<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMERICANGREETINGS.COM, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5947 34-1897703
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
ONE AMERICAN ROAD
CLEVELAND, OHIO 44144
(216) 252-7300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
JOHN M. KLIPFELL
CHIEF EXECUTIVE OFFICER
ONE AMERICAN ROAD
CLEVELAND, OHIO 44144
(216) 252-7300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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<S> <C> <C>
STEPHEN GOLD MARK A. BERTELSEN KEVIN P. KENNEDY
GORDON & GLICKSON LLC WILSON SONSINI SHEARMAN & STERLING
444 NORTH MICHIGAN AVENUE, SUITE GOODRICH & ROSATI 1550 EL CAMINO REAL
3600 650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025
CHICAGO, ILLINOIS 60611 PALO ALTO, CALIFORNIA 94304 (650) 330-2200
(312) 321-1700 (650) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of earlier effective registration statement for
the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Class A Common stock, par value $.001 per share............. $60,000,000 $16,680
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(1) Includes shares of Class A Common Stock which the Underwriters may
purchase solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
PROSPECTUS
- ---------- SHARES
[LOGO]
CLASS A COMMON STOCK
-----------------------
This is AmericanGreetings.com's initial public offering of Class A
common stock. The underwriters will offer shares of Class A common stock.
We expect the public offering price to be between $ and
$ per share. Currently, no public market exists for the shares. After
pricing of this offering, we expect that the Class A common stock will be quoted
on the Nasdaq National Market under the symbol "AGCM."
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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<TABLE>
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PER SHARE TOTAL
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<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to AmericanGreetings.com........ $ $
</TABLE>
The underwriters may also purchase up to an additional shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The shares of Class A common stock will be ready for delivery in New
York, New York on or about , 1999.
-----------------------
MERRILL LYNCH & CO.
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
-----------------------
The date of this prospectus is , 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE> 3
INSIDE FRONT COVER ARTWORK
[picture of people]
[rose logo]
[logo: americangreetings.com]
[text: Online Greetings and Social Expression content for All the People of the
Virtual Community]
<PAGE> 4
INSIDE GATEFOLD ARTWORK
[picture of AmericanGreetings.com's Web site]
[text: Online Greetings: Thousands of electronic animated and interactive
greetings]
[text: Create and Print: Thousands of paper greetings that you personalize and
print at home or office]
[text: Fun: Dozens of daily and weekly fun comix and cartoons that you can enjoy
yourself or print or e-mail to friends to share]
[text: Paper Cards: Thousands of paper cards that you personalize and order, and
we print and mail for you]
[text: Gifts and Services: Address books, reminder services, special discounts
and customer service]
<PAGE> 5
You should rely on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 35
Management.................................................. 49
Executive Compensation...................................... 52
Related Party Transactions.................................. 55
Principal Stockholders...................................... 61
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 69
Legal Matters............................................... 71
Experts..................................................... 72
Where You Can Find More Information......................... 72
Index to Financial Statements............................... F-1
</TABLE>
The following are trademarks of American Greetings Corporation and its
subsidiaries: American Greetings with rose design(R), AmericanGreetings.com,
AG.com and CreataCard(R). All other trademarks and service marks are the
property of their respective owners.
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<PAGE> 6
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire prospectus, including the more
detailed information regarding our business and our financial statements and the
notes to such financial statements.
OUR COMPANY
We are a leading Web-based provider of greetings and other social
expression content aimed at expanding individuals' ability to communicate and
express themselves online. Our destination Web site offers users access to over
9,000 greetings and other social expression products, one of the largest
selections on the Web today. Our online products consist of static postcards,
animated and interactive online greetings, customized printable greeting cards,
cartoons and games. We are able to provide users with this comprehensive
selection through our in-house team of experienced creative specialists, third
party licensees and our relationship with our parent, American Greetings, the
world's largest publicly-traded greeting card company. Our relationship with
American Greetings provides us with access to its library of approximately one
million images and lines of verse as well as the American Greetings brand name
online. Users visiting our Web site can view, personalize and send from a
competitive selection of free greetings and social expression products while
paid subscription users have unlimited access to our complete online selection.
In addition to subscriptions, we currently generate revenues from the sale of
advertising on our Web site, and by licensing our trademark and a portion of our
content to Mindscape, a division of Mattel, for inclusion in personal creativity
software.
We began providing consumers with online greetings in 1995 when we
introduced our own Web-based service. Since then, our traffic has grown
significantly and on a combined basis, our Web properties at
www.americangreetings.com or www.ag.com and on AOL keyword: American Greetings
ranked as the seventh most visited shopping site on the Internet and in the top
50 of the Web's most heavily trafficked sites in June 1999, according to Media
Metrix, an Internet and digital media measurement company. For the month of June
1999, we had over four million unique visitors and over 32 million total page
views. At June 30, 1999, we had over 400,000 subscribers. In addition, two of
our American Greetings branded software titles were ranked in the top five of
the personal productivity category for the month of June 1999, according to PC
Data.
To help draw additional traffic to our Web site, we have entered into
preferred distribution agreements with several leading Internet service and
content providers, including AOL, Yahoo! and Lycos Network. In particular, under
our agreement with AOL, which extends through December 31, 2004, we are the
exclusive provider, with limited exceptions, of online greeting products and
services on the following AOL brands: AOL, AOL.com, ICQ, Netscape Netcenter,
Compuserve and Digital City. Our products and services will also be offered on
AOL international services in Canada, the United Kingdom, Australia, Japan,
Germany and France. Additionally, we have created a network of remote store
fronts across the Internet by creating direct links with over 13,000 affiliate
Web sites.
OUR MARKET OPPORTUNITY
Over the past 100 years, greeting cards have become almost universally
accepted as a means of social expression and communication. In 1998 alone,
approximately 24 greeting cards were received per capita in the United States,
according to the Greeting Card Association of America. With the growth of the
Internet as a medium for communications, we believe that online greetings and
other social expression content will also become a social norm for the growing
number of online users worldwide. We believe that the following are meaningful
advantages we have relative to other providers of online greetings:
- the well known American Greetings brand name and its market tested
content;
- the largest selection of online greetings and other social expression
products;
- a wide variety of types of products and delivery methods such as e-mail,
mail and print at home;
- an array of helpful and useful services, including an online address book
and reminder service; and
- an ability to provide advertisers with highly targeted online audiences.
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OUR STRATEGY
Our objective is to become the premier site worldwide for users to fulfill
their online greetings and social expression needs. Our strategy includes the
following key elements:
- continually broaden and enhance our content, product and service
offerings by targeting specific demographic and common interest groups
and continually adding current, topical content;
- strengthen our distribution partnerships with major Internet content and
service providers through close integration, co-branding and joint
marketing programs;
- aggressively build our brand and increase traffic through online and
traditional advertising;
- significantly expand the number of advertisers and e-commerce partners on
our Web sites through our own sales team as well as third party sales
organizations such as AOL and Phase2Media; and
- expand our current offerings of culturally-tailored content into other
foreign languages and cultures and create local versions of our Web site
for foreign markets.
AmericanGreetings.com, Inc. is a subsidiary of American Greetings
Corporation and was incorporated in June 1999 as a successor to American
Greetings Corporation's online greetings and social expression operations. From
July 1995 to June 1999, our operations were carried out through American
Greetings and its wholly-owned subsidiaries. The online greetings and social
expression operations of American Greetings Corporation will be transferred to
AmericanGreetings.com, Inc. pursuant to a formation agreement that we will enter
into with American Greetings prior to the closing of this offering. "We" and
"AmericanGreetings.com" in this prospectus refers to the online greetings and
social expression operations of American Greetings prior to our separation from
American Greetings. Our address is One American Road, Cleveland, Ohio 44144, and
our telephone number is (216) 252-7300. Our Web site is located at http://www.
AmericanGreetings.com. We do not intend and you should not assume that
information contained in our Web site is part of this prospectus.
2
<PAGE> 8
THIS OFFERING
Class A common stock
offered by us.............. shares
Common stock outstanding
after the offering:
Class A common stock..... shares(1)
Class B common stock..... shares
Use of proceeds............ For general corporate purposes, principally working
capital, capital expenditures, royalties to our
parent and payments under our agreements with our
distribution partners. A portion of the net
proceeds may also be used for acquisitions of other
companies, assets, products and technologies that
are complementary to our business, although we have
no commitments with respect to such acquisitions,
to acquire or make investments in additional
businesses, products and technologies.
Voting Rights.............. The shares of Class A common stock and Class B
common stock are identical in all respects, except:
- Shares of Class A common stock will be entitled
to one vote per share while shares of Class B
common stock will be entitled to ten votes per
share, and
- Class B common stock may be converted into
Class A common stock at any time on a
one-for-one basis.
Following the offering, our parent will own all of
the shares of our Class B common stock and will
have more than 90% of the combined voting power of
our common stock. See "Description of Capital
Stock" for more information about our Class A and
Class B common stock.
Proposed Nasdaq National
Market symbol.............. AGCM
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(1) Excludes options to purchase shares of Class A common stock reserved
under our 1999 Stock Option Plan subsequent to June 30, 1999. As of
, 1999 options for shares of Class A common stock at a
weighted average price of $ per share were outstanding under our 1999
Stock Option Plan. See "Executive Compensation -- Employee Benefit
Plans -- 1999 Stock Option Plan."
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SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes included elsewhere in
this prospectus. The following tables set forth our historical summary data for
the three years ended February 28, 1999 and the unaudited financial information
for the four month and six month periods ended June 30, 1998 and 1999. Effective
March 1, 1999, we changed our fiscal year-end to a calendar year-end. The data
for the six months ended June 30 have been included to reflect the results had
our operations been reported on a calendar year basis for both of the periods
presented. See Note A of our notes to financial statements. These data, other
than the data as of and for the four and six months ended June 30, 1998 and June
30, 1999, have been derived from our financial statements, which have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this prospectus.
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FOUR MONTHS SIX MONTHS
FISCAL YEARS ENDED ENDED ENDED
FEBRUARY 28, JUNE 30, JUNE 30,
--------------------------- --------------- ---------------
1997 1998 1999 1998 1999 1998 1999
------- ------- ------- ------ ------ ------ ------
(IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $ 1,036 $ 3,882 $12,347 $2,972 $6,247 $4,050 $9,241
Gross profit.......................................... 2 1,963 10,724 2,400 4,735 2,888 7,335
Operating expenses.................................... 3,629 3,777 8,041 1,936 4,865 2,550 6,952
Income (loss) before benefit (provision) for income
taxes............................................... (3,627) (1,814) 2,683 464 (130) 338 383
Net income (loss)..................................... (2,383) (1,179) 1,717 297 (84) 215 245
</TABLE>
The following table sets forth a summary of our balance sheet at June 30,
1999:
- on an actual basis;
- on a pro forma basis to give effect to the contribution to capital by
American Greetings of its net advances and $50.0 million in cash; and
- on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of shares of Class A common stock in this
offering at an assumed initial public offering price of $ per
share.
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JUNE 30, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $50,000 $
Working capital............................................. 3,319 53,319
Total assets................................................ 11,300 61,300
Stockholders' equity (deficit).............................. (2,252) 55,206
</TABLE>
In July and August of 1999, we entered into agreements with AOL and Yahoo!
that will require us to make aggregate payments of $108.0 million to these
parties through December 31, 2004. These payments will be recognized as sales
and marketing expenses over the terms of these agreements.
The pro forma balance sheet data above is as of June 30, 1999 and therefore
excludes the net amount of $17.6 million paid to AOL and Yahoo! during August
1999 in connection with our distribution agreements with them. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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<PAGE> 10
RISK FACTORS
Investing in the Class A common stock will provide you with an equity
ownership interest in us. As a stockholder of our company, you may be subject to
risks inherent in our business. The performance of your shares will reflect the
performance of our business relative to, among other things, the competition,
general economic and market conditions and industry conditions. The value of
your investment may increase or decline and could result in a loss. You should
carefully consider the risks described below before making an investment
decision.
RISKS RELATED TO OUR BUSINESS
WE HAVE NO HISTORY AS AN INDEPENDENT COMPANY AND WE MAY NOT BE SUCCESSFUL IN
OPERATING AS A SEPARATE COMPANY.
We do not have an operating history as an independent company. Our business
could suffer if American Greetings Corporation, our parent, fails to adequately
provide us services or if we fail to develop systems of our own. We currently
rely on our parent in large part to provide accounting, facilities management,
procurement, human resources, administrative, legal and other services and will
likely continue to receive such services pursuant to intercompany agreements
between us and our parent. We intend to develop the operational, administrative
and other systems and infrastructure necessary to support our current and future
business on an independent basis, but we may not be successful.
BECAUSE WE HAVE NO HISTORY AS AN INDEPENDENT COMPANY, OUR FINANCIAL STATEMENTS
ARE BASED ON ASSUMPTIONS AND ALLOCATIONS THAT MIGHT NOT BE INDICATIVE OF THE
LEVELS OF EXPENSES THAT WOULD HAVE RESULTED HAD WE BEEN OPERATING AS A SEPARATE
COMPANY.
The historical financial statements contained in this prospectus include
allocations for administrative and other expenses incurred by our parent for
services rendered to AmericanGreetings.com. While we believe such allocations to
be reasonable, they are not necessarily indicative of the levels of expenses
that would have resulted had we actually been operating as a separate company.
As a result, our estimate of our allocated share of expenses included in the
financial statements might not provide investors with accurate information
regarding our historical performance or our future financial prospects had we
been operating as a separate company. We have also relied on our parent to
provide financing for our operations. Therefore, you should not rely on our cash
flows to date as indicative of the cash flows that would have resulted had
AmericanGreetings.com been operating as an independent company during the
periods presented.
IF WE ARE UNSUCCESSFUL IN IMPLEMENTING RECENT CHANGES MADE TO OUR PRODUCT
OFFERING, OR IN DEVELOPING AND MARKETING NEW PRODUCTS WE INTEND TO OFFER, OUR
BUSINESS, PROSPECTS AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED.
We have recently begun offering visitors to our Web site and Web sites
co-branded with our distribution partners an offering of online greetings and
other products and services free of charge. Our goal in making this offering is
to attract additional visitors to our Web site and co-branded sites with our
distribution partners. We intend to sell advertising on our Web site to support
our free offerings. We also intend to continue to explore opportunities to
offer, for a fee, complementary products and services of other companies on our
Web site. The lack of market acceptance of our efforts to implement changes to
our product offering, or our inability to generate satisfactory incremental
revenues from new products to offset their cost could seriously harm our
business, prospects and financial condition.
REVENUES FROM OUR SUBSCRIPTIONS MAY DECLINE AS A RESULT OF THE INTRODUCTION OF
OUR FREE PRODUCT OFFERINGS.
As result of the introduction of our free product offerings, the number of
our subscribers and revenues from such subscriptions could decline. Our
subscribers may simply elect to use our free products rather than renewing their
subscriptions. If our free product offerings do not attract a sufficient number
of additional
5
<PAGE> 11
visitors to our Web site and co-branded Web sites with our distribution partners
for us to derive sufficient advertising revenue to offset such decline in
revenues, our business could be harmed.
PRICES FOR PERSONAL CREATIVITY SOFTWARE ARE DECREASING. IF THE SOFTWARE COMPANY
TO WHOM WE LICENSE OUR CONTENT IS UNABLE TO EFFECTIVELY MANAGE SUCH PRICE
DECLINES AND OTHER COMPETITIVE SITUATIONS, THE ROYALTIES WE EARN FROM LICENSING
OUR CONTENT TO THIS COMPANY WILL DECREASE.
We are currently dependent on Mindscape, a subsidiary of Mattel and the
company to whom we license a portion of our content for inclusion in their
personal creativity software, for a significant portion of our revenues. Royalty
revenue from our content and trademark licensees accounted for 70% of our
revenue in fiscal year 1998, 52% of our revenue in fiscal year 1999 and 36% of
our revenue for the six months ended June 30, 1999. As a result of increased
competition among manufacturers of personal creativity software, prices have
fallen over the past several years. If Mindscape is unable to effectively manage
such price declines or other competitive situations, the royalties we earn from
licensing this content to Mindscape will decrease. Additionally, because we
recognize our revenue at the time Mindscape delivers its software to the
retailer, there is a risk that our products will build up in retail distribution
channels, resulting in a sudden decrease in orders from retailers. In addition,
we have recently introduced a number of new products, some of which allow our
online subscribers to print online greetings and personal creativity products at
home. Each of these developments may decrease demand for personal creativity
software and accordingly decrease royalties we receive for sales of such
software.
WE DERIVE A SIGNIFICANT PORTION OF OUR ONLINE VISITORS AND USERS THROUGH OUR
AGREEMENTS WITH OUR DISTRIBUTION PARTNERS. THESE AGREEMENTS REQUIRE US TO PAY
SIGNIFICANT AMOUNTS OF MONEY TO THESE PARTNERS AND THESE ARRANGEMENTS MIGHT NOT
GENERATE A SUFFICIENT AMOUNT OF REVENUE TO OFFSET THEIR EXPENSE.
We have entered into various agreements with Internet service and content
providers, including AOL, Yahoo! and Lycos, to attract users from these Internet
service and content providers. These distribution relationships resulted in 88%
of traffic to our Web site for the six months ended June 30, 1999. Our
distribution agreements with AOL and Yahoo! require us to make minimum aggregate
payments of $108 million to these parties through December 31, 2004. Our ability
to generate revenues to offset these payments will depend, in large part, on the
increased traffic, purchases, advertising and sponsorships that we expect to
generate through such distribution partners. While many of these agreements
contain exclusivity features, our exclusivity is subject to exceptions. We
entered into some of these relationships over the past few years. We entered
into others, including Yahoo! much more recently, and recently we substantially
renegotiated our relationship with AOL. Accordingly, our historical financial
statements included in this prospectus may not allow you to accurately predict
our future sales and marketing expenses and accordingly might not provide an
accurate indication of our future results of operations. In addition, we cannot
assure you that any of these agreements will be maintained beyond their initial
terms or that additional third-party agreements will be available to us on
acceptable commercial terms. The inability to enter into new agreements or to
maintain any one or more of our existing significant agreements would seriously
harm our business. In addition, we cannot assure you that our distribution
partners, especially AOL and Yahoo!, will maintain their market positions. In
the event their market positions deteriorate, we may need to partner with
additional distribution partners, to the extent available, and pay additional
funds.
IF OUR AGREEMENT WITH AOL IS TERMINATED, OUR BUSINESS WILL SUFFER.
Our agreement with AOL, or our limited exclusivity thereunder, may be
terminated by AOL under specific conditions, for example, if we do not maintain
our co-branded sites with AOL among the top three online greeting sites, as
judged by third party reviewers, with respect to a variety of criteria that
include pricing, scope, selection and quality of products. If our agreement with
AOL is terminated, our business will suffer. Our agreement may also be
terminated by AOL if we are acquired by a competitor of AOL or if we fail to
fully customize our sites in the additional AOL properties under our new
agreement with AOL by June 1, 2000.
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<PAGE> 12
OUR BUSINESS RELIES ON THE PERFORMANCE OF OUR COMPUTER SYSTEMS AND THOSE OF OUR
DISTRIBUTION PARTNERS AND ANY FAILURE OR BREAKDOWN IN THOSE SYSTEMS WOULD REDUCE
THE NUMBER OF USERS ABLE TO ACCESS OUR SITE AND OUR ATTRACTIVENESS TO
ADVERTISERS.
Our success depends on the performance, reliability and availability of our
online greetings and social expression products. Our revenues depend, in large
part, on the number of users that access our content, products and services. Our
computer and communications hardware is located at our headquarters in
Cleveland, Ohio and in a hosting facility provided by Exodus Communications,
Inc. in Sterling, Virginia. In addition, our co-branded site with AOL currently
operates on AOL's servers. Our systems and operations, as well as AOL's Network
or Yahoo!'s servers, could be damaged or interrupted by fire, flood, power loss,
telecommunications failure, Internet breakdown, break-in, earthquake and similar
events. We do not have mirror facilities at any other location or a formal
disaster recovery plan, and we do not carry business interruption insurance that
is adequate to compensate us for losses that may occur. In addition, systems
that use sophisticated software may contain bugs, which could also interrupt
service. Any interruptions to our systems or those of our distribution partners
resulting in the unavailability of our content and commerce products would
reduce the volume of users able to access our content and e-commerce products,
the attractiveness of our product offerings to our affiliates, advertisers and
content providers, and the willingness of users to pay us subscription fees, any
of which could harm our business.
We and AOL have recently experienced some system problems relating to
users' ability to access our services through AOL. For example, during July
there were several periods of one hour or longer during which AOL subscribers
were unable to send or receive electronic greetings on our co-branded AOL
property. Although we are taking steps that we believe will address these
issues, there can be no assurance that such efforts will be successful. If we
experience frequent or persistent system failures, either on our AOL co-branded
property or on any of our other properties, our reputation and brand could be
permanently harmed.
WE HAVE EXPERIENCED SIGNIFICANT NET LOSSES IN THE PAST AND EXPECT TO INCUR
SUBSTANTIAL NET LOSSES FOR THE FORESEEABLE FUTURE; SLOWER THAN ANTICIPATED
REVENUE GROWTH WOULD SERIOUSLY HARM OUR BUSINESS.
We incurred net losses of approximately $2.4 million in fiscal year 1997
and $1.2 million in fiscal year 1998 and a cumulative net loss of $2.3 million
since our inception through June 30, 1999. While we were profitable in fiscal
year 1999, we expect to make significant expenditures over the next several
years to develop and promote our business, and accordingly, we expect to record
substantial net losses for the foreseeable future. We will incur increased
expenses of at least $24 million over the next three years as described in the
caption "We are required to pay minimum royalties to our parent without regard
to the amount of our revenue" below. We will also incur significant additional
costs:
- to fund our new arrangements with our distribution partners, especially
those with AOL and Yahoo!, totalling a minimum aggregate commitment of
$108 million;
- to fund increased marketing initiatives;
- to add additional distribution partners;
- to implement enhancements to our online product offerings;
- to hire additional personnel; and
- to implement technological and hardware improvements.
Significant operating losses are anticipated for the foreseeable future and
to the extent that such expenses do not result in sufficient revenue increases,
our business, financial condition, results of operations or prospects may be
seriously harmed. In addition, revenues from our subscription-based products may
decline as a result of the introduction of our new free product offerings. The
future success of our business will increasingly depend on our ability to
generate advertising revenue. We have only begun to generate revenues from
advertising. We expect advertising will become one of our primary sources of
revenue. Slower than anticipated revenue growth or higher than expected
operating expenses would seriously harm our business.
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OUR FUTURE REVENUE IS UNPREDICTABLE AND MAY BE SEASONAL, AND FLUCTUATIONS IN OUR
QUARTERLY OPERATING RESULTS COULD CAUSE OUR COMMON STOCK PRICE TO DECLINE.
As a result of our limited operating history, rapid growth and the emerging
nature of the Internet market in which we compete, we may have difficulty
accurately forecasting our financial performance in any given period. A number
of factors, many of which are outside our control, may cause our revenue to fall
short of our expectations or cause fluctuations in our operating results,
including:
- the amount and timing of expenditures by users of our products and
services;
- the ability to convert visitors and promotional users of our Web site to
paid subscribers;
- the timeliness of payments by our e-commerce partners and software
distributors;
- the introduction and timing of implementation of new products, new
technologies and new systems by users, our distribution partners or our
competitors;
- the amount and timing of expenditures by advertisers on our site;
- unanticipated technical, legal and regulatory difficulties with respect
to use of the Internet or other online services we rely upon;
- the effectiveness and timing of promotion and integration of our
AmericanGreetings.com Web site and co-branded sites on AOL, Yahoo! and
other distribution partners' sites;
- the acceptance of online greetings and personal creativity products by
the general public; and
- the retention rate of our subscribers.
Our limited operating history and the new and rapidly evolving Internet
market make it difficult to ascertain the effects of seasonality on our
business. If seasonal and cyclical patterns emerge in Internet consumer
purchasing or in Internet advertising spending, our results of operations from
quarter to quarter will be less comparable. Sales of traditional greeting cards,
social communication and gifts are generally lower in the third calendar quarter
of each year. Similarly, advertising sales in traditional media, such as
television and radio, are generally lower in the first calendar quarter of each
year. We may experience similar seasonality in our business.
As a result of all the foregoing, period-to-period comparison of our
operating results may not be a good indication of future performance. Moreover,
our operating results in some quarters may not meet the expectations of stock
market analysts and investors. In that event, our stock price would likely
decline.
COMPETITION IN THE ONLINE GREETINGS MARKET IS INTENSE, AND IF WE ARE UNABLE TO
COMPETE EFFECTIVELY, WE MAY HAVE TO REDUCE THE PRICE FOR OUR SUBSCRIPTION
SERVICE OR THE RATES WE CHARGE FOR ADVERTISING ON OUR SITE.
We face intense competition from many competitors. Currently we face
competition from other online greetings providers such as Blue Mountain Arts. We
also face competition from other entities such as Amazon.com, Disney and
Microsoft that offer online greetings. In addition, we face competition from
providers of traditional greeting cards. In the event we are unable to compete
effectively with these or other competitors who enter our market, we may be
forced to reduce the price for our subscription service or the rates we charge
for advertising on our site or take other competitive actions which could harm
our results of operations. We believe that our ability to compete depends upon
many factors, including brand recognition, the quality and depth of content,
superior usability for consumers and multiple sources of revenue. Some of our
current and potential online and traditional competitors have or may have
greater resources and experience than we do, including financial, marketing, and
technical resources. For example, we face potential competition from Hallmark
leveraging their significant brand recognition to further their online greetings
effort. Some of these competitors, such as Amazon.com, have greater access to
Web traffic or may be able to establish relationships with companies that have
access to large amounts of Web traffic. Increased competition
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is likely to result in reduced operating margins, loss of market share and a
diminished brand franchise, any one of which could seriously harm our business,
results of operations and financial condition.
WE RELY ON SERVICES OF OUR KEY PERSONNEL, WHOSE KNOWLEDGE OF OUR BUSINESS AND
TECHNICAL EXPERTISE WOULD BE DIFFICULT TO REPLACE. WE WILL NEED TO HIRE A NUMBER
OF ADDITIONAL TECHNOLOGY-ORIENTED PERSONNEL WHO MIGHT BE DIFFICULT TO FIND IN
THE MIDWEST WHERE WE ARE HEADQUARTERED.
Our future success depends on the continued service and performance of our
senior management team and other key employees. In addition, we will need to
employ additional personnel for certain functions that were previously performed
by employees of American Greetings. Because of the technical nature of our
business, our success will also depend on our ability to attract, integrate,
motivate and retain additional highly skilled technical, sales and marketing
personnel. Competition for senior management and technical, sales and marketing
personnel in technology-based businesses is intense and qualified candidates are
in short supply, particularly in the Midwest in which we are headquartered. The
loss of any member of our senior management team or other key employees or our
failure to attract, integrate, motivate and retain additional key employees
could seriously harm our business, operating results and financial condition.
IF WE FAIL TO EFFECTIVELY MANAGE OUR ADVERTISING SALES FORCE OR THIRD PARTIES
THAT WE HAVE RETAINED TO SELL ADVERTISING ON OUR WEB SITE OR OUR CO-BRANDED WEB
SITES, WE WILL NOT BE ABLE TO GENERATE SUFFICIENT REVENUE FROM SALES OF
ADVERTISING AND OUR BUSINESS WILL SUFFER.
We have previously generated only minimal revenue from advertising. We will
need to manage our sales force and third party providers that we have retained
to sell advertisements on our Web site. We have recently renegotiated our
distribution agreement with AOL. Under this agreement AOL's advertising sales
force will sell the advertising on our co-branded sites, and we will receive a
portion of any advertising revenue generated. We anticipate that the majority of
any advertising revenue we receive during the foreseeable future will be
generated by AOL's advertising sales force. We cannot assure you that AOL will
be able to effectively generate advertising revenue from our co-branded sites.
In addition, we have just retained the services of a third party provider to
sell our advertising on our behalf. If we fail to manage and maintain an
effective sales force or effectively manage AOL or our other third party
provider, our business prospects will suffer. Establishing a sales force
involves a number of risks, including:
- we may be unable to hire, retain, integrate and motivate sales and sales
support personnel; and
- new sales personnel may require a substantial period of time to become
productive.
Outsourcing sales of advertising on our Web site involves a number of
risks, including:
- we may not be able to maintain our third party providers at reasonable
rates; and
- we may not receive proper resources and attention from third party
providers.
WE NEED TO SPEND A SIGNIFICANT AMOUNT OF TIME AND MONEY ON DEVELOPING OUR
CONTENT AND OUR PRODUCT AND SERVICE OFFERINGS. IF WE FAIL IN ANY OF THESE
EFFORTS WE MAY NOT CONTINUE TO ATTRACT NEW USERS AND MAY BE UNABLE TO RETAIN OUR
EXISTING USERS.
To remain competitive we must continue to enhance and improve the
assortment, ease of use, responsiveness, functionality and features of our
products and services. These efforts may require us to develop internally or to
license content or increasingly complex technologies. Developing and integrating
new products and services could be expensive and time consuming, and the cost of
content that we license may increase in the future. Any new features, functions
or services may not achieve market acceptance or enhance our brand loyalty. If
we fail to develop and introduce new products or acquire new features, functions
or services effectively and on a timely basis, we may not continue to attract
new users and may be unable to retain our existing users.
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WE LICENSE SOME OF OUR CONTENT AND OTHER INTELLECTUAL PROPERTY FROM THIRD
PARTIES AND THIS CONTENT COULD BE USED BY OTHERS WITHOUT OUR CONSENT BECAUSE OUR
ABILITY TO PROTECT THIS INTELLECTUAL PROPERTY IS LIMITED.
We own and license a variety of trademarks, copyrights, trade secrets,
patents and other intellectual property rights. These rights are primarily in
two areas: the art and verse content of our products and services and the
software technology that operates our Web sites. To protect our rights in our
various intellectual properties, we rely on a combination of intellectual
property law, and confidentiality and other agreements with certain of our
employees, affiliates, clients, distribution partners, and others to protect our
proprietary rights. We cannot guarantee that the protective steps we have taken
will be adequate to deter misappropriation of proprietary information or that we
will be able to detect unauthorized use and take appropriate steps to enforce
our intellectual property rights. In particular, it is technologically possible
for visitors to our Web site or users of our other products to acquire copies of
our content and to then utilize or resell it without payment to us. We have
taken and will continue to take steps to reduce this possibility, including
securing the agreement of our customers, through on screen license agreements,
to use our online greetings content only for personal uses. However, agreements
of this type are not always legally enforceable.
We also face other risks and limitations related to content and other
intellectual property that we license from third parties including, but not
limited to:
- the scope of some of our content licenses may not permit us to use the
intellectual property or content in a manner we want to use it, for
example, in cases where our licenses contemplate specific technologies,
such as a static postcard, we may not be able to use the licensed
intellectual property with newly developed technologies, such as animated
greetings. Similarly, some of our content licenses contain limitations on
how the content can be used. We cannot assure you that our recent changes
to our product offerings will permit us to continue use of such content
in all of our product offerings.
- although we enter into a license with a third party, we may still be
subject to risks if that third party does not own, or is limited in its
use or license of, the rights to the intellectual property that they
licensed to us;
- third parties may not adequately protect their intellectual property that
we license, and our license for such intellectual property will be less
valuable; and
- each license that we enter into is for a limited period of time, and at
its termination we will be required to enter into another agreement, and
we may not be able to do so on a timely or cost effective manner.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD RESULT IN THE
LOSS OF OUR ABILITY TO USE THE DISPUTED CONTENT OR REQUIRE US TO PAY DAMAGES.
Other parties may assert patent infringement or other intellectual property
claims against us. Our expanding use of topical content such as political
cartoons increases the risk that individuals may claim we have used their name
or likeness in violation of their rights. We cannot predict whether third
parties will assert claims of patent infringement or other intellectual property
claims against us, or whether any past or future assertions or prosecutions will
harm our business. If we are forced to defend against any such claims, whether
they are with or without merit or are determined in our favor, we may face
costly litigation or diversion of technical and management personnel. As a
result of such a dispute, we may have to remove content from our site or pay
significant compensatory or punitive damages.
WE WILL INCREASINGLY RELY UPON ONLINE AND TRADITIONAL ADVERTISING TO INCREASE
TRAFFIC TO OUR WEB SITE AND GENERATE SALES AND OUR INABILITY TO MAINTAIN
EFFECTIVE ADVERTISING CAMPAIGNS COULD HARM OUR BUSINESS.
We expect to increasingly rely on online and traditional advertising to
attract users to our Web site. We currently intend to spend a significant amount
for online and traditional advertising over the next twelve months. Our
inability to develop and maintain effective advertising campaigns could harm our
business. We
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may not be able to identify and secure sufficient online and offline advertising
opportunities. We cannot assure you that our advertising will effectively
attract visitors to our Web site or convert a significant number of such
visitors to subscribers. In addition, our online advertising may include
strategic alliances that require large, long-term commitments.
WE LARGELY DEPEND ON THE AMERICAN GREETINGS BRANDS. EXPENSES WE INCUR IN
PROMOTING THE AMERICAN GREETINGS BRANDS MIGHT MORE THAN OFFSET ANY INCREASED
REVENUE WE DERIVE FROM OUR BRAND PROMOTION EFFORTS.
Our historical growth has been largely attributable to the strength of the
American Greetings brands. We believe that continuing to strengthen these brands
will be critical to achieving widespread acceptance of our products. Brand
promotion activities may not yield increased revenues, and even if they do, any
increased revenues may not offset the expenses we incurred in promoting our
brand. If we fail to promote and maintain our brands or incur substantial
expenses in an unsuccessful attempt to promote and maintain our brands, our
business would be harmed. Promoting and positioning our brands will depend
largely on the success of our marketing efforts and our parent's marketing
efforts, over which we will have no control, and our ability to provide high
quality products. Additionally, we will have to conform to requirements pursuant
to intercompany agreements with our parent on the use of the American Greetings
brands. In order to promote our brands, we will need to increase our marketing
budget and otherwise increase our financial commitment to creating and
maintaining brand loyalty among users of our products.
WE MAY BE REQUIRED TO RAISE ADDITIONAL FUNDS AND OUR ABILITY TO RAISE CAPITAL IN
THE FUTURE MAY BE LIMITED.
We believe that the cash invested in our business by American Greetings as
part of our initial capitalization and proceeds from this offering, will be
sufficient to meet our operating and capital requirements for at least the next
twelve months. However, we may in the future be required to raise additional
funds through public or private financing, strategic relationships or other
arrangements. We cannot be certain that any such financing will be available on
acceptable terms, or at all, and our failure to raise capital when needed could
harm our business, operating results and financial condition. Additional equity
financing may be dilutive to the holders of our common stock, and debt
financing, if available, may involve restrictive covenants that could limit our
ability to pay dividends or otherwise operate our business as we see fit.
Prior to our initial public offering, our funding needs were satisfied by
American Greetings. Presently, American Greetings has no obligation to assist
us, financially or otherwise, except as described in "Related Party
Transactions -- Transactions with our Parent."
EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE MANAGEMENT ATTENTION AND
RESOURCES AND MAY BE UNSUCCESSFUL WHICH COULD HARM OUR BUSINESS.
To date, we have only engaged in limited business outside the United
States. We plan to build local versions of our Web site for foreign companies or
expand our international operations through acquisitions or otherwise. For
example, we have committed to establishing co-branded sites on AOL-affiliated
services in Canada, the United Kingdom, Australia, Japan, Germany and France.
Our expansion plans will require management attention and resources and may be
unsuccessful. We have limited experience in localizing our service to conform to
local cultures, standards and policies. We may have to compete with local
companies which understand the local market better than we do. In addition, to
achieve satisfactory performance for end-users in international locations it may
be necessary to locate physical facilities, such as server computers in the
foreign market. We do not have experience establishing such facilities. We may
not be successful in expanding into any international markets or in generating
revenues from foreign operations. In addition, different privacy, censorship and
liability standards and regulations and different intellectual property laws in
foreign countries may cause our business to be harmed. Furthermore, once we
expand internationally we expect to incur net losses in developing foreign
markets for the foreseeable future.
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OUR YEAR 2000 COMPLIANCE EFFORTS COULD BE COSTLY AND TIME-CONSUMING, AND OUR
BUSINESS COULD SUFFER IF WE OR THOSE WE DO BUSINESS WITH, ESPECIALLY AOL, EXODUS
AND OUR PARENT, FAIL TO ADEQUATELY ADDRESS YEAR 2000 RISKS.
Known or unknown errors or defects that affect the operation of our
software and systems and those of third parties, including our distribution
partners, content providers, advertisers, affiliates, and end users as a result
of the Year 2000 problem could result in delay or loss of revenue, interruption
of services, cancellation of customer contracts, diversion of development
resources, damage to our reputation, and litigation costs, any of which could
harm our business. We are in the process of assessing and remediating any Year
2000 issues associated with our computer systems and software and other property
and equipment. Despite our testing and remediation efforts, our systems and
those of third parties, including our distribution partners, our parent, Exodus,
advertisers, affiliates, and end users may contain errors or faults with respect
to the Year 2000. Our Year 2000 compliance efforts may prove to be unsuccessful
and, if unsuccessful, may involve significant time and expense to rectify. Our
efforts to address this issue are described in more detail in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
RISKS RELATED TO OUR RELATIONSHIP WITH OUR PARENT
OUR AGREEMENTS WITH OUR PARENT COMPANY MAY TERMINATE IN THE FUTURE, RESULTING IN
THE LOSS OF A KEY STRATEGIC ADVANTAGE AND HARM TO OUR BUSINESS.
There are two main reasons that our parent could elect to end its
agreements with us. The first is if the percentage of our parent's voting
interest in AmericanGreetings.com is reduced below 20%. Our parent's voting
percentage could be reduced by our actions if we sell additional stock to third
parties, or it could be reduced by our parent's action if our parent sells its
stock in us to us or to third parties or distributes our stock to its
stockholders. We have no control over whether our parent will sell or distribute
its stock in us.
Our parent could also elect to end our agreement with us if a reversion
event, as defined in those agreements, occurs. A reversion event occurs if any
of the following happens and we do not correct it after notice from our parent:
- we derive less than 10% of our revenues from business activities
generally as described in this prospectus;
- we materially default on our payment obligations to our parent;
- we materially default on any agreements we may enter into to borrow more
than one million dollars; or
- our independent auditors determine, under generally accepted auditing
standards, that our financial position is such that we may not be able to
continue as a going concern.
If our agreements with our parent end because our parent's voting
percentage is reduced, it will have the following effects on us:
- we would no longer be entitled to use the "American Greetings" name or
logo or our "AmericanGreetings.com" corporate name, but we would retain
the rights to "ag.com" and the americangreetings.com URL;
- we would no longer have access to additional content developed by our
parent after the agreements terminate, but we would retain rights to
content developed previously; and
- all licenses will become non-exclusive and our parent would no longer be
subject to any restriction on competing with us.
If our agreements with our parent end because of a reversion event, it will
have the following effects on us:
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- we would no longer be entitled to use the "American Greetings" name or
logo or our "AmericanGreetings.com" corporate name, but we would retain
the rights to "AG.com"; and the "americangreetings.com" URL
- all licenses will become non-exclusive and our parent would no longer be
subject to any restriction on competing with us.
In addition, if a reversion event is not cured within 90 days of notice
from our parent and our parent elects, the termination would also result in all
the licenses we receive from our parent, other than for trademarks used only in
our business and not in the parent's, such as "AG.com" and "CreataCard," ending
twelve months after the notice from our parent.
Loss of any aspect of our relationship with our parent would deprive us of
our most important strategic advantage and would seriously harm our business and
financial condition.
RESTRICTIONS IN OUR AGREEMENT WITH OUR PARENT PROHIBIT US FROM COMPETING WITH
OUR PARENT, BUT OUR PARENT IS PERMITTED TO COMPETE WITH US BY PROVIDING PRODUCTS
AND SERVICES FOR ONLINE DISTRIBUTION WHEN IT IS ACTING TOGETHER WITH ITS RETAIL
CUSTOMERS.
We are not permitted to sell paper greeting cards through retailers in
their physical retail locations. Our parent is, in general, not permitted to
sell electronic social expression products direct to consumers and through
electronic media. Our parent, however, is generally not subject to this
restriction in providing products and services through Web sites maintained by
its retail customers. Our parent's customers include retail stores and chains,
including Albertson's, CVS, Eckerd, K-Mart, Rite Aid, Target and Wal-Mart. If
one or more of our parent's customers decides to enter the online greetings
business and our parent elects to cooperate directly with that customer, by
providing content or otherwise, we could face a competitor that has equal access
to our parent's brand and content. Such a competitor could severely harm our
business.
THE REQUIREMENT OF OUR AGREEMENTS WITH OUR PARENT TO PROVIDE INTERNET RELATED
SUPPORT SERVICES TO OUR PARENT OR FOR THE BENEFIT OF ITS PHYSICAL RETAIL
CUSTOMERS MAY DIVERT RESOURCES THAT WE COULD OTHERWISE USE TO SUPPORT OUR
BUSINESS STRATEGY AND MAY HELP OUR PARENT'S CUSTOMERS TO COMPETE WITH US IN THE
FUTURE.
Our agreements with our parent require that we provide our parent or for
the benefit of its physical retail customers with Internet content delivery
related services, including Web site development and maintenance. We will be
paid for these services at our cost plus 10% and will be entitled to retain
ownership of any intellectual property we develop in performing these services,
although our parent will have a license to such intellectual property. We
expect, however, that supporting the needs of our parent or those of its
physical retail customers in this area may require us to add personnel or expend
funds in a manner that may, over time, be less desirable than other
opportunities we might have to develop our business. Further, our parent is not
obligated to use any of these services, so we do not have an assured revenue
source from this activity. In addition, the Internet related support service
that we provide for the benefit of our parent's physical retail customers may be
used in the future to compete with us.
OUR PARENT WILL HAVE ACCESS TO AND THE RIGHTS TO USE ANY CONTENT THAT WE DEVELOP
IN THEIR PAPER GREETING CARDS AND THIS COMPETITION COULD SERIOUSLY HARM OUR
BUSINESS.
Our licensing relationship with our parent is reciprocal in that, just as
we will have continuing access to social expression content developed by our
parent in the future, our parent will have continuing access to social
expression content we develop. Therefore, it will be possible for our parent to
market paper greeting cards using content we are simultaneously offering through
our Web site and other offerings. If consumers prefer to obtain this content
through our parent's channels of distribution, this could seriously harm our
business.
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WE ARE REQUIRED TO PAY MINIMUM ROYALTIES TO OUR PARENT WITHOUT REGARD TO THE
AMOUNT OF OUR REVENUE.
Our agreements with our parent require us to pay royalties to our parent
for the use of its intellectual property. Over the first three years beginning
July 1, 1999, the royalty is $24.0 million. Thereafter, the royalty is 3% of our
net revenue, subject to an annual minimum of $5.0 million. Because these
royalties are either fixed in amount or subject to a minimum, they may not have
any relationship to our revenue. The requirement to pay such fixed royalties
could place us at a competitive disadvantage. In addition, the financial burden
of paying these royalties could harm our business and financial condition.
OVERLAPPING MANAGEMENT AND BOARDS OF DIRECTORS COULD CAUSE CONFLICTS OF INTEREST
BETWEEN US AND OUR PARENT AND WE CANNOT ASSURE YOU THAT THEY WILL ALWAYS PUT OUR
INTERESTS OVER THOSE OF OUR PARENT.
One of our directors serves as an officer and a director of our parent.
Service as either a director or officer of AmericanGreetings.com and a director
or officer of our parent could create or appear to create potential conflicts of
interest when those directors and officers are faced with decisions that could
have different implications for AmericanGreetings.com and our parent. We cannot
assure you that they will always put our interests over the interests of our
parent. Such decisions may relate to potential acquisitions of businesses,
business opportunities for American Greetings and AmericanGreetings.com, the
intercompany agreements, competition, the issuance or disposition of securities,
the election of new and additional directors and other matters.
OUR SEPARATION FROM AMERICAN GREETINGS MAY HARM OUR ABILITY TO NEGOTIATE FUTURE
LICENSING ARRANGEMENTS AND RESOLVE FUTURE INTELLECTUAL PROPERTY DISPUTES.
We have entered into licensing arrangements with American Greetings with
respect to its intellectual property that we use in our business. In the past,
we benefited from operating within American Greetings in our access to the
intellectual property of third parties through licensing arrangements or
otherwise, and in the negotiation of the financial and other terms of such
arrangements. The separation of our business from that of American Greetings
could adversely affect our ability to negotiate commercially attractive
intellectual property licensing arrangements with third parties in the future.
Moreover, in connection with future intellectual property infringement claims,
we will not be able to provide licenses to American Greetings' intellectual
property in order to resolve such claims.
OUR PARENT WILL OWN OVER 90% OF THE VOTING POWER OF OUR COMMON STOCK AND WILL
EXERT SIGNIFICANT CONTROL OVER OUR BUSINESS.
After the closing of this offering, our parent will own all of our Class B
shares of common stock, which will represent over 90% of the voting power of our
common stock. As a result of our parent's share ownership and the other rights
described in this prospectus, our parent will be able to elect all of the
members of our board of directors and decide the outcome of all other actions
requiring stockholder approval. This concentration of ownership and other rights
could also delay or prevent a change of control.
Our parent could elect to sell all or a substantial portion of its equity
interest in our stock to a third party. In the event of a sale of our parent's
interest to a third party, that third party may be able to control us. Such a
sale may cause the market price of our Class A common stock to decline and may
harm our business.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ONLINE COMMERCE MARKET,
WHICH IS UNCERTAIN.
Our future revenues and profits substantially depend upon the widespread
acceptance and use of the Web as an effective medium of commerce and
communication by consumers. Demand for recently introduced services and products
over the Web and online services is subject to a high level of uncertainty. The
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development of the Web and online services as a viable commercial marketplace is
subject to a number of factors, including the following:
- online commerce is at an early state and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
- insufficient availability of telecommunications services or changes in
telecommunications services could result in slower response times;
- security and privacy concerns over the Internet;
- access to the Web by the general population; and
- the general population's unfamiliarity with Internet commerce.
THE MARKET FOR OUR PRODUCTS IS UNCERTAIN AND THE UNWILLINGNESS OF USERS TO USE
THE INTERNET TO EXCHANGE GREETINGS AND MAKE USE OF OTHER SOCIAL EXPRESSION
PRODUCTS COULD HARM OUR BUSINESS.
Our success will depend in large part on users' willingness to exchange
greetings and make use of other social expression products over the Internet.
Exchanging greetings over the Internet involves changing users' habits, and if
users are not willing to exchange greetings over the Internet, our revenue will
be limited and our business will be harmed. Sending online greetings is a
relatively new method of communication and its growth and market acceptance is
highly uncertain. In addition, it is not clear whether our service which allows
users to create printable greetings using the Internet will gain market
acceptance. We believe that acceptance of these methods of communication may be
subject to network capacity constraints, hardware limitations, company computer
security policies, the ability to change user habits and the quality of content
delivered.
WE MAY BE UNABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE IN THE ONLINE
GREETINGS AND SOCIAL EXPRESSION MARKET WHICH COULD HARM OUR BUSINESS.
Material delays in introducing new technologies and enhancements to our
products and services may cause users and advertisers to make purchases from or
visit the Web sites of our competitors which could harm our business. The
Internet, e-commerce and online advertising markets, particularly the online
greetings category, are characterized by rapidly changing technologies, evolving
industry standards, frequent new product and service introductions, and changing
customer preferences. For example, we rely on Flash and Slideshow player
technologies for presentation of some of our content. In the event these
technologies become obsolete or cease to be supported by the industry, we would
be forced to expend substantial resources to convert our products and services
to utilize other technologies. We may not be able to do this in a timely or cost
effective manner, or at all. Our success will depend on our ability to adapt to
rapidly changing technologies and address our users' changing preferences. We
may experience difficulties that delay or prevent our ability to do so and any
such delays could cause our business to suffer.
WE DEPEND ON CONTINUED IMPROVEMENTS TO OUR NETWORK INFRASTRUCTURE AND THE
INFRASTRUCTURE OF THE INTERNET AND INCREASES IN THE VOLUME OF TRAFFIC COULD
STRAIN THE CAPACITY OF SUCH INFRASTRUCTURES WHICH WOULD HARM OUR BUSINESS.
Increases in the volume of our Web site traffic could strain the capacity
of our existing technical infrastructure, which could lead to slower response
times or system failures. This would cause the number of online greetings to
decline, which could hurt our revenue growth and our brand loyalty. We will need
to incur additional costs to upgrade our infrastructure in order to accommodate
increased demand if our server and networking systems cannot handle current or
higher volumes of traffic.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and companies doing
business on the Internet to upgrade their infrastructures. Our ability to
increase the speed with which we provide services to consumers and to increase
the scope of these services is limited by and dependent upon the speed and
reliability of the Internet. Consequently, the emergence and growth of the
market for our services is dependent on the performance of and future
improvements to the Internet.
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OUR BUSINESS COULD BE HARMED IF WE FAIL TO PREVENT ONLINE COMMERCE SECURITY
BREACHES. WE MAY NEED TO EXPEND SIGNIFICANT RESOURCES TO PROTECT AGAINST
SECURITY BREACHES OR TO ADDRESS PROBLEMS CAUSED BY BREACHES.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks, and our failure
to prevent security breaches could harm our business. Currently, a significant
number of our users authorize us to bill their credit card accounts directly for
all transaction fees charged by us. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. Any such compromise of our security could
harm our reputation and expose us to a risk of loss or litigation and possible
liability and, therefore, harm our business. In addition, a party who is able to
circumvent our security measures could misappropriate proprietary information or
cause interruptions in our operations. We may need to expend significant
resources to protect against security breaches or to address problems caused by
breaches. Security breaches could damage our reputation. Our insurance policies
carry low coverage limits, which may not be adequate to reimburse us for losses
caused by security breaches.
REGULATION OF THE INTERNET IS RELATIVELY UNCERTAIN AND THE ENACTMENT OF NEW
REGULATIONS OR THE ENFORCEMENT OF EXISTING REGULATIONS COULD HARM OUR BUSINESS.
Domestic and foreign laws related to conducting business on the Internet
are evolving and uncertain, and changes to existing laws could harm our
business. Today there are relatively few laws specifically directed towards
online services. However, due to the increasing popularity and use of the
Internet and online services, it is possible that laws and regulations will be
adopted with respect to the Internet or online services. These laws and
regulations could cover issues such as online contracts, user privacy, freedom
of expression, pricing, fraud, content and quality of products and services,
taxation, advertising, distribution, intellectual property rights and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights, encryption and other intellectual
property issues, taxation, libel, obscenity, personal privacy and export or
import matters is uncertain. The vast majority of these laws were adopted prior
to the advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Those laws that do reference the Internet, such as the recently
passed Digital Millennium Copyright Act, have not yet been interpreted by the
courts and their applicability and reach are therefore uncertain. See
"Business -- Government Regulation."
OUR BUSINESS MAY BE SUBJECT TO SALES AND OTHER TAXES WHICH COULD HARM OUR
BUSINESS.
One or more states may seek to impose sales tax collection obligations on
companies such as ours that engage in or facilitate online commerce which could
substantially impair the growth of e-commerce, and could diminish our
opportunity to derive financial benefit from our activities. Several proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services through the Internet. In 1998, the U.S.
federal government enacted legislation prohibiting states or other local
authorities from imposing new taxes on Internet commerce for a period of three
years. This tax moratorium will last only for a limited period and does not
prohibit states or the Internal Revenue Service from collecting taxes on our
income, if any, or from collecting taxes that are due under existing tax rules.
A successful assertion by one or more states or any foreign country that we
should collect sales or other taxes on the exchange of merchandise on our sites
could harm our business. In addition, a number of trade groups and government
entities have publicly stated their objections to this tax moratorium and have
argued for its repeal. The Federal Advisory Commission on electronic commerce is
in the process of evaluating these issues. It is expected to make its
recommendations to Congress in April 2000. There can be no assurance that future
laws will not impose taxes or other regulations on Internet commerce, or that
such three-year moratorium will not be repealed, or that it will be renewed when
it expires, any of which events could substantially impair the growth of
electronic commerce.
16
<PAGE> 22
RISKS RELATED TO THIS OFFERING
BECAUSE THERE HAS BEEN NO PRIOR MARKET FOR OUR STOCK, AND THE MARKET FOR STOCKS
OF INTERNET COMPANIES HAS EXPERIENCED EXTREME PRICE AND VOLUME FLUCTUATIONS, OUR
STOCK PRICE MAY BE VOLATILE, WHICH COULD ADVERSELY AFFECT YOUR INVESTMENT.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. Prior to this offering,
there has been no public market for our common stock. If you purchase shares of
our common stock in this offering, you will pay a price that was not established
in a competitive market. Rather, you will pay the price that we negotiated with
the representatives of the underwriters.
In addition, the stock market in general, and the stocks of
Internet-related companies in particular, have experienced extreme price and
volume fluctuations that have been unrelated to these companies' operating
performance. The market price of our common stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as:
- actual or anticipated variations in our quarterly operating results;
- announcements of new product or service offerings by us or our
competitors;
- technological innovations;
- competitive developments;
- changes in financial estimates by securities analysts;
- conditions and trends in the Internet and electronic commerce industries;
and
- general economic conditions.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against that company. Litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources.
SALES OF OUR OUTSTANDING SHARES OF COMMON STOCK COULD CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
Subject to applicable law and to the contractual restriction with the
underwriters, our parent may sell any and all of the shares of common stock it
owns after completion of this offering. Intercompany agreements with our parent
provide that our parent will have the right in certain circumstances to require
us to use our reasonable best efforts to register for resale shares of common
stock held by it. In addition, our parent may make additional investments in us
prior to the consummation of this offering. Any sales of substantial amounts of
common stock in the public market, or the perception that such sales might
occur, could cause the market price of our common stock to decline. We have
agreed, for a period of 180 days after the date of this prospectus, not to offer
or sell any shares of common stock, subject to certain exceptions, without the
prior written consent of the underwriters.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and therefore
do not expect to pay any cash dividends in the foreseeable future.
WE HAVE BROAD DISCRETION TO USE THIS OFFERING'S PROCEEDS.
We have not designated any specific use for the net proceeds of this
offering. We expect to use the net proceeds for general corporate purposes,
including working capital and capital expenditures, including royalty payments
to our parent and payments to our distribution partners. We may also use a
portion of the net
17
<PAGE> 23
proceeds to acquire or make investments in additional businesses, products and
technologies or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific agreements or
commitments to do so. As a result, our management and board of directors will
have broad discretion in spending the proceeds of this offering.
18
<PAGE> 24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus are forward-looking
statements. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform these statements to actual results.
19
<PAGE> 25
USE OF PROCEEDS
We estimate that the net proceeds to AmericanGreetings.com from the sale of
the shares of our Class A common stock offered in the offering will be
approximately $ million, or $ million if the underwriters'
over-allotment option is exercised in full, based on an initial public offering
price of $ per share, which is the midpoint of the estimated range set forth
on the cover page of this prospectus, after deducting the estimated underwriting
discount and commissions and estimated offering expenses that we will pay.
We expect to use the net proceeds for general corporate purposes, including
working capital, capital expenditures, royalties to our parent and payments
under our agreements with our distribution partners. A portion of the net
proceeds may also be used for the acquisition of other companies, assets,
products and technologies that are complementary to our business, although we
have no commitments with respect to such acquisitions, and no portion of the net
proceeds has been allocated for any specific acquisition. Pending these uses, we
expect to invest the net proceeds in investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently plan to retain all future earnings to finance
the operation and expansion of our business. If we declare any future dividends,
it will be at the discretion of our board of directors and will depend upon,
among other things, our earnings, financial condition, capital requirements,
level of indebtedness, contractual restrictions and such other factors as our
board of directors deems relevant.
20
<PAGE> 26
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. The
pro forma column reflects the recapitalization through the contribution to
capital by American Greetings of its net advances and $50.0 million in cash for
shares of Class B common stock. The pro forma column excludes $17.6 million
paid to AOL and Yahoo! during August 1999 in connection with our distribution
agreements with them.
The pro forma as adjusted column reflects the sale of the shares of common
stock that we are offering.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ -- $50,000 $ --
====== ======= =======
Advances by parent.......................................... $7,458 $ -- $ --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value; 150 million shares
authorized; no shares issued and outstanding -- actual,
pro forma, and pro forma as adjusted................... -- -- --
Common shares, $.001 par value, 10,000 shares authorized,
1,000 shares issued and outstanding -- actual; no
shares authorized, issued or outstanding -- pro forma
and pro forma as adjusted.............................. -- -- --
Common Stock Class A, $.001 par value; shares
authorized; no shares issued and outstanding -- actual
and pro forma; shares issued and
outstanding -- pro forma and adjusted.................. -- --
Common Stock Class B, $.001 par value; shares
authorized; no shares issued and outstanding -- actual;
shares issued and outstanding pro forma and pro
forma as adjusted...................................... --
Additional paid-in-capital................................ 1
Accumulated deficit....................................... (2,253) (2,253) (2,253)
------ ------- -------
Total stockholders' equity (deficit).............. (2,252) 55,206
------ ------- -------
Total capitalization.............................. $5,206 $55,206 $
====== ======= =======
</TABLE>
The table above excludes options to purchase shares of Class A
common stock reserved under our 1999 Stock Option Plan subsequent to June 30,
1999. As of , 1999 options for shares at a weighted average
price of $ per share were outstanding under our 1999 Stock Option Plan. See
"Executive Compensation -- Employee Benefit Plans -- 1999 Stock Option Plan."
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<PAGE> 27
DILUTION
The pro forma net tangible book value of our common stock as of June 30,
1999 was $ , or $ per share. Pro forma net tangible book value per
share represents the amount of our stockholders' equity, less intangible assets,
divided by the pro forma shares of common stock outstanding as of June 30, 1999.
Without taking into account any changes in such pro forma net tangible book
value subsequent to June 30, 1999, other than to give effect to the issuance and
sale of shares of common stock we are selling in the offering, after
deducting the underwriting discount, commissions and estimated expenses of the
offering, our adjusted net tangible book value as of June 30, 1999 would have
been $ or $ per share. This represents an immediate increase in the
net tangible book value of $ per share to American Greetings and an
immediate dilution of $ per share to new investors. Dilution is determined
by subtracting adjusted net tangible book value per share after the offering
from the amount of cash paid by a new investor for one share of common stock.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering............................................... $
Increase in net tangible book value per share attributable
to new investors.......................................
-----
Pro forma net tangible book value per share after the
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1999,
the number of shares of common stock purchased from AmericanGreetings.com, the
total consideration paid by American Greetings and by new investors, (after the
sale by AmericanGreetings.com of shares in this offering, at an assumed
initial public offering price of $ per share before deducting estimated
underwriting discounts, commissions and estimated offering expenses (in
thousands):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
American Greetings.................. % $ % $
New investors.......................
-------- ----- ----- ------
Total..................... 100.0% $ 100.0%
======== ===== ===== ======
</TABLE>
The table above excludes options to purchase shares of Class A common
stock reserved under our 1999 Stock Option Plan subsequent to June 30, 1999. As
of , 1999 options for shares at a weighted average price of
$ per share were outstanding under our 1999 Stock Option Plan. See
"Executive Compensation -- Employee Benefit Plans -- 1999 Stock Option Plan."
22
<PAGE> 28
SELECTED FINANCIAL DATA
The selected statement of operations data presented below for each of the
three years in the period ended February 28, 1999 and the selected balance sheet
data as of February 28, 1998 and 1999 has been derived from our financial
statements, which have been audited by Ernst & Young LLP, independent auditors,
and have been included elsewhere in this prospectus. The statement of operations
data for the period from inception to February 29, 1996 and for the four month
periods ended June 30, 1998 and June 30, 1999 and for the six months ended June
30, 1998 and 1999, and the balance sheet data as of February 29, 1996, February
28, 1997 and as of June 30, 1998 and June 30, 1999, are derived from unaudited
financial statements that have been prepared on the same basis as the audited
financial statements and in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. Our historical
results are not necessarily indicative of the results of operations to be
expected in the future. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes included
elsewhere in this prospectus. The data for the six months ended June 30, 1998
and 1999 has been included to reflect the results had our operations been stated
on a calendar year basis. Effective March 1, 1999, we changed our fiscal
year-end to a calendar year-end. See Note A of our notes to financial
statements.
<TABLE>
<CAPTION>
JULY 18,
1995 FOUR MONTHS SIX MONTHS
(INCEPTION) FISCAL YEARS ENDED ENDED ENDED
TO FEBRUARY 28, JUNE 30, JUNE 30,
FEBRUARY 29, --------------------------- --------------- ---------------
1996 1997 1998 1999 1998 1999 1998 1999
------------ ------- ------- ------- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 5 $ 1,036 $ 3,882 $12,347 $2,972 $6,247 $4,050 $9,241
Cost of net revenues................ -- 1,034 1,919 1,623 572 1,512 1,162 1,906
----- ------- ------- ------- ------ ------ ------ ------
Gross profit........................ 5 2 1,963 10,724 2,400 4,735 2,888 7,335
Operating expenses:
Sales and marketing............... 201 1,929 1,980 5,611 1,231 3,224 1,554 4,746
Product development............... 36 1,270 959 1,090 266 845 398 1,153
General and administrative........ 92 430 838 1,340 439 796 598 1,053
----- ------- ------- ------- ------ ------ ------ ------
Total operating expenses........ (329) 3,629 3,777 8,041 1,936 4,865 2,550 6,952
Income (loss) before benefit
(provision) for income taxes...... (324) (3,627) (1,814) 2,683 464 (130) 338 383
Benefit (provision) for income
taxes............................. -- 1,244 635 (966) (167) 46 (123) (138)
----- ------- ------- ------- ------ ------ ------ ------
Net income (loss)................... $(324) $(2,383) $(1,179) $ 1,717 $ 297 $ (84) $ 215 $ 245
===== ======= ======= ======= ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28 (OR 29), JUNE 30,
----------------------------------- -----------------
1996 1997 1998 1999 1998 1999
----- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................ $(110) $ 21 $ 3,009 $ 7,010 $ 4,061 $ 3,319
Total assets..................................... 480 1,052 5,150 11,251 6,029 11,300
Total stockholder's deficit...................... (323) (2,706) (3,885) (2,168) (3,588) (2,252)
</TABLE>
In July and August of 1999, we entered into agreements with AOL and Yahoo!
that will require us to make aggregate payments of $108 million to these parties
through December 31, 2004. These payments will be recognized as sales and
marketing expenses over the terms of these agreements.
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<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to the financial statements of AmericanGreetings.com
included elsewhere in this prospectus. The historical information included in
this prospectus does not necessarily reflect what AmericanGreetings.com's
financial condition and results of operations would have been had
AmericanGreetings.com operated as an independent entity during the periods
presented. This discussion contains certain forward-looking statements that
involve risks and uncertainties. When used in this prospectus, the words
"intend," "anticipate," "believe," "estimate," "plan" and "expect" and similar
expressions as they relate to us are included to identify forward-looking
statements. Our actual results could differ materially from the results
discussed in the forward-looking statements as a result of certain of the risk
factors set forth below and elsewhere in this prospectus.
OVERVIEW
AmericanGreetings.com is a leading Web-based provider of greetings and
other social expression content aimed at expanding individuals' ability to
communicate and express themselves online. AmericanGreetings.com is a wholly
owned subsidiary of American Greetings and was incorporated on June 28, 1999.
Prior to the closing of this offering, American Greetings has owned all of the
outstanding capital stock of AmericanGreetings.com. AmericanGreetings.com was
formed as a successor to American Greetings' online greeting, social expression
and personal creativity operations. Therefore, the financial statements of
AmericanGreetings.com reflect the online greeting, social expression and
personal creativity operations of American Greetings and its wholly owned
subsidiaries.
Our online greetings business commenced in 1995 when we began a remote
fulfillment greeting card business, whereby a customer could create a card
through our Web site and have it printed and sent through the mail by
AmericanGreetings.com. In February 1996, we began to license our greeting and
social expression content to software vendors, signing an agreement with a third
party software vendor which provided for the development, marketing and sale of
personal creativity software products in the form of CD-ROMs. In May 1996, we
added the sale of online greetings to our Web site. In September 1997, we signed
an agreement with AOL for the sale of online greetings through the AOL service
for a fixed price per fixed number of greetings. In August 1998, we began
selling subscriptions through AOL, allowing a subscriber to send an unlimited
number of online greetings over a fixed period of time, generally six months,
for a fixed price. In November 1998, we began selling subscriptions for online
greetings over our own Web site.
In June 1999, we began to implement further enhancements to our online
content and service offerings with the inclusion of several new categories of
content, products and services. Also in June 1999, we began to sell one-month
subscriptions to supplement our six-month subscriptions, and offer a selection
of free greetings and related content. Content available to paid subscribers
includes an expanded and enhanced offering of online greetings and other social
expression products and services, such as enhanced animated and interactive
electronic greetings and an extensive offering of printable greeting cards and
other similar products. Using our service, a subscriber can create his or her
own online greeting using the site, send it electronically or print it out at a
local printer. Our users can also elect to send a greeting via remote
fulfillment, whereby they can create a card and have it printed and mailed by
AmericanGreetings.com.
We currently derive our net revenues from three primary sources: (1) the
sale of subscriptions to our online content, (2) the license of a portion of our
greetings and social expression content and copyrighted trademarks to Mindscape,
a division of Mattel, for inclusion in personal creativity software, and (3) the
sale of advertising on our Web site. We currently have agreements with Internet
service and content providers such as AOL and Yahoo! through which our online
greeting cards are marketed and made available for sale. Our agreements with AOL
and Yahoo! require us to make mimimum aggregate payments of $108.0 million over
the initial terms of these agreements which extend through December 2004. In
addition, under our agreement with AOL, AOL and American Greetings.com will
share in advertising revenues from the co-
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<PAGE> 30
branded sites and AmericanGreetings.com is guaranteed to receive at least $30.0
million through July 2002 for advertising sold on our co-branded sites. We also
have agreements with over 13,000 other Web sites, referred to as affiliates. Our
affiliates are a network of Web sites owned and operated by third parties who,
for a percentage of revenues place banner ads and cross-links to our site on
their Web sites and thereby help drive traffic to our site. In addition to
sharing in this subscription revenue, AOL and a limited number of our other
online partners also share in the revenue generated from each renewal of a
subscription attributable to their respective sites. Currently, we are
particularly dependent on our agreement with AOL. For the six months ended June
30, 1999, 59% of our total net revenue was derived from the sale of products and
services through the AOL service. Although we believe that this percentage will
decrease over time as we broaden our subscriber base and our revenue sources, we
believe that we will continue to be significantly dependent on AOL for a
significant percentage of our total net revenue for the foreseeable future.
In February 1998, we entered into an agreement with Mindscape through which
we currently provide content for several different CD-ROM personal creativity
software products. These products were developed by Mindscape using content and
trademarks licensed by us and are generally distributed through retailers by
Mindscape. In addition, reduced feature and content versions of some of these
products are also distributed through original equipment manufacturers, OEM's,
such as printer companies, including Canon, Lexmark and Epson. Under our
agreement with Mindscape, we receive trademark licensing fees and a royalty for
each product sold with guaranteed minimum payments of $17.0 million over the
four-year term of the agreement ending in February 2002. If royalty payments to
us under this agreement meet specified levels, the agreement gives Mindscape the
right to extend the term. Our personal creativity business is highly dependent
on our agreement with Mindscape. For the six months ended June 30, 1999, we
derived 26% of our total net revenue from royalties earned from the licensing of
our greetings and social expression content and trademarks to Mindscape.
Although we believe that this percentage will decrease over time as we broaden
our revenue sources, we believe that we will continue to be significantly
dependent on Mindscape for a significant percentage of our total net revenue for
the foreseeable future.
Net Revenues. Revenues relating to the sale of online greetings is
recognized ratably over each subscriber's subscription period, currently either
one or six months. With respect to the sale of a fixed number of greetings for a
fixed price which have been offered in the past, revenue was recognized over the
period the greetings were used, generally ranging from four to six months, or
expired which was considered to occur after 90 days of inactivity. During June
and July of 1999, all fixed greeting users were upgraded to a three month
subscription program. Deferred revenue relating to these users, at the date of
upgrade, is being recognized ratably over the three month term of the
subscription. Revenues related to the sale of online greetings are charged to
customers' credit cards and are billed in advance. We recognize revenue from the
licensing of our content to software vendors when products are sold to the OEM
or the retailer. We recognize revenue generated by the license of our trademarks
to vendors over the term of their respective agreements. Deferred revenue, which
is reflected in the balance sheet as short-term and long-term liabilities,
include online greeting fees and licensing fees which have been collected but
for which revenue has not yet been recognized.
Cost of Net Revenues. Cost of net revenues consists of salaries, benefits,
and consulting fees related to our creative operations, depreciation of Web site
hosting equipment and royalties. Royalties consist of payments to our parent
under the intercompany agreements for the use of our parent's intellectual
property and payments to other content providers. Beginning in July 1999,
royalties payable to our parent are $8.0 million per year through June 2002.
