<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CPI CORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CPI CORPORATION LOGO
May 7, 1999
DEAR CPI CORP. STOCKHOLDER:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of CPI Corp. The meeting will be held on Thursday, June 22, 1999, at 10:00 a.m.
(CDT) at CPI Corp., 1706 Washington Avenue, St. Louis, Missouri 63103.
I urge you to attend the meeting, if at all possible, since it provides an
opportunity for you to discuss CPI Corp. with its management, in person. If you
cannot personally attend, please vote your preference on the enclosed proxy card
and return it promptly.
It is important that your shares be voted, whether in person or by proxy.
Your participation in CPI Corp.'s business through its annual meetings is an
essential part of the Corporation's governance.
I look forward to seeing you.
Sincerely,
ALYN V. ESSMAN
--------------------------------------
ALYN V. ESSMAN
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
CPI CORP LOGO)
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO OUR STOCKHOLDERS:
The annual meeting of the stockholders of CPI Corp. (the "Corporation")
will be held on June 22, 1999, at 10:00 a.m., central daylight savings time, at
CPI Corp., 1706 Washington Avenue, St. Louis, Missouri 63103. The items of
business to be transacted at this meeting are as follows:
1. To elect a Board of Directors for the ensuing year;
2. To act upon a proposal to ratify the appointment of KPMG LLP as the
Corporation's independent certified public accountants for the fiscal
year ending February 5, 2000;
3. To act upon a proposed annual incentive program for key executives to
further strengthen the alignment of executive compensation with
shareholder interests; and
4. To act upon such other and further business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has specified April 29, 1999, at the close of
business, as the record date for the purpose of determining the stockholders who
are entitled to receive notice of and to vote at the annual meeting. A list of
the stockholders entitled to vote at the annual meeting will be available for
examination by any stockholder at the meeting. For ten days prior to the annual
meeting, this stockholder list will also be available for inspection by
stockholders at the Corporation's offices at 1706 Washington Avenue, St. Louis,
Missouri 63103, during ordinary business hours.
The Proxy Statement for the annual meeting is set forth on the following
pages.
SO THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THIS MEETING, WE
URGE YOU TO PROMPTLY SIGN, DATE, AND RETURN YOUR PROXY EVEN IF YOU PLAN TO
ATTEND THE MEETING. IF YOU DO ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN
PERSON, THEREBY CANCELING THE PROXY. THE PROMPT RETURN OF PROXIES WILL SAVE THE
CORPORATION THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT
THE MEETING. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES, IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors
NELSON SIG
JANE E. NELSON
Secretary and General Counsel
Dated and mailed: May 7, 1999
<PAGE> 4
CPI CORP. LOGO
1706 WASHINGTON AVENUE
ST. LOUIS, MISSOURI 63103
PROXY STATEMENT OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS OF CPI CORP.
TO BE HELD ON JUNE 22, 1999
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement and the accompanying Proxy are being mailed beginning
May 7, 1999, to holders of common stock of CPI Corp., a Delaware corporation
(referred to herein collectively with its predecessor corporations as the
"Corporation"), in connection with the solicitation of Proxies by the Board of
Directors for the Annual Meeting of Stockholders to be held on June 22, 1999, at
10:00 a.m., central daylight savings time, at CPI Corp., 1706 Washington Avenue,
St. Louis, Missouri 63103, or at any adjournment thereof (the "Meeting").
Proxies are solicited to provide all stockholders of the Corporation with the
opportunity to vote. Shares may only be voted at the Meeting if the stockholder
is present in person or represented by a Proxy.
The cost of preparing, mailing, and soliciting Proxies will be borne by the
Corporation. In addition to solicitations by the Corporation by mail, directors,
officers, and regular employees of the Corporation may solicit Proxies
personally and by telephone, facsimile, or other means, for which they will
receive no compensation in addition to their normal compensation. The
Corporation has also retained Harris Trust and Savings Company, 111 West Monroe,
P.O. Box 755, Chicago, Illinois 60690-0755, to assist in the solicitation of
Proxies from stockholders, including brokerage houses and other custodians,
nominees, and fiduciaries and will pay that firm out of pocket expenses.
Arrangements will also be made with brokerage houses and other custodians,
nominees, and fiduciaries for the forwarding of solicitation material to the
beneficial owners of common stock held of record by such persons, and the
Corporation may reimburse them for their reasonable out-of-pocket and clerical
expenses.
The stockholder giving the Proxy may revoke it by (i) delivering a written
notice of revocation to the Secretary of the Corporation at the principal office
of the Corporation at the address set forth above at any time before the
commencement of the Meeting or any adjournment thereof; (ii) attending and
voting at the Meeting in person; or (iii) executing and delivering to the
Secretary of the Corporation a Proxy bearing a date and time later than that of
the Proxy to be revoked. Revocation of the Proxy will not affect any vote
previously taken.
The Meeting has been called for the purposes set forth in the Notice of
Annual Meeting (the "Notice") to which this Proxy Statement is appended. The
Board of Directors does not anticipate that matters other than those described
in the Notice will be brought before the Meeting for stockholder action, but if
any other matters properly come before the Meeting, votes thereon will be cast
by the Proxy holders in accordance with their best judgment. Any proposals of
stockholders intended to be presented at the 2000 Annual Meeting must be
received by the Company no later than January 8, 2000 for inclusion in the
Company's Proxy Statement and form of proxy.
If a stockholder wishes to give a Proxy to someone other than the persons
indicated on the accompanying Proxy, the stockholder must cross out both names
appearing on the Proxy and insert the
2
<PAGE> 5
name or names of another person or persons to act as Proxies. The signed Proxy
must be presented at the Meeting by the person or persons representing the
stockholder.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of common stock of the Corporation of record at the close of
business on April 29, 1999, are entitled to notice of, and to vote at, the
Meeting. Each share of common stock outstanding on the record date is entitled
to one vote on all matters properly coming before the Meeting. As of the close
of business on April 29, 1999, there were 9,966,506 shares of common stock
issued and outstanding, and 50% of these shares constitutes a quorum, which must
be present in person or by Proxy at the Meeting to conduct business. At the
Corporation's 1996, 1997 and 1998 annual meetings 88.3%, 89.06% and 82%
respectively, of the issued and outstanding shares of common stock were present
and voting. The Corporation has no issued and outstanding shares of any other
class of stock.
Unless you indicate to the contrary, the persons named in the accompanying
Proxy will vote for:
(1) THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED HEREIN;
(2) THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT
AUDITORS FOR THE CORPORATION'S FISCAL YEAR 1999; AND
(3) APPROVAL OF AN ANNUAL INCENTIVE PROGRAM FOR KEY EXECUTIVES TO FURTHER
STRENGTHEN ALIGNMENT OF EXECUTIVE COMPENSATION WITH SHAREHOLDER
INTERESTS.
When a Proxy is returned to the Corporation properly signed and dated, the
persons designated as Proxies shall vote the shares represented by the Proxy in
accordance with the stockholder's directions. If a Proxy is signed, dated, and
returned without specifying choices on one or more matters presented to the
stockholders, the shares will be voted on such matter or matters as recommended
by the Corporation's Board of Directors.
Directors of the Company shall be elected by a plurality vote. All other
questions shall be determined by a majority of the votes cast thereon. Proxies
for shares marked "abstain" on a matter will be considered to be represented at
the meeting, but not voted, for these purposes. Shares registered in the names
of brokers or other "street name" nominees for which Proxies are voted on some
but not all matters will be considered to be represented at the meeting, but
will be considered to be voted only as to those matters actually voted.
