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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended February 5, 1994
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes _____ No __X__.
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 _____.
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the
New York Stock Exchange - Composite Transaction Listing on
May 2, 1994 ($14.625 per share): $203,705,775.
As of May 2, 1994, 14,443,702 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 5, 1994, are incorporated by reference into Parts I and II
of this Report.
Portions of the Proxy Statement relating to the Annual Meeting
of Shareholders to be held June 7, 1994, are incorporated by
reference into Part III of this Report.
PAGE 1 OF 184
PAGES 13-19 OF THIS TRANSMISSION FILING CONTAINS THE EXHIBIT INDEX
PAGE
TABLE OF CONTENTS
Page
----
Part I
- ------
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Part II
- -------
Item 5. Market for Registrant's Common Equity 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 8. Financial Statements and Supplementary Data 9
Item 9. Disagreements on Accounting and
Financial Disclosure 9
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 13
Signatures 21
2
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. The Company operates professional portrait
studios, photographic finishing laboratories, electronic publishing
stores and wall decor locations.
The Company started up its photo finishing business in 1982.
On August 19, 1991, the Company acquired Fox Photo, Inc., and on
December 1, 1992, the Company purchased the operational assets of
Pemtom, Inc., a Minneapolis-based company operating under the name
Proex. At February 5, 1994, the Company operated 670
photo-finishing locations under the names of CPI Photo Finish, Fox
Photo and Proex.
On May 30, 1993, CPI Corp. entered the wall decor business
with the acquisition of Prints Plus, Inc. from the Melville
Corporation. Prints Plus is a poster, print and custom framing
retail chain with 103 stores located in malls throughout the United
States.
For the fiscal year ended February 5, 1994, approximately
49.90% of net sales and 76.92% of operating earnings (before
deduction of general corporate expenses, interest expense and
provision for income taxes) were derived from the Sears Portrait
Studio business. The Company has operated portrait studios as a
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. The
Company is materially dependent upon the continued goodwill of
Sears and the integrity of the Sears name in the retail
marketplace. The Company believes that its relationship with Sears
is excellent and that it has been beneficial to both companies.
See "Business-Relationship With Sears."
The executive office is located at 1706 Washington Avenue,
St. Louis, Missouri, 63103-1790, and its telephone number is (314)
231-1575. Unless the context otherwise requires, references herein
to the "Company" or "CPI Corp." mean CPI Corp., its consolidated
subsidiaries and their predecessor companies.
3
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Relationship With Sears
- -----------------------
The Company operates its Sears Portrait Studio business under
a license agreement. The agreement is terminable by either the
Company or Sears with respect to any or all studios upon 90-days
notice. Early in 1993, Sears announced plans to close 113 stores,
which included 38 Sears stores with portrait studios. The Company
has relocated some of these studios to new sites in the same market
areas. Except in connection with store closings, Sears has never
terminated the operation of any Company studio under any license
agreement. The relationship with Sears is long-standing and the
Company has no reason to believe that Sears will exercise its
rights under the agreement to reduce materially the scope of the
Company's business with Sears.
The Company and Sears entered into its current license
agreement for fixed location studios as of January 1, 1994. This
agreement expires on December 31, 1998. The agreement provides
that the Company pay Sears a license fee of 15% of total annual net
sales per studio. Net sales are defined as gross sales less
customer returns, allowances and sales taxes. The total commission
paid is subject to adjustment to reflect the mutual commitments of
Sears and the Company to cooperate in implementation of their
respective strategic plans for expansion, renovation, technological
innovation and marketing over the five year term of the Agreement.
The Company provides all studio furniture, equipment and fixtures
and conducts advertising at its own expense. The Company is
responsible for hiring, training and compensating the Company
employees and must indemnify Sears against all said employee
claims.
The Company's freestanding studios in retail malls that
operate under the Sears name pay a license fee of 7.5% of total
annual net sales per studio and benefit from advertising under the
Sears name. Customers may use their Sears credit cards at these
studios as well.
All of the Company's Canadian studios operate under an April
6, 1977, nonexclusive license agreement with Sears Canada, Inc.,
which is a subsidiary of Sears. The agreement renews automatically
on a year-to-year basis but is terminable by either party on 60
days' notice. The license fee is 15% of net sales. The Company
provides all studio furniture, equipment and fixtures and conducts
all advertising at its own expense.
As a Sears licensee, the Company enjoys the benefits of its
use of the Sears name, Sears' daily cashiering and bookkeeping
system, store security services and customers' ability to use their
Sears credit cards to purchase the Company's products or services,
for which Sears bears the credit risk of authorized credit card
use. The Company is also able to place its portrait studio print
media advertising under the Sears name at rates lower than those
4
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the Company could otherwise obtain.
Competition
- -----------
The Company competes in the portrait photography business
with a number of companies that operate fixed location, traveling
and freestanding photography studios. Independent professional
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 comparable products of its competitors.
Other national, regional and local companies operate rapid
photographic finishing laboratories that compete in local markets
with the laboratories that the Company is operating. The Company
has identified two principal kinds of competitors - independent
entrepreneur/franchisees who own their minilabs and other major
photofinishers. The Company believes that the quality of its
products enables it to compete successfully and that its marketing
strategy permits effective competition with the other major
photofinishers. The Company enhances the quality of its products
by carefully training and supervising minilab technicians and by
using quality control checks during the photo development and
printing process. While it is felt that the Company competes
successfully in terms of quality, photofinishers who use the
services of a mass production lab are able to finish photographs in
large volume which enables them to sell their photofinishing
services at a lower price. To compete with the other major
photofinishers, the Company has developed a marketing strategy of
locating minilabs in regional retail malls and strip shopping
centers convenient to their target customers, quality conscious
35mm camera users. In addition, by locating these minilabs in a
number of locations in selected metropolitan areas, the Company
also benefits from area-wide marketing and supervision.
The Company's primary competition in the electronic
publishing business is highly fragmented among franchise locations
and numerous individual, owner-operated locations which provide
printing and copy services throughout the United States. The
Company feels it provides efficient, personal service because of
more convenient access to its full range of state-of-the-art
copying equipment.
The Company competes with numerous national, regional and
local framing retailers serving the wall decor segment of the home
furnishings market. The primary competitors in this business are
franchise locations, small regional chains and many individual
stores which focus on custom framing. Other competitors in this
segment include mass merchants and other specialty home furnishings
stores which offer a fixed selection of pre-framed prints. The
Company believes it competes successfully in this segment by
offering a large selection of prints and frames, fast custom
5
PAGE
framing service and very competitive pricing.
Supplier Relationships
- ----------------------
The Company purchases photographic paper and film for its
studio and minilab operations primarily from one major
manufacturer. The Company purchases camera, printing, minilab,
reprographic and other equipment and supplies from a number of
suppliers and is not dependent upon any supplier for any specific
kind of equipment. The Company has had no difficulty in the past
obtaining sufficient material to conduct its businesses. The
Company believes that its relations with its suppliers are good.
Seasonality
- -----------
The Company's professional portrait photography business is
seasonal, with the largest volume of sales occurring in the third
and fourth fiscal quarters during the periods preceding and
including the Thanksgiving/Christmas season. The photofinishing
business seasonality is reflected in sales increases in the second
quarter of the fiscal year, in the Thanksgiving/Christmas season
and in sales decreases in the first quarter of the fiscal year.
The seasonality of the wall decor business is exhibited by
increased sales in the third and fourth fiscal quarters as well.
Employees
- ---------
At February 5, 1994, the Company had approximately 10,700
employees, of whom approximately 5,200 were part-time. The
Company's employees significantly increase in number during peak
periods and, at December 18, 1993, the Company had approximately
15,500 employees. The Company's employees are not members of any
union and the Company has experienced no work stoppages. The
Company believes that its relations with its employees are good.
Additional information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 107 through
118 of this document.
6
PAGE
ITEM 2. PROPERTIES
The following table sets forth certain information concerning
the Company's principal facilities:
Principal Facilities
Approximate
area in Primary Ownership
Location square feet Uses or lease
- ------------------- ------------ ------------------ ----------
St. Louis, Missouri 312,600 Administration and Owned
Photoprocessing
St. Louis, Missouri 79,000 Warehousing Leased (1)
St. Louis, Missouri 45,000 Warehousing Leased (2)
Brampton, Ontario 40,000 Administration and Owned
Photoprocessing
Las Vegas, Nevada 12,200 Photoprocessing Leased (3)
Thomaston, Connecticut 25,000 Administration and Owned
Photoprocessing
Edina, Minnesota 29,000 Administration, Leased (4)
Warehousing and
Photoprocessing
Concord, California 43,000 Administration, Leased (5)
Warehousing and
Manufacturing
(1) Lease term expires on June 30, 1997.
(2) Lease term expires on February 28, 1997.
(3) Lease term expires on July 31, 1996.
(4) Lease term expires on March 30, 1999.
(5) Lease term expires on March 31, 2002.
The Company operates its portrait studios in Sears stores
pursuant to the license agreement with Sears. See "Relationship
with Sears." The Company's other portrait studios, which are
located in shopping centers, are generally leased for at least
three years with some having renewal options. The Company's
minilab locations generally are leased for terms of three to seven
years and some have one or more renewal options. The electronic
publishing locations are generally leased for terms of five to
seven years with one or more renewal options and are commonly
situated in office buildings, multi-use complexes or downtown
7
PAGE
locations. The wall decor locations are generally in enclosed
regional malls with lease terms of ten years without renewal
options.