Thereafter, the royalty is 3% of our net revenue, subject to an annual minimum
of $5.0 million. In addition, we have entered into licensing arrangements with a
variety of content providers which require us to pay royalties for the use of
such content. Costs incurred to create online greeting content are included in
cost of net revenues as incurred. Costs incurred to create content licensed for
personal creativity software are classified as deferred costs and amortized on a
straight-line basis over one year, the general period over which the software is
sold, beginning on the date when software is shipped to retailers. We expect
that cost of net revenues will increase as we continue to make investments to
enhance our product offerings and increase the capacity and speed of our Web
site, but will continue to fluctuate as a percentage of net revenues.
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<PAGE> 31
Sales and Marketing. Sales and marketing expenses include salaries,
benefits, travel, and related expenses for our business development group,
customer service, marketing, and sales support functions. Sales and marketing
expenses also include advertising expenses and costs associated with
distribution agreements with major Internet content and service providers. In
July and August of 1999, we entered into agreements with AOL and Yahoo!,
respectively, that will require us to make minimum aggregate payments of $108.0
million to these partners over the initial terms of the agreements which extend
through December 2004. These payments and payments under other distribution
agreements are recognized as sales and marketing expense over the terms of such
agreements. Additional payments may also be due under these distribution
agreements consistent with revenue sharing arrangements under such agreements.
We expect sales and marketing expenses to increase both in absolute dollars and
as a percentage of net revenue over the next year due to our efforts to drive
consumer traffic to our Web site and to increase brand awareness. We also
anticipate that sales and marketing expenses may fluctuate as a percentage of
total revenues from period to period as advertising expenditures are made and as
we sign additional agreements with Internet content and service providers.
Product Development. Product development expenses include costs for the
development of new or improved technologies, features, and functionalities
designed to enhance the performance of our Web site, including salaries and
related expenses for our Web site design staff as well as costs for contracted
services, functionality, facilities and equipment. We believe that a significant
level of technology development and expense is required in order to remain
competitive with new and existing online greetings Web sites. Accordingly, we
anticipate that we will continue to devote substantial resources to technology
and product development and that the absolute dollar amount of these costs will
increase in future periods, and will continue to fluctuate as a percentage of
net revenues.
General and Administrative. General and administrative expenses include
salaries, benefits and expenses for our executive, finance, human resources and
administrative personnel. In addition, general and administrative expenses
include occupancy costs, fees for professional services, and depreciation of
fixed assets other than Web hosting equipment. We expect general and
administrative expenses to increase in absolute dollars as we continue to expand
our administrative infrastructure to support the anticipated growth of our
business and separation from American Greetings, including costs associated with
being a public company. General and administrative expenses are expected to
fluctuate as a percentage of net revenues from period to period.
Income Taxes. Prior to the closing of this offering, we were a wholly owned
subsidiary of American Greetings Corporation which files a consolidated federal
income tax return. Our taxable income or loss from our inception to February 28,
1999 was included in the consolidated tax returns of our parent. The net
operating loss generated to date has been fully utilized by American Greetings.
We did not prepare or file separate income tax returns. For all periods
presented, our provision or benefit for income taxes has been prepared as if we
had been a separate taxpayer.
We have yet to achieve significant revenue and our ability to generate
significant revenue is uncertain. Further, in view of the rapidly evolving
nature of our business and our very limited operating history, we have very
little experience forecasting our financial performance. Therefore we believe
that period-to-period comparisons of our financial results are not necessarily
meaningful, and you should not rely upon them as an indication of our future
performance. To date, we have incurred and continue to incur substantial costs
to create, introduce and enhance our services, to develop content, to build
brand awareness and to grow our business. As a result, we have incurred
operating losses in each fiscal year since we commenced operations in 1995, with
the exception of this past fiscal year when we were profitable. We expect
operating and net losses and negative cash flow to continue for the foreseeable
future as we intend to significantly increase our operating expenses and capital
investment to grow our business. We may also incur additional costs and expenses
related to acquisitions of businesses and technologies to respond to change in a
rapidly evolving industry. These costs could harm our future financial condition
or operating results.
26
<PAGE> 32
CHANGE OF FISCAL YEAR
Effective March 1, 1999, we changed our year-end from a fiscal year ending
February 28 or February 29 to a calendar year-end. As a result, we have included
a discussion below of the four month transitional period corresponding with our
new calendar quarter ended June 30, 1999 as compared to the four month period
ended June 30, 1998. We have also included a discussion of the results of our
operations for the six months ended June 30, 1998 and June 30, 1999 for
comparative purposes. Our 1999 transitional year financial statements to be
included in our Form 10-K filing will include the operations for the period from
March 1, 1999 through December 31, 1999. Our first full calendar year ending
December 31 will be the year ending December 31, 2000. We are undertaking a
change in our year-end in order to facilitate the comparability of our results
of operations and financial condition with that of other publicly traded
Internet companies.
RESULTS OF OPERATIONS
The following table sets forth the statements of operations for the periods
indicated. The results of operations for AmericanGreetings.com reflect the
historical results of the operations of the online greeting and personal
creativity operations of American Greetings prior to the formation of
AmericanGreetings.com. The results of operations include all revenue and costs
directly attributable to the AmericanGreetings.com business, including costs for
facilities, functions and services used by the business at shared locations and
allocations of costs for certain administrative functions and services performed
by centralized departments within American Greetings. Costs have been allocated
based on an estimate of the cost that would have been incurred if
AmericanGreetings.com had been a separate entity. However, the financial
information presented may not necessarily be indicative of the results of
operations of AmericanGreetings.com had we operated as a separate company.
<TABLE>
<CAPTION>
FOUR MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1998 1999 1998 1999
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................... $2,972 $6,247 $4,050 $9,241
Cost of net revenues....................................... 572 1,512 1,162 1,906
------ ------ ------ ------
Gross profit............................................. 2,400 4,735 2,888 7,335
Operating expenses:
Sales and marketing...................................... 1,231 3,224 1,554 4,746
Product development...................................... 266 845 398 1,153
General and administrative............................... 439 796 598 1,053
------ ------ ------ ------
Total operating expenses.............................. 1,936 4,865 2,550 6,952
Income (loss) before benefit (provision) for income
taxes.................................................... 464 (130) 338 383
Benefit (provision) for income taxes....................... (167) 46 (123) (138)
------ ------ ------ ------
Net income (loss).......................................... $ 297 $ (84) $ 215 $ 245
====== ====== ====== ======
</TABLE>
27
<PAGE> 33
<TABLE>
<CAPTION>
FOUR MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Net revenues............................................... 100% 100% 100% 100%
Cost of net revenues....................................... 19 24 29 21
--- --- --- ---
Gross profit............................................. 81 76 71 79
Operating expenses:
Sales and marketing...................................... 41 51 38 51
Product development...................................... 9 14 10 13
General and administrative............................... 15 13 15 11
--- --- --- ---
Total operating expenses.............................. 65 78 63 75
Income (loss) before benefit (provision) for income
taxes.................................................... 16 (2) 8 4
Benefit (provision) for income taxes....................... (6) 1 (3) (1)
--- --- --- ---
Net income (loss).......................................... 10% (1)% 5% 3%
=== === === ===
</TABLE>
Four and Six Months Ended June 30, 1998 Compared to Four and Six Months Ended
June 30, 1999
Net Revenues. Net revenues increased to $6.2 million and $9.2 million for
the four and six months ended June 30, 1999, respectively, from $3.0 million and
$4.1 million for the four and six months ended June 30, 1998. The increase in
net revenues for the four months ended June 30, 1999 over the corresponding
period in the prior year includes increased revenues from the sale of online
greetings and content royalty and licensing fees of $2.8 million and $464,000,
respectively. For the six months ended June 30, 1999 revenues from the sale of
online greetings and content royalty and licensing fees increased by $3.7
million and $1.4 million, respectively. The increase in 1999 reflects the launch
of our subscription programs in the Fall of 1998 and an increase in the number
of CD-ROM product releases.
Cost of Net Revenues. Cost of net revenues increased to $1.5 million and
$1.9 million for the four and six months ended June 30, 1999, respectively, from
$572,000 and $1.2 million for the four and six months ended June 30, 1998. As a
percentage of net revenues, cost of net revenues increased to 24% of net revenue
for the four months ended June 30, 1999 from 19% of net revenue for the four
months ended June 30, 1998, but decreased to 21% of net revenue for the six
months ended June 30, 1999 from 29% of net revenue for the six months ended June
30, 1998. Such changes in percentage of net revenue reflect changes in the mix
of revenues generated from the sale of online greetings versus content royalty
and licensing fees. Expenses relating to creative and production costs
associated with the creation of content licensed to personal creativity software
manufacturers was $362,000 and $540,000 for the four and six month periods ended
June 30, 1999, respectively, as compared to $410,000 and $599,000 for the
corresponding four and six months in the prior year.
Sales and Marketing. Sales and marketing expenses increased to $3.2 million
and $4.7 million for the four and six months ended June 30, 1999, from $1.2
million and $1.6 million for the four and six months ended June 30, 1998,
respectively. As a percentage of net revenues, sales and marketing expenses
increased to 51% for both the four and six months ended June 30, 1999,
respectively, from 41% and 38% for the four and six months ended June 30, 1998.
The growth in sales and marketing expenses in both absolute dollars and as a
percentage of net revenues, reflects higher costs relating to agreements with
our distribution partners. Under these agreements, partner revenue sharing
expenses increased $1.3 million and $2.3 million for the four month and six
month periods, respectively.
Product Development. Product development costs increased to $845,000 and
$1.2 million for the four and six months ended June 30, 1999, from $266,000 and
$398,000 for the four and six months ended June 30, 1998, respectively. Product
development costs as a percentage of net revenues increased to 14% and 13% of
net revenues for the four and six month periods ended June 30, 1999 from 9% and
10% of net revenues for the same periods in 1998. The increase in absolute
dollars and as a percentage of net revenues
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<PAGE> 34
relates principally to an increase in personnel costs necessary to support the
growth in our business, to modify our Web site and to implement changes to our
product offering.
General and Administrative. General and administrative costs increased to
$796,000 and $1.1 million for the four and six months ended June 30, 1999, from
$439,000 and $598,000 for the four month and the six months ended June 30, 1998,
respectively. The increase in both the four and six month periods was due almost
entirely to higher personnel costs required to support our expanded operations
and significant growth. As a percentage of net revenues, general and
administrative expenses decreased to 13% and 11% for the four and six months
ended June 30, 1999, respectively, from 15% for both corresponding periods in
fiscal 1998 as general and administrative expenses were spread over a larger
revenue base.
The following table sets forth the statements of operations for the periods
indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FEBRUARY 28,
--------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 1,036 $ 3,882 $12,347
Cost of net revenues........................................ 1,034 1,919 1,623
------- ------- -------
Gross profit.............................................. 2 1,963 10,724
Operating expenses:
Sales and marketing....................................... 1,929 1,980 5,611
Product development....................................... 1,270 959 1,090
General and administrative................................ 430 838 1,340
------- ------- -------
Total operating expenses............................... 3,629 3,777 8,041
------- ------- -------
Income (loss) before benefit (provision) for income taxes... (3,627) (1,814) 2,683
Benefit (provision) for income taxes........................ 1,244 635 (966)
------- ------- -------
Net income (loss)........................................... $(2,383) $(1,179) $ 1,717
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FEBRUARY 28,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Net revenues................................................ 100% 100% 100%
Cost of net revenues........................................ 100 49 13
------- ------- -------
Gross profit.............................................. 0 51 87
Operating expenses:
Sales and marketing....................................... 186 51 45
Product development....................................... 123 25 9
General and administrative................................ 41 22 11
------- ------- -------
Total operating expenses............................... 350 98 65
------- ------- -------
Income (loss) before benefit (provision) for income taxes... (350) (47) 22
Benefit (provision) for income taxes........................ 120 17 (8)
------- ------- -------
Net income (loss)........................................... (230)% (30)% 14%
======= ======= =======
</TABLE>
Fiscal Years Ended February 28, 1997, 1998 and 1999
Net Revenues. Net revenues increased by $2.9 million to $3.9 million in
fiscal 1998 from $1.0 million in fiscal 1997. Revenues from the sale of online
greetings contributed $1.0 million of this increase reflecting the commencement
of sales through AOL in September 1997. In addition, revenues from trademark and
content licensing increased approximately $1.9 million to $2.7 million in fiscal
1998 from $842,000 in fiscal 1997 reflecting an increase in the number of
software product introductions and an overall increase in the level of personal
creativity software sales. Net revenues increased by $8.4 million to $12.3
million in fiscal 1999 from $3.9 million in fiscal 1998. Revenues from the sale
of online greetings increased $4.6 million in
29
<PAGE> 35
fiscal 1999 due principally to the commencement of the sales of subscriptions
through AOL in August 1998 and on our own Web site in November 1998. In
addition, net revenues from royalties earned on the licensing of trademarks and
content to personal creativity software publishers increased $3.8 million to
$6.5 million in fiscal 1999 from $2.7 million in fiscal 1998, reflecting an
overall increase in the level of personal creativity software sales.
Cost of Net Revenues. Cost of net revenues were $1.0 million, $1.9 million
and $1.6 million for fiscal 1997, fiscal 1998 and fiscal 1999, respectively.
Cost of net revenues declined as a percentage of sales from 100% in fiscal 1997
to 49% in fiscal 1998 and 13% in fiscal 1999 reflecting the spreading of costs
over a higher base of revenues for each period presented. The largest component
of cost of net revenues relates to creative and production costs which were $1.0
million, $1.7 million and $1.1 million in fiscal 1997, 1998, and 1999,
respectively. Creative and production costs increased by $698,000 in fiscal 1998
as compared to fiscal 1997, reflecting an increase in the number of product
releases. The decline in creative and production costs in fiscal 1999 compared
to fiscal 1998 reflects an increase in proportionate costs deferred associated
with the creation of content licensed for personal creativity software to
Mindscape under an agreement entered into February 1998. Prior to fiscal 1999,
substantially all creative and production costs were incurred under agreements
which did not contain royalty or licensing fee guarantees and, accordingly, were
expensed as incurred.
Sales and Marketing. Sales and marketing expenses increased by $51,000 to
$2.0 million in fiscal 1998, representing 51% of net revenues, from $1.9
million, representing 186% of net revenues, in fiscal 1997. The increase in
costs from fiscal 1997 to fiscal 1998 reflects an increase in personnel and
business development costs of $35,000 an increase in partner revenue sharing
expenses associated with higher volumes of business of $407,000 partially offset
by a decrease in non-Web based advertising expenses and other promotional
expenses of approximately $391,000. Sales and marketing expenses increased by
$3.6 million to $5.6 million in fiscal 1999, representing 45% of net revenues
from $2.0 million in fiscal 1998, or 51% of net revenues. Approximately $3.4
million of this increase is attributable to higher partner revenue sharing
expenses resulting from an increase in the number of online greetings sold
through the AOL service. In addition, sales and marketing expenses increased by
$642,000 in fiscal 1999 reflecting increased staffing and related costs in
connection with the implementation of our marketing strategy and customer
service activities necessary to support our increased customer base and to
expand and develop our distribution relationships. This increase was partially
offset by a $390,000 decrease in non-Web based advertising expenses and other
promotional expenses. Advertising costs decreased as we changed focus from print
advertising to gain customers to distribution deals such as our agreements with
AOL and Yahoo!. Sales and marketing expenses as a percentage of net revenue
decreased from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 as
sales and marketing expenses were spread over larger revenue base.
Product Development. Product development expenses declined by $311,000 to
$959,000 in fiscal 1998 from $1.3 million in fiscal 1997. The higher level of
costs in fiscal 1997 reflects higher levels of investment necessary to support
the initial development of products and technologies during our start-up phase.
A substantial portion of these costs in fiscal 1997 were outsourced. Product
development expenses increased by $131,000 to $1.1 million in fiscal 1999 from
$959,000 in fiscal 1998 reflecting an increase in staffing and associated costs
related to enhancing the features and functionality of our Web site as well as
increased investments in computer systems and infrastructure. As a percentage of
net revenue, product development expenses decreased from 123% in fiscal 1997 to
25% in fiscal 1998 and 9% in fiscal 1999 as product development expenses were
spread over a larger revenue base.
General and Administrative. General and administrative expenses increased
by $408,000 to $838,000 in fiscal 1998 from $430,000 in fiscal 1997. The
increase from fiscal 1997 to fiscal 1998 reflects increased personnel costs
necessary in support of the business' expansion and higher depreciation
expenses, resulting from additional expenditures for fixed assets. General and
administrative expenses increased by $502,000 to $1.3 million in fiscal 1999
from $838,000 in fiscal 1998. Substantially all of the increase is due to higher
personnel costs in support of the growth in our business activities. As a
percentage of net revenue general and administrative expenses decreased from 41%
in fiscal 1997 to 22% in fiscal 1998 and 11% in fiscal 1999 as general and
administrative expenses were spread over a larger revenue base.
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<PAGE> 36
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for the eight calendar quarters ended June 30, 1999. This
unaudited quarterly information has been derived from financial statements of
AmericanGreetings.com and, in the opinion of management, contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for such periods. These unaudited
quarterly results should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this prospectus. The results of
operations for any quarter are not necessarily indicative of the results of any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- ------- ------- -------- -------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................... $1,004 $1,034 $1,777 $2,273 $2,702 $3,679 $4,501 $4,740
Cost of net revenues....................... 285 386 716 446 179 478 683 1,223
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............................. 719 648 1,061 1,827 2,523 3,201 3,818 3,517
Operating expenses:
Sales and marketing...................... 454 536 601 953 1,059 1,799 2,357 2,389
Product development...................... 259 205 194 204 233 283 432 721
General and administrative............... 194 206 275 323 322 322 415 638
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses............... 907 947 1,070 1,480 1,614 2,404 3,204 3,748
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before benefit (provision)
for income taxes......................... (188) (299) (9) 347 909 797 614 (231)
Benefit (provision) for income taxes....... 66 105 3 (126) (327) (288) (221) 83
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).......................... $ (122) $ (194) $ (6) $ 221 $ 582 $ 509 $ 393 $ (148)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- ------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Net revenues............................... 100% 100% 100% 100% 100% 100% 100% 100%
Cost of net revenues....................... 28 37 40 20 7 13 15 26
--- --- --- --- --- --- --- ---
Gross profit............................. 72 63 60 80 93 87 85 74
Operating expenses:
Sales and marketing...................... 45 52 34 42 39 49 52 51
Product development...................... 26 20 11 9 9 7 10 15
General and administrative............... 19 20 15 14 12 9 9 13
--- --- --- --- --- --- --- ---
Total operating expense................ 90 92 60 65 60 65 71 79
--- --- --- --- --- --- --- ---
Income (loss) before benefit (provision)
for income taxes......................... (19) (29) -- 15 33 22 14 (5)
Benefit (provision) for income taxes....... 7 10 -- (5) (12) (8) (5) 2
--- --- --- --- --- --- --- ---
Net income (loss).......................... (12)% (19)% (0)% 10% 21% 14% 9% (3)%
=== === === === === === === ===
</TABLE>
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sales and marketing expenses to promote our
brands and our products in the future. Therefore, our quarterly financial
performances and operating results are likely to be particularly affected by the
number of subscribers as well as sales and marketing expenses for a particular
period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our operations have been funded primarily from cash
contributed by American Greetings. American Greetings contributed cash of $7.5
million to AmericanGreetings.com during the period from inception through June
30, 1999.
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<PAGE> 37
Cash used in operating activities was $2.4 million, $1.6 million and $2.6
million in fiscal 1997, 1998 and 1999, respectively. Cash used in operating
activities in fiscal 1997 was primarily attributable to a net loss of $2.4
million. Cash used in operating activities in fiscal 1998 was primarily
attributable to a net loss of $1.2 million and increases in prepaid partner
share expense and accounts receivable, partially offset by an increase in
deferred revenue. Cash used in operating activities in fiscal 1999 was primarily
attributable to increases in accounts receivable, prepaid partner share expense,
and deferred creative and production costs, partially offset by net income of
$1.7 million, an increase in deferred revenue due to a higher level of
subscriptions, and an increase in accounts payable. Cash used in investing
activities was $350,000, $228,000 and $402,000 in fiscal 1997, 1998 and 1999,
respectively, and related principally to acquisition of computers and office
equipment. Cash provided by financing activities was $2.8 million, $1.9 million
and $3.0 million in fiscal 1997, 1998 and 1999, respectively. Cash provided by
financing activities was attributable to net advances from our parent in all
fiscal years.
For the four months ended June 30, 1999 net cash provided by operating
activities was $3.6 million, reflecting a decrease in trade accounts receivable
and prepaid partner share expense. During this period, cash provided by
operating activities was used primarily to finance fixed asset additions of $2.0
million and reduce parent company advances.
We continue to be substantially dependent upon American Greetings for the
majority of our financial, administrative and operational services and related
support functions, including cash management. We believe that the implementation
of an independent accounting system, financial and operational management
controls, and reporting systems and procedures will be necessary to support the
continued expansion of our operations. As a consequence, we intend to expend
working capital to support the development of our system's infrastructure.
Following the formation of AmericanGreetings.com, American Greetings and
AmericanGreetings.com will enter into a formation agreement under which American
Greetings will, prior to the closing of this offering, contribute to capital its
net advances to AmericanGreetings.com and $50.0 million in cash, of which the
net amount of $17.6 million was paid to AOL and Yahoo! during August 1999 in
connection with our related distribution agreements, for 100% of the ownership
interest in AmericanGreetings.com. Under the formation agreement, American
Greetings and AmericanGreetings.com will also enter into, prior to the closing
of this offering, a cross-license agreement whereby American Greetings and
AmericanGreetings.com will each provide the other with use of its art and verse
libraries, as well as trademarks. The cross-license agreement will provide for
fixed royalty payments of $24.0 million to American Greetings over the three
years, beginning July 1, 1999. Thereafter, the royalties are to be computed
based on 3% of net revenues for so long as any American Greetings' trademarks
are used, with a guaranteed minimum of $5.0 million per year. Additionally,
under the formation agreement, American Greetings and AmericanGreetings.com
will, prior to the closing of this offering, enter into an administrative
services agreement, under which American Greetings will provide
AmericanGreetings.com with requested back office infrastructure and certain
operational and administrative services at American Greetings' cost plus 10%.
See "Related Party Transactions -- Transactions With Our Parent" and Note H to
our notes to our financial statements.
On July 28, 1999, we entered into an interactive marketing agreement with
AOL extending through December 2004 which provides for us to be featured as the
generally exclusive provider of online greeting products and services to the
following AOL brands: AOL, AOL.com, ICQ, Digital City, Netscape Netcenter and
CompuServe. In addition, our products and services will also be offered on AOL
International services, including such services in Canada, the United Kingdom,
Australia, Japan, Germany and France. In consideration of the marketing,
promotion, advertising and other services AOL will provide under this agreement,
we will pay AOL a minimum aggregate of $100.0 million over the term of the
agreement. The agreement also contains revenue sharing provisions for sales over
specified amounts. We expect that we will amortize the costs associated with
this agreement over the contract term of five and one-half years as sales and
marketing expenses. Of the amount payable under this agreement, $22.8 million
was paid in August 1999. The agreement may be terminated by either party upon a
material breach by the other party which is not cured within 90 days of notice,
and by AOL upon a change of control of AmericanGreetings.com resulting in our
being controlled by a competitor of AOL. Under the agreement, AOL will act as
our
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<PAGE> 38
exclusive sales agent for all advertisements on the co-branded sites, and AOL
and AmericanGreetings.com will share in the advertising revenues from the
co-branded sites. In addition, under our agreement with AOL,
AmericanGreetings.com is guaranteed to receive at least $30.0 million through
June 2002 for advertising sold on our co-branded sites. Under this agreement,
$6.0 million was received from AOL in August 1999 in connection therewith.
On August 1, 1999, we entered into a license and promotion agreement for
the integration of our greetings products and services with Yahoo!'s greetings
service. The agreement is for a term of approximately two years. Under this
agreement, we are required to pay Yahoo! minimum aggregate fees of $8.0 million
over the term of the agreement. We expect that the costs associated with this
agreement will be recognized as sales and marketing expenses over the two year
contract term. We may also be required to pay Yahoo! additional fees if a
specified revenue threshold amount is attained.
Under our agreement with Mindscape, we receive trademark licensing fees and
a royalty for each product sold with guaranteed minimum payments of $17.0
million over the four-year term of the agreement ending in February 2002. If
royalty payments to us under this agreement meet specified levels, the agreement
gives Mindscape the right to extend the term.
Other than our payment obligations to our distribution partners, our
royalty obligations under our agreements with American Greetings, obligations
under operating leases and technology acquisitions, we have no material capital
commitments. We expect capital expenditures of approximately $10.0 million over
the next twelve months relating to investments in technology infrastructure
necessary to support our growth objectives.
We expect to incur significantly higher costs, particularly content
creation costs and sales and marketing costs, in the future to grow our
business. We believe that the net proceeds from this offering, together with
American Greetings cash contribution, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months. Thereafter, if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may need to raise additional funds
through public or private financing, strategic relationships or other
arrangements. We cannot assure you that such additional funding, if needed, will
be available on terms attractive to us, or at all. The failure to raise capital
when needed could seriously harm our business and financial condition. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our then current stockholders will be
reduced.
YEAR 2000 COMPLIANCE
We rely primarily on American Greetings' computer, communications networks
and information systems for the processing of our accounting and administrative
information. The Year 2000 issue is the result of information technology, or IT,
systems programs being written using two digits rather than four digits to
define the application year. Any of American Greetings' IT systems that have
date-sensitive software may be unable to interpret appropriately the calendar
year 2000 and thus could cause the disruption of normal business activities. In
addition, we rely on American Greetings' IT systems in various aspects of our
business, including some of our product development and all of our
administrative functions. American Greetings is currently in the process of
working toward Year 2000 compliance. American Greetings has prioritized its IT
systems into three categories: critical, necessary or other. Failure of a
"critical" system would result in a serious disruption of revenue and would
critically impact our productivity. Failure of a "necessary" system would result
in serious processing delays and a significant reduction in productivity. We
have been informed that American Greetings believes its critical and necessary
applications are Year 2000 compliant. The remainder of the systems should be
remedied by the end of the third quarter of calendar 1999. However, given the
number of systems in the Year 2000 portfolio, slippage in the schedule could
occur.
In addition, for those few systems that we utilize only for the
AmericanGreetings.com business, we believe that we will complete validation
testing by October 1999 so that all additional business processes and components
will properly handle dates prior to, during and after the year 2000. We have
also begun the process of ensuring that all significant vendors and customers
are Year 2000 compliant. Our current estimate
33
<PAGE> 39
of total cost remaining to achieve Year 2000 compliance in both our IT and
non-IT systems is approximately $60,000 for testing costs, modifications to
existing software, software replacement, systems software upgrades, computing
hardware replacement and embedded systems. Through June 30, 1999, approximately
$20,000 has been cumulatively expended on Year 2000 compliance.
We believe the Year 2000 compliance issue should not have a material impact
on AmericanGreetings.com's operations. Specific factors which might cause the
Year 2000 issue to have a material adverse effect on our business include the
availability and cost of trained personnel and the ability to recruit and retain
them, as well as the ability to locate all system coding requiring correction.
Based upon information available at this time, AmericanGreetings.com believes
that the cost of modifications, replacements and related testing will not have a
material impact on its liquidity or results of operations.
We believe that our most reasonably likely worst case scenario related to
Year 2000 could include:
- disruption of our users' ability to send online greetings;
- disruption of our ability to take orders from users and to connect users
to e-commerce merchants;
- our users' inability to use their computers because they are not Year
2000 compliant; and
- our distribution partners' inability to send users to our site.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 establishes new standards for the way companies
report information about operating segments in annual financial statements. The
disclosures prescribed by SFAS No. 131 are effective for the year ending
February 28, 1999. We believe that we currently operate in one segment.
In April 1998, The American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, 98-5, "Reporting on the Costs of
Start-up Activities". The Standard is effective for the company for its fiscal
year beginning March 1, 1999. This Standard requires that start-up costs, as
defined, be written off and any future start-up costs be expensed as incurred.
We expense start-up costs as incurred and, therefore, adoption of this Standard
is not expected to have a significant impact on our financial position, results
of operations or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Standard, which establishes new
accounting and reporting standards for derivative financial instruments, must be
adopted for all fiscal quarters of all fiscal years beginning after June 15,
2000. We do not have any derivative instruments and, therefore, do not expect
the Standard to have a material effect on our financial position, results of
operations or cash flows.
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<PAGE> 40
BUSINESS
OUR COMPANY
We are a leading Web-based provider of greetings and other social
expression content aimed at expanding individuals' ability to communicate and
express themselves online. Our destination Web site offers users access to over
9,000 greetings and other social expression products, one of the largest
selections on the Web today. Our online products consist of static postcards,
animated and interactive online greetings, customized printable greeting cards,
cartoons and games. We are able to provide users with this comprehensive
selection through our in-house team of experienced creative specialists, third
party licensees and our relationship with our parent, American Greetings, the
world's largest publicly-traded greeting card company. Our relationship with
American Greetings provides us with access to its library of approximately one
million images and lines of verse as well as the American Greetings brand name
online. Users visiting our Web site can view, personalize and send from a
competitive selection of free greetings and social expression products while
paid subscription users have unlimited access to our complete online selection.
In addition to subscriptions, we currently generate revenues from the sale of
advertising on our Web site, and by licensing our trademark and a portion of our
content to Mindscape, a division of Mattel, for inclusion in personal creativity
software.
We began providing consumers with online greetings in 1995 when we
introduced our own Web-based service. Since then, our traffic has grown
significantly and on a combined basis, our Web properties at
www.americangreetings.com or www.ag.com and AOL keyword: American Greetings
ranked as the seventh most visited shopping site on the Internet and in the top
50 of the Web's most heavily trafficked sites in June 1999, according to Media
Metrix, an Internet and digital media measurement company. For the month of June
1999, we had over four million unique visitors and over 32 million total page
views. At June 30, 1999, we had over 400,000 subscribers. In addition, two of
our American Greetings branded software titles were ranked in the top five of
the personal productivity category for the month of June 1999, according to PC
Data. Our revenues have increased from $4.1 million for the six months ended
June 30, 1998 to $9.2 million for the six months ended June 30, 1999. We believe
our success is based, in large part, upon:
- leveraging our parent, American Greetings' brand name and content;
- creating and developing our own content;
- establishing key character license relationships;
- building a robust and scalable technology infrastructure;
- establishing distribution agreements with key online sources of users;
and
- leveraging our management's significant combined experience in the
greetings and internet industry.
Our key content relationships provide our users with one of the largest
online greetings collections of licensed characters including Betty Boop,
Dilbert, The Simpsons, the World Wrestling Federation and Xena. Our distribution
agreements with major Internet content and service providers such as AOL, Yahoo!
and Lycos Network, have helped to extend our brand awareness while increasing
our user base. Through our agreement with AOL, we are the exclusive provider,
subject to limited exceptions, of greetings products and services to the
following AOL brands: AOL, AOL.com, ICQ, Digital City, Netscape Netcenter and
CompuServe. In addition, our products and services will also be offered on AOL
international services in Canada, the United Kingdom, Australia, Japan, Germany
and France. In addition, in order to extend our brand awareness and increase our
user base, we have created an affiliate program with over 13,000 affiliated
sites as of June 30, 1999. Our affiliates are a group of Web sites owned and
operated by third parties who, for a percentage of revenues, place banner ads
and cross-links to our site on their Web sites and thereby help drive traffic to
our site.
We believe the proliferation of the home computer, with enhanced
peripherals such as the color printer, will continue to support our growth as a
leading provider of online greetings and other social expression
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content. Our strategy for capitalizing on this market opportunity is to offer
online users a comprehensive online offering of greetings and other social
expression products and services. These products and services are electronically
sendable or remotely printable and are of high quality, available in a wide
variety and utilize some of the most effective technology in online greetings.
In addition, we believe that our relationship with American Greetings and the
ability to leverage its superior brand and more than 90 years of expertise and
experience in greetings and social communication provides us with a meaningful
advantage relative to our competitors.
INDUSTRY BACKGROUND
The Traditional Greeting Card Industry. Over the past 100 years, greeting
cards have become almost universally accepted as a means of social expression
and communication. People rely on greeting cards to convey sentiments and
emotions in a manner that may not be easily conveyed through letters or other
written communications. As a result, paper greeting cards have become part of
the world's social fabric, including in the United States where sales of these
cards and related products are expected to exceed $7.7 billion in 1999 alone,
according to the Greeting Card Association of America. The average person
received approximately 24 greeting cards per capita in the United States during
1998, according to the Greeting Card Association of America. Despite their wide
use and popularity, however, we believe the following factors have traditionally
acted to limit sales of paper greeting cards:
- the inconvenience of shopping for paper cards;
- failure on the consumer's part to remember that they need to buy a card;
- the inconvenience of mailing the card or mailing the card in a timely
manner; and
- the limited selection available in any one location.
Growth of the Internet as a Medium for Communications. The Internet has
become an important communications tool, advertising medium and sales channel
for consumers and businesses worldwide. International Data Corporation, or IDC,
estimates that the number of Internet users worldwide will increase from 97
million in 1998 to 320 million in 2002, representing a compound annual growth
rate of approximately 35%. According to Jupiter Communications, e-mail ranks as
the number one reason consumers access the Internet today. Forrester Research
expects the number of e-mail users in the United States alone to increase from
40 million in 1996 to 135 million in 2001. In addition, Electronic Mail &
Messaging Systems estimates that in the United States the total volume of daily
e-mail and instant messages, which allow users to communicate real-time with
each other, will increase from 0.7 billion in 1998 to 1.9 billion in 2002,
representing a compound annual growth rate of approximately 40%. Forrester
Research estimates that over one billion of the e-mail and instant messages sent
in 1998 were personal, and expects that number to increase to over 3.5 billion
in 2002. We believe that the explosive growth of e-mail and instant message
communications can largely be attributed to their ease of use and convenience.
Both methods, however, suffer from being somewhat difficult for users to
personalize in order to fully express their emotions and sentiments.
Growth of the Internet as a Medium for Commerce and Advertising. Online
purchases are expected to grow rapidly as well. IDC estimates that at the end of
1998, almost 27 million users worldwide had made at least one online purchase,
and by the end of 2002 this population is expected to grow to approximately 128
million. In addition, Simba Information estimates that online advertising
revenues will grow from approximately $2.1 billion in 1998 to approximately $7.1
billion in 2002.
Proliferation of Color Printers. According to Media Metrix, at the end of
1998 over 60% of all computer households were believed to have access to a color
printer. Furthermore, we believe that roughly 20% of all U.S. households
currently print greetings and other creativity products through the use of a
color printer. We believe that the personal creativity market has seen dramatic
growth in recent years as a result of the proliferation of color printers in
households, growing from approximately $147.3 million in 1996 to $202.7 million
in 1998, an increase of approximately 37%.
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Emergence of Online Greetings. Much as paper greetings supplement letters
as a form of social communication, we believe online greetings are beginning to
supplement e-mail as a means of more effectively communicating sentiments and
emotions. This continually evolving means of communication currently allows
users to enhance e-mail with such multi-media features as sound, graphics and
motion components to deliver dramatically higher impact online greetings.
Compared to traditional, text only e-mail, online greetings allow the sender to
better impart the expression or emotion to be delivered, thereby significantly
enhancing the level of communication between sender and recipient. According to
a recent study conducted by Jupiter Communications, nearly 60% of consumers
online cited sending online greetings as one of the reasons for going online.
THE AMERICANGREETINGS.COM SOLUTION
Our solution is to provide users with one of the largest selections of
greetings and other social expression content online in order to meet their
everyday communication, self-expression and entertainment needs. Currently, we
offer over 9,000 greetings and other social expression products online, which we
believe is the largest offering available on the Internet today. Supporting our
online selection and facilitating development of new products is a library of
approximately one million images and lines of verse that our parent, American
Greetings, has developed and market-tested over the past 90 years. We believe
that our growing and diverse library allows us to provide a broad selection of
high quality greetings and other social expression products that can be targeted
to specific audiences. By targeting specific audiences, we offer online
advertisers and retailers an opportunity to direct their products and services
more effectively to their target markets.
We currently offer users visiting our Web site and the co-branded sites of
our distribution partners an assortment of free greetings and related social
expression content as well as the opportunity to access an even broader
selection of greetings and social expression content through a subscription for
a fixed period of time. In addition, we currently offer our subscribers a
selection of high quality specialty paper for printing online greetings and
discounts on e-commerce transactions with our e-commerce partners. We believe
our free offerings will help drive traffic to our Web site and the co-branded
sites of our distribution partners while building our subscriber base as users
view and access our full range of online content.
We believe one of our principal competitive advantages results from our
relationship with American Greetings, our parent and a leader in traditional
social communication. American Greetings is the largest publicly-traded greeting
card company in the world with revenues of approximately $2.2 billion for the
twelve months ended February 28, 1999. Through this relationship we are able to
tap into and leverage over 90 years of American Greetings' industry knowledge
and expertise. Other advantages that our relationship with American Greetings
provides us relative to our competitors include:
- superior brand recognition of the American Greetings brand name;
- unlimited access to American Greetings' library of market-proven artwork
and verse;
- the ability to conduct cross-marketing and co-promotion programs; and
- the ability to serve international markets, such as the United Kingdom,
Canada and Australia, for which markets American Greetings has already
developed content.
We provide the following benefits to our users:
Broad Selection of Quality Greetings and Social Expression Content. We
believe we offer the largest selection of online greetings and other social
expression products, with over 9,000 currently available. In addition to our
proprietary library of market-tested content, we license trademarks and
copyrighted material to enhance our product offerings. We currently have over 30
licenses for such widely recognized brand names and characters as Dilbert, Power
Rangers, the Simpsons and the World Wrestling Federation. Our in-house team of
creative specialists, together with our network of freelance artists and other
professionals, coordinate, develop and deliver content that is updated daily.
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Wide Variety of Products and Delivery Available. In order to meet the
changing and diverse needs of our user base, we offer a wide variety of
greetings and other social expression products in formats which utilize a range
of technologies. Our electronic greetings range from static postcards which can
be viewed easily and downloaded quickly to animated, interactive greetings which
use industry standard technology enabling the addition of sound, graphics and
personalized text. We offer our users products which the sender can customize
with a personal message. These products provide users with the ability to
enhance their ordinary text based e-mail communication. We also offer our users
the ability to select, personalize and print directly from our Web site
thousands of high quality greeting cards and other printable personal creativity
products. These products address a need for some users who prefer the benefits
of a physical product that is accessible 24 hours a day and offers a wider
selection of greetings than is available in many retail stores. This method also
allows users to send greetings to individuals that are not online.
We provide several means of delivery from which users can transmit
greetings, allowing them to choose the method that best suits both the sender's
and the recipient's needs. Users have the option of electronic delivery,
printing a traditional greeting card at home, or having us print and mail the
greeting for them. On the back of all these printable products is our URL so the
recipient can go to our site and reciprocate the sentiment. For electronic
users, we offer the ability to receive greetings through an online pick-up
window by prompting the receiver to visit our Web site to retrieve their
greetings. This delivery method promotes traffic to our Web site and encourages
a reciprocal greeting from the recipient back to the sender, thus proliferating
the use of online greetings.
Personalized Services for Ease of Use. We offer an array of helpful and
useful services to assist our users. Some of these services include automatic
e-mail reminders of important dates and occasions, the ability to schedule the
delivery of a greeting up to a year in advance and a personalized address book
to assist users in sending online greetings. We also offer users the opportunity
to purchase items such as chocolates and gift items at discounted prices on our
site through cross-selling programs with retailers.
Targeted, Cost-effective Medium for Advertisers. Based on our ability to
track our users' browsing and sending habits, we are able to provide advertisers
with highly-targeted online audiences. Information gathered through the ordering
process and our online sales performance tracking systems allow us to target and
distribute electronic offers of products and services to users with desirable
characteristics and interests as demonstrated by their greetings usage on our
site. Additionally, users browsing particular pages on our Web site or sending
particular products are likely to be highly motivated buyers of products
consistent with the theme of that section. For example, a user on our site who
creates and sends a Valentine's Day card might be an excellent candidate to whom
to offer other holiday related gifts such as flowers or chocolates.
STRATEGY
Our objective is to become the premier site worldwide for users to fulfill
their online greetings and social expression needs. Our strategy includes the
following key elements:
Create the Broadest Selection of Enhanced Content Online. We intend to
continually broaden and enhance our content, product and service offerings. We
believe that including enhanced offerings such as categories of content directed
at and addressing specific demographic and common interest groups such as pet
owners and sports fans, and adding more multimedia content should increase the
attractiveness of our site. Furthermore, we intend to offer additional features
that will be updated frequently by our creative staff to provide the most
current topical content possible. We believe that by continually enhancing and
expanding our online offerings, we expect to draw increased traffic to our Web
site, improve our brand recognition, increase the amount of time users spend on
our site and broaden our user base. We believe many users who are initially
drawn to our site by our free content will choose to upgrade to the subscription
service to gain unlimited access to our full range of online content.
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Aggressively Build Our Brand and Increase Traffic. We intend to
aggressively build our brand and increase our traffic through the following:
- Strengthen Distribution Partnerships with Major Internet Content and
Service Providers. We believe that we can significantly increase traffic
to our Web site, increase the number of our subscribers and expand brand
recognition through our strategic alliances with major Internet content
and service providers. We intend to continue to leverage our distribution
partnerships with companies such as America Online, Yahoo!, and Lycos
Network to drive traffic to our site. Through closer integration,
co-branding and joint marketing programs, we plan to take advantage of
the significant distribution reach of each partner to increase our
exposure and contact a broader audience of potential subscribers.
- Leverage and Expand Our Affiliate Program and Our E-commerce
Relationships. We plan to grow our current affiliate base of over 13,000
sites by coupling attractive commissions and customized options with
strong technology tools and real time sales reporting. We also intend to
enter into additional cross-selling arrangements with retailers.
- Pursue Online and Traditional Advertising. While we have conducted only
limited advertising to date, we intend to further promote our brand
through a marketing campaign using a combination of online and
traditional marketing. We plan to add the address of our Web site to the
back of American Greetings' printed greeting cards which number over one
billion distributed in thousands of retail outlets in North America per
year. Pursuant to our new agreements with AOL and Yahoo!, we intend to
extensively advertise on their Web sites as well as the sites of other
select Internet content and service providers. In addition, following the
closing of this offering, we plan to initiate a national advertising
campaign through traditional print and broadcast media.
- Direct Marketing to Users. We plan to use direct e-mail marketing for
value-added products and services to increase conversion to our
subscription service and promote the sale of e-commerce products offered
on our site.
Continue to Drive Advertising Revenues. We believe that our Web site offers
advertisers highly relevant audiences for narrowly targeted advertising. We
intend to expand our internal sales team as well as use third party sales
organizations such as AOL and Phase2Media to attract advertisers based on our
ability to track our users' browsing and sending habits through the ordering
process and our online sales performance tracking system. This allows us to
target electronic offers of products and services to users with desirable
characteristics and interests. We intend to offer (1) general run-of-site
advertising that places an advertiser's banner throughout our Web site targeted
to the broad greetings user, (2) category sponsorship advertising that more
specifically targets a sending occasion, and (3) premium placement
advertisements that specifically target our users after they have indicated
their decision to view a specific greeting.
Broaden E-commerce Offerings. We believe our Web site provides an
attractive opportunity to third-party vendors to reach a highly targeted group
of online consumers. We currently have cross-selling relationships with Gorant
Chocolates, Hickory Farms and OfficeMax.com for which we receive either a fixed
commission on sales or a one-time fee for ad placement on our site. We intend to
enter into highly targeted cross-selling arrangements with additional retailers.
We also intend to promote e-commerce offerings which are complementary to our
greetings and other social expression content, such as specialty paper for
printing physical cards and personal creativity software.
Expand Internationally. We believe that significant opportunities exist to
address the global adoption of the Internet and the global demand for enhanced
electronic communication. We currently offer culturally tailored content in
British English, French, German, Spanish, Japanese and Chinese, and intend to
continually expand into other foreign languages and cultures. We intend to
create local versions of our Web site for foreign markets and we will continue
to utilize existing overseas relationships of our parent and those of our
strategic partners such as AOL. We intend to further explore international
opportunities to extend the reach of the AmericanGreetings.com brand and to
pursue additional strategic relationships in important international markets.
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OUR CONTENT-BASED PRODUCTS AND SERVICES
Content
Our in-house team of creative specialists, together with freelance artists,
coordinate and develop over 30,000 pieces of proprietary content annually,
providing a wide array of greetings and social expression products from which
our users can choose. Our content includes material tailored to specific
demographic audiences and their interests. This content is transformed into both
greetings and other social expression products designed to appeal to the
specific communication, self expression and entertainment needs of these
audiences. Targeted audiences include:
- Kids. games, crafts and activities, greetings for kids to send to kids
and adults alike, and favorite characters.
- Women. family, health, work, relationships, food and travel.
- Interest Related. sports, animals, hobbies, music, spirituality and
lifestyles.
- International. multilingual greetings from international markets
including: the United Kingdom, Australia, Germany, France, Japan,
Netherlands and Canada.
We also have contract rights to licensed content for many popular brand
names, characters and photographic archives. The majority of the license
agreements are for a term of two years, and allow us rights to use the licensed
property in our online greetings and other related social expression products.
Some of our most widely recognized licensed properties include:
- Cartoons and Comics. Beavis and Butthead, Betty Boop, Dilbert, Garfield,
Marmaduke, Popeye and Rugrats.
- Television and Movies. Antz, Hercules, Power Rangers, The Simpsons, The
Three Stooges, Universal Studios' Monsters and Xena.
- Others. Care Bears, Elvis, Strawberry Shortcake and the World Wrestling
Federation.
Our content also covers a broad range of sentiments and occasions in an
attempt to meet all the needs of our users. Some such sentiments and occasions
for the sending of greetings include:
- Major Occasions. Anniversaries, Birthdays, Graduations and Weddings
- Major Holidays. Father's Day, Mother's Day and Valentine's Day
- Other Holidays. Earth Day, Groundhog Day, Halloween, New Years' Day, St.
Patrick's Day, and Thanksgiving Day
- Special Days. Kiss Your Mate Day, National Forgiveness Day, Secretaries'
Day and Teacher's Day
- International Holidays. Bastille Day, Cinco De Mayo, Pulaski Day and
Victoria Day
- Religious Holidays. Christmas, Easter, Hanukkah, Passover and Rosh
Hashanah
- Non Occasions/Sentimental. Anytime, Friendship, Get Well, Just to Say Hi,
Romance, Thank You and Thinking of You
- Celebrate-the-Date. A different greeting for each day of the year,
including International Violin Day, Limerick Day, National Programmers'
Day, National Splurge Day and Slug Day.
Content-Based Products
We believe we currently offer our users one of the largest selections of
online greetings and social expression content-based products. We have assembled
a wide variety of high-quality artwork and verse that
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we believe appeals to and is relevant to the sentiments, needs and tastes of a
broad base of Internet users. We currently offer the following products:
- Greetings Online. Printable greeting cards, electronic postcards,
animated greetings and interactive greetings
- Social Expression and Entertainment Products. Interactive jokes, stories,
comics, horoscopes and games
- Personal Creativity Products. Banners, stationery, 3-D crafts, calendars,
invitations, announcements, Web page templates, clip art and screen
savers
Delivery Methods
In order to meet the diverse needs of online users, we offer a wide variety
of delivery methods:
- E-mail. A user selects and personalizes a greeting or other social
expression content such as a cartoon and sends it to the recipient
through our service. The recipient receives an e-mail from us prompting
them to link to our electronic pick-up window in order to retrieve their
greeting. This system promotes traffic to our Web site by requiring the
receiver of the online greeting to retrieve their greeting on our Web
site. In addition, the use of a Web pick-up window encourages reciprocity
from the recipient while they are on our Web site, which proliferates the
use of our online greetings. Our electronic pick-up window system has
been implemented on our Web site and our co-branded sites, other than
AOL, and is in the process of being implemented on our AOL co-branded
site.
- Print. This option is available to all of our users and allows them to
select and personalize their greeting or social expression product. The
user then clicks the "print" or "download" button, which either downloads
the product to their computer or prints it directly to their printer.
Other printable products that we intend to introduce include 3-D crafts,
banners, stationery, calendars, invitations, announcements and other
personal creativity crafts.
- Mail. For those users who wish to send an actual paper greeting, we offer
more than 2,000 paper greeting cards that offer greater convenience than
is available through traditional retail stores. The user selects,
personalizes and then electronically sends their greeting to us. We print
the greeting at our facilities and mail it on the sender's behalf to the
addressee through regular mail.
Services
We offer a number of services in addition to our product offerings,
including e-commerce opportunities and feature enhancements to improve the
overall user experience. These services are available to all users and include
the following:
- My Account. Users can review their past transactions. In addition, users
may review, edit and re-send online greetings and other products
previously sent.
- Future Delivery. Users are able to schedule future delivery of online
greetings and other products up to one year in advance.
- Reminder Service. This service enables users to set-up e-mail reminders
in advance of special events, holidays or meetings. This service will
automatically send the user a reminder in advance of those dates,
providing purchase suggestions and special offers as appropriate.
- Address Book. Provides an address book to users, allowing them to store
e-mail and regular addresses for convenient and easy ordering on our Web
site.
- E-commerce. We offer opportunities for users to purchase products offered
by third-party vendors. For example, a user on our Web site who creates
and sends a Valentine's Day card could also purchase a related gift such
as chocolates.
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Pricing
Currently, we offer users a choice between unlimited access to our
greetings and other social expression content available by subscription and a
free offering of products and services under the following plans:
- Subscriptions. Users are able to subscribe to our service on a
semi-annual or monthly basis for a fee of $19.95 or $4.95, respectively.
Subscribers are entitled to send unlimited product and have access to all
content areas and services on our Web site. Subscriptions are
automatically renewed to provide continuous and uninterrupted service
unless we are otherwise notified. Since implementing our subscription
model, we have achieved a subscriber renewal rate of approximately 65% of
our subscribers who have come up for renewal.
- Free Offering Products. We currently offer users a competitive selection
of online greetings and other social expression content free of charge.
To access our free offering, we ask users to register and provide
valuable demographic information which in turn allows for more directed
and targeted marketing by advertisers. We also provide users with
opportunities to view our extensive product offerings for subscribers
which we believe will encourage them to purchase a subscription.
MARKETING AND PROMOTION
Our marketing and promotion strategy is designed to broaden awareness of
our brand, increase traffic to our Web site and encourage new and repeat
subscribers. We utilize distribution agreements and other alliances to market
and promote our brand.
Distribution Agreements
In order to drive traffic to our Web site, we have aggressively pursued
distribution relationships with some of the largest and most heavily trafficked
online content and service providers, including America Online, Yahoo! and Lycos
Network. We believe that our alliances with these and other partners can be a
source of a significant number of new subscribers. We have entered into the
following agreements and arrangements:
- America Online. In 1997 we entered into a three and one-half-year
agreement with AOL to offer electronic greetings on AOL's proprietary
online service. We were the exclusive provider of e-mail based greetings
for consumers on the AOL proprietary service. Links and placements on
AOL's service provided a direct link to our site, including prominent
rotational placement on the America Online Welcome Screen, the highest
trafficked site on the Internet. In July 1999, we renegotiated this
agreement to broaden our strategic alliance with AOL. According to Media
Metrix, in June 1999 AOL had a total combined reach of 65.9% in the U.S.
The new agreement, which extends through December 31, 2004, provides
significant enhancements to our previous agreement.
- Our greetings and social expression content will be promoted on the
following AOL brands: AOL, AOL.com, Netscape Netcenter, CompuServe,
CompuServe.com, ICQ, ICQ.com, Digital City and, for the first two years
of the expanded agreement, the AOL international services in the United
Kingdom, Canada, Japan, Germany, the Netherlands, France and Australia.
- We will be the exclusive provider of greetings on the AOL online
properties listed above. This exclusivity extends to both online and
printed greetings and includes both business and consumer-related
communications. These exclusivity provisions are subject to several
exceptions including AOL's ability to obtain and license greetings and
other content from third party sources that are not currently main
competitors of ours if we are not able to supply such greetings or other
content.
- Our products will be promoted in functional areas on these AOL brands
including e-mail, calendar, You've Got pictures, white pages, Love@AOL
personals, address book and instant messaging. AOL has agreed to work
with us to develop and test integration of greeting functionality into
these areas. Our goal is for greeting services to be available from a
button or icon prominently built into these AOL applications and AOL has
agreed to development and consumer testing of such features.
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- Our products will also be featured and promoted in other targeted areas
such as chat, holiday channels, for example, Christmas, Mother's Day and
Easter, the Romance channel, Sports channel and AOL Hometown, AOL's Web
page building and hosting product.
- In addition, we will receive extensive banner and promotional placement
on each of the AOL online properties covered by our agreement.
In consideration of the marketing, promotion, advertising and other
services AOL will provide under this agreement, we will pay AOL a minimum
aggregate of $100.0 million over the term of the agreement. The agreement
also contains revenue sharing provisions. Of the amount payable under this
agreement, $22.8 million was paid in August 1999. The agreement may be
terminated by either party upon a material breach by the other party which
is not cured within 90 days of notice, and by AOL upon a change of control
of AmericanGreetings.com resulting in our being controlled by a competitor
of AOL. The agreement may also be terminated by AOL if we do not maintain
our co-branded sites with AOL among the top three online greetings sites,
as judged by third party reviewers, with respect to a variety of criteria
that include pricing, scope, selection and quality of products or if we
fail to fully customize our sites in the additional AOL properties
specified in such agreement. Under the agreement, AOL will act as our
exclusive sales agent for all advertisements on the co-branded sites, and
AOL and AmericanGreetings.com will share in the advertising revenues from
the co-branded sites. In addition, under our agreement with AOL,
AmericanGreetings.com is guaranteed to receive at least $30.0 million
through June 2002 for advertising sold on our co-branded sites. Under this
agreement, $6.0 million was received from AOL in August 1999 in connection
therewith.
- Yahoo!. In August 1999, we entered into a license and promotion agreement
for the integration of our greetings products and services with the
Yahoo! Greetings greetings service for a period of two years. According
to Media Metrix, in June 1999 Yahoo! had a total combined reach of 59.2%
in the U.S. We believe this agreement will provide us with significant
branding and traffic to our Web site. Yahoo! has agreed to place
integrated links to Yahoo! Greetings and AmericanGreetings.com products
on Yahoo channels, Yahoo Mail, Yahoo Messenger, Yahoo Calendar, Yahoo
Clubs, Yahoo Home page and Yahoo Address book during the term of the
agreement. In addition, Yahoo! has agreed to place links to our site and
banner advertisements on certain targeted pages including relevant
keywords and directory pages generated from the Yahoo! service. The
agreement requires Yahoo! to deliver a minimum number of page views for a
period of two years. Yahoo! has agreed to grant us limited exclusivity
with respect to co-branded greetings services and the promotion and
marketing of printable greetings and paid electronic greetings to Yahoo!
users and provide us with similar promotional space and preferred
treatment on other Yahoo! properties. Under this agreement, we are
required to pay Yahoo! minimum aggregate fees of $8.0 million over the
term of the agreement. We may also be required to pay Yahoo! additional
fees if a specified revenue threshold amount is attained.
- Lycos Network. Our current agreement with Lycos, which will not expire
until March 2000, allows for us to be listed as the exclusive provider of
greetings products on the Lycos Network. Our products and services are
made available to Lycos users through links from Lycos' e-mail, chat
service, white pages, shopping pages and relevant keyword search pages.
In addition, our link is the first to appear under the "Greetings" option
on the Lycos shopping page. Our agreement also provides for the sharing
of revenue generated from the sale of advertising space and from the sale
of our products resulting from linking referrals. According to Media
Metrix, in June 1999 Lycos had a total combined reach of 47.8% in the
U.S.
Content Alliances
- Mindscape. In February 1998, we entered into a four-year agreement with
Mindscape giving Mindscape the right to develop and distribute personal
productivity software to its retail customers using a portion of our
greetings and social expression content. We currently publish the
following products: American Greetings CreataCard Plus and Gold, American
Greetings Print! Premium, American Greetings Crafts! and Crafts Deluxe,
American Greetings Spiritual Expressions and
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American Greetings CreataParty. In June 1999, two of these products were ranked
in the top five in terms of unit sales in the print creativity category
according to PC Data. Introduction of additional products and updated versions
of these products are planned for the Fall of 1999. Under our agreement
with Mindscape, we receive trademark licensing fees and a royalty for each
product sold with guaranteed minimum payments of $17.0 million over the
four-year term of the agreement ending in February 2002. If royalty
payments to us under this agreement meet specified levels, the agreement
gives Mindscape the right to extend the term.
We derive a significant portion of our net revenues from the sale of online
greetings and other social expression content marketed and distributed through
AOL and from royalties earned from the licensing of trademarks and a portion of
its content to Mindscape. Revenues from AOL and Mindscape accounted for
approximately 64% and 26%, respectively, of our net revenues for the four months
ended June 30, 1999 and approximately 42% and 36%, respectively, of our net
revenues for fiscal 1999.
Other Alliances
- Affiliate Network. Our affiliates are a group of over 13,000 Web sites
owned and operated by third parties, who, for a percentage of revenues,
place banner ads and cross-links to our site on their Web sites and
thereby help drive traffic to our site.
- Traditional Retailers. We have entered into various co-marketing and Web
site linking arrangements with a number of American Greeting's
traditional retailers, including Ames Department Stores, Bradlees
Department Stores, CVS.com, Duane Reed Drug Stores and Kmart. In
addition, a number of other traditional retailer relationships are
planned.
Marketing Alliances
- Phase2Media. We have entered into a one-year agreement with Phase2Media,
an Internet advertising agency, to act as our exclusive agent to sell
advertising on our www.americangreetings.com Web site to potential
advertisers and sponsors. Phase2Media will be the exclusive agent selling
advertising on our behalf on our own Web site. There are certain renewal
options that may allow Phase2Media to continue as our agent beyond the
first year if specified advertising revenue thresholds are met.
- AOL Interactive Marketing. Our agreement with AOL provides that AOL will
act as our sales agent for advertising and sponsorship sales on our
co-branded sites with AOL. Except for limited inventory we retain the
right to sell, and our right to assist in the development of advertising
sales leads, AOL will be the exclusive sales agent for a period of three
years ending July 31, 2002. After the initial three years, AOL could
extend its exclusive sales agents rights if specified revenue thresholds
are met. AOL has one of the largest advertising sales forces in the
Internet industry today.
Sales and Marketing
An important element of our strategy is to build brand recognition around
our Web site and our products and services. Our sales and marketing goals are
focused on: (1) increasing our number of subscribers; (2) increasing user
traffic to our Web site; and (3) increasing e-commerce purchases and other
transactions on our Web site. We intend to achieve these objectives through the
following:
- Direct E-Mail Marketing. We actively market to our own base of users
through e-mail broadcasts, with announcements such as new product
introductions, reminders for upcoming holidays and site and features. All
users of our products are added to our database and electronic mailing
list, which numbered over 2.8 million registrants through June 30, 1999.
A user can remove his or her name from our mailing list at any time. We
do not sell any customer information to third parties and only share
customer data in the aggregate form.
- Offline Advertising. Following the closing of this offering, we plan to
launch a national advertising campaign through print and broadcast media
to drive traffic to, and raise consumer brand awareness of, our Web site
and our products and services.
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- Internet Advertising. In addition to the advertising we receive through
our arrangement with our strategic distribution partners, we also intend
to advertise on the Web sites of niche Internet content sites.
CUSTOMER SUPPORT
We believe that a high level of customer service and support is critical to
retaining and expanding our user base. Our customer service representatives are
available 8:00 AM to 11:00 PM Eastern Standard Time on weekdays and 8:00 AM to
4:00 PM Eastern Standard Time on weekends to provide assistance via e-mail,
phone or fax. Our customer service representatives strive to answer all customer
inquiries within 24 hours. The customer service representatives are a valuable
source of feedback regarding user satisfaction.
TECHNOLOGY
We have implemented, and continue to invest in, a broad array of customer
support, transaction-processing and fulfillment systems, using a combination of
proprietary and commercially available, licensed technology. We focus our
internal development efforts on creating and enhancing our software and on
creating an integrated technology solution that can handle significant
transaction volumes. Our systems are designed to make both the customer
experience and the transaction reporting and tracking process as seamless as
possible, while maintaining scalability, security and superior processing speed.
Our systems have been designed based on industry standard architectures and
have been designed to reduce downtime in the event of outages or catastrophic
occurrences. Our system hardware is hosted at Exodus Communications' facility on
SGI Unix servers and NT servers, and we have implemented load balancing systems
and our own redundant servers to provide for fault tolerance. Our systems are
scalable, allowing us to quickly adjust to our expanding user base without
compromising the performance of our site. In addition, adopted industry
standards or widely accepted technology formats such as C++ as our base for
product development, to ensure nearly universal access to our products by
Internet users.
Partner Integration/Distribution. Our open, scalable architecture allows us
to deliver our content and services through multiple channels, either direct to
customers over our Web site through our distribution partners. We work with our
distribution partners, AOL, Yahoo! and Lycos Network to integrate our product
and services to create the best experience possible for our users. Our adoption
of BeFrees Affiliate Network technology allows affiliates to easily integrate
our content on their Web sites and to track performance on a constant basis.
Online Sales and Tracking System. We use technology that provides
sophisticated subscription and sales tracking, and have built a comprehensive
data warehouse to store and analyze customer buying patterns and online
activity. Our system allows us to segment our user population, enabling us to
further personalize our services for the individual user and to respond
effectively to the changing tastes and needs of our users, as well as allowing
our advertisers to better target their intended audience.
Direct Marketing System. We have developed scalable and intelligent
proprietary systems to create a better customer experience and generate higher
customer loyalty, and are currently evaluating third party systems to further
improve our relationship with our users. We are currently implementing a
comprehensive direct marketing system that will allow us to communicate directly
with our customers and provide them with offers and information that are most
relevant to their individual preferences.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly applicable
to electronic commerce. However, the Internet is becoming an increasingly
popular system for communicating and conducting commerce. As a result, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or online services. These laws and regulations may cover issues
such as online contracts, user privacy, freedom of expression, pricing, fraud,
content and quality of products and services, taxation, advertising,
distribution, intellectual property rights and
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information security. Furthermore, the growth of electronic commerce may prompt
calls for more stringent consumer protection laws. We do not currently provide
personal information regarding our users to third parties. However, the adoption
of such consumer protection laws could create uncertainty in Web usage and
reduce the demand for our products and services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity,
personal privacy, and export or import matters. The vast majority of such laws
were adopted prior to the advent of the Internet and related technologies. As a
result, they do not contemplate or address the unique issues of the Internet and
related technologies. Changes in laws intended to address such issues could
create uncertainty in the Internet marketplace. Such uncertainty could reduce
demand for our services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs. Furthermore, those laws
that do reference the Internet, such as the recently passed Digital Millenium
Copyright Act, have not yet been interpreted by the courts and their
applicability and reach are therefore uncertain.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by various foreign governments to impose taxes on the sale of goods
and services and other Internet activities. In 1998, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new state
and local taxes on Internet commerce. A number of trade groups and government
entities have publicly stated their objections to this tax moratorium and have
argued for its repeal. There are no assurances that future laws will not impose
taxes or other regulations on Internet commerce, or that such three-year
moratorium will not be repealed, or that it will be renewed when it expires, any
of which events could substantially impair the growth of electronic commerce.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission also has recently
settled a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address
these issues could directly affect the way we do business or could create
uncertainty in the marketplace. This could:
- reduce demand for our products;
- increase the cost of doing business as a result of litigation costs or
increased service delivery costs; or
- otherwise harm our business.
Also, in the United States, companies are required to qualify as foreign
corporations in states where they are conducting business. As an Internet
company, it is unclear in which states we are actually conducting business. We
currently are qualified to do business only in Delaware and Ohio. Our failure to
qualify as a foreign corporation in a jurisdiction where we are required to do
so could subject us to taxes and penalties for the failure to qualify and could
result in our inability to enforce contracts in those jurisdictions. Any new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could harm our
business.
COMPETITION
Both the e-commerce and a number of online greetings and social expression
businesses are new, rapidly evolving and highly competitive. We expect
competition to intensify in the future, given the ease with which new Web sites
can be developed. We believe that a number of competitive factors are important
to our business including brand recognition, site content, accessibility and
ease of use, price, fulfillment speed, customer support and reliability. We
believe that our established brand name gives us a competitive advantage in
capturing consumers of online greetings and related content. Additionally, we
believe that our creative content expertise and our ability to produce large
quantities of high quality content give us a competitive advantage. Combined
with our marketing and technical skills, and our exclusive relationships with
several key
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content and service providers, we believe that we can continue to extend our
leadership position in the market. We currently compete with a variety of
companies, including:
- Blue Mountain Arts, a publisher of poetry books and greeting cards that
has established a significant presence online as a provider of free
electronic greeting cards.
- Online affiliates of traditional greeting card companies such as Hallmark
and Gibson Greetings/E-Greetings.
- Amazon.com, an online bookseller that has recently entered the online
greetings market with free content and other entities such as Disney and
Microsoft that offer online greetings.
- Various small online providers of generally generic, free online
greetings services which attract small amounts of traffic and usage.
Some of our competitors have longer operating histories, larger customer or
user bases, greater brand recognition and greater financial, marketing and other
resources than we do. Some of these competitors can devote substantially more
resources to Web site development than we can.
Our competitors may be able to fulfill customer orders more efficiently,
reach more customers or adopt more aggressive pricing policies than we can. Our
main competitor, Blue Mountain Arts, like many other providers of online
greetings and enhanced e-mail communication, offers free products. Blue Mountain
Arts' strategy, combined with increased competitiveness among online enhanced
communication providers, may cause our operating margins to decline, cause us to
lose market share and diminish our brand franchise.
In selling advertising space, we compete with various advertising-supported
Web sites, including portal sites such as Yahoo! and Excite, content sites such
as CNET and CNN.com and interactive advertising networks and agencies such as
DoubleClick and 24/7 Media. We also compete with traditional media such as print
and television for a share of our advertisers' total advertising budgets. If
advertisers perceive the Internet to be a limited or ineffective advertising
medium or perceive us to be less effective or less desirable than other Internet
advertising vehicles, advertisers may be reluctant to advertise on our services.
To compete for Internet advertisers, we must offer effective methods of
targeting subscribers with demographic characteristics attractive to these
advertisers.
INTELLECTUAL PROPERTY
We rely on various intellectual property laws and contractual restrictions
to protect our proprietary rights in products and services. These include
confidentiality, invention assignment and nondisclosure agreements with our
employees, contractors, suppliers and strategic partners. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without our authorization. In addition, we
pursue the registration of our trademarks and service marks in the U.S. and
internationally. However, effective intellectual property production may not be
available in every country in which our services are made available online.
We have licensed proprietary rights to third parties. We attempt to ensure
that these licensees maintain the quality of our brand. However, these licensees
may nevertheless take actions that reduce the value of our proprietary rights or
harm our reputation. We license the American Greetings trademark and other
trademarks from American Greetings. We also rely on technologies that we license
from third parties. These licenses may not continue to be available to us on
commercially reasonable terms in the future. As a result, we may be required to
obtain substitute technology of lower quality or at greater cost, which could
harm our business and results of operations.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. However, there can be no assurance that
third parties will not claim infringement by us with respect to our current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, with or without
merit, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might
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not be available on terms acceptable to us or at all. As a result, any such
claim of infringement against us could harm our business, results of operations
and financial condition.
EMPLOYEES
As of June 30, 1999, we had approximately 180 full- and part-time
employees. We also employ independent contractors to perform duties in various
departments, including software development, creative and editorial. None of our
employees are represented by a labor union, and we consider our relationship
with our employees to be excellent.
FACILITIES
Our principal administrative, marketing and technical facilities are
currently located in approximately 24,000 square feet of office space in
Cleveland, Ohio. This office space is allocated to us by our parent, who
assesses us with a building space allocation charge for expenses which include
building operating costs, security costs, real estate taxes, building insurance
costs, and depreciation. While our existing facilities are adequate for our
current needs, due to our recent growth, management has determined that
additional space will be required. We anticipate leasing space within an
adjacent building owned by our parent and signing a lease for at least five
years. This space is currently being built out to incorporate our space
requirements. We estimate occupying this space in late Fall 1999.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the disposition of which
would materially harm our business.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information regarding our executive
officers and directors as of the date hereof.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John M. Klipfell (1)(3).............. 49 Chief Executive Officer and Director
Ralph E. Shaffer..................... 58 Senior Vice President and Chief Creative Officer
Josef A. Mandelbaum.................. 33 Senior Vice President of Sales, Business
Development and Strategic Planning
Andrew R. Cohen...................... 38 Senior Vice President and Chief Technology
Officer
Anne C. Everhart..................... 40 Senior Vice President of Consumer Marketing
Maureen M. Spooner................... 35 Chief Financial Officer
James C. Spira (1)(3)................ 56 Chairman and Director
Herbert H. Jacobs (4)................ 76 Director
Morry Weiss(1)(4).................... 59 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
(4) Member of the Compensation Committee
John M. Klipfell has served as our Chief Executive Officer and a director
since the incorporation of AmericanGreetings.com, Inc. in June 1999. From March
1992 to June 1999, Mr. Klipfell was responsible for our parent's Electronic
Marketing Division. From 1990 to 1992, Mr. Klipfell was Senior Vice President --
Subsidiary Operations and had corporate responsibility for our parent's U.S. and
Canadian Retail Divisions and its "Those Characters From Cleveland" licensing
business, as well as American Greetings' Canadian greeting card division. From
1987 to 1990, Mr. Klipfell served as Vice President and Assistant to the
President of American Greetings and previously had corporate responsibility for
American Greetings' Canadian greeting card division. Additionally, Mr. Klipfell
has held various positions in financial management for American Greetings since
joining in 1975. Mr. Klipfell holds a B.S. in Business Administration from
Bowling Green State University and is a Certified Public Accountant.
