks ended February 6, 1999, fifty-three
weeks ended February 7, 1998 and fifty-two weeks ended
February 1, 1997
<CAPTION>
Accumulated
other Treasury
comprehensive stock
income at cost
--------- ----------
<S> <C> <C>
Balance at February 3, 1996 $(2,109) $ (74,533)
-------- ----------
Issuance of common stock
(69,471 shares) - -
Comprehensive income
Net earnings - -
Foreign currency translation 249 -
Comprehensive income - -
Dividends ($0.56 per common share) - -
Purchase of treasury stock, at cost - (43,603)
Amortization of deferred
compensation-restricted stock - -
-------- ----------
Balance at February 1, 1997 $(1,860) $(118,136)
-------- ----------
Issuance of common stock
(260,264 shares) - -
Comprehensive income
Net earnings - -
Foreign currency translation (891) -
Comprehensive income - -
Dividends ($0.56 per common share) - -
Purchase of treasury stock, at cost - (47,653)
Amortization of deferred
compensation-restricted stock - -
-------- ----------
Balance at February 7, 1998 $(2,751) $(165,789)
-------- ----------
Issuance of common stock
(230,963 shares) - -
Comprehensive income
Net earnings - -
Foreign currency translation (612) -
Comprehensive income - -
Dividends ($0.56 per common share) - -
Purchase of treasury stock, at cost - (5,395)
Amortization of deferred
compensation-restricted stock - -
-------- ----------
Balance at February 6, 1999 $(3,363) $(171,184)
======== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued) (in thousands of dollars except share and per share
amounts) Fifty-two weeks ended February 6, 1999, fifty-three
weeks ended February 7, 1998 and fifty-two weeks ended
February 1, 1997
<CAPTION>
Deferred
compensation-
restricted
stock Total
-------- ---------
<S> <C> <C>
Balance at February 3, 1996 $(1,144) $174,168
-------- ---------
Issuance of common stock
(69,471 shares) - 1,240
Comprehensive income
Net earnings - -
Foreign currency translation - -
Comprehensive income - 14,612
Dividends ($0.56 per common share) - (7,473)
Purchase of treasury stock, at cost - (43,603)
Amortization of deferred
compensation-restricted stock 581 581
-------- ---------
Balance at February 1, 1997 $ (563) $139,525
-------- ---------
Issuance of common stock
(260,264 shares) (15) 4,419
Comprehensive income
Net earnings - -
Foreign currency translation - -
Comprehensive income - 11,822
Dividends ($0.56 per common share) - (6,586)
Purchase of treasury stock, at cost - (47,653)
Amortization of deferred
compensation-restricted stock 565 565
-------- ---------
Balance at February 7, 1998 $ (13) $102,092
-------- ---------
Issuance of common stock
(230,963 shares) (53) 4,031
Comprehensive income
Net earnings - -
Foreign currency translation - -
Comprehensive income - 21,332
Dividends ($0.56 per common share) - (5,567)
Purchase of treasury stock, at cost - (5,395)
Amortization of deferred
compensation-restricted stock 23 23
-------- ---------
Balance at February 6, 1999 $ (43) $116,516
======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BUSINESS OF THE COMPANY AND PRINCIPLES OF CONSOLIDATION
CPI Corp. (the "Company") is a holding company engaged, through
its majority or wholly owned subsidiaries and partnerships, in
developing and marketing consumer services and related products
through a network of centrally-managed, small retail locations.
The Company operates throughout the United States, Canada and
Puerto Rico and has a Photography segment, which operates
professional portrait studios under the names "Sears Portrait
Studios" and "Mainstreet Portraits," and a Wall Decor segment,
which operates posters, prints and framing outlets under the name
"Prints Plus." Company management has made a number of estimates
and assumptions related to the reporting of assets and
liabilities in the preparation of financial statements. Actual
results could differ from these estimates. All significant
intercompany transactions have been eliminated.
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
that 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 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 maturities
of three months or less at date of acquisition. These highly
liquid investments consist of master notes, commercial paper,
treasury bills, bankers acceptances, term deposits, government
agency notes, repurchase agreements, money market funds, auction
rate securities and government money market funds. Investment
interest income for 1998, 1997 and 1996 was $894,000, $1.2
million and $417,000, respectively.
INVENTORIES
Inventories in the Portrait Studio segment are comprised of raw
material inventories of film, paper, chemicals and portraits-in-
process, and 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. Inventories in the Wall Decor
segment are stated at weighted average cost.
<PAGE>
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:
<TABLE>
<S> <C>
Building improvements 15 to 19 years
Leasehold improvements 5 to 15 years
Furniture and fixtures 5 to 8 years
Machinery and equipment 3 to 10 years
</TABLE>
23
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. This excess of
cost over fair-value of net assets acquired is being amortized
on a straight-line basis over periods ranging from five to thirty
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 flow from operations, in the
opinion of Company management, there has been no impairment.
FAIR VALUE OF 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.
STOCK-BASED COMPENSATION PLANS
The Company records compensation expense for its stock-based
employee compensation plans in accordance with the intrinsic-
value method prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Intrinsic
value is the amount by which the market price of the underlying
stock exceeds the exercise price of the stock option or award on
the measurement date, generally the date of grant. No
compensation expense is recognized for the Company's stock
option plan.
<PAGE>
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.
Customer club program revenue is recognized partially at the time
of the initial photographic session, and the remainder is
recognized over the life of the customer's program.
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.
COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," on February 8, 1998. This statement requires the
separate reporting of components of comprehensive income, as
defined. The new standard requires the Company to separately
report the translation adjustments of SFAS No. 52, "Foreign
Currency Translation" as a component of comprehensive income.
Prior year amounts have been reclassified to conform with the
1998 presentation.
EARNINGS PER COMMON SHARE
Basic 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. Diluted 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.
24
2. JOINT VENTURE
In 1996, the Company sold 51% of the outstanding shares of Fox
Photo, Inc. ("Fox") to Eastman Kodak Company ("Kodak") for $56.1
million in cash, which resulted in a pre-tax gain of $6.2
million. On the same date, the Company entered into collateral
agreements with Fox and Kodak, including agreements under which
the Company provided certain administrative services and
management services to Fox (the "Service Agreement" and the
"Consulting Agreement"). The ownership of the joint venture was
accounted for under the equity method and was reflected as an
investment in the Fox joint venture.