On an ongoing basis, the Company analyzes the use of its
facilities to assure operating economies, effective servicing of
its customers and necessary flexibility to meet present and future
demands of its businesses.
ITEM 3. LEGAL PROCEEDINGS
There are various suits pending against the Company, none of
which is material in nature. It is the opinion of management that
the ultimate liability, if any, resulting from such suits will not
materially affect the consolidated financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders for a vote during
the fourth quarter of fiscal year 1993.
8
PAGE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 174-177 of
this document, and will be contained in the Registrant's 1994 Proxy
Statement, to be dated within 120 days of the end of the
Registrant's fiscal year 1993, and incorporated herein by
reference.
As of April 15, 1994, the market price of the Registrant's
common stock was $14.875 per share with 14,433,704 shares
outstanding and approximately 2,645 holders of record.
ITEM 6. SELECTED FINANCIAL DATA
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 127-134 of
this document, and 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 1993 Annual Report to Shareholders, pages 135 through
144 of this document, and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 145 through
177 of this document, and incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
9
PAGE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
- ---------
Information required under this Item will be contained in the
Registrant's 1994 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1993, and is incorporated
herein by reference.
Executive and Other Principal Officers
- --------------------------------------
David E. April (51) Senior Executive Vice President.
Mr. April joined the Company in 1963
as a supervisor trainee and
subsequently became Vice President of
Laboratory Operations. In 1981, he
became Vice President and General
Manager of Laboratory Operations, in
February 1984, he became President of
the Laboratory Operations, and in
February 1987, he was named President
of Manufacturing. Effective February
1992, Mr. April was appointed Senior
Executive Vice President and is a
member of the Office of the President
and of the Executive Committee.
Patrick J. Morris (54) Senior Executive Vice President. Mr.
Morris joined the Company in May 1985
as its Executive Vice President -
Marketing. Effective February 1992,
he was appointed Senior Executive
Vice President, and is a member of
the Office of the President and of
the Executive Committee.
Barry C. Arthur (51) Executive Vice President - Finance
and Chief Financial Officer. Mr.
Arthur joined the Company 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. He was appointed to his
current position effective February
1992 and is a member of the Executive
Committee.
10
PAGE
Jane E. Nelson (44)* Secretary and General Counsel. Ms.
Nelson joined the Company in 1988 as
Assistant General Counsel and served
as Associate General Counsel and
Assistant Secretary. She was promoted
to her current position in February
1993 and is a member of the Corporate
Development Council. Prior to coming
to CPI, Ms. Nelson was an associate
with the St. Louis law firm of Husch
and Eppenberger.
Fran Scheper (48) Executive Vice President - Human
Resources. Ms. Scheper joined the
Company 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.
The Company's officers serve at the pleasure of the Board of
Directors. There are no family relationships among the Company's
directors and executive and other principal officers.
* Pursuant to becoming an insider of the Company as of February
6, 1993, Jane E. Nelson timely filed a Form 3, however,
through clerical error the Form 3 failed to disclose 79 shares
of stock held indirectly in the Company's Profit Sharing Plan.
The omission was included in an Amendment to Form 3 filed ten
days late on February 26, 1994. No other incidents of late
filing occurred during the fiscal year to the best of the
Company's knowledge.
11
PAGE
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the
Registrant's 1993 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1993, 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 1994 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1993, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
12
PAGE
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Index to Certain Documents
Index to Certain Documents
Document
Page Number
-------------
Annual Report
To
Shareholders*
-------------
(1) Independent Auditor's Report 178**
(2) Financial Statements:
(a) Consolidated Balance Sheets 145-146
as of February 5, 1994 and
February 6, 1993
(b) Consolidated Statements of 147
Earnings for the fiscal years
ended February 5, 1994,
February 6, 1993 and
February 1, 1992
(c) Consolidated Statements of 148-150
Changes in Stockholder's Equity
for the fiscal years ended
February 5, 1994,
February 6, 1993 and
February 1, 1992
(d) Consolidated Statements of 151-152
Cash Flows for the fiscal
years ended February 5, 1994,
February 6, 1993 and
February 1, 1992
(3) Notes to Consolidated Financial Statements 153-173
* Which pages are incorporated herein by reference.
** Also on Page 20 of this Form 10-K.
13
PAGE
Index to Certain Documents
Page Number
Form 10-K
-----------
(4) Financial Statement Schedules ***
I. Consolidated Short-Term
Investments 22-28
V. Consolidated Property and
Equipment 29-30
VI. Consolidated Accumulated
Depreciation of Property
and Equipment 31-32
VIII. Consolidated Allowance for
Uncollectible Receivables 33
X. Supplementary Consolidated
Earnings Statement Information 34
*** All other schedules and notes under Regulation S-X are
omitted because they are either not applicable, not
required, or the information called for therein appears in
the consolidated financial statements of notes thereto.
(b) Reports on Form 8-K
On December 23, 1993, the Company filed a Report on Form 8-K
with an attached press release announcing: a third quarter
decrease in earnings per share; a third quarter increase in
sales mainly due to acquisitions; expected fourth quarter
results below last year's and a $50 million investment in new
portrait studio technology and renovation.
14
PAGE
(c) Index to Exhibits
Index to Exhibits
Page Number
Form 10-K
-----------
3) Articles of Incorporation and Bylaws.
-------------------------------------
(a) Articles of Incorporation
Incorporated by reference to Exhibit 3
to the Company's Annual Report on
Form 10-K, dated April 27, 1990
(Commission File No. 1-10204)
(b) Bylaws
Incorporated by reference to Exhibit 3
to the Company's Annual Report on
Form 10-K, dated April 27, 1990
(Commission File No. 1-10204)
Amendment to Bylaws dated 35
February 3, 1994
4) Instruments Defining the Rights of
----------------------------------
Security Holders, Including Debentures.
---------------------------------------
(a) Articles of Incorporation and Bylaws.
Incorporated by reference to
Exhibit 3 to the Company's Annual
Report on Form 10-K, dated
April 27, 1990
(Commission File No. 1-10204)
(b) Note Agreement for Series A
Senior Notes Due August 31, 2000
($33,000,000) and Series B
Senior Notes due August 31, 2000
($27,000,000). Incorporated by
reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
15
PAGE
Index to Exhibits
Page Number
Form 10-K
-----------
(c) Pledge Agreement. Incorporated by
reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
(d) Collateral Agency and Intercreditor
Agreement. Incorporated by reference
to Exhibit 4 to Form 10-Q, filed
September 3, 1993.
(Commission File No. 1-10204)
(e) Series A Senior Note Due
August 31, 2000. No. R-A1 $33,000,000.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(f) Series B Senior Note Due
August 31, 2000. No. R-B1 $22,500,000.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(g) Series B Senior Note Due
August 31, 2000. No. R-B2 $4,500,000.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(h) Revolving Credit Agreement. Incorporated
by reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
(i) Revolving Credit Note. Incorporated
by reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
16
PAGE
Index to Exhibits
Page Number
Form 10-K
-----------
(j) First Amendment to Rights Agreement.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(k) CPI Corp. Shareholder Rights Plan.
Incorporated by reference to
Exhibit 8 to Form 8-A, filed
May 2, 1989.
(l) Amendment to CPI Corp. Shareholder 36-37
Rights Plan
10) Material Contracts
------------------
(a) Contract With Sears, Roebuck and Co. 38-87
17
PAGE
Index to Exhibits
Additional information required by this Item 10 is
incorporated by reference to the below listed documents with
corresponding filing date and registration or Commission file
numbers where applicable.
Registration/
Information Incorporated Document Filing Commission
by Reference Referred to Date File Numbers
- --------------------------- ------------- -------- ------------
(b) Employment Agreements- Annual Report 5/5/93 1-10204
A. Essman, R. Isaak, on Form 10-K
D. April, P. Morris, dated 4/30/93
B. Arthur
(c) CPI Corp. 1981 Stock Annual Report 5/5/93 1-10204
Bonus Plan (As Amended on Form 10-K,
and Restated on 2/3/91) dated 4/30/93
(d) Deferred Compensation Annual Report 5/1/92 1-10204
and Stock Appreciation on Form 10-K,
Rights dated 4/24/92
(e) Employment Termination Annual Report 5/1/92 1-10204
Agreement - S. Coovert on Form 10-K,
dated 4/24/92
(f) CPI Corp. Restricted Annual Report 5/1/92 1-10204
Stock Plan on Form 10-K,
dated 4/24/92
(g) Deferred Compensation Annual Report 5/1/92 1-10204
and Retirement Plan on Form 10-K,
for Non-Management dated 4/24/92
Directors
(h) Stock Purchase Form 8-K 3/25/91 -
Agreement - M. Bohm
(i) CPI Corp. Stock Option Form S-8 7/28/92 33-50082
Plan (As Amended and
Restated
effective 2/2/92)
(j) Registration of Form 8-A 3/21/89 -
Securities on the New
York Stock Exchange
(k) CPI Corp. Shareholder Exhibit to 5/2/89 -
Rights Plan Form 8-A
(l) CPI Voluntary Stock Form D 3/31/93 -
Option Plan
18
PAGE
Index to Exhibits
Page Number
Form 10-K
-----------
11) Computation of Earnings
Per Common Share 88
13) 1992 Annual Report to Shareholders 89-181
21) Subsidiaries of the Registrant 182-183
23) Accountants' Consent 184
19
PAGE
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
CPI Corp.:
Under date of April 6, 1994, we reported on the consolidated
balance sheets of CPI Corp. and subsidiaries as of February 5, 1994
and February 6, 1993, 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 5,
1994, as contained in the 1993 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 1993 fiscal year. In connection with our audits of
the aforementioned consolidated financial statements, we have also
audited the related financial statement schedules as listed in the
accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statement schedules based
on our audits.