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
Nine directors are to be elected at the Meeting, each to serve for a term
of one year and thereafter until their successors are duly elected and
qualified. The following nine nominees are presently directors of the
Corporation: Messrs. Bohm, Essman, Isaak, Liberman, Morris, Reding, Sneider and
Virgil and Ms. Krey.
Unless authority to vote is withheld, the enclosed Proxy will be voted for
the election of the nominees as directors of the Corporation. If any one or more
of the nominees becomes unavailable for election, which is not anticipated, the
holders of the Proxies, acting pursuant to the authority granted by the Proxy,
will vote for such person or persons as may be designated by the Board of
Directors.
3
<PAGE> 6
The name of each nominee, the year each present director first joined the
Board, and the nominees' principal occupations and ages are:
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE PRINCIPAL OCCUPATION AGE
---- -------- -------------------------------------- ---
<S> <C> <C> <C>
Milford Bohm 1942 Managing Partner of Milford Bohm and 77
Associates, personal investments
Alyn V. Essman 1968 Chairman and Chief Executive Officer 67
of the Corporation
Russell Isaak 1992 President of the Corporation 56
Mary Ann Krey 1994 Chief Executive Officer, Krey 51
Distributing Co., an Anheuser-Busch
beer distributor in St. Charles and
Lincoln Counties, Missouri
Lee M. Liberman 1982 Chairman Emeritus of the Board of 77
Laclede Gas Company, a St. Louis,
Missouri public utility
Patrick J. Morris 1997 Senior Executive Vice President of the 59
Corporation and President of the
Corporation's Portrait Studio
Division
Nicholas L. Reding 1992 Chairman of the Board of the Nidus 64
Center for Scientific Enterprise, a
St. Louis, Missouri, incubator for
entrepreneurs focused on plant
science and biotechnology and
retired Vice Chairman of the Board
of Monsanto Company, a St. Louis,
Missouri based manufacturer of
pharmaceuticals, agricultural and
food products
Martin Sneider 1994 Adjunct Professor of Retailing at 56
Washington University of St. Louis,
Missouri
Robert L. Virgil 1982 Principal, Edward Jones, a full 64
service retail brokerage firm
located in St. Louis, Missouri
</TABLE>
Mr. Bohm founded the predecessor of the Corporation in 1942 and was
employed by the Corporation from that time until his retirement in February 1988
in various positions, including Chief Executive and Chairman until 1973, and
then as Chairman of an officers' committee until his election as Chairman
Emeritus in 1978. Since his retirement from CPI, Mr. Bohm has served as Managing
Partner of Milford Bohm & Associates.
Mr. Essman joined the Corporation in 1956 as Controller. He was appointed
President in 1969 and has served as Chairman and Chief Executive Officer of the
Corporation since 1973. He currently chairs the Corporation's Executive
Committee of officers.
Mr. Isaak joined the Corporation as Controller in 1972. He became the
Corporation's Chief Financial Officer in 1978 and was appointed Vice
President/Finance in 1979 and Executive Vice President-Finance/Administration in
February 1982. Effective February 1992, he was appointed President of the
Corporation and is also a member of the Corporation's Executive Committee of
officers.
4
<PAGE> 7
Ms. Krey has served as Chief Executive Officer of Krey Distributing Co., an
Anheuser-Busch beer distributor in the metropolitan St. Louis market since 1986.
She is a trustee of Washington University in St. Louis and serves as a director
of Commerce Bancshares, Inc., Laclede Gas Company, Masco Corporation and a
number of other organizations in Missouri.
Mr. Liberman is Chairman Emeritus of Laclede Gas Company, a St. Louis,
Missouri public utility. He served as Chairman of the Board of that company from
April 23, 1976 until his retirement from the Board on July 1, 1993. He was also
Chief Executive Officer of Laclede Gas Company from April 23, 1976 until July 1,
1991. He is a director of Falcon Products, Inc., Furniture Brands, Inc.
(formerly known as INTERCO Incorporated) and DT Industries.
Mr. Morris has served as Senior Executive Vice President of the Corporation
and as a member of the Office of the President since February 1992. He became
President of the Corporation's Portrait Studio Division in October 1997. He
joined the Corporation in 1985 as Executive Vice President-Marketing. He also
serves on the Corporation's Executive Committee of officers.
Mr. Reding is Chairman of the Board of Directors of the Nidus Center for
Scientific Enterprise, a business incubator in St. Louis, Missouri, which
focuses on plant science and biotechnology. He served as Vice Chairman of the
Board of Monsanto Company, a St. Louis, Missouri based manufacturer of
pharmaceuticals, agricultural and food products sold worldwide from 1992 until
his retirement in 1998. From 1990 through 1992 he served as Executive Vice
President of Monsanto, with responsibility for environment, safety, health and
manufacturing operations. From 1986 until 1990, he served as President of
Monsanto Agricultural Company, an operating unit of Monsanto Company. Mr. Reding
joined Monsanto in 1956. He also serves as a director of International
Multifoods Corp. and Meredith Corp.
Mr. Sneider, Adjunct Professor of Retailing at Washington University of St.
Louis, Missouri, served as President of Edison Brothers Stores, Inc., a St.
Louis, Missouri based company that operates numerous specialty chains
nationwide, from 1987 until April of 1995. He also serves as a director of
Agribrands International and is a member of the Board of Trustees of St. Louis
Children's Hospital. In November of 1995, Edison Brothers filed for protection
under Chapter 11 of the federal bankruptcy code.
Mr. Virgil is a principal with Edward Jones, a full service retail
brokerage firm located in St. Louis, Missouri. Prior to accepting that position
in 1993, Mr. Virgil served as Executive Vice Chancellor of University Relations
and Dean of the John M. Olin School of Business of Washington University in St.
Louis. He joined the Washington University faculty in 1964. He also serves as a
director of General American Life Insurance Company, Maritz, Inc. and OmniQuip
International, Inc.
EXECUTIVE OFFICERS
Following is a list of all individuals who served as Corporate Executive
Officers during 1998, together with their respective ages and the positions in
which they have served the Corporation:
Alyn V. Essman (67)......... Chief Executive Officer. Mr. Essman joined the
Corporation in 1956 as Controller. He was
appointed President in 1969 and has served as
Chairman and Chief Executive Officer of the
Corporation since 1973. He currently chairs the
Corporation's Executive Committee of officers.
Russell Isaak (56).......... President. Mr. Isaak joined the Corporation as
Controller in 1972. He became the Corporation's
Chief Financial Officer in 1978 and was appointed
Vice President/Finance in 1979 and Executive Vice
President-Finance/Administration in February
1982. In February 1992 he was appointed President
of the Corporation and is also a member of the
Corporation's Executive Committee of officers.
5
<PAGE> 8
Patrick J. Morris (59)...... Senior Executive Vice President and President,
Portrait Studio Division. Mr. Morris joined the
Corporation in May 1985 as its Executive Vice
President-Marketing. Effective February 1992, he
was appointed Senior Executive Vice President. In
October 1997, he became President of the
Corporation's Portrait Studio Division. Mr.
Morris is a member of the Office of the President
and of the Executive Committee of officers.
Barry C. Arthur (56)........ Executive Vice President-Finance and Chief
Financial Officer. Mr. Arthur joined the
Corporation in 1965 as an accountant and
subsequently became Controller. In 1981, he was
appointed Treasurer, and in July 1983, he was
named Vice President-Finance. Mr. Arthur was
appointed to his current position effective
February 1992. He is a member of the Executive
Committee of officers.