In 1997, the Company sold its remaining 49% interest in Fox to
Kodak for a $43.9 million non-interest bearing promissory note
(the "Promissory Note") due on January 4, 1999 (the "Disposition
<PAGE>
Transaction"). As a result of the sale, the Company recorded a
pre-tax loss of $4.2 million in 1997. Due to the non-interest
bearing nature of the Promissory Note, a discount of $3.9
million was established and was amortized into income over the
life of the Promissory Note. During 1998 and 1997, $2.8 million
and $1.1 million, respectively, in amortization related to the
Promissory Note was recognized.
Once the joint venture was dissolved, the issue of competitive
threat surfaced. The Company remained committed to further
development and commercialization of its proprietary technology,
including the Photo Preview and Photo Proof Systems, that were
featured in joint venture test markets, as well as a store
automation system. The Company also possessed knowledge of the
most successful and vulnerable Fox markets and concepts.
Accordingly, as part of the Disposition Transaction, the Company
entered a two-year Noncompetition and Nonsolicitation Agreement
(the "Noncompete Agreement") with Fox. The Company received a
$10.0 million cash consideration which is being amortized into
income over the life of the Noncompete Agreement. For 1998 and
1997, amortization was $5.0 million and $1.8 million,
respectively. Prospectively, the Company will recognize $3.2
million in amortization in fiscal year 1999.
In conjunction with the dissolution of the joint venture, the
Company and Fox also agreed to immediately terminate the
Consulting Agreement and terminated the Service Agreement as of
February 1998.
The information below summarizes the unaudited pro forma results
of operations for 1997 and 1996, assuming the sale of the
remaining 49% of the joint venture at the beginning of 1996, and
have been prepared for comparative purposes only. The informa-
tion does not purport to be indicative of the results of opera-
tions which actually would have resulted had the sale been in
effect on the dates indicated, or which may result in the
future.
<TABLE>
PRO FORMA RESULTS
(in thousands of dollars except per share amounts)
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $366,701 $352,516
======== ========
Net earnings $ 19,103 $ 14,645
======== ========
Net earnings per share:
Diluted $ 1.61 $ 1.24
======== ========
Basic $ 1.64 $ 1.25
======== ========
</TABLE>
25
3. PROPERTY AND EQUIPMENT
The adjacent table reflects the costs associated with the
Company's property and equipment as of February 6, 1999 and
February 7, 1998.
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
year 2012. The leases generally provide for the lessee to pay
maintenance, insurance, taxes and certain other operating costs
of the leased property. In addition to the minimum rental
commitments, certain of these operating leases provide for
contingent rentals based on a percentage of revenues in excess
of specified amounts.
<PAGE>
Rental expense during 1998, 1997 and 1996 on all operating
leases was $18.7 million, $19.1 million and $27.8 million,
respectively.
<TABLE>
PROPERTY AND EQUIPMENT
(in thousands of dollars)
<CAPTION>
February 6, February 7,
1999 1998
<S> <C> <C>
Land and land improvements $ 2,803 $ 2,803
Building improvements 26,595 26,550
Leasehold improvements 29,558 30,082
Furniture and fixtures 76,085 66,743
Machinery and equipment 119,569 116,189
-------- --------
254,610 242,367
Less accumulated depreciation 143,462 117,649
-------- --------
Net property and equipment $111,148 $124,718
======== ========
</TABLE>
<TABLE>
MINIMUM RENTAL PAYMENTS*
(in thousands of dollars)
<CAPTION>
Fiscal Year
<S> <C>
1999 $ 16,763
2000 14,965
2001 12,583
2002 10,095
2003 9,023
Thereafter 18,939
--------
$ 82,368
========
<FN>
* Under operating leases with initial terms in excess of one
year at February 6, 1999.
</FN>
</TABLE>
26
4. CREDIT AGREEMENTS AND OUTSTANDING DEBT
The Company has a $60.0 million Senior Note Agreement (the "Note
Agreement") privately placed with two major insurance companies.
The notes issued pursuant to the Note Agreement mature over a
ten-year period with an average maturity of seven years and with
the first principal payment due in 2001. Interest on the notes
is payable semi-annually at an average effective fixed rate of
7.46%. The Note Agreement requires the Company maintain certain
<PAGE>
financial ratios and comply with certain restrictive covenants.
The Company incurred $591,000 in issuance costs associated with
the private placement of the notes. These costs are being
amortized ratably over the ten-year life of the notes.
The Company also has a $40.0 million revolving credit agreement
(the "Revolving Agreement") with two domestic banks. The
Revolving Agreement, which will expire on June 16, 2000, has a
variable interest rate charged at either LIBOR or federal funds,
with an applicable margin added, or prime rate, based on the
Company's discretion. A commitment fee of 0.125% to 0.25% per
annum is payable on the unused portion of the Revolving
Agreement. The Company has substantially the same financial
covenants as those set forth in the Company's $60.0 million Note
Agreement. There were no borrowings outstanding at February 6,
1999 or February 7, 1998 under the Revolving Agreement.
As of February 6, 1999, the Company had outstanding letters of
credit for the principal amount of $3.6 million.
<TABLE>
DEBT OBLIGATIONS OUTSTANDING
(in thousands of dollars)
<CAPTION>
February 6, February 7,
1999 1998
<S> <C> <C>
Senior notes, net of unamortized
issuance costs $ 59,545 $ 59,461
Notes payable 14 21
-------- --------
$ 59,559 $ 59,482
======== ========
</TABLE>
<PAGE>
<TABLE>
AGGREGATE LONG-TERM DEBT MATURITIES AS OF FEBRUARY 6, 1999
(in thousands of dollars)
<CAPTION>
Fiscal Year
<S> <C>
2001 $ 8,580
2002 8,580
2003 8,580
2004 8,580
2005 8,580
Thereafter 17,114
---------
60,014
Unamortized issuance costs (455)
---------
$ 59,559
=========
</TABLE>
27
5. ADVERTISING
The Company expenses costs involved in 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 of direct mail
advertisements that include coupons for the Company's products
and of certain broadcast costs. 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.
Total advertising reported as a capitalized cost for direct-
response advertising and is classified with other assets for
1998 and 1997 was $700,000 and $1.0 million, respectively.
Advertising expense for 1998, 1997 and 1996 was $43.6 million,
$41.9 million and $45.5 million, respectively.