In our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information
set forth therein.
/s/ KPMG PEAT MARWICK
St. Louis, Missouri
April 6, 1994
20
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
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
Signature Title Date
- ------------------- ------------------------ -------------
/s/ Alyn V. Essman Chairman of the Board, April 6, 1994
Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Milford Bohm Director April 6, 1994
/s/ Lee Liberman Director April 6, 1994
/s/ Nicholas L. Reding Director April 6, 1994
/s/ Robert L. Virgil Director April 6, 1994
/s/ Russell Isaak President April 6, 1994
/s/ Patrick J. Morris Senior Executive April 6, 1994
Vice President
/s/ David E. April Senior Executive April 6, 1994
Vice President
/s/ Barry C. Arthur Vice President and April 6, 1994
Treasurer (Principal
Financial and
Accounting Officer)
21
PAGE
Schedule I
CPI CORP. CONSOLIDATED SHORT-TERM INVESTMENTS FEBRUARY 5, 1994
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Barclays De Zoete $ 8,277,173 $ 8,277,173 $ 8,277,173 $ 8,277,173
Wedd Repurchase
Agreements due
February 7, 1994
3.11%
Barclays De Zoete 2,786,685 2,786,685 2,786,685 2,786,685
Wedd Repurchase
Agreements due
February 7, 1994
3.11%
United States 2,050,000 2,050,000 2,050,000 2,050,000
Government Agency
Repurchase
Agreement due
February 7, 1994
3.25%
United States 110,000 110,000 110,000 110,000
Government Agency
Repurchase
Agreement due
February 7, 1994
3.25%
Trust for Federal 7 7 7 7
Securities Fed
Fund due
February 7,1994
2.57%
Associates 3,500,000 3,500,000 3,500,000 3,500,000
Commercial Paper
due
February 7, 1994
3.17%
22
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Government of 522,060 519,194 521,804 521,804
Canada
Treasury Bills
due
February 10, 1994
3.58%
Government of 149,160 147,815 148,982 148,982
Canada
Treasury Bills
due
February 17, 1994
3.62%
Royal Bank of 149,160 149,160 149,160 149,160
Canada Term
Deposit due
February 17, 1994
3.00%
Smith Barney 1,000,000 1,000,000 1,000,000 1,000,000
Commercial Paper
due
February 22, 1994
3.25%
American Express 850,000 850,000 850,000 850,000
Commercial Paper
due
February 24, 1994
3.09%
Government of 298,320 296,247 297,780 297,780
Canada Treasury
Bills due
February 24, 1994
3.48%
Bank of Montreal 745,800 740,095 744,258 744,258
Bankers'
Acceptance due
February 25, 1994
3.77%
23
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Federal National 1,500,000 1,483,046 1,496,846 1,496,846
Mortgage
Association
Discount Notes
due March 1, 1994
3.13%
Government of 745,800 740,684 743,900 743,900
Canada Treasury
Bills due
March 3, 1994
3.58%
Government of 745,800 742,481 743,518 743,518
Canada Treasury
Bills due
March 10, 1994
3.38%
Bank of Nova 745,800 741,668 743,022 743,022
Scotia Bankers'
Acceptance due
March 14, 1994
3.68%
Federal Home 2,000,000 1,968,973 1,993,173 1,993,173
Loan Bank
Discount Notes
due
March 15, 1994
3.12%
Smith Barney 3,000,000 3,000,000 3,000,000 3,000,000
Commercial Paper
due
March 16, 1994
3.07%
Government of 5,388,405 5,339,155 5,366,757 5,366,757
Canada Treasury
Bills due
March 17, 1994
3.67%
24
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Principal Market Balance Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Government of 1,006,830 997,748 1,002,139 1,002,139
Canada Treasury
Bills due
March 24, 1994
3.62%
Associates 850,000 850,000 850,000 850,000
Corporation
Commercial Paper
due March 28, 1994
3.05%
Federal National 1,500,000 1,476,357 1,493,057 1,493,057
Mortgage
Association
Discount Notes
due
March 29, 1994
3.13%
Government of 820,380 814,752 816,159 816,159
Canada Treasury
Bills due
March 31, 1994
3.48%
Government of 596,640 593,311 593,786 593,786
Canada Treasury
Bills due
March 31, 1994
3.23%
Federal National 500,000 493,918 495,438 495,438
Mortgage
Association
Discount Notes
due
April 1, 1994
3.22%
American Express 250,000 250,000 250,000 250,000
Commercial Paper
due April 4, 1994
3.30%
25
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Government of 820,380 815,663 815,813 815,813
Canada Treasury
Bills due
April 7, 1994
3.33%
Federal National 1,000,000 980,276 992,076 992,076
Mortgage
Discount Notes
due May 4, 1994
3.17%
American Express 3,500,000 3,500,000 3,500,000 3,500,000
Commercial Paper
May 16, 1994
3.29%
Federal Home Loan 1,000,000 978,999 990,099 990,099
Bank Discount
Notes due
May 25, 1994
3.18%
General Electric 250,000 250,000 250,000 250,000
Commercial Paper
due June 1, 1994
3.30%
Federal National 500,000 489,533 494,033 494,033
Mortgage
Association
Discount Notes
due June 1, 1994
3.18%
Federal National 850,000 836,761 839,661 839,661
Mortgage
Association
Discount Notes
due June 20, 1994
3.26%
26
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Federal National 1,000,000 977,320 982,260 982,260
Mortgage
Association
Discount Notes
due August 16, 1994
3.36%
Federal National 1,000,000 972,387 982,067 982,067
Mortgage
Association
Discount Notes
due August 25, 1994
3.27%
Federal National 2,000,000 1,944,773 1,963,773 1,963,773
Mortgage
Association
Discount Notes
due August 25, 1994
3.27%
Federal National 2,000,000 1,937,154 1,957,754 1,957,754
Mortgage
Association
Discount Notes due
September 19, 1994
3.29%
Federal National 1,000,000 968,577 978,877 978,877
Mortgage
Association
Discount Notes due
September 19, 1994
3.26%
Federal National 1,000,000 975,871 978,871 978,871
Mortgage
Association
Discount Notes due
September 19, 1994
3.38%
27
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Federal National 750,000 734,235 734,535 734,535
Mortgage
Association
Discount Notes due
September 20, 1994
3.29%
General Electric 4,000,000 4,000,000 4,000,000 4,000,000
Commercial Paper
due
October 5, 1994
3.32%
General Electric 600,000 600,000 600,000 600,000
Commercial Paper
due
October 11, 1994
3.37%
Government of the 1,000,000 967,378 968,278 968,278
United States
Treasury Bills
due
January 12, 1995
3.37%
----------- ----------- ----------- -----------
$62,358,400 $61,847,396 $62,051,741 $62,051,741
=========== =========== =========== ===========
28
PAGE
Schedule V
CPI CORP. CONSOLIDATED PROPERTY AND EQUIPMENT
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993 AND FEBRUARY 1, 1992
CPI Corp. Consolidated Property and Equipment for Fiscal Years Ended
February 5, 1994 and February 6, 1993
Balance at Balance at
Beginning Additions End of
of Year at Cost Retirements Year
------------ ------------ ------------ ------------
52 Weeks Ended
February 5, 1994:
- -----------------
Land $ 2,856,197 $ 216,241 $ - $ 3,072,438
Building and improvements 46,042,870 17,047,480 2,866,544 60,223,806
Machinery and equipment 112,226,654 20,150,881 3,802,114 128,575,421
Furniture and fixtures 50,305,468 7,944,825 2,681,896 55,568,397
------------ ------------ ------------ ------------
$211,431,189 $ 45,359,427 $ 9,350,554 $247,440,062
============ ============ ============ ============
53 Weeks Ended
February 6, 1993:
- -----------------
Land $ 2,830,345 $ 25,852 $ - $ 2,856,197
Building and improvements 51,537,312 3,444,315 8,938,757 46,042,870
Machinery and equipment 107,630,093 6,683,528 2,086,967 112,226,654
Furniture and fixtures 34,410,630 17,111,959 1,217,121 50,305,468
------------ ------------ ------------ ------------
$196,408,380 $ 27,265,654 $ 12,242,845 $211,431,189
============ ============ ============ ============
29
PAGE
CPI Corp. Consolidated Property and Equipment for Fiscal Year Ended
February 1, 1992
Balance at Balance at
Beginning Additions End of
of Year at Cost Retirements Year
------------ ------------ ------------ ------------
52 Weeks Ended
February 1, 1992:
- -----------------
Land $ 2,349,126 $ 481,219 $ - $ 2,830,345
Building and improvements 37,358,599 16,220,659 2,041,946 51,537,312
Machinery and equipment 94,122,130 17,463,844 3,955,881 107,630,093
Furniture and fixtures 29,285,109 6,432,218 1,306,697 34,410,630
------------ ------------ ------------ ------------
$163,114,964 $ 40,597,940 $ 7,304,524 $196,408,380
============ ============ ============ ============
30
PAGE
Schedule VI
CPI CORP. CONSOLIDATED ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
FISCAL YEAR ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993 AND FEBRUARY 1, 1992
CPI Corp. Consolidated Accumulated Depreciation of Property and Equipment
Fiscal Year Ended February 5, 1994 and February 6, 1993
Additions
Balance at Charged Balance at
Beginning to Costs End of
of Year and Expenses Retirements Year
------------ ------------ ------------ -------------
52 Weeks Ended
February 5, 1994:
- -----------------
Building and improvements $ 12,885,629 $ 12,021,374 $ 2,327,846 $ 22,579,157
Machinery and equipment 76,640,403 8,737,439 3,505,930 81,871,912
Furniture and fixtures 24,332,226 6,478,003 2,150,009 28,660,220