Jane E. Nelson (49)......... Secretary and General Counsel. Ms. Nelson joined
the Corporation in 1988 as Assistant General
Counsel and subsequently served as Associate
General Counsel and Assistant Secretary. She was
promoted to her current position in February
1993.
Fran Scheper (53)........... Executive Vice President-Human Resources. Ms.
Scheper joined the Corporation in 1967 as
Personnel Assistant. She was promoted to
Assistant Personnel Director in 1982 and in
January 1987 became Vice President-Human
Resources. She was appointed to her current
position in February 1992 and is a member of the
Executive Committee of officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the Company's best knowledge, the following table sets forth beneficial
owners of more than five percent of the common stock of the Corporation.
<TABLE>
<CAPTION>
(3)
(1) (2) AMOUNT AND (4)
TITLE NAME AND ADDRESS OF NATURE OF PERCENT
OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock New South Capital Management 1000 1,376,615(1) 14%
Ridgeway Loop Road, Suite 233 Memphis,
Tennessee 38120
Common Stock First Pacific Advisors, Inc. 11400 West 1,095,650(2) 11.1%
Olympic Boulevard, Suite 1200 Los
Angeles, California 90064
Common Stock Ryback Management Corporation 7711 812,500(3) 8.1%
Carondelet Avenue St. Louis, Missouri
63105
Common Stock First Union Corporation Charlotte, North 522,050(4) 5.21%
Carolina 28288
Common Stock Dimensional Fund Advisors, Inc. 1299 495,400(5) 5.04%
Ocean Avenue, 11th Floor Santa Monica,
California 90101
</TABLE>
- ---------------
(1) As reported on its Schedule 13G, dated February 8, 1999, New South Capital
Management, an Investment Adviser registered under Section 203 of the
Investment Advisers Act of 1940, was the owner of 1,376,615 shares as of
December 31, 1998, representing approximately 14% of the total shares
outstanding on that day. New South Capital Management has sole voting power
for
6
<PAGE> 9
1,359,115 of the shares, shared voting power for 17,500 shares and sole
dispositive power for all the shares.
(2) As reported on its Schedule 13G, dated February 12, 1999, First Pacific
Advisors, Inc. ("First Pacific"), an Investment Adviser registered under
Section 203 of the Investment Advisers Act of 1940, beneficially owned
1,095,650 shares, or approximately 11.1% of the total shares outstanding on
December 31, 1998. First Pacific has shared voting power with respect to
354,350 of the shares and shared dispositive power with respect to all the
shares.
(3) As reported in its Schedule 13G, dated January 28, 1999, Ryback Management
Corporation, an Investment Adviser registered under Section 203 of the
Investment Advisers Act of 1940, and/or Lindner Investment Series Trust, an
investment company registered under Section 8 of the Investment Company Act
held in a fiduciary capacity sole voting and dispositive power as to 812,500
shares beneficially owned by Lindner Growth Fund as of December 31, 1998,
constituting 8.1% of the outstanding shares on that date.
(4) As reported on its Schedule 13G, dated February 11, 1999, First Union
Corporation, a parent holding company, through its subsidiaries, held sole
voting power for 429,300 shares, shared voting power for 92,000 shares, sole
dispositive power for 427,050 shares and shared dispositive power for 92,000
shares. As of December 31, 1998, an aggregate of 522,050 shares were
reported as beneficially owned, constituting 5.21% of the outstanding shares
on that date. First Union Corporation subsidiaries, Evergreen Asset
Management Corporation (IA), Lieber & Company (IA) and Wheat First
Securities, Inc. (IA) are Investment Advisers for mutual funds and other
clients, which are the beneficial owners of the shares. Another subsidiary,
First Union National Bank (BK), holds securities in a fiduciary capacity for
its customers.
(5) As reported in its Schedule 13G, dated February 11, 1999, Dimensional Fund
Advisors, Inc., an Investment Adviser registered under Section 203 of the
Investment Advisers Act of 1940, held sole voting and dispositive power for
495,400 shares as of December 31, 1998, constituting 5.04% of the
outstanding shares as of that date.
7
<PAGE> 10
SECURITY OWNERSHIP OF MANAGEMENT
Information is set forth below regarding beneficial ownership of Common
Stock of the Company as of April 29, 1999 by (i) each person who is a director
and nominee; (ii) each executive officer named in the Summary Compensation Table
on page 14; and (iii) all directors and executive officers as a group. Except as
otherwise noted, each person has sole voting and investment power as to his or
her shares.
<TABLE>
<CAPTION>
(3)
AMOUNT AND NATURE (4)
(1) (2) OF BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ------------------------ ----------------- --------
<S> <C> <C> <C>
Common Stock.. Barry C. Arthur 65,897(a)(b) *
Common Stock.. Milford Bohm 30,000(c) *
Common Stock.. Alyn V. Essman 621,913(a)(d) 6.24%
Common Stock.. Russell Isaak 333,361(a)(b) 3.34%
Common Stock.. Mary Ann Krey 1,000(c) *
Common Stock.. Lee Liberman 400(c) *
Common Stock.. Patrick J. Morris 182,924(a)(b) 1.84%
Common Stock.. Nicholas Reding 1,200(c) *
Common Stock.. Fran Scheper 30,160(a)(b) *
Common Stock.. Martin Sneider 500(c) *
Common Stock.. Robert Virgil 600(c) *
Common Stock.. 17 Directors and Executive Officers as a
Group 1,405,972(a)(b)(d)(e) 14.11%
</TABLE>
- ---------------
* Percentage does not exceed one percent.
(a) Includes the following shares which such persons have the right to acquire
within 60 days after April 29, 1999 upon the exercise of employee stock
options: Mr. Arthur: 62,993; Mr. Essman: 366,798; Mr. Isaak: 212,418; Mr.
Morris: 169,875; Ms. Scheper: 29,993; and directors and executive officers
as a group: 969,988. The exercise prices for all options exercisable within
60 days range from $13.875 to $35.00. Market Value as of April 29, 1999 was
$27.5625.
(b) Excludes 923 shares for Mr. Arthur; 19 shares for Mr. Isaak; 450 shares for
Mr. Morris; 816 shares for Ms. Scheper; and 5,821 shares for directors and
executive officers as a group, all held under the CPI Corp. Employees'
Profit Sharing Plan and Trust. With respect to such shares, the executives
have neither voting power nor investment power.
(c) Excludes Phantom Stock Rights, which are based on value of common stock, and
Growth Units for Deferred Compensation, which are based on book value, as
follows: Mr. Bohm: 6,560 Growth Units; Ms. Krey: 1,600 Phantom Stock Rights
and 5,925 Growth Units; Mr. Liberman: 26,875 Growth Units; Mr. Reding: 2,000
Phantom Stock Rights and 5,188 Growth Units; Mr. Sneider: 1,600 Phantom
Stock Rights; and Mr. Virgil: 4,000 Phantom Stock Rights and 7,649 Growth
Units. See page 10 for further explanation of Phantom Stock Rights and
Growth Units.
(d) Excludes 40,000 shares beneficially owned by Mr. Essman's wife, as to which
he expressly disclaims beneficial ownership and 60,000 shares held by the
Essman Family Charitable Foundation.
(e) Excludes 100,727 shares beneficially owned by members of the immediate
family of certain executive officers as to which those executives expressly
disclaim beneficial ownership, and the Essman Family Charitable Foundation.
8
<PAGE> 11
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended February 6, 1999 ("fiscal year 1998"), the
Corporation's Board of Directors met 11 times. All directors attended more than
75% of the meetings that they were eligible to attend. The Board of Directors
also acted by unanimous written consent on two other occasions.