6. INCOME TAX
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 6, 1999, due to management's
belief that all criteria for recognition have been met,
including the existence of a history of taxes paid sufficient to
support the realization of deferred tax assets.
United States income taxes have not been provided on $13.9
million of undistributed earnings of the Canadian subsidiary
because of the Company's intention to reinvest these earnings.
<PAGE>
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 $696,500 may be payable if such earnings were
distributed.
28
<TABLE>
EARNINGS BEFORE INCOME TAXES BY U.S. AND CANADIAN SOURCES
(in thousands of dollars)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. $ 33,929 $ 20,720 $ 23,597
Canada (170) 177 (798)
--------- --------- ---------
$ 33,759 $ 20,897 $ 22,799
========= ========= =========
</TABLE>
<TABLE>
COMPONENTS OF INCOME TAXES
(in thousands of dollars)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 5,202 $10,926 $ 5,399
State and local 831 1,424 1,010
Canada (347) (166) (1,324)
-------- -------- --------
5,686 12,184 5,085
Deferred 6,129 (4,000) 3,351
-------- -------- --------
$11,815 $ 8,184 $ 8,436
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
RECONCILIATION BETWEEN INCOME TAXES
(in thousands of dollars)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Taxes at U.S. federal
corporate statutory rate $11,815 $ 7,314 $ 7,980
State and local income
taxes, net of federal tax
benefit 699 1,043 849
Stock options (606) (519) (25)
Other (93) 346 (368)
-------- -------- --------
$11,815 $ 8,184 $ 8,436
======== ======== ========
</TABLE>
<TABLE>
SOURCES OF TAX EFFECTS
(in thousands of dollars)
<CAPTION>
February 6, February 7,
1999 1998
<S> <C> <C>
Deferred tax assets:
Deferred compensation and other
employee benefits $ 1,442 $ 1,527
Expense accruals 933 1,464
Allowance for doubtful accounts 177 147
Reserve for discontinued operations 376 660
Noncompete amortization 1,435 3,311
Other - 220
-------- --------
Total deferred tax assets 4,363 7,329
-------- --------
Deferred tax liabilities:
Property and equipment (8,491) (8,112)
Deferred revenue (2,990) -
Employee pension plan (1,163) (1,378)
Other (85) (90)
-------- --------
Total deferred tax liabilities (12,729) (9,580)
-------- --------
Net deferred tax liabilities $(8,366) $(2,251)
======== ========
Current deferred income taxes $ 32 $ 180
======== ========
Long-term deferred income taxes $(8,398) $(2,431)
======== ========
</TABLE>
29
<PAGE>
7. 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 later of the hire date or January 1, 1995 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. Plan
assets consist primarily of cash equivalents, a marketable
equity securities fund, guaranteed interest contracts, immediate
participation guarantee contracts and government bonds.
The 1998 benefit obligation was affected by plan amendments
involving a change in the date used to calculate an employee's
average compensation and the maximum annual compensation included
in the benefit calculation.
The following provides a reconciliation of benefit obligations,
plan assets, and funded status of the plans.
<TABLE>
NET PERIODIC PENSION BENEFIT COSTS
(in thousands of dollars)
<CAPTION>
Pension Benefits
-------------------------
1998 1997 1996
<S> <C> <C> <C>
Service cost $ 1,112 $ 729 $ 1,124
Interest cost 1,809 1,459 1,432
Expected return on plan assets (2,301) (4,109)
(2,802)
Amortization of transition obligation 3 3 3
Amortization of prior service cost 400 143 173
Amortization of net (gain) or loss - 2,350 1,259
Net (gain) or loss due to a
curtailment - - (295)
-------- -------- --------
Net periodic pension expse $ 1,023 $ 575 $ 894
======== ======== ========
</TABLE>
<TABLE>
ASSUMPTIONS ON FUNDED STATUS
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
<S> <C> <C> <C>
Discount rate (weighted average) 7.0% 7.0% 8.0%
Expected return on plan assets 9.0% 8.0% 8.0%
Rate of compensation increase 4.5% 4.5% 5.5%
</TABLE>
30
<PAGE>
<TABLE>
RECONCILIATION OF BENEFIT OBLIGATIONS, PLAN ASSETS, AND FUNDED
STATUS
(in thousands of dollars)
<CAPTION>
1998 1997
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 23,403 $ 18,827
--------- ---------
Service cost 1,112 729
Interest cost 1,809 1,459
Actuarial losses 263 3,602
Benefits paid (1,560) (1,214)
Plan amendments 2,821 -
--------- ---------
Benefit obligation at end of year $ 27,848 $ 23,403
========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year $ 25,815 $ 22,635
--------- ---------
Actual return on plan assets 3,768 4,109
Employer contributions 700 285
Benefits paid (1,560) (1,214)
--------- ---------
Fair value of assets at end of year $ 28,723 $ 25,815
========= =========
CHANGE IN FUNDED STATUS OF THE PLAN
Funded status of the plan $ 875 $ 2,412
--------- ---------
Unrecognized transition obligation 9 12
Unrecognized prior service costs 2,765 344
Unrecognized net (gain) or loss (1,065) 139
--------- ---------
Prepaid benefit cost* $ 2,584 $ 2,907
========= =========
<FN>
* Prepaid benefit costs are included as a component of prepaid
expenses and other current assets.
</FN>
</TABLE>
31
8. SUPPLEMENTARY RETIREMENT BENEFIT PLAN
The Company sponsors a non-contributory defined benefit plan
providing supplementary retirement benefits for certain key
executives which was enhanced in 1997 and became effective
February 8, 1998. The cost of providing these benefits will be
accrued over the remaining expected service lives of the active
plan participants. For 1998, expenses amounted to $965,000 and
<PAGE>
consisted of $578,000 in interest costs, $290,000 in
amortization of unrecognized transition obligations and
$97,000 in service costs.
<TABLE>
PLAN STATUS
(in thousands of dollars)
<CAPTION>
February 6, February 7,
1999 1998
<S> <C> <C>
Present value of accumulated post-
retirement benefit obligations $ 8,571 $ 8,264
Unrecognized transition obligation (2,683) (2,840)
---------- -----------
Accrued post-retirement benefit
obligation $ 5,888 $ 5,424
========== ===========
</TABLE>
The discount rate used in determining the accumulative post-
retirement benefit obligation was 7% for both February 6, 1999
and February 7, 1998, respectively.