------------ ------------ ------------ ------------
$113,858,258 $ 27,236,816 $ 7,983,785 $133,111,289
============ ============ ============ ============
53 Weeks Ended
February 6, 1993:
- -----------------
Building and improvements $ 16,452,311 $ 4,542,460 $ 8,109,142 $ 12,885,629
Machinery and equipment 63,658,503 13,734,605 752,705 76,640,403
Furniture and fixtures 18,624,648 6,154,095 446,517 24,332,226
------------ ------------ ------------ ------------
$ 98,735,462 $ 24,431,160 $ 9,308,364 $113,858,258
============ ============ ============ ============
31
PAGE
CPI Corp. Consolidated Accumulated Depreciation of Property and Equipment
Fiscal Year Ended February 1, 1992
Additions
Balance at Charged Balance at
Beginning to Costs End of
of Year and Expenses Retirements Year
------------ ------------ ------------ -------------
52 Weeks Ended
February 1, 1992:
- -----------------
Building and improvements $ 15,892,193 $ 4,046,634 $ 3,486,516 $ 16,452,311
Machinery and equipment 51,548,670 13,946,524 1,836,691 63,658,503
Furniture and fixtures 15,016,257 4,664,335 1,055,944 18,624,648
------------ ------------ ------------ ------------
$ 82,457,120 $ 22,657,493 $ 6,379,151 $ 98,735,462
============ ============ ============ ============
32
PAGE
Schedule VIII
CPI CORP. CONSOLIDATED ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993
and FEBRUARY 1, 1992
CPI Corp. Consolidated Allowance for Uncollectible Receivables
Fiscal Years Ended February 5, 1994, February 6, 1993
and February 1, 1992
February 5, February 6, February 1,
1994 1993 1992
------------ ------------ ------------
Balance at beginning
of year $ 1,042,101 $ 1,070,092 $ 1,055,268
============ ============ ============
Balance at end
of year $ 918,346 $ 1,042,101 $ 1,070,092
============ ============ ============
The majority of receivable amounts are due from Sears, Roebuck
and Co. for amounts collected or to be collected by it, for which
Sears assumes all credit risks.
The receivable balances for which an allowance for
uncollectible receivables is established relate primarily to sales
recorded through use of Company commercial charge accounts for
photofinishing and copy 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.
33
PAGE
Schedule X
CPI CORP. SUPPLEMENTARY CONSOLIDATED EARNINGS STATEMENT
INFORMATION
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993
AND FEBRUARY 1, 1992
CPI Corp. Supplementary Consolidated Earnings Statement Information
(In Thousands)
Fiscal Years Ended February 5, 1994, February 6, 1993
and February 1, 1992
Fiscal Year
------------------------------------
1993 1992 1991
--------- --------- ---------
Advertising Costs $ 50,993 $ 53,654 $ 47,528
========= ========= =========
Maintenance and Repairs $ 5,754 $ 5,452 $ 4,459
========= ========= =========
34
PAGE
Exhibit (3)b
ARTICLES OF INCORPORATION AND BYLAWS
On February 3, 1994, the Board of Directors of CPI Corp. amended
the corporate bylaws as follows:
RESOLUTION
----------
RESOLVED, that the first sentence of Section
3.2 of the By-Laws of the Corporation be, and hereby
is, amended to read as follows:
"SECTION 3.2. NUMBER, TERM AND ELECTION. The
number of directors constituting the full Board of
Directors of the corporation shall be no more than
eight (8), or such other number not less than three
(3), as may from time to time be established by
amendment of these By-Laws."
35
PAGE
Exhibit (4)l
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES
AMENDMENT TO CPI CORP. SHAREHOLDER RIGHTS PLAN
The following Amendment to CPI Corp.'s Shareholder Rights Plan was
adopted August 26, 1993:
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT (The "Amendment"), dated as of August 26,
1993, to the Rights Agreement, dated as of May 1, 1989 (the "Rights
Agreement"), between CPI CORP., a Delaware corporation (the
"Company"), and CONTINENTAL STOCK TRANSFER AND TRUST COMPANY, a New
York corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the Company and Ameritrust Company, National
Association, as the predecessor to the Rights Agent, entered into
the Rights Agreement specifying the terms of the Rights (as defined
in the Rights Agreement);
WHEREAS, the rights and obligations of the Rights Agent
as such were assigned by Ameritrust Company, National Association
to Continental Stock Transfer and Trust Company, as successor
Rights Agent;
WHEREAS, pursuant to Section 27 of the Rights Agreement
the Company and the Rights Agent may from time to time supplement
or amend the Rights Agreement in accordance with the provisions
of such Section 27;
WHEREAS, the Company and the Rights Agent desire to amend
the Rights Agreement as set forth herein;
WHEREAS, all actions necessary to make this First
Amendment a valid agreement, enforceable according to its terms,
have been taken, and the execution and delivery of this First
Amendment by the Company and the Rights Agent have been in all
respects duly authorized by the Company and the Rights Agent; and
WHEREAS, no person has become an Acquiring Person (as
defined in the Rights Agreement) as of the date hereof;
36
PAGE
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the Company and the Rights
Agent hereby amend the Rights Agreement as follows:
1. The definition of "Acquiring Person" in Section 1(a)
is hereby amended by deleting the number "20" therein
and inserting in lieu thereof the number "15".
2. Section 11(a) (ii) is hereby amended by deleting each
occurrence of the term "20%" therein and inserting in
lieu thereof the term "15%" in each such instance.
This Amendment shall be effective as of the date hereof
and, except as set forth herein, the Rights Agreement shall remain
in full force and effect and shall be otherwise unaffected hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year
first above written.
ATTEST: CPI CORP.
By: /s/ Jane E. Nelson By: /s/ Alyn V. Essman
--------------------- -------------------------
Secretary and Chairman of the Board
General Counsel and Chief Executive
Officer
ATTEST: CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY
By: /s/ Thomas Jennings By: /s/ Steven G. Nelson
----------------------- -------------------------
Assistant Secretary Chairman of the Board
and Secretary
37
PAGE
Exhibit (10)a
MATERIAL CONTRACT
The following pages reflect the contract the Company has with
Sears, Roebuck and Co.
38
PAGE
LICENSE AGREEMENT
PORTRAIT STUDIO
FINITE 195-020
THIS LICENSE AGREEMENT (hereinafter referred to as
"Agreement") is entered into as of the 1st day of January,
1994, by SEARS, ROEBUCK AND CO., a New York corporation
("Sears") and CONSUMER PROGRAMS INCORPORATED a Missouri
corporation, ("Licensee").
Sears and Licensee hereby agree as follows:
LICENSE
1. Licensee is in the business described in this
paragraph, and has expertise in that business and has a
marketing plan for that business. Sears hereby grants
Licensee the non-exclusive privilege of conducting and
operating, and Licensee shall conduct and operate, pursuant to
the terms, provisions and conditions contained in this
Agreement, a licensed business for the purpose of producing
photographic portraits, passport photographs, photographic
copy, video transfers and restoration work (hereinafter
referred to as "Licensed Business"), at the Sears locations
designated below or in Location Riders: ("Designated Sears
Store(s)").
Dst. AcCtr. Store/Location
---- ------ --------------
To be provided
LISTED ON THE ATTACHED LOCATION RIDER DATED JANUARY l, 1994.
TERM
2. The term ("Term") of this Agreement shall be for a
period beginning on January 1, 1994 and ending at the close of
business on December 31, 1998 unless sooner terminated under
any of the provisions of this Agreement.
REPRESENTATION TO LICENSEE
3. Sears makes no promises or representations whatsoever
as to the potential amount of business Licensee can expect at
any time during operation of the Licensed Business. Licensee
is solely responsible for any expenses it incurs related to
this Agreement, including any increase in the number of
Licensee's employees or any expenditures for additional
facilities or equipment.
39
UNAUTHORIZED SALES
4. Licensee shall use the Licensed Business area only
for the purpose authorized in this Agreement, and will offer
for sale only those services and merchandise expressly
authorized by this Agreement.
SEARS COMMISSION
5. (a) Licensee shall pay to Sears a commission ("Sears
Commission") which shall be a sum equal to ten percent (10%)
of total annual net sales if less than $50,000 and fifteen
percent (15%) of total annual net sales if annual net sales
are equal to or over $50,000 - retroactive to the first
dollar. Accounting Centers are to deduct commission rate at
fifteen percent (15%). Licensee will bill Sears annually for
any excess commissions taken from any units with annual net
sales of less than $50,000.