The Board of Directors has four committees: the Audit, the Compensation,
the Nominating and Governance, and the Finance and Investment Committees. The
Audit Committee's members are Messrs. Virgil (Chairman) and Bohm and Ms. Krey.
The Committee held five meetings during the last fiscal year. The Audit
Committee is responsible for reviewing the financial statements of the
Corporation and the scope of work of its independent auditors. The Committee
also evaluates recommendations of the auditors, recommends areas of review to
the Corporation's management, and reviews and evaluates the Corporation's
accounting policies, reporting practices, and internal controls.
The Compensation Committee's members are Messrs. Liberman (Chairman),
Reding and Sneider. The Committee held four meetings during the last fiscal year
and acted by unanimous consent on two occasions. The Compensation Committee
reviews annually the performance of principal officers, establishes annual
salaries and incentives for principal officers and reviews periodically
compensation and benefit programs. The Compensation Committee also serves as the
Stock Option Committee under the Corporation's 1991 Stock Option Plan and under
the Voluntary Stock Option Plan and as the governing committee under the
Restricted Stock Plan.
The Nominating and Governance Committee's members are Messrs. Reding
(Chairman), and Liberman and Ms. Krey. During fiscal year 1998, this Committee
held two meetings. The Nominating and Governance Committee is charged with
nominating qualified members for the Corporation's Board of Directors and
monitoring developments in governance of publicly held companies. The Nominating
and Governance Committee will consider nominees recommended by security holders.
Any security holder who desires to recommend a prospective nominee should
forward the name, address and telephone number of such prospective nominee,
together with a description of the nominee's qualifications and relevant
business and personal experience, to the Corporation's Secretary.
The Finance and Investment Committee, whose members are Messrs. Bohm
(Chairman), Sneider and Virgil, met three times during fiscal year 1998. This
Committee reviews dividend policy, financing plans, investment policy and
investment performance. It also makes recommendations to management as necessary
to insure that the Company's pension and profit sharing plans meet the business
needs of the Company and are adequately funded.
COMPENSATION OF DIRECTORS
Each director who is not an officer receives a retainer of $10,000 per year
plus $850 for each Board and Committee meeting he or she attends. Directors who
are also officers receive no retainer or other compensation for service as
directors.
Effective April 4, 1991, the Corporation established the CPI Corp. Deferred
Compensation and Retirement Plan for Non-Management Directors (the "Directors'
Plan"). It was amended and restated as of June 6, 1996. Participation in the
Directors' Plan is limited to directors who are not employees of the
Corporation. It is administered by a committee composed of directors who are
employees and the Chief Financial Officer and the General Counsel of the
Company. The committee may amend, modify, or terminate the plan at any time.
The Directors' Plan has compensation deferral and phantom stock components.
Under the deferral components, a participating director must irrevocably elect
before the beginning of a fiscal year to defer up to all (but not less than
$5,000) of his or her retainer, fee, and other compensation for such fiscal
year, select a deferral period of not less than three years and choose to
receive the deferred
9
<PAGE> 12
amount in a lump sum or in a specified number of installments, not to exceed
ten. All such amounts are payable in cash.
During fiscal year 1998 the Directors deferred income and received dividend
equivalents as follows: Mr. Bohm deferred a total of $25,300 in retainer and
fees and received dividend equivalents in the amount of $2,952.53. Ms. Krey
deferred a total of $23,600 in retainer and fees and received dividend
equivalents in the amount of $2,832.40. Mr. Liberman deferred a total of $22,750
in retainer and fees and received dividend equivalents in the amount of
$13,960.88. Mr. Reding deferred a total of $23,600 in retainer and fees and
received dividend equivalents in the amount of $2,965.87. Mr. Virgil deferred
$25,300 in retainer and fees and received dividend equivalents in the amount of
$3,610.03. Growth Units on deferred amounts were credited at $10.33 per unit for
deferrals during fiscal year 1998 and will be credited at approximately $11.81
for deferrals during the current fiscal year. Mr. Sneider did not defer his
retainer or any fees for 1998 and did not receive any dividend equivalents. He
received a total of $25,300 in retainer and fees.
Each non-management director also receives 400 Phantom Stock Rights ("Stock
Rights") annually. This component of Directors' compensation is particularly
important because it is tied to shareholder value. The value of each Phantom
Stock Right as of the date of award is the fair market value of one share of
common stock on the date preceding the date of award. The value at maturity is
equal to the average fair market value of the common stock for the six month
period immediately preceding maturity. As of June 1998, Messrs. Bohm, Liberman,
Reding, Sneider and Virgil and Ms. Krey were each awarded 400 Phantom Stock
Rights for one year of Board service completed on the day prior to their
reelection at the 1998 Annual Meeting of Shareholders.
The Phantom Stock Rights mature on the earliest of the director's (i)
death, (ii) total and permanent disability, (iii) reaching age 65 if the
participant is no longer a director, (iv) resignation or retirement from the
Board or any other termination of Board service after age 65, or (v) reaching
age 70 (but in no event in the case of (iii) and (v) less than six months after
the date of the award). Before the maturity of his or her Phantom Stock Rights,
a participant must irrevocably elect to receive a lump sum payment or to defer
payment of all or part of the amount pursuant to the deferred compensation
component of the plan described above. Payments are made only in cash.
During fiscal year 1998, the 400 Rights credited to Mr. Liberman
automatically matured and, pursuant to his deferral election, were credited to
his deferred compensation account. Mr. Liberman's Rights matured at $23.059 (the
average fair market value of the Corporation's common stock for the six month
period preceding maturity); accordingly, $9,223.60 was credited to Mr.
Liberman's deferred compensation account. Growth Units on the deferred amounts
were credited at $10.33 per unit. The 400 Rights credited to Mr. Bohm in 1998
automatically matured at $23.059 per Right and, Mr. Bohm elected to receive a
payment of $9,223.60.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Corporation believes that the reporting executives and Directors
complied with all reporting requirements of Section 16(a) of the Exchange Act.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS:
GENERAL COMPENSATION POLICY
Executive compensation at CPI Corp. and its subsidiaries is based on a
variety of factors which reflect contributions to corporate performance and
enhance total return to stockholders. Executive compensation packages include
base salary, annual performance-based bonus, stock options, company
contributions to a stock ownership program, and earnings on Growth Units from
bonuses and base
10
<PAGE> 13
salary deferred from prior years under the Corporation's Deferred Compensation
and Stock Appreciation Rights Plan and the Corporation's Key Executive Deferred
Compensation Plan.
The Compensation Committee, with the support of the Board, continued to
adhere to the following objectives in awarding executive compensation in 1998,
each of which the Board believes contributes to stockholder value:
1. paying for performance, both long-term and short-term;
2. increasing emphasis on variable incentive compensation, as opposed to
base compensation;
3. recognizing and rewarding the executive's contributions as reflected
in the performance of his or her unit and in the performance of the
Corporation as a whole;
4. providing a competitive and equitable compensation program to
attract, retain and motivate key executives; and
5. importantly, aligning stockholder, management and employee interests.
All compensation actions taken in 1998 were in concert with the principles
identified in the Corporation's General Compensation Policy described above. In
particular, compensation awarded in 1998 furthers the Compensation Committee's
desire to shift emphasis from base salaries to at-risk compensation which, in
the Committee's opinion, strengthens the alignment between executive
compensation and shareholder interests.
BASE SALARY
The base salaries paid to the Corporation's executives are based on a
number of factors, including an evaluation of the individual's effectiveness in
performing his or her responsibilities, comparison to salaries paid by other
companies to their executives who hold similar positions, internal equity,
tenure in position, overall responsibility, knowledge, and special assignments.