Ralph E. Shaffer has served as our Senior Vice President and Chief Creative
Officer since the incorporation of AmericanGreetings.com, Inc. in June 1999.
From March 1994 to June 1999, Mr. Shaffer served as American Greetings' Vice
President, Product Concepts, where he oversaw all new product development for
our parent's Internet, personal creativity software and personal greeting card
kiosk programs. Additionally, Mr. Shaffer was responsible for new program
development for other American Greetings internal divisions and subsidiaries.
From 1981 to 1994, Mr. Shaffer was co-founder and co-President of "Those
Characters From Cleveland," a subsidiary of our parent that specialized in
character creation and licensing.
Josef A. Mandelbaum has served as our Senior Vice President of Sales,
Business Development and Strategic Planning since the incorporation of
AmericanGreetings.com, Inc. in June 1999. From January 1995 to June 1999, Mr.
Mandelbaum served in various capacities for the Electronic Marketing Division of
American Greetings, including Vice President of Interactive Marketing, Director
of Electronic Marketing and Technology Management and as Business Development
Manager. From 1993 to 1994, Mr. Mandelbaum was a partner in IMG, an interactive
direct response consulting and venture capital company specializing in
infomercials and interactive projects. Mr. Mandelbaum is a founding member and
current Chairman of the Business Practices Committee of Shop.org, an alliance of
premier Internet retailers. Mr. Mandelbaum holds a B.A. in Economics from
Yeshiva University and an M.B.A. from the Case Western Reserve University
Weatherhead School of Management.
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Andrew R. Cohen has served as our Senior Vice President and Chief
Technology Officer since July 1999. From January 1999 to July 1999, Mr. Cohen
was President of CNS Development Corporation, a technology development and
consulting company that provided services to AmericanGreetings.com. From 1992 to
1998, Mr. Cohen served in various capacities with Micrografx, Inc., a consumer
and business enterprise software development and marketing company, where he
most recently was Vice President, Technology Solutions. At Micrografx, Mr. Cohen
managed several development groups focused on consumer and Internet based
products, including the American Greetings CreataCard personal creativity
program. Prior to his employment with Micrografx, Mr. Cohen held various
software and system development positions with American Airlines/ Sabre and
United Technologies.
Anne C. Everhart has served as our Senior Vice President of Consumer
Marketing since the incorporation of AmericanGreetings.com, Inc. in June 1999.
From 1993 until June 1999, Ms. Everhart was Vice President, Sales Development
and Communications for the New York Daily News where she was responsible for
strategic circulation, including retail and direct response advertising,
ancillary product development/marketing and customer service operations. Prior
to her employment with the Daily News, Ms. Everhart held various consumer
marketing and circulation management positions with Time-Life Books,
Horticulture, Psychology Today and US News & World Report. Ms. Everhart holds
B.S. degrees in Marketing and Magazine Journalism from Syracuse University,
School of Management and the S.I. Newhouse School of Public Communications.
Maureen M. Spooner has served as our Chief Financial Officer since the
incorporation of AmericanGreetings.com, Inc. in June 1999. From September 1990
to June 1999, Ms. Spooner served in various financial management and
administrative positions with our parent, including Financial Accounting
Manager, Director of Corporate Financial Planning, and Director of Tax
Administration. Prior to her employment with American Greetings, Ms. Spooner
held various positions with Arthur Andersen & Company and Andersen Consulting.
Ms. Spooner has a B.S. degree in Business Administration from John Carroll
University and is a Certified Public Accountant.
James C. Spira has served as Chairman of our board of directors since the
incorporation of AmericanGreetings.com, Inc. in June 1999. Mr. Spira's principal
occupation since July 1999 has been active part-time Advisory Partner of Diamond
Technology Partners, Inc., a publicly held technology management consulting
firm, where he manages specific client relationships and participates in client
development efforts. Previously, Mr. Spira served Diamond Technology Partners as
Senior Vice President from November 1995 to June 1999, and as a director from
February 1996 to June 1999. Before joining Diamond Technology Partners, Mr.
Spira was a group Vice President of the Tranzonic Companies, Inc., a
manufacturer of personal care products, from 1991 to November 1995. Prior to his
employment with the Tranzonic Companies, Mr. Spira co-founded Cleveland
Consulting Associates, serving as President and Chief Executive Officer from
1974 until 1989. Mr. Spira serves as a director of American Greetings
Corporation, our parent company, New Media, Inc., an information technology
consulting company, Copernicus, a marketing investment group, and is a member of
the advisory board of Progressive Insurance Company's National Accounts
Division, a specialty property-casualty insurer.
Herbert H. Jacobs has served as a director since the incorporation of
AmericanGreetings.com, Inc. in June 1999. From 1983 to June 1999, Dr. Jacobs
served as a director of American Greetings, our parent company. Dr. Jacobs'
principal occupation is the management of his private investments. He is also
the inventor of a number of patents relevant to our business operation that are
owned by AmericanGreetings.com. Since June 1994, he has owned and operated a
private real estate development company and a private software consulting firm.
Morry Weiss has served as a director since the incorporation of
AmericanGreetings.com, Inc. in June 1999. Since 1992, Mr. Weiss' principal
occupation is Chairman and Chief Executive Officer of American Greetings. He
also serves as a director of Barnett Inc., a manufacturer of plumbing and
electrical supplies, National City Bank, Cleveland, a bank/financial
institution, National City Corporation, a holding company of National City Bank,
Cleveland and other banks, and is a member of the advisory board of Prime
Venture Partners, an equity investor in companies requiring growth capital.
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There are no family relationships among any of our directors or executive
officers.
BOARD OF DIRECTORS
We currently have authorized nine directors and each director will hold
office until his or her term expires or until his or her successor is duly
elected and qualified. Prior to or promptly following the consummation of this
offering, two independent directors who are not affiliated with our parent or
AmericanGreetings.com will be elected to our board of directors.
The amended and restated certificate of incorporation we will adopt prior
to the completion of this offering will provide for a classified board of
directors from the date of completion of this offering. In accordance with the
terms of that amended and restated certificate of incorporation, the board of
directors will be divided into three classes, whose terms expire at different
times.
At each annual meeting of stockholders beginning with the 2000 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
Board Committees. Our board of directors has an Executive Committee, an
Audit Committee, a Compensation Committee and a Nominating Committee.
The Executive Committee has the same power and authority as the board
between meetings of the board, except that it may not fill vacancies on the
board or on committees of the board. The Executive Committee currently consists
of Messrs. Klipfell, Spira and Weiss.
The Audit Committee recommends the selection of and monitors the
independence of AmericanGreetings.com's independent auditors, reviews the audit
plan and the results of the audit engagement. Prior to the completion of this
offering, we will appoint two independent directors to the Audit Committee.
The Compensation Committee reviews the compensation packages offered to our
officers generally and develops and administers the compensation plans for the
Chairman and Chief Executive Officer. The Compensation Committee also grants
stock options and other forms of equity compensation to officers and certain key
employees pursuant to our stock plans. The Compensation Committee is composed
solely of directors who are not officers or employees of AmericanGreetings.com.
The Compensation Committee currently consists of Messrs. Jacobs and Weiss.
The Nominating Committee makes recommendations to the board regarding the
size and composition of the board and qualifications for membership. It
recommends nominees to fill board vacancies and new positions, as well as a
slate of board nominees for annual election by the stockholders. The Nominating
Committee currently consists of Messrs. Klipfell and Spira.
Director Compensation. We intend to offer board members who are not
employees of AmericanGreetings.com or our parent cash compensation and a grant
of options for serving on the board of directors. We reimburse directors for
expenses incurred in connection with attendance at board and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Jacobs and Weiss.
Mr. Jacobs performed consulting services for American Greetings in our last
fiscal year. None of the remainder of our executive officers serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of our board of directors or
compensation committee.
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EXECUTIVE COMPENSATION
Prior to the completion of this offering we have operated as a division of
American Greetings. Accordingly, the information below includes compensation
paid by American Greetings and includes compensation for services to American
Greetings and AmericanGreetings.com. Information set forth below regarding
option grants during fiscal 1999 and option values at February 28, 1999 are
options for shares of American Greetings' common stock. The following table sets
forth certain summary information concerning the compensation awarded to, earned
by, or paid for services rendered to AmericanGreetings.com in all capacities
during the fiscal year ended February 28, 1999 by our chief executive officer
and the two most highly compensated executive officers, other than the chief
executive officer (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION(1)
- --------------------------- ------ -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John M. Klipfell.......................... 1999 $226,895 $94,609 $ 9,106
Chief Executive Officer
Ralph E. Shaffer.......................... 1999 183,435 53,213 6,524
Senior Vice President and Chief Creative
Officer
Josef A. Mandelbaum....................... 1999 98,891 15,053 $16,701(2)
Senior Vice President of Sales, Business
Development and Strategic Planning
</TABLE>
- ---------------
(1) Reflects contributions by American Greetings under their Retirement Profit
Sharing and Savings Plan as well as their Executive Deferred Compensation
Plan.
(2) Represents forgiveness of a portion of a loan from American Greetings to Mr.
Mandelbaum, plus accrued interest, as more fully described in "Related Party
Transactions."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options of shares of
common stock of our parent during the fiscal year ended February 28, 1999 to
each of the Named Executive Officers.
Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of options granted to employees
of American Greetings under their stock option plans during the fiscal year
ended February 28, 1999.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF STOCK
SECURITIES TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Klipfell............... None
Ralph E. Shaffer............... None
Josef A. Mandelbaum............ 5400 3% 40.375 09/28/08 $137,133 $347,463
</TABLE>
Stock options previously granted to AmericanGreetings.com employees under
our parent's option plans which are scheduled to vest on or before March 3, 2001
will vest according to the option's terms, taking into account service with both
us and our parent. The exercise period for AmericanGreetings.com employees who
hold these options will be extended to March 3, 2002. Such stock options which
are scheduled to vest after March 3, 2001 will be voided. In conjunction with
this offering, the board of directors will grant
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AmericanGreetings.com stock options to the Named Executive Officers of
AmericanGreetings.com in the following amounts: John M. Klipfell: ; Ralph
E. Shaffer: ; and Josef A. Mandelbaum: .
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the Named
Executive Officers as of February 28, 1999.
Amounts shown under the column "Value Realized" are based on the difference
between the market price of American Greetings common stock at February 28, 1999
and the exercise price of the options. Amounts shown under the column "Value of
Unexercised In-the-Money Options at February 28, 1999" are based on the closing
price of American Greetings common stock as reported on the New York Stock
Exchange on February 26, 1999 of $23.6875, without taking into account any taxes
that may be payable in connection with the transaction, multiplied by the number
of shares underlying the option, less the exercise price payable for these
shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUES OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FEBRUARY 28, 1999 FEBRUARY 28, 1999
---------------------- -----------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
John M. Klipfell......... 5,000 $99,531 5,000/ 0/
10,000 0
Ralph E. Shaffer......... 0 0 22,750/ 62,125/
7,000 0
Josef A. Mandelbaum...... 200 3,062 600/ 0/
5,900 0
</TABLE>
EMPLOYEE BENEFIT PLANS
1999 Stock Option Plan. Our 1999 Stock Option Plan provides for the grant
to employees, including officers and directors, of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended and for the grant to employees, nonemployees, directors and consultants
of nonstatutory stock options and stock purchase rights. The terms of our plan
were approved by our board of directors in August 1999, and by our parent in
August 1999. Unless terminated sooner, our plan will terminate automatically in
2009. A total of shares of our Class A common stock, plus an annual
increase to be added on the first day of our fiscal year commencing in 2000
equal to the lesser of:
- shares,
- 5% of the outstanding shares on that date or,
- a lesser amount determined by the board of directors, shall be reserved
for issuance under our plan.
Our plan may be administered by our board of directors or a committee of
our board. In the case of options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
a committee of our board of directors will consist of two or more "outside
directors" who have no other affiliation with us. Our board of directors or this
committee has the power to determine the terms and conditions of the options or
stock purchase rights granted, including:
- the exercise price,
- the number of shares subject to each option or stock purchase rights,
- the exercisability thereof,
- and the form of consideration payable upon such exercise.
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<PAGE> 59
Our board of directors has the authority to amend, suspend or terminate our
plan, provided that no such action may affect any share of common stock
previously issued and sold or any option previously granted under our plan,
unless our board of directors and the person granted the stock or option agree
otherwise.
Generally, options and stock purchase rights granted under our plan are
non-transferable. Each option and stock purchase right is generally exercisable
during the lifetime of the optionee only by the optionee. Options granted under
our plan must generally be exercised within three months of the optionee's
separation of service from AmericanGreetings.com, or within twelve months after
the optionee's termination by death or disability. In no event can an optionee
exercise his or her option later than the expiration of the option's ten year
term.
In the case of stock purchase rights, unless our board of directors or the
committee determines otherwise, the restricted stock purchase agreement will
grant AmericanGreetings.com a repurchase option. This repurchase option is
exercisable upon the voluntary or involuntary termination of the purchaser's
service for AmericanGreetings.com for any reason, including death or disability.
The purchase price for shares repurchased under the restricted stock purchase
agreement will generally be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to us. The repurchase
option will lapse at a rate determined by our board of directors or a committee
of our board of directors.
The exercise price of all incentive stock options granted under our plan
must be at least equal to the fair market value of our common stock on the date
of grant. The exercise price of nonstatutory stock options and stock purchase
rights granted under our plan is determined by our board of directors or the
committee. The exercise price of nonstatutory stock options intended to qualify
as "performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code must at least be equal to the fair market value of our
common stock on the date of grant.
The exercise price of any incentive stock option granted to any participant
who owns stock with more than 10% of the voting power of all classes of
AmericanGreetings.com's outstanding capital stock must equal at least 110% of
the fair market value of our common stock on the date of grant. The term of any
incentive stock option must not exceed five years. The term of all other options
granted under our plan may not exceed ten years.
Our plan provides that in the event of a merger of us with or into another
corporation, or the sale of substantially all of AmericanGreetings.com's assets,
each outstanding option and stock purchase right will be assumed or substituted
for by the successor corporation. If the successor corporation refuses to assume
or substitute for the option or stock purchase right, vesting of the option or
stock purchase right will accelerate. The option or stock purchase right will
also remain exercisable for a period of fifteen days prior to the closing of the
merger or sale of assets.
AmericanGreetings.com employees will continue to be eligible to participate
in our parent's health and welfare benefit plans, but will cease active
participation in American Greeting's Retirement Profit Sharing and Savings Plan,
Supplemental Executive Retirement Plan and Executive Deferred Compensation Plan
upon the consummation of this offering.
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<PAGE> 60
RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH OUR PARENT
Prior to the consummation of this offering, we will enter into several
agreements with American Greetings to carry out the separation of our operations
from those of American Greetings. The principal agreement, the formation
agreement, will provide for the transfer of our ongoing business and assets from
American Greetings to AmericanGreetings.com and will require American Greetings
and us to enter into a series of related agreements providing for the licensing
of intellectual property and the provision of various services by each of
American Greetings and us to the other.
Formation Agreement. In exchange for shares of our Class B Common
Stock and our assumption of the liabilities of our business, American Greetings
will transfer ownership to us of identified assets that are used in our business
and extinguish all of our intercompany debt to American Greetings. In addition,
American Greetings will contribute to our capital an aggregate of $50.0 million,
of which the net amount of $17.6 million was previously paid to AOL and Yahoo!
on our behalf during August 1999 pursuant to our distribution agreements with
them. The assets and liabilities to be transferred will generally consist of the
assets and liabilities on our balance sheet, including computer hardware, office
furniture and other tangible personal property and our accounts receivable.
American Greetings will also assign to us rights in its contracts with third
parties that relate to our business, subject in many cases to obtaining the
consent of those third parties. The contracts to be assigned include third party
licenses of greeting content, including for example, Dilbert, The Simpsons and
the World Wrestling Federation licenses, and some of our distribution
agreements, such as the agreement with Lycos. American Greetings will agree in
the formation agreement to assist us in obtaining necessary consents of these
third parties. The intellectual property assets to be transferred to us
generally consist of software and related technology used in our business and
not in American Greetings business and certain patents relating to our business.
The art and verse content library of American Greetings will not be transferred
to us under the Formation Agreement, but rather, will be licensed pursuant to a
cross license agreement that we will also enter into.
The liabilities that we will assume include any liabilities of American
Greetings arising from the operation of our business prior to the separation,
specifically excluding identified categories of liability such as environmental
liability and certain tax and employment related liabilities.
American Greetings will transfer these assets to us on an as-is basis, with
no warranties. As a result, we will have no legal claim against American
Greetings if any of these assets is defective or otherwise unable to perform its
function. In addition, we will agree to indemnify American Greetings for any
liability arising out of contracts we assume, liabilities arising out of our
operation of our business, including for periods prior to the separation, any
breach by us of the agreements related to our formation and any liability
arising out of any misstatement or omission in this prospectus, other than
relating to American Greetings' business. We also will grant American Greetings
a release of all claims arising from any circumstances occurring on or before
the date of our separation, including in connection with the transactions and
all other activities to implement our formation and this offering.
American Greetings will terminate, and, simultaneously, we will make offers
of employment to, the employees of American Greetings who work in our business.
Under the formation agreement, American Greetings will provide for the
continuation of various employee benefit plans for the benefit of those
employees. American Greetings will also cause its supplemental retirement plan
to treat the transfer of employees as an involuntary termination event, vesting
otherwise eligible employees. As a result, John Klipfell, our chief executive
officer, will become vested under that plan.
We have agreed, pursuant to the formation agreement, to adopt the amended
and restated certificate of incorporation authorizing the shares of Class A and
Class B common stock. See "Description of Capital Stock."
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<PAGE> 61
The formation agreement will also require us to use AmericanGreetings.com
as our corporate name, to use the URL AmericanGreetings.com for our U.S. Web
site and to provide a reasonably prominent one-click link from that site to an
American Greetings corporate Web site to be designated by American Greetings.
We and American Greetings will each agree to exclusive business fields in
which we will not compete. American Greetings will agree not to engage in the
AmericanGreetings.com business defined as: direct to consumer distribution or
sales through electronic media such as the Internet and online retailers on the
Internet such as AOL and Yahoo! of specified greetings products. The restricted
greeting products will consist of
- Physical greeting products such as, paper greeting cards and similar-card
like items such as thank you notes and invitations; and
- Electronic social expression products such as, electronic equivalents of
the physical greeting products and, in addition, electronic versions of
other social communication items such as templates for stationery,
banners, gift tags and award certificates.
The formation agreement will include provisions which generally, subject to
the exceptions described below, restrict American Greetings from engaging in the
AmericanGreetings.com business and from entering into agreements with other
parties that engage in the AmericanGreetings.com business. The intellectual
property licenses to us in the cross license agreement will be exclusive with
respect to the AmericanGreetings.com business. In addition, the formation
agreement will provide that if American Greetings acquires a material interest
in an entity that engages in the AmericanGreetings.com business it must offer to
sell the portion of the acquired business that engages in the
AmericanGreetings.com business to us for an appraised fair market value, and if
we decline to purchase then it may not use any of the trademarks or other
intellectual property licensed to us, or licensed from us, in the operation of
that business.
In return, we will agree in general, subject to the exceptions described
below, not to engage in the American Greetings business, defined as distribution
through, or sale to third parties, for sale at physical retail locations by
physical retailers of:
- Physical greeting products; or
- Other social expression products manufactured in physical media, such as
gift wrap, stationery, party goods, balloons, candles and reading
glasses.
The formation agreement will include parallel provisions which generally,
subject to the exceptions described below, restrict us from engaging in the
American Greetings business, from entering into agreements with other parties
that engage in the American Greetings business and from owning or, with
comparable limitations to those described above for American Greetings,
acquiring an interest in an entity that engages in the American Greetings
business. The intellectual property licenses to American Greetings in the cross
license agreement will be exclusive with respect to the American Greetings
business. These exclusivity and exclusive license provisions will be subject to
several exceptions:
- The restrictions on American Greetings will not apply to American
Greetings' relationships with its physical retailer customers. Instead,
there will be limitations on the nature of our electronic products and
services American Greetings can supply to those retailers. There is a
time limit on our obligation to provide even these if the physical
retailer using them is in direct competition with us. See "Risk
Factors -- Restriction in our agreement with our parent prohibit us from
competing with our parent, but our parent is permitted to compete with us
when it is acting together with its traditional customers;"
- Our exclusive right with respect to distribution of electronic greeting
products will not include any distribution of electronic products that
takes place within the physical confines of retail stores owned or
operated by American Greetings or its affiliates;
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<PAGE> 62
- The restriction on us from doing business with third parties that are
engaged in the American Greetings business will not prevent us from
licensing greetings content from such third parties so long as we do not
promote the third parties' trademarks or use any properties licensed from
American Greetings as consideration;
- The exclusivity restrictions will not prevent either party from
distributing an otherwise prohibited product for a limited period of time
as a promotional premium for no consideration or minimal consideration;
and
- The exclusivity provisions, but not the exclusive aspects of the licenses
in the cross license agreement, are terminable by American Greetings at
any time if, because of a reduction in American Greetings' voting
interest in us, American Greetings reasonably determines that the
exclusivity provisions may be in violation of applicable law.
Cross License Agreement. In connection with the formation agreement, we
will enter into the cross license agreement with American Greetings for the
licensing primarily of trademarks, art and verse content and software
technology. In addition, the cross license will govern patents and third party
rights, such as content licenses.
The cross license agreement will provide for American Greetings to license
to us rights to use "American Greetings" and the American Greetings rose logo,
as well as other trademarks closely identified with our business, including
"americangreetings.com," "CreataCard" and other "Creata-" derivations. These
trademark licenses will be exclusive as described above, and will be
non-exclusive otherwise, except that they will not be licensed to us for the
American Greetings business described above. The cross license agreement
requires us to use our best reasonable efforts to use and promote the American
Greetings and rose logo trademarks in North America.
In addition, the cross license will grant broad reciprocal licenses to use,
copy and modify all our respective present and future social expression art and
verse. The licenses will be exclusive as described above, and will be
non-exclusive otherwise, except that they will not be licensed to us for the
American Greetings business described above and they will not be licensed to
American Greetings for the AmericanGreetings.com business described above. Both
parties will be entitled to retain ownership of derivative works of social
expression art that they create or commission.
The cross license agreement will provide for us to pay American Greetings
fixed royalty payments of $24.0 million over the three years beginning July 1,
1999. Thereafter, all licenses, other than trademark licenses, will be deemed
fully paid up. In consideration of the continuing trademark licenses granted to
us, we will pay American Greetings a royalty of 3% of our net revenue for all
subsequent periods, with a minimum royalty at an annual rate of $5.0 million
beginning for periods after June 30, 2002.
The term of the cross license agreement could end early by our parent for
two reasons. The first is if the percentage of our parent's voting interest in
AmericanGreetings.com is reduced below 20%, which, assuming our parent holds
only Class B common stock, would mean that our parent's equity interest was
below 2%. Our parent's voting percentage could be reduced by our actions if we
sell additional stock to third parties, or it could be reduced by our parent's
action if our parent sells its stock in us to us or to third parties or
distributes it to its stockholders. It could also end if a reversion event
occurs. A reversion event occurs if any of the following happens and we do not
correct it within 90 days after notice from our parent:
- We derive less than 10% of our revenues from business activities
generally as described in this prospectus;
- We materially default on our payment obligations to our parent;
- We materially default on any agreements we may enter into to borrow an
amount in excess of $1 million; or
- Our auditors determine, under generally accepted auditing standards, that
our financial position is such that we may not be able to continue as a
going concern.
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The date on which the termination becomes effective in the event of our
parent's interest falling below 20% depends on the reason that the voting
ownership fell below 20%:
- If it was due to a spin off of substantially all our parent's voting
interest in us, the termination cannot occur prior to ten years after the
date of our this offering, except that our right to use the American
Greetings name and rose logo can terminate as early as two years after
notice from American Greetings.
- If it was due to a sale of substantially all of our parent's interest in
us or a combination of sales by us and our parent, the termination cannot
occur prior to the later of two years after notice to us or five years
after the date of this offering.
If the cross license agreement terminates because our parent's voting
percentage is reduced or because of a reversion event, it will have the
following effects on us:
- We would no longer be entitled to use the "American Greetings" name or
logo or our "AmericanGreetings.com" name, but we would retain rights to
"AG.com";
- We would no longer have access to additional content developed by our
parent after the agreements terminate, but we would retain rights to
content developed previously; and
- All licenses would become non-exclusive and our parent would no longer be
subject to any restriction on competing with us.
In addition, if a reversion event is not cured within 90 days of notice
from our parent and our parent elects, the termination would also result in all
the licenses we receive from our parent, other than for trademarks used only in
our business and not in the parent's business, such as "AG.com" and
"CreataCard," ending twelve months after the notice from our parent.
Web Services Agreement. We will also enter into a web services agreement
with American Greetings. The web services agreement will require us to provide
to American Greetings various electronic and Internet content delivery related
technology development and implementation services. For example, we may assist
an affiliate of American Greetings to establish and operate a corporate
information Web Site. We may also assist American Greetings in its
noncompetitive online and electronic commerce activities that do not compete
with us. We will also have to provide assistance in competitive online
activities American Greetings engages in with its customers in the physical
retail business. In any case where American Greetings uses our services to
assist one of its physical retail customers in engaging in a business that
competes with us, American Greetings will only be able to use our services for a
period of up to one year.
American Greetings will be required to give us reasonable advance notice of
the quantity of its needs for service under this agreement and we will be
obligated to supply that quantity of services. We will be permitted to engage
subcontractors if necessary. American Greetings will not be required to engage
us for any minimum quantity of services.
American Greetings will pay us for any services provided at our cost plus
10%. We will be entitled to retain ownership of any intellectual property
developed in the course of providing these services, although any intellectual
property will be licensed to American Greetings under the terms of the cross
license agreement. The web services agreement will have a term of ninety-nine
years, subject to early termination if the cross license agreement terminates.
Administrative Services Agreement. Following the closing of this offering,
we may request that our parent continue to provide some services to us including
human resources administration, finance administration and legal services.
Furthermore, we may continue to lease office space from our parent. Our parent's
obligations to deliver services will terminate if and when the separation and
cross-license agreements with our parent are terminated. The administrative
services agreement may also be terminated by our parent if there has been a
material breach of our obligation to pay our parent's actual costs plus 10% of
the fees for the services it provides us under this agreement. In addition,
following the second anniversary of this
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agreement, our parent may terminate any and all services it provides us under
this agreement upon 120 days' prior written notice to us. We believe that the
terms of the administrative services provided by our parent are on terms no less
favorable to us than we could have negotiated with an unaffiliated third party.
Registration Rights Agreement. We will enter into a registration rights
agreement with our parent prior to the closing of this offering. Pursuant to the
agreement, at any time after 180 days following the date of this prospectus, our
parent may demand that we file a registration statement under the Securities Act
covering all or a portion of our securities held by our parent, its affiliates
and their permitted transferees. However, the securities to be registered must
have a reasonably anticipated aggregate public offering price of at least $5.0
million. Our parent can effect no more than one demand registration per year.
In addition, our parent will have certain piggyback registration rights. If
we propose to register any Class A common stock under the Securities Act, other
than pursuant to a registration on Form S-4 or any successor form or an offering
of securities in connection with an employee benefit or dividend reinvestment
plan, our parent may require us to include all or a portion of our securities it
owns in such registration. However, the managing underwriter, if any, of any
such offering will have certain rights to limit the number of registrable
securities proposed to be included in such registration.
We would bear all reasonable registration expenses incurred in connection
with the first three of these registrations. Thereafter, we would bear one-half
of such expenses.
Tax Sharing and Indemnification Agreement. Our parent is a common parent of
an affiliated group of companies within the meaning of Section 1504(a) of the
Internal Revenue Code of 1986, which includes us. The Code requires that our
parent own at least an 80% voting and economic ownership interest in
AmericanGreetings.com to continue to include AmericanGreetings.com in its U.S.
consolidated income tax returns.
Following the closing of this offering, our parent will have the exclusive
authority and responsibility to prepare and file all consolidated federal income
tax returns for the affiliated group of which our parent is the common parent,
and to pay the taxes shown as due on those returns. We will be responsible for
paying to our parent our share of the taxes shown as due on those returns, but
if the taxes of the entire group are reduced by reason of our inclusion in any
consolidated returns our parent will pay to us the amount of the reduction. The
same responsibilities as between our parent and ourselves will apply to state,
local and/or foreign tax returns that include both ourselves and our parent or
any of its affiliates other than ourselves. Subject to our responsibility to pay
our share of taxes to our parent and to provide information necessary to enable
our parent to carry out its responsibilities to file the returns and pay the
taxes described above, our parent will be liable and indemnify us for any
penalties or other damages attributable to its failure to carry out its
responsibilities.
Following the closing of this offering, we will be responsible for filing
tax returns and paying taxes relating to ourselves in all cases other than those
described above, and our parent will be responsible for filing all other returns
and paying all other taxes.
Any audits or controversies arising with respect to any taxes will be
controlled by whichever of our parent or ourselves was responsible for filing
the return, although we will have the right to participate in any audits or
controversies controlled by our parent if they relate to our tax items. We and
our parent will agree to cooperate with each other with respect to any audits or
controversies. Any tax adjustments arising out of any audits or controversies
will be paid by, or payable to, ourselves or our parent as such amounts would
have been allocated if they had been included in the tax returns as originally
filed. We will each bear our own expenses with respect to returns, audits and
controversies.
Our parent will be liable and will indemnify us for any taxes arising out
of any future distribution of our stock by our parent to its shareholders,
except for any such taxes which arise solely as a result of actions taken by
ourselves or our shareholders after such distribution, in which case we will be
liable and will indemnify our parent for such taxes.
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LOAN TO OFFICER
Josef A. Mandelbaum, our Senior Vice President of Sales, Business
Development and Strategic Planning, was granted a $60,000 loan at an annual rate
of 5.75% simple interest from our parent, American Greetings, in September 1998.
The loan was in consideration for Mr. Mandelbaum's securing his M.B.A. and was
tied to his future employment with American Greetings or its subsidiaries. The
loan and related interest are due February 28, 2002. However, one-quarter of the
original principal amount of the loan was forgiven and, if Mr. Mandelbaum
remains employed by American Greetings or any of its subsidiaries, one-quarter
of the original principal amount of the loan, together with accrued interest,
will be forgiven at the end of each of our parent's fiscal years in 2000, 2001
and 2002.
CONSULTING SERVICES PROVIDED BY A DIRECTOR
Herbert H. Jacobs, one of our directors, was paid $130,000 in the last
fiscal year for consulting services rendered to American Greetings. This
relationship ceased in February, 1999.
CNS DEVELOPMENT CORPORATION
From January through July 1999, CNS Development Corporation, performed
software development services for us. In July 1999, we agreed with CNS
Development Corporation to terminate its services for AmericanGreetings.com and
cease doing business, and we offered employment to its employees, including
Andrew R. Cohen, our Senior Vice President and Chief Technology Officer. Our
total payments to CNS Development Corporation in 1999 and 2000 will, in the
aggregate, total approximately $600,000, including payments in respect of the
software development services CNS Development Corporation performed for
AmericanGreetings.com and in respect of the termination of those services, of
which $300,000 is contingent upon the former CNS Development Corporation
employees remaining employed by AmericanGreetings.com through June 30, 2000. Mr.
Cohen was formerly the President of CNS Development Corporation and owns fifty
percent of its capital stock.
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PRINCIPAL STOCKHOLDERS
American Greetings beneficially owns all of the shares of our Class B
common stock outstanding as of the date of this prospectus. Following the
closing of this offering, American Greetings will continue to beneficially own
100% of our Class B common stock and, accordingly, will hold approximately %
of the economic interest in AmericanGreetings.com. Such ownership also gives our
parent approximately % of the combined voting power of our outstanding common
stock. If the underwriters were to fully exercise their option to purchase up to
additional shares of our Class A common stock, our parent would hold
approximately % of the economic interest in AmericanGreetings.com and % of
the combined voting power of our outstanding common stock.
The following table sets forth information as of June 30, 1999 with respect
to the outstanding common stock of AmericanGreetings.com beneficially owned by:
- each person or entity known by AmericanGreetings.com to be the beneficial
owner of more than 5% of the shares of any class of such securities,
- each of our directors individually,
- each of our named executive officers individually, and
- all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED(1)
NUMBER --------------------------------
NAME OF BENEFICIAL OWNERS OF SHARES BEFORE OFFERING AFTER OFFERING
- ------------------------- --------- --------------- --------------
<S> <C> <C> <C>
Five Percent Holders:
American Greetings(2)................................
Morry Weiss(3).......................................
Directors and Executive Officers:
John M. Klipfell.....................................
Ralph E. Shaffer.....................................
Josef A. Mandelbaum..................................
Herbert H. Jacobs....................................
James C. Spira.......................................
All directors and executive officers a group (
persons)( )......................................
</TABLE>
- ---------------
* Less than 1%.
(1) Shares that an individual or group has the right to acquire within 60 days
of June 30, 1999 pursuant to the exercise of options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage ownership of such person or group, but are not deemed outstanding
for the purpose of computing the percentage ownership of any other person
listed in this table. Except as indicated in the footnotes to this table,
AmericanGreetings.com believes that the listed stockholders have sole voting
and investment power with respect to all of the shares shown to be
beneficially owned by them, based on information provided to us by the
stockholders.
(2) Represents shares of Class B common stock which are convertible into shares
of Class A common stock on a one-for-one basis at any time at the option of
the holder thereof.
(3) All such shares are held by American Greetings. Mr. Weiss currently serves
as its Chairman and Chief Executive Officer and is the beneficial owner of
more than 26% of its common stock. Mr. Weiss may therefore be deemed to
share voting and investment power with respect to such shares.
(4) The address for all directors and executive officers is c/o
AmericanGreetings.com, One American Road, Cleveland, Ohio 44144.
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DESCRIPTION OF CAPITAL STOCK
Immediately prior to the closing of this offering, our authorized capital
stock will consist of 150 million shares of Class A common stock, par value
$.001 per share, 60 million shares of Class B common stock, par value $.001 per
share, and 150 million shares of preferred stock, par value $.001 per share.
shares of Class A common stock are being offered by this prospectus.
shares are reserved for issuance upon conversion of Class B common stock
into Class A common stock. Immediately prior to the closing of this offering,
shares of Class B common stock will be outstanding and held by our
parent.
There is no public market for our Class B common stock. Class B common
stock holders may not transfer their shares except in accordance with their
conversion rights, which are described below.
Voting Rights. The holders of our Class A and Class B common stock
generally have identical rights. However, holders of our Class A common stock
are entitled to one vote per share, while holders of our Class B common stock
are entitled to ten votes per share on most matters to be voted on by
stockholders. Shares of Class B common stock also have conversion rights, which
are described below.
Generally, all matters to be voted on by stockholders must be approved by a
majority of the votes entitled to be cast by all shares of Class A and Class B
common stock present in person or represented by proxy, voting together as a
single class. Holders of our preferred stock might in the future be granted the
right to vote alongside holders of our common stock. When electing directors,
those candidates receiving the most votes, even if not a majority of the votes
cast, will be elected directors. Holders of shares of Class A common stock and
Class B common stock are not entitled to cumulate their votes in the election of
directors. Any holder or group of holders acting in concert, other than our
parent, which beneficially owns 10% or more of the outstanding shares of Class B
common stock and does not beneficially own at least an equivalent percentage of
the outstanding shares of Class A common stock are not entitled to exercise any
voting rights for the purposes of electing directors.
Except as otherwise provided for in our amended and restated certificate of
incorporation or by law, and after honoring any voting rights granted to holders
of any outstanding preferred stock, amendments to our amended and restated
certificate of incorporation must be approved by a two-thirds vote of the
combined voting power of all of the Class A and Class B common stock, voting
together as a single class. Any amendment to our amended and restated
certificate of incorporation to increase or decrease the authorized shares of
any class will be approved upon the affirmative vote of the holders of
two-thirds of the voting power of the common stock, voting together as a single
class. However, amendments to our amended and restated certificate of
incorporation that would alter the powers, preferences or special rights of
either the Class A or Class B common stock so as to affect them adversely also
must be approved by two-thirds of the votes entitled to be cast by the holders
of the shares affected by the amendment, voting as a separate class. For
purposes of these provisions, any provision for the voluntary, mandatory or
other conversion or exchange of the Class B common stock into or for Class A
common stock on a one-for-one basis will not be considered as adversely
affecting the rights of holders of the Class A common stock.
Conversion. Provided that a holder of Class B common stock first offers to
sell all of its Class B common stock to AmericanGreetings.com at the published
market value and such offer is either rejected or lapses, all in accordance with
the procedures set out in our amended and restated certificate of incorporation,
each share of Class B common stock is convertible into one share of Class A
common stock at the option of the holder for the 30 days following the rejection
or lapse of the offer.
PREFERRED STOCK
Upon the closing of this offering, our board of directors will be
authorized without further stockholder approval, to issue up to an aggregate of
150 million shares of preferred stock in one or more series. The board will also
be able to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series of
preferred stock. Upon the closing of this offering, there will be no shares of
preferred stock outstanding. We have no present plans to issue any shares of
preferred stock.
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ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN PROVISIONS OF OUR CERTIFICATE
OF INCORPORATION AND BYLAWS
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding those shares owned (x) by
persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
CLASSIFIED BOARD OF DIRECTORS
Our amended and restated certificate of incorporation and bylaws will
provide that our board of directors will be divided into three classes of
directors, with the classes to be nearly equal in number as possible. One class
will be originally elected for a term expiring at the annual meeting of
stockholders to be held in 2000, another will be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2001 and another
will be originally elected for a term expiring at the annual meeting of
stockholders to be held in 2002. Each director is to hold office until his or
her successor is duly elected and qualified. Commencing with the 2000 annual
meeting of stockholders, directors elected to succeed directors whose terms then
expire will be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each director to hold
office until such person's successor is duly elected and qualified.
Our amended and restated certificate of incorporation and bylaws will
provide that the board of directors shall initially consist of nine members. Our
amended and restated certificate of incorporation and bylaws will further
provide that, subject to any rights of holders of preferred stock to elect
additional directors under
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specified circumstances, the number of directors of AmericanGreetings.com shall
be fixed from time to time exclusively by resolution of the board of directors
adopted by the affirmative vote of directors constituting not less than a
majority of the entire board of directors, but shall consist of not more than
fifteen nor less than six directors. In addition, the amended and restated
certificate of incorporation provides that any vacancies will be filled by the
affirmative vote of a majority of the remaining directors, even if less than a
quorum, or by a sole remaining director, or by stockholders if such vacancy was
caused by the action of stockholders, in which event such vacancy may not be
filled by the directors or a majority thereof.
Our amended and restated certificate of incorporation provides that,
subject to the rights of holders of preferred stock or any other series or class
of stock to elect directors under specified circumstances and except as provided
below, directors may be removed only for cause by the affirmative vote of
holders of at least 66 2/3% of the voting power of the then outstanding shares
of stock of AmericanGreetings.com entitled to vote generally in the election of
directors, voting together as a single class.
ADVANCE NOTICE PROCEDURES
The bylaws provide for an advance notice procedure for the nomination,
other than by or at the direction of the board of directors, of candidates for
election as directors, as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at such meetings will have to be received
in writing by us not less than 60 nor more than 90 days prior to the date on
which we first mail our proxy materials for the previous year's annual meeting
of stockholders, and must contain certain information concerning the person to
be nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.
SPECIAL MEETINGS
The bylaws provide that special meetings of stockholders may be called only
by the chairman or secretary of AmericanGreetings.com at the request of a
majority of the total number of directors that AmericanGreetings.com would have
if there were no vacancies. Special meetings cannot be called by stockholders.
The amended and restated certificate of incorporation will provide that any
action required or permitted to be taken by stockholders may be effected only at
a duly called annual or special meeting of stockholders and may not be effected
by a written consent.
These and other provisions could have the effect of making it more
difficult to acquire AmericanGreetings.com by means of a tender offer, proxy
contest or otherwise, and to remove our incumbent officers and directors. These
provisions may discourage certain types of coercive takeover practices and
encourage persons seeking to acquire control of AmericanGreetings.com to first
negotiate with us.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of directors' fiduciary duty of
care. Our amended and restated certificate of incorporation will include a
provision that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
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Our amended and restated certificate of incorporation and amended and
restated bylaws will generally provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware or any other applicable law;
- we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our amended and restated certificate of incorporation, our bylaws or
other agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with legal proceedings to the fullest extent
permitted by Delaware law.
Prior to the closing of this offering, we intend to obtain directors' and
officers' insurance providing indemnification for our directors, officers and
some employees. We believe that these indemnification provisions and insurance
are necessary to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our amended
and restated certificate of incorporation and bylaws may discourage stockholders
from bringing a lawsuit against our directors for breach of their fiduciary
duty. Such provisions may also reduce the likelihood of derivative litigation
against our directors and officers, even though such an action, if successful,
might otherwise benefit us and our stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers in connection with
these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought. We are
unaware of any threatened litigation that may result in claims for
indemnification.
CORPORATE OPPORTUNITY
AmericanGreetings.com's amended and restated certificate of incorporation
will provide that American Greetings Corporation shall have no duty to refrain
from engaging in the same or similar activities or lines of business as
AmericanGreetings.com, and neither American Greetings Corporation nor any
officer or director thereof (except as noted below) shall be liable to
AmericanGreetings.com or its stockholders for breach of any fiduciary duty by
reason of any such activities of American Greetings Corporation. In the event
that American Greetings Corporation acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both American
Greetings Corporation and AmericanGreetings.com, American Greetings Corporation
shall have no duty to communicate or offer such corporate opportunity to
AmericanGreetings.com and shall not be liable to AmericanGreetings.com or its
stockholders for breach of any fiduciary duty as a stockholder of
AmericanGreetings.com by reason of the fact that American Greetings Corporation
pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to AmericanGreetings.com.
In the event that a director or officer of AmericanGreetings.com who is
also a director or officer of American Greetings Corporation acquires knowledge
of a potential transaction or matter which may be a corporate opportunity for
both AmericanGreetings.com and American Greetings Corporation, such director or
officer of AmericanGreetings.com shall have fully satisfied and fulfilled the
fiduciary duty of such director or officer to AmericanGreetings.com and its
stockholders with respect to such corporate opportunity if such director or
officer acts in a manner consistent with the following policy:
(i) a corporate opportunity offered to any person who is an officer of
AmericanGreetings.com, and who is also a director but not an officer of
American Greetings Corporation, shall belong to AmericanGreetings.com;
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(ii) a corporate opportunity offered to any person who is a director
but not an officer of AmericanGreetings.com, and who is also a director or
officer of American Greetings Corporation, shall belong to
AmericanGreetings.com if such opportunity is expressly offered to such
person in writing solely in his or her capacity as a director of
AmericanGreetings.com, and otherwise shall belong to American Greetings
Corporation; and
(iii) a corporate opportunity offered to any person who is an officer
of both AmericanGreetings.com and American Greetings Corporation shall
belong to AmericanGreetings.com if such opportunity is expressly offered to
such person in writing solely in his or her capacity as an officer of
AmericanGreetings.com, and otherwise shall belong to American Greetings
Corporation.
For purposes of the foregoing:
(i) A director of AmericanGreetings.com who is Chairman of the board
of directors of AmericanGreetings.com or of a committee thereof shall not
be deemed to be an officer of AmericanGreetings.com by reason of holding
such position (without regard to whether such position is deemed an office
of AmericanGreetings.com under the amended and restated bylaws of
AmericanGreetings.com), unless such person is a full-time employee of
AmericanGreetings.com; and
(ii) (a) the term "AmericanGreetings.com" shall mean
AmericanGreetings.com and all corporations, partnerships, joint ventures,
associations and other entities in which AmericanGreetings.com beneficially
owns (directly or indirectly) 50% or more of the outstanding voting stock,
voting power, partnership interest or similar voting interests, and (b) the
term "American Greetings Corporation" shall mean American Greetings
Corporation and all corporations, partnerships, joint ventures,
associations and other entities (other than AmericanGreetings.com defined
in accordance with clause (a) of this section (ii) in which American
Greetings Corporation beneficially owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership interests
or similar voting interests.
The foregoing provisions of AmericanGreetings.com's amended and restated
certificate of incorporation shall expire on the date that American Greetings
Corporation ceases to own beneficially common stock representing at least 20% of
the total voting power of all classes of outstanding common stock and no person
who is a director or officer of AmericanGreetings.com is also a director or
officer of American Greetings Corporation or any of its subsidiaries (other than
AmericanGreetings.com).
In addition to any vote of the stockholders required by
AmericanGreetings.com's amended and restated certificate of incorporation, until
the time that American Greetings Corporation ceases to own beneficially common
stock representing at least 20% of the total voting power of all classes of
outstanding common stock, the affirmative vote of the holders of more than 80%
of the total voting power of all classes of outstanding common stock shall be
required to alter, amend or repeal in a manner adverse to the interests of
American Greetings Corporation and its subsidiaries (other than
AmericanGreetings.com), or adopt any provision adverse to the interests of
American Greetings Corporation and its subsidiaries (other than
AmericanGreetings.com), or inconsistent with the corporate opportunity
provisions described above. Accordingly, so long as American Greetings
Corporation beneficially owns common stock representing at least 20% of the
total voting power of all classes of outstanding common stock, it can prevent
any such alteration, amendment, repeal or adoption.
Any person purchasing or otherwise acquiring common stock will be deemed to
have notice of, and to have consented to, the foregoing provisions of
AmericanGreetings.com's amended and restated certificate of incorporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, AmericanGreetings.com will have
outstanding shares of common stock, assuming no exercise of the
underwriters' over-allotment option. Of these shares, the shares sold in
this offering will be freely tradable without restriction under the Securities
Act unless purchased by "affiliates" of AmericanGreetings.com as that term is
defined in Rule 144 under the Securities Act. On the closing date of this
offering, our parent will own all of the shares of our Class B common stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who beneficially owned restricted shares for at
least one year (including the holding period of any prior owner except an
affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding (which
will equal approximately shares immediately after this offering); or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about AmericanGreetings.com. Under Rule 144(k), a person who is not deemed to
have been an affiliate of AmericanGreetings.com at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
The shares of common stock held by our parent are deemed "restricted
securities" as defined in Rule 144, and may not be sold other than through
registration under the 1933 Act or pursuant to an exemption from the regulations
thereunder, including exceptions provided by Rule 144. Subject to applicable law
and to the contractual restriction with the underwriters described below, our
parent may sell any and all of the shares of common stock it owns after
completion of this offering. The Registration Rights Agreement will provide that
our parent will have the right in certain circumstances to require us to use our
reasonable best efforts to register for resale shares of common stock held by
the parent. See "Related Party Transactions -- Transactions With Our
Parent -- Formation Agreement."
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant to
AmericanGreetings.com who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.
After the closing of this offering, we have agreed not to issue any shares
of our capital stock or any rights, warrants, or other securities to purchase or
acquire any shares of our capital stock, without the prior consent of our
parent. See "Related Party Transactions -- Transactions With Our
Parent -- Formation Agreement." Subject to the foregoing restrictions, we may
issue additional shares of common stock to raise equity or make acquisitions. We
may also issue additional shares of common stock to our parent in exchange for
additional investments of cash or other property by our parent in
AmericanGreetings.com.
In addition, subject to the prior consent of our parent, we may grant
options to purchase shares of common stock to employees, non-employee directors
and independent contractors of AmericanGreetings.com, pursuant to the 1999 Stock
Option Plan. See "Management -- Employee Benefit Plans." We currently expect to
file promptly following this offering a registration statement on Form S-8 under
the 1933 Act to register an aggregate of shares reserved for issuance under
the 1999 Stock Option Plan. Shares issued pursuant to
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the 1999 Stock Option Plan after the effective date of such registration
statement, other than shares issued to affiliates, generally will be freely
tradable without restriction or further registration under the 1933 Act.
LOCK-UP AGREEMENTS
For a period of 180 days after the date of this prospectus, we, our
executive officers, directors and our parent, have agreed, subject to certain
exceptions, not to, without approval by Merrill Lynch:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act of 1933 relating to any shares of our common
stock,
- enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise,
or
- make any demand for, or exercise any right with respect to, the
registration of any share of common stock or any securities convertible
into or exchangeable for common stock,
provided that we may at any time and from time to time (1) grant options to
purchase shares of our Class A common stock under our 1999 Stock Option Plan and
(2) issue shares of our Class A common stock upon the exercise of outstanding
options.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rule 144, 144(k) and 701, none of
these shares can be sold until 181 days after the date of the final prospectus.
Beginning 181 days after the date of the final prospectus, of these
shares will be eligible for sale in the public market, although a portion of
such shares will be subject to certain volume limitations pursuant to Rule 144.
The remaining restricted shares will become eligible for sale from time to time
thereafter upon expiration of applicable holding periods under Rule 144 under
the Securities Act and AmericanGreetings.com's right to repurchase unvested
shares.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC World Markets
Corp. and Volpe Brown Whelan & Company, LLC are acting as representatives of
each of the underwriters named below. Subject to the terms and conditions set
forth in a purchase agreement between us and the underwriters, we have agreed to
sell to the underwriters, and each of the underwriters severally and not jointly
has agreed to purchase from us, the number of shares of Class A common stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
CIBC World Markets Corp.....................................
Volpe Brown Whelan & Company, LLC...........................
--------
Total...........................................
========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in that agreement, to purchase all of the
shares of our Class A common stock being sold pursuant to each such agreement if
any of the shares of common stock being sold pursuant to such agreement are
purchased. In the event of a default by an underwriter, the purchase agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated. The closing with respect to the sale of shares of common stock to be
purchased by the underwriters are conditioned upon one another.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of our Class A common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
dealers at such price less a concession not in excess of $ per share of
Class A common stock. The underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Class A common stock to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of an
additional shares of our Class A common stock at the initial public
offering price set forth on the cover of this prospectus, less the underwriting
discount. The underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our Class A common stock offered
hereby. To the extent that the underwriters exercise this option, each
underwriter will be obligated to purchase a number of additional shares of our
Class A common stock proportionate to such underwriter's initial amount
reflected in the foregoing table.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price...........................
Underwriting discount...........................
Proceeds, before expenses, to
AmericanGreetings.com.........................
</TABLE>
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
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The shares of Class A common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of legal matters by counsel for the underwriters and
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to of the shares offered hereby to be sold
to some of our employees, directors and other persons with relationships with
us. The number of shares of Class A common stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
NO SALES OF SIMILAR SECURITIES
We, and our executive officers and directors and American Greetings have
agreed, subject to certain exceptions, not to directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act of 1933 relating to any shares of our common
stock,
- enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise,
or
- make any demand for, or exercise any right with respect to, the
registration of any share of common stock or any securities convertible
into or exchangeable for common stock,
without the prior written consent of Merrill Lynch on behalf of the underwriters
for a period of 180 days after the date of this prospectus, provided that we may
at any time and from time to time (1) grant options to purchase shares of our
Class A common stock under our 1999 Stock Option Plan and (2) issue shares of
our Class A common stock upon the exercise of outstanding options. See "Shares
Eligible for Future Sale."
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined through
negotiations between us and the representatives of the underwriters. The factors
to be considered in determining the initial public offering price, in addition
to prevailing market conditions are expected to be price-revenue and discounted
price-earnings ratios, include the valuation multiples of publicly traded
companies that the representatives believe to be comparable to us, some of our
financial information, the history of, and the prospects for, us and the
industry in which we compete, and an assessment of our management, its past and
present operations, the prospects for, and timing of, our future revenues and
the present state of our development, the percentage interest of our company
being sold as compared to the valuation for our company and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to ours. There can be no assurance that an active
trading market will develop for our Class A common stock or that our Class A
common stock will trade in the public market subsequent to the offering at or
above the initial public offering price.
We have made application to list our Class A common stock on the Nasdaq
National Market under the symbol "AGCM."
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The underwriters do not expect sales of our Class A common stock to be made
to any accounts over which they exercise discretionary authority to exceed 5% of
the number of shares being offered hereby.
The underwriters do not intend to confirm sales of the common stock offered
hereby to any accounts over which they exercise discretionary authority.
We have agreed to indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of this offering.
Volpe Brown Whelan & Company, LLC has performed in the past, and may
perform in the future, various investment banking services for us.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase our Class A common stock. As
an exception to these rules, the underwriters are permitted to engage in
transactions that stabilize the price of our Class A common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of our Class A common stock.
If the underwriters create a short position in our Class A common stock in
connection with the offering contemplated hereby, i.e., if they sell more shares
of our Class A common stock than are set forth on the cover page of this
prospectus, the underwriters may reduce that short position by purchasing our
Class A common stock in the open market. The underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment
options described above.
PENALTY BIDS
The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase shares of
our Class A common stock in the open market to reduce their short position or to
stabilize the price of our Class A common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our Class A common stock to the extent
that it discourages resales of our Class A common stock.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common stock. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the shares of common stock will be passed upon for us by
Gordon & Glickson LLC, Chicago, Illinois, our counsel. Certain legal matters
will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California, our special counsel. Certain legal matters
relating to this offering will be passed upon for the underwriters by Shearman &
Sterling, Menlo Park, California.
71
<PAGE> 77
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at February 28, 1998 and February 28, 1999, and for each of the three
years in the period ended February 28, 1999, as set forth in their report. We've
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
For more information with respect to AmericanGreetings.com and the Class A
common stock offered by this prospectus, see the registration statement and the
exhibits and schedule filed by us with the Securities and Exchange Commission on
Form S-1 under the Securities Act of 1933. This prospectus does not contain all
of the information set forth in the registration statement and the related
exhibits and schedules. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the registration.
The registration statement and its exhibits and schedules may be inspected
and copied at the public reference facilities maintained by the Securities and
Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Securities and Exchange Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The public may obtain information on the operations of the public
reference facilities in Washington, D.C. by calling the Securities and Exchange
Commission at 1-800-SEC-0330. Copies of all or any part can also be obtained at
prescribed rates from the Public Reference Section of the Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
72
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of February 28, 1998 and 1999 and June 30,
1999 (unaudited).......................................... F-3
Statements of Operations for the three years ended February
28, 1999 and the four months ended June 30, 1998 and 1999
(unaudited)............................................... F-4
Statements of Cash Flows for the three years ended February
28, 1999 and the four months ended June 30, 1998 and 1999
(unaudited)............................................... F-5
Statements of Stockholder's Deficit for the three years
ended February 28, 1999 and the four months ended June 30,
1999 (unaudited).......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholder
AmericanGreetings.com, Inc.
We have audited the accompanying balance sheets of AmericanGreetings.com,
Inc., a wholly-owned subsidiary of American Greetings Corporation, as of
February 28, 1998 and 1999, and the related statements of operations,
stockholder's deficit and cash flows for each of the three years in the period
ended February 28, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmericanGreetings.com, Inc.
at February 28, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended February 28, 1999, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Cleveland, Ohio
July 28, 1999
F-2
<PAGE> 80
AMERICANGREETINGS.COM, INC.
BALANCE SHEETS
THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------
1998 1999 JUNE 30, 1999
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Trade accounts receivable................................... $ 932 $ 3,696 $ 2,598
Prepaid partner share expense............................... 3,523 5,211 3,731
Deferred creative and production costs...................... 98 1,634 1,755
Other current assets........................................ 23 127 142
------ ------- -------
Total current assets................................... 4,576 10,668 8,226
OTHER ASSETS................................................ -- -- 743
FIXED ASSETS -- NET......................................... 574 583 2,331
------ ------- -------
$5,150 $11,251 $11,300
====== ======= =======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................... $ 278 $ 536 $ 1,144
Accrued compensation........................................ 70 136 311
Deferred revenue............................................ 1,219 2,986 3,452
------ ------- -------
Total current liabilities.............................. 1,567 3,658 4,907
DEFERRED REVENUE............................................ 2,187 1,437 1,187
ADVANCES BY PARENT.......................................... 5,281 8,324 7,458
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT
Common stock -- par value $1; 100 shares authorized, issued,
and outstanding at February 28, 1998 and 1999; par value
$0.001; 10,000 shares authorized and 1,000 shares issued and
outstanding at June 30, 1999................................ -- -- --
Additional paid-in-capital.................................. 1 1 1
Accumulated deficit......................................... (3,886) (2,169) (2,253)
------ ------- -------
Total stockholder's deficit............................ (3,885) (2,168) (2,252)
------ ------- -------
$5,150 $11,251 $11,300
====== ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 81
AMERICANGREETINGS.COM, INC.
STATEMENTS OF OPERATIONS
THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
FISCAL YEARS ENDED FEBRUARY 28, JUNE 30,
-------------------------------- ------------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $ 1,036 $ 3,882 $12,347 $2,972 $6,247
Cost of net revenues........................ 1,034 1,919 1,623 572 1,512
------- ------- ------- ------ ------
Gross profit................................ 2 1,963 10,724 2,400 4,735
Operating expenses:
Sales and marketing....................... 1,929 1,980 5,611 1,231 3,224
Product development....................... 1,270 959 1,090 266 845
General and administrative................ 430 838 1,340 439 796
------- ------- ------- ------ ------
Total operating expenses............... 3,629 3,777 8,041 1,936 4,865
Income (loss) before benefit (provision) for
income taxes.............................. (3,627) (1,814) 2,683 464 (130)
Benefit (provision) for income taxes........ 1,244 635 (966) (167) 46
------- ------- ------- ------ ------
Net income (loss)........................... $(2,383) $(1,179) $ 1,717 $ 297 $ (84)
======= ======= ======= ====== ======
</TABLE>
See notes to financial statements.
F-4
<PAGE> 82
AMERICANGREETINGS.COM, INC.
STATEMENTS OF CASH FLOWS
THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
FISCAL YEARS ENDED FEBRUARY 28, JUNE 30,
------------------------------- ------------------
1997 1998 1999 1998 1999
-------- -------- ------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................. $(2,383) $(1,179) $1,717 $ 297 $ (84)
Adjustments to reconcile to net cash (used by)
provided by operating activities:
Depreciation................................ 110 358 393 118 263
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable............................. (269) (663) (2,764) (425) 1,098
(Increase) decrease in prepaid partner
share expense.......................... -- (3,523) (1,688) 128 1,480
Increase in deferred creative and
production costs....................... -- (98) (1,536) (622) (121)
(Increase) decrease in other current
assets................................. (64) 55 (104) 2 (15)
Increase (decrease) in accounts payable
and other liabilities.................. 202 21 324 (167) 783
Increase (decrease) in deferred
revenue................................ -- 3,406 1,017 (218) 216
------- ------- ------ ----- -------
Cash (Used by) Provided by Operating
Activities............................... (2,404) (1,623) (2,641) (887) 3,620
INVESTING ACTIVITIES:
Increase in other assets...................... -- -- -- -- (743)
Fixed asset additions......................... (350) (228) (402) (79) (2,011)
------- ------- ------ ----- -------
Cash Used by Investing Activities........... (350) (228) (402) (79) (2,754)
FINANCING ACTIVITIES:
Advances from (to) parent -- net.............. 2,754 1,851 3,043 966 (866)
------- ------- ------ ----- -------
Cash Provided by (Used by) Financing
Activities............................... 2,754 1,851 3,043 966 (866)
------- ------- ------ ----- -------
CHANGE IN CASH AND CASH EQUIVALENTS........... -- -- -- -- --
Cash and Cash Equivalents at Beginning of
Period................................... -- -- -- -- --
------- ------- ------ ----- -------
Cash and Cash Equivalents at End of
Period................................... $ -- $ -- $ -- $ -- $ --
======= ======= ====== ===== =======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 83
AMERICANGREETINGS.COM, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN- ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ---------- ----------- -------
<S> <C> <C> <C> <C>
BALANCE MARCH 1, 1996............................ $-- $1 $ (324) $ (323)
Net loss......................................... (2,383) (2,383)
------- ------- ------- -------
BALANCE FEBRUARY 28, 1997........................ -- 1 (2,707) (2,706)
Net loss......................................... (1,179) (1,179)
------- ------- ------- -------
BALANCE FEBRUARY 28, 1998........................ -- 1 (3,886) (3,885)
Net income....................................... 1,717 1,717
------- ------- ------- -------
BALANCE FEBRUARY 28, 1999........................ -- 1 (2,169) (2,168)
Net loss (Unaudited)............................. (84) (84)
------- ------- ------- -------
BALANCE JUNE 30, 1999 (Unaudited)................ $-- $1 $(2,253) $(2,252)
======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 84
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE FOUR MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
THOUSANDS OF DOLLARS
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY: AmericanGreetings.com, Inc. ("the Company" or
"AmericanGreetings.com, Inc.") is a leading Web-based provider of greetings and
other social expression content to consumers. AmericanGreetings.com, Inc. was
incorporated in June 1999 (See Note H) as a successor to the on-line greeting,
social expression and personal creativity operations of American Greetings
Corporation and its subsidiaries, which began in July 1995 ("Inception"). The
Company is a wholly-owned subsidiary of American Greetings Corporation ("the
Parent" or "American Greetings"), a publicly-traded corporation. The
accompanying financial statements have been prepared as if the Company operated
as a stand-alone entity since Inception. All of the accounting judgments,
estimations and allocations in the financial statements are based on assumptions
that management believes are reasonable.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION: To date, the Company has generated its revenues from
two primary sources: (1) the sale of on-line subscription programs through its
own Web site on the Internet and through co-branded sites with its distribution
partners and (2) the license of content and intellectual property.
Online Subscription Programs
The Company generates revenue from various online subscription programs.
Revenues relating to the sale of online greetings are recognized ratably over
each subscriber's subscription period, currently either one or six months. With
respect to the sale of a fixed number of online greetings for a fixed price,
which have been offered in the past, revenue was recognized over the period the
greetings were used, generally ranging from four to six months, or expired which
was considered to occur after 90 days of inactivity. During June and July of
1999, all fixed greetings users were converted to a three month subscription
program. Deferred revenue related to these users, at the date of upgrade, is
being recognized ratably over the three month term of the subscription.
Subscriptions are charged to customers' credit cards and are billed in advance
of the subscription period. Deferred revenue includes subscription fees which
have been collected, but for which revenue has not yet been recognized.
Licensing of Personal Creativity Content and Intellectual Property
The Company recognizes revenue from the licensing of personal creativity
content to software vendors when products are sold by the software vendors to
the retailer or the original equipment manufacturer (OEM). Revenue generated by
the license of intellectual property is recognized over the term of related
license agreements. Deferred revenue includes licensing fees which have been
collected, but for which revenue has not yet been recognized. Amounts to be
recognized in income in the next twelve months are classified as a current
liability in the accompanying balance sheets.
FINANCIAL INSTRUMENTS: The carrying values of the Company's financial
instruments approximate their fair values.
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially
subject the Company to a significant concentration of credit risk consist
principally of accounts receivable from certain computer software companies. The
Company conducts business based on periodic evaluations of its customers'
financial condition and generally does not require collateral. The accounts
receivable balance at February 28, 1999 and
F-7
<PAGE> 85
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
at June 30, 1999 was primarily (92% and 87%, respectively) composed of
receivables from the licensing of content and intellectual property to
Mindscape, a division of Mattel Inc.
RELIANCE ON CERTAIN RELATIONSHIPS: The Company derives a significant
portion of its net revenues (42% in 1999 and 64% for the four months ended June
30, 1999) from the sale of on-line greetings and personal creativity content
marketed and distributed through America Online, Inc. (AOL) under a three year
agreement, which expires February 28, 2001. In July 1999, AOL and the Company
entered into a new agreement which expanded the scope of their interactive
marketing agreement (See Note D). There can be no assurance that the Company
will maintain its relationship with AOL beyond the term of the new agreement, or
that it will be able to find an alternative distribution partner capable of
providing comparable services on terms acceptable to the Company after this
agreement expires. The Company expects that other partnerships would be
available.
The Company also derives a significant portion of its net revenues (36% in
1999 and 26% for the four months ended June 30, 1999) from royalties earned from
the licensing of trademarks and personal creativity content to Mindscape, under
a four year agreement which expires January 31, 2002. Under the terms of the
agreement, the Company is required to provide Mindscape with content (consisting
primarily of digitized artwork) and certain copyrighted material and trademarks.
In exchange for the content and trademarks, Mindscape agreed to pay certain
guaranteed licensing and royalty fees over the contract term. Additionally, the
agreement contains provisions which allow for Mindscape to extend the term if
royalty payments to the Company meet specified levels. Costs incurred to create
digitized artwork and content for Mindscape under this agreement are capitalized
and amortized on a straight-line basis over one year, the operating period that
Mindscape typically markets each new product, beginning on the date the software
is shipped to retailers or OEMs. There can be no assurance that the Company will
maintain its relationship with Mindscape beyond the term of the existing
agreement, or that it will be able to find an alternative software vendor
capable of providing comparable services. However, the Company expects that
other vendors would be available.
PRODUCT DEVELOPMENT COSTS: Product development costs associated with
products and services to be marketed through the Internet are expensed when
incurred.
FIXED ASSETS: Fixed assets are carried at cost. Depreciation is computed
using the straight-line method over the useful lives of the assets, which
generally range from two to seven years. Fixed assets are reviewed periodically
for impairment in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." Impairment of long-lived assets is
recognized when events or changes in circumstances indicate that the carrying
amount of the asset, or related groups of assets, may not be recoverable.
Measurement of the amount of impairment may be based on appraisal, market values
of similar assets or estimated discounted future cash flows resulting from the
use and ultimate disposition of the assets.
ADVERTISING EXPENSE: Advertising costs are expensed as incurred.
Advertising expense was $708, $190 and $26 in 1997, 1998, and 1999,
respectively.
RESEARCH AND DEVELOPMENT EXPENSE: Research and development costs are
expensed as incurred. Research and development costs include those expenses
incurred in the investigation and creation of new products or services, or in
significant improvements to existing products or processes, whether intended for
sale or internal use where those expenditures have certain future value. No
research and development costs were incurred in 1997 and 1998 while such costs
were $76 in 1999.
INCOME TAXES: The Company is a wholly-owned subsidiary of American
Greetings Corporation which files a consolidated federal income tax return. The
taxable income or loss of the Company from its Inception to February 28, 1999
was included in the consolidated tax returns of the Parent. Separate income tax
returns
F-8
<PAGE> 86
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
were not filed for the Company. For all periods presented, deferred income taxes
and the related tax provision or benefit have been prepared as if the Company
had been a separate taxpayer.
NEW PRONOUNCEMENTS: In June 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 establishes new standards for the way
companies report information about operating segments in annual financial
statements. The disclosures prescribed by SFAS No. 131 are effective for the
year ended February 28, 1999. The Company currently operates in one segment.
In April 1998, The American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-up Activities." The Standard is effective for the Company for its fiscal
year which began March 1, 1999. This Standard requires that start-up costs, as
defined, be written off and any future start-up costs be expensed as incurred.
The Company expenses start-up costs as incurred and, therefore, adoption of this
Standard did not have a significant impact on the Company's financial position
or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Standard, which establishes new
accounting and reporting standards for derivative financial instruments, must be
adopted for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company does not currently have any derivative instruments and,
therefore, does not expect the Standard to have a material effect on its
financial position or results of operations.
CHANGE OF FISCAL YEAR: Effective March 1, 1999 AmericanGreetings.com, Inc.
changed from a fiscal year ending on February 28 or February 29, to a calendar
year-end. As a result, AmericanGreetings.com, Inc. has included in the
accompanying financial statements a four month transitional period corresponding
with its new calendar quarter ended June 30, 1999. The Company's 1999
transitional year financial statements to be included in its Form 10-K filing
will include its operations for the period from March 1, 1999 through December
31, 1999. AmericanGreetings.com, Inc.'s first full calendar year ending December
31 will be the year ending December 31, 2000. AmericanGreetings.com, Inc. is
undertaking this change in order to facilitate the comparability of its results
of operations and financial condition with that of other publicly traded
Internet companies.
INTERIM FINANCIAL INFORMATION: The accompanying balance sheet as of June
30, 1999, the related statements of operations and cash flows for the four
months ended June 30, 1998 and 1999, and the statement of stockholder's deficit
for the four months ended June 30, 1999 ("Interim Financial Statements") have
been prepared by the Company in accordance with generally accepted accounting
principles (GAAP) for interim financial information and with Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. The Interim
Financial Statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting of only normal recurring accruals, considered necessary for a fair
presentation of the results for such periods. Operating results for the four
month period ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the fiscal period ending December 31, 1999.
NOTE B -- EARNINGS PER SHARE
Prior to the reorganization described in Note H, the Company had 100 shares
of common stock outstanding and, accordingly, historical earnings per share data
is not considered meaningful.
F-9
<PAGE> 87
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- FIXED ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28,
---------------- JUNE 30,
1998 1999 1999
------ ------ --------
<S> <C> <C> <C>
Fixtures and equipment................................... $1,069 $1,471 $ 3,482
Less accumulated depreciation............................ (495) (888) (1,151)
------ ------ -------
$ 574 $ 583 $ 2,331
====== ====== =======
</TABLE>
NOTE D -- PREPAID PARTNER SHARE EXPENSE
Prepayments relating to revenue sharing agreements with certain companies
are charged to operations over the effective period of each agreement or, if
greater, as revenue is earned.