NET SALES
(b) "Net Sales" means gross sales from operation of
the Licensed Business, less sales taxes, returns and
allowances.
GROSS SALES
(c) "Gross Sales" means all of Licensee's direct or
indirect sales of services and merchandise from the Licensed
Business including, but not limited to, sales arising out of
referrals, contacts, or recommendations obtained through the
operation of the Licensed Business.
[DELETED PURSUANT TO REQUEST FOR CONFIDENTIALITY TREATMENT]
40
[DELETED PURSUANT TO REQUEST FOR CONFIDENTIALITY TREATMENT]
USE OF SEARS NAME
7. (a) Licensee shall operate the Licensed Business
under the name SEARS PORTRAIT STUDIOS. Licensee shall use the
name of Sears only in connection with the operation of the
Licensed Business. Licensee shall not begin any business
activity under this Agreement without Sears prior written
approval of any and all names that Licensee intends to use in
conjunction with the Licensed Business.
(b) Licensee shall only use the name of Sears, or any
Sears trademark, service mark or trade name (Sears Marks),
when communicating with customers or potential customers of
the Licensed Business. Licensee shall not use Sears Marks
either orally or in writing, including, but not limited to,
use of any letterhead, checks, business cards, or contracts,
when communicating with persons or entities other than
customers or potential customers of the Licensed Business.
All such communications shall be done solely in Licensee's own
name.
(c) Licensee shall not question, contest or
challenge, either during or after the Term of this Agreement,
Sears ownership of any Sears Marks Sears may license Licensee
to use in connection with the Licensed Business. Licensee
will claim no right, title or interest in any Sears Mark or
41
Sears Information (mailing lists/names), except the right to
use the same pursuant to the terms and conditions of this
Agreement, and will not register or attempt to register any
Sears Mark.
(d) Licensee recognizes and acknowledges that the
use of any Sears Mark shall not confer upon Licensee any
proprietary rights to any Sears Mark. Upon termination of
this Agreement, Licensee shall immediately stop using any
licensed Sears Mark, and will execute all necessary or
appropriate documents to confirm Sears ownership, or to
transfer to Sears any rights Licensee may have acquired from
Sears in any Sears Mark.
(e) Nothing in this Agreement shall be construed to
bar Sears, after expiration or termination of this Agreement,
from protecting its right to the exclusive use of its
trademarks, service marks or trade names against infringement
by any party or parties, including Licensee.
(f) Sears may register in its own name any and all of
the trademarks, service marks or trade names used in operation
of the Licensed Business, and Licensee's use of such names and
marks shall inure to the benefit of Sears for such purposes as
well as for all other purposes and such marks shall be
included in the term "Sears Marks." Licensee shall cooperate
in any such registration or application for registration by
Sears.
(g) Sears Marks and Sears Information licensed under
this Agreement possess a special, unique and extraordinary
character which makes it difficult to assess the monetary
damage Sears would sustain in the event of unauthorized use.
Irreparable injury would be caused to Sears by such
unauthorized use, and Licensee agrees that preliminary or
permanent injunctive relief would be appropriate in the event
of breach of this Paragraph 7 by Licensee.
(h) If Licensee learns of any manufacture or sale by
any third party of products and/or services similar to those
offered by Licensee that would be confusingly similar to those
sold by Licensee in the minds of the public and which bear or
are promoted in association with Sears Marks or any names,
symbols, emblems, or designs or colors which would be
confusingly similar in the minds of the public to Sears Marks,
Licensee will promptly notify Sears. Sears shall, at its sole
expense, take such action as it determines, in its sole
discretion, is appropriate. Licensee will cooperate and assist
in such protest or legal action at Sears expense. If demanded
42
by Sears, Licensee shall join in such protest or legal action
at Sears expense. Licensee shall not undertake any protest or
legal action on its own behalf without first securing Sears
written permission to do so. If Sears permits Licensee to
undertake such protest or legal action, such protest or legal
action shall be at Licensee's sole expense. Sears shall
cooperate and assist Licensee at Licensee's expense. For the
purposes of this paragraph, expenses shall include reasonable
attorneys' fees. All recovery in the form of legal damages or
settlement shall belong to the party bearing the expense of
such protest or legal action.
(i) Licensee shall not file suit using Sears name or
undertake any legal proceeding against any customer without
Sears prior written approval.
ADVERTISING
8. (a) Licensee shall advertise and actively promote the
Licensed Business authorized by this Agreement. It is
expressly understood and agreed that all signs, advertising
copy including but not limited to sales brochures, newspaper
advertisements, radio and television commercials, and all
sales promotional plans and devices, and all customer contract
forms, guarantee certificates and other forms and materials
which may be utilized with respect to said Licensed Business,
shall be first submitted for approval to Sears Marketing
Manager Licensed Businesses in Hoffman Estates, Illinois and
Licensee further agrees that it will not issue any such
advertising material or conduct any such sales promotional
plan or device without such prior approval. Sears shall have
the right to disapprove all the aforesaid advertising forms
and other materials insofar as it does not properly use Sears
trademarks, service marks or trade names; may subject Sears to
liability, loss of good will, damage to Sears reputation or
Sears customer relations; may fail to adhere to the
requirements or any Federal, State or Local governmental
rules, regulations and laws; or may fail to conform to
community or Sears standards of good taste and honest dealing.
At Licensee's option and request, Sears may purchase newspaper
advertising and/or electronic media time for Licensee at
Licensee's expense for said concession, provided that Licensee
provides Sears with all necessary information for any
requested advertising at least seven days prior to the date
such advertising is to be run.
43
REIMBURSEMENT
(b) Licensee hereby agrees to reimburse Sears for all
expenses, including but not limited to advertising, incurred
by Sears on behalf of Licensee and requested by Licensee,
within thirty (30) days after the invoice for said expense(s)
is sent by Sears to Licensee. If Sears does not receive
reimbursement prior to the expiration of said thirty (30)
days, then Sears shall have the right, but not the obligation,
to retain out of Licensee's sales receipts described in
Paragraph 29 the amount of said expense(s) with interest, if
any, due to Sears.
PUBLICITY
9. Licensee will not issue any publicity or press
release regarding its contractual relations with Sears or
regarding the Portrait Business in Sears stores, and will
refrain from making any reference to this Agreement or to
Sears in any prospectus, annual report or other filing
required by Federal or state law, or in the solicitation of
business, without obtaining Sears prior written approval of
such action.
RELATIONSHIP
10. Licensee is an independent contractor. Nothing
contained in or done pursuant to this Agreement shall be
construed as creating a partnership, agency or joint venture;
and neither party shall become bound by any representation,
act or omission of the other party.
PRICES
11. Sears has no right or power to establish or control
the prices at which Licensee offers service and/or merchandise
in the Licensed Business. Such right and power is retained by
Licensee.
LICENSEE'S OBLIGATIONS
12. (a) Licensee will not make purchases or incur any
obligation or expense of any kind in the name of Sears. Prior
to any purchases involving the Licensed Business, Licensee
shall inform its vendors that Sears is not responsible for any
obligations incurred by Licensee. At Sears request, Licensee
shall furnish to Sears the names of all parties from whom
Licensee purchases merchandise or with whom Licensee may have
any business or contractual relations in connection with the
Licensed Business.
44
(b) Licensee shall promptly pay all its obligations,
including those for labor and material, and will not allow any
liens to attach to any Sears or customer's property as a
result of Licensee's failure to pay such sums.
LICENSEE'S EMPLOYEES
13. (a) Licensee shall employ all management and other
personnel necessary for the efficient operation of the
Licensed Business. The Licensed Business shall be operated
solely by Licensee's employees, and not by independent
contractors, sub-contractors, sub-licensees or by any other
such arrangement.
(b) Licensee has no authority to employ persons on
behalf of Sears and no employees of Licensee shall be deemed
to be employees or agents of Sears. Licensee has sole and
exclusive control over its labor and employee relations
policies, and its policies relating to wages, hours, working
conditions, or conditions of its employees. Licensee has the
sole and exclusive right to hire, transfer, suspend, lay off,
recall, promote, assign, discipline, adjust grievances and
discharge its employees, provided, however, that at any time
Sears so requests, Licensee will consider transferring from
the Licensed Business any employee who is objectionable to
Sears because of risk of harm to the health, safety and/or
security of Sears customers, employees or merchandise and/or
whose manner impairs Sears customer relations. If Sears
objects to any of Licensee's employees, and Licensee refuses
to remove such employee and the conditions which caused Sears
to object continue, Sears may terminate any affected location
by giving thirty (30) days notice to Licensee.
(c) Licensee is solely responsible for all salaries
and other compensation of its employees and will make all
necessary salary deductions and withholdings from its
employees' salaries and other compensation. Licensee is
solely responsible for so paying any and all contributions,
taxes and assessments and all other requirements of the
Federal Social Security, Federal and state unemployment
compensation and Federal, state and local withholding of
income tax laws on all salary and other compensation of its
employees.
(d) Licensee will comply with any other contract,
Federal, state or local law, ordinance, rule, or regulation
regarding its employees, including Federal or state laws or
regulations regarding minimum compensation, overtime and equal
opportunities for employment, and, in particular, Licensee
45
will comply with the terms of the Federal Civil Rights Acts,
Age Discrimination in Employment Act, Occupational Safety and
Health Act, and the Federal Fair Labor Standards Act, whether
or not Licensee may otherwise be exempt from such acts because
of its size or the nature of its business or for any other
reason whatsoever.