A review of the Corporation's Executive Compensation package conducted by Towers
Perrin and completed in December 1994 included a comparison of the Corporation's
base salaries, bonuses and long-term incentives to market data for general
industry, consumer products and specialty retail organizations relative to sales
size. On the basis of the Towers Perrin report, the base salaries paid to the
Chief Executive Officer, the President and the Senior Executive Vice President
were reduced for fiscal year 1995. Base compensation for the Chairman and Chief
Executive Officer and the President was frozen at the 1995 level through 1998
and remains at the 1995 level for fiscal year 1999. After reduction in 1995, the
base salary of the Senior Executive Vice President was increased in late 1996
and in 1997 in recognition of his assumption of additional duties. His base
salary for 1999 remains frozen at its 1997 level.
BASE SALARY DEFERRAL
In 1995, the Compensation Committee adopted the Key Executive Deferred
Compensation Plan, under which certain key executives may defer up to 50% of
base salary. For the year in which base salary is deferred, the executive will
earn interest on the amount deferred at a rate that mirrors the rate of growth
in book value for the preceding year. In the year subsequent to the year of
deferral, the amount deferred and interest are divided by book value to
determine the number of Growth Units to be credited to the executive. The
executive's account is then adjusted by the greater of (a) change in book value
or (b) the 30 year U.S. Treasury bond rate, net of dividend equivalents which
are paid on the Growth Units at the same rate dividends are paid to
stockholders. Book value decreased from $11.98 for year end 1996 to $10.33 for
year end 1997 and then increased to $11.81 for year end 1998. None of the named
executives deferred base salary in 1998. Non-dividend Growth Units were credited
in 1998 to the following named executives for base salary deferred in prior
years: Mr. Arthur: 92 and Mr. Morris: 337.
11
<PAGE> 14
ANNUAL BONUS
In conjunction with lowering base salaries in 1995 and in furtherance of
efforts to align stockholder and executive interests, shareholders approved the
Compensation Committee's proposal to increase the bonus potential for the
Chairman and Chief Executive Officer (Mr. Essman) and executives in the Office
of the President (Messrs. Isaak and Morris) for fiscal years 1994 through 1997.
This restructuring of base salary and annual incentives provided for potential
total compensation comparable to 1994, but with a significantly greater emphasis
on performance based compensation. A similar bonus plan for fiscal year 1998 was
approved by stockholders at the 1998 Annual Meeting. The Compensation Committee
establishes new annual bonus targets based on the Corporation's earnings per
share at the commencement of each fiscal year. Each of the named executives
earned a bonus pursuant to the annual bonus plan for 1998.
STOCK OPTIONS
The named executive officers and other key executives were awarded options
based on the Corporation's 1998 fiscal year earnings performance pursuant to an
annual stock option bonus plan initiated in 1992. Like the annual cash bonus
plan, option bonus targets are established by the Compensation Committee at the
commencement of each fiscal year. The number of options awarded to each
executive for 1998 was determined by dividing 50% of his or her base salary by
the fair market value of the Corporation's common stock at the end of fiscal
year 1998.
The named executives also received stock options pursuant to a special
award which was made to approximately 60 executives of the Corporation in May
1998. This special award was made to establish continuing incentives to key
executives upon the full vesting of a similar grant made in 1995. The named
executives and seventeen other executives who participate in the annual stock
option bonus plan received options based on 50% of their base salaries.
GROWTH UNITS ON DEFERRED COMPENSATION
Under the Corporation's Deferred Compensation and Stock Appreciation Rights
Plan, which was approved by shareholders in 1992, an executive who elects to
defer up to 50% of his or her annual incentive bonus receives Growth Units.
Executives earn appreciation on these Growth Units based on the greater of (a)
changes in the corporation's book value and (b) the 30 year U. S. Treasury bond
rate, net of dividend equivalents, which are paid at the same rate that
dividends are paid to stockholders. Non-dividend Growth Units were credited to
the Chief Executive Officer and other named executive officers in fiscal year
1998 for bonuses earned in prior years and deferred as follows: Mr. Arthur--114;
Mr. Essman--1,052; Mr. Morris--473 and Ms. Scheper--123.
COMPANY CONTRIBUTIONS TO STOCK OWNERSHIP PROGRAM
All employees, including the named executives, who meet minimum age and
service requirements, are eligible to contribute up to 15% of their base
salaries to their individual accounts in the Corporation's Profit Sharing Plan.
The Corporation matches each participant's voluntary contributions, up to a
maximum of 5% of salary, with corporate stock in an amount equal to 50% of the
participant's contributions. Thus an employee who contributed 5% of base
compensation would receive stock equal to 2.5% of his or her compensation.
Although each of the named executive officers was eligible to participate in the
Program, only Mr. Arthur and Ms. Scheper participated in the Profit Sharing Plan
in 1998.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Essman's compensation is based on the policies and programs described
above for all executives and includes base salary and annual and long-term
incentives. For 1998, his base salary remained frozen at $600,000 (as it has
since 1995), after reduction from $775,000 as part of the Committee's
restructuring of compensation to shift emphasis to at-risk compensation. His
base salary
12
<PAGE> 15
will remain frozen at the same level through 1999. Mr. Essman's 1998 bonus of
$463,884 was based on the corporation's performance for 1998. As with the other
named executives, he was awarded stock options pursuant to the annual stock
option bonus plan adopted in 1992 and the special award of options made in May
1998 (described on page 12).
COMPLIANCE WITH IRC SECTION 162(M)
While the Compensation Committee believes the $1 million limitation on
deductibility imposed by Section 162(m) has had limited application to
compensation paid to the Company's executives, the Committee's current intent
remains to preserve full deductibility of executive compensation. The overall
compensation program, as earlier described, has been designed to be heavily
related to the Corporation's earnings performance, and the annual incentive plan
to be submitted to shareholders for approval at the 1999 Annual Meeting, if
approved, should enable the Company to avail itself of deductions for all
executive compensation paid through the current fiscal year. The Corporation's
Key Executive Deferred Compensation Plan, adopted in 1995, also enhances the
Corporation's ability to maintain full deductibility of executive Compensation.
THE CPI CORP. COMPENSATION COMMITTEE
LEE LIBERMAN, CHAIR NICHOLAS REDING MARTIN SNEIDER
13
<PAGE> 16
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the named executive
officers for each of the last three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ------------------------------------------------------
(4) SECURITIES
(3) RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) SARS COMPENSATION
- ------------------------- ---- ------ ----- ------------ ---------- ---------- ------------
($) ($) ($) ($) (#) ($)
(A) (B) (C) (D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C> <C> <C>
Alyn V. Essman, 1998 600,000 463,884(2) 0 0 22,626(5) 0(7)
Chairman and Chief 1997 600,000 494,182(2) 80,145 0 11,530(6) 48(7)
Executive Officer 1996 600,000 0 0 0 0 173(7)
Russell Isaak, 1998 400,000 309,256 0 0 15,084(5) 168(7)
President 1997 400,000 329,455 0 0 7,687(6) 168(7)
1996 400,000 0 0 0 0 173(7)
Patrick J. Morris, 1998 375,000 289,928 0 0 14,141(5) 168(7)
Senior Executive 1997 375,000 308,864 0 0 7,206(6) 2,980(9)
Vice President 1996 312,980 0 0 0 0 1,788(10)
Barry C. Arthur, 1998 179,000 90,000 0 0 6,751(5) 2,340(8)
Executive Vice 1997 179,000(1) 86,380(2) 0 8,000 3,440(6) 4,698(9)
President-Finance 1996 170,000(1) 8,500 0 0 0 3,710(10)
Fran Scheper, 1998 179,000 90,000 0 0 6,751(5) 2,172(8)
Executive Vice 1997 179,000 86,380 0 6,000 3,440(6) 3,873(9)
President-Human 1996 170,000 8,500 0 0 0 2,923(10)
Resources
</TABLE>
- ---------------
(1) Cash amounts earned in fiscal year, even if deferred under the Corporation's
Key Executive Deferred Compensation Plan adopted in 1995.