In September 1997, the Company and AOL entered into an online distribution
relationship under an interactive marketing agreement (the AOL Contract),
pursuant to which the Company is the only party authorized by AOL to maintain an
online site offering greeting card products on AOL's service. Prepaid partner
share expense includes approximately $2.7 million and $5.0 million at February
28, 1998 and 1999, respectively, relating to unamortized prepaid revenue sharing
payments under the AOL Contract. The Company is amortizing these prepaid
expenses over the term of the agreement consistent with the contract's revenue
sharing provisions. In July 1999, the Company and AOL entered into a new
agreement which expanded the scope of their relationship.
Remaining payment obligations under the existing AOL contract were canceled
in connection with the new agreement. Under the new agreement, the Company has
committed to pay AOL $100.0 million over the 66 month term of the contract, of
which $25.0 million is required to be paid in 1999, $20.0 million in 2000, $20.0
million in 2001, $20.0 million in 2002, and $15.0 million in 2003. The Company
will amortize these costs as sales and marketing expenses on a straight line
basis over the term of the new agreement. Certain additional amounts will also
be due AOL consistent with the revenue sharing provisions of the contract. The
new contract may be renewed beyond December 2004 at the option of AOL.
In addition, the Company has entered into interactive marketing agreements
with other service providers, which permit a link from the service providers'
sites to a co-branded version of the Company's web site. These agreements
generally allow for a sharing of the gross sales revenues between the Company
and the Internet service providers. Prepaid partner share expense includes $0.8
million and $0.2 million at February 28, 1998 and 1999, respectively, relating
to these other agreements. The costs associated with these agreements are being
amortized over the lesser of the term of the agreement (generally six months to
two years) or as the sharing of revenue is earned.
The Company periodically evaluates the realizability of prepayments under
these agreements and, if necessary, recognizes a write down of these assets to
their net realizable value.
NOTE E -- RETIREMENT PLAN
The Parent has a non-contributory profit-sharing plan with a contributory
401(k) provision that covers most of its United States employees, including
employees of the Company. Contributions to the profit-sharing plan charged to
the Company were $64, $93 and $260 for 1997, 1998 and 1999, respectively. In
addition, the Parent matches a portion of 401(k) employee contributions
contingent upon meeting specified annual operating results goals. The Company's
matching costs were $9, $12 and $63 in 1997, 1998 and 1999, respectively. These
costs are included in Corporate expense allocations -- see Note F.
F-10
<PAGE> 88
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- RELATED PARTY TRANSACTIONS
Since Inception, the Parent has provided non-interest bearing advances to
the Company for working capital and fixed asset purchases which aggregated
$5,281 and $8,324 at February 28, 1998 and 1999, respectively, and $7,458 at
June 30, 1999. The Company's operations are part of the Parent's centralized
cash management system and its centralized payroll system. Under the cash
management system, cash receipts and disbursements arising from the Company's
operations are transferred to or funded from the Parent's operating cash
accounts. Payroll costs are computed by the Parent and are paid from the
Parent's operating cash accounts. Payroll costs are recorded in the Parent's
centralized payroll system and are transferred to the Company's general ledger
system.
It is the Parent's intention to continue to fund these cash needs and to
not require repayment of these advances. It is anticipated that when the Company
completes its formation agreement in connection with its anticipated initial
public offering of common stock (see Note H), the then net advance by Parent
will be contributed to capital.
Related party expenses included in these financial statements include
corporate overhead costs allocated from the Parent (Corporate expense
allocation) and costs incurred on behalf of the Company by the Parent (Corporate
pass-through charges).
Corporate expense allocations: The Parent provides indirect management
services to the Company, including corporate management, treasury, accounting,
risk management, certain legal services, and other indirect administrative
functions. These costs have been allocated to the Company based on the Company's
total net revenue to the Parent's total net revenue. The Company is also charged
a pro-rata share, based on square footage, of the maintenance, security and
other costs to run the Parent's office building. The Company is charged a
pro-rata share, based on number of employees, of corporate benefit programs,
employee development and payroll services costs. The Company has been charged
for the retirement benefit programs relating to its employees as were incurred
by the Parent. The corporate expense allocations related to the Company included
within the accompanying statements of operations were approximately $105, $198
and $529 for 1997, 1998, and 1999, respectively.
Corporate pass-through charges: The Parent incurred costs that were
directly charged to the Company as follows:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Rent........................................................ $ 90 $ 23 $ 83
Payroll taxes and benefits.................................. 216 357 522
Other....................................................... 68 73 51
---- ---- ----
Total....................................................... $374 $453 $656
==== ==== ====
</TABLE>
Management believes that the basis used for allocating corporate services
is reasonable. While the terms of these transactions may differ from those that
would result from transactions among unrelated parties, management does not
believe such differences would be material.
F-11
<PAGE> 89
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The aforementioned expenses are included in the accompanying statements of
operations as follows:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
----------------------------
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Sales and marketing..................................... $ 87 $ 196 $ 279
Product development..................................... 89 135 193
General and administrative.............................. 303 320 713
------- ------- ------
Total................................................... $ 479 $ 651 $1,185
======= ======= ======
</TABLE>
One of the Company's directors also serves as an officer and director of
the Parent.
NOTE G -- INCOME TAXES
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
----------------------------
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Income (loss) before income taxes:...................... $(3,627) $(1,814) $2,683
======= ======= ======
Provision (benefit) for income taxes:
Current................................................. $(1,236) $ (663) $ 952
Deferred................................................ (8) 28 14
------- ------- ------
Total................................................... $(1,244) $ (635) $ 966
======= ======= ======
</TABLE>
The statutory federal income tax and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
----------------------------
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Statutory rate.......................................... 35.0% 35.0% 35.0%
Other................................................... (0.7)% -- 1.0%
------- ------- ------
Effective tax rate...................................... 34.3% 35.0% 36.0%
======= ======= ======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Depreciation............................................ $ (8) $ 23 $ 39
Valuation reserve....................................... -- (23) (39)
------- ------- ------
Net deferred tax liability.............................. $ (8) $ -- $ --
======= ======= ======
</TABLE>
Due to the Company's history of operating losses the realization of the
deferred tax asset is uncertain. The Company has, therefore, provided a full
valuation allowance against the deferred tax asset.
NOTE H -- SUBSEQUENT EVENTS (UNAUDITED)
AGREEMENTS WITH AMERICAN GREETINGS CORPORATION: Prior to the closing of
the Company's anticipated initial public offering, the Company and American
Greetings Corporation intend to enter into a Formation Agreement whereby
American Greetings Corporation will contribute to capital its advances and $50
million. At February 28, 1999 and June 30, 1999, advances by parent totaled
$8,324 and $7,458, respectively.
F-12
<PAGE> 90
AMERICANGREETINGS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cross-Licensing Agreement: In connection with the planned Formation
Agreement, American Greetings Corporation intends to grant the Company exclusive
rights to use "American Greetings" and the American Greetings rose logo in the
electronic market. American Greetings also intends to grant the Company
exclusive rights to use trademarks closely identified with the Company's
business, including "CreataCard" and other "Creata-" derivations, and
non-exclusive rights to other existing American Greetings trademarks such as
"Carlton", "Intuitions" and "Balloon Zone". AmericanGreetings.com, Inc. and
American Greetings Corporation will also agree to grant each other broad
exclusive licenses to use, copy and modify all respective present and future
social expression art, and non-exclusive license to all present and future
social expression verse. Both parties will be entitled to retain ownership of
derivative works of social expression art that they create or commission.
In the cross-license agreement the Company will agree to pay royalties to
American Greetings Corporation with respect to the American Greetings
Corporation's trademarks and licenses to all American Greetings social
expression art and verse. Pursuant to this agreement, the Company will pay
American Greetings fixed royalty charges of $24 million over a three year period
beginning July 1, 1999. Thereafter, the Company will pay American Greetings a
royalty of 3% of its net revenue for all periods after June 30, 2002, with a
minimum annual royalty payment of $5 million.
Services Agreement: The Company and American Greetings will enter into an
administrative services agreement, under which American Greetings will provide
AmericanGreetings.com, Inc. with requested back office infrastructure and
certain operational and administrative services at American Greetings
Corporation's cost plus 10% and a web services agreement under which
AmericanGreetings.com, Inc. will provide certain Internet-related technology
development and implementation services at AmericanGreetings.com, Inc.'s cost
plus 10%.
Tax Matters Agreement: Also in connection with the anticipated Formation
Agreement, the Company and American Greetings Corporation will enter into a tax
sharing and indemnification agreement. Pursuant to this agreement, for as long
as the Company remains a member of the American Greeting's consolidated tax
group, the Company will pay its proportionate share of its Parent's tax
liability computed as if the Company were filing a separate return. Further,
under the tax agreement, to the extent that American Greetings Corporation uses
any of the Company's tax losses, it will be required to reimburse the Company to
the extent of any such benefits utilized.
PURCHASE OF DOMAIN NAME: In May 1999, AmericanGreetings.com, Inc. acquired
the rights to the domain name ag.com, including the registration of the domain
name with Network Solutions, Inc., from the previous holder of these rights.
F-13
<PAGE> 91
INSIDE BACK COVER ARTWORK
[pictures of some of AmericanGreetings.com's products, features and services]
[text: Some of the Products, Features and Services]
[text: Electronic greetings that simply say hello]
[text: Greetings with animation, sound, music and interactivity]
[text: Animated Hi-Brow Comix that one can both enjoy and e-mail to friends]
[text: Paper greeting cards that you can personalize and print yourself]
[text: Craft, party and other print projects you can make and print yourself]
[text: Cartoons and other funny stuff that you can print yourself and share]
[text: Paper cards that you personalize and order, and we print and mail for
you]
[text: Free address book and reminder services]
[text: Both free and subscription offerings of all types of products]
<PAGE> 92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING 1999 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
[LOGO]
CLASS A COMMON STOCK
----------------------
PROSPECTUS
----------------------
MERRILL LYNCH & CO.
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 93
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of purchase agreement.
3.1 Certificate of incorporation of registrant.
3.2 Form of amended and restated certificate of incorporation of
registrant (included as Exhibit A to Exhibit 10.3).
3.3 Bylaws of registrant.
3.4 Form of amended and restated bylaws of registrant (included
as Exhibit A to Exhibit 10.3).
4.1* Specimen stock certificate of registrant's common stock.
5.1* Opinions of Gordon & Glickson LLC and Wilson Sonsini
Goodrich & Rosati, Professional Corporation.
10.1* Form of registrant's 1999 Stock Option Plan.
10.2* Form of indemnification agreement for directors and
officers.
10.3 Form of Formation Agreement with American Greetings.
10.4 Form of Cross-License Agreement with American Greetings.
10.5 Form of Web Services Agreement with American Greetings.
10.6 Form of Administrative Services Agreement with American
Greetings.
10.7 Form of Registration Rights Agreement with American
Greetings.
10.8 Form of Tax and Indemnification Agreement with American
Greetings.
10.9** AOL Interactive Marketing Agreement.
10.10** Yahoo! License and Promotion Agreement.
10.11** Mindscape Electronic Publishing Development Agreement.
23.1 Consent of Ernst & Young LLP.
23.2* Consents of Gordon & Glickson LLC and Wilson Sonsini
Goodrich & Rosati (included in Exhibit 5.1).
24.1 Power of Attorney (filed herewith on the signature page of
this registration statement).
27.1 Financial data schedule.
</TABLE>
- ---------------
*To be filed by amendment.
**Confidential treatment has been requested with respect to certain portions of
this exhibit pursuant to a request for confidential treatment filed with the
Commission. Omitted portions have been filed separately with the Commission.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the costs and expenses, other
than underwriting discounts and commissions, incurred and to be incurred by the
registrant in connection with the issuance and distribution of the securities
registered hereby. All amounts are estimates except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers
filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $16,680
NASD filing fee............................................. 6,500
Nasdaq National Market listing fee.......................... 1,000
Printing.................................................... --
Legal fees and expenses..................................... --
Accounting fees and expenses................................ --
Blue sky fees and expenses.................................. --
Custodial fees.............................................. --
Transfer agent and registrar fees........................... --
Miscellaneous............................................... --
Total.............................................
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware, or the DGCL,
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of such corporation, by
reason of the fact that any such person is or was a director, officer, employee
or agent of such corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnity may include
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided that such officer or director acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. A Delaware corporation may indemnify officers and
directors against expenses, including attorneys' fees, in connection with the
defense or settlement of an action by or in the right of the corporation under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses, including attorneys' fees, which such
officer or director actually and reasonably incurred. The foregoing description
is qualified in its entirety by reference to the more detailed provisions of
Section 145 of the DGCL.
Section 102 of the DGCL allows a Delaware corporation to eliminate or limit
the personal liability of a director to the corporation or to any of its
stockholders for monetary damage for a breach of fiduciary duty as a director,
except in the case where the director (1) breaches such person's duty of loyalty
to the corporation or its stockholders, (2) fails to act in good faith, engages
in intentional misconduct or knowingly violates a law, (3) authorizes the
payment of a dividend or approves a stock purchase or redemption in violation of
Section 174 of the DGCL or (4) obtains an improper personal benefit.
In accordance with the DGCL, the registrant's certificate of incorporation
contains a provision to limit the personal liability of its directors for
monetary damages for breach of their fiduciary duty to the fullest extent
permitted by the DGCL now, or as it may hereafter be amended.
In addition, as permitted by the DGCL, the registrant's bylaws provide that
(1) the registrant is required to indemnify its directors and officers and
persons serving in such capacities in other business enterprises at
II-1
<PAGE> 95
the registrant's request, to the fullest extent permitted by Delaware law; (2)
the registrant may indemnify its employees and agents to the maximum extent
permitted by Delaware law; (3) the registrant is required to advance expenses
incurred by its directors and officers in connection with defending a
proceeding, except that a director or officer must undertake to repay any
advances if it should ultimately be determined that the director or officer is
not entitled to indemnification; (4) the rights conferred in the bylaws are not
exclusive; and (5) the registrant may not retroactively amend the bylaw
provisions in a way that adversely affects any director or officer.
The purchase agreement provides for indemnification by the underwriters of
the registrant and its directors and officers who sign this registration
statement against certain liabilities, including liabilities under the
Securities Act of 1933. A form of the purchase agreement is provided as Exhibit
1.1 hereto. The registrant has entered into indemnification agreements with its
officers and directors. A form of the indemnification agreement is provided as
Exhibit 10.2 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 30, 1999 the registrant issued 1,000 shares of its common stock to
AGC Investments, Inc., a Delaware corporation and a wholly-owned subsidiary of
American Greetings, for $1,000 in a private placement. An exemption is claimed
under Section 4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of purchase agreement.
3.1 Certificate of incorporation of registrant.
3.2 Form of amended and restated certificate of incorporation of
registrant (included as Exhibit A to Exhibit 10.3).
3.3 Bylaws of registrant.
3.4 Form of amended and restated bylaws of registrant (included
as Exhibit A to Exhibit 10.3).
4.1* Specimen stock certificate of registrant's common stock.
5.1* Opinions of Gordon & Glickson LLC and Wilson Sonsini
Goodrich & Rosati, Professional Corporation.
10.1* Form of registrant's 1999 Stock Option Plan.
10.2* Form of indemnification agreement for directors and
officers.
10.3 Form of Formation Agreement with American Greetings.
10.4 Form of Cross-License Agreement with American Greetings.
10.5 Form of Web Services Agreement with American Greetings.
10.6 Form of Administrative Services Agreement with American
Greetings.
10.7 Form of Registration Rights Agreement with American
Greetings.
10.8 Form of Tax and Indemnification Agreement with American
Greetings.
10.9** AOL Interactive Marketing Agreement.
10.10** Yahoo! License and Promotion Agreement.
10.11** Mindscape Electronic Publishing Development Agreement.
23.1 Consent of Ernst & Young LLP.
23.2* Consents of Gordon & Glickson LLC and Wilson Sonsini
Goodrich & Rosati, Professional Corporation (included in
Exhibit 5.1).
24.1 Power of Attorney (filed herewith on the signature page of
this registration statement).
27.1 Financial data schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment has been requested with respect to certain portions of
this exhibit pursuant to a request for confidential treatment filed with the
Commission. Omitted portions have been filed separately with the Commission.
II-2
<PAGE> 96
(b) Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable or the information
is contained in the financial statements and related notes and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing, as specified in the underwriting agreement, certificates in such
denomination and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of the prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on this 13th day of August 1999.
AMERICANGREETINGS.COM, INC.
By: /s/ JOHN M. KLIPFELL
----------------------------------
Name: John M. Klipfell
Title: Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of John M. Klipfell and Maureen M. Spooner or any of them, each acting
alone, his or her true and lawful attorney-in-fact and agent, with full power of
substitution, for such person in any and all capacities, to sign (1) any and all
amendments, including any and all post-effective amendments, to this
registration statement, and (2) any and all additional registration statements,
and any and all amendments thereto, relating to this registration statement that
are filed pursuant to Rule 462(b) under the Securities Act of 1933, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON AUGUST 13,
1999 IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOHN M. KLIPFELL Chief Executive Officer and Director
- ----------------------------------------------------- (principal executive officer)
John M. Klipfell
/s/ MAUREEN M. SPOONER Chief Financial Officer (principal financial
- ----------------------------------------------------- and accounting officer)
Maureen M. Spooner
/s/ HERBERT H. JACOBS Director
- -----------------------------------------------------
Herbert H. Jacobs
/s/ JAMES C. SPIRA Chairman of the Board of Directors
- -----------------------------------------------------
James C. Spira
/s/ MORRY WEISS Director
- -----------------------------------------------------
Morry Weiss
</TABLE>
II-4
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
AMERICANGREETINGS.COM, INC.
- --------------------------------------------------------------------------------
ARTICLE ONE
The name of the corporation (the "Corporation") is:
americangreetings.com, inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE FOUR
The total number of shares which the Corporation shall have the
authority to issue is Ten Thousand (10,000) shares of Common Stock, par value
$.001 per share.
ARTICLE FIVE
The name and mailing address of the incorporator is as follows:
Name Mailing Address
----------------------------- ----------------------------------
Maureen M. Spooner c/o americangreetings.com, inc.
One American Road
Cleveland, OH 44144-2398
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation (the "Board") is expressly
authorized to make, alter or repeal the By-Laws of the Corporation.
<PAGE> 2
ARTICLE SEVEN
The books of the Corporation may be kept outside the State of Delaware
at such place or places as may be designated from time to time by the Board or
in the By-Laws of the Corporation. Election of directors need not be by written
ballot unless the By-Laws of the Corporation so provide.
ARTICLE EIGHT
To the full extent permitted by the General Corporation Law of the
State of Delaware or any other applicable laws presently or hereafter in effect,
no director of the Corporation shall be personally liable to the Corporation or
its stockholders for or with respect to any acts or omissions in the performance
of his or her duties as a director of the Corporation. Any amendment or repeal
of, or adoption of any provision inconsistent with, this ARTICLE EIGHT will not
adversely affect any right or protection existing hereunder, or arising out of
facts occurring, prior to such amendment, repeal or adoption and no such
amendment, repeal or adoption will affect the legality, validity or
enforceability of any contract entered into or right granted prior to the
effective date of such amendment, repeal or adoption.
ARTICLE NINE
Each person who is or was or had agreed to become a director or officer
of the Corporation and each such person who is or was serving or who had agreed
to serve at the request of the Board or an officer of the Corporation, as an
employee or agent of the Corporation or as a director, officer, employee or
agent of another company, partnership, joint venture, trust or other entity,
whether for profit or not for profit (including the heirs, executors,
administrators or estate of such person), will be indemnified by the Corporation
to the full extent permitted by the General Corporation Law of the State of
Delaware or any other applicable law as currently or hereafter in effect. The
right of indemnification provided in this ARTICLE NINE will not be exclusive of
any other rights to which any person seeking indemnification may otherwise be
entitled, including without limitation pursuant to any contract approved by a
majority of the Board (whether or not the directors approving such contract are
or are to be parties to such contract or similar contracts). Without limiting
the generality or the effect of the foregoing, the Corporation may adopt
By-Laws, or enter into one or more agreements with any person, which provide for
indemnification greater or different than that provided in this ARTICLE NINE or
the General Corporation Law of the State of Delaware. Any amendment or repeal
of, or adoption of any provision inconsistent with, this ARTICLE NINE will not
adversely affect any right or protection existing hereunder, or arising out of
facts occurring, prior to such amendment, repeal or adoption and no such
amendment, repeal or adoption will affect the legality, validity or
enforceability of any contract entered into or right granted prior to the
effective date of such amendment, repeal or adoption.
2
<PAGE> 3
ARTICLE TEN
Unless this Certificate of Incorporation is amended or repealed with
respect to this Article Ten or unless the By-Laws of the Corporation designate
otherwise, the Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE ELEVEN
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by the General Corporation Law of the State of Delaware,
and all rights, preferences, and privileges of any nature conferred upon
stockholders, directors, or any other persons by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this ARTICLE ELEVEN.
I, the undersigned, being the sole incorporator named, for the purpose
of forming a Corporation pursuant to the General Corporation Law of the State of
Delaware, under penalties of perjury do make this Certificate of Incorporation,
hereby declaring, certifying and acknowledging that this is my act and deed and
the facts stated herein are true, and accordingly have hereunto set my hand as
of June 25, 1999.
/s/ Maureen M. Spooner
-------------------------------------
Maureen M. Spooner, Sole Incorporator
3
<PAGE> 1
Exhibit 3.3
AMERICANGREETINGS.COM, INC.
(the "Corporation")
BY-LAWS
- --------------------------------------------------------------------------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office and/or registered
agent of the Corporation shall be as provided in the Certificate of
Incorporation.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE AND TIME OF MEETINGS. An annual meeting of the
stockholders shall be held each year on the 3rd Monday in June, unless such day
should fall on a legal holiday, in which event the meeting shall be held at the
same hour on the next succeeding business day that is not a legal holiday, for
the purpose of electing directors and conducting such other proper business as
may come before the meeting. The date, time and place of the annual meeting
shall be determined by resolution of the Board of Directors or as set by the
Chief Executive Officer or the President of the Corporation. If the Chief
Executive Officer or the President does not act, the Board of Directors shall
determine the date, time and place of such meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Special meetings of stockholders may be
called at any time by the Board of Directors, the Chief Executive Officer or the
President of the Corporation.
SECTION 3. PLACE OF MEETINGS. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors, the Chief Executive Officer or the President. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal executive office of the Corporation.
1
<PAGE> 2
SECTION 4. NOTICE AND WAIVER OF NOTICE. Unless otherwise provided by
statute or the Corporation's Certificate of Incorporation, whenever stockholders
are required or permitted to take action at a meeting, written or printed notice
stating the place, date, time, and, in the case of special meetings, the purpose
or purposes, of such meeting, shall be given to each stockholder entitled to
vote at such meeting not less than ten (10) nor more than sixty (60) days before
the date of the meeting. All such notices shall be delivered, either personally
or by mail, by or at the direction of the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President or the Secretary, and if
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, addressed to the stockholder at his, her or its
address as the same appears on the records of the Corporation.
Whenever the giving of any notice is required by statute, the
Corporation's Certificate of Incorporation or these By-laws, a waiver thereof,
in writing and delivered to the Corporation, signed by the person or person
entitled to said notice, whether before or after the event as to which such
notice is required, shall be deemed equivalent to notice. Unless otherwise
provided by the Corporation's Certificate of Incorporation, neither the business
to be transacted at, or the purpose of, any regular or special meeting need be
specified in any written waiver of notice.
Attendance of a stockholder at a meeting shall constitute a waiver of
notice (a) of such meeting, except when the person attends for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened and (b) (if it
is a special meeting) of consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
except when the stockholder objects at the beginning of the meeting to
considering the matter at the meeting.
SECTION 5. FIXING A RECORD DATE FOR STOCKHOLDER MEETINGS. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. FIXING A RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
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resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
SECTION 7. FIXING A RECORD DATE FOR OTHER PURPOSES. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
SECTION 8. STOCKHOLDERS LIST. The officer having charge of the stock
ledger of the Corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 9. QUORUM. Unless otherwise provided by statute or the
Corporation's Certificate of Incorporation, the holders of a majority of the
outstanding shares of capital stock entitled to vote at a meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at all meetings of the stockholders. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a specified item of business requires a vote by
a class or series (if the Corporation shall then have outstanding shares of more
than one class or series) entitled to vote on the matter at hand as a single
class, the holders of a majority of the shares of such class or series shall
constitute a quorum (as to such class or series) for the transaction of such
item of business. If a quorum be
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initially present, the stockholders may transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, if any action taken is approved by a majority of the stockholders
initially constituting the quorum.
SECTION 10. ADJOURNED MEETINGS. Any meeting of the stockholders,
annual, regular or special, may be adjourned from time to time to reconvene at
the same or some other place. Notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 11. VOTE REQUIRED. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the Corporation's Certificate of Incorporation a different
vote is required, in which case such express provision shall govern and control
the decision of such question. Voting on any question or in any election need
not be by written ballot. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class.
SECTION 12. VOTING RIGHTS. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the Certificate of Incorporation
of the Corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder
SECTION 13. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
Any proxy is suspended when the person executing the proxy is present
at a meeting of stockholders and elects to vote, except that when such proxy is
coupled with an interest and the fact of the interest appears on the face of the
proxy, the agent named in the proxy shall have all voting and other rights
referred to in the proxy, notwithstanding the presence of the person executing
the proxy. At each meeting of the stockholders, and before any voting commences,
all proxies filed at or before the meeting shall be submitted to and examined by
the Secretary of the
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Corporation or a person designated by the Secretary, and no shares may be
represented or voted under a proxy that has been found to be invalid or
irregular.
SECTION 14. ACTION BY WRITTEN CONSENT. Unless otherwise provided in the
Corporation's Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
the state of Delaware, or the Corporation's principal place of business, or an
officer or agent of the Corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the earliest dated consent delivered to the
Corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Any action taken pursuant to such written consent or
consents of the stockholders shall have the same force and effect as if taken by
the stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. Unless otherwise provided by statute or the
Corporation's Certificate of Incorporation, the business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of directors
which shall constitute the first board shall be five (5). Thereafter, the number
of directors shall be established from time to time by resolution of the Board
of Directors. The directors shall be elected by a majority of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote in the election of directors. The directors shall be elected in this manner
at the annual meeting of the stockholders, except as provided in Section 4 of
this Article III. Each director elected shall hold office until a successor is
duly elected and qualified or until his or her earlier resignation or removal as
hereinafter provided.
SECTION 3. REMOVAL AND RESIGNATION. Any director or the entire Board of
Directors may be removed at any time, with or without cause, by the holders of a
majority of the shares
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then entitled to vote at an election of directors. Whenever the holders of any
class or series are entitled to elect one or more directors by the provisions of
the Corporation's Certificate of Incorporation, the provisions of this section
shall apply, in respect to the removal without cause of a director or directors
so elected, to the vote of the holders of the outstanding shares of the class or
series and not to the vote of the outstanding shares as a whole. Any director
may resign at any time upon written notice to the Corporation. Such resignation
shall take effect at the time specified therein, and unless otherwise specified
therein, no acceptance of such resignation shall be necessary to make it
effective.
SECTION 4. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier resignation
or removal.
SECTION 5. ANNUAL MEETINGS. The annual meeting of each newly elected
Board of Directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
SECTION 6. OTHER MEETINGS AND NOTICE. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the Board of Directors may be called by or at the
request of the Chief Executive Officer, the President or any Vice President on
at least twenty-four (24) hours notice to each director, either personally, by
telephone, by mail, by telegram, by telex, or by facsimile, and shall be deemed
to have been given when communicated by telephone, when deposited in the United
States mail, when delivered to the telegraph company or transmitted by telex or
facsimile, as the case may be.
SECTION 7. QUORUM, REQUIRED VOTE AND ADJOURNMENT. A majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the Board of Directors in the management and affairs of
the Corporation except as otherwise limited by law. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
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SECTION 9. COMMITTEE RULES. Each committee of the Board of Directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the Board of Directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Audit Committee. In the event the Board of Directors, by
resolution, designates an audit committee, the audit committee shall consist of
not fewer than two members of the Board of Directors as shall from time to time
be appointed by resolution of the Board of Directors. The audit committee shall
review and, as it shall deem appropriate, recommend to the Board of Directors
internal accounting and financial controls for the Corporation and accounting
principles and auditing practices and procedures to be employed in the
preparation and review of financial statements of the Corporation. The audit
committee shall make recommendations to the Board of Directors concerning the
engagement of independent public accountants to audit the annual financial
statements of the Corporation and the scope of the audit to be undertaken by
such accountants.
Section 11. Compensation Committee. In the event the Board of
Directors, by resolution, designates an compensation committee, the compensation
committee shall consist of not fewer than two members of the Board of Directors
as from time to time shall be appointed by resolution of the Board of Directors.
The compensation committee shall review and, as it deems appropriate, recommend
to the Chief Executive Officer and the Board of Directors policies, practices
and procedures relating to the compensation of managerial employees and the
establishment and administration of employee benefit plans, except for any stock
option plan(s) which shall be established and administered by the Board of
Directors. The compensation committee shall have and exercise all authority
under any employee stock option plans of the Corporation as the committee
therein (unless the Board of Directors by resolution appoints any other
committee to exercise such authority), and shall otherwise advise and consult
with the officers of the Corporation as may be requested regarding managerial
personnel policies.
SECTION 12. COMMUNICATIONS EQUIPMENT. Members of the Board of Directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at such meeting.
SECTION 13. WAIVER OF NOTICE AND PRESUMPTION OF ASSENT. Any member of
the Board of Directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the
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express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened. Such
member shall be conclusively presumed to have assented to any action taken
unless his or her dissent shall be entered in the minutes of the meeting or
unless his or her written dissent to such action shall be filed with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
be forwarded by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
any member who voted in favor of such action.
SECTION 14. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the Corporation's Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
SECTION 15. COMPENSATION OF DIRECTORS. Unless otherwise provided by the
Corporation's Certificate of Incorporation, the Board of Directors shall have
the authority to fix the compensation of directors, which compensation may
include the reimbursement of expenses incurred in connection with meetings of
the Board of Directors or a committee thereof.
SECTION 16. INTERESTED DIRECTORS, OFFICERS; QUORUM. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other Corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if: (a) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (b) the material facts as to
his relationship or interest and as to the contract or transaction are disclosed
or are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (c) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
SECTION 17. LIMITATION OF LIABILITY. To the full extent permitted by
the General Corporation Law of the State of Delaware or any other applicable
laws presently or hereafter in effect, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for or with respect to
any acts or omissions in the performance of his or her duties as a director of
the Corporation. Any amendment or repeal of, or adoption of any provision
inconsistent with, this Section 17 will not adversely affect any right or
protection existing
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hereunder, or arising out of facts occurring, prior to such amendment, repeal or
adoption and no such amendment, repeal or adoption will affect the legality,
validity or enforceability of any contract entered into or right granted prior
to the effective date of such amendment, repeal or adoption.
ARTICLE IV
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a Chief Executive Officer, a
Chief Operating Officer, a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers and assistant officers as may be deemed
necessary or desirable by the Board of Directors. Any number of offices may be
held by the same person. In its discretion, the Board of Directors may choose
not to fill any office for any period as it may deem advisable, except that the
offices of president and secretary shall be filled as expeditiously as possible.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting held
after the annual meeting of stockholders. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each officer shall
hold office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as hereinafter provided.
SECTION 3. REMOVAL AND RESIGNATION. Any officer or agent elected by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. The election of an officer or agent shall not of itself create any
contractual rights. Any officer may resign at any time upon written notice to
the Corporation, such resignation shall take effect at the time specified
therein, and unless otherwise specified therein, no acceptance of such
resignation shall be necessary to make it effective.
SECTION 4. VACANCIES. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term by the Board of
Directors then in office.
SECTION 5. COMPENSATION. Compensation of all officers shall be fixed by
the Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the Corporation.
SECTION 6. POWERS AND DUTIES OF OFFICERS. The officers of the
Corporation shall have such powers and duties as shall be stated in these
By-laws or in a resolution of the Board of Directors which is not inconsistent
with these By-laws and, to the extent not so stated, as generally pertain to
their respective office or offices, subject to the control of the Board of
Directors.
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SECTION 7. CHIEF EXECUTIVE OFFICER. The Board of Directors, at the time
of election of officers or from time to time thereafter, may designate whether
the Chairman of the Board, if one shall have been chosen, or the President shall
be the Chief Executive Officer of the Corporation. If a Chairman of the Board
has not been chosen, or if one has been chosen but not designated Chief
Executive Officer, then the President shall be the Chief Executive Officer of
the Corporation. The Chief Executive Officer shall be the principal executive
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation, subject to the direction of the Board
of Directors. He shall see that orders and resolutions of the Board of Directors
are carried into effect. He shall have general powers of supervision and shall
be the final arbiter of all differences between officers of the Corporation and
his decision as to any matter affecting the Corporation shall be final and
binding as between the officers of the Corporation subject only to its Board of
Directors.
SECTION 8. CHIEF OPERATING OFFICER. If the Chairman of the Board has
been designated Chief Executive Officer of the Corporation, the Board of
Directors, at the time of election of officers or at any other time, may
designate the President as the Chief Operating Officer. The Chief Operating
Officer, if any, shall in general supervise and control all of the operational
aspects of the business of the Corporation, subject to the direction of the
Chief Executive Officer and the Board of Directors. He shall be present at all
meetings of the stockholders and the Board of Directors and shall see that
orders and resolutions of the Board of Directors are carried into effect.
SECTION 9. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
chosen, shall be chosen from among the members of the Board of Directors. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors. If the Chairman of the Board has been
designated Chief Executive Officer, he shall have the duties thereof, if not so
designated, he shall have no other duties.
SECTION 10. PRESIDENT. If the Chairman of the Board has been designated
Chief Executive Officer, and the President has been designated Chief Operating
Officer, the President shall have the duties of the Chief Operating Officer. If
the Chairman of the Board has not been designated Chief Executive Officer, the
President shall have the duties of the Chief Executive Officer. In the absence
of the Chairman of the Board or in the event of his inability to act, the
President shall perform the duties of the Chairman of the Board and when so
acting, shall have all of the powers of, and be subject to all of the
restrictions upon, the Chairman of the Board.
SECTION 11. VICE-PRESIDENTS. The Vice-President, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, act with all of
the powers and be subject to all the restrictions of the President. The
Vice-Presidents shall also perform such other duties and have such other powers
as the Board of Directors, the Chief Executive Officer or these By-laws may,
from time to time, prescribe.
SECTION 12. SECRETARIES AND ASSISTANT SECRETARIES. The Secretary shall
attend all
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meetings of the Board of Directors, all meetings of the committees thereof and
all meetings of the stockholders and record all the proceedings of the meetings
in a book or books to be kept for that purpose. Under the President's
supervision, the Secretary shall give, or cause to be given, all notices
required to be given by these By-laws or by law; shall have such powers and
perform such duties as the Board of Directors, the Chief Executive Officer or
these By-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the Corporation. The Secretary, or an Assistant Secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested to by his signature or by the signature
of such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature. The Assistant Secretary, or if there be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors, the Chief Executive
Officer or these By-laws may, from time to time, prescribe.
SECTION 13. TREASURER AND ASSISTANT TREASURER. The Treasurer shall have
the custody of the corporate funds and securities; shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation;
shall deposit all monies and other valuable effects in the name of and to the
credit of the Corporation as may be designated by the Board of Directors; shall
cause the funds of the Corporation to be disbursed when such disbursements have
been duly authorized, taking proper vouchers for such disbursements; and shall
render to the President and the Board of Directors, at its regular meeting or
when the Board of Directors so requires, an account of the Corporation; shall
have such powers and perform such duties as the Board of Directors, the Chief
Executive Officer or these By-laws may, from time to time, prescribe. If
required by the Board of Directors, the Treasurer shall give the Corporation a
bond (which shall be rendered every six years) in such sums and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of the office of Treasurer and for the restoration to
the Corporation, in case of death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in the possession of or under the control of the Treasurer belonging to the
Corporation. The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors, shall in
the absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. The Assistant Treasurers shall perform such other
duties and have such other powers as the Board of Directors, the Chief Executive
Officer or these By-laws may, from time to time, prescribe.
SECTION 14. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
SECTION 15. ABSENCE OR DISABILITY OF OFFICERS. In the case of the
absence or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution
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delegate the powers and duties of such officer to any other officer or to any
director, or to any other person whom it may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
SECTION 1. NATURE OF INDEMNITY. Each person who is or was or had agreed
to become a director or officer of the Corporation and each such person who is
or was serving or who had agreed to serve at the request of the Board of
Directors or an officer of the Corporation, as an employee or agent of the
Corporation or as a director, officer, employee or agent of another company,
partnership, joint venture, trust or other entity, whether for profit or not for
profit (including the heirs, executors, administrators or estate of such
person), will be indemnified by the Corporation to the full extent permitted by
the General Corporation Law of the State of Delaware or any other applicable law
as currently or hereafter in effect. The right of indemnification provided in
this Article V will not be exclusive of any other rights to which any person
seeking indemnification may otherwise be entitled, including without limitation
pursuant to any contract approved by a majority of the Board (whether or not the
directors approving such contract are or are to be parties to such contract or
similar contracts). Without limiting the generality or the effect of the
foregoing, the Corporation may adopt By-Laws, or enter into one or more
agreements with any person, which provide for indemnification greater or
different than that provided in this Article V or the General Corporation Law of
the State of Delaware. Any amendment or repeal of, or adoption of any provision
inconsistent with, this Article V will not adversely affect any right or
protection existing hereunder, or arising out of facts occurring, prior to such
amendment, repeal or adoption and no such amendment, repeal or adoption will
affect the legality, validity or enforceability of any contract entered into or
right granted prior to the effective date of such amendment, repeal or adoption.
SECTION 2. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any
indemnification of a director or officer of the Corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the Corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved the request. If the
Corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within 30 days, the right to indemnification or advances as granted by
this Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it
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<PAGE> 13
permissible under the General Corporation Law of the State of Delaware for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
SECTION 3. ARTICLE NOT EXCLUSIVE. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise
SECTION 4. INSURANCE. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation or was
serving at the request of the Corporation as a director, officer, employee or
agent of another Corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article V.
SECTION 5. EXPENSES. Expenses incurred by any person described in
Section 1 of this Article V in defending a proceeding shall be paid by the
Corporation in advance of such proceeding's final disposition, unless otherwise
determined by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
SECTION 6. EMPLOYEES AND AGENTS. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the Corporation, or who are or were serving at the request of the Corporation
as employees or agents of another Corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the Board of Directors.
SECTION 7. CONTRACT RIGHTS. The provisions of this Article V shall be
deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
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<PAGE> 14
SECTION 8. MERGER OR CONSOLIDATION. For purposes of this Article V,
references to "the Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.
SECTION 9. OTHER TERMS DEFINED. For purposes of this Article V,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article V.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. FORM. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman, Vice-chairman, Chief Executive Officer, President or a
Vice-President and the Secretary or an assistant Secretary of the Corporation,
certifying the number of shares owned by such holder in the Corporation. If such
a certificate is countersigned (i) by a transfer agent or an assistant transfer
agent other than the Corporation or its employee or (ii) by a registrar, other
than the Corporation or its employee, the signature of any such chairman,
Vice-chairman, Chief Executive Officer, President, Vice-President, Secretary, or
assistant Secretary may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
Corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the Corporation. Shares of stock
of the Corporation shall only be transferred on the books of the Corporation by
the holder of record
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<PAGE> 15
thereof or by such holder's attorney duly authorized in writing, upon surrender
to the Corporation of the certificate or certificates for such shares endorsed
by the appropriate person or persons, with such evidence of the authenticity of
such endorsement, transfer, authorization, and other matters as the Corporation
may reasonably require, and accompanied by all necessary stock transfer stamps.
In that event, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The Board of Directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
Corporation.
SECTION 2. LOST CERTIFICATES. The Corporation may issue a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 3. REGISTERED STOCKHOLDERS. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
SECTION 4. SUBSCRIPTIONS FOR STOCK. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in
15
<PAGE> 16
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 2. CHECKS, DRAFTS OR ORDERS. All checks, drafts, or other
orders for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.
SECTION 3. CONTRACTS. The Board of Directors may authorize any officer
or officers, or any agent or agents, of the Corporation to enter into any
contract or to execute and deliver any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
SECTION 4. LOANS. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiary, including any officer or employee who is a
director of the Corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
SECTION 5. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 6. CORPORATE SEAL. The Board of Directors may provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
SECTION 7. VOTING SECURITIES OWNED BY CORPORATION. Voting securities in
any other Corporation held by the Corporation shall be voted by the Chairman of
the Board, unless the Board of Directors specifically confers authority to vote
with respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
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<PAGE> 17
SECTION 8. SECTION HEADINGS. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
SECTION 9. INCONSISTENT PROVISIONS. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the Certificate
of Incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the Board of Directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the Board of Directors shall not divest the stockholders of the same
powers.
[CONCLUSION OF BY-LAWS]
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<PAGE> 1
Exhibit 10.3
FORM OF FORMATION AGREEMENT
BY AND AMONG
AMERICAN GREETINGS CORPORATION,
AGC INVESTMENTS, INC.
AND
AMERICANGREETINGS.COM, INC.
DATED
__________, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SEPARATION AGREEMENT..............................................................................................1
RECITALS.......................................................................................................1
ARTICLE I. CONTRIBUTIONS..........................................................................................2
SECTION 1.01 AG CONTRIBUTION; AG.COM BUSINESS ASSETS...........................................................2
SECTION 1.02 ASSIGNMENT AND ASSUMPTION OF LIABILITIES..........................................................5
SECTION 1.03 TRANSFERS NOT EFFECTED ON OR PRIOR TO THE CLOSING DATE............................................7
SECTION 1.04 NO REPRESENTATIONS OR WARRANTIES; CONSENTS........................................................8
SECTION 1.05 TERMINATION OF AGREEMENTS.........................................................................9
SECTION 1.06 EXECUTION OF ANCILLARY AGREEMENTS.................................................................9
ARTICLE II. THE CLOSING..........................................................................................10
SECTION 2.01 THE CLOSING......................................................................................10
SECTION 2.02 TRANSACTIONS TO BE EFFECTED AT THE CLOSING.......................................................10
SECTION 2.03 UPDATING OF SCHEDULES............................................................................10
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF AG AND AGCINV.....................................................11
SECTION 3.01 ORGANIZATION, STANDING AND POWER.................................................................11
SECTION 3.02 AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY................................................11
SECTION 3.03 NO CONFLICTS WITH CHARTER DOCUMENTS AND JUDGMENTS................................................11
SECTION 3.04 PURCHASE FOR INVESTMENT..........................................................................11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF AG.COM.............................................................12
SECTION 4.01 ORGANIZATION, STANDING AND POWER.................................................................12
SECTION 4.02 AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY................................................12
SECTION 4.03 NO CONFLICTS WITH CHARTER DOCUMENTS AND JUDGMENTS................................................12
SECTION 4.04 SHARES...........................................................................................12
ARTICLE V. SEPARATION AND INITIAL PUBLIC OFFERING................................................................13
SECTION 5.01 CONDUCT OF AG.COM BUSINESS PENDING SEPARATION AND CONDITIONS PRECEDENT TO THE SEPARATION.........13
SECTION 5.02 INITIAL PUBLIC OFFERING..........................................................................14
SECTION 5.03 REASONABLE BEST EFFORTS..........................................................................15
SECTION 5.04 EXPENSES; TRANSFER TAXES AND OTHER COSTS FOR SEPARATION..........................................15
SECTION 5.05 POST-CLOSING COOPERATION.........................................................................15
SECTION 5.06 FUTURE CONDUCT...................................................................................16
SECTION 5.07 LABOR AND EMPLOYEE BENEFIT ISSUES................................................................17
SECTION 5.08 INSURANCE PROGRAMS AND CLAIMS ADMINISTRATION.....................................................19
ARTICLE VI. INDEMNIFICATION......................................................................................21
SECTION 6.01 RELEASE OF CLAIMS................................................................................21
SECTION 6.02 INDEMNIFICATION BY AG.COM........................................................................23
SECTION 6.03 INDEMNIFICATION BY AG............................................................................23
SECTION 6.04 NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS.........................................................24
SECTION 6.05 INSURANCE PROCEEDS...............................................................................25
SECTION 6.06 CONTRIBUTION.....................................................................................25
SECTION 6.07 SUBROGATION......................................................................................26
SECTION 6.08 NO THIRD-PARTY BENEFICIARIES.....................................................................26
SECTION 6.09 REMEDIES CUMULATIVE..............................................................................26
SECTION 6.10 SURVIVAL OF INDEMNITIES..........................................................................26
SECTION 6.11 AFTER-TAX INDEMNIFICATION PAYMENTS...............................................................26
ARTICLE VII. DEFINITIONS.........................................................................................27
SECTION 7.01 DEFINED TERMS....................................................................................27
SECTION 7.02 USE OF "PRIMARILY"...............................................................................33
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII. GENERAL PROVISIONS.................................................................................33
SECTION 8.01 ASSIGNMENT.......................................................................................33
SECTION 8.02 NO THIRD-PARTY BENEFICIARIES.....................................................................33
SECTION 8.03 NOTICES..........................................................................................33
SECTION 8.04 INTERPRETATION; EXHIBITS AND SCHEDULES...........................................................34
SECTION 8.05 COUNTERPARTS.....................................................................................34
SECTION 8.06 ENTIRE AGREEMENT.................................................................................34
SECTION 8.07 SEVERABILITY.....................................................................................35
SECTION 8.08 AMENDMENTS AND WAIVERS...........................................................................35
SECTION 8.09 DISPUTE RESOLUTION...............................................................................35
SECTION 8.10 GOVERNING LAW....................................................................................37
SECTION 8.11 ASSURANCES OF CERTAIN ACTIONS....................................................................37
SECTION 8.12 TERMINATION......................................................................................37
</TABLE>
EXHIBITS
- --------
EXHIBIT A Form of Articles of Incorporation and Bylaws of AG.com
EXHIBIT B Form of Equity Incentive Compensation Plans
EXHIBIT C Form of Cross License Agreement
EXHIBIT D Form of Web Services Agreement
EXHIBIT E Form of Administrative Services Agreement
EXHIBIT F Form of Registration Rights Agreement
EXHIBIT G Form of Tax and Indemnification Agreement
SCHEDULES
- ---------
(p2) 1.01(b)(i) Tangible Personal Property
(p2) 1.01(b)(ii) Inventory
(p3) 1.01(b)(iii) Receivables
(p2) 1.01(b)(vi) AG Group Contracts
(p2) 1.01(b)(vii) Claims Related to the AG.com Business
(p3) 1.01(b)(viii) Sales-Related Materials
(p4) 1.01(b)(ix) Permits
(p4) 1.01(b)(xi) Intellectual Property
(p4) 1.01(c)(i) Excluded Assets
(p5) 1.02(a)(iv) Liabilities
(p6) 1.02(b)(i) Actions
(p7) 1.03(b) Joint Contracts
(p8) 1.04(a) Liens
(p9) 1.05(b) Surviving Agreements
(p17) 5.07(a) Employees
ii
<PAGE> 4
FORMATION AGREEMENT
FORMATION AGREEMENT (this "Agreement") dated as of ________, 1999,
between American Greetings Corporation, an Ohio corporation ("AG"), AGC
Investments, Inc., a wholly owned Subsidiary of AG and a Delaware corporation
("AGCINV") and AmericanGreetings.com, Inc., a Delaware corporation ("AG.com").
RECITALS
WHEREAS, the Board of Directors of AG has determined that it is in the
best interests of AG and its shareholders to separate the AG.com Business from
AG's other operations.
WHEREAS, in furtherance of the foregoing, it is appropriate and
desirable to separate and transfer the AG.com Business Assets to AG.com and to
cause AG.com to assume the Assumed AG.com Liabilities, all as more fully
described in this Agreement and the Ancillary Agreements;
WHEREAS, prior to the execution and delivery of this Agreement, AGCINV
had formed AG.com and now owns all of the 1000 Shares of Common Stock, par value
$.001 per share, of AG.com, which has two wholly owned subsidiaries, AGCM, Inc.
("AG.com OpCo"), an Ohio corporation and AG.com, Inc., a Delaware corporation
("AG.com Properties");
WHEREAS, in exchange for ____________________ shares of Class B Common
Stock of AG.com, AGCINV intends to contribute in a tax-free transaction to
AG.com certain property and assets (that were contributed to AGCINV from the AG
Group pursuant to a tax-free transaction), and AG and AGCINV (including, without
limitation, on behalf of and in favor of AG's Affiliates) shall cross-license
with AG.com and AG.com Properties certain Intellectual Property rights related
to the AG.com Business, and AG and AGINV will endeavor to have certain employees
transfer to AG.com;
WHEREAS, subsequent to the Separation and the other transactions
effected by this Agreement, AG.com intends to undertake a number of transactions
involving the issuance of shares of Class A Common Stock, including, without
limitation, in connection with an offering to the public registered with the
Commission (the "Initial Public Offering") and the establishment of incentive
compensation plans for the benefit of employees of AG.com;
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Separation and the Initial Public
Offering and certain other agreements that will govern certain matters relating
to the Separation and the Initial Public Offering and the relationship of AG and
AG.com and their respective Subsidiaries following the Initial Public Offering;
and
<PAGE> 5
WHEREAS, all defined terms, unless the context otherwise requires,
shall be given the meanings set forth in Article VII;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound by the terms hereof applicable to each of them, hereby agree as
follows:
ARTICLE I.
CONTRIBUTIONS
SECTION 1.01 AG CONTRIBUTION; AG.COM BUSINESS ASSETS.
(a) On the terms and subject to the conditions of this Agreement, in
exchange for (i) the issuance and delivery on the Closing Date of
_____________________ shares of Class B Common Stock (the "Shares") to AGCINV,
and (ii) the assumption on the Closing Date by AG.com and its Subsidiaries of
the Assumed AG.com Liabilities, AG shall or shall cause one or more of AG's
Subsidiaries and Affiliates (together, other than AG.com, AG.com OpCo and AG.com
Properties, with AG, being herein referred to as the "AG Group") to sell,
assign, transfer, convey and deliver to AGCINV all the right, title and interest
of the AG Group in, to and under the AG.com Business Assets, and AGCINV shall
sell, assign, transfer, convey and deliver, to AG.com, effective as of the
Closing Date, all the right, title and interest of the AG Group and AGCINV in,
to and under the AG.com Business Assets and AG shall, on the Closing Date,
contribute its position regarding the intercompany debt in existence at Closing
otherwise owed by AG.com to AG (the "Intercompany Debt") to AGCINV and AGCINV
shall contribute Fifty Million Dollars ($50,000,000) in immediately available
funds to AG.com. The contribution and acquisition of the AG.com Business Assets
and the assumption of the Assumed AG.com Liabilities shall constitute the
"Separation".
(b) The term "AG.com Business Assets" means all rights, title and
interest in the business, properties, assets, goodwill and rights of the AG
Group, of whatever kind and nature, real or personal, tangible or intangible,
that are owned, leased or licensed by the AG Group consisting of the following:
(i) All computers, machinery, equipment, tools, supplies,
furniture, fixtures, personalty, vehicles and other tangible
personal property primarily used or held for use by the AG
Group in the conduct of the AG.com Business, consisting of
that listed on SCHEDULE 1.01(B)(I);
(ii) all inventory owned, used or held by AG or any member of the
AG Group and related primarily to the AG.com Business,
consisting of that listed on SCHEDULE 1.01(B)(II);
(iii) all accounts receivable, notes and other amounts receivable
from third parties, including, without limitation, customers
and employees, arising primarily from the conduct of the
AG.com Business before or through the Closing Date, whether or
not
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<PAGE> 6
in the ordinary course, together with any unpaid financing
charges accrued thereon, consisting of all such receivables
listed on SCHEDULE 1.01(B)(III);
(iv) subject to the terms of the Cross License Agreement and the Tax
and Indemnification Agreement, all books of account, general, financial and tax
records, invoices, shipping records, supplier lists, correspondence and other
documents, records and files primarily relating to the AG.com Business, and all
personnel records of persons employed by the AG Group that become employees of
AG.com as of the Closing Date or thereafter;
(v) the goodwill of AG primarily relating to the AG.com Business;
(vi) all of the contracts and agreements (collectively, the "AG.com
Contracts") to which any member of the AG Group is a party or by which any
member of the AG Group or of their respective assets is bound, whether or not in
writing, consisting of:
(a) all contracts or agreements listed or described
on SCHEDULE 1.01(B)(VI);
(b) any other contract or agreement that relates
exclusively to the AG.com Business;
(c) any guarantee, indemnity, representation,
warranty or other Liability of any member of the AG Group in
respect of any contract specified in this Section 1.01(b)(vi);
and
(d) any contract or agreement that is otherwise
expressly contemplated pursuant to this Agreement or any of
the Ancillary Agreements to be assigned to AG.com,
but excluding any such contract or agreement that is contemplated to be retained
by any member of the AG Group pursuant to any provision of this Agreement or any
Ancillary Agreement;
(vii) all claims, causes of action, rights of recovery and rights of
set-off of any kind (including rights to insurance proceeds and rights under and
pursuant to all warranties, representations and guarantees made by suppliers of
products, materials or equipment, or components thereof), pertaining to, arising
out of, and enuring to the benefit of the AG Group which relate primarily to the
AG.com Business and which do not relate to the Excluded Liabilities, including,
without limitation, the Actions listed on SCHEDULE 1.01(B)(VII);
(viii) subject to the terms of the Cross License Agreement, all sales
and promotional literature, lists of customer names and information relating to
each customer, and other sales-related materials owned, used, associated with or
employed by any member of the AG Group relating primarily to the AG.com Business
as listed on SCHEDULE 1.01(b)(VIII);
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<PAGE> 7
(ix) all municipal, state and federal franchises, permits, licenses,
agreements, waivers, exemptions, approvals, authorizations, domain names, and
telephone and modem numbers held or used by any member of the AG Group related
primarily to the AG.com Business, to the extent transferable, consisting of the
permits, domain names, names, and telephone and modem numbers listed on SCHEDULE
1.01(b)(IX);
(x) to the extent specified in Section 5.07, the relationships and
agreements with respect to the AG.com Employees listed on SCHEDULE 5.07(a);
(xi) all registered and issued Intellectual Property primarily used in
the AG.com Business consisting of that listed on SCHEDULE 1.01(b)(XI);
(xii) excluding Intellectual Property covered by license from AGCINV or
another AG Group member to AG.com under the Cross License Agreement, all other
Intellectual Property Rights used primarily in the AG.com Business, including,
without limitation, patent applications identified to AG.com; and
(xiii) any assets (including, without limitation, prepaid expenses) reflected in
the AG.com Balance Sheet as "Assets" of AG.com, subject to any dispositions of
such assets subsequent to the date of AG.com Balance Sheet. The term "AG.com
Business Assets" shall also include, subject to the other terms of this
Agreement, any and all other assets, rights and claims of every kind and nature
held immediately prior to the Closing Date by a member of the AG Group and used
primarily in the AG.com Business. The intention of the immediately prior
sentence is only to rectify any inadvertent omission from a Schedule or transfer
or conveyance of any asset, right or claim that, had the parties hereto given
specific consideration to such asset, right or claim as of the date hereof,
would have otherwise been classified as a AG.com Business Asset. In furtherance
of the foregoing, AG and AG.com shall confer from time to time prior to the
Closing Date to supplement or update the Schedules to this Agreement. In
addition, AG shall be entitled to review work papers and asset ledgers used to
prepare the AG.com Balance Sheet to identify assets included in the AG.com
Business Assets. Moreover, no asset, right or claim shall be deemed an AG.com
Business Asset solely as a result of this paragraph if such asset, right or
claim is expressly excluded as an asset being transferred by an Ancillary
Agreement. In addition, no asset, right or claim shall be deemed an AG.com
Business Asset solely as a result of this paragraph unless AG.com requests
assistance in transferring an asset on or prior to twelve (12) months after the
Closing Date. Notwithstanding the use of the term "primarily" in connection with
a listed item comprising the AG.com Business Assets, if an asset is listed on a
Schedule referenced in Section 1.01(b), it shall be considered an AG.com
Business Asset, even if not used "primarily" in the AG.com Business. In
addition, notwithstanding the foregoing, the AG.com Business Assets shall not in
any event include the Excluded Assets referred to in Section 1.01(c) below.
(c) For the purposes of this Agreement, "Excluded Assets" shall mean: (i) the
assets, rights and claims listed or described on SCHEDULE 1.01(C)(I), (ii) any
and all assets of the AG Benefit Plans and (iii) any and all assets, rights and
claims that are expressly contemplated by this Agreement or any Ancillary
Agreement (or the Exhibits and Schedules hereto or thereto) as assets, rights or
claims to be retained by AG.
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SECTION 1.02 ASSIGNMENT AND ASSUMPTION OF LIABILITIES.
(a) Except as set forth in one or more of the Ancillary Agreements or
in this Agreement, from and after the Closing Date, AG.com hereby assumes and
agrees faithfully to pay, perform and fulfill all obligations under the
following in accordance with their respective terms (the "Assumed AG.com
Liabilities"):
(i) any and all Liabilities that are expressly
contemplated by this Agreement or any Ancillary Agreement (or
the Schedules hereto or thereto) as Liabilities to be assumed
by AG.com, and all agreements, obligations and Liabilities of
AG.com under this Agreement or any of the Ancillary
Agreements;
(ii) all Liabilities, primarily relating to, arising
out of or resulting from:
(A) the operation of the AG.com Business, as
conducted at any time prior to, on or after the
Closing Date, including, without limitation, (i) any
Liability that is not an Excluded Liability relating
to, arising out of or resulting from any act or
failure to act by any director, officer, employee,
agent or representative (whether or not such act or
failure to act is or was within such Person's
authority); (ii) those employee-related Liabilities
relating to any past or present employee of AG.com or
any past or present employee of AG who was engaged
primarily in the AG.com Business prior to the
Separation which are specifically assumed by AG.com
pursuant to the provisions of Section 5.07; and (iii)
any Liability that is not an Excluded Liability
related to service, warranty, support and product
liability in connection with the AG.com Business,
including products and technologies;
(B) the operation of any business conducted
by AG.com or any of its subsidiaries at any time
after the Closing Date including, without limitation,
any Liability relating to, arising out of or
resulting from any act or failure to act by any
director, officer, employee, agent or representative
of AG.com or its Subsidiaries (whether or not such
act or failure to act is or was within such Person's
authority); and
(C) any AG.com Business Assets (including
without limitation any liability under the AG.com
Contracts and any guarantee, indemnity,
representation, warranty or other Liability of any
member of the AG Group in respect of any contract
specified in this Section 1.02(a)(ii)(C));
(iii) all Liabilities reflected as "Liabilities" or
obligations of AG.com in the AG.com Balance Sheet, subject to
any discharge of such Liabilities subsequent to the date of
AG.com Balance Sheet; and
(iv) all Liabilities listed on SCHEDULE 1.02(a)(IV).
(b) Notwithstanding the foregoing, the Assumed AG.com Liabilities shall
not in any event include the Excluded Liabilities referred to in this Section
1.02(b). For purposes of this Agreement, "Excluded Liabilities" shall mean:
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(i) any Liability of AG arising out of any Action pending or, to the
knowledge of AG, threatened as of the Closing Date including, without
limitation, Actions that are listed on SCHEDULE 1.02 (b)(I) and any Liability
arising out of or related in any way to the business known as CreataCard kiosk
business;
(ii) any Liability for Taxes, whether or not accrued, assessed or
currently due and payable, (A) of the AG Group or (B) relating to the operation
or ownership of the AG.com Business or the AG.com Business Assets for any Tax
period (or portion thereof) ending on or prior to the Closing Date (for purposes
of this clause (ii), all real property Taxes, personal property Taxes and
similar ad valorem obligations levied with respect to the AG.com Business Assets
for a Tax period that includes (but does not end on) the Closing Date shall be
apportioned between the AG Group and AG.com and AG.com's Subsidiaries based upon
the number of days of such period included in the Tax period prior to the
Closing Date and the number of days of such Tax period after the Closing Date
hereof (which period shall include the Closing Date);
(iii) any Liability of AG or any of its Subsidiaries arising under any
AG Benefit Plan relating to periods prior to, on or after, the Closing Date,
including, without limitation, any liability under ERISA, but excluding any
Liability provided in Section 5.07 to be assumed by AG.com;
(iv) any Liability of AG that relates to, or that arises out of, the
termination of the employment with the AG Group prior to the Closing Date of any
employee or former employee of the AG.com Business (including as a result of the
transactions contemplated by this Agreement) except as specifically stated in
Section 5.07;
(v) all Liabilities relating to pollution, contamination or harm of any
land or the environment attributable to, caused by or otherwise involving any
business of the AG Group; and
(vi) any Liability of AG that does not relate primarily to the AG.com
Business (including, without limitation, all Liabilities relating to any
Employee that does not become an AG.com Employee and all Liabilities involving
any business of the AG Group after the Closing Date), but excluding any
Liability as may be otherwise expressly contemplated by this Agreement or any
Ancillary Agreement to be assumed by AG.com.
(c) On and after the Closing Date, AG.com and its Subsidiaries shall be
responsible for all Assumed AG.com Liabilities, regardless of when or where such
Liabilities arose or arise, or whether the facts on which they are based
occurred prior to or subsequent to the Closing Date, regardless of where or
against whom such Liabilities are asserted or determined (including any Assumed
AG.com Liabilities arising out of claims made by AG's or AG.com's respective
directors, officers, employees, agents or Affiliates) (and, except to the extent
arising from an Excluded Liability) regardless of whether arising from or
alleged to arise from negligence, recklessness, violation of law, fraud or
misrepresentation by AG or AG.com or any of their respective directors,
officers, employees, agents or Affiliates.
On and after the Closing Date, the AG Group shall be responsible for
all Excluded Liabilities, regardless of when or where such Liabilities arose or
arise, or whether the facts on
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which they are based occurred prior to or subsequent to the Closing Date,
regardless of where or against whom such Liabilities are asserted or determined
(including any Excluded Liabilities arising out of claims made by AG's or
AG.com's respective directors, officers, employee, agents or Affiliates) (and,
except to the extent arising from an Assumed AG.com Liability) regardless of
whether arising from or alleged to arise from negligence, recklessness,
violation of law, fraud or misrepresentation by AG or AG.com or any of their
respective directors, officers, employees, agents or Affiliates.
SECTION 1.03 TRANSFERS NOT EFFECTED ON OR PRIOR TO THE CLOSING DATE.
(a) To the extent any transfers contemplated by this Article I shall
not have been fully effected on or prior to the Closing Date, AG and AG.com
shall cooperate to effect such transfers as promptly as possible following the
Closing Date. Nothing herein shall be deemed to require the transfer of any
assets or the assignment or assumption of any Liabilities that by their terms or
by operation of law cannot be so transferred, assigned or assumed; provided,
however, that any such asset shall be deemed a AG.com Business Asset for
purposes of determining whether any Liability is an Assumed AG.com Liability;
and provided, further, that AG and AG.com and their respective Affiliates,
excepting natural Persons, shall in accordance with Sections 5.04, 5.05 and 5.06
cooperate in seeking to obtain any necessary Consents for the transfer of all
AG.com Business Assets and the assignment or assumption of all Liabilities as
contemplated by this Article I. In the event that any transfer of AG.com
Business Assets or assignment or assumption of Liabilities contemplated by this
Article I has not been consummated effective as of the Closing Date, (i) the
party retaining such assets shall thereafter hold such assets in trust for the
use and benefit of the party entitled thereto (at the expense of the party
entitled thereto); and (ii) the party retaining such Liabilities shall
thereafter hold such Liabilities for the account of the party assuming such
Liability or to whom such Liability is to be assigned pursuant hereto, and in
each such case shall take such other actions as may be reasonably required in
order to place the parties, insofar as reasonably possible, in the same position
as would have existed had such asset been transferred, or such Liability been
assigned or assumed as contemplated hereby. As and when any such asset or
Liability becomes transferable, assignable or assumable, as the case may be,
such transfer, assignment or assumption, as the case may be, shall be effected
forthwith.
(b) Notwithstanding anything in this Agreement to the contrary, AG and
AG.com acknowledge that there are contracts between members of the AG Group and
third parties that relate to both the AG.com Business and AG's business
subsequent to the Separation ("Joint Contracts") including, without limitation,
the Joint Contracts listed on SCHEDULE 1.03(b). AG and AG.com agree to use
reasonable efforts before and after the Closing Date hereof, to attempt to
modify each Joint Contract (including, if necessary or appropriate, the
cancellation of a Joint Contract and the creation of a new contract or
contracts) so that (i) AG.com and AG.com's Subsidiaries retain or are granted
such rights thereunder as may be necessary for AG.com and AG.com's Subsidiaries
to operate the AG.com Business, and (ii) AG and the AG Group retain or are
granted such rights thereunder as may be necessary for the AG Group to operate
its business subsequent to the Closing Date. The parties agree to negotiate in
good faith any necessary or appropriate modifications of such Joint Contracts,
but AG.com and its Subsidiaries, subject to the provision of Section 5.04, shall
be responsible for the fees or other payments that may be payable by each party
to any Person other than a member of the AG Group as a result of any such
modifications and the release (or partial release) of a party under any
continuing Joint Contract retained by the other party. On the later of the
Closing Date or the effective date of a
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modified Joint Contract or any new contract entered into pursuant to this
Section 1.03(b), such Joint Contract as modified or any new contract, as
applicable, shall, without further act, be deemed for all purposes between AG
and AG.com to have been assigned to AG.com.
SECTION 1.04 NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
(a) Except as provided in this Agreement, each of the parties hereto
understands and agrees that no party hereto is, in this Agreement, any Ancillary
Agreement or any other agreement or document contemplated by this Agreement, any
Ancillary Agreement or otherwise, representing or warranting in any way as to
the value or freedom from encumbrance of, or any other matter concerning, any
assets of such party, or as to the legal sufficiency to convey title to an asset
transferred pursuant to this Agreement or any Ancillary Agreement, including,
without limitation, any conveyancing or assumption instruments. It is also
agreed and understood that there are no warranties whatsoever, express or
implied, given by either party to this Agreement, as to the condition, quality,
merchantability or fitness of any of the assets, businesses or other rights
transferred or retained by the parties, as the case may be, and all such assets,
businesses and other rights shall be "as is, where is" and "with all faults",
(provided that the absence of warranties given by the parties shall not negate
the allocation of Liabilities under this Agreement and shall have no effect on
any manufacturers, sellers, or other third party warranties that are intended to
be transferred with such assets), and AG.com shall bear the economic and legal
risks that any conveyance shall prove to be insufficient to vest in it good and
marketable title, free and clear of any security interest, pledge, lien, charge,
claim, option, right to acquire, covenant, condition, restriction on transfer or
other encumbrance of any nature whatsoever ("Lien"). Notwithstanding the absence
of a representation as to the legal sufficiency of any title, AG and the other
members of the AG Group shall use reasonable efforts to obtain, prior to or on
the Closing Date, releases of all Liens on any of the AG.com Business Assets
that (i) are listed on SCHEDULE 1.04(a), (ii) were incurred primarily for the
benefit of a business other than the AG.com Business, or (iii) relate to any
Excluded Liability. AG and AG.com shall confer from time to time prior to the
Closing Date to supplement or update Schedule 1.04(a) to include Liens not
listed but which should be included because the Lien was incurred primarily for
the benefit of a business other than the AG.com Business and did not benefit the
AG.com Business or because the Lien relates to an Excluded Liability. Further,
notwithstanding the absence of a representation as to conveyancing instruments,
such absence shall not diminish in any way AG's cooperation and further
assurance obligations in this Agreement.
(b) Each party hereto understands and agrees that no party hereto is,
in this Agreement, any Ancillary Agreement or any other agreement or document
contemplated by this Agreement, any Ancillary Agreement or otherwise,
representing or warranting in any way that the obtaining of any Consents, the
execution and delivery of any amendatory agreements and the taking of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all Applicable Laws or other instruments or agreements
relating to such assets. Notwithstanding the foregoing and except as provided in
any Ancillary Agreement, the parties shall use their good faith efforts to
obtain all Consents (including such Consents as may be required by any
Governmental Authority), to enter into all reasonable amendatory agreements and
to make all filings and applications contemplated by this Agreement, and,
subject to the provisions of Section 5.04(b), shall take all such further
actions as shall be deemed reasonably necessary to preserve for each of the AG
Group, on the one hand, and AG.com and AG.com's
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Subsidiaries, on the other hand, to the greatest extent reasonably feasible,
consistent with this Agreement, the economic and operational benefits of the
allocation of assets and Liabilities provided for in this Agreement. In case at
any time after the Separation any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such necessary or desirable action;
provided that, subject to the provisions of Section 5.04, any out-of-pocket
financial cost shall be borne by the party receiving the benefit of the action.
SECTION 1.05 TERMINATION OF AGREEMENTS.