LICENSEE'S EQUIPMENT
14. (a) Entirely at its own expense, Licensee shall
install furniture, fixtures, and equipment, including cash
registers as necessary for the efficient operation of the
Licensed Business ("Licensee's Equipment"). Licensee's
Equipment, and its size, design and location, shall at all
times be subject to Sears approval.
PROHIBITED LIENS
(b) Licensee shall not allow any liens, claims or
encumbrances to attach to Sears premises. In the event any
lien, claim or encumbrance attaches to Sears premises,
Licensee shall immediately take all necessary action to cause
such lien, claim or encumbrance to be released, or Sears, at
its option, may take such action and charge Licensee or
withhold from sales receipts all expenses, including
attorneys' fees, incurred by Sears in removing such liens.
MERCHANDISE STOCK
15. Licensee shall maintain a stock of good quality
merchandise as necessary to assure efficient operation of the
Licensed Business.
STANDARDS
16. Licensee shall provide Sears with copies of its
written procedures and policies establishing minimum standards
of quality and/or performance. Licensee shall immediately
advise Sears of any changes in its standards. Without
limiting Paragraph 26, Licensee shall observe no less than
such minimum standards of quality and/or performance. Sears
may visit Licensee's offices, work sites and/or other place of
business at any reasonable time for the purpose of verifying
Licensee's compliance with its standards of quality and/or
performance.
CONDITION OF LICENSED BUSINESS AREA
17. (a) Licensee shall be primarily responsible for any
preparations necessary for the operation of the Licensed
Business.
46
(b) Licensee shall, at its expense, keep the Licensed
Business area in a thoroughly clean and neat condition and
shall maintain Licensee's Equipment in good order and repair.
Sears shall provide routine janitorial service in the Licensed
Business area, consistent with the janitorial services
regularly performed in the Designated Sears Store.
HOURS, RULES
18. (a) The Licensed Business shall be kept open for
business and operated during the same business hours that the
Designated Sears Store is open for business, or by specific
agreement with store management, except to the extent
prevented by circumstances beyond the control of Sears or
Licensee.
(b) Licensee shall conduct its operations in an
honest, courteous and efficient manner and abide by safety and
security rules and regulations of Sears in effect from time to
time.
ACCESS TO LICENSED BUSINESS AREA
19. Licensee shall have access to the Licensed Business
area at all times that the Designated Sears Store is open to
customers for business and at all other times as the
appropriate Store Manager approves. Sears shall be furnished
with keys to the Licensed Business area and shall have access
to the Licensed Business area at all times.
PHYSICAL INVENTORY
20. Sears may, solely at Sears discretion, not open any
Designated Sears Store at any time to take a physical
inventory of Sears property. Licensee waives any claim it may
have against Sears for damages resulting from such closing.
CHANGES OF LOCATION
21. (a) Sears shall have the right to change the
location, dimensions and square footage 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). Consistent with the parties strategic
development plans set forth in Paragraph 6, Licensee shall
bear all expenses involved in moving Licensee's Equipment and
all expenses for preparing the new space for occupancy by
Licensee. Such expenses shall be allocated by Sears to
47
Licensee based on the average cost per square foot each year
as set forth in the Means Building Construction Costs Data -
Annual Edition.
(b) Notwithstanding the above, if Sears at its sole
discretion decides that the Licensed Business' location should
be changed, Sears will move Licensee's Equipment to the new
location and prepare the new space for occupancy by Licensee.
Sears shall bear all expense involved in such change of the
Licensed Business' location, including the reasonable cost of
new fixtures if the Licensed Business' then existing fixtures
reasonably adapted to the new location. The provision of this
Paragraph shall be applicable only to a second move of the
Licensed Business' location and/or any subsequent move(s)
during the term of this Agreement.
UTILITIES
22. (a) Sears shall furnish, at reasonable hours, and
except as otherwise provided, without expense to Licensee, a
reasonable amount of heat, light and electric power for the
operation of the Licensed Business, except when prevented by
strikes, accidents, breakdowns, improvements and repairs to
the heating, lighting and electric power systems or other
causes beyond the control of Sears. Sears shall not be liable
for any injury or damage whatsoever which may arise by reason
of Sears failure to furnish such heat, light and electric
power, regardless of the cause of such failure, all claims for
such injury or damage are expressly waived by Licensee.
(b) The expense of installing light and power lines
which may be required in order to bring such utilities up to
the Licensed Business area shall paid by Licensee. The
expense of purchasing and installing all fixtures and
equipment within the area occupied by the Licensed Business,
including all necessary electrical connections for the
Licensed Business, and also including the subsequent
maintenance of fixtures and equipment, shall be paid by
Licensee.
TELEPHONE
23. (a) If requested by Licensee, Sears will arrange for
telephone service for the Licensed Business, and Licensee
shall pay the entire cost of the installation of the telephone
equipment necessary to provide such service. Licensee shall
also pay the entire cost of the telephone service furnished to
the Licensed Business, including the pro rata cost of the
operation, maintenance, expense, property taxes, insurance
48
expense, corporate interest expense, and/or payment charges of
the switchboard or telephone communication system at the
Designated Sears Store(s). Such charges shall be consistent
with Sears charges to its own merchandising departments for
similar service.
(b) All telephone numbers used in connection with the
Licensed Business shall be separate from phone numbers used by
Licensee in its other business operations and such numbers
shall be deemed to be the property of Sears. Upon expiration
or termination of this Agreement, Licensee shall immediately
cease to use such numbers and shall transfer such numbers to
Sears or to any party Sears designates, and Licensee shall
immediately notify the telephone company of any such transfer.
(c) Sears shall have the right to approve, before
placement, all yellow and white page telephone listings for
the Licensed Business. Sears may, at its sole option, require
that any telephone number listed in any telephone directory
using Sears name be billed through a Sears store or office.
BILLING OF CUSTOMERS
24. Customers will not be billed, and no settlement will
be made between the parties with respect to any cash or credit
transaction until Licensee has completed the sale or service
for the customer, or until Licensee and the customer have
executed an agreement whereby Licensee will provide future
services for the customer.
QUOTATIONS, ORDERS
25. All quotations for Licensee's service made to
customer by Licensee shall be in writing, or by telephone
authorization from the customer, and such service shall be
performed only upon receipt of a written order signed by such
customer. The content of the forms used for making quotations
and for taking orders shall be satisfactory to both parties.
Licensee shall not charge customers for estimates or
proposals.
CUSTOMER ADJUSTMENT
26. 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
49
of the Licensed Business. In any case in which an adjustment
is unsatisfactory to the customer, Sears shall have the right,
at Licensee's expense, to make such further adjustment as
Sears deems necessary under the circumstances, and any
adjustment made by Sears shall be conclusive and binding upon
Licensee.
Licensee shall maintain files pertaining to customer
complaints and their adjustment and make such files available
to Sears. Sears may deduct the amounts of any such
adjustments from the sales receipts held by Sears as described
in Paragraph 29.
CHECKS
27. (a) All checks or money orders which Licensee accepts
from customers shall be made payable to Sears, Roebuck and
Co.. Licensee shall make certain that all checks are filled
out correctly, having the customer's signature, date, and the
correct amount (in both locations), and be verified in
accordance with Sears policies in effect from time to time.
Checks which are deficient in any of the above areas may be
charged back to Licensee, and Licensee shall reimburse Sears
for any of Sears Commission lost as a result of Licensee's
failure to obtain a properly filled out and verified check.
(b) Sears shall not be entitled to Sears Commission
for those checks that have all of the above information but
which are not paid upon presentment. Any and all losses which
may be sustained by reason of nonpayment of any checks upon
presentment shall be borne by Licensee, and Sears shall have
no liability with respect to such checks, provided that Sears
will make whatever effort it deems reasonable to collect all
such checks prior to charging back such checks to Licensee.
BAD CHECKS
(c) After Sears has made at least one attempt to
collect any bad or returned checks a photocopy of the check
will be made and kept on file in each Sears store. On a
monthly basis, each Sears store will return the checks to
Licensee in the pre-addressed, postage paid envelopes provided
by Licensee. Attached to the checks will be a tape total, to
include the store number, the charge back month, and the total
being deducted from the settlement. Licensee assumes
responsibility for checks lost in the mail. Each Sears store
will maintain a file of duplicate copies for ninety (90) days
and Sears will assume liability for the duplicate totals that
do not balance to the deductions on the monthly settlement
report. Such liability ceases in ninety (90) days.
50
CREDIT SALES
28. (a) With the approval of the Credit Central
designated by Sears, sales may be made by Licensee on such of
Sears regularly established credit plans, including Discover
Card, Visa, Mastercard and American Express, as may be first
approved by such Credit Central. The approval of such Credit
Central is required for each individual credit sale, and
approval shall be granted in the sole discretion of the Credit
Central. No part of the finance charge which may be earned by
Sears in connection with any credit sale shall be payable to
or credited in any way to Licensee. All losses sustained by
Sears as a result of non-payment of a Sears credit account
shall be borne by Sears, provided that Licensee has complied
with Sears credit policies and procedures. Except for non-
payment of a Sears credit account, Sears shall have no
liability whatsoever to Licensee for Sears failure to properly
accept or reject a customer's charge.