(2) Cash amounts earned for the respective fiscal year, even if deferred under
the Corporation's Deferred Compensation and Stock Appreciation Rights Plan
approved by stockholders in 1992.
(3) The amounts in this column represent above-market earnings on deferred
compensation paid during the fiscal year.
(4) Awarded at the close of fiscal year 1997 in recognition of executive's
contribution in the sale of the photofinishing segment.
(5) Options awarded on May 7, 1998 as part of a special award to all 60 officers
of the corporation and options awarded for 1998 performance under an annual
option bonus program for key executives adopted in 1992.
(6) Options awarded for 1997 performance under an annual option bonus program
for key executives adopted in 1992.
(7) Life insurance premiums.
(8) Life insurance premiums of $699 for Mr. Arthur and $531 for Ms. Scheper plus
employer contributions of stock to the profit sharing plan in the following
amounts: Arthur--$1,641; and Scheper--$1,641.
(9) Life insurance premiums of $168 for Mr. Morris, $698 for Mr. Arthur and $538
for Ms. Scheper plus employer contributions of stock to the profit sharing
plan in the following amounts: Morris--$2,812; Arthur--$4,000; and
Scheper--$3,335.
(10) Life insurance premiums of $173 for Mr. Morris, Mr. Arthur and Ms. Scheper,
plus employer contributions of stock to the profit sharing plan in the
following amounts: Morris--$1,615; Arthur--$3,537; and Scheper--$2,750.
14
<PAGE> 17
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option grants
made in the last fiscal year to the individuals named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE POTENTIAL REALIZED VALUE
OPTIONS EMPLOYEES IN PRICE EXPIRATION ASSUMED ANNUAL RATE OF STOCK
NAME GRANTED FISCAL YEAR ($/SHARE) DATE APPRECIATION FOR OPTION TERM
---- ---------- ------------ --------- ---------- ----------------------------------
0% 5%(6) 10%(6)
(#) ($) ($) ($)
(A) (B) (C) (D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C> <C> <C>
Alyn V. Essman 11,566(3) 4.59% $25.93750 5/7/06 0 $ 143,233 $ 343,069
11,060(4) 4.39% $27.12500 2/6/05 0 $ 102,030 $ 242,060
Russell Isaak 7,711(3) 3.06% $25.93750 5/7/06 0 $ 95,493 $ 228,722
7,373(4) 2.93% $27.12500 2/6/05 0 $ 68,017 $ 154,307
Patrick J. Morris 7,229(3) 2.87% $25.93750 5/7/06 0 $ 89,524 $ 214,425
6,912(4) 2.74% $27.12500 2/6/05 0 $ 63,764 $ 144,658
Barry C. Arthur 3,451(3) 1.37% $25.93750 5/7/06 0 $ 42,737 $ 102,363
3,300(4) 1.31% $27.12500 2/6/05 0 $ 30,443 $ 69,064
Fran Scheper 3,451(3) 1.37% $25.93750 5/7/06 0 $ 42,737 $ 102,363
3,300(4) 1.31% $27.12500 2/6/05 0 $ 30,443 $ 69,064
All Stockholders n/a n/a n/a n/a 0 $123,664,041(1) $296,196,883(1)
n/a n/a n/a n/a 0 $ 92,119,863(2) $208,988,547(2)
All 61 Optionees 172,790(5) 68.57% $25.93750 5/7/06 0 $ 2,139,831 $ 5,125,268
75,369(5) 29.91% $27.12500 2/6/05 0 $ 695,286 $ 1,577,367
3,798(5) 1.52% $ 21.0625 12/3/06 0 $ 38,194 $ 91,481
Gain for all 61
Optionees as % of
All Stockholder
Gain n/a n/a n/a n/a 0 1.73% 1.73%
0.75% 0.75%
</TABLE>
- ---------------
Note: No SARs were granted in Fiscal Year 1998.
(1) Gain for all stockholders was determined based on (a) the 9,985,791 shares
outstanding on May 7, 1998, the date when the majority of options were
granted; (b) a price per share equal to the exercise price of $25.9375 and
(c) an 8 year term.
(2) Gain for all stockholders was determined based on (a) 9,985,791 shares
outstanding on May 7, 1998, the date the majority of options were granted;
(b) a price per share equal to the exercise price of $27.125 and (c) a 6
year term.
(3) Options awarded in conjunction with special grant to all 60 officers of the
corporation.
(4) Options earned for 1998 performance under an annual bonus program for key
executives adopted in 1992. The options become exercisable four years after
the date of grant and expire six years after the date of grant.
(5) Includes (a) 45,318 options awarded May 7, 1998 and 43,424 options awarded
February 6, 1999 to executives not named in the table, all of which options
cliff vest four years after the date of grant and have the same exercise
prices and expiration dates as those awarded to the named executives;
15
<PAGE> 18
(b) 94,063 options awarded to other officers of the company on May 7, 1998
which vest in increments of one-fourth of the total award commencing in
1999 and expire in 2006, and (c) 3,798 options with an exercise price of
$21.0625 were granted to an officer on December 3, 1998. These options vest
in increments of one-fourth of the total award commencing in 1999 and
expire in 2006.
(6) Pre-tax gain. The amounts shown for 5% and 10% appreciation are projections
required by SEC rules and are not intended to forecast possible future
appreciation, if any, of the stock price of the Company. The Company did not
use an alternative formula for a grant date valuation because the Company is
not aware of any formula which will determine with reasonable accuracy a
present value based on future unknown factors. The market price used for
calculating potential realizable value for options awarded to the named
executives is the average of the closing prices listed in The Wall Street
Journal on the last business day preceding each award, as follows: May 6,
1998--$25.93750; February 5, 1999--$27.125. The calculations also are based
on terms of 8 years for the options granted May 7, 1998 and 6 years for the
options granted February 6, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information concerning option and SAR
exercises in the last fiscal year, and options and SARs remaining unexercised at
February 6, 1999, by the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
(1) UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON EXERCISE AT FISCAL AT FISCAL
OF OPTIONS/ YEAR-END (#) YEAR-END ($)
# OF SECURITIES VALUE EXERCISABLE/ EXERCISABLE/
NAME UNDERLYING SARS REALIZED UNEXERCISABLE* UNEXERCISABLE*
---- --------------- -------- ----------------- --------------------
($)
(A) (B) (C) (D) (E)(3)
<S> <C> <C> <C> <C>
Alyn V. Essman 0/0 0/0 366,798/34,156(2) $2,150,952/$50,458
Russell Isaak 0/0 0/0 212,418/22,771(2) $1,140,647/$33,640
Patrick J. Morris 0/0 0/0 169,875/21,347(2) $1,007,302/$31,536
Barry C. Arthur 0/0 0/0 62,993/10,191(2) $232,935/$15,054
Fran Scheper 0/0 0/0 29,993/10,191(2) $339,185/$15,054
</TABLE>
- ---------------
* No SARs were held at fiscal year end.
(1) No options were exercised by the named executives in 1998. There were no
outstanding SARs in fiscal year 1998.