(a) Except as set forth in Section 1.05(b), in furtherance of the
releases and other provisions of Section 6.01 hereof, AG.com and AG.com's
Subsidiaries, on the one hand, and the AG Group, on the other hand, hereby
terminate, effective as of the Closing Date, any and all agreements,
arrangements, commitments or understandings, whether or not in writing, between
AG.com and AG.com's Subsidiaries and the AG Group (including without limitation
those that might be deemed to arise because the contribution of the AG.com
Business Assets may somehow be deemed to include a contribution of an obligation
owing to the division of AG holding the AG.com Business Assets from some member
of the AG Group). No such terminated agreement, arrangement, commitment or
understanding (including any provision thereof which purports to survive
termination) shall be of any further force or effect after the Closing Date.
Each party shall, at the reasonable request of the other party, take, or cause
to be taken, such other actions as may be necessary to effect the foregoing.
(b) The provisions of Section 1.05(a) shall not apply to any of the
following agreements, arrangements, commitments or understandings (or any of the
provisions thereof): (i) this Agreement and the Ancillary Agreements (and each
other agreement or instrument expressly contemplated by this Agreement or any
Ancillary Agreement), (ii) any agreements, arrangements, commitments or
understandings to which any Person other than the parties hereto or their
respective Affiliates is a party, and (iii) any other agreements, arrangements,
commitments or understandings that this Agreement or any Ancillary Agreement
expressly contemplates will survive the Closing Date including, without
limitation, those listed or described on SCHEDULE 1.05(b).
SECTION 1.06 EXECUTION OF ANCILLARY AGREEMENTS. At the Closing, AG, AGCINV and
AG.com shall execute and deliver, or cause to be executed and delivered:
(a) the Cross License Agreement;
(b) the Web Services Agreement;
(c) the Administrative Services Agreement;
(d) the Registration Rights Agreement; and
(e) the Tax and Indemnification Agreement.
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ARTICLE II.
THE CLOSING
SECTION 2.01 THE CLOSING. The closing of the Separation and the execution of the
Ancillary Agreements (the "Closing") shall occur on a date mutually determined
by AG and AG.com as the date on which the Separation shall be effected, which is
currently contemplated to occur on or about _______________ (the "Closing Date")
and shall take place at the offices of Jones, Day, Reavis & Pogue, 901 Lakeside
Avenue, Cleveland, Ohio 44114.
SECTION 2.02 TRANSACTIONS TO BE EFFECTED AT THE CLOSING. At the Closing:
(a) AG, AGCINV and AG.com shall take all actions so that the articles
and by-laws of AG.com are in the form of EXHIBIT A, the Board of Directors of
AG.com shall consist of the persons indicated as members of AG.com's Board of
Directors in the Registration Statement, and AG.com shall have adopted certain
equity incentive compensation plans in the form of EXHIBIT B.
(b) AG and/or AGCINV shall deliver and/or cause members of the AG Group
to deliver to AG.com (i) Fifty Million Dollars ($US 50,000,000) in immediately
available funds (ii) appropriately executed copies of each Ancillary Agreement
to which each is specified to be a party, (iii) such appropriately executed
bills of sale, assignments and other instruments of transfer relating to the
AG.com Business Assets in form and substance reasonably satisfactory to AG.com,
including without limitation, assignments of Intellectual Property in recordable
forms and Registrant Name Change Agreements in form acceptable to Network
Solutions, Inc., (iv) such other documents as AG.com has reasonably requested to
demonstrate compliance with the terms and provisions of this Agreement, and (v)
all tangible forms of the AG.com Business Assets; and
(c) AG.com shall, and/or shall cause its Subsidiaries, to deliver to AG
(i) certificates representing the Shares registered in the name of AGCINV, (ii)
appropriately executed copies of this Agreement and each Ancillary Agreement to
which each is specified to be a party, (iii) such appropriately executed
assumption agreements and other instruments of assumption providing for the
assumption of the Assumed AG.com Liabilities in form and substance reasonably
satisfactory to AG and (iv) such other documents as AG has reasonably requested
to demonstrate compliance with the terms and provisions of this Agreement.
SECTION 2.02 UPDATING OF SCHEDULES. The parties shall confer from time to time
prior to the Closing Date to supplement and update the Schedules to this
Agreement. Unless waived by each of the parties hereto, there shall be a
condition to Closing that the Schedules be in such form and substance (including
as supplemented or updated) to the mutual satisfaction of the parties.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF AG AND AGCINV
AG and AGCINV hereby represents and warrants to AG.com, as of the date
of this Agreement and as of the Closing Date, as follows:
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SECTION 3.01 ORGANIZATION, STANDING AND POWER. It is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized.
SECTION 3.02 AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. It has full
power and authority to execute this Agreement and, at the Closing, the Ancillary
Agreements to which it is a party. It has full power and authority to consummate
the Separation and the other transactions contemplated hereby and thereby. The
execution and delivery by it of this Agreement and, at the Closing, the
Ancillary Agreements to which it is a party and the consummation of the
Separation and the other transactions contemplated hereby and thereby have been,
and at the Closing will have been, duly authorized by all necessary corporate
action. It has duly executed and delivered this Agreement and, at the Closing
will have executed and delivered each Ancillary Agreement to which it is a
party, and this Agreement, and, at the Closing, each Ancillary Agreement to
which it is a party, constitutes and will constitute its legal, valid and
binding obligation, enforceable against it in accordance with its terms except
as enforcement may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or equitable principles relating to or
limiting creditors' rights generally.
SECTION 3.03 NO CONFLICTS WITH CHARTER DOCUMENTS AND JUDGMENTS. The execution
and delivery by it of this Agreement and each Ancillary Agreement to which it is
a party and the consummation of the Separation and the other transactions
contemplated hereby and thereby and compliance by it with the terms hereof and
thereof do not, and shall not at the Closing, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of it or a member of the AG
Group (including, without limitation, the AG.com Business Assets) under, any
provision of (i) the articles of incorporation or bylaws of it or any member of
the AG Group or (ii) any judgment, order or decree of any Governmental Authority
("Judgment") applicable to AG or any member of the AG Group or their respective
properties or assets.
SECTION 3.04 PURCHASE FOR INVESTMENT. AGCINV is purchasing the Shares for
investment and not with a view to any public resale or other distribution
thereof except in accordance with the Securities Act of 1933. AGCINV
acknowledges that it has received, or has had access to, all information which
it considers necessary or advisable to enable it to make a decision concerning
its purchase of the Shares.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF AG.COM
AG.com hereby represents and warrants to AG, as of the date of this
Agreement and as of the Closing Date, as follows:
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SECTION 4.01 ORGANIZATION, STANDING AND POWER. AG.com is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized.
SECTION 4.02 AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. AG.com has full
power and authority to execute this Agreement and, at the Closing, the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by AG.com of this
Agreement and, at the Closing, by AG.com or any of its Subsidiaries of the
Ancillary Agreements to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby have been, and at the Closing will
have been, duly authorized by all necessary corporation action. AG.com has duly
executed and delivered this Agreement and, at the Closing, AG.com and each of
AG.com's Subsidiaries will have executed and delivered each Ancillary Agreement
to which it is a party, and this Agreement and each Ancillary Agreement to which
it is a party constitutes and will constitute its legal, valid and binding
obligation, enforceable against it in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally or equitable principles relating to or limiting
creditors' rights generally.
SECTION 4.03 NO CONFLICTS WITH CHARTER DOCUMENTS AND JUDGMENTS. The execution
and delivery by AG.com of this Agreement, and at the Closing by AG.com and each
of AG.com's Subsidiaries of each Ancillary Agreement to which it is a party and
the consummation of the other transactions contemplated hereby and thereby and
compliance by AG.com and AG.com's Subsidiaries with the terms hereof and thereof
do not, and shall not at the Closing, conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under or result in the creation of any Lien
upon any of the properties or assets of AG.com or any of its Subsidiaries under,
any provision of (i) the articles of incorporation or bylaws of AG.com or any of
its Subsidiaries or (ii) any Judgment applicable to AG.com or its properties or
assets.
SECTION 4.04 SHARES. At the Closing, the Shares shall have been duly authorized
and shall be validly issued, fully paid and non-assessable shares of the Class B
Common Stock, registered in the name of AGCINV and subject to no Liens in favor
of any Person except as may arise from actions taken solely by the AG Group to
impose such Liens.
ARTICLE V.
SEPARATION AND INITIAL PUBLIC OFFERING
SECTION 5.01 CONDUCT OF AG.COM BUSINESS PENDING SEPARATION AND CONDITIONS
PRECEDENT TO THE SEPARATION. Prior to the Separation, the AG.com Business shall
be operated by AG and members of the AG Group and AG.com and its Subsidiaries
for the sole benefit of AG. AG's Board of Directors shall, in its discretion,
establish any appropriate procedures in connection with the Separation. In no
event shall the Separation occur unless the following conditions shall, unless
waived by AG in the exercise of its sole discretion, have been satisfied:
(a) All necessary regulatory approvals and Consents shall have been
received;
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(b) The Registration Statement shall have been filed with the
Commission, and there shall be no indication, as the AG Board of Directors has
determined in the exercise of its sole discretion, that the Commission shall not
permit the Registration Statement to become effective or that there shall be any
stop-order imposed with respect thereto;
(c) AG's and AGCINV's Boards of Directors shall have formally approved
the Separation, this Agreement and the Ancillary Agreements and shall not have
abandoned, deferred or modified the Separation at any time prior to the Closing
Date;
(d) AG.com's Board of Directors shall have formally approved the
Separation, this Agreement, the Ancillary Agreements, the Initial Public
Offering, and all transactions contemplated hereby and thereby;
(e) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or other Governmental
Authority and no statute, rule, regulation or executive order promulgated or
enacted by any Governmental Authority, shall be in effect preventing the
consummation of the Separation or the Initial Public Offering or any of the
other transactions contemplated by this Agreement or any Ancillary Agreement;
(f) AG shall be satisfied in its sole discretion that it will own more
than 80% of the voting power of the outstanding Common Stock following the
Initial Public Offering on a fully diluted basis, after giving effect to the
issuance of any shares of restricted stock or employee stock options to any
employees and consultants of AG.com; and
(g) Such other actions as the parties hereto may, based upon the advice
of counsel, reasonably request to be taken prior to the Separation and the
Initial Public Offering in order to assure the successful completion of the
Separation and the Initial Public Offering and the other transactions
contemplated by this Agreement shall have been taken;
provided, that the satisfaction of such conditions shall not create any
obligation on the part of AG to effect the Separation or in any way limit AG's
power of termination set forth in Section 8.11 or alter the consequences of any
such termination from those specified in such Section.
SECTION 5.02 INITIAL PUBLIC OFFERING. AG and AG.com shall use their reasonable
best efforts to consummate the Initial Public Offering. Such actions shall
include, but not necessarily be limited to, the following:
(a) AG.com shall file the Registration Statement, and such amendments
or supplements thereto, as may be necessary in order to cause the same to become
and remain effective as required by law or by the Underwriters, including, but
not limited to, filing such amendments to the Registration Statement as may be
required by the Underwriting Agreement, the Commission or federal, state or
foreign securities laws. AG and AG.com shall also cooperate in preparing, filing
with the Commission and causing to become effective a registration statement
registering the Class A Common Stock under the Exchange Act, and any
registration statements or amendments thereof which are required to reflect the
establishment of, or amendments to, any employee benefit and other plans
necessary or appropriate in connection with the Initial Public Offering and the
Separation or the other transactions contemplated by this Agreement and the
Ancillary Agreements;
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(b) AG.com shall enter into an Underwriting Agreement, in form and
substance reasonably satisfactory to AG.com, and AG.com shall comply with its
obligations thereunder;
(c) AG and AG.com shall consult with each other and the Underwriters
regarding the timing, pricing and other material matters with respect to the
Initial Public Offering;
(d) AG.com shall use its reasonable best efforts to take all such
action as may be necessary or appropriate under state securities and blue sky
laws of the United States (and any comparable laws under any foreign
jurisdictions) in connection with the Initial Public Offering;
(e) AG.com shall prepare, file and use reasonable best efforts to seek
to make effective, a listing application for quotation of the Class A Common
Stock issued in the Initial Public Offering in the NASDAQ National Market,
subject to official notice of issuance;
(f) AG.com and AG shall participate in the preparation of materials and
presentations as the Underwriters shall deem necessary or desirable;
(g) AG.com shall pay the legal, filing, accounting, printing and other
out-of- pocket expenditures in connection with (i) the preparation, printing and
filing of the Registration Statement and (ii) sale of the shares of Class A
Common Stock in the Initial Public Offering, including, without limitation,
third-party costs, fees and expenses relating to the Initial Public Offering,
all of the reimbursable expenses of the Underwriters pursuant to the
Underwriting Agreement, and all of the costs of producing, printing, mailing and
otherwise distributing the Prospectus; and
(h) AG shall execute a Lock Up Agreement.
SECTION 5.03 REASONABLE BEST EFFORTS. Each party shall, and shall cause its
Affiliates, excepting natural Persons, to, use its reasonable best efforts (at
its own expense) to obtain, and to cooperate in obtaining, all Consents from
third parties necessary or appropriate to permit the Separation to be completed.
SECTION 5.04 EXPENSES; TRANSFER TAXES AND OTHER COSTS FOR SEPARATION.
(a) Except as set forth in Section 5.04(b) below and in Section 5.05,
all costs and expenses incurred in connection with this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expense, including all costs and expenses
incurred pursuant to Sections 1.04 and 5.03.
(b) AG.com shall be responsible for and shall pay, as and when
incurred, any Liability for transfer, documentary, sales, use, registration,
value-added and other similar Taxes and related amounts (including any
penalties, interest and additions to Tax) incurred in connection with this
Agreement, the Ancillary Agreements, the Separation and the other transactions
contemplated hereby and thereby ("Transfer Taxes"), documentary Taxes, fees or
charges (including sublicensing, license transfer, and new license charges) to
be paid to any Person other than a member of the AG Group to obtain Consents to
the transfer of any of the AG.com Business Assets to AG.com and filing or
recording fees and applicable to the
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Separation, provided that before the commencement of the process to transfer or
assign an AG.com Business Asset, AG.com may notify AG in writing that it does
not wish to obtain transfer or assignment of a AG.com Business Asset, in which
case, such AG.com Business Asset shall not be transferred or assigned to AG.com,
provided that AG.com shall pay all costs incurred when AG.com notifies AG on or
after the commencement of the process to transfer or assign an AG.com Business
Asset. Each party shall use reasonable effort to avail itself of any available
exemptions from any such Taxes or fees, and to cooperate with the other parties
in providing any information and documentation that may be necessary to obtain
such exemptions.
SECTION 5.05 POST-CLOSING COOPERATION.
(a) Each member of the AG Group, on the one hand, and AG.com and its
Subsidiaries, on the other hand, shall cooperate with each other, and shall
cause their respective officers, employees, agents, auditors, representatives
and Affiliates, excepting natural Persons, to cooperate with each other, after
the Closing to ensure the orderly transition of the AG.com Business from the AG
Group to AG.com and to minimize any disruption to the AG.com Business and the
other businesses of the AG Group that might result from the transactions
contemplated hereby. After the Closing, upon reasonable written notice, AG and
AG.com shall, subject to the Cross License Agreement, furnish or cause to be
furnished to each other and to their respective employees, counsel, auditors and
representatives access, during normal business hours, to such information and
assistance relating to the AG.com Business (to the extent within the control of
such party) as is reasonably necessary for financial reporting and accounting
matters.
(b) After the Closing, upon reasonable written notice, AG and AG.com
shall, subject to the Cross License Agreement and the Tax and Indemnification
Agreement, furnish or cause to be furnished to each other, as promptly as
practicable, such information and assistance relating to the AG.com Business
Assets (including, access to books and records) and the Separation, to the
extent within the control of such party, as is reasonably necessary for the
filing of all Tax returns, and making of any election related to Taxes, the
preparation for any audit by any Taxing Authority, and the prosecution or
defense of any claim, suit or proceeding related to any Tax return. AG and
AG.com shall cooperate with each other in the conduct of any audit or other
proceeding relating to Taxes involving the AG.com Business in accordance with
the terms and conditions of the Tax Sharing and Indemnification Agreement.
(c) Subject to the provisions of Section 5.04, each party shall
reimburse the others for reasonable out-of-pocket costs and expenses incurred in
assisting such party pursuant to this Section 5.05. No party shall be required
by this Section 5.05 to take any action which would unreasonably interfere with
the conduct of its business or unreasonably disrupt its normal operations.
(d) From time to time after the Closing, as and when requested by any
party, each party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other party may reasonably deem
necessary or desirable to consummate the transactions contemplated by this
Agreement and the Ancillary Agreements, including, in the case of AG, executing
and
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delivering to AG.com such assignments, deeds, bills of sale, consents and
other instruments as AG.com or its counsel may reasonably request as necessary
or desirable for such purpose.
SECTION 5.06 FUTURE CONDUCT
(a) Until the earlier to occur of the End Date and AG's providing
written notice of a termination of this Agreement due to the occurrence of a
Reversion Event:
(i) AG.com agrees that it will use "americangreetings.com" or
"AG.com" as its corporate name. AG.com will use the URL
"americangreetings.com" as its United States Web site and it will
provide a reasonably prominent "one-click" link from that site to the
AG Corporate Web site to be designated by AG (the parties anticipate
that the link will be somewhat more prominent than the current link at
americangreetings.com to corporate information, but the exact size,
positioning and graphic will be established and maintained by mutual
agreement).
(ii) AG will include the "www.americangreetings.com" URL and,
for the duration of and to the extent required by the AOL Contract, an
AOL "keyword" designated by AG.com on the back of all of its greetings
cards. If AG includes a URL in any other promotional materials, it
will, include a URL designated by AG.com and, if required by the AOL
Contract, also include an AOL "keyword" designated by AG.com. AG will
also continue to place a URL designated by AG.com and, if required by
the AOL Contract, an AOL "keyword" designed by AG.com on its
advertising campaigns.
(iii) Without the prior written consent of AG.com, AG will not
make or distribute, or permit any member of the AG Group to make or
distribute, for retail sale, software used to create or transmit
greeting card or social expression products, other than software
supplied by AG.com or its designee; provided that retail outlets owned
or leased by AG or AG customers may carry competitive software.
(iv) AG.com will, upon a request from AG subject to then
applicable terms and conditions, make available to any AG retailer the
ability to participate in AG.com's affiliate program (which allows
retailers to earn revenue share by linking to the AG.com Web site) and
the parties will each consider in good faith other retailer-related
programs, but shall only be obligated to carry out such programs upon
mutual consent.
(b) Notwithstanding anything in this Agreement to the contrary, no
party or its Affiliates shall be restricted from providing Permitted Premiums.
(c) Each of AG and AG.com acknowledges that in light of their
relationship prior to the Separation and the relationships contemplated by the
Agreement and the Ancillary Agreements, it shall become privy to certain
confidential information and trade secrets of the other party and further
acknowledges that it will derive substantial benefits from the consummation of
the transactions contemplated by this Agreement. Each of AG and AG.com hereby
agrees that it is reasonable and necessary for the protection of the other party
that it agree, and accordingly hereby does agree to the limitations set forth in
this Section 5.06. The invalidity or non-enforceability of this Section 5.06 in
any respect shall not affect the validity or
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enforceability of this Section 5.06 in any other respect or of any other
provisions of this Agreement. In the event that any provisions of this Section
5.06 shall be held invalid or unenforceable by a court of competent jurisdiction
by reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope and duration of
such provision of this Agreement, and, to the fullest extent permitted by
Applicable Law, this Agreement shall be construed as if the geographic or
business scope or the duration of such provision had been more narrowly drafted
so as not to be invalid or unenforceable. Each of AG and AG.com acknowledges
that AG and AG.com would suffer irreparable harm if the other party were to
breach the provisions of this Section 5.06 and that AG's or AG.com's, as the
case may be, remedy at law for any such breach is and will be insufficient and
inadequate and that AG or AG.com, as the case may be, shall be entitled to
equitable relief, including by way of temporary and permanent injunction, in
addition to any remedies AG or AG.com, as the case may be, may have at law.
SECTION 5.07 LABOR AND EMPLOYEE BENEFIT ISSUES.
(a) Subject to their acceptance of the offer specified in this Section
5.07, the employment of all employees listed on SCHEDULE 5.07(A) (the
"Employees" and the Employees who accept such offer being the "AG.com
Employees") shall terminate as of the Closing Date. On or before the Closing
Date, AG.com shall, or shall cause AG.com OpCo, to offer employment to the
Employees, effective as of the Closing Date at rates of compensation and with
employee benefits which, subject to the terms of this Section 5.07, are
determined by AG.com and communicated prior to the Closing Date to AG. AG.com
and its Subsidiaries shall be responsible for satisfying obligations with
respect to accrued vacation and sick time and personal holidays of AG.com
Employees whether arising before or after the Closing Date. AG and AG.com shall
take such action as is necessary to cause AG.com to adopt or enter into, after
the Separation, benefit plans, funds, programs, agreements, payroll practices or
other arrangements to replace the benefits provided by the AG Benefit Plans
which effectuate the provisions of this Section 5.07; provided that nothing in
this Section 5.07 shall prevent AG.com and AG from amending or modifying the
provisions hereof or of the AG Benefit Plans or any benefit plans adopted by
AG.com and the Employees, consistent with the terms of Section 8.02, shall have
no rights to enforce any of AG.com's or AG's obligations under this Agreement
and the Ancillary Agreements, including without limitation this Section 5.07.
Notwithstanding the foregoing, AG.com shall recognize all periods of continuous
employment of the AG.com Employees with the AG Group prior to the Closing Date
for purposes of satisfying the eligibility requirements of any employee benefits
which are provided by AG.com to the AG.com Employees following the Closing Date.
(B) WELFARE BENEFIT PLANS. Except as described in Subsection (h) below,
AG.com Employees shall continue to be eligible to participate in the welfare
benefit plans (within the meaning of Section 3(1) of ERISA) of AG in which
AG.com Employees participate as of the Closing Date for such period of time
following the Closing Date, not less than through December 31, 1999, as is
determined by AG. AG.com shall reimburse AG for the costs of covering the AG.com
employees under the AG welfare benefit plans after the Closing Date.
(C) RETIREMENT PLAN. The AG.com Employees shall cease active
participation in the American Greetings Retirement Profit Sharing and Savings
Plan (the "Retirement Plan") as of
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the Closing Date. In furtherance of, but without limiting, the foregoing, the
last contributions to the Retirement Plan by the AG.com Employees shall be with
respect to the payroll period which ends on the Closing Date and the AG.com
Employees shall not be entitled to receive any employer matching or profit
sharing contributions under the Retirement Plan for the 1999 plan year. The
other rights of AG.com Employees under the Retirement Plan shall be determined
pursuant to the terms thereof applicable to other participants covered by such
plan, as in effect from time to time.
(D) SUPPLEMENTAL RETIREMENT PLAN. Active participation of AG.com
Employees in the American Greetings Corporation Supplemental Executive
Retirement Plan (the "SERP") will cease as of the Closing Date. In addition,
solely for purposes of the vesting provisions of the SERP, the termination of
employment of an AG.com Employee from AG as of the Closing Date shall be deemed
a unilateral termination by AG without cause. The other rights of AG.com
Employees under the SERP shall be determined pursuant to the terms thereof
applicable to other participants covered by such plan, as in effect from time to
time.
(E) DEFERRED COMPENSATION PLAN. Active participation of AG.com
Employees in the American Greetings Corporation Executive Deferred Compensation
Plan (the "Deferred Compensation Plan") will cease as of the Closing Date. The
other rights of AG.com Employees under the Deferred Compensation Plan shall be
determined pursuant to the terms thereof applicable to other participants
covered by such plan, as in effect from time to time.
(F) BONUS PLANS. AG.com employees who participate in AG's annual cash
bonus program shall receive a pro rata bonus for the portion of the fiscal year
in which the Closing Date that precedes the end of such fiscal year. Such pro
rata bonus shall be determined and payable as follows: In March of 2000, each
such AG.com Employee shall receive a bonus based on the target percentage
established by AG for the AG job level held by the AG.com Employee prior to the
Closing Date, multiplied by AG.com's actual performance against the fiscal year
2000 plan (as of February 28, 2000), multiplied by the AG.com Employee's actual
base salary earnings from AG for AG's fiscal year 2000 through the Closing Date.
This annual bonus shall only be paid to those AG.com Employees who are
continuously employed by AG or AG.com through February 28, 2000. AG.com
Employees who, as of the Closing Date, were participants in AG's three-year cash
bonus program for the three-year period ending on February 28, 2000 shall
receive a bonus under such plan determined and payable as follows: In March of
2000, each such AG.com Employee shall receive an amount equal to 60% of the AG
three-year target bonus percentage for the AG job level held by the AG.com
Employee prior to the Closing Date, multiplied by his actual base salary
earnings for the three-year period, assuming that his rate of pay for the
remainder of AG's fiscal year 2000 after the Closing Date and while employed by
AG.com is the same as his rate of pay as of the Closing Date. This bonus payment
shall only be paid to those AG.com Employees who are continuously employed by AG
or AG.com through February 28, 2000.
(G) STOCK OPTIONS. Stock options previously granted to AG.com Employees
under AG's 1992 Stock Option Plan, 1996 Stock Option Plan and/or the 1997 Stock
Option Plan (collectively, the "Stock Option Plans") which, by their terms are
scheduled to vest on or before March 3, 2001 shall vest in accordance with the
vesting schedule contained in such options, taking into account service with
both AG and AG.com for this purpose, provided that the AG.com Employee is
continuously employed by AG or AG.com through March 3, 2001. Stock
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options held by AG.com Employees that are not vested in accordance with the
foregoing provisions as of March 3, 2001 shall expire pursuant to their terms.
The period during which AG.com Employees may exercise vested stock options under
the Stock Option Plans shall be extended to March 3, 2002.
(H) RETIREE MEDICAL BENEFITS. AG.com Employees who as of the Closing
Date have satisfied the criteria for post-retirement coverage under the American
Greetings Post Retirement Health and Welfare Benefit Plan (the "Retiree Medical
Plan") shall be eligible, upon their subsequent retirement from employment with
AG.com, for such post-retirement coverage as is available from time to time
under the Retiree Medical Plan.
(I) WORKERS' COMPENSATION. Notwithstanding any provisions of this
Agreement to the contrary, AG shall retain all workers' compensation Liabilities
relating to any past or present employee of AG.com or any past or present
employee of AG who was engaged primarily in the AG.com Business prior to the
Separation relating to acts or injuries which were incurred prior to or on the
Closing Date.
(J) COOPERATION. AG and AG.com shall take all such reasonable actions
and otherwise cooperate in all reasonable respects as necessary to effect the
foregoing provisions of this Section 5.07.
SECTION 5.08 INSURANCE PROGRAMS AND CLAIMS ADMINISTRATION.
(a) AG shall use reasonable efforts to maintain in full force and
effect at all times during the period in which AG owns in excess of fifty (50%)
of the outstanding voting power of AG.com, for the benefit of AG.com, (i)
general liability, workers' compensation, property, and umbrella insurance, and
(ii) director's and officer's liability programs of insurance (collectively, the
"Programs" and individually, a "Program"); provided, however, AG shall have the
right, in its sole discretion, to modify any such Program or Programs
(including, without limitation, with respect to coverage limits, covered
locations, co-insurance, deductibles and exclusions), cancel or replace any such
Program or Programs at any time and from time to time; and provided, further,
however,that nothing contained herein shall be construed to require AG to pay
any additional premium or other charges in respect to, or waive or otherwise
limit any of its rights, benefits or privileges under, any such Program or
Programs.
(B) AG.COM RESPONSIBILITY FOR ESTABLISHING INSURANCE COVERAGE. (i) If,
as a result of any modification, cancellation or replacement of any Program or
Programs AG.com's insurance coverage is insufficient in any respect, or (ii)
from and after such time as AG ceases to own in excess of fifty percent (50%) of
the outstanding voting power of AG.com, AG.com shall be responsible for
establishing and maintaining its own separate insurance programs (including,
without limitation, primary and excess general liability, automobile, workers'
compmensation, property, director and officer liability, fire, crime and
surety). Notwithstanding any other agreement or understanding to the contrary,
neither AG nor any of its Subsidiaries shall have any liability or obligation to
AG.com or its Subsidiaries with regard to matters now or hereafter covered under
any Program or Programs for any period, whether arising prior to, on or after
the Closing Date. AG.com shall name AG as an additional insured on all primary
and excess general liability and automobile liability insurance programs and
provide AG with a certificate of
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insurance acceptable to AG for purposes of evidencing such coverages and
additional insured status.
(C) ADMINISTRATION AND PROCEDURE. AG shall have the right to administer
any claims made under any Program. AG.com shall notify AG of any claim relating
to AG.com or a Subsidiary thereof under one or more of the Programs, and AG.com
agrees to cooperate and coordinate with AG concerning any strategy AG may elect
to pursue to secure coverage and payment for such claim by the appropriate
insurance carrier. Notwithstanding anything contained herein, in any other
agreement or applicable Program or any understanding to the contrary, AG.com
assumes responsibility for, and shall pay to the appropriate insurance carriers
or otherwise, any premiums, retrospectively-rated premiums, defense costs,
indemnity payments, deductibles, retentions or other charges, as appropriate
(collectively, "Insurance Charges"), whenever arising, which shall become due
and payable under the terms and conditions of any applicable Program in respect
of any liabilities, losses, claims, actions or occurrences, whenever arising or
becoming known, involving or relating to any of the assets, businesses,
operations or liabilities of AG.com or any of its Subsidiaries. To the extent
that the terms of any applicable Program provide that AG or a Subsidiary
thereof, as appropriate, shall have an obligation to pay or guarantee the
payment of any Insurance Charges, AG or such Subsidiary shall be entitled to
demand that AG.com or a Subsidiary thereof make such payment directly to the
person or entity entitled thereto. In connection with any such demand, AG shall
submit to AG.com or a Subsidiary thereof a copy of any invoice received by AG or
a member of the AG Group pertaining to such Insurance Charges, together with
appropriate supporting documentation, if available. In the event that AG.com or
its Subsidiary fails to pay any Insurance Charges when due and payable, whether
at the request of the party entitled to payment or upon demand by AG or member
of the AG Group, AG or a Subsidiary of AG may (but shall not be required to) pay
such Insurance Charges for and on behalf of AG.com or its Subsidiary and,
thereafter, AG.com or its Subsidiary shall forthwith reimburse AG or such
Subsidiary of AG for such payment.
ARTICLE VI.
INDEMNIFICATION
SECTION 6.01 RELEASE OF CLAIMS.
(a) Except as provided in Section 6.01(c), to the extent permitted by
Applicable Law, effective as of the Closing Date, AG.com does hereby, for itself
and its Affiliates (other than any member of the AG Group), their successors and
assigns, and all Persons who at any time prior to the Closing Date have been
shareholders, directors, officers, agents or employees of AG.com and its
Affiliates (other than any member of the AG Group) (in each case, in their
respective capacities as such), remise, release and forever discharge AG and
each member of the AG Group, their respective successors and assigns, and all
Persons who at any time prior to the Closing Date have been shareholders,
directors, officers, agents or employees of AG or any member of the AG Group (in
each case, in their respective capacities as such), and their respective heirs,
executors, administrators, successors and assigns, from any and all Liabilities
whatsoever, whether at law or in equity (including any right of contribution),
whether arising under any contract or agreement, by operation of law or
otherwise, existing or arising from any facts or events occurring or failing to
occur or alleged to have occurred or to have failed to occur or any conditions
existing or alleged to have existed on or before the Closing Date, including in
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connection with the transactions and all other activities to implement the
Separation and the Initial Public Offering.
(b) Except as provided in Section 6.01(c), to the extent permitted by
Applicable Law, effective as of the Closing Date, AG does hereby, for itself and
each member of the AG Group, their successors and assigns, and all Persons who
at any time prior to the Closing Date have been shareholders, directors,
officers, agents or employees of AG or any member of the AG Group (in each case,
in their respective capacities as such), remise, release and forever discharge
AG.com and its Subsidiaries, their respective successors and assigns, and all
Persons who at any time prior to the Closing Date have been shareholders,
directors, officers, agents or employees of AG.com or any of its Subsidiaries
(in each case, in their respective capacities as such), and their respective
heirs, executors, administrators, successors and assigns, from any and all
Liabilities whatsoever, whether at law or in equity (including any right of
contribution), whether arising under any contract or agreement, by operation of
law or otherwise, existing or arising from any facts or events occurring or
failing to occur or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the Closing Date,
including in connection with the transactions and all other activities to
implement the Separation and the Initial Public Offering, and (ii) the
Intercompany Debt.
(c) Nothing contained in Section 6.01(a) or (b) shall impair any right
of AG or AGCINV (including, without limitation, on behalf of any in favor of
AG's Affiliates) or AG.com to enforce this Agreement, any Ancillary Agreement or
any agreements, arrangements, commitments or understandings that are specified
in Section 1.05(b) or the applicable Schedules thereto not to terminate as of
the Closing Date, in each case in accordance with its terms. Nothing contained
in Section 6.01(a) and (b) shall release AG or AG.com, as applicable, from:
(i) any Liability provided in or resulting from the Agreement,
any Ancillary Agreement and any other agreement between AG.com and its
Subsidiaries, on the one hand, and any member of the AG Group, on the
other hand, that is specified in Section 1.05(b) or the applicable
Schedules thereto as not to terminate as of the Closing Date, or any
other Liability specified in Schedule 1.05(b) as not to terminate as of
the Closing Date;
(ii) any Liability, contingent or otherwise, assumed,
transferred or assigned to such Person in accordance with, or any other
Liability of any Person under, this Agreement or any Ancillary
Agreement;
(iii) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement or any
Ancillary Agreement for claims brought against the parties by third
Persons, which Liability shall be governed by the provisions of this
Article VI and, if applicable, the appropriate provisions of the
Ancillary Agreements; or
(iv) any Liability the release of which would result in the
release of any Person other than a Person expressly released pursuant
to this Section 6.01; provided that the parties agree not to bring suit
or permit any of their Subsidiaries to bring suit against any Person
with respect to any Liability to the extent that such Person would be
released with respect to such Liability by this Section 6.01 but for
the provision of this clause (iv).
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(d) AG.com shall not make, and shall not permit any of its Subsidiaries
or other Affiliates, excepting natural Persons, to make, any claim or demand or
commence any Action asserting any claim or demand, including any claim of
contribution or indemnification, against AG or any member of the AG Group or any
other Person released pursuant to Section 6.01(a), with respect to any
Liabilities released pursuant to Section 6.01(a). AG shall not make, and shall
not permit any member of the AG Group or other Affiliates, excepting natural
Persons, to make, any claim or demand or commence any Action asserting any claim
or demand, including any claim of contribution or indemnification, against
AG.com or any of its subsidiaries or any other Person released pursuant to
Section 6.01(b), with respect to any Liabilities released pursuant to Section
6.01(b).
(e) It is the intention of each of AG and AG.com by virtue of the
provisions of this Section 6.01 to provide for a full and complete release and
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or failed to occur and
all conditions existing or alleged to have existed on or before the Closing
Date, between or among AG.com or any of its Subsidiaries, on the one hand, and
AG or any member of the AG Group, on the other hand (including any contractual
agreements or arrangements existing or alleged to exist between or among such
Persons on or before the Closing Date), except as expressly set forth in Section
6.01(c). At any time, at the request of any other party, each party shall
execute and deliver, or shall cause such other appropriate Persons to execute
and deliver, releases reflecting the provisions hereof. The foregoing release is
intended as a general release of all such Liabilities.
SECTION 6.02 INDEMNIFICATION BY AG.COM. Except as provided in Section 6.05 and
except as otherwise expressly provided in any of the Ancillary Agreements
(including without limitation the Tax and Indemnification Agreement), from and
after the Closing Date, AG.com shall indemnify, defend and hold harmless AG,
each member of the AG Group and each of their respective directors, officers and
employees and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the "AG Indemnitees") from and against any and all
Liabilities of the AG Indemnitees arising from claims of third parties relating
to, arising out of or resulting from any of the following items (without
duplication):
(a) The failure of AG.com or any other Person to pay, perform or
otherwise promptly discharge any Assumed AG.com Liability (including without
limitation the AG.com Contracts), in accordance with their respective terms,
whether prior to or after the Closing Date or the date hereof;
(b) The conduct by AG.com of its business, any AG.com Business Asset or
AG.com Assumed Liability;
(c) Any breach by AG.com or any of its Subsidiaries of any obligation
under this Agreement or any of the Ancillary Agreements; and
(d) Any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, with respect
to all information contained in the Registration Statement or Prospectus
excluding information contained in the Registration Statement or Prospectus
related to the AG Business other than related to the AG.com Business.
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SECTION 6.03 INDEMNIFICATION BY AG. Except as provided in Section 6.05 and
except as otherwise expressly provided in any of the Ancillary Agreements
(including without limitation the Tax and Indemnification Agreement), from and
after the Closing Date, AG shall indemnify, defend and hold harmless AG.com and
each of its subsidiaries and each of their respective directors, officers and
employees and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the "AG.com Indemnitees") from and against any and all
Liabilities of AG.com Indemnitees arising from claims of third parties relating
to, arising out of or resulting from any of the following items (without
duplication):
(a) The failure of AG or any other member of the AG Group or any other
Person to pay, perform or otherwise promptly discharge any Liability of the AG
Group (including, without limitation, any Excluded Liability) other than the
AG.com Assumed Liabilities in accordance with its terms, whether prior to or
after the Closing Date or the date hereof; and
(b) Any breach by AG or any member of the AG Group of any obligation under this
Agreement or any of the Ancillary Agreements.
(c) Any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, with respect
to all information contained in the Registration Statement or Prospectus
excluding information contained in the Registration Statement or Prospectus
related to the AG.com Business other than related to the AG Business, provided,
AG has been advised of any statement and has had a reasonable amount of time to
review it and has failed to object or comment on it; and
(d) Any Lien (i) listed on Schedule 1.04(a) to have been released on or
prior to the Closing Date, (ii) incurred primarily for the benefit of a business
other than the AG.com Business, or (iii) related to any Excluded Liability.
SECTION 6.04 NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. Promptly following the
earlier of (A) receipt of written notice of the commencement by a third party of
any Action against or otherwise involving any AG Indemnitee or AG.com Indemnitee
(the "Indemnified Party") or (B) receipt of written information from a third
party alleging the existence of a claim against an Indemnified Party, in either
case, with respect to which indemnification may be sought pursuant to this
Agreement (a "Third-Party Claim"), the Indemnified Party shall give the Person
from whom such indemnification is sought (the "Indemnifying Party") prompt
written notice thereof. Failure of the Indemnified Party to give notice as
provided in this Section 6.04 shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent that the Indemnifying
Party is prejudiced by such failure to give notice. Such notice shall describe
the Third-Party Claim in reasonable detail.
(a) Within 30 days after receipt of such notice, the Indemnifying Party
may by giving written notice thereof to the Indemnified Party, (i) elect to
assume the defense of such Third-Party Claim at its sole cost and expense or
(ii) object to the claim of indemnification for such Third-Party Claim setting
forth the grounds therefor. Any objection shall be resolved in accordance with
Section 8.09. If the Indemnifying Party does not within such 30 day period give
the Indemnified Party such notice, the Indemnifying Party shall be deemed to
have objected to its liability for such Third-Party Claim.
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(b) Any defense of a Third-Party Claim as to which the Indemnifying
Party has elected to assume the defense shall be conducted by counsel employed
by the Indemnifying Party and reasonably satisfactory to AG in the case of AG
Indemnitees and AG.com in the case of AG.com Indemnitees. The Indemnified Party
shall have the right to participate in such proceedings and to be represented by
counsel of its own choosing at the Indemnified Party's sole cost and expense;
provided that if the defendants or parties against which relief is sought in any
such claim include both the Indemnifying Party and one or more Indemnified
Parties and, in the reasonable judgment of AG in the case of AG Indemnitees, and
AG.com in the case of AG.com Indemnitees, a conflict of interest between such
Indemnified Parties and such Indemnifying Party exists in respect of such claim,
such Indemnified Parties shall have the right to employ one firm of counsel
selected by AG for AG Indemnitees or AG.com for AG.com Indemnitees and in that
event the reasonable fees and expenses of such separate counsel (but not more
than one separate counsel reasonably satisfactory to the Indemnifying Party)
shall be paid by such Indemnifying Party.
(c) If the Indemnifying Party assumes the defense of a Third-Party
Claim, the Indemnifying Party may settle or compromise the claim without the
prior written consent of the Indemnified Party; provided that without the prior
written consent of AG in the case of AG Indemnitees, and AG.com in the case of
AG.com Indemnitees, the Indemnifying Party may not agree to any such settlement
unless as a condition to such settlement the Indemnified Party receives a
written full release from any and all Liability relating to such Third-Party
Claim and such settlement or compromise does not include any remedy or relief to
be applied to or against the Indemnified Party, other than monetary damages for
which the Indemnifying Party shall be responsible hereunder.
(d) If the Indemnifying Party does not assume the defense of a
Third-Party Claim for which it has acknowledged liability for indemnification
under this Article VI, AG in the case of AG Indemnitees, and AG.com in the case
of AG.com Indemnitees, may pursue the defense of such Third-Party Claim and
choose one firm of counsel in connection therewith. The Indemnifying Party is
required to reimburse AG or AG.com, as the case may be, on a current basis for
its reasonable expenses of investigation, reasonable attorney's fees and
reasonable out-of-pocket expenses incurred by AG in the case of AG Indemnitees,
and AG.com in the case of AG.com Indemnitees in defending against such
Third-Party Claim and the Indemnifying Party shall be bound by the result
obtained with respect thereto, provided that the Indemnifying Party shall not be
liable for any settlement effected without the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld.
(e) The Indemnifying Party shall pay to the Indemnified Party in
immediately available funds the amount for which the Indemnified Party is
entitled to be indemnified (if any) no later than the later of (i) the date on
which the Indemnified Party makes any payment in satisfaction (partial or
otherwise) of the Third-Party Claim or (ii) the date on which such Indemnifying
Party's objection, if any, to its responsibility for indemnification under this
Article VI has been resolved pursuant to Section 8.09 or by settlement or
compromise.
SECTION 6.05 INSURANCE PROCEEDS. The amount that any Indemnifying Party is or
may be required to pay to any Indemnified Party pursuant to this Article VI
shall be reduced (including, without limitation, retroactively) by any insurance
proceeds or other amounts actually recovered
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by or on behalf of such Indemnified Parties in reduction of the related
Liability. If an Indemnified Party shall have received the payment required by
this Agreement from an Indemnifying Party in respect of a Liability and shall
subsequently actually receive insurance proceeds, or other amounts in respect of
such Liability as specified above, then such Indemnified Party shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or other
amounts actually received after deducting therefrom all of the Indemnified
Party's costs and expenses associated with such Liability.
SECTION 6.06 CONTRIBUTION. If the indemnification provided for in this Article
VI is unavailable to an Indemnified Party in respect of any Liability arising
out of or related to information contained in or omitted from the Registration
Statement, then the Indemnifying Party in lieu of indemnifying the Indemnified
Party shall contribute to the amount paid or payable by the Indemnified Party,
as a result of such Liability in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party, on the one hand, and the
Indemnified Party, on the other hand, in connection with the statements or
omissions which resulted in such Liability. The relative fault of the
Indemnifying Party, on the one hand, and of the Indemnified Party, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information concerning the
Indemnifying Party, on the one hand, or the Indemnified Party (without deeming
information related or connected to the Indemnifying Party's business or the
Indemnifying Party and its Subsidiaries as being information concerning the
Indemnified Party), on the other hand.
SECTION 6.07 SUBROGATION. In the event of payment by an Indemnifying Party to
any Indemnified Party in connection with any Third-Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the first place of
such Indemnified Party as to any events or circumstances in respect of which
such Indemnified Party may have any right or claim relating to such Third-Party
Claim. Such Indemnified Party shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
SECTION 6.08 NO THIRD-PARTY BENEFICIARIES. This Article VI shall inure to the
benefit of, and be enforceable by AG, the AG Indemnitees, AG.com and AG.com
Indemnitees and their respective successors and permitted assigns. The
indemnification provided for by this Article VI shall not inure to the benefit
of any other third party or parties and shall not relieve any insurer who would
otherwise be obligated to pay any claim of the responsibility with respect
thereto or, solely by virtue of the indemnification provisions hereof, provide
any subrogation rights with respect thereto and each party agrees to waive such
rights against the other to the fullest extent permitted.
SECTION 6.09 REMEDIES CUMULATIVE. The remedies and procedures set forth in this
Article VI and Section 8.09 shall be the exclusive remedies and procedures
governing any indemnity action brought under this Article VI.
SECTION 6.10 SURVIVAL OF INDEMNITIES. Except as otherwise specified in this
Agreement or the Ancillary Agreements, the rights and obligations of each of AG
and AG.com and their respective
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Indemnitees under this Article VI shall survive the sale or other transfer by it
of any assets or businesses or the assignment by it of any Liabilities.
SECTION 6.11 AFTER-TAX INDEMNIFICATION PAYMENTS. Except as otherwise expressly
provided herein or in an Ancillary Agreement, indemnification payments made by
either party under this Article VI shall give effect to, and be reduced by the
value of, any and all applicable deductions, losses, credits, offsets or other
items for Federal, state or other tax purposes attributable to the payment of
the indemnified liability by the Indemnified Party.
ARTICLE VII.
DEFINITIONS
SECTION 7.01 DEFINED TERMS. Except as otherwise specified or as the context may
otherwise require, the following terms shall have the respective meanings set
forth below whenever used in this Agreement:
(a) "AG" means American Greetings Corporation, an Ohio corporation .
(b) "AG BENEFIT PLAN" means all "employee pension benefit plans" (as
defined in Section 3(2) of ERISA), maintained or contributed to by any member of
the AG Group and all "employee welfare benefit plans" (as defined in Section
3(1) of ERISA), bonus, stock option, stock purchase, deferred compensation plans
or arrangements and other employee fringe benefit plans maintained, or
contributed to, by any member of the AG Group.
(c) "AG BUSINESS" - to be conformed to definition agreed to in Cross
License Agreement.
(d) "AG COMPETITOR" means an entity that on a consolidated basis
derives at least the Threshold Amount of revenue from the AG Business, provided,
however, that if revenue from the AG Business represents less than fifty percent
of the total revenue of the entity on a consolidated basis, then only the
business unit (division or Subsidiary) that is engaged in the AG Business will
be deemed to be an AG Competitor, provided further, however, that in such case
AG.com uses commercially reasonable efforts to obtain appropriate "Chinese wall"
restrictions from the AG Competitor that prevent the business unit that is
deemed to be an AG Competitor from obtaining Intellectual Property licensed by
AG. In determining whether an entity is an "AG Competitor," AG.com will be
entitled to rely on the most recent (at the time of determination) annual
financial statements provided to shareholders of any publicly traded entity and
on any reasonable information source regarding any non-publicly traded entity.
(e) "AG CORPORATE WEB SITE" means AG's principal Web site providing
business and corporate information.
(f) "AG GROUP" shall have the meaning ascribed to it in Section
1.01(a).
(g) "AG INDEMNITEES" shall have the meaning ascribed to it in Section
6.02.
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(h) "AG.COM BUSINESS" - to be conformed to definition agreed to in
Cross License Agreement.
(i) "AG.COM BUSINESS ASSETS" shall have the meaning ascribed to it in
Section 1.01(b).
(j) "AG.COM BALANCE SHEET" means the proforma balance sheet of AG.com,
dated as of May 31, 1999, prepared by AG, and included in the Registration
Statement.
(k) "AG.COM CONTRACTS" shall have the meaning ascribed to it in Section
1.01(b).
(l) "AG.COM EMPLOYEES" shall have the meaning ascribed to it in Section
5.07(a).
(m) "AG.COM INDEMNITEES" shall have the meaning ascribed to it in
Section 6.03.
(n) "AOL CONTRACT" means the agreement __________________, as amended,
supplemented, modified or replaced from time to time.
(o) "ACTIONS" means any claim, suit, arbitration, inquiry, proceeding
or investigation by or before any court, any governmental, regulatory or
administrative authority, agency or commission, any other tribunal or arbitral
body, or any other Governmental Authority.
(p) "ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative
Services Agreement in the form of EXHIBIT E relating to the provision by AG to
AG.com of an enumerated list of services after the Closing.
(q) "AFFILIATES" of any specified Person means any other Person that,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person.
(r) "AGREEMENT" means this Formation Agreement, dated as of June __,
1999, between AG, AGCINV and AG.com, including all Exhibits and Schedules
attached hereto.
(s) "ANCILLARY AGREEMENTS" means the Cross License Agreement, the Web
Services Agreement, the Administrative Services Agreement, the Registration
Rights Agreement, and the Tax and Indemnification Agreement.
(t) "APPLICABLE LAW" means, with respect to any Person, any statute,
law, ordinance, rule or regulation applicable to such Person or its properties
or assets.
(u) "ASSUMED AG.COM LIABILITIES" shall have the meaning ascribed to it
in Section 1.02.
(v) "CLASS A COMMON STOCK" means the Class A Common Stock, par value
$.001 per share, of AG.com.
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(w) "CLASS B COMMON STOCK" means the Class B Common Stock, par value
$.001 per share, of AG.com.
(x) "CLOSING" shall have the meaning ascribed to it in Section 2.01.
(y) "CLOSING DATE" shall have the meaning ascribed to it in Section
2.01.
(z) "CODE" means the Internal Revenue Code of 1986, as amended.
(aa) "COMMISSION" means the Securities and Exchange Commission.
(bb) "CONSENTS" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
(cc) "CROSS LICENSE AGREEMENT" the Cross License Agreement in the form
of EXHIBIT C, attached hereto, relating to Intellectual Property rights
connected with the AG.com Business.
(dd) "EMPLOYEES" shall have the meaning ascribed to it in Sections
5.07(a).
(ee) "END DATE" means the time at which AG's voting (not equity)
interest in AG.com falls below 20%.
(ff) "ELECTRONIC MEDIA" - to be conformed to definition agreed to in
Cross License Agreement.
(gg) "ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
(hh) "ESCALATION NOTICE" shall have the meaning ascribed to it in
Section 8.09.
(ii) "EXCHANGE ACT" means the Securities Exchange Act of 1934.
(jj) "EXCLUDED ASSETS" shall have the meaning ascribed to it in Section
1.01(c).
(kk) "EXCLUDED LIABILITIES" shall have the meaning ascribed to it in
Section 1.02(b).
(ll) "GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign
or international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental authority
or arbitration panel.
(mm) "INDEMNIFIED PARTY" shall have the meaning ascribed to it in
Section 6.04.
(nn) "INDEMNIFYING PARTY" shall have the meaning ascribed to it in
Section 6.04.
(oo) "INITIAL PUBLIC OFFERING" shall have the meaning ascribed to it in
the Recitals.
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(pp) "INTELLECTUAL PROPERTY" means (a) inventions, whether or not
patentable, whether or not reduced to practice or whether or not yet made the
subject of a pending patent application or applications, (b) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (c) national (including the United States) and multinational
statutory invention registrations, patents, patent registrations and patent
applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights therein
provided by multinational treaties or conventions and all improvements to the
inventions disclosed in each such registration, patent or application, (d)
trademarks, service marks, trade dress, logos, trade names and corporate names,
whether or not registered, including all common law rights, and registrations
and applications for registration thereof, including, but not limited to, all
marks registered in the United States Patent and Trademark Office, the Trademark
Offices of the States and Territories of the United States of America, and the
Trademark offices of other jurisdictions throughout the world, and all rights
therein provided by multinational treaties or conventions, (e) copyrights
(registered or otherwise) and registrations and applications for registration
thereof, and all rights therein provided by multinational treaties or
conventions, (f) moral rights (including, without limitation, rights of
paternity and integrity), and waivers of such rights by others, (g) computer
software, including, without limitation, source code, operating systems and
specifications, data, data bases, files, documentation and other materials
related thereto, (h) trade secrets and confidential, technical or business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice), (i) whether or not confidential, technology (including
know-how), manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works (including without limitation art and
verse), financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(j) copies and tangible embodiments of all the foregoing, in whatever form or
medium, (k) all rights to obtain and rights to apply for patents, and to
register trademarks and copyrights, and (l) all rights to sue and recover and
retain damages and costs and attorneys' fees for present and past infringement
of any of the Intellectual Property rights hereinabove set out.
(qq) "INTERCOMPANY DEBT" shall have the meaning ascribed to it in
Section 1.01(a).
(rr) "JOINT CONTRACTS" shall have the meaning ascribed to it in Section
1.03(b).
(ss) "JUDGMENT" shall have the meaning ascribed to it in Section 3.03.
(tt) "LIABILITIES" means any and all Losses, claims, charges, debts,
demands, Actions, causes of Action, suits, damages, obligations, payments, costs
and expenses, accounts, bonds, indemnities and similar obligations, covenants,
contracts, agreements, promises, guarantees and other liabilities, including all
contractual obligations, whether absolute or contingent, matured or not matured,
liquidated or unliquidated, accrued or not accrued, known or unknown, whenever
arising, and including those arising under any law, rule, regulation, Action,
threatened or contemplated Action (including the costs and expenses of demands,
assessments, judgments, settlements and compromises relating thereto and
reasonable attorneys' fees and expenses and any and all costs and expenses
(including allocated reasonable costs of in-house counsel and other personnel),
whatsoever reasonably incurred in investigating, preparing or defending against
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any such Actions or threatened or contemplated Actions), order or consent decree
of any Governmental Authority or any award of any arbitrator or mediator of any
kind, and those arising under any contract, commitment or undertaking, in each
case, whether or not recorded or reflected or required to be recorded or
reflected on the books and records or financial statements of any Person.
(uu) "LIEN" shall have the meaning ascribed to it in Section 1.04(a).
(vv) "LOCK UP AGREEMENT" means the Lock Up Agreement in substance
reasonably satisfactory to AG and executed by AG in connection with the Initial
Public Offering relating to its obligation to hold its shares of AG.com for 180
days.
(ww) "LOSSES" means any loss, liability, claim, damage or expense
(including reasonable attorney's fees and expenses).
(xx) "MEDIATION DEMAND DATE" shall have the meaning ascribed to it in
Section 8.09(c).
(yy) "MEDIATION DEMAND NOTICE" shall have the meaning ascribed to it in
Section 8.09(c).
(zz) "PERSON" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity and any Governmental Authority.
(aaa) "PERMITTED PREMIUMS" means social expression products (physical
or electronic) distributed for a limited period of time as a promotional premium
for no or minimal consideration.
(bbb) "PROSPECTUS" means the prospectus included in the Registration
Statement.
(ccc) "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of EXHIBIT F into which AG and AG.com are entering
relating to the rights AG shall have to cause AG.com to register for resale
shares of Class A Common Stock and Class B Common Stock.
(ddd) "REGISTRATION STATEMENT" means the registration statement on Form
S-1 filed by AG.com with the Commission to effect the registration of the Class
A Common Stock pursuant to the Securities Act of 1933, as such registration
statement may be amended from time to time.
(eee) "REVERSION EVENT" means circumstances in which (after notice and
an opportunity to cure for thirty (30) days in the case of clauses (ii) and
(iii) below), (i) AG.com has less than 10% of its revenues derive from the
AG.com Business; (ii) AG.com defaults in its royalty obligations to AG under the
Ancillary Agreements; (iii) AG.com defaults on any covenant related to an
indebtedness for borrowed money in excess of One Million Dollars ($1,000,000),
or (iv) AG.com's financial condition and its reasonably available sources of
debt or equity capital
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become such that auditors, applying generally accepted auditing standards
consistently applied, would be required to qualify an audit report with a "going
concern" qualification.
(fff) "SEPARATION" shall have the meaning ascribed to it in Section
1.01(a).
(ggg) "SHARES" shall have the meaning ascribed to it in Section
1.01(a).
(hhh) "SOCIAL EXPRESSION PRODUCT" to be conformed to definition agreed
to in Cross License Agreement.
(iii) "SUBSIDIARY" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which is owned directly or indirectly by such first
Person).
(jjj) "TAX AND INDEMNIFICATION AGREEMENT" means the Tax and
Indemnification Agreement in the form of EXHIBIT G, attached hereto, into which
AG and AG.com are entering, relating to their division of tax Liabilities and
provisions regarding indemnification for tax Liabilities.
(kkk) "TAXES" means (i) any tax, governmental fee or other like
assessment or charge of any kind whatsoever (including any tax imposed under
Subtitle A of the Code and any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding tax on amounts paid, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
environmental or windfall profit tax, premium, custom, duty or other tax),
together with any interest, penalty, addition to tax or additional amount due,
imposed by any Taxing Authority, (ii) any liability for the payment of any
amount of the type described in clause (i) above as a result of a party to this
Agreement being a member of an affiliated, consolidated or combined group with
any other corporation at any time on or prior to the date hereof and (iii) any
liability of any person with respect to the payment of any amounts of the type
described in clause (i) or (ii) above as a result of any express or implied
obligation of such person to indemnify any other person.
(lll) "TAXING AUTHORITY" means any Governmental Authority responsible
for the imposition of a Tax.
(mmm) "THIRD PARTY CLAIM" shall have the meaning ascribed to in Section
6.05.
(nnn) THRESHOLD AMOUNT" means an amount equal to $100 million,
increased (or decreased, but not below $100 million) each fiscal year by an
amount proportional to the increase (or decrease) in AG's consolidated net
revenue over the prior fiscal year.
(ooo) "TRANSFER TAXES" shall have the meaning ascribed to in Section
5.04(b).
(ppp) "UNDERWRITING AGREEMENT" means the agreement entered into by
AG.com with the Underwriters.
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(qqq) "UNDERWRITERS" means the underwriters hired by AG.com and AG to
undertake the Initial Public Offering.
(rrr) "WEB SERVICES AGREEMENT" means the Web Services Agreement in the
form of EXHIBIT D, attached hereto, pursuant to which AG.com shall provide AG
with electronic and Internet content delivery related technology development and
implementation services.
SECTION 7.02 USE OF "PRIMARILY". For purposes of this Agreement, the word
"primarily" shall be given its plain meaning and shall in no way be construed to
mean exclusively or merely a majority.
ARTICLE VIII.
GENERAL PROVISIONS
SECTION 8.01 ASSIGNMENT. This Agreement and the rights and obligations hereunder
shall not be assignable or transferable by AG or AG.com without the prior
written consent of the other parties hereto; provided, however, that AG may
assign this Agreement and its rights and obligations hereunder to any entity
controlling, controlled by or under common control with, AG, or to any entity
that acquires AG by purchase of stock or by merger or otherwise, or by acquiring
all or substantially all of AG's assets, provided that any such assignee
succeeds to all of the rights and is subject to all of the obligations of AG
under this Agreement. Any attempted assignment in violation of this Section 8.01
shall be null and void ab initio.
SECTION 8.02 NO THIRD-PARTY BENEFICIARIES. Except as provided in Article VI,
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
SECTION 8.03 NOTICES. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or
sent, postage prepaid, by registered, certified or express mail or reputable
overnight courier service and shall be deemed given when so delivered by hand,
or if mailed, three days after mailing (one business day in the case of express
mail or overnight courier service), as follows:
(i) if to AG.com,
americangreeting.com.inc
One American Road
Cleveland, OH 44144
Attention: President
with a copy to:
Gordon & Glickson LLC
444 N. Michigan Avenue
Chicago, IL 60611
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Attention: Stephen Gold, Esq.
and
(ii) if to AG,
American Greetings Corporation
One American Road
Cleveland, OH 44114
Attention: General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Attention: David W. Sloan, Esq.
SECTION 8.04 INTERPRETATION; EXHIBITS AND SCHEDULES. The headings contained in
this Agreement, in any Exhibit or Schedule hereto and in the table of contents
to this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. All Exhibits and Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein, shall have the
meaning as defined in this Agreement. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated.
SECTION 8.05 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each of the other parties.
SECTION 8.06 ENTIRE AGREEMENT. This Agreement and the Ancillary Agreements,
along with the Schedules and Exhibits thereto, contain the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter. Neither party shall be liable or bound to any other party in any
manner by any representations, warranties or covenants relating to such subject
matter except as specifically set forth herein or in the Ancillary Agreements.
SECTION 8.07 SEVERABILITY. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any Person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the
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remaining portion thereof) or the application of such provision to any other
Persons or circumstances. If such invalidity, illegality or unenforceability
shall occur, the parties hereto agree to incorporate into this Agreement
provisions which shall produce equivalent or similar economic and legal effects,
so that the rights and obligations of the parties may continue to the original
intentions of the parties, to the maximum extent feasible.
SECTION 8.08 AMENDMENTS AND WAIVERS. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto. By an
instrument in writing, a party hereto may waive compliance by another party with
any term or provision of this Agreement that such other party was or is
obligated to comply with or perform for such party that is waiving compliance.
SECTION 8.09 DISPUTE RESOLUTION.
(a) Except as otherwise specifically provided in any Ancillary
Agreement, the procedures for discussion, negotiation and mediation set forth in
this Section 8.09 shall apply to all disputes, controversies or claims (whether
sounding in contract, tort or otherwise) that may arise out of or relate to, or
arise under or in connection with this Agreement or any Ancillary Agreement, or
the transactions contemplated hereby or thereby (including all actions taken in
furtherance of the transactions contemplated hereby or thereby on or prior to
the date hereof), or the commercial or economic relationship of the parties
relating hereto or thereto, between AG and its subsidiaries and AG.com and its
subsidiaries, including any actions to enforce indemnification obligations.
(b) It is the intent of the parties to use their respective reasonable
best efforts to resolve expeditiously and on a mutually acceptable negotiated
basis any dispute, controversy or claim between or among them with respect to
the matters covered hereby that may arise from time to time. In furtherance of
the foregoing, any party involved in a dispute, controversy or claim may deliver
a notice (an "Escalation Notice") demanding an in-person meeting involving
representatives of the parties at a senior level of management of the parties
(or if the parties agree, of the appropriate strategic business unit or division
within such entity). A copy of any such Escalation Notice shall be given, in
accordance with the notice provisions of Section 8.03, to the General Counsel,
or like officer or official, of each party involved in the dispute, controversy
or claim (which copy shall state that it is an Escalation Notice pursuant to
this Agreement). Any agenda, location or procedures for such discussions or
negotiations between the parties may be established by the parties from time to
time; provided, however, that the parties shall use their reasonable best
efforts to meet within 30 days of the Escalation Notice.
(c) At any time after the first to occur of (i) the date of the meeting
actually held pursuant to the applicable Escalation Notice or (ii) 90 days after
the delivery of an Escalation Notice (as applicable, the "Mediation Demand
Date"), any party involved in the dispute, controversy or claim (regardless of
whether such party delivered the Escalation Notice) may make a written demand
(the "Mediation Demand Notice") that the dispute be submitted to mediation. Any
opinion expressed by the mediator shall not be binding on the parties, nor shall
any opinion expressed by the mediator be admissible in any subsequent Action.
The mediator may be chosen from a list of mediators previously selected by the
parties or by other agreement of the parties. If the parties fail to agree upon
such mediator within thirty (30) days after receipt of the Mediation Demand
Notice or if the person chosen shall fail or refuse to act as a mediator,
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then the mediator will be appointed in accordance with the Commercial Mediation
Rules of the American Arbitration Association ("AAA") in effect at the date of
this Agreement. Costs of the mediation shall be borne equally by the parties
involved in the matter, except that each party shall be responsible for its own
attorney's fees and other costs and expenses. The site of the mediation shall be
Cleveland, Ohio, unless otherwise agreed by the parties. No party may assert
that the failure to resolve any matter during any discussions or negotiations,
the course of conduct during the discussions or negotiations or the failure to
agree on a mutually acceptable time, agenda, location or procedures for the
meeting, in each case, as contemplated by Section 8.09(b), is a prerequisite to
a demand for meditation under Section this 8.09(c).
(d) If AG and AG.com fail to resolve the dispute pursuant to mediation
contemplated by Section 8.09(d), any party may submit that dispute to binding
arbitration under the Commercial Arbitration Rules of the AAA. The matter shall
be arbitrated by an arbitrator jointly selected by AG and AG.com and if AG and
AG.com fail to agree upon an arbitrator within ten (10) days after either party
has requested arbitration, the arbitrator shall be appointed pursuant to the
Commercial Arbitration Rules of the AAA in effect at the date of this Agreement.
The arbitration shall be held in Cleveland, Ohio, USA. The parties to the
arbitration shall have the right to conduct discovery. Judgment upon any award
rendered may be entered in any court having jurisdiction or application may be
made to such court for a judicial acceptance of the award or an order of
enforcement, as the case may be. Each of the parties waives for now and forever
any immunity, sovereign or otherwise, that it may have from the jurisdiction of
the court in which an arbitral judgment is sought to be enforced.
(e) During the period of any mediation or arbitration, the parties
agree to continue to perform their respective obligations hereunder to the
extent that the performance of such obligations is not the subject of dispute or
otherwise has not been submitted to arbitration.
(f) Either party may apply to any court having jurisdiction and seek
injunctive relief so as to maintain the status quo until such time as the
mediation or arbitration is concluded or the controversy is otherwise resolved.
(g) Except as required by law, the parties shall hold, and shall cause
their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation and
arbitration in confidence in accordance with the provisions of the Corporate and
Information Sharing Agreement. Each of the parties shall request that any
mediator or arbitrator comply with such confidentiality requirement.
SECTION 8.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Ohio applicable to agreements
made and to be performed entirely within such State, without regard to the
conflicts of law principles of such State.
SECTION 8.11 ASSURANCES OF CERTAIN ACTIONS. AG and AGCINV hereby represent and
covenant to cause each member of the AG Group to take any and all actions and to
do all such other things required by each of them to be taken and done under
this Agreement and the Ancillary Agreements, on the terms and subject to the
conditions hereof and thereof. AG.com hereby represents and covenants to cause
its Subsidiaries to take any and all actions and to do all
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such other things required by each of them to be taken and done under this
Agreement and the Ancillary Agreements, on the terms and subject to the
conditions hereof and thereof.
SECTION 8.12 TERMINATION. This Agreement may be terminated and the Separation,
and/or the Initial Public Offering may be deferred, modified or abandoned at any
time prior to the Closing Date by and in the sole discretion of the Board of
Directors of AG without the approval of AG.com. In the event of such
termination, no party hereto (or any of its respective directors or officers)
shall have any liability to any other party pursuant to this Agreement, any
Ancillary Agreement or otherwise.
[The remainder of this page is left blank intentionally.]
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<PAGE> 40
IN WITNESS WHEREOF, AG, AGCINV and AG.com have caused this Formation
Agreement to be duly executed as of the date first written above.
AMERICAN GREETINGS CORPORATION
By: __________________________________
Name:
Title:
AGC INVESTMENTS, INC.
By: __________________________________
Name:
Title:
AMERICANGREETINGS.COM, INC.
By: __________________________________
Name:
Title:
37
<PAGE> 41
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
AmericanGreetings.com, Inc.
<PAGE> 42
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AMERICANGREETINGS.COM, INC.
AMERICANGREETINGS.COM, INC., a corporation (the "Company") organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
The name of the Company is AmericanGreetings.com, Inc., and the name
under which the Company was originally incorporated is AmericanGreetings.com,
Inc. The date of filing its original Certificate of Incorporation with the
Secretary of State of Delaware was June 28, 1999.
This Amended and Restated Certificate of Incorporation amends and
restates in its entirety the Certificate of Incorporation of the Company as
heretofore amended.
This Amended and Restated Certificate of Incorporation was duly
adopted and declared advisable by written action of the board of directors of
the Company in accordance with Sections 141 and 245 of the General Corporation
Law of the State of Delaware.
This Amended and Restated Certificate of Incorporation was duly
adopted by the stockholders of the Company by means of written action in lieu
of a meeting duly taken in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
The text of the Amended and Restated Certificate of Incorporation
shall read as herein set forth in full:
FIRST. The name of the corporation is AmericanGreetings.com, Inc. (the
"Company").
SECOND. The address of the Company's registered office in the State of
Delaware is 1013 Center Road, Wilmington, Delaware 19805-1297, County of New
Castle. The name of the Company's registered agent at such address is
Corporation Service Company.
THIRD. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended (the "DGCL").
FOURTH. Section 1. AUTHORIZED CAPITAL STOCK. The Company is authorized
to issue three classes of capital stock, designated Class A Common Stock, Class
B Common Stock and Preferred Stock. The total number of shares of capital stock
that the Company is authorized to issue is 360,000,000 shares, consisting of
150,000,000 shares of Class A Common Stock, par value $.001 per share ("Class A
Common Stock"), 60,000,000 shares of Class B Common Stock, par value $.001 per
share ("Class B Common Stock", and together with the Class A Common Stock, the
"Common Stock") and 150,000,000 shares of Preferred Stock, par value $.001 per
share ("Preferred Stock").
Immediately upon the effectiveness of this Amended and Restated
Certificate of Incorporation, each outstanding share of the Corporation's Common
Stock, par value $.001 per share, shall without further action by the Company or
the holder thereof automatically be reclassified, changed and converted into
30,000,000 shares of Class B Common Stock.