The supplementary retirement benefit plan is funded out of the
general funds of the Company. However, the Company has
purchased life insurance policies on several active and retired
key executives with an aggregate cash surrender value of $5.4
million and $4.5 million at February 6, 1999 and February 7,
1998, respectively. Prior to 1997, the Company recorded the net
liability of the defined benefit plan and the cash surrender
value of the life insurance policies, the amount of which was
not material.
9. EMPLOYEE STOCK PLANS
Expenses recognized for 1998, 1997 and 1996 with respect to
these plans were $0.9 million, $1.7 million and $1.5 million,
respectively.
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 Corp.
common stock are reserved for issuance to key employees. In
1998, 2,129 restricted shares were issued and vest over a
three-year period.
Of the grants issued, no shares were forfeited in 1998, 1997 or
1996. As of February 6, 1999, 55,342 shares are reserved for
issuance under this plan. Expenses related to the restricted
stock plan are accrued periodically, based on the fair market
value of the Company's common stock on the grant date.
<PAGE>
PROFIT-SHARING PLAN
Under the Company's profit-sharing plan, eligible employees 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, up to a maximum of 5% of
the employee's compensation, as long as the Company remains
profitable. The Company's matching contributions are made in
shares of its common stock which vest 100% once an employee has
five years 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.
Expenses related to the profit-sharing plan are accrued in the
year to which the awards
32
relate, based on the fair market value of the Company's common
stock to be issued, determined as of the date earned. The
Company provided 23,151, 25,576 and 41,639 shares to satisfy its
obligations under the plan for 1998, 1997 and 1996,
respectively.
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 1998, 1997 and 1996, 4,090, 4,334 and 6,825 shares,
respectively, were distributed under this plan. As of February
6, 1999, 93,121 shares are reserved for issuance under this
plan. Expenses related to the stock-bonus plan 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.
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. Options were granted as participants
elected, pursuant to their Stock Option Agreement, to reduce
their compensation for 1993 and 1994. A total of 1,000,000
shares has been authorized for issuance. As of February 6, 1999,
184,220 options at an exercise price of $18.38 for 1993 salary
reduction and 196,506 options at an exercise price of $15.50 for
1994 salary reduction have been issued. For 1998, 1997 and 1996,
this plan was not offered. Options granted are exercisable after
three years and expire at the end of eight years.
<PAGE>
DEFERRED COMPENSATION AND STOCK APPRECIATION RIGHTS PLAN
On February 1, 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, as amended and restated, within
thirty days prior to the beginning of the fiscal year, eligible
employees may irrevocably elect by written notice to the Company
to defer the payment of a portion (not to exceed 50% or less than
$5,000 in the aggregate) of an incentive bonus. The participant
may choose to have payments made either in a lump sum or in a
specified number of annual installments, not to exceed ten. For
1998, 1997 and 1996, certain key executives selected to
participate in this plan. All stock appreciation rights
previously granted under the Plan have expired.
KEY EXECUTIVE DEFERRED COMPENSATION PLAN
On April 6, 1995, the Board of Directors established a deferred
base salary plan for key executives which allows deferral of
base salary on substantially the same terms as bonus compensation
may be deferred under the Deferred Compensation and Stock
Appreciation Plan. On July 14, 1995, this plan was amended and
restated. Under this plan, a participant may elect by written
notice to the Company to defer up to 50% of his base salary for
the fiscal year, but not less than $5,000 in the aggregate.
Payment shall not commence earlier than six months and one day
after the initial year of deferral. The participant may choose
to have payments made either in a lump sum or in a specified
number of annual installments, not to exceed ten. For 1998,
1997 and 1996, certain key executives elected to participate in
this plan.
33
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.
A total of 1,700,000 shares has been authorized for issuance
under the plan. Under the plan, 148,160 options granted become
exercisable at a rate of one-fourth a year commencing one year
after award and expiring from four to eight years after award.
An additional 824,949 options granted under the plan are
cliff-vested and become exercisable from four to five years
after award and expire six to eight years after award. As of
February 6, 1999,there were 411,939 shares reserved for issuance
under this plan.
<PAGE>
<TABLE>
TOTAL OUTSTANDING OPTIONS -- YEAR-END 1998
<CAPTION>
Number of Per Share Weighted Weighted
Shares Option Price Life* Average Price
--------- ------------- -------- -------------
<S> <C> <C> <C> <C>
349,802 $13.88-$18.88 3.42 $16.51
258,307 $21.63-$25.94 6.54 $25.21
365,000 $30.00-$35.00 4.50 $32.50
---------
Total 973,109
=========
<FN>
* Weighted average remaining contractual life in years
</FN>
</TABLE>
<TABLE>
TOTAL EXERCISABLE OPTIONS -- YEAR-END 1998
<CAPTION>
Number of Per Share Weighted
Shares Option Price Price*
--------- ------------- --------
<S> <C> <C> <C>
343,292 $13.88-$25.50 $ 16.56
365,000 $30.00-$35.00 $ 32.50
---------
Total 708,292
=========
<FN>
* Weighted average exercise price in dollars
</FN>
</TABLE>
<TABLE>
OPTIONS AWARDED UNDER THE STOCK OPTION PLAN - 1998
<CAPTION>
Number Weighted
of Average
Shares Price
--------- --------
<S> <C> <C>
Outstanding at beginning of year 887,408 $ 24.40
Granted 252,138 25.27
Cancelled (57,500) 35.00
Exercised (108,937) 17.10
--------- --------
At end of year:
Total outstanding 973,109 $ 24.82
========= ========
Total exercisable 708,292 $ 24.77
========= ========
</TABLE>
<PAGE>
<TABLE>
OPTIONS AWARDED UNDER THE STOCK OPTION PLAN - 1997
<CAPTION>
Number Weighted
of Average
Shares Price
---------- --------
<S> <C> <C>
Outstanding at beginning of year 1,247,305 $ 23.56
Granted 9,961 18.77
Cancelled (188,043) 25.33
Exercised (181,815) 17.18
---------- --------
At end of year:
Total outstanding 887,408 $ 24.40
========== ========
Total exercisable 439,393 $ 32.29
========== ========
</TABLE>
<TABLE>
OPTIONS AWARDED UNDER THE STOCK OPTION PLAN - 1996
<CAPTION>
Number Weighted
of Average
Shares Price
---------- --------
<S> <C> <C>
Outstanding at beginning of year 1,288,961 $ 23.44
Granted 13,704 14.59
Cancelled (35,075) 19.47
Exercised (20,285) 17.02
---------- --------
At end of year:
Total outstanding 1,247,305 $ 23.56
========== ========
Total exercisable 452,695 $ 25.91
========== ========
</TABLE>
34
The weighted-average fair value of options granted under the
stock-option plan for 1998, 1997 and 1996 is $18.28, $11.70 and
$9.10, respectively.