(2) Exercisable options include options acquired by the named executives in
exchange for voluntary salary reductions in 1993 and 1994 pursuant to the
Corporation's Voluntary Stock Option Plan and those issued on February 2,
1992 with an exercise price of $30.00 and $35.00. As of April 29, 1999,
market value was $27.5625.
(3) Value of exercisable in-the-money options does not reflect voluntary salary
reductions in 1993 and 1994 in the following total amounts for which the
options were granted: Mr. Essman-$387,500; Mr. Isaak-$200,000; Mr.
Morris-$175,000; Mr. Arthur-$30,000; and Ms. Scheper-$22,500. After
factoring in the voluntary salary reductions, the net values of the
in-the-money exercisable options held by the named executives are: Mr.
Essman-$1,763,452; Mr. Isaak-$940,647; Mr. Morris-$832,302; Mr.
Arthur-$202,935; and Ms. Scheper-$316,685.
RETIREMENT PLAN
The following table shows the estimated annual pension benefit payable to a
covered participant at normal retirement age (65) under the Corporation's
qualified Retirement Plan and Trust.
16
<PAGE> 19
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION 10 15 20 25 30 35 40
- ------------ -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$30,000 $3,000 $4,500 $ 6,000 $ 7,500 $ 9,000 $10,500 $12,000
50,000 5,000 7,500 10,000 12,500 15,000 17,500 20,000
100,000 and above 6,458 9,688 12,917 16,147 19,376 22,606 25,835
</TABLE>
(All dollar amounts in the above chart are annualized.)
The Corporation maintains a defined benefit Retirement Plan (the "Plan")
for all qualifying employees of the Corporation. For purposes of the Pension
Plan, remuneration includes annual base salary and bonus as reported in the
Summary Compensation Table; through 1997, executive earnings in excess of
$54,371 are not included in calculation of the annual benefits payable under the
Plan; commencing in 1998, remuneration in excess of $100,000 annually is not
included. As of the end of the 1998 fiscal year, the years of credited service
for purposes of computing retirement benefits under the Plan for the named
executives are as follows: Alyn V. Essman--42, Russell Isaak--26, Patrick J.
Morris--13, Barry C. Arthur--33 and Fran Scheper--31.
The Plan entitles a participant to a normal monthly retirement benefit upon
retirement after age 65 equal to 1% of average monthly gross earnings from and
after January 1, 1995, multiplied by the number of years of the participant's
service. Alternatively, a participant may elect to convert his normal monthly
benefit to a Contingent Annuitant Option (which provides retirement benefits
payable to the participant during his lifetime and to his or her beneficiary
after the participant's death), or to an Option for Life Annuity with guaranteed
number of monthly payments (which provides for retirement benefits payable for a
guaranteed number of months first to the participant, with any remaining amounts
payable to his or her beneficiary). The Plan provides for a lesser benefit for
early retirement beginning at age 55. Benefits are fully vested after five years
of service. The Corporation periodically makes actuarially determined
contributions to the Plan. No deductions are made for social security benefits.
The named executive officers are also entitled to receive supplemental
retirement benefits pursuant to their employment agreements, as discussed more
fully below.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
During fiscal year 1998, the Corporation employed the named executives
under employment agreements that establish base compensation, bonus and
remuneration in the event of a Change of Control. In the event an executive's
employment is terminated (other than for cause) prior to a Change of Control,
the corporation must continue payment of that executive's Base Salary for six
months. If the Corporation terminates an executive's employment other than for
cause after a Change of Control, the Corporation must pay the executive a lump
sum equal to two years' base compensation. If the named executive officers are
terminated (other than for cause) during fiscal 1999 as a result of a Change of
Control, the executives are entitled to the following lump sum payments: Alyn V.
Essman--$1,200,000; Russell Isaak--$800,000; Patrick J. Morris--$750,000; Barry
C. Arthur--$376,000; and Fran Scheper--$376,000.
An executive whose employment is not terminated after a Change of Control
is entitled to continue in a comparable position. The executive's base salary
cannot be reduced and after a Change of Control, his or her bonus cannot be less
than the highest bonus he or she received during any of the three completed
fiscal years preceding the Change of Control. The executive is also entitled to
continue to participate in compensation plans and programs and benefit plans
that are at least equivalent to those provided before the Change of Control.
Under their employment agreements, the named executive officers are
entitled to receive supplemental retirement benefits equal to 40% of their
highest base salary from and after fiscal year 1997, not to exceed $150,000
annually, for twenty years. These payments commence on the later of
17
<PAGE> 20
(i) age 65 or (ii) the date of retirement. The Corporation's aggregate liability
for these benefits will be offset in part by the proceeds of life insurance, for
which the Corporation is the named beneficiary. The Corporation made insurance
premium payments in fiscal year 1998 of $386,010, $73,200, $243,961, $17,784 and
$113,212 on Messrs. Essman, Isaak, Morris and Arthur and Ms. Scheper,
respectively. Beneficiaries of a named executive officer who dies prior to
retirement receive annually 40% of the executive's highest base salary from and
after 1997, not to exceed $150,000, for twenty years after the date of the
executive's death. An officer who becomes disabled is entitled to receive
annually (in addition to the amount payable on death or disability) 40% of his
or her highest base salary from and after 1997, not to exceed $150,000, until
the earlier of (i) the date of his or her death or (ii) the date he or she
attains age 65. Supplemental retirement, death and disability benefits are pro
rated if the qualifying event occurs prior to the executive's tenth anniversary
of employment by the Company. The supplemental retirement and death benefits
provided for under the employment contracts survive the term of employment,
unless the executive is terminated for cause (as defined in the agreement). Mr.
Bohm, director of the Corporation and a retired officer, received a final
payment of $11,538 under this plan during the fiscal 1998.
Certain of the Corporation's employee benefit plans provide for the
acceleration of the payment benefits upon a Change of Control, including the
Restricted Stock Plan, the Deferred Compensation and Stock Appreciation Rights
Plan, the Key Executive Deferred Compensation Plan and the Stock Option Plans.
If such accelerated benefits plus the severance amount payable in the event of a
Change of Control result in the imposition of an excise tax under Section 4999
of the Internal Revenue Code or any similar tax, the executive is also entitled
to the amount of such tax.
COMPARISON OF TEN-YEAR CUMULATIVE RETURN*
[GRAPH]
<TABLE>
<CAPTION>
CPI S&P 500 RUSSELL 2000
<S> <C> <C> <C>
Jan '89................................................... 1 1 1
Jan '90................................................... 1.0702 1.374196 1.269801
Jan '91................................................... 1.365282 1.489344 1.220629
Jan '92................................................... 1.250436 1.827396 1.767944
Jan '93................................................... 1.06443 2.019487 2.00535
Jan '94................................................... 0.793888 2.278587 2.378546
Jan '95................................................... 0.784123 2.292942 2.235833
Jan '96................................................... 0.800603 3.122528 2.882436
Jan '97................................................... 1.052379 3.940319 3.426351
Jan '98................................................... 1.39356 4.988443 4.036585
Jan '99................................................... 1.611726 6.592236 4.062413
</TABLE>
The Russell 2000 index was selected because it encompasses similarly-sized
companies to CPI, as well as diversified companies, like CPI.
- ---------------
* Total return assumes reinvestment of dividends and $100 invested as of the
measurement date in the Corporation's common stock, the S&P 500 and the
Russell 2000. The measurement dates for purposes of determining the stock
price for CPI Corp. correspond to the fiscal year-end (i.e. the Saturday
preceding the first Sunday in February of each year reflected). The
corresponding
18
<PAGE> 21
measurement dates for the S&P 500 and the Russell 2000 are January 31st of
each of the years reflected.