Section 2. PREFERRED STOCK. The Preferred Stock may be issued in one or
more series. The Board of Directors of the Company (the "Board") is hereby
authorized to issue the shares of Preferred Stock in such series and to fix from
time to time before issuance the number of shares to be included in any such
series and the designation, powers, preferences, rights and qualifications,
limitations or restrictions of such series. The authority of the Board with
respect to each such series will include, without limiting the generality of the
foregoing, the determination of any or all of the following:
(a) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other
series;
<PAGE> 43
(b) the voting powers, if any, and whether such voting powers
are full or limited in such series;
(c) the redemption provisions, if any, applicable to such
series, including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of such series and the dates and
preferences of dividends on such series;
(e) the rights of such series upon the voluntary or
involuntary dissolution of, or upon any distribution of the assets of,
the Company;
(f) the provisions, if any, pursuant to which the shares of
such series are convertible into, or exchangeable for, shares of any
other class or classes or of any other series of the same or any other
class or classes of stock, or any other security, of the Company or any
other corporation or other entity and the rates or other determinants
of conversion or exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any
securities of the Company or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund for such series;
and
(i) any other relative, participating, optional or other
special powers, preferences or rights and qualifications, limitations
or restrictions thereof;
all as may be determined from time to time by the Board and stated or expressed
in the resolution or resolutions providing for the issuance of such Preferred
Stock (collectively, a "Preferred Stock Designation").
Section 3. VOTING OF COMMON STOCK. Subject to the rights of the holders
of any series of Preferred Stock, the holders of Class A Common Stock will be
entitled to one vote and the holders of Class B Common Stock will be entitled to
ten votes on each matter submitted to a vote at a meeting of stockholders for
each share of such Common Stock held of record by such holder as of the record
date for such meeting.
Section 4. CONVERSION OF CLASS B COMMON STOCK. Subject to and upon
compliance with the following provisions of this Section 4, the Class B Common
Stock shall be convertible at the option of the holders thereof into Class A
Common Stock on the basis of one share of Class A Common Stock for each share of
Class B Common Stock so converted.
(a) Prior to exercising the conversion privilege in respect of
any Class B Common Stock, the holder thereof shall first offer to sell
all, but not less than all, of such Class B Common Stock to the Company
for cash at the last publicly reported sale price for Class A Common
Stock on the last day for which sales are publicly reported before such
offer is received by the Company. Such offer shall be made by a written
communication addressed to the secretary of the Company at its
principal executive office and shall be deemed made to the Company when
delivered to such Secretary or any other officer of the Company. The
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<PAGE> 44
Company may accept such offer by giving notice of acceptance at any
time before 5 o'clock P.M., Cleveland local time, on the business day
immediately following the date of receipt of such offer by the Company.
Such notice of acceptance shall be given by a written communication
personally delivered to such holder of Class B Common Stock or mailed
to such holder at his address as it appears on the records of the
Company or personally delivered or mailed to such representative of
such holder or at such other address or by such other means as may have
been specified in such offer. Such notice of acceptance shall be deemed
received when so delivered or mailed by the Company, but only if the
Company shall have made all reasonable effort to give simultaneous
notice to such holder or his designated representative by telephone or
other reasonably available means of communication if (and then in the
manner and to the place) requested in such offer. Payment for Class B
Common Stock to be purchased by the Company shall be made, against
delivery of the Certificates therefor to the Company, not later than
the fifth business day following receipt of such offer.
(b) If the shares of Class B Common Stock covered by an offer
duly made and received pursuant to paragraph (a) above are not so
accepted for purchase by the Company, the holder thereof shall be free
for a period of 30 days (such period to begin upon the earlier of: (i)
receipt of a notice from the Company indicating that the Company has
rejected such offer; or (ii) the lapse of the period during which the
Company may give notice of its acceptance of such offer) to exercise
the conversion privilege in respect thereof by delivering to any
Transfer Agent of the Class B Common Stock (i) the certificate for the
Class B Common Stock to be converted, (ii) written notice that the
holder elects to convert such shares and stating the name or names
(with address) in which the certificate for the Class A Common Stock is
to be issued and (iii) either a copy of notice given by the Company to
such holder rejecting such offer or an affidavit executed by such
holder to the effect that such offer was duly made and that no response
thereto has been received after the passage of ten business days from
the date such offer was made (or the passage of such shorter period of
time as should have been reasonable in the circumstances (but in no
event (less than two business days) to ensure receipt by such holder or
designated representative of any simultaneous telephonic or other
notice requested by such holder as contemplated by such subparagraph).
Conversion shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein as the
"conversion date." On the conversion date or as promptly thereafter as
practicable the Company shall issue and deliver to the holder of the
Class B Common Stock surrendered for conversion, or on his written
order, a certificate for the number of full shares of Class A Common
Stock issuable upon the conversion of such Class B Common Stock. The
person in whose name the stock certificate is to be issued shall be
deemed to have become a holder of Class A Common Stock of record on the
conversion date. The Company hereby reserves and shall at all times
reserve and keep available, out of its authorized and unissued Class A
Common Stock, for the purpose of effecting the conversion of the Class
B Common Stock, such number of shares of its duly authorized Class A
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Class B Common Stock. Shares of
Class B Common Stock which are converted into Class A Common Stock as
provided in this Section 4 may be reissued as Class B Common Stock.
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<PAGE> 45
(c) CONVERSION BEFORE SALE. The Class B Common Stock may be
transferred only as follows: (i) by bequest or inheritance, by
operation of law upon the death of any individual, or by any other
transfer without valuable consideration, including, without limitation,
a gift that is made in good faith and not for the purpose of
circumventing this paragraph (c), (ii) as a pro rata dividend or
distribution to the stockholders of any corporation, the partners of
any partnership, or the members of any limited liability company, (iii)
to American Greetings Corporation, a wholly-owned subsidiary of
American Greetings Corporation or a successor to all or substantially
all of the business of American Greetings Corporation, or (iv) by sale
upon conversion into Class A Common Stock in accordance with this
Section 4, except that Class B Common Stock may be issued or
transferred by the Company to any person. The mere pledge or other
hypothecation of Class B Common Stock as collateral for a loan shall
not be deemed a transfer for purposes of this paragraph (c) unless it
is accompanied by a transfer of any rights to vote such stock or to
receive dividends or other distributions thereon.
Section 5. VOTING OF CLASS B COMMON STOCK BY CERTAIN 10-PERCENT
HOLDERS.
(a) Notwithstanding anything to the contrary contained in this
Article Fourth, if any person or entity or group of persons or entities
acting in concert other than American Greetings Corporation (and any
wholly-owned subsidiary of American Greetings Corporation or any
successor to all or substantially all of the business of American
Greetings Corporation) beneficially own 10 percent or more of the
outstanding shares of Class B Common Stock, such person, entity or
group shall not, with respect to any such shares of Class B Common
Stock, have any voting powers in any election of directors or be
entitled to exercise any voting rights in any election of directors
unless such person or entity is also the beneficial owner of at least
an equivalent percentage of the outstanding shares of Class A Common
Stock that were acquired at an equitable price.
(b) For purposes off this Section 5, (i) a "beneficial owner"
of Common Stock includes any person or entity or group of persons or
entities who, directly or indirectly, including through any contract,
arrangement, understanding, relationship or otherwise, written or oral,
formal or informal, control the voting power (which includes the power
to vote or to direct the voting) of such Common Stock, and (ii) an
"equitable price" means a price at least equal to the higher of (x) the
highest per share price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the acquiring person for
any Class B Common Stock acquired by that person (or entity or group of
persons or entities) within either 60 days before or 60 days after the
Class A Common Stock was acquired; or (y) the highest closing sale
price per share during the 30-day period immediately before the Class A
Common Stock was acquired of the Class A Common Stock on the Composite
Tape for New York Stock Exchange-Listed Stocks, or, if the Class A
Common Stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Class A Common Stock is not listed on the New York
Stock Exchange, on the principal United States national securities
exchange on which the Class A Common Stock is listed, or, if the Class
A Common Stock is not listed on any United States national securities
exchange, the highest closing bid quotation for a share of Class A
Common Stock during the 30-day period on the Nasdaq Stock Market, or,
if no quotations are available, the fair market value during the 30-day
period of a share of Class A Common Stock as determined
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<PAGE> 46
in good faith by the Board of Directors of the Company. If any of the
consideration given by the person for any shares of Common Stock was
other than cash, the value of such non-cash consideration shall be as
determined in good faith by the Board of Directors of the Company.
(c) An acquisition of Class B Common Stock shall not include
for the purposes of this Section 5 an acquisition
(A) made pursuant to a contract existing prior to
________ __, 1999; or
(B) by bequest or inheritance, by operation of law upon
the death of any individual, or by any other transfer without
valuable consideration, including a gift that is made in good
faith and not for the purpose of circumventing this Section 5.
(d) Unless there are affirmative attributes of concerted
action, acting or agreeing to act in concert with any other person
shall not include for purposes of paragraph (a) of this Section 5
actions taken or agreed to be taken by persons acting in their official
capacities as directors or officers of the Company or actions by
persons related by blood, marriage or adoption.
(e) To the extent that the voting power of any Class B Common
Stock cannot be exercised pursuant to this Section 5, that Class B
Common Stock shall not be included in the determination of the voting
power of the Company for any purpose under this Amended and Restated
Certificate of Incorporation or the DGCL.
FIFTH. The Board may make, amend and repeal the By-Laws of the Company.
Any By-Law made by the Board under the powers conferred hereby may be amended or
repealed by the Board (except as specified in any such By-Law so made or
amended) or by the stockholders in the manner provided in the By-Laws of the
Company. Notwithstanding the foregoing and anything contained in this Amended
and Restated Certificate of Incorporation to the contrary, By-Laws 1, 3, 8, 10,
11, 12, 13 and 44 may not be amended or repealed by the stockholders and no
provision inconsistent therewith may be adopted by the stockholders, without the
affirmative vote of the holders of at least 66-2/3 percent of the voting power
of the outstanding Voting Stock (as defined below), voting together as a single
class. The Company may in its By-Laws confer powers upon the Board in addition
to the foregoing and in addition to the powers and authorities expressly
conferred upon the Board by applicable law. For the purposes of this Amended and
Restated Certificate of Incorporation, "Voting Stock" means stock of the Company
of any class or series entitled to vote in the election of directors of the
Board (the "Directors"). Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 66-2/3 percent of the voting power of the outstanding
Voting Stock, voting together as a single class, is required to amend or repeal,
or to adopt any provisions inconsistent with, this Article Fifth.
SIXTH. Subject to the rights of the holders of any series of Preferred
Stock:
(a) any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual or
special meeting of stockholders of the Company and may not be effected
otherwise by any consent in writing of such stockholders; and
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<PAGE> 47
(b) special meetings of stockholders of the Company may be
called only by (i) the Chairman of the Board (the "Chairman") and (ii)
the Secretary of the Company (the "Secretary") within 10 calendar days
after receipt of the written request of a majority of the total number
of Directors that the Company would have if there were no vacancies
(the "Whole Board").
At any annual meeting or special meeting of stockholders of the Company, only
such business will be conducted or considered as has been brought before such
meeting in the manner provided in the By-Laws of the Company. Notwithstanding
anything contained in this Amended and Restated Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 66-2/3 percent of
the voting power of the outstanding Voting Stock, voting together as a single
class, will be required to amend or repeal, or adopt any provision inconsistent
with, this Article Sixth.
SEVENTH. Section 1. NUMBER, ELECTION AND TERMS OF DIRECTORS. Subject to
the rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, the number of the Directors of the Company will be fixed from time
to time in the manner provided in the By-Laws of the Company. The Directors,
other than those who may be elected by the holders of any series of Preferred
Stock, will be classified with respect to the time for which they severally hold
office into three classes, as nearly equal in number as possible, designated
Class I, class II and Class III. The Directors first appointed to Class I will
hold office for a term expiring at the annual meeting of stockholders to be held
in 2000, the Directors first appointed to Class II will hold office for a term
expiring at the annual meeting of stockholders to be held in 2001, and the
Directors first appointed to Class III will hold office for a term expiring at
the annual meeting of stockholders to be held in 2002, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of the stockholders of the Company, the successors to the class
of Directors whose term expires at that meeting will be elected by plurality
vote of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect additional Directors under circumstances specified in a
Preferred Stock Designation, Directors may be elected by the stockholders only
at an annual meeting of stockholders. Election of Directors of the Company must
be by written ballot.
Section 2. NOMINATION OF DIRECTOR CANDIDATES. Advance notice of
stockholder nominations for the election of Directors must be given in the
manner provided in the By-Laws of the Company.
Section 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, or by a sole remaining Director.
Any Director elected in accordance with the preceding sentence will hold office
for the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor has been elected and qualified.
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<PAGE> 48
No decrease in the number of Directors constituting the Board may shorten the
term of any incumbent Director.
Section 4. REMOVAL. Subject to the rights, if any, of the holders of
any series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office by the stockholders only for cause and only in the manner provided in
this Section 4. At any annual meeting or special meeting of the stockholders,
the notice of which states that the removal of a Director or Directors is among
the purposes of the meeting, the affirmative vote of the holders of at least
66-2/3 percent of the voting power of the outstanding Voting Stock, voting
together as a single class, may remove such Director or Directors for cause.
Section 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained
in this Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 66-2/3 percent of the voting power
of the outstanding Voting Stock, voting together as a single class, is required
to amend or repeal, or adopt any provision inconsistent with, this Article
Seventh. The amendment or repeal of, or the adoption of any provision
inconsistent with, this Article Seventh must be by written ballot.
EIGHTH. A Director shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the Director
derived any improper personal benefit. If the DGCL is amended after the filing
of this Amended and Restated Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a Director shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended. No modification or repeal of the
provisions of this Article Eighth shall adversely affect any right or protection
of any Director existing at the date of such modification or repeal or create
any liability or adversely affect any such right or protection for any acts or
omissions of such director occurring prior to such modification or repeal.
NINTH. Each person who is or was or had agreed to become a Director or
officer of the Company and each such person who is or was serving or who had
agreed to serve at the request of the Board or an officer of the Company as an
employee or agent of the Company or as a director, officer, employee or agent of
another company, partnership, joint venture, trust or other entity, whether for
profit or not for profit (including the heirs, executors, administrators or
estate of such person), will be indemnified by the Company to the full extent
permitted by the DGCL or any other applicable law as currently or hereafter in
effect. The right of indemnification provided in this Article Ninth will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, including without limitation pursuant to any contract
approved by a majority of the Whole Board (whether or not the Directors
approving such contract are or are to be parties to such contract or similar
contracts). Without limiting the generality or the effect of the foregoing, the
Company may adopt By-Laws, or enter into one or more agreements with any person,
which provide for indemnification greater or different than that provided in
this Article Ninth or the DGCL. Any amendment or repeal of, or adoption of any
provision inconsistent with, this Article Ninth will not adversely affect any
right or protection existing hereunder, or arising out
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<PAGE> 49
of facts occurring, prior to such amendment, repeal or adoption and no such
amendment, repeal or adoption will affect the legality, validity or
enforceability of any contract entered into or right granted prior to the
effective date of such amendment, repeal or adoption.
TENTH. Section 1. CORPORATE OPPORTUNITIES. As the Company recently
ceased to be a wholly owned subsidiary of American Greetings Corporation, but
American Greetings Corporation remains a substantial stockholder of the Company,
and in anticipation that the Company and American Greetings Corporation may
engage in the same or similar activities or lines of business and have an
interest in the same areas of corporate opportunities, and in recognition of the
benefits to be derived by the Company through its continued contractual,
corporate and business relations with American Greetings Corporation (including
possible service of officers and directors American Greetings Corporation as
officers and directors of the Company), the provisions of this Article are set
forth (without limiting the generality of Article Eighth) to regulate and define
the conduct of certain affairs of the Company as they may involve American
Greetings Corporation and its officers and directors, and the powers, rights,
duties and liabilities of the Company and its officers, directors and
stockholders in connection therewith.
Section 2. NO DUTY TO REFRAIN. American Greetings Corporation shall
have no duty to refrain from engaging in the same or similar activities or lines
of business as the Company, and neither American Greetings Corporation nor any
officer or director thereof (except as provided in Section 3 below) shall be
liable to the Company or its stockholders for the breach of any fiduciary duty
by reason of any such activities of American Greetings Corporation. In the event
that American Greetings Corporation acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both American
Greetings Corporation and the Company, American Greetings Corporation shall have
no duty to communicate or offer such corporate opportunity to the Company and
shall not be liable to the Company or its stockholders for breach of any
fiduciary duty as a stockholder of the Company by reason of the fact that
American Greetings Corporation pursues or acquires such corporate opportunity
for itself, directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to the Company.
Section 3. OFFERS TO PERSONS SERVING BOTH CORPORATIONS. In the event
that a director or officer of the Company who is also a director or officer of
American Greetings Corporation acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both the Company and American
Greetings Corporation, such director or officer of the Company shall have fully
satisfied and fulfilled the fiduciary duty of such director or officer to the
Company and its stockholders with respect to such corporate opportunity, if such
director or officer acts in a manner consistent with the following policy: (i) a
corporate opportunity offered to any person who is an officer of the Company,
and who is also a director but not an officer of American Greetings Corporation,
shall belong to the Company; (ii) a corporate opportunity offered to any person
who is a director but not an officer of the Company, and who is also a director
or officer of American Greetings Corporation shall belong to the Company if such
opportunity is expressly offered to such person in writing solely in his or her
capacity as a director of the Company, and otherwise shall belong to American
Greetings Corporation; and (iii) a corporate opportunity offered to any person
who is an officer of both the Company and American Greetings Corporation shall
belong to the Company if such opportunity is expressly offered to such person in
writing solely in his or her
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<PAGE> 50
capacity as an officer of the Company, and otherwise shall belong to American
Greetings Corporation.
Section 4. HOLDERS ON NOTICE. Any person purchasing or otherwise
acquiring any interest in shares of the capital stock of the Company shall be
deemed to have notice of and to have consented to the provisions of this
Article.
Section 5. DEFINITIONS. For purposes of this Article only:
(a) A director of the Company who is Chairman of the Board of
Directors or of a committee thereof shall not be deemed to be an
officer of the Company by reason of holding such position (without
regard to whether such position is deemed an office of the Company
under the By-laws of the Company), unless such person is a full-time
employee of the Company; and
(b) (i) The term "Company" shall mean the Company and all
companies, partnerships, joint ventures, associations and other
entities in which the Company beneficially owns (directly or
indirectly) 50 percent or more of the outstanding voting stock, voting
power, partnership interests or similar voting interests, and (ii) the
term "American Greetings," for the purpose of this Article only, shall
mean American Greetings and all companies, partnerships, joint
ventures, associations and other entities (other than the Company,
defined in accordance with clause (i) of this Section 5(b)) in which
American Greetings beneficially owns (directly or indirectly) 50
percent or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests.
Section 6. SUNSET. Notwithstanding anything in this Certificate of
Incorporation to the contrary, (i) the foregoing provisions of this Article
shall expire on the date that American Greetings Corporation ceases to
beneficially own Common Stock representing at least 20 percent of the
outstanding shares of Common Stock and no person who is a director or officer of
the Company is also a director or officer of American Greetings Corporation; and
(ii) in addition to any vote of the stockholders required by this Certificate of
Incorporation, until the time that American Greetings Corporation ceases to
beneficially own Common Stock representing at least 20 percent of the
outstanding shares of Common Stock, the affirmative vote of the holders of more
than 80 percent of the outstanding shares of Common Stock, voting as a single
class, shall be required to alter, amend or repeal in a manner adverse to the
interests of American Greetings Corporation, or adopt any provision adverse to
the interests of American Greetings Corporation and inconsistent with, any
provision of this Article. Neither the alteration, amendment or repeal of this
Article nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article, would accrue or arise, prior to such
alteration, amendment, repeal or adoption.
IN WITNESS WHEREOF, AmericanGreetings.com, Inc. has caused this
Certificate to be duly executed by its President and Chief Executive Officer and
attested to by its Secretary this_______________________.
AMERICANGREETINGS.COM, INC.
BY
-------------------------------------
President and Chief Executive Officer
ATTEST:
- --------------------------
Secretary
10
<PAGE> 51
Exhibit A
AMENDED AND RESTATED
BY-LAWS
OF
AmericanGreetings.com, Inc.
AS ADOPTED AND IN
EFFECT ON ___________, 1999
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<S> <C>
STOCKHOLDERS' MEETINGS.......................................................................................1
1. Time and Place of Meetings.................................................................1
2. Annual Meeting.............................................................................1
3. Special Meetings...........................................................................1
4. Notice of Meetings.........................................................................1
5. Inspectors.................................................................................2
6. Quorum.....................................................................................2
7. Voting.....................................................................................2
8. Order of Business..........................................................................3
9. Notice of Stockholder Proposals of Business................................................3
10. Definitions; Exchange Act Compliance.......................................................4
DIRECTORS....................................................................................................4
11. Function...................................................................................4
12. Number, Election and Terms.................................................................4
13. Vacancies and Newly Created Directorships..................................................4
14. Removal....................................................................................5
15. Notice of Stockholder Nominations of Directors.............................................5
16. Resignation................................................................................6
17. Regular Meetings...........................................................................6
18. Special Meetings...........................................................................7
19. Quorum.....................................................................................7
20. Participation in Meetings by Telephone Conference..........................................7
21. Committees.................................................................................7
22. Compensation...............................................................................8
23. Rules......................................................................................8
NOTICES......................................................................................................8
24. Generally..................................................................................8
25. Waivers....................................................................................8
OFFICERS.....................................................................................................9
26. Generally..................................................................................9
27. Compensation...............................................................................9
28. Succession.................................................................................9
29. Chairman of the Board......................................................................9
30. Chief Executive Officer...................................................................10
31. The President.............................................................................10
32. Vice Presidents...........................................................................10
33. The Chief Financial Officer...............................................................10
34. The Secretary and Assistant Secretaries...................................................11
35. The Treasurer and Assistant Treasurers....................................................11
STOCK.......................................................................................................11
36. Certificates..............................................................................11
</TABLE>
i
<PAGE> 53
<TABLE>
<S> <C>
37. Classes of Stock..........................................................................12
38. Lost, Stolen or Destroyed Certificates....................................................12
39. Record Dates..............................................................................12
INDEMNIFICATION.............................................................................................13
40. Damages and Expenses......................................................................13
41. Insurance, Contracts and Funding..........................................................13
GENERAL.....................................................................................................13
42. Seal......................................................................................14
43. Fiscal Year...............................................................................14
44. Reliance Upon Books, Reports and Records..................................................14
45. Time Periods..............................................................................14
46. Amendments................................................................................14
47. Certain Defined Terms.....................................................................14
</TABLE>
ii
<PAGE> 54
STOCKHOLDERS' MEETINGS
----------------------
1. TIME AND PLACE OF MEETINGS.
---------------------------
All meetings of the stockholders for the election of the members of the Board
of Directors of the Company (the "Directors") or for any other purpose will be
held at such time and place, within or without the State of Delaware, as may be
designated by the Board of Directors of the Company (the "Board") or, in the
absence of a designation by the Board, the Chairman of the Board (the
"Chairman"), the Chief Executive Officer, the President or the Secretary, and
stated in the notice of meeting. The Board may postpone and reschedule any
previously scheduled annual or special meeting of the stockholders.
2. ANNUAL MEETING.
---------------
An annual meeting of the stockholders will be held at such date and time as
may be designated from time to time by the Board, at which meeting the
stockholders will elect by a plurality vote the Directors to succeed those
Directors whose terms expire at such meeting and will transact such other
business as may properly be brought before the meeting in accordance with By-Law
8.
3. SPECIAL MEETINGS.
-----------------
Special meetings of the stockholders may be called only (i) by the Chairman or
(ii) by the Secretary within 10 calendar days after receipt of the written
request of a majority of the total number of Directors that the Company would
have if there were no vacancies (the "Whole Board"). Any such request by a
majority of the Whole Board must be sent to the Chairman and the Secretary and
must state the purpose or purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock, $.001 par value, of the Company (the
"Preferred Stock"), if any, may be called in the manner and for the purposes
provided in the applicable Preferred Stock Designation (as defined in the
Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation")).
4. NOTICE OF MEETINGS.
-------------------
Written notice of every meeting of the stockholders, stating the place, date
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, will be given not less than 10 nor
more than 60 calendar days before the date of the meeting to each stockholder of
record entitled to vote at such meeting, except as otherwise provided herein or
by law. When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are
<PAGE> 55
announced at the meeting at which the adjournment is taken; PROVIDED, HOWEVER,
that if the adjournment is for more than 30 calendar days, or if after the
adjournment a new record date is fixed for the adjourned meeting, written notice
of the place, date and time of the adjourned meeting must be given in conformity
herewith. At any adjourned meeting, any business may be transacted which
properly could have been transacted at the original meeting.
5. INSPECTORS.
-----------
The Board may appoint one or more inspectors of election to act as judges of
the voting and to determine those entitled to vote at any meeting of the
stockholders, or any adjournment thereof, in advance of such meeting. The Board
may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer of the meeting may appoint one or
more substitute inspectors.
6. QUORUM.
-------
Except as otherwise provided by law or in a Preferred Stock Designation, the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, will constitute a quorum at
all meetings of the stockholders for the transaction of business thereat. If,
however, such quorum is not present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, will have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented.
7. VOTING.
-------
Except as otherwise provided by law, by the Certificate of Incorporation or in
a Preferred Stock Designation, each stockholder will be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Company on
the record date for the meeting and such votes may be cast either in person or
by proxy. Every proxy must be appointed by a writing duly executed and filed
with the Secretary or may be appointed in such other name as may be permitted by
the Delaware General Corporation Law. A stockholder may revoke any proxy that is
not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary. The vote upon any question brought before a
meeting of the stockholders may be by voice vote, unless otherwise required by
the Certificate of Incorporation or these By-Laws or unless the Chairman or the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at such meeting otherwise
determine. Every vote taken by written ballot will be counted by the inspectors
of election. When a quorum is present at any meeting, the affirmative vote of
the holders of a majority of voting power of the stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
and which has actually been voted will be the act of the stockholders, except in
the election of Directors or as
2
<PAGE> 56
otherwise provided in these By-Laws, the Certificate of Incorporation, a
Preferred Stock Designation or by law.
8. ORDER OF BUSINESS.
------------------
(a) The Chairman, or such other officer of the Company designated by a
majority of the Whole Board, will call meetings of the stockholders to order and
will act as presiding officer thereof. Unless otherwise determined by the Board
prior to the meeting, the presiding officer of the meeting of the stockholders
will also determine the order of business and have the authority in his or her
sole discretion to regulate the conduct of any such meeting, including without
limitation by (i) imposing restrictions on the persons (other than stockholders
of the Company or their duly appointed proxies) who may attend any such
stockholders' meeting, (ii) ascertaining whether any stockholder or his proxy
may be excluded from any meeting of the stockholders based upon any
determination by the presiding officer, in his sole discretion, that any such
person has unduly disrupted or is likely to disrupt the proceedings thereat, and
(iii) determining the circumstances in which any person may make a statement or
ask questions at any meeting of the stockholders.
9. NOTICE OF STOCKHOLDER PROPOSALS OF BUSINESS.
--------------------------------------------
(a) No business may be transacted at an annual meeting of stockholders, other
than business that is either (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board (or any duly
authorized committee thereof), (ii) otherwise properly brought before the annual
meeting by or at the direction of the Board (or any duly authorized committee
thereof), or (iii) otherwise properly brought before the annual meeting by any
stockholder of the Company (A) who is a stockholder of record on the date of the
giving of the notice provided for in this By-Law and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (B)
who complies with the notice procedures set forth in this By-Law. In addition to
any other applicable requirements, for business to be properly brought before an
annual meeting by a stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Company. To be timely, a
stockholder's notice to the Secretary must be delivered to or mailed and
received at the principal executive offices of the Company not less than 60 nor
more than 90 calendar days prior to the date on which the Company first mailed
its proxy materials for the prior year's annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 calendar days before or after the anniversary of the
prior year's annual meeting, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth calendar
day following the day on which public disclosure of the date of the annual
meeting was made. In no event will the public disclosure of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. For purposes of the foregoing, the date on which the
Company first mailed its proxy materials to stockholders will be the Date so
described in such proxy materials.
3
<PAGE> 57
(b) To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business, and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
(c) If the chairman of an annual meeting determines that business was
not properly brought before the annual meeting in accordance with the foregoing
procedures, the chairman will declare to the meeting that the business was not
properly brought before the meeting and such business will not be transacted.
10. DEFINITIONS; EXCHANGE ACT COMPLIANCE.
-------------------------------------
For purposes of By-Laws 8, 9 and 15, "public disclosure" means disclosure in a
press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 (the "Exchange Act"). Notwithstanding the foregoing provisions of By-Laws 8
and 9, a stockholder must comply with all applicable requirements of the
Exchange Act with respect to the matters set forth in those By-Laws. Nothing in
By-Laws 8 and 9 will be deemed to affect any rights of stockholders to request
inclusion of proposals in the Company's proxy materials in accordance with Rule
14a-8 under the Exchange Act.
DIRECTORS
---------
11. FUNCTION.
---------
The business and affairs of the Company will be managed under the direction of
its Board.
12. NUMBER, ELECTION AND TERMS.
---------------------------
Subject to the rights, if any, of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, the authorized number of Directors may be determined from time to
time only by a vote of a majority of the Whole Board. The Directors, other than
those who may be elected by the holders of any series of the Preferred Stock,
will be divided into three classes in accordance with the Certificate of
Incorporation.
13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
------------------------------------------
4
<PAGE> 58
Subject to the rights, if any, of the holders of any series of Preferred Stock
to elect additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, or by a sole remaining Director.
Any Director elected in accordance with the preceding sentence will hold office
for the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor is elected and qualified. No decrease in the number of Directors
constituting the Board will shorten the term of an incumbent Director.
14. REMOVAL.
--------
Subject to the rights, if any, of the holders of any series of Preferred Stock
to elect additional Directors under circumstances specified in a Preferred Stock
Designation, any Director may be removed from office by the stockholders only
for cause and only in the manner provided in the Certificate of Incorporation
and, if applicable, any amendment to this By-Law 14.
15. NOTICE OF STOCKHOLDER NOMINATIONS OF DIRECTORS.
-----------------------------------------------
(a) Subject to the rights, if any, of the holders of any series of Preferred
Stock to elect additional Directors under circumstances specified in a Preferred
Stock Designation, only persons who are nominated in accordance with the
following procedures will be eligible for election as Directors of the Company.
Nominations of persons for election to the Board may be made at any annual
meeting of stockholders (i) by or at the direction of the Board (or any duly
authorized Committee thereof) or (ii) by any stockholder of the Company (A) who
is a stockholder of record on the date of the giving of the notice provided for
in this By-Law and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (B) who complies with the notice
procedures set forth in this By-Law. In addition to any other applicable
requirements, for a nomination to be made by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company. To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 nor more than 90 calendar days prior to the date on
which the Company first mailed its proxy materials for the prior year's annual
meeting of stockholders; provided, however, that in the event that the annual
meeting is called for a date that is not within 30 calendar days before or after
the anniversary of the prior year's annual meeting, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the tenth calendar day following the day on which public disclosure of the date
of the annual meeting was made. In no event will the public disclosure of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. For purposes of the foregoing, the date
on which the Company first mailed its proxy materials to stockholders will the
Date so described in such proxy materials.
5
<PAGE> 59
(b) To be in proper written form, a stockholder's notice to the
Secretary must set forth (i) as to each person whom the stockholder proposes to
nominate for election as a director (A) the name, age, business address and
residence address of the person, (B) the principal occupation or employment of
the person, (C) the class or series and number of shares of capital stock of the
Company which are owned beneficially or of record by the person, and (D) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act, and the rules and regulations promulgated thereunder, and (ii) as
to the stockholder giving the notice (A) the name and record address of such
stockholder, (B) the class or series and number of shares of capital stock of
the Company which are owned beneficially or of record by such stockholder, (C) a
description of all arrangements or understandings between or among such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (D) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice,
and (E) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to the Exchange Act. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
(c) If the chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the chairman will declare to
the meeting that the nomination was defective and such defective nomination will
be disregarded.
(d) Notwithstanding anything in this By-Law to the contrary, in the
event that the number of Directors to be elected to the Board is increased and
there is no public disclosure by the Company naming all of the nominees for
Director or specifying the size of the increased Board at least 70 calendar days
prior to the date on which the Company first mailed its proxy materials for the
preceding year's annual meeting of stockholders, a stockholder's notice required
by this By-Law 15 will also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it is delivered to
the Secretary at the principal executive offices of the Company not later than
the close of business on the tenth day following the day on which such public
disclosure is first made by the Company.
16. RESIGNATION.
------------
Any Director may resign at any time by giving written notice of his or her
resignation to the Chairman or the Secretary. Any resignation will be effective
upon actual receipt by any such person or, if later, as of the date and time
specified in such written notice.
17. REGULAR MEETINGS.
-----------------
Regular meetings of the Board may be held immediately after the annual meeting
of the stockholders and at such other time and place either within or without
the State of Delaware as
6
<PAGE> 60
may from time to time be determined by the Board. Notice of regular meetings of
the Board need not be given.
18. SPECIAL MEETINGS.
-----------------
Special meetings of the Board may be called by the Chairman or the President
on one day's notice to each Director by whom such notice is not waived, given
either personally or by mail, telephone, telegram, telex, facsimile or similar
medium of communication, and will be called by the Chairman or the President, in
like manner and on like notice, on the written request of a majority of the
Whole Board. Special meetings of the Board may be held at such time and place
either within or without the State of Delaware as is determined by the Board or
specified in the notice of any such meeting.
19. QUORUM.
-------
At all meetings of the Board, a majority of the total number of Directors then
in office will constitute a quorum for the transaction of business. Except for
actions required by these By-Laws or the Certificate of Incorporation to be
taken by a majority of the Whole Board, the act of a majority of the Directors
present at any meeting at which there is a quorum will be the act of the Board.
If a quorum is not present at any meeting of the Board, the Directors present
thereat may adjourn the meeting from time to time to another place, time or
date, without notice other than announcement at the meeting, until a quorum is
present.
20. PARTICIPATION IN MEETINGS BY TELEPHONE CONFERENCE.
--------------------------------------------------
Members of the Board or any committee designated by the Board may participate
in a meeting of the Board or any such committee, as the case may be, by means of
telephone conference or similar means by which all persons participating in the
meeting can hear each other, and such participation in a meeting will constitute
presence in person at the meeting.
21. COMMITTEES.
-----------
(a) The Board may designate one or more committees. Each such committee will
consist of one or more Directors and will have such lawfully delegable powers
and duties as the Board may confer ; PROVIDED, HOWEVER, that no committee shall
exercise any power or duty expressly required by the General Corporation Law of
the State of Delaware, as it may be amended from time to time, to be acted upon
by the Board. Any such committee designated by the Board will have such name as
may be determined from time to time by resolution adopted by the Board.
(b) The members of each committee of the Board will serve in such
capacity at the pleasure of the Board or as may be specified in any resolution
from time to time adopted by the Board. The Board may designate one or more
Directors as alternate members of any such committee, who may replace any absent
or disqualified member at any meeting of such committee. In lieu of such
designation by the Board, in the absence or disqualification of any
7
<PAGE> 61
member of a committee of the Board, the members thereof present at any such
meeting of such committee and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in the place of any such absent or disqualified member.
(c) Unless otherwise prescribed by the Board, a majority of the members
of any committee of the Board will constitute a quorum for the transaction of
business, and the act of a majority of the members present at a meeting at which
there is a quorum will be the act of such committee. Each committee of the Board
may prescribe its own rules for calling and holding meetings and its method of
procedure, subject to any rules prescribed by the Board, and will keep a written
record of all actions taken by it.
22. COMPENSATION.
-------------
The Board may establish the compensation for, and reimbursement of the
expenses of, Directors for membership on the Board and on committees of the
Board, attendance at meetings of the Board or committees of the Board, and for
other services by Directors to the Company or any of its majority-owned
subsidiaries.
23. RULES.
------
The Board may adopt rules and regulations for the conduct of meetings and the
oversight of the management of the affairs of the Company.
NOTICES
-------
24. GENERALLY.
----------
Except as otherwise provided by law, these By-Laws or the Certificate of
Incorporation, whenever by law or under the provisions of the Certificate of
Incorporation or these By-Laws notice is required to be given to any Director or
stockholder, it will not be construed to require personal notice, but such
notice may be given in writing, by mail, addressed to such Director or
stockholder, at the address of such Director or stockholder as it appears on the
records of the Company, with postage thereon prepaid, and such notice will be
deemed to be given at the time when the same is deposited in the United States
mail. Notice to Directors may also be given by telephone, telegram, telex,
facsimile or similar medium of communication or as otherwise may be permitted by
these By-Laws.
25. WAIVERS.
--------
Whenever any notice is required to be given by law or under the provisions of
the Certificate of Incorporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time of the event for which notice is to be
8
<PAGE> 62
given, will be deemed equivalent to such notice. Attendance of a person at a
meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
OFFICERS
--------
26. GENERALLY.
----------
The officers of the Company will be elected by the Board and will consist of a
Chairman (who, unless the Board specifies otherwise, will also be the Chief
Executive Officer), a Chief Executive Officer, a President, a Chief Financial
Officer, a Secretary and a Treasurer. The Board of Directors may also choose any
or all of the following: one or more Vice Chairmen, one or more Assistants to
the Chairman, one or more Vice Presidents (who may be given particular
designations with respect to authority, function or seniority), one or more
Assistant Secretaries, one or more assistant Treasurers and such other officers
as the Board may from time to time determine. Notwithstanding the foregoing, by
specific action the Board may authorize the Chairman to appoint any person to
any office other than Chairman, Chief Executive Officer, President, Chief
Financial Officer, Secretary or Treasurer. Any number of offices may be held by
the same person. Any of the offices may be left vacant from time to time as the
Board may determine. In the case of the absence or disability of any officer of
the Company or for any other reason deemed sufficient by a majority of the
Board, the Board may delegate the absent or disabled officer's powers or duties
to any other officer or to any Director.
27. COMPENSATION.
-------------
The compensation of all officers and agents of the Company who are also
Directors of the Company will be fixed by the Board or by a committee of the
Board. The Board may fix, or delegate the power to fix, the compensation of
other officers and agents of the Company to an officer of the Company.
28. SUCCESSION.
-----------
The officers of the Company will hold office until their successors are
elected and qualified. Any officer may be removed at any time by the affirmative
vote of a majority of the Whole Board. Any vacancy occurring in any office of
the Company may be filled by the Board or by the Chairman as provided in By-Law
26.
29. CHAIRMAN OF THE BOARD.
----------------------
The Chairman shall preside at all meetings of the stockholders and of the
Board and shall have such other powers and perform such other duties as may be
prescribed to him or her by the Board or provided in these By-laws.
9
<PAGE> 63
30. CHIEF EXECUTIVE OFFICER.
------------------------
The Chief Executive Officer shall have the powers and perform the duties
incident to that position. Subject to the powers of the Board and the Chairman,
the Chief Executive Officer shall be in the general and active charge of the
entire business and affairs of the Company, and shall be its chief policy making
officer. The Chief Executive Officer shall have such other powers and perform
such other duties as may be prescribed by the Board or provided in these
By-laws. The Chief Executive Officer is authorized to execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Company, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board to some other officer or agent of the Company. Whenever the President
is unable to serve, by reason of sickness, absence or otherwise, the Chief
Executive Officer shall perform all the duties and responsibilities and exercise
all the powers of the President.
31. THE PRESIDENT.
--------------
The President of the Company shall, subject to the powers of the Board, the
Chairman and the Chief Executive Officer, have general charge of the business,
affairs and property of the Company, and control over its officers, agents and
employees. The President shall see that all orders and resolutions of the Board
are carried into effect. The President is authorized to execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Company, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board to some other officer or agent of the Company. The President shall
have such other powers and perform such other duties as may be prescribed by the
Chairman, the Chief Executive Officer, the Board or as may be provided in these
By-laws.
32. VICE PRESIDENTS.
----------------
The Vice President, or if there shall be more than one, the Vice Presidents in
the order determined by the Board or the Chairman, shall, in the absence or
disability of the President, act with all of the powers and be subject to all
the restrictions of the President. The Vice Presidents shall also perform such
other duties and have such other powers as the Board, the Chairman, the Chief
Executive Officer, the President or these By-laws may, from time to time,
prescribe. The Vice Presidents may also be designated as Executive Vice
Presidents, Senior Vice Presidents or Regional Vice Presidents, as the Board may
from time to time prescribe.
33. THE CHIEF FINANCIAL OFFICER.
----------------------------
The Chief Financial Officer shall have the custody of the corporate funds and
securities; shall keep full and accurate all books and accounts of the Company
as shall be necessary or desirable in accordance with applicable law or
generally accepted accounting principles; shall deposit all monies and other
valuable effects in the name and to the credit of the Company as may be ordered
by the Chairman or the Board; shall cause the funds of the Company to be
disbursed
10
<PAGE> 64
when such disbursements have been duly authorized, taking proper vouchers for
such disbursements; and shall render to the Board, at its regular meeting or
when the Board so requires, an account of the Company; shall have such powers
and perform such duties as the Board, the Chairman, the Chief Executive Officer,
the President or these By-laws may, from time to time, prescribe.
34. THE SECRETARY AND ASSISTANT SECRETARIES.
----------------------------------------
The Secretary shall attend all meetings of the Board, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose or
shall ensure that his or her designee attends each such meeting to act in such
capacity. Under the Chairman's supervision, the Secretary shall give, or cause
to be given, all notices required to be given by these By-laws or by law; shall
have such powers and perform such duties as the Board, the Chairman, the Chief
Executive Officer, the President or these By-laws may, from time to time,
prescribe; and shall have custody of the corporate seal of the Company. The
Secretary, or an assistant secretary, shall have authority to affix the
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such assistant
secretary. The Board may give general authority to any other officer to affix
the seal of the Company and to attest the affixing by his or her signature. The
Assistant Secretary, or if there be more than one, any of the Assistant
Secretaries, shall in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board, the Chairman, the Chief
Executive Officer, the President, or Secretary may, from time to time,
prescribe.
35. THE TREASURER AND ASSISTANT TREASURERS.
---------------------------------------
The Treasurer shall perform such duties and exercise such powers as may be
assigned by the Chief Financial Officer. In the absence or disability of the
Chief Financial Officer, the Treasurer shall perform the duties and exercise the
powers of the Chief Financial Officer until such time as the Chief Financial
Officer is no longer absent or disabled or a new Chief Financial Officer is
appointed. The Assistant Treasurer, or if there be more than one, any of the
Assistant Treasurers, shall in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board, the Chairman, the
Chief Executive Officer, the President, or Treasurer may, from time to time,
prescribe.
STOCK
-----
36. CERTIFICATES.
-------------
Certificates representing shares of stock of the Company will be in such form
as is determined by the Board, subject to applicable legal requirements. Each
such certificate will be numbered and its issuance recorded in the books of the
Company, and such certificate will exhibit the holder's name and the number of
shares and will be signed by, or in the name of, the Company by the Chairman or
the President and the Secretary or an Assistant Secretary, or the Treasurer or
an Assistant Treasurer, and will also be signed by, or bear the facsimile
signature of, a duly authorized officer or agent of any properly designated
transfer agent of the Company. Any or all of the signatures and the seal of the
Company, if any, upon such certificates may be facsimiles, engraved or printed.
Such certificates may be issued and delivered notwithstanding that the person
whose facsimile signature appears thereon may have ceased to be such officer at
the time the certificates are issued and delivered.
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<PAGE> 65
37. CLASSES OF STOCK.
-----------------
The designations, powers, preferences and rights of the various classes of
stock or series thereof, and the qualifications, limitations or restrictions
thereof, will be set forth in full or summarized on the face or back of the
certificates which the Company issues to represent its stock or, in lieu
thereof, such certificates will set forth the office of the Company from which
the holders of certificates may obtain a copy of such information.
38. LOST, STOLEN OR DESTROYED CERTIFICATES.
---------------------------------------
The Secretary may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Company
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact, satisfactory to the Secretary, by the person claiming the
certificate of stock to be lost, stolen or destroyed. As a condition precedent
to the issuance of a new certificate or certificates, the Secretary may require
the owners of such lost, stolen or destroyed certificate or certificates to give
the Company a bond in such sum and with such surety or sureties as the Secretary
may direct as indemnity against any claims that may be made against the Company
with respect to the certificate alleged to have been lost, stolen or destroyed
or the issuance of the new certificate.
39. RECORD DATES.
-------------
(a) In order that the Company may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board may fix a record date, which will not be more than 60 nor less than 10
calendar days before the date of such meeting. If no record date is fixed by the
Board, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders will be at the close of business on the
calendar day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the calendar day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of the stockholders will apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
(b) In order that the Company may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date will not be more than
60 calendar days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose will be at the close of
business on the calendar day on which the Board adopts the resolution relating
thereto.
(c) The Company will be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and will
not be bound to recognize any
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<PAGE> 66
equitable or other claim to, or interest in, such share on the part of any other
person, whether or not the Company has notice thereof, except as expressly
provided by applicable law.
INDEMNIFICATION
---------------
40. DAMAGES AND EXPENSES.
---------------------
(a) Without limiting the generality or effect of Article Ninth of the
Certificate of Incorporation, the Company will to the fullest extent permitted
by applicable law as then in effect indemnify any person (an "Indemnitee") who
is or was involved in any manner (including without limitation as a party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without limitation any
action, suit or proceeding by or in the right of the Company to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
is or was or had agreed to become a Director or officer of the Company, or is or
was serving at the request of the Board or an officer of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other entity, whether for profit or not for profit, or
anything done or not done by such person in any such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such Proceeding. Such indemnification will (i) be a contract right, (ii) include
the right to receive payment in advance of any expenses incurred by an
Indemnitee in connection with a Proceeding, consistent with the provisions of
applicable law as then in effect, and (iii) inure to the benefit of the estate,
heirs, executors and administrators of any Indemnitee who is or shall become
deceased.
(b) The right of indemnification provided in this By-Law 40 will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled and will be applicable to Proceedings commenced or
continuing after the adoption of this By-Law 40, whether arising from acts or
omissions occurring before or after such adoption.
41. INSURANCE, CONTRACTS AND FUNDING.
---------------------------------
The Company may purchase and maintain insurance to protect itself and any
Indemnitee against any expenses, judgments, fines and amounts paid in settlement
or incurred by any Indemnitee in connection with any Proceeding referred to in
By-Law 40 or otherwise, to the fullest extent permitted by applicable law as
then in effect. The Company may enter into contracts with any person entitled to
indemnification under By-Law 40 or otherwise and may create a trust fund, grant
a security interest or use other means (including without limitation a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in By-Law 40.
GENERAL
-------
42. FISCAL YEAR.
------------
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<PAGE> 67
The fiscal year of the Company will end on December 31st of each year or such
other date as may be fixed from time to time by the Board.
43. SEAL.
-----
The Board may adopt a corporate seal and use the same by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
44. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
-----------------------------------------
Each Director, each member of a committee designated by the Board and each
officer of the Company will, in the performance of his or her duties, be fully
protected in relying in good faith upon the records of the Company and upon such
information, opinions, reports or statements presented to the Company by any of
the Company's officers or employees or committees of the Board, or by any other
person or entity as to matters the Director, committee member or officer
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company.
45. TIME PERIODS.
-------------
In applying any provision of these By-Laws that requires that an act be
performed or not be performed a specified number of days before or after the
occurrence of an event or that an act be performed or not be performed during a
period of a specified number of days before or after the occurrence of an event,
calendar days will be used unless otherwise specified, the day of the
performance of the act will be excluded and the day of the occurrence of the
event will be included.
46. AMENDMENTS.
-----------
Except as otherwise provided by law or by the Certificate of Incorporation or
these By-Laws, these By-Laws or any of them may be amended in any respect or
repealed at any time, either (i) at any meeting of stockholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting has
been described or referred to in the notice of such meeting, or (ii) at any
meeting of the Board, provided that no amendment adopted by the Board may vary
or conflict with any amendment adopted by the stockholders.
47. CERTAIN DEFINED TERMS.
----------------------
Terms used herein with initial capital letters that are not otherwise defined
are used herein as defined in the Certificate of Incorporation.
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<PAGE> 1
EXHIBIT 10.4
FORM OF CROSS LICENSE AGREEMENT
THIS CROSS-LICENSE AGREEMENT (this "Agreement"), is made and entered into
as of ___________ ___, 1999, by and among American Greetings Corporation, an
Ohio corporation ("AG Corp"), its wholly-owned subsidiary AGC, Inc., a Delaware
corporation ("AGC" and, together with AG Corp, "AG"), AmericanGreetings.com,
Inc., a Delaware corporation ("amgreet.com") and its wholly owned subsidiary,
AG.COM, Inc., a Delaware corporation ("AGCI" and, together with amgreet.com,
"AG.COM") (together, the "Parties").
RECITALS
A. AG (with its Affiliates) and AG.COM each is the owner of all right, title
and interest in and to certain trademarks, service marks, trade names,
copyrights, trade dress and other intellectual property described herein,
and is the authorized user or licensee of other trademarks, service
marks, trade names, copyrights, trade dress and other intellectual
property, all as described herein.
B. AG.COM previously operated as a division of AG, and its assets and
operations have been transferred to it pursuant to a Formation Agreement
by and among the Parties and other affiliates dated ______ __, 1999 (the
"Formation Agreement").
C. Under the Formation Agreement, AG also transferred to AG.COM the
ownership of certain intellectual property rights to use other
intellectual property.
D. AG, on the one hand, and AG.COM, on the other hand, each desires to
license the other as provided herein.
NOW, THEREFORE, based on the above premises and the promises made herein,
the Parties agree as follows:
AGREEMENTS
1. DEFINITIONS. Except as otherwise specified, the following terms shall
have the respective meanings set forth below whenever used in this
Agreement. Capitalized terms not defined in this Agreement will have the
meaning set forth in the Formation Agreement (as defined below).
1.1. "AG" or "AG Group" means AG Corp, AGC and, with respect to the
scope of rights, grants and business activity restrictions in
this Agreement, all their present and future Affiliates, other
than AG.COM and its Subsidiaries.
1.2. "AG Business" means the distribution through, or sale to third
parties for sale at physical retail locations by, Physical
Retailers of (a) Physical Greeting Products and (b) other
social expression products manufactured in physical media,
including, without limitation, items such as gift wrap,
<PAGE> 2
stationery, party goods, balloons, candles and reading glasses.
Distribution or sale of computer software, for example on
CD-ROMs such as those sold by AG.COM, is not included in the
term "AG Business."
1.3. "AG Content" means Content and other Copyrights owned or
licensed and used by AG as of the Effective Time or
subsequently, including, without limitation, that which is
identified on Schedule 1.3.
1.4. "AG Intellectual Property" means Intellectual Property owned or
licensed for use by AG as of the Effective Time or
subsequently.
1.5. "AG Know-How" means Know-How owned or licensed for use by AG as
of the Effective Time or subsequently.
1.6. "AG Trademarks" means the Trademarks identified on Schedule
1.6. "Group 1 Trademarks", "Group 2 Trademarks", "Group 2A
Trademarks", "Group 2B Trademarks", and "Group 3 Trademarks"
mean the Trademarks so identified in each case on
Schedule 1.6.
1.7. "AG.COM" means AmericanGreetings.com, Inc. together with its
Subsidiaries and, with respect to the scope of rights, grants
and business activity restrictions, all its present and future
Affiliates, other than AG.
1.8. "AG.COM Business" means the distribution or sale of Electronic
Greeting Products and Physical Greeting Products to consumers
directly through Electronic Media; provided, however, that
AG.COM Business does not include distribution or sales within
the physical confines of retail stores owned or operated by AG.
1.9. "AG.COM Intellectual Property" means Intellectual Property
owned or licensed (other than from AG) for use by AG.COM as of
the Effective Time or subsequently.
1.10. "Affiliates" of any specified company means any other company
that, directly or indirectly, controls, is controlled by or is
under direct or indirect common control with such specified
company. For purposes of this Agreement, "control" means
ownership of a majority voting interest sufficient to direct
the affairs of a company.
1.11. "Ancillary Agreements" shall have the meaning set forth in
Section 7.01 of the Formation Agreement.
1.12. "Art" means art, including pictorial, graphic, visual, video,
photographic or sculptural works used, or usable, at any time,
past, present or future, in a greeting, social expression, or
other product, or on a Web site.
1.13. "Competitive Brand Trademark" means a Trademark identifying an
entity that derives a majority of its revenue from the AG
Business.
1.14. "Confidential Information" of a Party means (a) confidential
Know-How; and (b) any other confidential ideas, inventions,
software (including the object code and source code), program
structure, sequence and organization techniques, trade secrets
and other information of the Party
2
<PAGE> 3
(including all copies thereof), whether or not registerable,
patentable or copyrightable, relating to, forming a part of or
concerning the Party's business and/or its Intellectual
Property which, as to each such item in clauses (a) and (b) of
this definition is (i) at any time during the term hereof
acquired or developed by a Party, is in the Party's possession,
and disclosed by the Party to the other pursuant to this
Agreement; (ii) neither available to the public at the time of
its receipt by a Party from the other hereunder nor obtained
from a public source by the Party; and (iii) the subject of
reasonable efforts by the Party to maintain confidentiality.
For the avoidance of doubt, any information of each Party
(including all copies hereof) that is obtained by that Party,
directly or indirectly, from a third Person who is subject to a
confidentiality obligation to that Party with respect to such
information shall constitute, and be deemed to be, Confidential
Information hereunder. Confidential Information does not
include any information which (i) has become generally known to
the public through no wrongful act or breach of any obligation
of confidentiality on the receiving party's or any third
party's part; (ii) was in the lawful knowledge and possession
of, or was independently developed by, the receiving party
prior to the time it was disclosed to, or learned by, the
receiving party as evidenced by written records kept in the
ordinary course of business by the receiving party; (iii) was
rightfully received from a third party not in violation of any
contractual, legal or fiduciary obligation of such third party;
or (iv) was approved for release by written authorization by
the party having rights in such information.
1.15. "Content" means Art and Verse, and any other work of authorship
in which copyright may exist, and all intellectual property
rights therein.
1.16. "Copyright" means, collectively, a copyright arising under the
laws of the United States or other nation in Content, Software
or other work of authorship, and the attendant exclusive
rights, together with the Content, Software or work of
authorship in which the copyright subsists.
1.17. "Effective Time" means the date of this Agreement in the
preamble, or another date agreed to by the Parties, which shall
occur after the closing of the transactions contemplated by the
Formation Agreement.
1.18. "End Date" means the time at which AG's voting (not equity)
interest in AG.COM falls below 20%, except that, (i) in the
event of a distribution by AG of substantially all its shares
of AG.COM to its shareholders, the End Date shall not occur
earlier than ten years after the date AG.COM's Initial Public
Offering and (ii) in the event of a sale of substantially all
of AG's interest in AG.COM, the End Date shall not occur
earlier than the later of (x) two years after written notice to
AG.COM by AG or (y) five years after the date of AG.COM's
Initial Public Offering.
1.19. "Electronic Greeting Products" means (i) online and electronic
equivalents of Physical Greeting Products and (ii) electronic
and online versions of
3
<PAGE> 4
other social communication items such as templates for
stationery, banners, gift tags and award certificates.
1.20. "Electronic Media" means the now existing and future developed
electronic media including (without limitation) the Internet
and online services (whether delivered through telephonic
connection, television, satellite or broadband connection) and
CD-ROM. Online retailers, including (without limitation)
America Online and Yahoo! are "Electronic Media," but online
retail locations of Physical Retailers are not Electronic
Media.
1.21. "Finished AG.COM Properties" means (i) finished Electronic
Greeting Products or social expression products, in form
suitable for use by consumers (as distinguished from digitized
electronic Art, Verse, Content and other component elements of
a finished Electronic Greeting Product) and (ii) finished,
production implementations of Software technology for the
implementation of the AG.COM Business (e.g. working web site
HTML code and related scripts but not Software tools used in
the creation, presentation, distribution or delivery of the
Finished AG.COM Properties described in clause (i)).
1.22. "Improvements" means any change, modification, alteration or
variation or any discovery, improvement, invention, innovation,
extension, derivative work or other enhancement, made or
acquired during the term hereof relating to an item of
Intellectual Property, as each exists on the Effective Time, or
as it may hereafter be modified, improved or enhanced through
the application of Improvements.
1.23. "Intellectual Property" means (a) inventions, whether or not
patentable, whether or not reduced to practice or whether or
not yet made the subject of a pending patent application or
applications; (b) ideas and conceptions of potentially
patentable subject matter, including, without limitation, any
patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent
application or applications; (c) national (meaning the United
States) and multinational statutory invention registrations,
patents, patent registrations, and patent applications
(including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all
rights therein provided by multinational treaties or
conventions and all improvements to the inventions disclosed in
each such registration, patent or application; (d) trademarks,
service marks, trade dress, logos, trade names and corporate
names, whether or not registered, including all common law
rights, and registrations and applications for registration
thereof, including, but not limited to, all marks registered in
the United States Patent and Trademark Office, the counterpart
agencies of the States and Territories of the United States of
America, and the Trademark offices of other nations throughout
the world, and all rights therein provided by multinational
treaties or conventions; (e) works of authorship of all types,
published and unpublished, and copyrights (registered or
otherwise) and registrations and
4
<PAGE> 5
applications for registration thereof, and all rights therein
provided by multinational treaties or conventions; (f) moral
rights (including, without limitation, rights of paternity and
integrity), and waivers of such rights by others; (g) computer
software, including, without limitation, source code, operating
systems and specifications, data, data bases, files,
documentation and other materials related thereto, data and
documentation; (h) trade secrets and confidential, technical or
business information (including ideas, formulas, compositions,
inventions, and conceptions of inventions whether patentable or
unpatentable and whether or not reduced to practice); (i)
whether or not confidential, technology (including Know-How),
manufacturing and production processes and techniques, research
and development information, drawings, specifications, designs,
plans, proposals, technical data, copyrightable works,
financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and
supplier lists and information; (j) copies and tangible
embodiments of all the foregoing, in whatever form or medium;
(k) all rights to obtain and rights to apply for patents, and
to register trademarks and copyrights; and (l) all rights to
sue and recover and retain damages and costs and attorneys'
fees for present and past infringement of any of the
Intellectual Property rights hereinabove set out.
1.24. "Know-How" means the technology, technical information,
methods, analyses, procedures, processes, teachings,
instructions, techniques, practices, methods, data, statistics,
drawings, designs, formulae, concepts, programs, raw material,
equipment and plant specifications, raw material blending and
purchasing, quality standards, inspection standards,
information as to test methods and procedures, and any other
knowledge, experience and information of a Party, whether or
not patentable (in each case regardless of the form in which
such technology, information or data may be embodied or
represented), and which a Party, on the date hereof or
hereafter during the term of this Agreement, owns or with
respect to which it has the right to grant a license hereunder
and all intellectual property rights therein.
1.25. "Patents" means patent applications and letters patent
including any renewal patents issued with respect to any of
such patent applications and letters patent, and any
certificates of invention and utility models, rights by license
or otherwise to or under letters patent, and all reissues,
divisions, continuations, continuations in part, renewals, and
extensions thereof.
1.26. "Permitted Premiums" means greetings or social expression
products (physical or electronic) distributed for a limited
period of time as a promotional premium for no consideration or
minimal consideration.
1.27. "Person" means an individual, a general or limited partnership,
a corporation, a trust, a joint venture, an unincorporated
organization, a limited liability entity, any other entity and
any Governmental Authority.
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<PAGE> 6
1.28. "Physical Greeting Products" means (a) non-customized greeting
cards manufactured or created in physical media such as paper,
plastic, mylar and other similar materials and (b) similar
card-type goods in physical media (e.g. invitations and thank
you notes).
1.29. "Physical Retailer" means a company and its Affiliates, as a
group, that is or becomes a retail store customer of AG and
derives a majority of its revenue from the sale of physical
goods to consumers at retail store locations where the consumer
is physically present to make purchases.
1.30. "Reversion Event" means the occurrence of circumstances in
which (after notice and an opportunity to cure for thirty (30)
days in the case of clauses (ii) and (iii) below), (i) AG.COM
has less than 10% of its revenues derive from the AG.COM
Business; (ii) AG.COM materially defaults in its royalty
obligations to AG under the Ancillary Agreements; (iii) AG.COM
materially defaults on any covenant related to indebtedness for
borrowed money in excess of One Million Dollars ($1,000,000),
or (iv) AG.COM's financial condition and its reasonably
available sources of debt or equity capital become such that
auditors, applying generally accepted auditing standards
consistently applied, would be required to qualify an audit
report with a "going concern" qualification.
1.31. "Formation Agreement" has the meaning ascribed to it in the
Recitals.
1.32. "Software" means computer programs and documentation.
1.33. "Subsidiary" of any specified company means an Affiliate of
that company that is, directly or indirectly, controlled by
that company.
1.34. "Trademark" means any word, design, logo or other item entitled
to protection as a trademark or services mark under the laws of
the United States or any other nation.
1.35. "Verse" means verse, including text and literary works, such as
poems, sayings, jingles, words, narratives, or phrases which
are used or usable at any time in a greeting or social
expression product or a communication.
2. LICENSE GRANTS BY AG
2.1. AG TRADEMARKS.
2.1.1. Subject to the terms and conditions of this Agreement,
AG hereby grants to AG.COM (until termination of this
Agreement and thereafter to the extent provided under
the terms and conditions of this Agreement) a
non-transferable, worldwide license to use the AG
Trademarks as follows:
2.1.1.1. GROUP 1. The license to use the Group 1 Trademarks is
exclusive to AG.COM in the AG.COM Business and non
exclusive for all other uses except that (i) no
license is granted for use in the AG Business and
(ii) AG retains a
6
<PAGE> 7
non-exclusive right within the AG.COM Business (A) to
associate a Group 3 Trademark with a Group 1 Trademark
(for example, to identify a product sold through
Electronic Media as "Designware, an American Greetings
company") and (B) for business to business commerce
with prospective or existing non-consumer customers.
2.1.1.2. GROUP 2. The license to use the Group 2 Trademarks is
exclusive to AG.COM except that no license is granted
for use in the AG Business.
2.1.1.3. GROUP 3. The license to use the Group 3 Trademarks is
non-exclusive, except that no license is granted for
use in the AG Business.
2.1.2. DUTY TO PROMOTE AG TRADEMARKS. AG.COM will use best reasonable
efforts to use and promote the Trademarks "American Greetings"
and the AG "Rose" logo in its business and markets in North
America.
2.2. NON-TRADEMARK LICENSED AG INTELLECTUAL PROPERTY. Subject to the terms and
conditions of this Agreement, AG hereby grants to AG.COM, (until
termination of this Agreement and thereafter to the extent provided under
the terms and conditions of this Agreement), a non-transferable,
irrevocable (except as provided herein) worldwide license to use the
non-Trademark AG Intellectual Property as follows:
2.2.1. GENERAL. Unless otherwise expressly provided, the rights and
licenses granted in this Section are exclusive for the AG.COM
Business, and non exclusive otherwise, except that no license
is granted in the AG Business.
2.2.2. CONTENT. The license to AG's current and future Content shall
include the right to use, copy, modify, distribute and display.
The license to AG's current and future Patents shall include
the rights to use, make, have made, sell and import products
and services incorporating the covered inventions.
2.2.3. THIRD-PARTY LICENSED INTELLECTUAL PROPERTY. To the extent
permitted in each case, the license granted in this Section
includes sublicenses of Intellectual Property that is licensed
to AG by its Affiliates and by non-Affiliate third parties,
subject in the case of non-Affiliates, to any restrictions or
limitations in such licenses. Such third-party licensed
Intellectual Property includes that which is so identified on
Schedules [________].
2.2.4. INCLUDED PROPERTY. AG agrees that any and all Patents and
Software (other than Patents and Software transferred to AG.COM
pursuant to the Formation Agreement) that it may own now or in
the future are included in the non-Trademark AG Intellectual
Property licensed in this Section 2.2.
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2.3. SUBLICENSING.
2.3.1. TRADEMARKS. AG.COM may not sublicense any of the
Trademark rights granted hereunder, other than under
written sublicense agreements consistent with the
terms, conditions and requirements of this Agreement,
including, without limitation (in the case of licensed
trademarks), the standards in Section 2.5. For the
avoidance of doubt, the standards of Section 2.5 may
limit the identity of sublicensees of Trademarks.
2.3.2. OTHER. AG.COM may not sublicense any of the
non-Trademark rights granted hereunder, other than
under written sublicense agreements consistent with
the terms, conditions and requirements of this
Agreement, including, without limitation (in the case
of licensed trademarks), the standards in Section 2.5.
2.4. LICENSES SUBJECT TO RESTRICTION AND OTHER USE. With respect to
any Intellectual Property licensed by AG and not assigned to
AG.COM pursuant to the Formation Agreement that either (i) is
used by AG primarily for use not in the AG.COM Business or (ii)
is subject to restrictions on sublicensing to AG.COM or both,
AG will use reasonable efforts to provide the benefit thereof
to AG.COM to the extent permitted, for AG.COM's exclusive use
in the AG.COM Business and non-exclusive use otherwise (other
than in the AG Business), or if not able to do so will
negotiate in good faith to determine appropriate treatment
(including one Party being reasonably required to obtain a
second license) on a case by case basis.
2.5. QUALITY. AG.COM shall comply with the usage, product and
licensee quality requirements of Schedule 2.5 (the "Quality
Standards"), as they may be reasonably changed by AG with
reasonable advance notice to AG.COM from time to time with
respect to AG.COM's use of the licensed AG Trademarks. AG.COM
shall not use the licensed AG Trademarks in a manner that
violates the Quality Standards, nor shall it affix or sell or
offer for sale under the AG Trademarks any product or service
that violates the Quality Standards. AG.COM shall not permit
any Affiliate or third party with whom it has a sublicense or
other agreement or arrangement to take any such action
involving an AG Trademark that would violate the Quality
Standards. Notwithstanding anything to the contrary herein or
in the Quality Standards under no circumstances will AG.COM be
required to obtain prior approval for usage of an AG Trademark,
but AG reserves the right to object, under the terms hereof, to
any usage that it determines violates the terms hereof or the
Quality Standards.
3. LICENSE GRANTS BY AG.COM
3.1. NON-TRADEMARK LICENSED AG.COM INTELLECTUAL PROPERTY. Subject to
the terms and conditions of this Agreement, AG.COM hereby
grants to AG (until termination of this Agreement and
thereafter to the extent provided under the terms and
conditions of this Agreement), a non-transferable,
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irrevocable (except as provided herein) worldwide license to
use the non-Trademark AG.COM Intellectual Property as follows:
3.1.1. GENERAL. Unless otherwise expressly provided, the
rights and licenses granted in this Section are
exclusive for the AG Business, and non-exclusive
otherwise except that no license is granted in the
AG.COM Business.
3.1.2. CONTENT. The license to AG.COM's current and future
Content shall include the right to use, copy, modify,
distribute and display. The license to AG.COM's
current and future Patents shall include the right to
use, make, have made, sell and import products and
services incorporating the covered inventions.
3.1.3. LIMITATION WITH RESPECT TO FINISHED AG.COM PROPERTIES.
AG.COM may terminate the licenses granted hereunder to
AG for Finished AG.COM Properties if AG is furnishing
such products to one or more Physical Retailers for
sale or distribution directly to consumers by the
Physical Retailers through the Physical Retailer's
online retail locations in a manner that AG.COM
determines to be in competition with it. AG.COM may
terminate such licenses as to Finished AG.COM
Properties that AG.COM does not offer at no charge on
its web site on 30 days prior written notice. As to
Finished AG.COM Properties that AG.COM offers at no
charge on its web site, AG.COM may terminate such
license only on one year's prior written notice.
3.1.4. THIRD PARTY LICENSED INTELLECTUAL PROPERTY. To the
extent permitted in each case, the licenses granted in
this Section include sublicenses of Intellectual
Property that is licensed to AG.COM by its Affiliates
(other than AG) and by non-Affiliate third parties,
subject in the case of non-Affiliates, to any
restrictions or limitations in such licenses. Such
third-party licensed Intellectual Property includes
that which is identified on Schedules [_________].
3.2. SUBLICENSING. AG may not sublicense any of the rights granted
hereunder, other than under written sublicense agreements
consistent with the terms, conditions and requirements of this
Agreement.
3.3. LICENSE RESERVED UNDER FORMATION AGREEMENT. The rights reserved
by AG pursuant to Section __ of the Formation Agreement shall
be deemed to be subject to all the rights and benefits of the
license granted to AG herein.
3.4. SCOPE OF CERTAIN LICENSES. For the avoidance of doubt, AG.COM
acknowledges that the exclusion of Finished AG.COM Properties
from the license grant set forth above pursuant to a
termination under Section 3.1.3 shall not be interpreted to
preclude AG from creating, reproducing, distributing,
displaying or otherwise using (or render the same as an
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infringement of AG.COM's rights) derivative works of the licensed
Intellectual Property or its own Intellectual Property that are similar
or identical to the non-licensed Finished AG.COM Properties.
4. CERTAIN AGREEMENTS REGARDING LICENSED PROPERTY
4.1. VALIDITY. AG and AG.COM each recognize the validity of the
Intellectual Property licensed by the other hereunder and of
any registrations therefor, and each acknowledges the other as
the owner of all rights, title and interest in and to the
licensed Intellectual Property of the other listed on any
Schedule or Exhibit to this Agreement or Formation Agreement.