The fair value of each option grant for 1998, 1997 and 1996 is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions used for the grants: expected volatility of 31.0%,
risk-free interest rate of 6%, expected lives of four years and
an expected dividend yield of between 2.2% and 3.9%.
<PAGE>
The Company has adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Had
compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards
in 1998, 1997 and 1996 consistent with the provisions of SFAS
No. 123, the Company's net earnings and earnings per common share
would have been:
<TABLE>
EARNINGS AND EARNINGS PER SHARE
(in thousands of dollars except per share amounts)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net earnings:
as reported $21,944 $12,713 $14,363
======= ======= =======
pro forma $21,765 $12,709 $14,324
======= ======= =======
Diluted earnings per common share:
as reported $ 2.15 $ 1.07 $ 1.06
======= ======= =======
pro forma $ 2.13 $ 1.07 $ 1.06
======= ======= =======
Basic earnings per common share:
as reported $ 2.21 $ 1.09 $ 1.07
======= ======= =======
pro forma $ 2.19 $ 1.09 $ 1.07
======= ======= =======
</TABLE>
35
10. 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 two business segments: Portrait Studios and Wall
Decor. In addition, the Company sold its interest in the Fox
joint venture to Kodak on October 2, 1997. This joint venture
comprised of Fox Photo, CPI Photo Finish and Proex was entered
into October 4, 1996.
The Portrait Studios segment operates a professional portrait
photography business through fixed location studios. The Wall
Decor segment markets an assortment of custom print
reproductions and related accessories and provides custom framing
services.
Substantially all of the Company's Portrait Studio business
operates under Sears, Roebuck and Co.("Sears") license
agreements that are terminable by either the Company or Sears
upon 90 days notice. Except in connection with store closings,
Sears has
<PAGE>
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 agreements to materially reduce the scope
of the Company's business with Sears.
<TABLE>
GEOGRAPHIC FINANCIAL INFORMATION
(in thousands of dollars)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET SALES*:
United States $367,985 $344,379 $444,574
Canada 21,525 22,322 22,460
-------- -------- --------
$389,510 $366,701 $467,034
======== ======== ========
LONG-LIVED ASSETS:
United States $117,241 $129,211 $175,940
Canada 3,781 5,144 7,095
-------- -------- --------
$121,022 $134,355 $183,035
======== ======== ========
<FN>
* Net sales are attributed to countries based on location.
</FN>
</TABLE>
36
<PAGE>
<TABLE>
SELECTED INDUSTRY SEGMENT INFORMATION
(in thousands of dollars)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET SALES
Portrait Studio $325,547 $303,666 $289,840
Photofinishing - - 114,518
Wall Decor 63,963 63,035 62,676
--------- --------- ---------
$389,510 $366,701 $467,034
========= ========= =========
OPERATING EARNINGS
Portrait Studio $ 44,276 $ 44,597 $ 35,656
Photofinishing - - 82
Wall Decor 1,002 (964) 3,252
--------- --------- ---------
$ 45,278 $ 43,633 $ 38,990
========= ========= =========
SEGMENT ASSETS
Portrait Studio $ 99,868 $107,770 $115,591
Photofinishing - - -
Wall Decor 37,505 42,589 42,557
Corporate cash and marketable sec. 74,552 13,360 20,867
Corporate other 22,768 65,042 19,600
Investment in Fox Joint Venture - - 48,105
--------- --------- ---------
$234,693 $228,761 $246,720
========= ========= =========
DEPRECIATION AND AMORTIZATION
Portrait Studio $ 21,923 $ 22,048 $ 21,081
Photofinishing - - 9,494
Wall Decor 4,798 4,447 4,181
Corporate 3,029 3,483 3,190
--------- --------- ---------
$ 29,750 $ 29,978 $ 37,946
========= ========= =========
CAPITAL EXPENDITURES
Portrait Studio $ 13,231 $ 13,939 $ 17,820
Photofinishing - - 9,098
Wall Decor 1,105 5,717 9,085
Corporate 1,158 2,676 1,050
Disposals (503) (583) (2,325)
--------- --------- ---------
$ 14,991 $ 21,749 $ 34,728
========= ========= =========
</TABLE>
37
<PAGE>
11. STOCK REPURCHASE PLAN
The Company's Board of Directors has authorized the Company to
purchase up to 4,500,000 shares of its outstanding common stock
through purchases at management's discretion from time to time
at acceptable market prices. Acquired shares are held as
treasury stock and will be available for general corporate
purposes. As of February 6, 1999, the Company had purchased
3,615,046 shares of stock for $81.1 million at an average stock
price of $22.42.
On November 12, 1996, the Company announced the completion of a
"Dutch Auction" tender offer. The Company, as authorized by the
Board of Directors, purchased 2,250,000 shares of the Company's
common stock at $19.00 per share. The total cost incurred was
$43.6 million. The Company used the proceeds from the sale of
Fox's common stock to finance the tender offer.
On January 7, 1998, the Company, as authorized by the Board of
Directors, completed a second "Dutch Auction" tender offer by
purchasing 1,999,215 shares of the Company's common stock at
$23.00 per share for $46.5 million. The Company used the
proceeds from: the $10.0 million two-year Noncompete Agreement;
the repayment of a $4.0 million note held by the Company from
the joint venture; and other working capital and cash from
operations to finance the tender offer.
12. SHAREHOLDER RIGHTS PLAN
The Board of Directors of the Company established a Shareholders
Rights Plan ("Rights Plan") through the declaration of a
dividend distribution of one preferred stock purchase right for
each outstanding share of common stock. The Rights Plan 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 non-negotiated
efforts, as defined in the Rights Plan, to gain control of the
Company. The rights issued expire on May 11, 1999, unless
redeemed earlier. In addition, 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. On August 3, 1995, the Board of
Directors adopted an amendment to the Rights Plan to clarify
that no person would be deemed an "Acquiring Person" as defined
in the Rights Plan if that person acquired beneficial ownership
of 15% or more of the Company's stock solely as a result of the
Company's repurchase of stock, provided that the person did not
subsequently acquire additional shares.