(b) Licensee will comply with all provisions of
Federal and state laws governing credit sales, and their
solicitation, including but not limited to provisions dealing
with disclosures to customers and finance charges. Licensee
shall not modify, in any way, the terms and conditions of
Sears credit plans.
SALES RECEIPTS
29. At the close of each business day, Licensee shall
submit an accounting of the gross sales and the returns,
allowances and customer adjustments made during such day by
Licensee to the cashier office of the Sears unit designated by
Sears, together with the gross amount, in cash, of all cash
sales, and all credit sales documents for transactions
completed that day. An account shall be kept by both Licensee
and Sears. Sears may retain out of such receipts the proper
amount of the Sears Commission payable under this Agreement
together with any other sums due Sears from Licensee. The
remaining balance shall be payable to Licensee at the regular
settlement. Sears shall maintain in each location, complete
register tapes of Licensee's transactions for a sixty (60) day
period.
SETTLEMENT
30. (a) A settlement between the parties shall be made
promptly each month for all cash and credit transactions of
Licensee during such period, in accordance with Sears
51
customary accounting procedures. Such settlement will be done
through the Sears Accounting Center designated by Sears.
Sears will advance Licensee eighty-five percent (85%) of net
sales weekly.
(b) Licensee shall reimburse Sears at each settlement
for all invoiced expenses, including any advertising expense,
incurred by Sears at Licensee's request, outstanding at the
time of such settlement. If Sears is not reimbursed at such
settlement, then Sears shall have the right, but not the
obligation, to retain out of Licensee's sales receipts the
amount of such expenses with interest, if any, due Sears.
AUDIT
31. Licensee shall keep and maintain books and records
which accurately reflect the sales made by Licensee under this
License Agreement and the expenses which Licensee incurs in
performing under this License Agreement. Sears shall have the
right at any reasonable time to review and audit the books and
records of Licensee regarding this License Agreement. Such
books and records shall be kept and maintained according to
generally accepted accounting principles.
REPORTS
32. (a) Licensee shall provide to Sears a monthly report
of sales and income in the manner and form prescribed by
Sears, together with any other information Sears may require
for its records or auditing purposes.
(b) Licensee shall submit its financial report to
Sears annually within ninety (90) days after the close of
Licensee's fiscal year. Such report shall be certified by an
accountant, or by an officer of Licensee in the event that no
audit is performed. Such report shall include, but shall not
be limited to, Licensee's profit and loss statement and
balance sheet, and shall be prepared in accordance with
generally accepted accounting principles. This requirement
may be fulfilled by submission of Licensee's Annual Report.
Sears shall not disclose any such information which is not
available to the public to any third parties without
Licensee's prior consent.
52
WAIVER
33. Licensee waives any and all claims it may have
against Sears for damage to Licensee, for the safekeeping or
safe delivery or damage to any property whatsoever of Licensee
or of any customer of Licensee in or about the Licensed
Business area, because of the actual or alleged negligence,
act or omission of any tenant, licensee or occupant of the
premises at which the Licensed Business may be located; or
because of any damage caused by any casualty from any cause
whatsoever, excluding Sears sole negligence, including but not
limited to, fire, water, snow, steam, gas or odors in or from
such store or store premises, or because of the leaking of any
plumbing, or because of any accident or event which may occur
in such store or upon store premises; or because of the actual
or alleged acts or omissions of any janitors or other persons
in or about such store or store premises or from any other
such cause whatsoever beyond Sears Control.
INDEMNITY BY LICENSEE
34. Licensee covenants that it will protect, defend, hold
harmless and indemnify Sears, its directors, officers and
employees, from and against any and all expenses, claims,
actions, liabilities, penalties, attorneys' fees, damages and
losses of any kind whatsoever (including, without limitation
of the foregoing, death of or injury to persons and damage to
property), actually or allegedly resulting from or connected
with the operation of the Licensed Business (including,
without limitation of the foregoing, goods sold, work done,
services rendered, or products utilized in therein, lack of
repair in or about the area occupied by the Licensed Business,
operation of or defects in any machinery, motor vehicles, or
equipment used in connection with the Licensed Business, or
located in or about the Licensed Business area; or arising out
of any actual or alleged infringement of any patent or claim
of patent, copyright or non-Sears trademark, service mark, or
trade name); or from the omission or commission of any act,
lawful or unlawful by Licensee or its agents or employees,
whether or not such act is within the scope of the employment
of such agents or employees. This indemnity shall not apply
to the extent any injury or damage is caused solely by Sears
negligence. Licensee's indemnity shall survive the
termination of this Agreement.
53
INSURANCE
35. (a) Licensee shall, at its sole expense, obtain and
maintain during the Term of this Agreement the following
policies of insurance from companies satisfactory to Sears and
containing provisions satisfactory to Sears and adequate to
fully protect Sears as well as Licensee from and against all
expenses, claims, actions, liabilities and losses related to
the subjects covered by the policies of insurance below:
(1) Worker's Compensation Insurance containing a
waiver of subrogation in favor of Sears (where permitted by
state law) executed by the insurance company and covering all
costs, benefits and liability under state Worker's
Compensation and similar laws which may accrue in favor of any
person employed by Licensee; and Employer's Liability
Insurance with limits of not less than $100,000.
(2) Commercial General Liability Insurance,
including but not limited to coverage for product liability
and completed operations insurance, and containing a
Contractual Liability Endorsement specifically covering the
indemnity provisions in this Agreement, with limits of not
less than $500,000 for bodily injury per occurrence and
$100,000 for property damage per occurrence.
(3) Motor Vehicle Liability insurance with an
Employer's Non-Ownership Liability Endorsement in Licensee's
name covering all vehicles used by Licensee in connection with
the Licensed Business, with limits of not less than $500,000
combined single limit for bodily injury and property damage
per occurrence.
(4) Fire and Extended Coverage Insurance upon
Licensee's property, equipment and merchandise used in the
Licensed Business for the full insurable value thereof and
containing a waiver of subrogation in favor of Sears executed
by the insurance company.
(b) In order to avoid conflicts between insurance
companies, Licensee shall use its best efforts to have all
policies of insurance required by this Paragraph issued by one
(l) insurance company. Each policy shall name Sears as an
additional insured and shall contain a severability of
interest/cross liability endorsement.
(c) Licensee's policies of insurance shall expressly
provide that they shall not be subject to material change or
cancellation without at least thirty (30) days' prior notice
to Sears.
54
(d) Licensee shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to
execution of this Agreement. If, in Sears opinion, such
policies do not afford adequate protection for Sears, Sears
will so advise Licensee, and if Licensee does not furnish
evidence of acceptable coverage within fifteen (15) days,
Sears shall have the right, at its option, to obtain
additional insurance at the expense of Licensee and deduct the
cost of such insurance from the sales receipts held by Sears
as described in Paragraph 29 of this Agreement.
(e) Any approval by Sears of any of Licensee's
insurance policies or additional insurance obtained by Sears
shall not relieve Licensee of any responsibility under this
Agreement, including liability for claims in excess of
described limits.
MUTUAL RIGHT OF TERMINATION
36. Either party may terminate this Agreement, or any
location, without cause, without penalty, and without
liability for any damages as a result of such termination, at
any time hereafter by giving the other party at least ninety
(90) days' prior notice. The notice shall specify the
termination date.
ASSIGNMENT BY LICENSEE
37. Notwithstanding any other provision contained in this
Agreement, this Agreement is not transferable by Licensee in
whole or in part without Sears prior written consent. Any
transfer or attempt to transfer by Licensee whether expressly
or by operation of law, and without Sears prior written
consent, shall, at the option of Sears, without notice,
immediately terminate this Agreement. The sale of Licensee's
business or any other transaction (including sales of stock)
which shifts the rights or liabilities of Licensee to another
controlling interest shall be such a transfer.
RIGHT TO TERMINATION ON DEFAULT BY LICENSEE
38. If any property of Licensee passes into the hands of
any receiver, assignee, officer of the law or creditor, or if
Licensee vacates, abandons, or ceases to operate under this
Agreement, or if Licensee fails to comply with any material
provision or condition of this Agreement, then Sears may
terminate this Agreement immediately by giving notice to
Licensee.
55
RIGHT TO TERMINATION ON CLOSING OF STORE
39. Sears may, solely at Sears discretion, terminate this
Agreement in any affected Licensed Business location without
notice, due to the closing of the Designated Sears Store.
Licensee shall not be entitled to any notice of such store
closing prior to a public announcement of such closing.
Licensee waives any claim it may have against Sears for
damages, if any, incurred as a result of such closing.
RIGHT OF TERMINATION AFTER FIRE
40. If any Designated Sears Store is damaged by fire or
any other casualty so that the Licensed Business area becomes
untenantable, this Agreement may be terminated with respect to
such Licensed Business location, effective as of the date of
such casualty, by either party giving the other party written
notice of such termination within twenty (20) days after the
occurrence of such casualty. If such notice is not given,
then this Agreement shall not terminate, but shall remain in
full force and effect and the parties shall cooperate with
each other so that Licensee may resume the conduct of business
as soon as possible.
SUBJECT TO STORE LEASES
41. If any Designated Sears Store is leased to Sears this
Agreement shall be subject to all of the terms, agreements and
conditions contained in such lease. In the event of the
termination of any such lease by expiration of time or
otherwise, this Agreement shall immediately terminate with
respect to affected Licensed Business locations.