Neither AG nor AG.COM will contest, nor assist any third party
in contesting, the other's ownership of such licensed
Intellectual Property or any registrations of the other for
such licensed Intellectual Property, and will not contest the
validity thereof. Except for the licensed AG Intellectual
Property, AG.COM agrees not to use at any time any other
trademarks, names, designs, trade dress or other intellectual
property confusingly similar to the licensed AG Trademarks.
These obligations shall survive the expiration or earlier
termination of this Agreement for any reason. AG agrees that
AG.COM may, with prior written approval of AG, (such approval
not to unreasonably withheld or delayed) file applications to
register a trademark that is confusingly similar to one or more
of the licensed AG Trademarks. If any application for
registration is filed in any country by AG.COM in contravention
of this paragraph, AG shall have the right to take appropriate
action against AG.COM, including seeking injunctive relief.
4.2. GENERAL RESERVATION OF RIGHTS. No other rights or licenses,
express or implied other than those granted by AG in Article 2
and by AG.COM in Article 3, respectively, are granted to the
other in and to any Intellectual Property of the granting
Party. Each Party reserves to itself the right to use and to
license to others the right to use any of its Intellectual
Property not licensed hereunder, or to exercise any rights in
its licensed Intellectual Property not granted exclusively to
the other Party.
4.3. ADDITIONAL ITEMS AND CATEGORIES OF ITEMS OF INTELLECTUAL
PROPERTY. As to any item of Intellectual Property in a category
treated under the assignment or licensing provisions of the
Formation Agreement or this Agreement and not included on a
Schedule or Exhibit to one of those Agreements, and any
category of Intellectual Property not so treated, the Parties
agree that such item or category of Intellectual Property will
be treated in a manner that is consistent with the treatment of
like items under the Formation Agreement and this Agreement, as
the case may be.
4.4. IMPROVEMENTS: Ownership of Improvements and Grant Backs.
4.4.1. OWNERSHIP OF IMPROVEMENTS. Each Party will own (and to
the extent of any interest therein, the other party
hereby assigns to such party) Improvements to
Intellectual Property that are created, invented or
developed by it, whether the original Intellectual
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Property is owned by it or licensed to it by the other
Party hereunder. If an Improvement is created,
invented or developed jointly, or from contributions
by both Parties, then the Parties shall seek to agree
as to the ownership. If the Parties cannot agree, the
Intellectual Property in the Improvement shall be
owned jointly by the Parties (and to the extent of any
interest therein, each party hereby assigns a joint
ownership interest to the other party) in accordance
with the laws of inventorship (or authorship, as the
case may be) or other applicable law in proportion to
the Parties' relative contributions.
4.4.2. GRANT BACKS. Improvements owned by AG are included in
the Intellectual Property licensed to AG.COM under
Section 2.2, and Improvements owned by AG.COM (other
than Finished AG.COM Properties, after a termination
under Section 3.1.3) are included in the Intellectual
Property licensed to AG under Section 3.1.
5. ROYALTIES
5.1. GENERAL ROYALTY PROVISIONS.
5.1.1. FIXED ROYALTY PROVISION. In consideration of all the
rights and licenses granted to AG.COM hereunder,
AG.COM will pay AG fixed royalty charges of Six
Hundred Sixty Six Thousand Six Hundred Sixty Seven
Dollars ($666,667) per month for thirty six months
commencing as of July 1, 1999. Effective July 1, 2002,
all licenses, other than the AG Trademark licenses,
shall be deemed fully paid.
5.1.2. ANNUAL ROYALTY PROVISION. In consideration of the
continuing trademark licenses granted in Article 2
above, AG.COM will pay AG a fixed royalty of 3% of
AG.COM's total consolidated net revenue for all
periods after the AG.COM fiscal half year ending June
30, 2002, with minimum royalty payments at an annual
rate of $5 million, so long as AG.COM uses any of the
licensed AG Trademarks (other than "ag.com").
5.2. ROYALTY PROVISIONS RELATED TO LICENSES.
5.2.1. FULLY-PAID LICENSES. Except as provided in Section
5.1, all licenses granted in this Agreement that are
not expressly made royalty-bearing will be fully-paid.
5.2.2. THIRD-PARTY LICENSES. In each case in which a Party is
required to license, sublicense or transfer rights
acquired by it from third parties, or provide access
to Intellectual Property acquired from third parties,
and the Party is obligated to pay a royalty, fee or
other charge to the third party in respect of such
right or Intellectual Property, then the licensee or
recipient Party will pay an equitable portion of such
charges as determined by mutual agreement between the
Parties. These payments will be structured
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in an appropriate manner as determined by mutual
agreement between the Parties, such as a direct
payment to the third party or a pass-through charge.
5.3. ROYALTY REPORTS AND PAYMENTS.
5.3.1. TIME OF REPORTING AND PAYMENT. Royalties will be
reported and paid quarterly, each report and payment
to be made 75 days after the end of each fiscal
quarter.
5.3.2. ROYALTY REPORTS. Each royalty payment is to be
accompanied by a written financial report stating
AG.COM's net revenue during the relevant period and
all other relevant information, each in sufficient
detail to permit the calculation of the royalty
payments due. Each royalty report is to be certified
by the Chief Financial Officer of AG.COM.
5.3.3. MAINTENANCE OF RECORDS. During the term of the
Agreement, and for a period of two (2) years
thereafter, AG.COM will keep complete, clear and
accurate records with respect to all matters
pertaining to royalties.
5.4. AUDIT RIGHTS. AG, on reasonable notice, may request that it or
its authorized representative review AG.COM's corporate books
and records relevant to this Agreement in order to verify the
royalty reports. If inconsistencies or mistakes are discovered,
they must be rectified and (i) in the case of underpayment, the
appropriate payments made by AG.COM on demand by AG or (ii) in
the case of overpayment, AG will deduct such amount from the
next royalty payment. AG will bear all expenses of any audits
unless AG.COM has understated the royalties for any quarter by
ten percent (10%) or more, in which case AG.COM will reimburse
AG for its out-of-pocket expenses incurred in connection with
the audit as well as pay AG the unpaid royalties plus the
accrued interest.
5.5. LATE ROYALTY PAYMENTS. Any royalty payments, including accrued
royalties and interest, not paid when due must be paid
immediately upon demand. Simple interest, at a rate of one and
one-half percent (1-1/2%) per month will accrue on any late
payment during the period from the date it was due until paid.
AG's right to interest payments under this provision is in
addition to any other remedy, including, without limitation,
termination of this Agreement, that AG may have for failure of
AG.COM to make timely royalty payments.
6. REPRESENTATIONS AND WARRANTIES
6.1. REPRESENTATIONS AND WARRANTIES. AG and AG.COM each represents
and warrants to the other as follows:
6.1.1. CORPORATE POWER AND AUTHORITY. It has the power and
authority to enter into and perform this Agreement;
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6.1.2. OWNERSHIP OR VALID LICENSES. It either owns or has a
valid license to use and, except as disclosed from
time to time as to subsequently acquired Intellectual
Property, will own or will have a valid license to
use, the Intellectual Property it licensed hereunder
and has or will have sufficient right and authority to
grant to the other all licenses and rights it granted
hereunder;
6.1.3. NO CONFLICTS. To the best of its knowledge, except as
disclosed herein, the execution, delivery and
performance by it of this Agreement will not conflict
with, result in a breach or termination of, constitute
a default under, or require a consent that has not
been obtained under any lease, agreement, commitment
or other instrument to which it is a party; and
6.1.4. VALID AND BINDING. This Agreement constitutes its
valid and binding obligations of enforceable against
it in accordance with its terms, except to the extent
enforcement is limited by bankruptcy or other
insolvency laws.
6.1.5. NON-INFRINGEMENT. To its actual knowledge: (i) it has
not misappropriated or improperly copied from a third
party any now- existing Intellectual Property licensed
hereunder; (ii) it has not infringed or otherwise
violated any statutory or other rights of any third
party in or to any intellectual property therein
including, without limitation, copyrights, patents,
trade secrets or trademarks; and (iii) no third party
has asserted, or is asserting a claim of any of the
foregoing.
6.2. DISCLAIMERS OF WARRANTIES.
6.2.1. CLAIMS OF INFRINGEMENT. Except as disclosed herein or
otherwise in connection with the Closing under the
Formation Agreement, neither AG nor AG.COM has
received notice of any claim that any item of
Intellectual Property licensed by it infringes or
violates the patent, copyright, trade secret or other
intellectual property rights of any third party.
6.2.2. VALIDITY OF THE PATENTS. Neither AG nor AG.COM makes
any representation or warranty, and each Party hereby
disclaims all representations and warranties, to the
effect that the Patents licensed or in any way
transferred by it, is valid or enforceable.
6.2.3. WARRANTY DISCLAIMERS. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN SECTION 6.1, EACH OF AG AND AG.COM
EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, IN CONNECTION WITH THE
LICENSED INTELLECTUAL PROPERTY, INCLUDING WITHOUT
LIMITATION, ALL IMPLIED WARRANTIES OF
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MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7. FUTURE CONDUCT COVENANTS
7.1. AG NOT TO ENGAGE IN AG.COM BUSINESS. Subject to the exceptions
below and to Article 9, AG will not, without the prior written
consent of AG.COM, directly or indirectly (i) engage in the
AG.COM Business or (ii) enter into agreements with, license or
sublicense Intellectual Property to, or own a material interest
in, an entity that engages in the AG.COM Business.
Notwithstanding the foregoing,
7.1.1. The foregoing will not prevent AG from selling
Physical Greeting Products or Electronic Greeting
Products (including therein Content licensed from
third parties) to Physical Retailers under terms that
permit the Physical Retailers to sell or distribute
such products or services directly to consumers via
physical means or the Physical Retailers' online
retail locations.
7.1.2. After a termination notice with respect to Finished
AG.COM Properties under Section 3.1.3, the foregoing
and Section 7.1.4 will not prevent AG from entering
into agreements with, licensing or sublicensing
Intellectual Property from, or owning a material
interest in, an entity that engages in the AG.COM
Business to the extent AG reasonably determines it is
necessary or useful to enable AG to acquire the
capability to create and furnish to Physical Retailers
products and services comparable to Finished AG.COM
Properties or otherwise required by the Physical
Retailer.
7.1.3. The foregoing will not require AG to terminate an
agreement with or dispose of an interest in an entity
that, without AG's participation or prior knowledge,
enters into the AG.COM Business subsequent to the time
AG entered into such agreement or acquired such
interest.
7.1.4. AG may own a material interest in an entity that
engages in the AG.COM Business if (i) to the extent
commercially feasible, prior to acquiring such
interest AG first notifies AG.COM (which shall agree
to hold such notice confidential) of its intent to
acquire such interest and uses good faith efforts
under all the circumstances to negotiate a mutually
acceptable agreement with AG.COM regarding the
ownership of such interest; and (ii) if no such
agreement is reached, or if AG decides it must acquire
such interest without notice or before negotiations
under clause (i) can be completed, AG obtains an
independent third party appraisal (by an appraiser
approved by AG.COM, such approval not to be
unreasonably withheld) of the fair market value of
such interest and offers the same to AG.COM for
purchase in cash; and (iii) if such offer is not
accepted, does not utilize or license to such entity
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any of the Intellectual Property already then existing
and licensed hereunder to AG.COM.
7.2. AG.COM NOT TO ENGAGE IN AG BUSINESS. Subject to the exceptions
below and to Article 9, AG.COM will not, without the prior
written consent of AG, directly or indirectly (i) engage in the
AG Business or (ii) enter into agreements, license or
sublicenses Intellectual Property to, or own a material
interest in, an entity that engages in the AG Business.
Notwithstanding the foregoing,
7.2.1. The foregoing will not apply to agreements by which
such entity licenses Intellectual Property (other than
Competitive Brand Trademarks) to AG.COM for
consideration other than sublicenses of Intellectual
Property of AG.COM that AG.COM has licensed from AG.
7.2.2. The foregoing will not require AG.COM to terminate an
agreement or dispose of an interest in an entity that,
without AG.COM's participation or prior knowledge,
enters into the AG Business subsequent to the time
AG.COM entered into such agreement or acquired such
interest.
7.2.3. AG.COM may own a material interest in an entity that
engages in the AG Business if (i) to the extent
commercially feasible, prior to acquiring such
interest AG.COM first notifies AG (which shall agree
to hold such notice confidential) of its intent to
acquire such interest and uses good faith efforts
under all the circumstances to negotiate a mutually
acceptable agreement with AG regarding the ownership
of such interest; and (ii) if no such agreement is
reached, or if AG.COM decides it must acquire such
interest without notice or before negotiations under
clause (i) can be completed, AG.COM obtains an
independent third party appraisal (by an appraiser
approved by AG, such approval not to be unreasonably
withheld) of the fair market value of such interest
and offers the same to AG for purchase in cash; and
(iii) if such offer is not accepted, does not utilize
or license to such entity any of the Intellectual
Property already then existing and licensed hereunder
to AG.
7.3. COOPERATION BETWEEN AG AND AG.COM. AG and AG.COM agree to
establish working level committees (both in the United States
and internationally) to hold regular meetings and foster
cooperation in the development of Art and Verse and other
Content that will be subject to the licenses hereunder, to
communicate and coordinate opportunities for licensing such
Content from third parties, and to encourage other forms of
business cooperation. This cooperation will include disclosure
and transfer of knowledge and information as reasonably
requested by the recipient Party to enable that Party to
utilize and exploit the assets and Intellectual Property
transferred or licensed pursuant to the Formation
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Agreement or this Agreement and may include sharing of
documents, training, demonstrations and technical meetings,
with the objective of enabling the licensee to utilize and
benefit from the licensed Intellectual Property. Except for
extraordinary circumstances, including unreasonable requests
under this provision, neither Party will charge for the time of
its employees expended pursuant to this Section. Except as
specifically provided otherwise herein, expenses will be shared
in an equitable manner, with the licensee generally bearing the
expense of information and knowledge transfer that benefits it.
7.4. PERMITTED PREMIUMS. Notwithstanding anything to the contrary in
this Agreement, neither Party shall be restricted from
providing Permitted Premiums.
7.5. ACCESS AND KNOWLEDGE TRANSFER. AG and AG.COM each agrees to
grant to the other liberal access to its own library of Art and
Verse and to deliver, subject to availability, physical and/or
electronic manifestations of particular items thereof (whether
licensed or transferred) promptly upon request, such delivery
to be in mutually agreed upon, then existing formats and at no
charge other than actual and reasonable out-of-pocket expenses,
if any, for reproduction. To the extent feasible, physical
and/or electronic manifestations of all other (i.e. other than
Art or Verse) licensed or transferred Intellectual Property in
existence at the Closing under the Formation Agreement will be
delivered as promptly as practicable. The Parties agree to
adopt reasonable practices and procedures for the physical
delivery of the manifestations of the Intellectual Property
licensed hereunder and coming into existence after the Closing.
7.6. CUSTOMER NAMES AND CONSUMER INFORMATION.
7.6.1. CURRENT DATA BASE. With respect to all consumers whose
data is in the current data base of the predecessor of
AG.COM (i.e. the division of AG previously operating
the AG.COM business), AG will transfer to AG.COM all
of AG's rights in all consumer information AG
possesses or controls, including, but not limited to
the following: name; address; e-mail address; order,
payment and fulfillment information; customer profile
information; and customer account information.
7.6.2. SHARING INFORMATION. AG.COM and AG agree to share
information from their respective current and future
consumer information databases (including, in the case
of AG.COM, the information transferred as described
above and in the case of AG, the Carlton Cards
"Celebrations" database) subject to each accepting and
adhering to the other's privacy policies and subject
to any present or future governmental or industry
standard regulations or restrictions. The privacy
policies will be established at the time of the
Closing and AG and AG.COM will, subject to
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applicable law, maintain those policies with
reasonable modifications.
7.6.3. RESTRICTIONS ON SHARING INFORMATION. The information
to be shared will be the maximum amount permitted by
the privacy policies and other restrictions referred
to above. Such restrictions may, in some cases, limit
further disclosure to aggregated, non-identifiable
form. If required to satisfy the requirements of such
privacy or other legal restrictions, and if requested
by one party, the other party will include in its
privacy policy disclosure to consumers a description
of the information sharing arrangement between AG and
AG.COM and, if required, a "checkoff" or similar
facility for the consumer to permit such sharing. The
parties will take reasonable steps under the pertinent
circumstances to encourage consumers to permit the
above sharing. The privacy policies may require that a
party will use the customer information of the other
only for use in its own business, and that it will not
sell such information for use by third parties.
Similarly, the privacy policies may only permit a
party to disclose such information in aggregated,
non-identifiable form for its business purposes
without the consent of the other party. The privacy
policies are not expected to permit sharing of credit
card numbers.
7.6.4. PROMOTIONS. Either AG or AG.COM may conduct promotions
sponsored by one or both parties, which may have the
feature of seeking consumer consent to information
sharing between AG and AG.COM. Where a party sponsors
such a promotion, the sponsor would bear the costs of
the promotion and the other party's costs in carrying
out the promotion.
8. PROTECTION OF INTELLECTUAL PROPERTY
8.1. CONFIDENTIALITY.
8.1.1. OBLIGATION. Each of AG and AG.COM will keep
confidential and will not cause or permit the
disclosure to any third party (other than those whose
duties require possession of such information, or who
are otherwise entitled hereunder to receive such
information, and who agree to be bound by the
confidentiality obligations set forth in this Section
8.1 or are otherwise subject to substantially similar
duties of nondisclosure), or the unauthorized use, of
any Confidential Information disclosed to it by the
other Party, it being understood, however that
Confidential Information assigned to AG.COM pursuant
to the Formation Agreement shall be deemed
Confidential Information of AG.COM and not of AG.
8.1.2. COMPELLED DISCLOSURE. If either Party is required by
law, legal process or court order to disclose any
Confidential Information of the other, the Party
shall: (i) notify the other Party in writing as soon
as possible, but in no event less than ten (10)
calendar days
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prior to any such disclosure; (ii) cooperate with the
other Party to preserve the confidentiality of such
confidential information consistent with applicable
law; and (iii) use its best efforts to limit any such
disclosure to the minimum disclosure necessary to
comply with such law or court order.
8.2. PROTECTION AND REGISTRATION OF TRADEMARKS, COPYRIGHTS.
8.2.1. FORM AND MANNER OF USAGE OF TRADEMARKS. AG.COM will
use the AG Trademarks in such form and manner as
specified by AG in Section 2.5 (including Schedule 2.5
as incorporated or therein or modified in accordance
with the terms thereof). AG will own any approved
composite mark used by AG.COM which includes the AG
Trademarks (excluding any element thereof owned by a
third party).
8.2.2. NOTICES. AG.COM shall apply trademark notices in
connection with the AG Trademarks as reasonably
specified by AG, and as may be reasonably necessary to
ensure a uniform presentation throughout the AG
Business and the AG.COM Business where appropriate and
consistent with the establishment of an AG.COM brand
identity where appropriate. AG.COM will comply with
reasonable requests by AG to modify its display of an
AG Trademark, consistent with the requirements hereof.
Each licensee Party shall apply Copyright notices as
the licensor Party may subsequently reasonably specify
as required by law to protect, preserve or enhance the
rights of the Copyright Owner.
8.2.3. PROMINENCE. AG and, subject to Section 5.06(a)(i) of
the Formation Agreement and Section 2.1.2 hereof,
AG.COM, each has the right, but not the obligation, in
its respective sole discretion but subject to all the
terms and conditions hereof, to use the AG Trademarks
so as to give the AG Trademarks full and favorable
prominence and publicity. AG has no obligation
whatsoever to continue using any trademark in
connection with its business.
8.2.4. APPROVAL PRIOR TO FIRST USAGE. AG.COM is not required
to obtain prior approval of any usage of Trademarks or
Copyrights. If AG.COM requests approval, AG will
respond promptly with its approval or its objections.
AG may request, however, written notice of the first
date for the appearance of an AG trademark on a Web
site, product or service.
8.2.5. RIGHT TO INSPECT. In order to determine whether AG.COM
is in compliance with this Article 8, at AG's request,
AG.COM, at its own expense, will provide to AG copies,
photographs, electronic files, Web pages, or
representative samples of its Web site as well as
packaging, advertising copy, promotional materials or
other materials bearing any of the AG Intellectual
Property. Also at its
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own expense, AG.COM will prepare a report of its use
of the AG Trademarks.
8.2.6. NO TRADEMARK DISPARAGEMENT. AG.COM agrees not to use
the AG Trademarks in any manner which, directly or
indirectly, would dilute, demean, ridicule or
otherwise tarnish the image of, the AG Trademarks or
AG. In addition, AG.COM agrees not to use the AG
Trademarks in any manner in connection with the
design, planning, implementation, promotion,
marketing, or advertising of any business, service or
product inconsistent with the image of AG and its
products and services.
8.3. PROSECUTION AND MAINTENANCE.
8.3.1. PROSECUTION. AG and AG.COM each agrees, at its own
expense to prosecute and maintain the intellectual
property rights licensed to the other and, in any
event will not abandon rights therein, except with
prior notice to the licensee and an opportunity for
the licensee to take over prosecution and maintenance.
Neither party shall transfer to a non-affiliate
ownership of the intellectual property rights licensed
to the other without notice to the licensee and only
pursuant to an agreement expressly made subject to the
rights of the licensee.
8.3.2. REGISTRATION. AG has the exclusive right (but not the
obligation) to obtain registrations and any other form
of protection for the AG Trademarks and Copyrights.
Each party shall furnish the other with all reasonably
requested information (including specimens and samples
illustrative of the manner of use of the Trademarks)
and documentation (including the execution and
delivery of any and all true and correct affidavits,
declarations, oaths and other documentation) to assist
such party in obtaining and maintaining such trademark
protection and registrations.
8.3.3. ENFORCEMENT AG and AG.COM will each cooperate in
pursuing infringers of intellectual property licensed
from the other. In the case of an infringement
recovery, an allocation will be made between AG and
AG.COM based on the field of use of the infringer (as
between the AG Business, the AG.COM Business and
otherwise), the contribution of each party to the
enforcement action, and other relevant considerations
including royalties paid by AG.COM hereunder, and the
damage each party suffered as a result of the
infringement and the expense of the enforcement;
provided, however, that any such recoveries shall be
applied first to fully reimburse all expenses of the
enforcement. Each licensee Party will notify the other
of any actual or threatened infringement of any of the
Intellectual Property by third parties of which either
becomes aware. AG.COM has no right to take any action
with respect to any third party in an attempt to
enforce any rights
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regarding the AG Trademarks without the prior written
approval of AG, which approval shall not be
unreasonably withheld in the case of infringement
involving the AG.COM business.
8.4. DEFENSE OF INFRINGEMENT CLAIMS. Except for indemnified losses
under Article 10, each Party is responsible for the defense and
settlement of, and shall pay all expenses (including attorneys'
fees) related to, any and all claims by third parties that the
Intellectual Property licensed hereunder infringes or
misappropriates any intellectual property rights of such third
parties. Each Party agrees to cooperate fully with the other,
at the defending Party's reasonable request and expense, in
connection with the defense of any such claim.
9. TERM AND TERMINATION
9.1. TERM; END DATE AND REVERSION EVENTS; TERMINATION.
9.1.1. TERM. The term of this Agreement shall be from its
Effective Time until the End Date, unless earlier
terminated at AG's election upon the occurrence of a
Reversion Event or by mutual agreement of the Parties.
9.1.2. REVERSION EVENT. If there is a Reversion Event, then,
in addition to the termination effects set forth
below, if (i) the circumstances that caused the
Reversion Event are not cured by AG.COM within 90 days
of notice from AG and (ii) AG so elects by written
notice to AG.COM, then all licenses granted to AG.COM
hereunder (other than the license to the Group 2B
Trademarks) will terminate at the end of twelve (12)
months after the notice of election from AG.
9.2. TERM OF LICENSES. Unless earlier terminated in accordance with
this Article 9, the term of each license of Intellectual
Property hereunder shall be as long as may be permitted by
applicable law. Unless earlier terminated in accordance
herewith, each trademark license shall be for a term of 999
years, except that in the event of a distribution by AG of
substantially all its shares of AG.COM to its shareholders the
license to the Group 1 Trademarks may thereafter be terminated
by AG on two year's written notice to AG.COM. In no case shall
the duration of any license exceed the longest period for which
rights in an item of Intellectual Property are granted and may
be renewed or extended pursuant to applicable law.
9.3. CONSEQUENCES OF TERMINATION; SURVIVAL.
9.3.1. SURVIVAL. Upon the end of the Term, the rights and
obligations of the Parties under Sections 5.01, 10.1,
10,2, and 10.3 will survive termination.
9.3.2. TERMINATION OF EXCLUSIVITY. Without limitation, upon
the end of the Term, unless survival is expressly
provided, all covenants will terminate and agreements
respecting the exclusivity of the AG.COM and the AG
Business will terminate.
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9.3.3. SURVIVAL OF LICENSES. Except as otherwise expressly
provided, all Intellectual Property licenses granted
hereunder will survive the end of the Term and will
continue for their respective terms except that (i) if
AG elects, then with 12 months prior written notice to
AG.COM, the licenses from AG to AG.COM of the Group 1
and Group 2A trademarks may be terminated by AG, and
(ii) from and after the end of the Term all licenses
will be entirely non-exclusive for all fields.
9.3.4. TERMINATION OF LICENSE GRANTS. Upon the end of the
Term, all license grants of Intellectual Property
acquired or developed after the date of termination
will terminate, and any surviving license grants
herein will only apply to items coming into existence
and acquired prior to the end of the Term.
10. INDEMNIFICATION AND REMEDIES
10.1. INDEMNIFICATION. Each of the Parties agrees to indemnify the
other in accordance with the cross-indemnification provisions
of Sections 6.02 and 6.03 of the Formation Agreement.
10.2. REMEDIES AND LIMITATIONS. The remedies of the Parties and
limitations of liabilities will be governed by Section 6.01 of
the Formation Agreement.
10.3. DISPUTE RESOLUTION. Disputes arising hereunder between the
Parties shall be resolved pursuant to the provisions of Section
8.09 of the Formation Agreement.
11. MISCELLANEOUS PROVISIONS
11.1. ENTIRE AGREEMENT AND AMENDMENT. This Agreement, together with
the Schedules hereto and the portions of the Formation
Agreement referred to herein, embodies the entire understanding
of the Parties with respect to the subject matter hereof, and
there are no other agreements or understandings, written or
oral, in effect between the Parties, relating to the subject
matter hereof. This Agreement may be amended or modified only
in writing by an instrument signed by the Parties.
11.2. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State
of Ohio without regard to the conflicts of law principles
thereof; provided, however, that any question respecting the
validity, existence and effect of any Intellectual Property
will be determined under the laws of the jurisdiction under
which rights in such Intellectual Property arose.
11.3. WAIVERS. Any waiver by any Party of any violation of, breach
of, or default under any provision of this Agreement by any
other Party hereto shall not be construed as, or constitute, a
continuing waiver of such provision, waiver of any other
violation of, breach of, or default under any other provision
of this Agreement. No single or partial exercise of a right
shall preclude any other or further exercise of that or any
other right.
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11.4. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
11.5. ASSIGNMENT. Except for assignments to Affiliates, no Party may
assign this Agreement, or its rights and obligations hereunder,
in whole or in part, without the other Parties' prior written
consent.
11.6. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability
shall not render the entire Agreement invalid. Rather, the
Agreement shall be construed as if not containing the
particular invalid or unenforceable provision, and the rights
and obligations of each party shall be construed and enforced
accordingly.
11.7. CAPTIONS. The captions of the Articles and Sections of this
Agreement are inserted for convenience of reference only and
shall not be used in any way in interpreting this Agreement.
11.8. FORCE MAJEURE. No Party will be liable for any failure of, or
delay in the performance of, its obligations under this
Agreement for the period that such failure or delay is due to
acts of God, public enemy, act of any military, civil or
regulatory authority, civil war, strikes, labor disputes, or
any other cause, whether similar or dissimilar to any of the
foregoing, beyond such Party's reasonable control. Each Party
agrees to notify the other Parties promptly of the occurrence
of any such cause and to carry out this Agreement as promptly
as practicable after such cause is terminated.
11.9. NOTICES. All notices, requests, consents, demands and other
communications to be given or delivered shall be in writing and
(a) personally delivered, (b) sent by an overnight courier
service, or (c) transmitted by facsimile with a confirmation of
delivery, and shall be deemed to have been duly given when
received. Any Party may change this information by written
notice. Further, notice may be given to such other person or at
such other place as either of the parties may from time to time
notify to the other party as provided herein.
If to AMERICAN GREETINGS CORPORATION or AGC, Inc.:
Jon Groetzinger, Sr. V.P. -- General Counsel & Secretary
One American Road
Cleveland OH 44114-2398
216.252.7300 x1667
fax: 252.6777
[email protected]
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If to AmericanGreetings.com, Inc. or AGCI, Inc.:
John Klipfell, Chief Executive Officer
One American Road
Cleveland OH 44114-2398
216.252.7300 x1332
[email protected]
with a copy to:
Stephen Gold, Esq.
Gordon & Glickson LLC
444 North Michigan Ave.
Suite 3600
Chicago, Illinois 60614
312-321-7664
[email protected]
11.10. FURTHER ASSURANCES. Each Party agrees that it will take such
actions and will execute, deliver or file such documents as may
be reasonably requested by the other Party to carry out the
purposes hereof or to evidence or secure the transfers,
licenses and other provisions hereof, including without
limitation to carry out the intent of Section 4.3.
[Remainder of this page intentionally left blank]
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<PAGE> 24
IN WITNESS WHEREOF, each of AG, AGC, Inc., AG.COM and AGCI has duly
executed and delivered this Agreement as of the date first written above.
AMERICAN GREETINGS CORPORATION
By:_______________________________
Name:
Title:
AGC, Inc.
By:_______________________________
Name:
Title:
AmericanGreetings.com, Inc.
By:_______________________________
Name:
Title:
ag.com, inc.
By:_______________________________
Name:
Title:
24
<PAGE> 25
SCHEDULES
1.3 AG Content
1.6 AG Trademarks
2.5 Trademark Usage and Quality Guidelines and Standards
<PAGE> 1
EXHIBIT 10.5
FORM OF WEB SERVICES AGREEMENT
This WEB SERVICES AGREEMENT (this "Agreement") dated as of ____ __,
1999 between American Greetings Corporation, an Ohio corporation ( "Client"),
and americangreetings.com, inc., a Delaware corporation ( "Provider").
W I T N E S S E T H:
WHEREAS, Client has caused Provider and its subsidiaries to be created
to carry on the online interactive and electronic businesses of Client and its
subsidiaries; and
WHEREAS, Client wishes to enter into arrangements with Provider to
provide various online services to Client on a cost-plus basis, and Provider
wishes to provide these services to Client (to support Client and Client's
initiatives with its Customers);
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and in the other agreements between the parties being entered into at the
same time, and for other good and valuable consideration had and received, the
receipt and sufficiency of which are hereby acknowledged, the undersigned hereby
agree as follows:
ARTICLE I. DEFINITIONS
When used in this Agreement with initial capital letters, the following
terms shall have the following meanings, unless the context otherwise clearly
requires:
"AG BUSINESS" has the meaning assigned to the term "AG Business" in the
Cross License Agreement.
"CLIENT SITE" means a Web site on the World Wide Web portion of the
internet established or maintained by Client or any Customer of Client.
"CONFIDENTIAL INFORMATION" has the meaning assigned to it in the Cross
License Agreement.
"CONTENT" means all text, pictures, sound, graphics, video and other
data supplied by Client or its Customers to Provider pursuant to this Agreement,
as such materials may be modified from time to time.
<PAGE> 2
"COST" has the meaning assigned to that term in the Administrative
Services Agreement of even date herewith between Client and Provider.
"CROSS-LICENSE AGREEMENT" means the Cross-License Agreement dated
________, 1999 between the parties hereto.
"CUSTOMER" means any customer or prospective customer of Client.
"DOMAIN NAME" means any domain name used for a Client Site.
"FORMATION AGREEMENT" means the Formation Agreement dated ________,
1999 between the parties hereto.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning assigned to it in the
Cross License Agreement.
"SUPPLEMENTARY AGREEMENT" means any agreement entered into between
Client and Provider with respect to particular Web Services for the purpose of
setting forth the specifications for that project, the timetable for delivery
and acceptance of Web Services for that project and similar matters.
"USER CONTENT" means all text, pictures, sound, graphics, video and
other data provided by users of any Client Site.
"WEB SERVICES" means electronic and internet content delivery related
technology development and implementation services, including, without
limitation, web site development and maintenance. The term Web Services shall
not include actual web hosting, but shall include services related to arranging
for web hosting with third parties.
"WORK PRODUCT" means tangible and intangible work product, ideas,
concepts, know-how and information and the writings in which any of the same are
fixed (including, without limitation, all reports, computer software systems,
routines, data models, technical data, processes, designs, code and
documentation and systems, concepts and business information) and all
proprietary rights (including, without limitation, rights under patent,
copyright, trade secret and other similar laws) therein. "Work Product" shall
specifically include, without limitation, all HTML files, Java files, graphics
files, animation files, data files, technology, scripts and programs, both in
object code and source code form, all documentation and any other deliverable
prepared for Client by Provider in accordance with the terms of this Agreement
or any Supplementary Agreement.
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<PAGE> 3
ARTICLE II. SERVICES TO BE PROVIDED
SECTION 2.1 REQUESTS FOR SERVICES. Whenever Client requires Web Services in the
course of Client's business, Client shall have the right, but not the
obligation, to call upon Provider to provide those Services in accordance with
the terms of this Agreement. Client shall from time to time give Provider notice
a reasonable time in advance of the volume of Web Services it expects to
require. Client's notices will specify in reasonable detail the types of Web
Services Client expects to require and the level of each type of Web Service.
Provider shall be obligated to provide those Web Services of which it has such
notice at the volume level specified, subject only to Provider's reasonable
determination that such Services are within its competency.
SECTION 2.2 USE OF SERVICES. Provider shall only be obligated to provide Web
Services for the purpose of supporting Client's business, including, without
limitation, supporting, through services to Client, initiatives by Customers.
Provider shall have no obligation to provide Web Services to assist Client in
establishing a service bureau, engaging in outsourcing activities or otherwise
offering Provider's Web Services to third parties (other than services
incidentally provided to Customers of Client in the course of supporting
Client's activities with that Customer). After Provider notifies Client under
Section 3.1.3 of the Cross-License Agreement that it is terminating its licenses
of "Finished AG.COM Properties" (as defined in the Cross-License Agreement),
Provider may decline to provide services hereunder that relate solely to such
Finished AG.COM Properties as are no longer licensed; provided, that, Provider
shall continue to provide services hereunder which relate to its Intellectual
Property which continues to be licensed under the Cross-License Agreement.
SECTION 2.3 THIRD PARTY PROVIDERS. Client shall remain free at all times to
source Web Services internally or from third parties. Provider shall be free to
provide Web Services to Client through any of its subsidiaries, subcontractors
or other third parties selected or managed by Provider, subject to Client's
right to approve or disapprove any such third party (other than a wholly-owned
subsidiary) in the exercise of Client's reasonable discretion; provided that to
the extent Client disapproves a reasonable third party selection by Provider,
Provider shall, solely to such extent, be relieved of its obligation to provide
Web Services.
ARTICLE III. TERMS OF SERVICE
Client and Provider may from time to time enter into Supplementary
Agreements to specify the terms and conditions applicable to particular Web
Services. Except as may be otherwise agreed between Client and Provider from
time to time in any Supplementary Agreement, all Web Services provided under
this Agreement, whether or not the subject of a Supplementary Agreement, shall
be governed by the Cross License Agreement and shall be subject to the terms and
conditions hereof, including the following terms and conditions:
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<PAGE> 4
SECTION 3.1 OWNERSHIP.
(a) OWNERSHIP OF PROPERTY CREATED BY PROVIDER UNDER THIS AGREEMENT. As
between Client and Provider, Provider shall retain (and to the extent of any
interest therein, Client hereby assigns to Provider) ownership of all right,
title and interest in and to all Work Product produced by Provider pursuant to
Client's requests for services hereunder, including, without limitation, all
applicable Intellectual Property Rights thereto. Provider hereby grants to
Client an irrevocable, perpetual, worldwide, fully paid license, with right to
sublicense through multiple tiers, to all such Work Product and Intellectual
Property Rights. Such license shall be governed by the Cross-License Agreement
and shall be exclusive in the AG Business and non-exclusive otherwise.
(b) OWNERSHIP OF OTHER PROPERTY. For the avoidance of doubt, the
retention and assignment provided for in Section 3.1(b) shall not be deemed to
effect any assignment of any other Work Product (i.e., Work Product not
developed hereunder, including any pre-existing Work Product). Client and its
Customers shall retain their respective ownership interests in all Client Sites
that receive Web Services. Without limiting the generality of the foregoing,
Client and its Customers shall retain their respective rights in any Client or
Customer owned Content (including Domain Names) or User Content given to
Provider for purposes of enabling Provider to provide Web Services. Subject to
Section 3.1(a) above, as between Client and Provider, Client shall own all
rights in User Content and usage information arising from any Client Site.
(c) EMPLOYEE AND SUBCONTRACTOR CONTRACTS. Provider shall, consistent
with customary industry practices, cause each individual or company employed by
Provider in the performance of Web Services to execute a contract regarding
confidentiality and ownership of rights prior to each such individual or
company's commencement of services thereunder or otherwise bind itself to
reasonable confidentiality and ownership requirements. Such contracts shall be
deemed to meet the foregoing requirement if they: (a) include a full assignment
of all rights to Provider, as appropriate, (b) include a waiver of any moral or
similar rights, and (c) contain restrictions on use and disclosure. Further,
with respect to any subcontractors which it employs: (x) Provider shall be
responsible for the direction and coordination of the services of such
subcontractors, and (y) Client shall have no obligation to pay such
subcontractor(s).
(d) FURTHER ASSURANCES. Provider shall cooperate with Client and its
Customer, both during and after the term of this Agreement, in the procurement
and maintenance of their respective rights to intellectual property created
hereunder and to execute, when requested, any other documents deemed necessary
or appropriate by Client to carry out the purpose of this Agreement.
SECTION 3.2 PRICING AND PAYMENT.
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<PAGE> 5
Except as may be otherwise agreed, Client shall pay Provider for Web
Services at rates equal to Cost plus 10 percent. Payment terms shall be net 30
days unless otherwise agreed.
SECTION 3.3 STANDARDS OF SERVICE.
(a) MOST FAVORED NATION STATUS. The services rendered by Provider under
this Agreement shall meet or exceed the standards of quality and technological
currency that Provider meets in its own business or offers to any other customer
of Provider.
(b) LIMITED REMEDY. In the event any Web Services result in Work
Product that does not meet the standards set forth in Section 3.3(a) or is
otherwise defective, Provider shall, at Client's request and as Client's sole
and exclusive remedy hereunder, remedy any such defect, provided that Provider
shall be entitled to compensation for any additional Web Services required to
effect such remedy on the terms set forth herein, including, without limitation,
in Section 3.2.
(c) TIMELINES. Provider shall meet or beat the timetable established in
any Supplementary Agreement, and failure to do so to any material extent shall
be considered a material breach of this Agreement.
(d) DISCLAIMER OF WARRANTIES. EXCEPT AS SET FORTH HEREIN AND IN THE
CROSS-LICENSE AGREEMENT, EACH PARTY EXPRESSLY DISCLAIMS ALL WARRANTIES OR
CONDITIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE
SECTION 3.4 INDEMNITY. Provider shall indemnify Client against any claims by
third parties asserting damages resulting from services rendered by Provider
under this Agreement.
SECTION 3.5 CONFIDENTIAL INFORMATION. Each party shall hold the other party's
Confidential Information in confidence in accordance with the Cross License
Agreement
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<PAGE> 6
SECTION 3.6 ADVERTISING. Client and its Customers shall have the right, in their
sole discretion, to sell advertising, directly and via their licensees and other
promotional partners, to appear on Client Sites, without consulting with
Provider. Client shall have the right to retain all revenues and fees arising
from or in connection with such advertising sold by Client, its licensees and
promotional partners. Provider shall not approach any potential advertisers for
client sites without the prior written consent of Client, which consent shall
not be unreasonably withheld. All final decisions concerning potential
advertisers shall remain within the sole discretion of Client and its Customers.
SECTION 3.7 ANCILLARY RIGHTS. Provider shall have no right to any royalties,
revenues, fees or other payments in connection with, or as a result of, the Web
Services or any Client Site, or with respect to products or services promoted or
sold on or by any Client Site, except as expressly provided in this Agreement.
Nor shall Provider have any rights of attribution in connection with any Client
Site, which shall contain appropriate proprietary rights notices, as directed by
Client. Notwithstanding the immediately preceding sentence, Provider shall have
the right to place a Client-approved logo on a credits page for each Client
Site, which logo may reference Provider's creation and operation of the Client
Site. With the express written consent of Client or its Customer, as the case
may be, this logo may include a link to Provider's own Web site.
SECTION 3.8 HOSTING.
If requested by Client with respect to a particular Client Site, the Web
Services to be provided under this Agreement shall include assistance to Client
and its Customers in arranging for hosting of such Client Site and assisting
Client and its Customers with management of the hosting arrangements.
ARTICLE IV. TERM AND TERMINATION
SECTION 4.1 TERM OF AGREEMENT. This Agreement shall be effective as of the date
first above written and shall remain in force for a period of 99 years, unless
otherwise terminated as provided herein.
SECTION 4.2 TERMINATION OF WORK. Client may, at its sole discretion, terminate
any or all work outstanding on any Client Site, or any portion thereof,
immediately upon written notice. Upon receipt of notice of such termination,
Provider shall inform Client of the extent to which performance has been
completed through such date, and collect and deliver to Client whatever Work
Product then exist in a manner prescribed by Client. Provider shall be paid for
all work performed through the date of receipt of notice of termination as
specified in paragraph 3.2 above. Provider may not terminate any work under this
Agreement without the prior written consent of Client.
SECTION 4.3 TERMINATION OF AGREEMENT. This Agreement shall terminate on the
earliest of (a) the date of termination of the Cross-License Agreement and (b)
the date when all work has been terminated pursuant to Section 4.2, but only if
Client files further written notice to Promoter stating its intention that this
Agreement shall then terminate.
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<PAGE> 7
SECTION 4.4 SURVIVAL. In the event of any termination of this Agreement,
paragraphs 3.1, 3.2, 3.4 and 3.5 hereof shall survive and continue in effect and
shall inure to the benefit of and be binding upon the parties and their legal
representatives, heirs, successors, and assigns. The termination of any
provision of this Agreement shall not excuse a prior breach of that provision.
ARTICLE V. MISCELLANEOUS
SECTION 5.1 FORCE MAJEURE. Either party shall be excused from delays in
performing or from its failure to perform hereunder to the extent that such
delays or failures result from causes beyond the reasonable control of such
party; provided, however, that, in order to be excused from delay or failure to
perform, such party must act diligently to remedy the cause of such delay or
failure.
SECTION 5.2 NO AGENCY OR JOINT VENTURE. Provider, in rendering performance under
this Agreement, is acting and shall act solely as an independent contractor.
Client does not undertake by this Agreement or otherwise to perform any
obligation of Provider, whether by regulation or contract. In no way is Provider
to be construed as the agent or to be acting as the agent of Client in any
respect, or as a joint venturer, any other provisions of this Agreement
notwithstanding.
SECTION 5.3 MULTIPLE COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which taken together shall constitute one single Agreement
between the parties.
SECTION 5.4 AUTHORITY TO ENTER INTO AGREEMENT. The parties and their
representatives signing this Agreement hereby acknowledge and represent that the
representatives signing this Agreement are duly authorized agents of the parties
hereto and are authorized and have full authority to enter into this Agreement
on behalf of the parties for whom they are signing.
SECTION 5.5 SECTION HEADINGS; EXHIBITS. The section and subsection headings used
herein are for reference and convenience only, and shall not enter into the
interpretation hereof.
SECTION 5.6 NO WAIVER. No delay or omission by either party hereto to exercise
any right or power occurring upon any noncompliance or default by the other
party with respect to any of the terms of this Agreement shall impair any such
right or power or be construed to be a waiver thereof. The terms and conditions
of this Agreement may be waived or amended only in writing and only by the party
that is entitled to the benefits of the term(s) or condition(s) being waived or
amended. A waiver by either of the parties hereto of any of the covenants,
conditions, or agreements to be performed by the other shall not be construed to
be a waiver of any succeeding breach thereof or of any covenant, condition, or
agreement herein contained (whether or not the provision is similar). Unless
stated otherwise, all remedies provided for in this Agreement shall be
cumulative and in addition to and not in lieu of any other remedies available to
either party at law, in equity, or otherwise.
SECTION 5.7 GOVERNING LAW/CONSENT TO JURISDICTION AND VENUE. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Ohio, without reference to the choice of law provisions thereof. All aspects of
all actions brought relating to the subject matter of this Agreement shall be
governed by Ohio law, without reference to the choice of law
7
<PAGE> 8
provisions thereof. Disputes between the parties shall be submitted to
resolution under Section 8.09 of the Formation Agreement.
SECTION 5.8 ENTIRE AGREEMENT. Each party to this Agreement acknowledges that
this Agreement and the other agreements between the parties referred to herein
constitute the entire agreement of the parties with regard to the subject
matters addressed in this Agreement, that this Agreement supersedes all prior or
contemporaneous agreements, discussions, or representations, whether oral or
written, with respect to the subject matter of this Agreement, and that this
Agreement cannot be varied, amended, changed, waived, or discharged except by a
writing signed by all parties hereto. Each party to this Agreement further
acknowledges that no promises, representations, inducements, agreements, or
warranties, other than those set forth herein, have been made to induce the
execution of this Agreement by said party, and each party acknowledges that it
has not executed this Agreement in reliance on any promise, representation,
inducement, or warranty not contained herein.
SECTION 5.9 NEUTRAL CONSTRUCTION. The parties to this Agreement agree that this
Agreement was negotiated fairly between them at arm's length and that the final
terms of this Agreement are the product of the parties' negotiations. Each party
warrants and represents that it has sought and received legal counsel of its own
choosing with regard to the contents of this Agreement and the rights and
obligations affected hereby. The parties agree that this Agreement shall be
deemed to have been jointly and equally drafted by them, and that the provisions
of this Agreement therefore should not be construed against a party or parties
on the grounds that the party or parties drafted or was more responsible for
drafting the provision(s).
SECTION 5.10 UNENFORCEABILITY. If any provision of this Agreement or any word,
phrase, clause, sentence, or other portion thereof should be held to be
unenforceable or invalid for any reason, then provided that the essential
consideration for entering into this Agreement on the part of any party is not
unreasonably impaired, such provision or portion thereof shall be modified or
deleted in such manner as to render this Agreement as modified legal and
enforceable to the maximum extent permitted under applicable laws.
SECTION 5.11 NOTICES. Under this Agreement if one party is required or permitted
to give notice to the other, such notice shall be deemed given either (a) when
transmitted by facsimile or (b) two business days after being deposited in the
U.S. mail, first-class postage prepaid, to the attention of the other party's
chief executive officer at the registrant's principal executive office.
SECTION 5.12 NO ASSIGNMENT. Provider may not, without the prior written consent
of Client, assign, transfer, subcontract, or sublicense this Agreement or any
obligation hereunder. Any attempt to do so in contravention of this section
shall be void and of no force and effect.
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<PAGE> 9
IN WITNESS WHEREOF, Client and Provider have caused this Agreement to
be signed and delivered by their duly authorized agents, all as of the date
first above written.
AMERICAN GREETINGS CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
AMERICANGREETINGS.COM, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
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<PAGE> 1
Exhibit 10.6
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement"), dated as of
___________, 1999, by and between americangreetings.com, inc., a Delaware
corporation ("AG.COM"), and American Greetings Corporation, an Ohio corporation
("AG").
WHEREAS, AG and AG.COM have entered into that certain Separation
Agreement, dated __________ , 1999 (the "Separation Agreement"), and,
simultaneously with the execution and delivery of this Agreement, intend to
consummate the transactions contemplated by the Separation Agreement; and
WHEREAS, AG.COM and AG desire to enter into certain agreements
concerning administrative services to be offered and/or provided by AG to AG.COM
and its Subsidiaries.
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS: All capitalized terms used in this Agreement but not
defined will have the same meanings ascribed to such terms in the
Separation Agreement.
2. PROVISION OF SERVICES: During the Term (as defined in SECTION 3 below),
AG shall cause one or more members of the AG Group to offer and, at
AG.COM's election, provide to AG.COM and its Subsidiaries, such
administrative services as AG.COM may reasonably request for their
respective business operations and provide AG.COM and its Subsidiaries
with full use of the office space at AG's headquarters primarily used
by AG.COM and its Subsidiaries as of the date of this Agreement (the
"Office Space") for their operations (collectively, the "Services"). AG
shall have no obligation to provide the Services at levels in excess of
those in which AG regularly had provided such Services for the
operation of AG.COM's business prior to the date of the Separation
Agreement. Such Services may include, by way of example, human resource
administration, finance administration and legal services. At AG.COM's
request, the parties will confer to discuss what, if any, Services
AG.COM wishes to request, the actual Service Fees (as defined herein)
that would be chargeable by AG for such Services and the timing of the
implementation of such Services. With respect to any Services that
AG.COM wishes to be provided hereunder, for itself or any of its
Subsidiaries, the parties shall establish in writing the nature of the
Services, the Service Fees chargeable therefor and the timing of the
implementation of such Services. Nothing in this Agreement will be
construed to prohibit AG.COM or any of its Subsidiaries from
contracting with third parties to provide any of the Services or from
undertaking to perform the Services itself, and nothing in this
Agreement will be construed to prohibit AG from undertaking to provide
additional services to AG.COM other than as contemplated by this
Agreement, on terms and conditions mutually satisfactory to the
parties. Additionally, unless expressly provided otherwise pursuant to
an Ancillary Agreement, actions taken in connection with any member of
the AG Group's ownership interest in AG.COM or pursuant to any contract
rights granted to any member of the AG Group (including by way of
example, but not limited to, audits of the AG Group in connection with
the preparation of consolidated tax
<PAGE> 2
returns or internal audits requested by AG) that are not a result of a
specific request by AG.COM for Services hereunder, shall be at AG's
sole cost and expense and shall not be deemed to be part of the
Services provided hereunder.
3. TERM: The term of the provision of Services under this Agreement (the
"Term") will commence on the Closing Date and will expire on the End
Date unless earlier terminated as set forth in Section 4.
4. EARLY TERMINATION OF SERVICES:
4.1. EARLY TERMINATION BY AG. AG may cause the AG Group to
terminate any or all Services provided hereunder (i) upon the
occurrence of a Reversion Event or (ii) at any time following
AG.COM's material breach of its payment obligations hereunder
and AG.COM's failure to cure such breach within ten (10) days
after receipt of written notice from AG. Notwithstanding
anything to the contrary contained in this Agreement,
following the second anniversary of this Agreement, AG may
cause the AG Group to terminate any or all Services provided
hereunder upon one hundred twenty (120) days' prior written
notice to AG.COM and may elect not to provide any Services
thereafter requested by AG.COM.
4.2. EARLY TERMINATION BY AG.COM. AG.COM may terminate its receipt
of any or all of the Services provided by AG or its agents,
for any reason or no reason, upon not less than one hundred
twenty (120) days' prior written notice to AG. Notwithstanding
any notice by AG.COM to terminate any Services, no termination
will become effective until the completion of such Services as
AG.COM may reasonably request AG to complete so as to minimize
disruption of its business operations. Upon termination of any
Services, AG will cooperate with AG.COM in providing
assistance reasonably requested by AG.COM relating to the
transition of the provision of the Services to AG.COM or any
other entity and such assistance shall be chargeable to AG.COM
as Services.
5. THIRD PARTY SUPPLIERS. AG covenants that it will not enter into
agreements with third parties ("Third Party Suppliers") to provide
goods or services for the benefit of AG.COM or any of its Subsidiaries
without the prior written consent of AG.COM unless such agreements
provide for termination by AG without penalty upon not less than one
hundred twenty (120) days' notice. Any agreements with Third Party
Suppliers entered into by AG which by their terms do not provide for
termination by AG without penalty upon less than one hundred twenty
(120) days' notice but which AG.COM had consented to in writing, shall
be referred to as the "Permitted Third Party Agreements." If AG.COM
terminates its receipt of any Services prior to the expiration of the
Term, with respect to each Permitted Third Party Agreements relating to
exclusively such Services, AG.COM shall, at its election, either (A)
assume such Permitted Third Party Agreements effective upon termination
of such Services, or (B) reimburse AG for any monies due pursuant to
such Permitted Third Party Agreements either as a result of such
termination or after such termination.
2
<PAGE> 3
6. FEES: In consideration of AG's performance of the Services during the
Term, AG.COM hereby agrees to pay AG fees (the "Service Fees") equal to
AG's actual costs plus ten percent (10%). For purposes of this
Agreement, actual costs means all costs and expenses directly incurred
by AG excluding: (i) any costs or expenses associated with AG's
overhead, (ii) any advertising or promotion costs or expenses, (iii)
any interest payments, and (iv) any costs or expenses associated with
personnel of AG or the AG Group other than the allocable portion of the
base salary of any AG Group employee directly providing or supervising
Services plus twenty-three percent (23%) of such base salary charge
(representing the total amount chargeable in respect of any fringe
benefits of any AG Group employee). Notwithstanding anything to the
contrary contained in this Agreement, AG.COM agrees to pay AG fees and
charges for its use of the Office Space at AG's standard rate of fees
and charges for such use, consistent with past practice. AG will
provide to AG.COM a monthly invoice by the thirtieth (30th) day of each
month, setting forth in reasonable detail the Service Fees payable by
AG.COM for Services rendered by AG during the preceding month. All
invoices will be due and payable thirty (30) days following receipt of
invoice. Overdue payments shall bear interest at the prime rate (as
published in The Wall Street Journal on the first date such payments
become overdue). All disputes regarding any invoice amounts will be
resolved pursuant to the dispute resolution procedures set forth in
Section 8.09 of the Separation Agreement.
7. WARRANTIES. AG hereby warrants to AG.COM and its Subsidiaries as
follows:
7.1. AG will use reasonable efforts to perform the Services in a
competent manner, consistent with the manner in which AG
regularly had provided such Services for the operation of
AG.COM's business prior to the date of the Separation
Agreement and consistent with the manner in which AG provides
such Services for operation of its own business.
Notwithstanding anything to the contrary contained in this
Agreement, AG makes no warranty to AG.COM as to the adequacy
or suitability of the Services for AG.COM's or its
Subsidiaries' needs.
7.2. The provision of the Services will not violate or in any way
infringe upon or violate the rights of any third parties,
including, but not limited to, copyrights, patents, trade
secrets, contractual rights, employment rights, and other
proprietary rights.
8. INDEMNITY. Sections 6.02 through 6.11 of the Separation Agreement shall
govern indemnification obligations and claims under this Agreement and
are hereby incorporated by reference herein.
9. INDEPENDENT CONTRACTOR STATUS: The parties are and intend to be
independent contractors with respect to the Services to be provided
hereunder. None of AG, any member of the AG Group or any of their
respective employees and agents will be considered as having an
employee status with AG.COM or will be entitled to participate in any
of AG.COM's employee benefit programs including, but not limited to,
workers' compensation and disability insurance, group health and dental
insurance, unemployment insurance, retirement plans, and stock-based
benefits or plans. AG will not act as an agent of
3
<PAGE> 4
AG.COM and will not be entitled to enter into any agreements or incur
any obligations on behalf of AG.COM. No form of joint employer, joint
venture, partnership, or similar relationship between the parties is
intended or hereby created. As an independent contractor, AG will be
solely responsible for: (a) determining the means and methods for
performing the Services provided under this Agreement; and (b) persons
employed by AG and engaged in the performance of the specified work,
including responsibility for all applicable employee-related tax,
salary and benefit programs, and AG further agrees to indemnify and
hold AG.COM and its Subsidiaries harmless from and against any and all
Liability, claims, penalties, costs, and taxes related thereto.
10. AUDIT RIGHTS. AG.COM (or its authorized representatives) will have the
right, at its sole expense, at any time upon ten (10) days' prior
written notice but no more than once every twelve (12) months, to
perform an audit of the Services provided hereunder and the Services
Fees being charged hereunder. Such audit shall be limited to Services
provided and Service Fees charged during the two (2) year period
immediately prior to the commencement of such audit. Pursuant to such
audit, AG will have full and complete access, during normal business
hours and upon reasonable notice, to AG's books and records and AG will
provide AG.COM with such information and assistance, as reasonably
requested by AG.COM to perform the audits. Subject to AG's obligations
as set forth in this Section, AG may terminate AG.COM's right to
perform a given audit in the event AG.COM fails to complete such audit
within four (4) months of its commencement. Any discrepancies found
during any audit shall be rectified upon written demand.
11. ACCESS TO BOOKS AND RECORDS. Upon termination of any Services
hereunder, AG shall deliver to AG.COM copies of all books and records
of AG related to the performance of such Services to the extent such
books and records are separable from AG's other books and records. To
the extent such books and records are not separable and AG has not
supplied AG.COM with copies of such books and records, AG will provide
AG.COM with full and complete access to such books and records for as
long as such books and records must be retained to comply with
Applicable Law and in any event for no less than five (5) years
following termination of such Services.
12. CONFIDENTIAL INFORMATION. The parties hereby acknowledge that their
personnel may gain access to information that the other party deems to
be confidential and/or proprietary and that has commercial value. As
used herein, "Confidential Information" means any and all proprietary
business information of the disclosing party that does not constitute a
Trade Secret (as hereinafter defined), including any such information
of which the receiving party becomes aware as a result of its
performance under this Agreement. As used herein, "Trade Secrets" means
information related to the business of the disclosing party that
derives economic value, actual or potential, from not being generally
known to or readily ascertainable by other persons who can obtain
economic value from its disclosure or use and is the subject of efforts
by the disclosing party that are reasonable under the circumstances to
maintain its secrecy. For purposes of this Agreement, "Company
Information" means both Confidential Information and Trade Secrets.
Each party shall use the same care to prevent disclosing to third
parties the Company Information of the other party as it employs to
avoid disclosure, publication, or
4
<PAGE> 5
dissemination of its own information of a similar nature, but in no
event less than a reasonable standard of care. Each party covenants
that its employees and agents will be bound by the obligations of this
Section. Furthermore, except as contemplated by this Agreement in the
rendering of Services hereunder, neither party shall: (a) make any use
of the other party's Company Information; (b) acquire any right in or
assert any lien against the other party's Company Information; or (c)
refuse to promptly return, provide a copy of, or destroy the other
party's Company Information upon request of the other party.
Notwithstanding the foregoing, the limitations in this Section shall
not apply to any information that the receiving party can demonstrate:
(i) was in the public domain at the time of disclosure to it; (ii) was
published or otherwise became a part of the public domain, after
disclosure to the receiving party, through no fault of its own; (iii)
was in the possession of the receiving party at the time of disclosure
to it from a third party who had a lawful right to such information and
disclosed such information to it, without a breach of duty owed to the
disclosing party; or (iv) was independently developed by the receiving
party without reference to Company Information of the disclosing party.
13. MISCELLANEOUS. Section 8.01 and Sections 8.03 through 8.10 of the
Separation Agreement shall govern this Agreement and are hereby
incorporated by reference herein; provided, however, that (i) any
reference to "Agreement" in the above-mentioned Sections of the
Separation Agreement shall be deemed to refer to this Administrative
Services Agreement, and (ii) any reference to "Ancillary Agreements" in
Section 8.06 of the Separation Agreement shall be given no force or
effect.
[INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, AG.COM. and AG have each caused this Administrative
Services Agreement to be executed by their respective authorized officers, all
as of the date first above written.
AMERICANGREETINGS.COM, INC.
By:
--------------------------------
Print Name:
Title:
AMERICAN GREETINGS CORPORATION
By:
--------------------------------
Print Name:
Title:
6
<PAGE> 1
Exhibit 10.7
FORM OF
AMERICAN GREETINGS
REGISTRATION RIGHTS AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1 Certain Definitions...................................................................................1
Section 2 Demand Registration...................................................................................2
2.1 Request by AG............................................................................................2
2.2 Effectiveness............................................................................................3
2.3 Underwriting.............................................................................................3
2.4 Maximum Number of Registrations..........................................................................3
2.5 Withdrawn Request........................................................................................3
Section 3 Piggyback Registrations...............................................................................3
3.1 AG Rights................................................................................................3
3.2 Cut-Back Provision.......................................................................................3
3.3 Underwriting.............................................................................................4
Section 4 Expenses of Registration..............................................................................4
Section 5 AG.COM's Obligations..................................................................................4
5.1 Registration Statement...................................................................................4
5.2 Notice Requirements......................................................................................5
5.3 AG's Use of the Prospectus...............................................................................5
5.4 Blue Sky Law.............................................................................................5
5.5 Listing..................................................................................................5
5.6 Compliance with the Securities Act and the Exchange Act..................................................5
5.7 Share Certificates.......................................................................................6
Section 6 Review................................................................................................6
Section 7 Indemnification.......................................................................................6
7.1 By AG.COM................................................................................................6
7.2 By AG....................................................................................................6
7.3 Notice...................................................................................................7
7.4 Contribution.............................................................................................7
7.5 Fraudulent Misrepresentation.............................................................................8
Section 8 Assignment of Registration Rights.....................................................................8
Section 9 Miscellaneous.........................................................................................8
9.1 Governing Law............................................................................................8
9.2 Entire Agreement.........................................................................................8
9.3 Amendment................................................................................................9
9.4 Notices, etc.............................................................................................9
9.5 Counterparts.............................................................................................9
9.6 Severability.............................................................................................9
9.7 Section Titles..........................................................................................10
9.8 Successors and Assigns..................................................................................10
9.9 Third Parties...........................................................................................10
</TABLE>
i
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of _____, 1999 (this
"Agreement"), between American Greetings Corporation, an Ohio corporation
("AG"), and americangreetings.com, inc., a Delaware corporation ("AG.COM").
WHEREAS, AG, through AGC Investments, Inc., a wholly owned subsidiary
of AG and a Delaware corporation ("AGC"), intends to contribute to AG.COM
relationships with certain employees and certain assets and cross-license with
AG.COM and [AG.com Properties, Inc.] certain Intellectual Property rights
related to the AG.COM Business;
WHEREAS, AG is enabling AG.COM to issue Class A Common Shares, par
value $.001 per share (the "Class A Shares"), including, without limitation, in
connection with an offering to the public registered with the Commission (the
"Initial Public Offering") and to establish incentive compensation plans for the
benefit of employees of AG.COM;
WHEREAS, pursuant to that Separation Agreement dated as of _____, 1999,
(the "Separation Agreement") between AG, AGC and AG.COM, AGC, the present owner
of all of the 1,000 shares of Common Stock of AG.COM, will acquire twenty-four
million (24,000,000) Class B Common Shares, par value $.001 per share, of AG.COM
(the "Class B Shares"), (together with AG.COM's Class A Shares, the "Registrable
Shares"), with the Class B Shares convertible into Class A Shares, pursuant to
the terms of the Class B Shares; and
WHEREAS, the parties hereto desire to evidence their agreement that
AG.COM will register for sale the Class A Shares receivable upon conversion of
the Class B Shares and the mutual covenants of the parties relating thereto;
NOW, THEREFORE, in consideration of the foregoing and the covenants of
the parties set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, subject to the terms
and conditions set forth herein, the parties hereby agree as follows:
Section 1 CERTAIN DEFINITIONS. In this Agreement the following terms
shall have the following respective meanings:
1.1 "AFFILIATE" means, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
Person specified.
1.2 "CLASS A SHARES" has the meaning ascribed to it in the
recitals to this Agreement.
<PAGE> 4
1.3 "CLASS B SHARES" has the meaning ascribed to it in the
recitals to this Agreement.
1.4 "COMMISSION" means the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
1.5 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the relevant time.
1.6 "HOLDER" shall mean any Person holding (a) Class A Shares
or (b) Class B Shares.
1.7 "INDEMNIFIED PARTY" has the meaning ascribed to it in
Section 7.3 of this Agreement.
1.8 "INDEMNIFYING PARTY" has the meaning ascribed to it in
Section 7.3 of this Agreement.
1.9 "PERSON" means an individual, corporation, partnership,
estate, trust, association, private foundation, joint stock company or other
entity.
1.10 "PIGGYBACK NOTICE" has the meaning ascribed to it in
Section 3.1 of this Agreement.
1.11 "PIGGYBACK REGISTRATION" has the meaning ascribed to it
in Section 3.1 of this Agreement.
1.12 The terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by preparing and filing a "REGISTRATION
STATEMENT" in compliance with the Securities Act providing for the sale by AG of
Class A Shares, whether or not issued upon conversion of Class B Shares, in
accordance with the method or methods of distribution designated by AG, and the
declaration or ordering of the effectiveness of such Registration Statement by
the Commission.
1.13 "REGISTRABLE SHARES" means the Class A Shares and the
Class B Shares after conversion to Class A Shares, except that as to any
particular Registrable Shares, once issued such securities shall cease to be
Registrable Shares when a Registration Statement with respect to the sale of
such securities becomes effective under the Securities Act and such securities
are disposed of in accordance with such Registration Statement.
1.14 "REGISTRATION REQUEST" has the meaning ascribed to it in
Section 2.1 of this Agreement.
1.15 "SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the relevant time.
Section 2 DEMAND REGISTRATION.
2.1 REQUEST BY AG. Upon receipt of a written request (a
"Registration Request") by AG, delivered not earlier than 180 days after the
date of the closing of the initial public offering by AG.COM of Class A Shares,
with a reasonably anticipated aggregate price to the public of at least 5
million dollars ($5,000,000) (assuming for purposes of such calculation
2
<PAGE> 5
the conversion of Class B Shares to Class A Shares), AG.COM shall prepare and
file with the Commission, within 60 days after AG.COM's receipt of such
Registration Request, a Registration Statement for the purpose of effecting a
Registration of the sale of Registrable Shares by AG.
2.2 EFFECTIVENESS. AG.COM shall use its best efforts to file
as soon as possible and cause to become effective as soon as possible such
Registration (including, without limitation, the execution of an undertaking to
file post-effective amendments and appropriate qualification under applicable
state securities laws). AG.COM shall use its best efforts to keep such
Registration continuously effective until the date on which all Registrable
Shares have been sold pursuant to such Registration Statement.
2.3 UNDERWRITING. If AG intends for the Registrable Shares
covered by its request to be distributed by means of an underwriting, then it
shall so advise AG.COM as a part of its Registration Request. AG shall select
the managing underwriter to administer such offering after consultation with
AG.COM.
2.4 MAXIMUM NUMBER OF REGISTRATIONS. AG.COM shall not be
required to effect more than one Registration within a twelve month period
pursuant to this Section 2.
2.5 WITHDRAWN REQUEST. AG may withdraw a request for
registration under this Section 2 at any time prior to the effective date of the
Registration Statement related to such registration. If AG agrees to pay all
expenses, as set forth in Section 4, incurred in conjunction therewith, then
such withdrawn Registration Statement shall not be considered to be a demand
registration for the purposes of Section 2.4.
Section 3 PIGGYBACK REGISTRATIONS.
3.1 AG RIGHTS. At any time after the 180th day after the date
of the closing of the initial public offering by AG.COM of the Class A Shares,
if AG.COM proposes to register any additional Class A Shares (other than
pursuant to (a) a registration on Form S-4 or any successor form or (b) an
offering of securities in connection with an employee benefit or dividend
reinvestment plan) and the registration form to be used may be used for the
registration of Registrable Shares, AG.COM will give at least 90 days advance
written notice to AG of its intention to file such a Registration (a "Piggyback
Notice"), and AG.COM will include in such Registration all Registrable Shares
with respect to which AG provides a written request for inclusion therein within
20 business days after receipt of the Piggyback Notice (a "Piggyback
Registration"). If AG decides not to include all of its Registrable Securities
in any Registration Statement filed by AG.COM, it shall nevertheless continue to
have the right to include any Registrable Shares not included in such
Registration Statement in any subsequent Registration Statement or Registration
Statements as may be filed by AG.COM with respect to offerings of its
securities, all upon the terms and conditions set forth herein.
3.2 CUT-BACK PROVISION. AG.COM need not include all
Registrable Shares requested by AG to be included if the Piggyback Registration
is underwritten and the managing underwriter advises AG.COM in writing that the
inclusion of Registrable Shares would adversely affect such offering. The number
of securities that may be excluded from the number
<PAGE> 6
of Registrable Shares in AG's Piggyback Registration shall be as required in the
written opinion of the managing underwriter to avoid such adverse impact on such
offering. The number of Registrable Shares in AG's Piggyback Registration shall
not be reduced if any other Holder has Registrable Shares included in the
Registration. AG.COM may withdraw any such registration in its sole discretion
but in such case shall be responsible for AG's expenses described in Section 4.
3.3 UNDERWRITING. If a Registration Statement with respect to
which AG.COM gives notice under this Section 3 pertains to an underwritten
offering, then AG.COM shall so advise AG. In such event, the right of AG to have
Registrable Shares included in a registration pursuant to this Section 3 shall
be conditioned upon AG's participation in such underwriting and the inclusion of
the Registrable Shares in the underwriting to the extent provided herein. AG
shall enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting.