RATIFICATION OF INDEPENDENT AUDITORS (PROXY ITEM NO. 2)
The Board of Directors has selected KPMG LLP, independent certified public
accountants, to audit the accounts of the Corporation and its subsidiaries for
its current fiscal year ending February 5, 2000. Although the appointment of
independent public accountants is not required to be approved by the
stockholders, the Board believes that stockholders should participate in the
appointment through ratification. If a majority of the stockholders voting do
not ratify the appointment, the Board will reconsider the appointment. No member
of KPMG LLP, or any associate thereof, has any financial interest in the
Corporation or in its subsidiaries.
A representative of KPMG LLP will be present at the Meeting and will be
given the opportunity to make a statement and to answer any questions any
stockholder may have with respect to the financial statements of the Corporation
for the fiscal year ended February 6, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR FISCAL 1999.
The affirmative vote of the majority of the shares present in person or
represented by proxy at the Annual Meeting is required for ratification of this
appointment.
PROPOSED ANNUAL INCENTIVE PROGRAM FOR KEY EXECUTIVES
(PROXY ITEM NO. 3)
In 1995, the Compensation Committee restructured executive compensation
packages to strengthen alignment of executive compensation with shareholder
value by increasing emphasis on at-risk compensation. The restructuring featured
potential for total compensation comparable to that for 1994, but with reduced
base salaries and an annual incentive plan for fiscal years 1995 through 1997
(which was approved by stockholders at the 1995 Annual Meeting) that increased
maximum bonus potential from 30% to 80% of base pay. A similar plan for fiscal
year 1998 was also approved by stockholders.
For fiscal year 1999, the Compensation Committee has adopted a similar
preestablished, objective, earnings performance based formula for awarding
annual incentives to the Chairman and Chief Executive Officer, the President and
the Senior Executive Vice President/ President-Portrait Studio Division. Like
the bonus plan approved by shareholders for fiscal years 1995 through 1998, the
bonus potential ranges from 0% to 80% of base salary. The Compensation Committee
believes that the actual targets reflect confidential business information, the
disclosure of which would adversely affect the Corporation. No bonus will be
paid to these executives except in accordance with the preestablished formula
adopted by the Committee, and the Committee will certify attainment of the
preestablished targets prior to awarding any bonuses under this program.
NEW PLAN BENEFITS
ANNUAL INCENTIVE PLAN FOR 1999
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($)
----------------- ---------------
<S> <C>
Mr. Essman, Chairman and Chief Executive Officer $0 to $480,000
Mr. Isaak, President $0 to $320,000
Mr. Morris, Senior Executive Vice
President/President-Portrait Studio Division $0 to $300,000
</TABLE>
19
<PAGE> 22
No other executives or employees of the Corporation are eligible for
benefits under the proposed plan.
The Committee seeks shareholder approval on this annual incentive program
for the three most highly compensated executives of the Corporation because it
believes that continuing to place greater emphasis on at-risk compensation will
best serve the interests of shareholders, as well as those of the Corporation.
In addition, with shareholder approval of the annual incentive plan adopted by
the Compensation Committee, any amounts paid to executives under the plan will
be excluded from calculations of total compensation subject to the $1 million
ceiling on deductibility under Section 162(m) of the Internal Revenue Code.
The Board of Directors will present the following resolution to the
stockholders for action at the 1999 Annual Meeting:
RESOLVED, that an annual incentive plan for fiscal year 1999 for the
Chairman and Chief Executive Officer, the President, and the Senior
Executive Vice President/President-Portrait Studio Division, authorizing
annual bonuses ranging from 0% to 80% of base salaries, with the following
maximum bonus amounts: Mr. Essman--$480,000; Mr. Isaak--$320,000; and Mr.
Morris--$300,000; upon attainment of predetermined, objective earnings
targets established by the independent Directors who serve on the
Compensation Committee, is hereby approved by the stockholders of the
Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
The affirmative vote of the majority of the votes cast at the meeting by
the stockholders entitled to vote thereon shall be sufficient for the approval
of the proposed annual incentive plan for the Chairman and Chief Executive
Officer, the President, and the Senior Executive Vice President/
President-Portrait Studio Division, as described above.
OTHER INFORMATION
Proxies, ballots, and voting tabulations identifying stockholders are
secret and will not be available to anyone, except as necessary to meet legal
requirements.
The Corporation's Annual Report to stockholders, including financial
statements, was mailed simultaneously with this Proxy Statement on or about May
7, 1999, to stockholders of record as of April 29, 1999.
A COPY OF THE CORPORATION'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K MAY BE OBTAINED WITHOUT CHARGE FROM THE SECRETARY OF THE
CORPORATION UPON WRITTEN REQUEST TO HER AT 1706 WASHINGTON, ST. LOUIS, MISSOURI
63103.
By Order of the Board of Directors,
JANE E. NELSON
JANE E. NELSON
Secretary and General Counsel
Dated: May 7, 1999
20
<PAGE> 23
PROXY PROXY
CPI CORP.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - JUNE 22, 1999
The undersigned, revoking all previous proxies, hereby appoints Alyn V.
Essman and Russell Isaak or either of them as Proxy or Proxies of the
undersigned, each with the power to appoint his substitute, to vote, as
designated below, all of the shares of Common Stock of CPI Corp. (the
"Corporation") held of record by the undersigned on April 29, 1999 at the annual
meeting of stockholders to be held at 10 a.m. central daylight time on June 22,
1999, at CPI Corp., 1706 Washington, St. Louis, Missouri 63103, and at any
adjournment thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued, and to be signed, on the other side.)
- --------------------------------------------------------------------------------
[CPI CORP. LETTERHEAD]
May 7, 1999
DEAR CPI CORP. STOCKHOLDER:
You are cordially invited and encouraged to attend the 1999 Annual Meeting
of Stockholders of CPI Corp. The meeting will be held on Tuesday, June 22,
1999, at 10:00 a.m., central daylight time at the offices of CPI Corp., 1706
Washington Avenue, St. Louis, Missouri.
If you cannot personally attend the meeting, please vote your preference on
the proxy card attached above and return it promptly. Your participation in CPI
Corp.'s business, whether in person or by proxy, is an important part of the
Corporation's governance.
I look forward to and appreciate your participation in CPI's 1999 Annual
Meeting of Stockholders.
Very Truly Yours,
Alyn V. Essman
-----------------------------
ALYN V. ESSMAN
Chairman of the Board and
Chief Executive Officer
<PAGE> 24
<TABLE>
<CAPTION>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<S><C>
1. Election of Directors- For Withhold For All 3. Approval of Resolution to provide
Nominees: Milford Bohm, All All Except for Annual Incentive Program for
Alyn V. Essman, Russell / / / / / / Chairman and Chief Executive Officer, For Against Abstain
Isaak Mary Ann Krey, Lee President and Senior Executive Vice / / / / / /
M. Liberman, Patrick J. President.
Morris, Nicholas L. Reding,
Martin Sneider, Robert L.
Virgil
---------------------------
(Except Nominee(s) Written
Above)
For Against Abstain In their sole discretion, the Proxies
2. Ratification of appointment / / / / / / are authorized to vote upon such other
of KPMG LLP as the business as may properly come before the
Corporation's independent annual meeting or any adjournment thereof.
certified public accountants.
SIGN
HERE
--------------------------------------------
(Please sign exactly as name appears hereon)
SIGN
HERE
--------------------------------------------
Executors, administrators, trustees, etc.
should so indicate when signing
Dated:
-------------------------------------, 1999
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* FOLD AND DETACH HERE *
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