FUTURE OBLIGATIONS
42. After the termination of this Agreement by expiration
of time or otherwise, Licensee shall have no right or interest
in future contracts with Sears relating to any operation
similar to that under this Agreement, and Sears may, without
incurring any liability to Licensee:
(1) enter into an agreement for the operation of
a similar business with any person or organization Sears
chooses, including, but not limited to, Licensee or any of
Licensee's counterparts, or
(2) directly operate a similar business itself.
56
GOODWILL
43. Licensee acknowledges that the commission rate
established by this Agreement takes into consideration that
all good will generated by the operation of the Licensed
Business inures completely to the benefit of Sears and that
Licensee has no right or interest in such good will. "Good
will" includes all ownership rights in any information
regarding the customers of the Licensed Business.
DATA
44. Any customer list developed by Licensee, its
employees or agents from the operation of, or from records
generated as a result of the operation of the Licensed
Business, are deemed exclusively owned by Sears. Licensee
shall not use or permit use of such customer information for
any purpose except the performance of this Agreement.
Licensee shall at all times maintain any such customer
information, including lists, physically separate and distinct
from any customer information Licensee may maintain that is
unrelated to the Licensed Business. Licensee shall not
reproduce, release or in any way make available or furnish,
either directly or indirectly, to any person, firm,
corporation, association or organization at any time, any such
customer information which will or may be used to solicit
sales or business from such customers, including but not
limited to the type of sales or business covered by this
License Agreement. Upon termination of this Agreement for any
reason, Licensee shall immediately deliver all copies of lists
of customers and copies of all other such customer information
to Sears; and Licensee, its officers, employees, successors
and assigns, shall not use any such customer information to
solicit any of such customers. Licensee shall protect all
such customer information from destruction, loss or theft
during the term of this Agreement, and until all copies of
customer lists and copies of all other customer information
are turned over to Sears.
SEARS OPTION TO PURCHASE LICENSEE'S EQUIPMENT
45. In the event of the termination of this Agreement by
expiration of time or otherwise, Sears shall have the right,
but not the obligation, to purchase from Licensee, and
Licensee shall convey and sell to Sears, such items of
Licensee's Equipment excluding Licensee's software as Sears
may designate in a written notice given to Licensee at least
twenty (20) days prior to the effective date of such
57
termination. Sears shall pay Licensee the fair market value
of such items as of the effective date of such termination.
In the event that Licensee and Sears are unable to agree upon
such fair market value, Sears may waive its right to purchase
and have no obligation to Licensee, or, at Sears option, such
fair market value shall be ascertained by an independent
appraiser mutually acceptable to Licensee and Sears. Any fee
of such appraiser shall be borne equally by Licensee and
Sears.
REMOVAL OF LICENSEE'S EQUIPMENT
46. Upon the termination of this Agreement by expiration
of time or otherwise, Licensee shall, at its expense,
immediately remove all of Licensee's Equipment (except such of
Licensee's Equipment as may be purchased by Sears as provided
in Paragraph 45) from Sears premises and shall, without delay
and at Licensee's expense, repair any damage to Sears premises
caused by such removal.
SURVIVAL OF OBLIGATIONS
47. No termination of this Agreement, by expiration of
time or otherwise, shall relieve the parties of liability for
obligations arising out of the operation of the Licensed
Business before termination.
LICENSES, LAWS, ORDINANCES
48. Licensee shall, at its expense, obtain all permits
and licenses which may be required under any applicable
Federal, state, or local law, ordinance, rule or regulation by
virtue of any act performed in connection with the operation
of the Licensed Business. Licensee shall comply fully with
all applicable Federal, state and local laws, ordinances,
rules and regulations, including all rules and regulations of
the Federal Trade Commission.
FEES, TAXES
49. 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 connect
ion 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.
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REMEDIES CUMULATIVE
50. The remedies provided in this Agreement are
cumulative, and shall not affect in any manner any other
remedies that either party may have for any default or breach
by the other party. The exercise of any right or remedy shall
not constitute a waiver of any other right or remedy under
this Agreement or provided by law or equity. No waiver of any
such right or remedy shall be implied from failure to enforce
any such right or remedy other than that to which the waiver
is applicable, and only for that occurrence.
ASSIGNS
51. The provisions of this Agreement shall be binding
upon Licensee and upon Licensee's successors and assigns and
shall be binding upon and inure to the benefit of Sears, its
successors and assigns.
NOTICES
52. All notices provided for or which may be given in
connection with this Agreement shall be in writing and given
by personal delivery or certified or registered mail with
postage prepaid and return receipt requested or its
equivalent, such as private express courier. Notices given by
Licensee to Sears shall be addressed to:
SEARS, ROEBUCK AND CO.
Attention:Divisional Vice-President,
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
with a copy to:
SEARS, ROEBUCK AND CO., D/725
Attention:Portrait Studio Licensing Manager
addressed to:
CONSUMER PROGRAMS INCORPORATED
1706 Washington Ave
St. Louis, MO 63103
Attention:C.E.O. and President
Telephone:(314) 231-1575
Notices if so sent by mail shall be deemed to have been given
when deposited in the mail or with the private courier.
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ILLEGAL PROVISION
53. If any provision in this Agreement is held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision had never been included.
GOVERNING LAWS
54. This Agreement shall be interpreted and governed by
laws of the State of Illinois.
ENTIRE AGREEMENT
55. This Agreement sets forth the entire agreement and
understanding between the parties with respect to the Licensed
Business. This Agreement shall not be supplemented, modified
or amended except by a written instrument signed by Licensee
(or duly authorized officer if Licensee is a corporation) and
by a duly authorized-officer or agent of Sears, and no person
has or shall have the authority to supplement, modify or amend
this Agreement in any other manner.
PARAGRAPH TITLES
56. The paragraph titles in this Agreement are for the
mere convenience of the parties, and shall not be considered
in any construction or interpretation of this Agreement.
AGREEMENT SUPERSEDED
57. This Agreement supersedes the License Agreement made
and entered into as of January l, 1991, by and between Sears
and CONSUMER PROGRAMS INCORPORATED (Superseded Agreement).
Such Superseded Agreement shall be deemed terminated
as of the close of business on December 31, 1993, provided,
however, that Licensee shall be responsible for any and all
obligations of the licensee under the Superseded Agreement
arising out of the operation of the Licensed Business prior to
the termination of the Superseded Agreement.
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IN WITNESS WHEREOF, the parties hereto have this day
set their hands, the corporate party or parties by its or
their duly authorized officers or agents.
SEARS, ROEBUCK AND CO.
By: /s/ Kenneth E. Hux
-----------------------------
Divisional Vice-President,
Licensed Businesses
CONSUMER PROGRAMS INCORPORATED
By: /s/ Russell Isaak
-----------------------------
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DESIGNATED SEARS STORES AS OF JANUARY 1, 1994
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
C-02 BAYSHORE NY 01 1324
C-03 WHITE PLAINS NY 01 1444
C-04 LIVINGSTON NJ 01 1614
C-05 BROOKLYN NY 01 1114
C-06 HICKSVILLE NY 01 1264
C-07 E. NORTHPORT NY 01 1794
C-08 STATEN ISLAND NY 01 1624
C-09 NEW BRUNSWICK NJ 01 1314
C-10 WAYNE NJ 01 1434
C-11 ARLINGTON TX 01/SSD 1177
C-12 CHULA VISTA CA 11 1358
C-13 EL CAJON CA 11 1438
C-16 BUENA PARK CA 11 1268
C-17 TORRANCE CA 11 1278
C-18 SAN BRUNO CA 11 1478
C-19 CUPERTINO CA 11 1468
C-20 ESCONDIDO CA 11 1758
C-21 FAIRVIEW HEIGHTS IL 11/SSD 1640
C-23 HAMPTON VA 01 1575
C-27 STERLING HEIGHTS MI 11 1720
C-28 COSTA MESA CA 11 1388
C-29 DEARBORN MI 11 1700
C-30 HOUSTON TX 01 1237
C-31 TULSA OK 01 1151
C-32 CHESTERFIELD MO 11/SSD 1690
C-33 PASADENA CA 11 1048
C-34 ORANGE CA 11 1378
C-36 NORTHRIDGE CA 11 1508
C-37 SAN BERNARDINO CA 11 1398
C-38 RIVERSIDE CA 11 1298
C-39 ORLANDO FL 01 1225
C-40 COLUMBUS GA 01 1145
C-41 AURORA CO 11 1141
C-42 DENVER CO 11 1031
** Deleted Pursuant to Request for Confidentiality Treatment.
62
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
C-43 DENVER CO 11 1291
C-44 LAKEWOOD CO 11 1071
C-45 LITTLETON CO 11 1131
C-46 WATERFORD MI 11 1180
C-47 HONOLULU HI 11 1158
C-48 AIEA OAHU HI 11 1578
C-50 INDIO CA 11 2058
C-51 EL CENTRO CA 11 2228
C-52 HACKENSACK NJ 01 1094
C-53 MIDDLETOWN NJ 01 1574
C-54 WATCHUNG NJ 01 1294
C-55 JERSEY CITY NJ 01 1044
C-56 LAKE GROVE NY 01 1364
C-57 MASSAPEQUA NY 01 1724
C-58 NANUET NY 01 1414
C-59 GLEN BRUNIE MD 01 1394
C-60 BRONX NY 01 2764
C-61 PARAMUS NJ 01 1664
C-62 LUBBOCK