38
<PAGE>
13. 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, RECEIVABLES, ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
The carrying amounts approximate fair value at February 6, 1999
and February 7, 1998 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 6, 1999, the carrying value and
estimated fair market value of the Company's debt was $59.6
million and $64.3 million, respectively. On February 7, 1998, the
carrying value and estimated fair market value of the Company's
debt was $59.5 million and $63.0 million, respectively.
14. CONTINGENCIES
The Company is a defendant in various lawsuits arising in the
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.
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
CPI CORP.:
We have audited the accompanying consolidated balance sheets of
CPI Corp. and subsidiaries as of February 6, 1999 and February
7, 1998, 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 6, 1999.
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 9,
1999 and February 7, 1998, and the results of their operations
and their cash flows for each of the fiscal years in the
three-year period ended February 6, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
April 8, 1999
40
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------
The tables presented set forth selected financial data for the
quarters of the Company's fiscal years ended February 6, 1999
and February 7, 1998. 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.
The Company's 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.
In October 1997, the Company recorded a $4.2 million loss before
taxes on the sale of its interest in the joint venture formed in
October 1996. The Company also recorded the repurchase of
1,999,215 shares of common stock for $46.5 million in January
1998.
Since April 17, 1989, the Company's common stock has been traded
on the New York Stock Exchange under the symbol CPY. The
adjacent tables also set forth the high and low sales price of
the common stock reported by the New York Stock Exchange during
the Company's last two fiscal years.
<PAGE>
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
Quarter Ended:
in thousands of dollars except share
and per share amounts
May 2, July 25 Nov. 14, Feb. 6,
1998 1998 1998 1999
(12 wks) (12 wks) (16 wks) (12 wks)
---------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 1998
Net sales $ 73,354 $ 70,997 $124,005 $121,155
Earnings (loss)
before income taxes (778) 2,134 9,309 23,095
Net earnings (loss) (506) 1,387 6,051 15,012
- ----------------------------------------------------------------
Earnings (loss) per
common share-diluted $ (0.05) $ 0.13 $ 0.59 $ 1.48
Earnings (loss) per
common share-basic (0.05) 0.14 0.61 1.53
- ----------------------------------------------------------------
Weighted average number
of common and common
equivalent shares-
diluted 9,914 10,323 10,200 10,120
Weighted average number
of common and common
equivalent shares-
basic 9,914 10,015 9,961 9,841
- ----------------------------------------------------------------
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
- ----------------------------------------------------------------
Stock Price and Volume
High $ 27.44 $ 22.38 $ 25.75 $ 27.44
Low $ 23.18 $ 22.75 $ 18.12 $ 20.44
Volume (in thousands
of shares) 1,599 827 1,155 1,107
</TABLE>
<PAGE>
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
Quarter Ended:
in thousands of dollars except share
and per share amounts
Apr. 26, July 19, Nov. 8, Feb. 7,
1997 1997 1997 1998
(12 wks) (12 wks) (16 wks) (13 wks)
---------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 1997
Net sales $ 70,174 $ 68,494 $108,156 $119,877
Earnings (loss)
before income taxes (3,827) 2,198 (433) 22,960
Net earnings (loss) (2,411) 1,385 (725) 14,465
- ----------------------------------------------------------------
Earnings (loss) per
common share-diluted $ (0.20) $ 0.12 $ (0.06) $ 1.26
Earnings (loss) per
common share-basic (0.21) 0.12 (0.06) 1.29
- ----------------------------------------------------------------
Weighted average number
of common and common
equivalent shares-
diluted 11,835 11,921 12,205 11,448
Weighted average number
of common and common
equivalent shares-
basic 11,726 11,762 11,871 11,194
- ----------------------------------------------------------------
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
- ----------------------------------------------------------------
Stock Price and Volume
High $ 19.50 $ 22.13 $ 28.00 $ 25.19
Low $ 15.88 $ 16.00 $ 19.50 $ 17.25
Volume (in thousands
of shares) 1,378 1,463 3,063 3,124
</TABLE>
41
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- --------------------
<CAPTION>
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE
Earnings-diluted $ 2.15 $ 1.07 $ 1.06 $ 1.26
Earnings-basic 2.21 1.09 1.07 1.27
Avg. shares outstanding
(millions/shares)-diluted 10.2 11.8 13.5 14.0
Avg. shares outstanding
(millions/shares)-basic 9.9 11.6 13.4 13.9
Dividends 0.56 0.56 0.56 0.56
Prices: high 27.44 28.00 21.13 22.13
low 18.12 15.88 13.88 14.25
P/E range: high 12.76 26.17 19.93 21.70
low 8.43 14.84 13.09 13.97
Dividend yield 2.46% 2.55% 3.20% 3.08%
- ----------------------------------------------------------------
INCOME DATA (in millions)
Net sales $389.5 $366.7 $467.0 $526.7
Income from operations 29.4 28.2 20.4 31.7
Net interest and other
income (expense) 4.3 0.2 (3.3) (4.1)
Gain (loss) on sale of
interest in Photo-
finishing segment - (4.2) 6.2 -
Interest in joint venture - (3.3) (0.5) -
Income taxes 11.8 8.2 8.4 10.0
Accounting change - - - -
Net earnings from
continuing operations 21.9 12.7 14.4 17.6
- ----------------------------------------------------------------
BALANCE SHEET (in millions):
Current assets $113.7 $ 94.4 $ 63.7 $ 72.8
Cash and equivalents 76.0 15.3 21.9 8.3
Net fixed assets 111.1 124.7 130.8 167.9
Total assets 234.7 228.8 246.7 300.5
Employed assets 158.7 213.5 224.8 292.2
Current liabilities 35.8 47.4 50.8 64.0
Long-term debt 59.6 59.5 44.9 54.8
Stockholders' equity 116.5 102.1 139.5 174.2
Employed equity 40.5 86.8 117.6 165.9
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1998 1997 1996 1995
<S> <C> <C> <C> <C>
CASH FLOW DATA (in millions)
From operations $ 39.0 $ 46.8 $ 53.8 $ 53.7
From (used for)
investments 28.9 (7.7) 17.4 (43.7)
From (used for) financing (6.9) (45.4) (57.7) (11.1)
Effect of exchange rate
changes (0.3) (0.2) 0.1 0.2
Change in cash and cash
equivalents 60.7 (6.6) 13.6 (0.9)
Capital expenditures
(excluding acquisitions) 15.0 21.7 34.7 48.8
Acquisitions - - - -
- ----------------------------------------------------------------
RATIO ANALYSIS
Net margin (1) 5.6 3.5 3.1 3.4
Asset turnover (2)* 1.70x 1.49x 1.55x 1.75x
Return on assets (3)* 9.57% 5.17% 4.78% 5.88%
Financial leverage (4)* 2.24x 1.77x 1.73x 1.81x
Return on equity (5)* 21.44% 9.15% 8.25% 10.64%
Retention rate (6) 0.746 0.482 0.480 0.459
Implied growth rate (7) 16.00% 4.41% 3.96% 4.88%
<FN>
* 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/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
PER SHARE
Earnings-diluted $ 1.18 $ 1.03 $ 1.69
Earnings-basic 1.18 1.03 1.69
Avg. shares outstanding
(millions/shares)-diluted 14.1 14.7 14.7
Avg. shares outstanding
(millions/shares)-basic 14.1 14.6 14.6
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 (in millions)
Net sales $517.5 $460.0 $433.8
Income from operations 30.3 22.0 38.5
Net interest and other income
(expense) (3.9) (0.3) 1.6
Gain (loss) on sale of
interest in Photo-
finishing segment - - -
Interest in joint venture - - -
Income taxes 9.8 8.7 15.3
Accounting change - 2.1 -
Net earnings from
continuing operations 16.6 15.1 24.8
- ----------------------------------------------------------------
BALANCE SHEET (in millions)
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
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOW DATA (in millions)
From operations $ 40.4 $ 38.2 $ 36.9
From (used for)
investments (51.7) (73.9) (34.4)
From (used for) financing (15.3) 51.6 (10.2)
Effect of exchange rate
changes (0.3) (0.8) (1.3)
Change in cash and cash
equivalents (26.9) 15.1 (9.0)
Capital expenditures
(excluding acquisitions) 75.1 28.9 12.0
Acquisitions - 14.7 23.9
- ----------------------------------------------------------------
RATIO ANALYSIS
Net margin (1) 3.2 3.3 5.7
Asset turnover (2)* 1.69x 1.93x 1.82x
Return on assets (3)* 5.44% 6.36% 10.39%
Financial leverage (4)* 1.74x 1.38x 1.49x
Return on equity (5)* 9.47% 8.78% 15.47%
Retention rate (6) 0.465 0.381 0.637
Implied growth rate (7) 4.40% 3.35% 9.86%
<FN>
* 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/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1991 1990 1989
<S> <C> <C> <C>
PER SHARE
Earnings-diluted $ 1.97 $ 2.28 $ 2.15
Earnings-basic 1.97 2.29 2.17
Avg. shares outstanding
(millions/shares)-diluted 15.1 15.4 15.7
Avg. shares outstanding
(millions/shares)-basic 15.1 15.3 15.6
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 (in millions)
Net sales $400.4 $360.7 $336.9
Income from operations 43.4 49.3 47.3
Net interest and other
income (expense) 4.0 6.4 5.5
Gain (loss) on sale of
interest in Photo-
finishing segment - - -
Interest in joint venture - - -
Income taxes 17.7 20.7 19.0
Accounting change - - -
Net earnings from
continuing operations 29.7 35.0 33.8
- ----------------------------------------------------------------
BALANCE SHEET (in millions)
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
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1991 1990 1989
<S> <C> <C> <C>
CASH FLOW DATA (in millions)
From operations $ 51.6 $ 50.0 $ 53.3
From (used for)
investments (87.2) (19.2) (15.0)
From (used for) financing (18.7) (15.3) (32.1)
Effect of exchange rate
changes (0.2) 0.3 -
Change in cash and cash
equivalents (54.5) 15.8 6.2
Capital expenditures
(excluding acquisitions) 19.8 15.1 18.5
Acquisitions 70.2 1.2 0.8
- ----------------------------------------------------------------
RATIO ANALYSIS
Net margin (1) 7.4 9.7 10.0
Asset turnover (2)* 1.83x 1.84x 1.71x
Return on assets (3)* 13.59% 17.83% 17.17%
Financial leverage (4)* 1.44x 1.48x 1.44x
Return on equity (5)* 19.57% 26.39% 24.72%
Retention rate (6) 0.689 0.773 0.771
Implied growth rate (7) 13.48% 20.40% 19.06%
<FN>
* 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/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1988
<S> <C>
PER SHARE
Earnings-diluted $ 1.95
Earnings-basic 1.96
Avg. shares outstanding
(millions/shares)-diluted 16.7
Avg. shares outstanding
(millions/shares)-basic 16.6
Dividends 0.25
Prices: high 22.25
low 17.25
P/E range: high 12.29
low 9.53
Dividend yield 1.27%
- ----------------------------------------------------
INCOME DATA (in millions)
Net sales $310.5
Income from operations 48.1
Net interest and other
income (expense) 5.7
Gain (loss) on sale of
interest in Photo-
finishing segment -
Interest in joint venture -
Income taxes 21.2
Accounting change -
Net earnings from
continuing operations 32.6
- ----------------------------------------------------
BALANCE SHEET (in millions)
Current assets $104.5
Cash and equivalents 62.5
Net fixed assets 78.0
Total assets 197.0
Employed assets 134.5
Current liabilities 47.3
Long-term debt 0.5
Stockholders' equity 136.6
Employed equity 74.1
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------
<CAPTION>
1988
<S> <C>
CASH FLOW DATA (in millions)
From operations $ 42.5
From (used for)
investments (23.7)
From (used for) financing (9.7)
Effect of exchange rate
changes 0.4
Change in cash and cash
equivalents 9.5
Capital expenditures
(excluding acquisitions) 12.1
Acquisitions 11.0
- ----------------------------------------------------
RATIO ANALYSIS
Net margin (1) 10.5
Asset turnover (2)* 1.84x
Return on assets (3)* 19.30%
Financial leverage (4)* 1.44x
Return on equity (5)* 27.79%
Retention rate (6) 0.863
Implied growth rate (7) 23.99%
<FN>
* 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/net earnings
(7) Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>
42
<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
Patrick J. Morris
Senior Executive Vice President, CPI Corp.
Nicholas L. Reding
Retired Vice Chairman, Monsanto Company
Martin Sneider
Adjunct Professor of Retailing, Washington University
Robert L. Virgil*
Principal, Edward Jones
* Member of the Audit Committee of the Board of Directors
<PAGE>
DIRECTORS AND OFFICERS (continued)
- ----------------------
Chairman, Chief Executive Officer
Alyn V. Essman
President
Russell Isaak
Senior Executive Vice President
Patrick J. Morris
Secretary and General Counsel
Jane E. Nelson
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
Theodore R. Upland III -Prints Plus
Patrick J. Morris -Sears Portrait Studios and Canadian
Operations
43
<PAGE>
INVESTOR INFORMATION
- --------------------
MOST RECENT RESEARCH REPORTS
FAC Equities, December 23, 1998
Value Line, February 26, 1999
STOCK TRANSFER, REGISTRAR, DIVIDEND REINVESTMENT AND RIGHTS
AGENT
Harris Trust & Savings Bank, 111 West Monroe, P. O. Box 755,
Chicago, IL 60690-0755, (800) 441-9673
10-K REPORT
Single copies of the Company's Form 10-K, filed with the
Securities and Exchange Commission, are available at no charge
to shareholders upon written request. The Form 10-K is also
available on the Internet at www.sec.gov\cgi-bin\srch-edgar.
ANNUAL MEETING/CORPORATE HEADQUARTERS
The annual meeting of stockholders will convene at 10:00 a.m.,
Thursday, June 22, 1999 at the Corporate Headquarters, 1706
Washington Avenue, St. Louis, MO 63103-1717.
INDEPENDENT AUDITORS
KPMG LLP, St. Louis, MO
AUTOMATIC DIVIDEND REINVESTMENT
The automatic dividend reinvestment plan is a convenient way
for stockholders 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.
John Hancock Center, 875 N. Michigan Avenue, Chicago, IL 60611
George Zagoudis
Partner and Account Division Manager
Direct line: (312) 640-6663
Tracy Gutwillig
Market Intelligence Executive
Direct line: (312) 640-6777
<PAGE>
INVESTOR INFORMATION (continued)
- --------------------
FOR INFORMATION ON THE INTERNET
CPI Corp.: http://www.cpicorp.com
CPI Human Resources: http://www.cpicorp.com/jobs
Sears Portrait Studio: http://www.searsportrait.com
George Zagoudis at the Financial Relations Board, Inc.:
[email protected]
44
<PAGE>
NOTICE TO SHAREHOLDERS
- ----------------------
Beginning with the first quarter of Fiscal Year 1996, we have
not published a formal quarterly earnings report, thereby saving
your Company tens of thousands of dollars. Instead, we offer the
option of three formats with which you can receive quarterly
earnings information on a more timely basis than with the
previous reports.
The scheduled release dates are: 1st quarter-June 2, 1999; 2nd
quarter-August 24, 1999; 3rd quarter-December 14, 1999.
Your options - on an ongoing basis as long as you remain a
shareholder - are:
1. You can access the news release on the Internet via the CPI
Corp. home page address: http://www.cpicorp.com
2. We can automatically E-Mail to you following the media
release.
3. We can mail you a printed copy of the quarterly news release
within 7 working days after its release to the news media.
Please indicate your choice of formats 2 or 3 by completing the
information in the appropriate spaces below:
E-Mail Transmission
Name __________________________________________________________
E-Mail Address ________________________________________________
Printed Copy of News Release
Name __________________________________________________________
Address ___________________City ________ State _____ Zip _____
Please mail this form to:
CPI Corp., Shareholder Relations,
1706 Washington Ave., St. Louis, MO 63103-1717
<PAGE>
(On the inside back cover of the Annual Report to Shareholders)
(Pictures: on this page are two pictures horizontally placed.
The title centered over both pictures is captioned: "Visit us on
the Internet." On the left is a picture of the internet home
page for Sears Portrait Studio captioned:
"www.sears-portrait.com". On the right is a picture of the
internet home page for CPI Corp. captioned: "www.cpicorp.com".)
(Back cover of the Annual Report to Shareholders)
(Centered vertically and horizontally is the following:)
CPI corp.
www.sears-portrait.com
www.cpicorp.com
(Centered at the bottom of the page is the following:)
CPI corp. 1706 Washington Avenue, St. Louis, Missouri 63103 ..
314.231.1575
EXHIBIT (21)
<TABLE>
SUBSIDIARIES OF THE REGISTRANT AS OF APRIL 8, 1999
<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 Images L.L.C. Missouri United States
d/b/a Sears Portrait Studios
d/b/a Mainstreet Portraits
CPI Management Services L.L.C. Missouri United States
CPI Properties L.L.C. Missouri United States
myportraits.com, Inc. Missouri United States
Consumer Programs Partner,Inc. Delaware United States
CPI Research and Development,
Inc. Delaware United States
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
CPI Technology Corp. Missouri United States
CPI Corp. Canada Ontario Canada
d/b/a Sears Portrait Studios
</TABLE>
35
EXHIBIT (23)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
CPI Corp.:
We consent to incorporation by reference in the
registration statements Nos. 33-50082 and 002-86403 on Forms S-8
of CPI Corp. of our reports dated April 8, 1999, relating to the
consolidated balance sheets of CPI Corp. and subsidiaries as of
February 6, 1999 and February 7, 1998 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 6, 1999, and the related
schedule, which reports appear in the 1998 annual report on Form
10-K of CPI Corp.
/s/ KPMG LLP
- -------------------------
KPMG LLP
St. Louis, Missouri
April 8, 1999
36
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-06-1999
<PERIOD-END> FEB-06-1999
<CASH> 1,158
<SECURITIES> 74,842
<RECEIVABLES> 10,676
<ALLOWANCES> 302
<INVENTORY> 19,071
<CURRENT-ASSETS> 113,671
<PP&E> 254,610
<DEPRECIATION> 143,462
<TOTAL-ASSETS> 234,693
<CURRENT-LIABILITIES> 35,776
<BONDS> 0
0
0
<COMMON> 7,092
<OTHER-SE> 109,424
<TOTAL-LIABILITY-AND-EQUITY> 234,693
<SALES> 389,510
<TOTAL-REVENUES> 389,510
<CGS> 56,399
<TOTAL-COSTS> 360,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,627
<INCOME-PRETAX> 33,759
<INCOME-TAX> 11,815
<INCOME-CONTINUING> 21,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,944
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.15
</TABLE>