Section 4 EXPENSES OF REGISTRATION. In connection with the first three
Registrations, AG.COM shall pay all reasonable expenses incurred in connection
with registrations, filings or qualifications pursuant to Sections 2, 3, and 5
hereof, including, without limitation, all registration, filing, listing and
qualifications fees, underwriting discounts and commissions, printers' and
accounting fees, the fees and disbursements of counsel for AG.COM, and the
reasonable fees and disbursements of counsel selected by AG to the extent
related to the Registration and Registrable Shares hereunder. In connection with
each Registration thereafter, AG.COM shall pay one-half of all reasonable
expenses as outlined in the preceding sentence.
Section 5 AG.COM'S OBLIGATIONS.
5.1 REGISTRATION STATEMENT. Whenever required to effect the
registration of any Registrable Shares under this Agreement, AG.COM shall use
its best efforts to do the following:
5.1.1 Prepare and file with the Commission a
Registration Statement with respect to such Registrable Securities. 5.1.2 As
promptly as practicable upon becoming aware of any event, fact or circumstance
requiring an amendment to a Registration Statement relating to the Registrable
Shares, notify AG and prepare and file a post-effective amendment to the
Registration Statement or supplement to the prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Shares, the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of circumstances under which such
statements were made.
5.1.3 Provide to AG, at no cost to AG, copies of the
Registration Statement and any amendment thereto used to effect the Registration
of the Registrable Shares, each prospectus contained in such Registration
Statement or post-effective amendment and any amendment or supplement thereto,
and such other documents as AG may reasonably request in
<PAGE> 7
order to facilitate the disposition of the Registrable Shares covered by such
Registration Statement.
5.2 NOTICE REQUIREMENTS. AG.COM shall notify AG and any other Holder
participating in the offering of the occurrence of the following events:
5.2.1 when any Registration Statement relating to the
Registrable Shares or post-effective amendment thereto filed with the Commission
has become effective;
5.2.2 the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement relating to the
Registrable Shares or any notice that the Commission intends to issue a stop
order;
5.2.3 AG.COM's receipt of any notification of the suspension
of the qualification of any Registrable Shares covered by a Registration
Statement for sale in any jurisdiction or any notice that the Commission intends
to suspend the qualification of such Registrable Shares; and
5.2.4 the existence of any event, fact or circumstance of
which AG.COM has knowledge, that results in a Registration Statement or
prospectus relating to Registrable Shares or any document incorporated therein
by reference containing any untrue statement of material fact or omitting to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading during the distribution of securities.
AG.COM shall use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of any such Registration Statement or any state
qualification as promptly as possible. AG agrees that upon receipt of any notice
from AG.COM of the occurrence of any event of the type described in Section
5.2.2, 5.2.3, or 5.2.4 to immediately discontinue its disposition of Registrable
Shares pursuant to any Registration Statement relating to such securities until
AG's receipt of written notice from AG.COM that such disposition may be made.
5.3 AG'S USE OF THE PROSPECTUS. AG.COM consents to the use by AG of
each prospectus and any supplement thereto in connection with the offering and
sale of the Registrable Shares covered by such Registration Statement or any
amendment thereto.
5.4 BLUE SKY LAW. AG.COM agrees to use its best efforts to cause the
Registrable Shares covered by a Registration Statement to be registered with or
approved by such state securities authorities as may be necessary to enable AG
to consummate the disposition of such shares pursuant to the plan of
distribution set forth in the Registration Statement.
5.5 LISTING. AG.COM agrees to use its best efforts (including the
payment of any listing fees) to obtain the listing of all Registrable Shares
covered by a Registration Statement on each securities exchange on which the
Class A Shares are then listed.
5.6 COMPLIANCE WITH THE SECURITIES ACT AND THE EXCHANGE ACT. AG.COM
shall comply with the Securities Act and the Exchange Act in connection with the
offer and sale
5
<PAGE> 8
of Registrable Shares pursuant to a Registration Statement. Following the end of
any fiscal year during which a Registration Statement effecting a Registration
of the Registrable Shares shall have become effective, AG.COM shall make
available to AG, as soon as practical but in any event not later than eighteen
months after the effective date of the Registration Statement, an earnings
statement of AG.COM and its subsidiaries satisfying the provisions of Section
11(a) of the Securities Act.
5.7 SHARE CERTIFICATES. AG.COM agrees to cooperate with AG to
facilitate the timely preparation and delivery of certificates representing
Registrable Shares sold pursuant to a Registration and not bearing any
Securities Act legend and to enable certificates for such Registrable Shares to
be issued for such numbers of shares and registered in such names as AG may
reasonably request.
Section 6 REVIEW. AG shall have the right to require the insertion in
any Registration Statement filed by AG.COM of language, in form and substance
satisfactory to AG.COM, to the effect that the holding by AG of any Registrable
Securities is not to be construed as a recommendation by it of the investment
quality of the securities of AG.COM and that such holding does not imply that AG
will assist in meeting any future financial requirements of AG.COM. AG.COM
covenants that AG shall have the right to receive, in a timely manner and prior
to filing with the Commission, copies of such Registration Statement, any
amendment thereof or supplement thereto and any prospectus forming a part
thereof to enable AG to participate in the preparation of such Registration
Statement, amendment, supplement or prospectus and the right to request the
insertion therein of material which in AG's judgment should be included and
which AG furnishes to AG.COM in timely manner in writing.
Section 7 INDEMNIFICATION.
7.1 BY AG.COM. To the extent permitted by law, AG.COM shall
indemnify AG, AG's officers and directors, any agent or underwriter (as defined
in the 1933 Act) for AG, and each person who controls AG or such underwriter
within the meaning of Section 15 of the Securities Act, Section 20 of the
Exchange Act or any similar federal statute then in effect, against all
expenses, claims, losses, damages and liabilities (including reasonable legal
expenses), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any Registration Statement or
prospectus relating to the Registrable Shares, or any amendment or supplement
thereto, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, PROVIDED, HOWEVER, that AG.COM will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with information
furnished in writing to AG.COM by AG or such underwriter for inclusion therein.
7.2 BY AG. To the extent permitted by law, AG shall indemnify
AG.COM, each of its directors and each of its officers who signs the
Registration Statement, each underwriter, if any, of AG.COM's securities covered
by such Registration Statement, and each person who controls AG.COM or such
underwriter within the meaning of Section 15 of the
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Securities Act, Section 20 of the Exchange Act or any similar federal statute
then in effect, against all claims, losses, damages and liabilities (including
reasonable legal fees and expenses) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
Registration Statement or prospectus relating to the Registrable Shares, or any
amendment or supplement thereto, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made, in such Registration Statement or
prospectus, in reliance upon and in conformity with information furnished in
writing to AG.COM by AG for inclusion therein. The indemnity agreement contained
in this Section 7.2 shall not apply to amounts paid in settlement of any such
claim, loss, damage, or liability if such settlement is effected without the
consent of AG, which consent shall not be unreasonably withheld. The total
amounts payable in indemnity by AG under this Section 7.2 shall not exceed the
net proceeds received by AG in the registered offering out of which this Section
7.2 is invoked.
7.3 NOTICE. Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, but the omission to so notify the Indemnifying Party shall not relieve
it from any liability which it may have to the Indemnified Party pursuant to the
provisions of this Section 7 except to the extent of the actual damages suffered
by such delay in notification. The Indemnifying Party shall assume the defense
of such action, including the employment of counsel to be chosen by the
Indemnifying Party to be reasonably satisfactory to the Indemnified Party, and
payment of expenses. The Indemnified Party shall have the right to employ its
own counsel in any such case, but the legal fees and expenses of such counsel
shall be at the expense of the Indemnified Party, unless the employment of such
counsel shall have been authorized in writing by the Indemnifying Party in
connection with the defense of such action, or the Indemnifying Party shall not
have employed counsel to take charge of the defense of such action or the
Indemnified Party shall have reasonably concluded that there are defenses
available to it or them which are different from or additional to those
available to the Indemnifying Party (in which case the Indemnifying Party shall
not have the right to direct the defense of such action on behalf of the
Indemnified Party), in any of which events such fees and expenses shall be borne
by the Indemnifying Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
which consent shall not be unreasonably withheld, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
7.4 CONTRIBUTION. If the indemnification provided for in this
Section 7 is unavailable to a party that would have been an Indemnified Party
under this Section 7 in respect of any expenses, claims, losses, damages and
liabilities referred to herein, then each party that would have been an
Indemnifying Party hereunder shall, in lieu of indemnifying such Indemnified
Party, contribute to the amount paid or payable by such Indemnified Party as a
result of such expenses, claims, losses, damages and liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and such Indemnified Party on the other in connection with
the statement or omission which resulted in
7
<PAGE> 10
such expenses, claims, losses, damages and liabilities, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or such Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. AG.COM and AG
agree that it would not be just and equitable if contribution pursuant to this
Section were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 7.4.
7.5 FRAUDULENT MISREPRESENTATION. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Section 8 ASSIGNMENT OF REGISTRATION RIGHTS. Subject to any transfer
restrictions otherwise applicable to the Registrable Shares, the rights of AG
hereunder, including the right to have AG.COM register Registrable Shares
pursuant to this Agreement, shall be assignable by AG to any transferee of all
or any portion of the Registrable Shares if: (a) the transfer to such transferee
is permitted under the Securities Act and applicable state securities law or
exemptions therefrom, (b) AG agrees in writing with the transferee or assignee
to assign AG's rights under the Agreement, and a copy of such agreement is
furnished to AG.COM after such assignment, (c) AG.COM is furnished with written
notice of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, and (d) the transferee or assignee agrees in writing for the
benefit of AG.COM to be bound by all of the provisions contained herein,
including without limitation the provisions of this Section 8. Notwithstanding
anything to the contrary contained herein, no assignment of rights hereunder
shall increase the obligations of AG.COM hereunder and, in any event, AG.COM
shall not be obligated to effect more than one registration pursuant to Section
2 in any twelve month period.
Section 9 MISCELLANEOUS.
9.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the conflicts of law principles of such State. AG.COM and AG agree that service
of process upon AG.COM and AG, respectively, mailed by first class mail, shall
be deemed in every respect effective service of process upon AG.COM and AG,
respectively, in any such suit or proceeding. Nothing herein shall affect the
right of AG.COM or the right of AG to serve process in any other manner
permitted by law.
9.2 ENTIRE AGREEMENT. This Agreement and the Separation
Agreement constitute the full and entire understanding and agreement between the
parties with regard to the subject matter hereof.
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9.3 AMENDMENT. No supplement, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby.
9.4 NOTICES, ETC. Each notice, demand, request, request for approval,
consent, approval, disapproval, designation or other communication (each of the
foregoing being referred to herein as a notice) required or desired to be given
or made under this Agreement shall be in writing and shall be effective and
deemed to have been received (a) when delivered in person, (b) when sent by fax
with receipt acknowledged, (c) five (5) days after having been mailed by
certified or registered United States mail, postage prepaid, return receipt
requested, or (d) the next business day after having been sent by a nationally
recognized overnight mail or courier service, receipt requested. Notices shall
be addressed as follows: (a) if to AG, at AG's address or fax number set forth
below and addressed to the attention of the General Counsel, or at such other
address or fax number as AG shall have furnished to AG.COM in writing or (b) if
to AG.COM, at the address of its principal executive offices and addressed to
the attention of the Chief Executive Officer, or at such other address or fax
number as AG.COM shall have furnished to AG.
If to AG:
Jon Groetzinger, Senior Vice President--General Counsel & Secretary
One American Road
Cleveland OH 44114-2398
216.252.7300 x 1667
fax:252.6777
[email protected]
If to AG.COM, Inc.:
John Klipfell, Chief Executive Officer
One American Road
Cleveland OH 44114-2398
216.252.7300 x 1332
fax:252.6777
[email protected]
9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
9.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
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9.7 SECTION TITLES. Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
9.8 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 8,
this Agreement shall be binding upon the parties hereto and their respective
successors and assigns.
9.9 THIRD PARTIES. This Agreement is for the sole benefit of the
parties hereto and, except as expressly provided in Section 7, nothing herein
expressed or implied, shall give or be construed to give to any person, other
than the parties hereto any legal or equitable rights hereunder.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AMERICAN GREETINGS CORPORATION
By: ________________________________
Name: ______________________________
Title:______________________________
americangreetings.com, inc.
By: ________________________________
Name: ______________________________
Title:______________________________
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<PAGE> 1
Exhibit 10.8
FORM OF
TAX AND INDEMNIFICATION AGREEMENT
BY AND BETWEEN
AMERICANGREETINGS.COM, INC.
AND
AMERICAN GREETINGS CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.............................................................................................1
1.1 "Affiliate"..............................................................................................1
1.2 "Affiliated Group".......................................................................................1
1.3 "AGC Subgroup"...........................................................................................1
1.4 "AG.com Subgroup"........................................................................................2
1.5 "Code"...................................................................................................2
1.6 "Composite Tax Return"...................................................................................2
1.7 "Consolidated Income Tax Return".........................................................................2
1.8 "Consolidated Return Year"...............................................................................2
1.9 "Distribution"...........................................................................................2
1.10 "Final Determination"....................................................................................2
1.11 "IRS"....................................................................................................2
1.12 "Parent's Group".........................................................................................3
1.13 "Period".................................................................................................3
1.14 "Recapitalization".......................................................................................3
1.15 "Regulations"............................................................................................3
1.16 "Short Period"...........................................................................................3
1.17 "State Income Taxes".....................................................................................3
1.18 "Subgroup Composite Tax Liability".......................................................................3
1.19 "Subgroup Federal Income Tax Liability"..................................................................3
1.20 "Tax" and "Taxes"........................................................................................3
1.21 "Tax Returns"............................................................................................4
ARTICLE II RETURNS AND CONTROVERSIES..............................................................................4
2.1 Consolidated Income Tax Returns..........................................................................4
2.2 Composite Tax Returns....................................................................................5
2.3 All other Taxes..........................................................................................5
ARTICLE III ALLOCATION OF TAX LIABILITIES; INDEMNIFICATIONS.......................................................6
3.1 Initial Allocations......................................................................................6
3.2 Subsequent Adjustments; Indemnifications.................................................................7
3.3 Time of Payment..........................................................................................8
ARTICLE IV COOPERATION BY THE PARTIES.............................................................................8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
4.1 Record Retention.........................................................................................8
4.2 Return Preparation and Controversies.....................................................................8
4.3 Carrybacks...............................................................................................9
4.4 Expenses.................................................................................................9
ARTICLE V MISCELLANEOUS..........................................................................................10
5.1 Sole Remedy.............................................................................................10
5.2 Liability and Indemnity.................................................................................10
5.3 Effectiveness of this Agreement; Survival of Obligations................................................10
5.4 Complete Agreement......................................................................................10
5.5 Governing Law...........................................................................................10
5.6 Notices.................................................................................................10
5.7 Amendments..............................................................................................11
5.8 Successors and Assigns..................................................................................11
5.9 No Third-Party Beneficiaries............................................................................11
5.10 Titles and Headings.....................................................................................11
5.11 Execution in Counterparts...............................................................................11
</TABLE>
ii
<PAGE> 4
TAX AND INDEMNIFICATION AGREEMENT
THIS TAX AND INDEMNIFICATION AGREEMENT ("Agreement") is made this _____
day of ______________, 1999, by and between americangreetings.com inc., a
Delaware corporation ("AG.com") on its own behalf and on behalf of its
wholly-owned subsidiaries (the "Subsidiaries"), and American Greetings
Corporation, an Ohio corporation ("AGC").
RECITALS
WHEREAS, AG.com is a wholly-owned subsidiary of AGC;
WHEREAS, AG.com intends to sell a minority interest in its Class A
Common Stock, par value $0.001 per share ("Common Stock"), to the public
("Public Offering");
WHEREAS, upon the closing of the Public Offering ("Closing Date"), AGC
will own less than 80% of the outstanding Common Stock of AG.com;
WHEREAS, for periods ending on or before the Closing Date, AG.com and
its Subsidiaries have been or will be included in certain tax returns filed or
to be filed on behalf of Parent's Group (as defined below);
WHEREAS, the parties hereto desire to allocate responsibility for the
payment of federal, state, local, and foreign taxes attributable to the
operations of AG.com and its subsidiaries during the taxable period in which
such Public Offering occurs and for taxable periods prior and subsequent to such
period, and provide for the consequences of post-Closing Date adjustments of
such tax liabilities and related matters;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein the following terms when capitalized shall have the
following meanings:
1.1 "AFFILIATE" means, with respect to a corporation, any other
corporation that, directly or indirectly, controls, is controlled by, or is
under common control with such first corporation.
1.2 "AFFILIATED GROUP" means an "affiliated group" as defined in
section 1504(a) of the Code.
1.3 "AGC SUBGROUP" means AGC and each other corporation which is a
member of Parent's Group and is not an AG.com Subgroup Member; and "AGC Subgroup
Member" means any corporation which is a member of the AGC Subgroup.
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1.4 "AG.COM SUBGROUP" means AG.com and all other corporations that, as
of any relevant date, are members of an Affiliated Group of which AG.com is the
common parent, or would be members of such a group if AG.com were not a
subsidiary of AGC; and "AG.COM SUBGROUP MEMBER" means any corporation which is a
member of such (actual or hypothetical) Affiliated Group.
1.5 "CODE" means the Internal Revenue Code of 1986, as amended and as
in effect from time to time, and any predecessor or successor thereto. A
reference to any section of the Code means such section as in effect from time
to time and any comparable provisions of any predecessor or successor law.
1.6 "COMPOSITE TAX RETURN" means any State Income Tax or other Tax
Return which has been or will be filed by any AGC Subgroup Member or AG.com
Subgroup Member which computes the Taxes (the "COMBINED TAXES") payable to a
state, local or foreign taxing jurisdiction in respect of the income, operations
or assets of two or more corporations that include at least one Subgroup Member
from each of the AGC Subgroup and the AG.com Subgroup based on so-called
"combined or consolidated reporting" or apportionment of business income under
the so-called "unitary business" concept.
1.7 "CONSOLIDATED INCOME TAX RETURN" means any Tax Return for or
relating to federal Income Taxes which is or will be required to be filed by AGC
on behalf of Parent's Group; and "CONSOLIDATED INCOME TAXES" means the federal
Income Taxes shown or required to be shown on any such Tax Return.
1.8 "CONSOLIDATED RETURN YEAR" means any taxable year (or portion
thereof) with respect to which any AG.com Subgroup Member is included in a
Consolidated Income Tax Return or Composite Tax Return.
1.9 "DISTRIBUTION" means a distribution of the stock of AG.com to the
shareholders of AGC and any related distributions or transfers within Parent's
Group.
1.10 "FINAL DETERMINATION" means, in the context of federal income
taxes, with respect to any issue or item for any Period (i) a final,
unappealable decision by a court of competent jurisdiction; (ii) the expiration
of the time for assessment of Taxes or filing a claim for refund, or if a refund
claim has been timely filed, the expiration of the time for instituting suit in
respect of such refund claim, if no further adjustment to the items of income,
gain, deduction, loss, or credit for such Period may thereafter be made; (iii)
the execution by or on behalf of the taxpayer and the IRS of a closing agreement
under section 7121 of the Code; (iv) the acceptance by the IRS or its counsel of
a tender pursuant to an offer in compromise pursuant to section 7122 of the
Code; (v) the execution of a Form 870A; or (vi) any other final and irrevocable
determination of the tax liability of a party to this Agreement (or Affiliate of
a party) for any Period. In the context of other Taxes, "FINAL DETERMINATION"
means, with respect to any issue or item for any Period, any final, unappealable
and irrevocable determination of the tax liability of a party to this Agreement
(or an Affiliate of a party) for any Period.
1.11 "IRS" means the United States Internal Revenue Service or any
successor thereto.
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<PAGE> 6
1.12 "PARENT'S GROUP" means any Affiliated Group including AGC or any
predecessor or successor thereof.
1.13 "PERIOD" means any taxable year or any other period which is
treated as a taxable year (including the Short Period) for purposes of the Code,
when used in the context of federal income taxes. When used in the context of
any other Taxes, "PERIOD" means any taxable year or other period with respect to
which any such Tax may be imposed under any applicable statute, rule or
regulation.
1.14 "RECAPITALIZATION" means any modifications to the classes, terms
or amounts of the outstanding capital stock of AG.com in connection with the
Public Offering.
1.15 "REGULATIONS" means the Treasury Regulations in effect from time
to time under the Code.
1.16 "SHORT PERIOD" means the Period beginning on [January 1, 1999] and
ending on or immediately before the Closing Date.
1.17 "STATE INCOME TAXES" means all taxes measured on or by net income
imposed by any State of the United States of America or political subdivision
thereof, and shall include taxes denominated as franchise taxes.
1.18 "SUBGROUP COMPOSITE TAX LIABILITY" means, with respect to any
Composite Tax Return and Subgroup, the Combined Tax liability for the Period of
such Tax Return properly allocable to such Subgroup in accordance with
principles analogous to those applicable in determining Subgroup Federal Income
Tax Liability, provided that a Tax payable with respect to such Composite
Return, but which would not be payable if the income, operations or assets of a
corporation were not taken into account, shall be treated as allocable to such
corporation and the Subgroup of which it is a member.
1.19 "SUBGROUP FEDERAL INCOME TAX LIABILITY" means, with respect to any
Consolidated Income Tax Return and Subgroup, the federal Income Tax liability of
such Subgroup for the Consolidated Return Year computed as if the Subgroup had
filed a separate consolidated federal income tax return for such year, subject
to adjustments in accordance with section 1.1552-1(a)(2)(ii)(a) through (h) of
the Regulations or any similar or successor provisions (treating all members as
part of a single consolidated group for purposes of such adjustments only).
1.20 "TAX" and "TAXES" means all income taxes (including federal income
taxes, State Income Taxes and foreign income taxes imposed under Subtitle A of
the Code or similar laws of any government or other taxing authority, referred
to herein as "INCOME TAXES"); payroll and employee withholding taxes imposed
under Chapters 21 through 24 of the Code, or any similar or comparable payroll
and employee withholding taxes (including disability withholding taxes) imposed
by the laws of any taxing authority; sales and use taxes; excise taxes; real and
personal property taxes; and any other governmental imposition generally
referred to as or in the nature of
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<PAGE> 7
a tax. Any reference in this Agreement to a Tax (or refund thereof) shall also
be deemed to refer to any interest, additions to Tax, or penalties that may be
payable in respect thereof.
1.21 "TAX RETURNS" means all reports, estimates, information statements
and returns relating to, or required to be filed in connection with, any Taxes
pursuant to the statutes, rules and regulations of any federal, state, local, or
foreign government taxing authority.
ARTICLE II
RETURNS AND CONTROVERSIES
2.1 CONSOLIDATED INCOME TAX RETURNS.
(a) RETURNS AND PAYMENT. AGC shall have exclusive authority to prepare
and file Consolidated Income Tax Returns. Subject to the terms of this
Agreement, AGC shall be responsible for the timely filing of, and shall be
liable, and shall indemnify each AG.com Subgroup Member, for any penalties or
other damages attributable to any failure of AGC to make timely filings of
Consolidated Income Tax Returns or full and timely payment of all amounts shown
to be due thereon; provided, however, that AG.com shall be responsible for
making timely payment to AGC of all amounts due to AGC by AG.com pursuant
hereto, and providing AGC with all information reasonably required by AGC with
respect to the income, operations and assets of each AG.com Subgroup Member in
order for AGC to prepare and file such Consolidated Income Tax Returns and to
make payments of the Tax shown to be due thereon, including estimated payments,
on a timely basis. In calculating amounts to be shown as due on the Consolidated
Federal Income Tax Return with respect to a Consolidated Return Year during
which any AG.com Subgroup Member ceases to be a member of Parent's Group, all
items of each AG.com Subgroup Member (including items triggered by reason of
such member or members ceasing to be a member of Parent's Group) shall be taken
into account in accordance with Regulations ss. 1.1502-76(b), and no election
shall be made under Regulations ss. 1.1502-76(b)(2)(ii) or (iii).
(b) CONTROVERSIES. AGC shall have exclusive authority to represent each
AG.com Subgroup Member before the IRS or any other governmental authority or any
court regarding Consolidated Income Taxes, including, but not limited to (i) the
exclusive control of any response to any examination by the IRS or any other
taxing authority; and (ii) the exclusive control over any contest of any issue
through a Final Determination, including, but not limited to (A) whether and in
what forum to conduct such contest, and (B) whether and on what basis to settle
such contest.
AGC shall promptly notify AG.com of any correspondence and Tax
controversies relating to items of any AG.com Subgroup Member and provide AG.com
with copies of all such correspondence. Subject to AGC's exclusive authority as
provided herein, AG.com shall have the right to consult with AGC with respect to
the handling of any such matters, and shall exercise such right, if at all, on a
timely basis. AGC shall provide AG.com with notice of, and permit AG.com to
attend any hearing or other proceedings to the extent they relate to any such
controversies involving items of any AG.com Subgroup Member(s).
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<PAGE> 8
2.2 COMPOSITE TAX RETURNS.
(a) TAX RETURNS AND PAYMENTS. AGC or an AGC Subgroup Member designated
by AGC shall have exclusive authority to prepare and file each Composite Return.
Subject to the terms of this Agreement, AGC shall be responsible for the timely
filing of, and shall be liable, and shall indemnify each AG.com Subgroup Member,
for any penalties or other damages attributable to the failure of AGC or its
designee to make timely filings of Composite Tax Returns or full and timely
payment of all amounts shown to be due thereon; provided, however, that AG.com
shall be responsible for making timely payment to AGC or its designee of all
amounts due to AGC by AG.com pursuant hereto, and providing AGC or its designee
with all information reasonably required by AGC or its designee with respect to
the income, operations and assets of any AG.com Subgroup Member in order for AGC
or its designees to file such Composite Tax Returns, and to make payments of the
Tax shown to be due thereon, including estimated tax payments, on a timely
basis.
(b) CONTROVERSIES. AGC or its designee shall have exclusive authority
to represent each AG.com Subgroup Member included in a Composite Return before
any governmental agency or any court regarding Combined Taxes, including but not
limited to, (i) the exclusive control of any response to any examination by any
taxing authority, and (ii) the exclusive control over any contest of any issue
therein through a Final Determination, including, but not limited to (A) whether
and in what forum to conduct such contest, and (B) whether and on what basis to
settle such contest.
AGC or its designee shall promptly notify AG.com of any correspondence
and Combined Tax controversies relating to items of any AG.com Subgroup Member,
and provide AG.com with copies of all such correspondence. Subject to AGC's or
its designee's exclusive authority as provided herein, AG.com shall have the
right to consult with AGC or its designee with respect to the handling of any
such matters, and shall exercise such right, if at all, on a timely basis. AGC
or its designee shall provide AG.com with notice of, and permit AG.com to attend
any hearing or other proceedings to the extent they relate to any such
controversies involving items of any AG.com Subgroup Member(s).
2.3 ALL OTHER TAXES.
(a) TAX RETURNS AND PAYMENTS. Except as otherwise provided herein or as
the parties may otherwise agree, AGC or its designee shall have exclusive
authority and responsibility with regard to all Taxes of all AGC Subgroup
Members, and AG.com or its designee shall have exclusive authority and
responsibility with regard to all Taxes of all AG.com Subgroup Members. Each of
AGC and AG.com (or their designees) shall be responsible for the correct and
timely filing of, and shall be liable for the full and timely payment of all
amounts shown to be due on, all federal income tax and information returns and
all other Tax Returns for Taxes of their respective Subgroups or the Members
thereof; [provided, however, that AGC shall be liable, and shall indemnify
AG.com, for the full and timely payment of all amounts shown to be due on all
Tax Returns which are or will be due on or before the Closing Date, for Taxes of
any AG.com Subgroup Members for Periods ending on or before the Closing Date].
AGC's and AG.com's authority hereunder shall include, but not be limited to, the
determination of the
5
<PAGE> 9
manner in which any items of income, gain, deduction, loss or credit arising out
of operations of their respective Subgroups and the members thereof shall be
reported or disclosed in such returns. AGC and AG.com shall be entitled to make
any elections under the Code or the Regulations in respect of the operations of
their respective Subgroups for all such Tax Returns.
(b) CONTROVERSIES. Except as otherwise provided herein or as the
parties may otherwise agree, each of AGC and AG.com shall have exclusive
authority to represent itself and the members of its respective Subgroup before
the IRS or any other taxing authority or any court regarding the Tax
consequences of the income, operations and assets of it and/or the members of
its Subgroup with respect to all Tax Returns subject to section 2.3(a) above,
and Taxes required to be shown thereon.
ARTICLE III
ALLOCATION OF TAX LIABILITIES; INDEMNIFICATIONS
3.1 INITIAL ALLOCATIONS.
(a) CONSOLIDATED INCOME TAXES. With respect to each Consolidated Income
Tax Return for any Consolidated Return Year, AG.com shall pay to AGC the amount,
if any, of the Subgroup Federal Income Tax Liability of the AG.com Subgroup; or
if such Subgroup Federal Income Tax Liability is not greater than zero, AGC
shall pay to AG.com the excess, if any, of (i) the AGC Subgroup's Subgroup
Federal Income Tax Liability over (ii) the actual Consolidated Income Tax
payable with respect to Parent's Group for the Consolidated Return Year. [For
purposes of determining payment obligations under this Section 3.1, except as
otherwise provided herein, the Subgroup Federal Income Tax Liability of the
AG.com Subgroup shall be [decreased] and the Subgroup Federal Income Tax
Liability of the AGC Subgroup shall be [increased] by any amount otherwise
allocable to [AG.com] hereunder, which is attributable to the Public Offering or
Recapitalization.]
(b) ESTIMATED TAX. AGC will have the right to assess AG.com for an
appropriate portion of any estimated payments of Consolidated Income Taxes,
determined in accordance with the principles of section 3.1(a), at the time such
payments are required to be made. Any such payments will be credited against the
amounts otherwise payable by AG.com under section 3.1(a).
(c) EARNINGS AND PROFITS ALLOCATION. The parties understand that the
method of allocation of Consolidated Income Tax Liabilities used for the
determination of earnings and profits for federal Income Tax purposes under
applicable laws may differ from the methods prescribed herein for sharing the
economic burdens of such Taxes. To the extent permitted by applicable laws and
not otherwise inconsistent with the best interests of AGC, AGC agrees to make
any elections or take any other action which would cause such prescribed method
of allocation to resemble as closely as practical the method of sharing the
economic burdens of such Tax provided in this Agreement.
(d) ALTERNATIVE MINIMUM TAX. If Parent's Group has a federal
alternative minimum Tax liability for any Consolidated Return Year, payments
shall be made between AGC and AG.com to the extent necessary to allocate the
burden of such Tax in accordance with principles analogous to those in section
3.1(a). For purposes of this subsection, any liability under Code
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section 59A or any other federal Tax imposed by reference to alternative minimum
Tax principles will be treated as a federal alternative minimum Tax liability.
(e) COMBINED TAXES. With respect to each Composite Tax Return filed
pursuant to section 2.2 above, AGC or its designee shall compute the Subgroup
Composite Tax liability of the AG.com Subgroup and, if necessary, the AGC
Subgroup, in accordance with principles analogous to those set forth in section
3.1 above, and AG.com shall pay to AGC or AGC shall pay to AG.com, as
appropriate, the amount so determined.
3.2 SUBSEQUENT ADJUSTMENTS; INDEMNIFICATIONS.
(a) CONSOLIDATED INCOME TAXES. AGC shall be responsible and liable, and
shall indemnify each AG.com Subgroup Member, for any and all increases in
Consolidated Income Taxes, and shall be entitled to any refund or credit
attributable to any decreases in such Taxes, that are determined pursuant to a
Final Determination and are allocable to any AGC Subgroup Member. AG.com shall
be responsible and liable, and shall indemnify each AGC Subgroup Member, for any
and all increases in Consolidated Income Taxes, and shall be entitled to any
refund or credit attributable to any decreases in such Taxes, that are
determined pursuant to a Final Determination and are allocable to any AG.com
Subgroup Member. For purposes of determining the amount of any Consolidated
Income Tax increases or decreases that are allocable to any Subgroup Member, the
amounts computed under section 3.1(a) above shall be recomputed to take into
account all adjustments made in accordance with the Final Determination.
(b) COMBINED TAXES. AGC shall be responsible and liable, and shall
indemnify each AG.com Subgroup Member, for any and all increases in Combined
Taxes, and shall be entitled to any refund or credit attributable to any
decreases in such Taxes, that are determined pursuant to a Final Determination
and are allocable to any AGC Subgroup Member. AG.com shall be responsible and
liable, and shall indemnify each AGC Subgroup Member, for any and all increases
in Combined Taxes, and shall be entitled to any refund or credit attributable to
any decreases in such Taxes, that are determined pursuant to a Final
Determination and are allocable to any AG.com Subgroup Member. For purposes of
determining the amount of any Combined Tax increases or decreases that are
allocable to any Subgroup Member, the amounts computed under section 3.2(a)
above shall be recomputed to take into account all adjustments made in
accordance with the Final Determination.
(c) ALL OTHER TAXES. AGC shall be responsible and liable for, and shall
indemnify and hold each AG.com Subgroup Member harmless from any increases in,
and shall be entitled to any refund resulting from any decreases in, any and all
Taxes of any AGC Subgroup Member described in section 2.3 above. AG.com shall be
responsible and liable for, and shall indemnify and hold each AGC Subgroup
Member harmless from any increases in, and shall be entitled to any refund
resulting from any decreases in any and all Taxes of any AG.com Subgroup Member
described in section 2.3 above.
(d) DISTRIBUTION. Notwithstanding anything to the contrary in the
foregoing subsections (a), (b), and (c), AGC shall be responsible and liable
for, and shall indemnify and hold each AG.com Subgroup Member harmless from any
Tax for which such Member would be liable hereunder and which arises solely as a
result of a Distribution, provided that no action of any AG.com Subgroup Member
or shareholder(s) thereof taken after such Distribution caused
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the Distribution to result in such Tax; and AG.com shall be responsible and
liable for, and shall indemnify and hold each AGC Subgroup Member harmless from
any Tax for which such Member would be liable hereunder and which arises solely
as a result of any action taken by an AG.com Subgroup Member or shareholder(s)
thereof after a Distribution, which caused the Distribution to result in such
Tax.
3.3 TIME OF PAYMENT. The amounts owed by either AG.com or AGC pursuant
to section 3.1 or (other than with respect to a refund) section 4.3 of this
Agreement shall be paid not less than 5 days before the applicable Tax Return is
due. Amounts due from one party to the other under section 3.2 or (with respect
to any refund) section 4.3 of this Agreement shall be paid by such party to the
other within 30 days after receiving written notification of such amount from
one party to the other pursuant to a Final Determination, or receiving a refund
of such amount, as the case may be.
ARTICLE IV
COOPERATION BY THE PARTIES
4.1 RECORD RETENTION. AGC and AG.com agree that all records, including
but not limited to returns, supporting schedules, workpapers, correspondence and
other documents within the possession of either, and relating to Tax liabilities
or refunds of either, shall be retained by each for as long as they may be
material to the determination of such liabilities or refunds and shall be made
reasonably available to either party upon request.
4.2 RETURN PREPARATION AND CONTROVERSIES.
(a) IN GENERAL. Each party hereto agrees that it will cooperate with
the other and their respective representatives, in a prompt and timely manner,
in connection with (i) the preparation and filing of, and (ii) any
administrative or judicial proceeding involving, any Tax Return filed or
required to be filed by AGC, AG.com, or members of their respective Subgroups.
Such cooperation shall include but not be limited to (i) the execution and
delivery to AGC by AG.com and/or members of its Subgroup of any power of
attorney required to allow AGC and its counsel to represent any AG.com Subgroup
Members in any controversy which AGC has the right to control pursuant to
Section 2.1(b) or Section 2.2(b), and (ii) making available to the other party,
during normal business hours, all books, records (including but not limited to
working papers and schedules), information, officers and employees (without
substantial interruption of employment), reasonably requested and necessary or
useful in connection with any Tax filing, inquiry, audit, investigation,
dispute, litigation or other matter. Notwithstanding the foregoing, neither
party shall be required to furnish to the other Tax Returns or drafts thereof
(except as otherwise expressly provided herein), except that each party shall
furnish to the other the applicable portions of such returns reporting the
operations of AG.com Subgroup Members and the relevant portions of all reports
relating to the examination by the IRS or any other governmental agency of such
Tax Returns.
(b) DRAFT CONSOLIDATED INCOME TAX RETURN. Provided that AG.com shall
have furnished to AGC the information required to be provided herein, AGC shall
prepare and, not less than 5 days before filing, furnish to AG.com drafts of
those portions of Consolidated Income
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Tax Returns and Composite Returns which report the operations of any AG.com
Subgroup Members. Such drafts shall be prepared without regard to the items of
income, gain, deduction, loss or credit of any AGC Subgroup Member. Except as
AGC may otherwise determine after consulting with AG.com, all items of income,
gain, deduction, loss and credit of each AG.com Subgroup Member included in such
draft Tax Returns shall be reported on a basis consistent with any reporting of
such items (or substantially similar items) by the AG.com Subgroup Members in
prior Periods unless applicable law or a change in factual circumstances
requires otherwise. AGC will consult with AG.com in good faith prior to the
filing of Consolidated Income Tax Returns or Composite Returns for any
Consolidated Return Years with respect to any differences between such Tax
Returns and the information provided by AG.com as provided hereunder.
(c) CONSISTENCY. In filing any Consolidated Income Tax Return or
Composite Tax Return for any Consolidated Return Year, AGC shall make all
computations of taxable amounts and Taxes on a basis consistent with the
computations of such amounts in prior Tax Returns for the respective Taxing
jurisdictions except to the extent otherwise required by the laws, rules, or
regulations of the applicable Taxing authority or as a result of a change in
circumstances. In determining how to treat any matter for which there is no
precedent in prior Tax Returns or controlling legal authority, AGC shall in good
faith take into account the reasonable interests of the AG.com Subgroup Members
after due consultation with AG.com.
4.3 CARRYBACKS. Deductions, losses, or credits of any AG.com Subgroup
Member arising in a period in which such AG.com Subgroup Member is not included
in a Consolidated Income Tax Return or a Composite Tax Return may, under
applicable law, be available for carryback to a Consolidated Return Year in
which such AG.com Subgroup Member was so included. To the extent applicable law
allows the carryback to be waived, AG.com shall have the exclusive authority to
determine whether or not to waive such carryback. To the extent the carryback is
not waivable or is not waived, AGC shall include such carryback in an amended
Consolidated Income Tax Return or Composite Tax Return, as the case may be, and
shall pay to AG.com an amount equal to the reduction in Taxes of any AGC
Subgroup Member attributable to such carryback. To the extent such carryback
causes any AGC Subgroup Member to incur any additional tax (whether with respect
to the Period to which the carryback is carried or otherwise), AG.com shall pay
to AGC an amount equal to such additional Tax.
4.4 EXPENSES. Unless otherwise expressly provided in this Agreement,
each of the parties shall bear any and all expenses that arise from the
performance or exercise of their respective obligations and rights under this
Agreement. In the case of expenses incurred by AGC or its designee in connection
with the preparation or audit of Consolidated Income Tax Returns or Composite
Tax Returns for any Consolidated Return Years, or contests or controversies
related to such returns, AGC shall make an appropriate allocation of such
expenses between AGC and AG.com, and AG.com shall reimburse AGC for its
allocable share of such costs.
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ARTICLE V
MISCELLANEOUS
5.1 SOLE REMEDY. Except as explicitly provided in this Agreement, no
AG.com Subgroup Member or AGC Subgroup member shall have any claim against any
member of the other Subgroup for payment of Taxes or for compensation for use of
such Subgroup Member's Tax attributes, including losses.
5.2 LIABILITY AND INDEMNITY. AGC and AG.com shall have full liability,
as primary obligors and not as a sureties, for the performance of any obligation
of the members of their respective Subgroups arising under this Agreement.
5.3 EFFECTIVENESS OF THIS AGREEMENT; SURVIVAL OF OBLIGATIONS. This
Agreement shall be effective from and after the Closing Date. With respect to
any particular item of Tax liability, the covenants and obligations contained in
this Agreement shall not terminate until a Final Determination as to such item
has been made.
5.4 COMPLETE AGREEMENT. This Agreement shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter.
5.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of [Delaware], without regard to the
principles of conflicts of laws thereof.
5.6 NOTICES. All notices and other communications hereunder shall be in
writing and shall be delivered by hand, mailed by registered or certified mail
(return receipt requested) or sent by courier or other express delivery that
provides for independent delivery verification to the parties at the following
addresses (or at such other addresses or a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice or
communication is delivered to the addressed at the address specified below:
(a) If to AGC:
if by hand:
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--------------------------------------------
Attention:
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if by mail:
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Attention:
(b) If to AG.com:
if by hand:
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Attention:
if by mail:
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Attention:
5.7 AMENDMENTS. This Agreement may not be modified or amended except by
an agreement in writing signed by the parties hereto.
5.8 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns; provided, however, that no party may assign
or delegate any of its rights or obligations under this Agreement (except to a
majority-owned subsidiary) without the consent of the other party, which consent
shall not be unreasonably withheld.
5.9 NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and shall not be deemed to confer upon any third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
5.10 TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be party
of or to affect the meaning or interpretation of this Agreement.
5.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original. but which together
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated.
americangreetings.com inc.
By:_________________________________
Title: _____________________________
- ---------------------------
Date
American Greetings Corporation
By:_________________________________
Title: _____________________________
- ---------------------------
Date
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Exhibit 10.9
CONFIDENTIAL
INTERACTIVE MARKETING AGREEMENT
-------------------------------
This Interactive Marketing Agreement (together with all Exhibits,
Schedules and Annexes hereto, the "Agreement"), effective as of July 1, 1999
(the "Effective Date"), is between America Online, Inc. ("AOL"), a Delaware
corporation, with offices at 22000 AOL Way, Dulles, Virginia 20166, and
americangreetings.com, inc., a Delaware corporation ("AG Parent") and its
wholly-owned subsidiary, AG.Com, Inc., a Delaware corporation ("AGPI" and,
collectively with AG Parent, "AG"), both with offices at One American Road,
Cleveland, Ohio, 44144. AOL and AG may be referred to individually as a "Party"
and collectively as the "Parties."
INTRODUCTION
------------
AOL and AG each desires to enter into an interactive marketing
relationship whereby AOL will integrate, promote and distribute several
interactive sites referred to (and further defined) herein collectively as the
Customized Site. This relationship is further described below and is subject to
the terms and conditions set forth in this Agreement. Capitalized terms used but
not defined in the body of the Agreement are used herein as defined on Exhibit
B.
TERMS
-----
1. PROMOTION, DISTRIBUTION AND MARKETING.
1.1. AOL PROMOTION OF CUSTOMIZED SITE.
1.1.1. PROMOTIONS TO BE PROVIDED. During the Initial Term
(and, during the Term, only to the extent expressly
stated herein), AOL will provide AG with the
integration, placements, Promotions and Impressions
for the Customized Site described on Exhibit A and
Exhibit A-1. AOL will implement the Promotions,
including the Integrated Promotions in accordance
with and pursuant to a timeline established by AG in
consultation with AOL, pursuant to the Ramp-Up Period
referred to in Section 2.12, or the extent set forth
therein, at the times set forth on Exhibit A and
Exhibit A-1 (the "Integration Timeline"); provided
that failure to do so will not be considered a
breach, but shall be remedied in accordance with this
Section 1.1.1, Section 1.1.3 or 1.1.4 hereof, as
applicable. Subject to AG's prior written approval,
which approval shall not be unreasonably withheld,
AOL will have the right to fulfill particular
promotional commitments with respect to any of the
foregoing (other than those identified as "Mission
Critical") by providing AG comparable promotional
placements in appropriate alternative areas of the
AOL Network so long as such integration, placement
and Promotions continue to be carried out on the AOL
Network. AOL reserves the right to redesign or modify
the organization, structure, "look and feel,"
navigation and other elements of the AOL Network at
any time. In the event such modifications, in AG's
reasonable determination, materially and adversely
affect any specific Promotion or the overall level of
integration of Products within the AOL Network, AOL
will provide AG a promotional placement that is, as
mutually agreed, comparable. In addition, on an
ongoing basis, the Parties shall review the
performance of the Promotions and AOL reserves the
right to discontinue any Promotions that are
under-performing (except any Promotions identified as
"Mission Critical"), as reasonably determined with
AG's consent (not to be unreasonably withheld). Any
Promotion expressly designated in Exhibit A as a
"Permanent" Promotion shall not be removed for mere
Impressions overdelivery, but shall remain in place
during the Initial Term, subject to Section 1 or
Exhibit A-1, as applicable.
1.1.2. CONTENT OF PROMOTIONS. The Promotions will link only
to the Customized Site (including contextually
relevant areas therein) and will promote only the AG
Products described on Exhibit D and any additional,
substitute or modified AG Products as proposed by AG
and
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approved by AOL, such approval not to be unreasonably
withheld. The specific AG Content to be contained
within the Standard Promotions described in Exhibit A
(the "Standard Promo Content") will be determined by
AG, subject to AOL's technical limitations, the terms
of this Agreement and AOL's policies relating to
advertising and promotions. The specific Content to
be contained within the Integrated Promotions
described in Exhibit A (the "Integrated Promo
Content", and together with the Standard Promo
Content, the "Promo Content") will be determined (a)
to the extent the nature of such Content is related
to the marketing message (e.g., traditional ad copy),
by AG, subject to AOL's technical limitations, the
terms of this Agreement and AOL's policies relating
to advertising and promotions, and (b) to the extent
the nature of such Content is related to the
operation of the AOL Network or the manner or degree
of the implementation of integration therein, by AOL
in its reasonable editorial discretion, in
consultation with AG, and consistent with any express
integration requirements herein. AG and AOL will
jointly develop a quarterly online marketing plan
with respect to the Customized Site and the
Promotions. The Parties will meet in person or by
telephone at least monthly to review operations and
performance hereunder, including a review of the
Promo Content, Promotions, integration and carriage
plan to ensure that it is designed to maximize
performance. Except to the extent expressly described
herein, the specific form, placement, duration and
nature of the Promotions will be as determined by AOL
in its reasonable editorial discretion (consistent
with the editorial composition of the applicable
screens).
1.1.3. MAKE UP FOR INTEGRATED PROMOTIONS. As used throughout
this Section 1.1.3 and in Section 1.1.4 below, in
determining the "comparable placement or value" of a
particular Promotion, the Parties shall negotiate in
good faith to mutually agree, based on a variety of
factors (including without limitation [
] In the event that the integration
necessary to implement the Integrated Promo Content
is not completed in accordance with the Integration
Timeline, and to the extent such failure is due to
the actions or inaction of AOL, then AOL shall have
[ ] full months thereafter to remedy such delay,
and, if after such[ ] month period AOL is unable
to so remedy, then the Parties shall cooperate in
good faith to mutually agree upon an alternative
Promotion of "comparable placement or value" to the
extent of such undelivered or delayed scheduled
Promotion.
1.1.4. "MISSION CRITICAL" PROMOTIONS. Notwithstanding the
foregoing, in the event that AOL fails to provide AG
with any integrated Promotion included as a "Mission
Critical Promotion" on Exhibit A-1 or an agreed
substitute (to the extent such failure is due to the
actions or inaction of AOL), in accordance with the
express timeline for such integrated Promotion
identified on such Exhibit A-1 (subject to Section
1.1.6 below) then a "Mission Critical Delayed
Integration Event" shall be deemed to have occurred
and shall continue until implementation of such
Integrated Promotion in question. In the event of a
Mission Critical Delayed Integration Event, AOL shall
have[ ] full months thereafter to remedy such
delay, and, if after such period AOL is unable to so
remedy, then the Parties shall negotiate for an
additional period of up to[ ] months to reach
mutual agreement upon either one of the following two
remedies: (A) extending this Agreement on a
non-exclusive basis (but only with respect to AOL's
obligations for all fixed placements for the
particular AOL brand on which the specific Integrated
Promotion was undelivered (i.e. a particular
Exclusive AOL Property, e.g., only on the AOL Service
or only the CompuServe Service, as and to the extent
applicable), and expressly not with respect to any
other carriage nor exclusivity) for a period equal to
[ ] times the length of the duration of such
Mission Critical Delayed Integration Event, at no
additional charge to AG (for example, a [ ] week
delay in achieving such a milestone would result in
[ ] such weeks of extension to the Initial Term
(with respect to the fixed placements on the
applicable brand); any such additional weeks are
referred to herein as "Extension Weeks"), but in
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any case only up to a maximum total extension period
for any and all such delays of [ ] in the
aggregate for any individual brand; or (B) delivering
to AG a mutually agreed upon alternative Promotion of
"comparable placement or value" to the extent of such
undelivered or delayed scheduled Promotion; provided
however, that if after so negotiating for such [
]
1.1.5. TECHNOLOGY SUPPORT. During the Initial Term, AOL will
provide AG with the technology support as set forth
in this Agreement (e.g., on Exhibit A-1 and Exhibit
I) and will complete the items described in Exhibit
A-1 and Exhibit I within the timelines as set forth
therein.
1.1.6. TRANSITION FROM V3 TECHNOLOGY TO V4. AG shall achieve
the Transition Completion Date on or before [
] (the "Scheduled Transition Completion
Date"), provided that the sole and exclusive remedy
available to AOL in the event of any failure or delay
in doing so (it being understood that "sole and
exclusive remedy" as used in this Section 1.1.6.
shall mean the sole and exclusive remedy for such
failure to achieve the Transaction Completion Date
itself, but not for any other breaches of this
Agreement that may be caused as a direct or indirect
consequence thereof, e.g., if and to the extent such
failure results in another breach hereof, e.g., if it
causes, in whole or in part, AG to fail to comply
with Section 1 of Exhibit E, then any such separate
breach shall still be deemed a breach, with its own
remedies and repercussions as set forth herein) shall
be as follows: (i) AG shall (a) cooperate with AOL to
the extent necessary to ensure that (x) database
encryption (with respect to the database of AOL
Users' credit card information) is implemented (i.e.,
installed in production) by [ ], (y) an
Online Viewing Area is available and implemented as
set forth herein by [ ] and (z) create
multiple databases on one or many servers to meet
increased demands (e.g., demand for greetings) as
necessary in order to comply with Exhibit E by
[ ] and (b) after the [ ] week
anniversary of the Scheduled Transition Completion
Date, pay AOL's actual and reasonable direct costs
(plus 25%) of support for V3 (including without
limitation to support encryption (as set forth in
Exhibit E and with respect to the database of AOL
Users' credit card information), an Online Viewing
Area and database scaling as required hereby) and the
costs of any mutually agreed enhancements to V3 for
the duration of any such failure or delay; provided
however that AG shall continue to provide its own
`front end' support for V3 (i.e., user interface and
other items that AG historically has performed or
supported) and AOL shall only be obligated, at AG's
expense, to provide such `back end' support for V3
and (ii) after the 3 week anniversary of the
Scheduled Transition Completion Date, for each
additional day late thereafter until the actual
Transition Completion Date is achieved, the date for
achieving any Hurdles & Thresholds, any date for
making payments by AOL to AG pursuant to the
Advertising Inventory Agreement Annex and each of
AOL's target timelines to integrate any Mission
Critical Promotion shall be delayed by an equivalent
time period (such that, for a one week delay in
achieving the Transition Completion Date, AOL shall
have one extra week to implement each Mission
Critical Promotion, to meet each of the Hurdles &
Thresholds, and to make each payment under the
Advertising Inventory Agreement Annex; provided
however, that the foregoing remedies shall only be
available to the extent that the failure or delay
occurs despite the best efforts of AOL (e.g., due to
AG's action or inaction). After the [ ] month
anniversary of the Scheduled Transition Completion
Date, whether or not AG has achieved the Transition
Completion Date, then, in addition to all other
rights and remedies of AOL herein, AOL shall have no
further obligation thereafter to support nor maintain
V3 or any related technologies thereafter, except
that, with respect to ART, AOL shall continue to
provide support to AG (i.e., ongoing maintenance, but
not enhancements / developments thereto) to the
extent set forth on Exhibit I attached hereto for the
then
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existing ART technology, and except that AG shall not
be excused from using best efforts thereafter to
achieve the Transition Completion Date as rapidly
thereafter as possible.
1.1.6.1. TECHNOLOGY LICENSE TO VERSION 2.0 AND V3.
Upon the Transition Completion Date (or the
Scheduled Transition Completion Date,
whichever is earlier), AOL and AG shall
jointly own (and each Party hereby licenses
its rights thereto to the other Party (as
set forth below, the "Technology License"))
all rights to Version 2.0 (as defined in the
Prior Agreement) and V3 as each exists on
the Interim Date and on the Transition
Completion Date, together with any
improvements or enhancements thereto
(including the technology itself but
expressly excluding Content therein to the
extent such Content is supplied by AG and
not by AOL (such Content being owned
exclusively by AG) and expressly excluding
V4 or any improvements or enhancements
thereto) (collectively, the "Licensed
Technology"), and neither Party can sell
such rights to such technology without the
consent of the other Party (not to be
unreasonably withheld). Such Technology
License shall be a perpetual, non-exclusive,
worldwide, license (with the right to
sublicense) to such Licensed Technology, in
object code and source code forms including,
without limitation, any source code
materials, designs, technical
specifications, and documentation related
thereto, including the rights to use, copy,
distribute, transmit, publicly perform and
publicly display, upgrade, enhance, create
derivative works from, and otherwise modify
such Licensed Technology.
1.1.7. CO MARKETING. In addition to the other promotions
described herein and without reducing in any way any
other such promotion, [
] of co-marketing in connection with the
launch of the Customized Site. Such co-marketing may
include, as reasonably determined by AOL in
consultation with AG, off-line promotions or on-line
promotions within the AOL Network (such as pop-up
screen promotions) and shall be coordinated with
marketing efforts of AG.
1.2. AG PROMOTION OF CUSTOMIZED SITE AND AOL. As set forth in
fuller detail in Exhibit C and subject to the terms and
conditions thereof, AG will promote the AOL Interactive
Service and will promote the availability of the Customized
Site through the AOL Network. The Customized Site shall not
promote any other Interactive Service whatsoever except for
(a) any offline retail entities with which American Greetings
Corporation or its Affiliates has a traditional retailing
relationship for the distribution of physical, offline
greeting cards (e.g., [ ]); provided that, if
AOL reasonably determines that such entity is a competitor of
AOL or its affiliates, then AOL shall be permitted to require
AG to stop promoting any such entities on the Customized Site
or (b) with AOL's prior written approval, any products or
services of an entity which is an Interactive Service, which
such products or services themselves, if provided by a
distinct entity, would not themselves make such entity an
Interactive Service (e.g., promoting phones from [ ]) (but
expressly not any products or services which would, themselves
qualify an entity as an Interactive Service (e.g., no ISP dial
up services of [ ])); provided that any entity which is
primarily an Interactive Service (i.e., at least the majority
of the products and services it provides or the majority of
its activities would, themselves qualify an entity as an
Interactive Service) shall not be excluded per this clause (b)
regardless of the product or service in question (e.g., if XYZ
company is primarily an Interactive Service, then even phones
from XYZ company would fall outside the scope of this
exception). On the Standard Site, AG shall not promote any
[ ] Interactive Service (except any products or services of
an entity which is a [ ] Interactive Service, which such
products or services themselves, if provided by a distinct
entity, would not themselves make such entity a [ ]
Interactive Service (e.g., promoting phones from [ ]) (but
expressly not any products or services which would, themselves
qualify an entity as a [ ] Interactive Service (e.g., no
ISP dial up services of [ ])); provided that any entity which
is primarily a [ ] Interactive Service (i.e., at least the
majority of the products and services it provides or the
majority of its activities would, themselves qualify an entity
as a [ ] Interactive Service) shall not be excluded per
this exception regardless of the product or service in
question (e.g., if XYZ company is primarily a
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<PAGE> 5
[ ] Interactive Service (i.e., at least the majority of the
products and services it provides or the majority of its
activities would, themselves qualify an entity as a [ ]
Interactive Service), then even phones from XYZ company would
fall outside the scope of this exception) unless such
promotion is accompanied by an AOL promotion of equal or
greater prominence (except that AG may create a customized
version of AG's website for any third party, including another
Interactive Service, if and to the extent such site is
intended for or targeted to any third party's customers (and
is not the Customized Site nor AG's primary Standard Site) (a
"Third Party Customized Site"), and may so promote any
Interactive Service within such third party's own Third Party
Customized Site). AOL shall be promoted by AG with `equal or
greater prominence in the aggregate' (as described below) to
any other third party promoted in any AG offline promotions
(except for any offline retail entities with which American
Greetings Corporation has a traditional retailing relationship
(e.g., [ ])); it being understood and agreed that `equal
or greater prominence in the aggregate' shall mean as is
reasonably agreed by the Parties but may consist of promotions
in another offline promotion (i.e., does not generally require
side by side promotion in the same promotion), except that, in
the case of promotion of more than one Interactive Service in
any offline promotion involving AG, AOL must be promoted with
equal or greater prominence as every other Interactive Service
within the same promotion.
2. CUSTOMIZED SITE.
2.1. CREATION OF CUSTOMIZED SITE. AG will create customized,
co-branded versions of AG's primary Interactive Site (or more
than one customized version of AG's primary Interactive Site,
if necessary), which customized Interactive Sites shall comply
with all requirements set forth in Sections 2.2 and 2.3, and
all other requirements of this Agreement (collectively, such
site(s), as they or their successors may exist and be modified
hereafter consistent with the terms hereof, shall be referred
to herein as the "Customized Site"). AG shall be responsible
for all costs and expenses directly related to the
development, creation, communications, hosting and
connectivity associated with the Customized Site, unless and
to the extent otherwise expressly set forth herein and
excluding the costs and expenses of operating and maintaining
the AOL Network. Each page of the Customized Site shall have
AOL or AOL affiliate branded headers/toolbars (in mutually
agreed size and design, but substantially similar to AOL's
other major commerce partners (e.g., eBay)), shall have the
appropriate look and feel for the applicable AOL brand and
navigation back thereto, and, except as otherwise provided
below, shall be located on the URL for the appropriate AOL
affiliate (e.g., www.ag.aol.com or www.ag.compuserve.com,
provided that AOL makes use of such URL available to AG at no
charge) such that AOL receives credit for all traffic thereto,
in each case in accordance with AOL's (or the applicable AOL
affiliate's) then current generally applicable standards, and
contain a navigational link to the appropriate property of the
AOL Network. AOL shall cooperate with AG and any third party
traffic measurement service (e.g., Media Metrix), to
facilitate AG's also receiving credit for traffic to such URL
as part of its overall network. Without limiting the
foregoing, AOL shall issue a duly authorized letter to such
traffic measurement services requesting such credit for AG)
(the "Traffic Letter"). In addition to the foregoing, AOL will
ensure that AG gets credit (including at least as listed by
[ ] in
publicly announced traffic measurements regarding unique
visitors) for the full reach of unique visitors to the
Customized Site, including by, if and to the extent necessary
to achieve such result, [
].
2.2. CONTENT. AG will maintain a line of Greeting Products (and
other Content to the extent required herein) in the Customized
Site which is competitive with any Additional AG Channel and
with other leading full line providers of similar products
available on the Internet, in terms of breadth of content,
depth of content, quality of content, and functionality
incorporated within the content, to
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<PAGE> 6
the extent the AOL Network's service capabilities and
functionality permit (the "Product Line Depth Requirements").
Except as mutually agreed in writing by the Parties (or as
required by this Agreement), the Customized Site will contain
only the AG Products listed on Exhibit D as they or their
successors may exist and be modified by AG hereafter
consistent with the terms hereof, and Content directly related
thereto (and any changes in the overall scope and nature of
the Products offered by AG in the Customized Site beyond those
listed on Exhibit D or otherwise set forth herein or mutually
agreed to by the Parties shall be subject to AOL's review and
reasonable approval, and the terms of this Agreement)
(collectively, the "Product Line Four Corners Requirements").
All sales of AG Products through the Customized Site will be
conducted either through a direct sales format (including
individual Product sales and quantity sales such as a "value
pack") or [
]. Subject only to express limitations of this
Agreement, AG shall have editorial discretion over the
editorial Content, programming and links (including in the
Cooperative Advertising Categories) (but in each case
excluding any Advertisements) on its Customized Site; [
] provided that, if AOL reasonably determines that
such Link [ ] has a material adverse
effect on AOL or its affiliates, then AOL shall be permitted
to require AG to terminate such Link [
] (but not to remove the editorial content related
thereto) (an "AOL Content Override"). AOL may exercise its
option to implement an AOL Content Override at any time;
provided that if and after AOL has exercised and implemented
an AOL Content Override more than [ ] times in any one
calendar year, then thereafter, in the event of any additional
AOL Content Override implemented by AOL, if such
implementation prevents AG from obtaining such editorial
content (e.g., such third party will not provide such content
without such Link) which such content, (i) by its unique or
special nature, AG is otherwise unable to obtain or supply;
(ii) which AG deems reasonably necessary to enhance the AG
Customized Site customer experience, and (iii) which AG
reasonably determines (in good faith), (subject to AOL's
consent, not to be unreasonably withheld), that such content
would add significant value or comprehensiveness to AG's
Greeting Product offerings, [
] AG will review, delete, edit, create, update and
otherwise manage all Content available on or through the
Customized Site in accordance with the terms of this
Agreement. To the extent AG has control over the sales of any
Advertisements within the Customized Site, AG will use
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<PAGE> 7
commercially reasonable efforts to solicit advertising from
AOL's partners first, prior to accepting any Advertisements
for, or distributing the products, services or content of, any
third party which is a direct competitor in the same industry
with any of AOL's most significant exclusive or premiere
partners (e.g., in the telecommunications, credit cards,
books, music or auctions industry). Any such sales shall be
subject to AOL's then-applicable advertising policies and
AOL's prior approval (not to be unreasonably withheld). In any
case where an AOL partner (i.e. a party that has a customized
Interactive Site targeted to AOL Users and linked to from AOL
or one of the AOL brands that is an Exclusive Area hereunder
(a "Partner Customized Site")) seeks AG's permission to link
to an AG Interactive Site from the Partner Customized Site, AG
shall only permit such link to the Customized Site. The
Customized Site shall be subject to all AOL policies which are
generally applicable to AOL's commerce partners regarding the
distribution of streaming media (including, without
limitation, policies regarding downloads and streaming audio
or video) over the AOL Network. AG acknowledges that such
generally applicable policies may be different for each AOL
property or service. Without limiting any other terms hereof
(e.g., without limitation, Section 1 of Exhibit E), AG shall
use commercially reasonable efforts to have the applicable
Brand Specific Customized Site (e.g., with respect to
Netscape, the Brand Specific Customized Site tailored to the
Netscape audience), in each case at AOL's option (a) include
the ability for an AOL User to select a cover image from a
gallery of online electronic photos and pictures and to write
their own caption; (b) include the ability to send a
professional-looking online card using a photo the AOL User
provides themselves; (c) include the ability to send online
electronic cards (similar to traditional postcards) from major
destination cities; (d) include the ability to attach the AOL
User's own voice to an online electronic card by uploading an
audio file of themselves saying a greeting; (e) include the
ability in selected online cards to compose a lengthy note
with formatted text and hyperlinks for inclusion with an
online electronic card; and (f) include a catalog of online
electronic photos and pictures illustrating major historical
events for AOL Users to send in order to commemorate those
events, it being understood that (i) AG shall have no
obligation under any of (a) through (f) above to provide the
technology to carry out the digitization or other input by the
user of any sound or image, the foregoing requirements
applying only to technology to manipulate (as and to the
extent provided for above) such Content once online in digital
form, subject to reasonable technological limitations (e.g. as
to file size or format) and (ii) any obligation of AG is
subject to the capabilities and functionalities provided by
the AOL Network.
2.2.1. OTHER CONTENT FOR THE AOL NETWORK. Provided that (i)
AG retains ownership of the Licensed Content it
provides to AOL to be provided to end users; (ii)
end-users are subject to the same online licensing
and use restrictions with respect to such Content as
those in AG's then applicable online terms of service
or subscription agreement for such Content (or
substantially similar Content of AG) and (iii) AG is
provided appropriate Advertisement placement and
branding in any area in which its Content is
included:
2.2.1.1. CAPTIONS FOR YGP. AG will provide, at AOL's
option (to be exercised with reasonable
advance notice to AG), at no cost to AOL or
AOL Users from AG (but AOL may opt to charge
its end users, subject to mutual agreement
with AG as to the appropriate revenue share
to AG therefor), a non-exclusive library of
captions, for YGP users to choose from for
inclusion in their respective photo albums
(the "YGP Captions").
2.2.1.2. HOMETOWN. AG will provide to AOL, at AOL's
option (to be exercised with reasonable
advance notice to AG), at no cost to AOL or
AOL Users from AG (but AOL may opt to charge
its end users, subject to mutual agreement
with AG as to the appropriate revenue share
to AG therefor), (a) clip-art (and AG shall
allow integration of such art into AOL's
publishing tools); (b) home page templates
(and AG shall allow integration of such
templates into AOL's publishing tools); (c)
animated and/or interactive home page
artwork (similar to Thingworld.com or
Zapa.com); (d) member profile templates (and
AG shall allow integration of such templates
into AOL's Member Directory).
2.2.1.3. NETSCAPE WEBMAIL AND ICQ E-MAIL. AG shall,
at AOL's option (to be exercised with
reasonable advance notice to AG), at no cost
to AOL or AOL Users from AG (but AOL may opt
to charge its end users, subject to mutual
agreement with AG as to the appropriate
revenue share to AG therefor), provide
stationery for Netscape's Webmail and ICQ
E-mail products, (a) using HTML that
supports 3.x and above browsers; and (b)
which is organized into useful categories,
such as holidays, invitations, business,
etc.
2.3. CUSTOMIZATION OF CONTENT. Pursuant to Sections 2.1 and 2.2,
and the terms hereof and subject to AOL's approval (such
approval not to be unreasonably withheld), AG shall create
distinct versions of the Customized Site for each applicable
property of the AOL Network (i.e., one for each Exclusive AOL
Property, including each Foreign Local Market for AOL
International, e.g., one for linking from the AOL Service, one
for linking from the ICQ Service, etc., or any other AOL
property if and to the extent AOL is providing carriage from
such property pursuant to Exhibit A or
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Exhibit A-1 [
] (each, a "Brand Specific Customized Site");
provided that, as used in this Agreement (including without
limitation in Exhibit E, but except as otherwise provided
herein) each reference to or requirement or obligation for the
Customized Site shall apply equally to each individual Brand
Specific Customized Site. AG will include certain distinct
Content within each Brand Specific Customized Site, tailored
and targeted to the applicable audience (the "Brand Specific
Content")). The Parties will cooperate to mutually agree on
appropriate Brand Specific Content for each site, including at
a minimum (but in each case subject to the Rollout in Section
2.12 hereof), with respect to international distribution, each
Brand Specific Customized Site in each Foreign Local Market
and the Greeting Products and Content therein in the
appropriate local languages.
2.4. DELIVERY OF GREETING PRODUCTS AND CO-BRANDING. AG shall ensure
that all Greeting Products ordered from any Customized Site,
when delivered (regardless of the Greeting Media used for
delivery, as described below), shall include in the Greeting
Media (and, if and to the extent AG includes branding in its
Greeting Products for any third party [
],
then also in the Greeting Product) (i) prominent AOL
co-branding to appear as mutually agreed, (ii) links to an AOL
Interactive Site (provided that such site shall be one which
is mutually agreed to be contextually relevant by the Parties
or is otherwise a mutually agreeable site), and (iii) links to
the Customized Site only (but in no event to the Standard
Site). Immediately upon production implementation of V4, any
Greeting Products ordered from any Customized Site, when
delivered, shall be available for initial viewing by the
recipient online (e.g., in an online `pick-up window' rather
than being initially viewed as an e-mail or downloadable
attachment thereto), and any time any pick up window is used,
then such Greeting Products shall reside and be viewable
within (i.e., the pick up window itself shall only reside
therein) a designated area of an appropriate Brand Specific
Customized Site (the "Online Viewing Area") (it being
understood that the appropriate Brand Specific Customized Site
may depend on the identity of both the sender and the
recipient, as well as where and how such Product was ordered
(for example, an AOL Service member ordering a Greeting
Product through the AOL Service to be sent to a non-AOL member
cannot be accessible via the AOL Service Brand Specific
Customized Site by the recipient, since the recipient cannot
access such site)). However, the Parties may, by mutual
agreement as to the best consumer experience and user
interface, elect to subsequently change the initial delivery
vehicle (Greeting Media) for such Greeting Products (it being
understood and agreed that any such change may adversely
affect the total amount and/or value of the advertising
inventory on the Customized Site, and shall therefore also
require (a) mutual agreement regarding appropriate reductions
to (and revisions to the timing of) (1) [
] pursuant to the Advertising Inventory
Agreement Annex, and (2) AOL's Advertising Hurdle Amounts
pursuant to the Advertising Inventory Agreement Annex, and (b)
that AOL receives similar rights to the sale of advertising
inventory and revenue sharing with respect thereto on any such
new Greeting Medium as it has with respect to the Customized
Site). Each screen or page of each Online Viewing Area, if
any, shall contain a prominent link to an AOL Interactive Site
selected by AOL and co-branding as set forth herein and as
otherwise mutually agreed. In addition, any Greeting Media
(delivery vehicle for the link) containing the link to the
appropriate Online Viewing Area, if any, shall be co-branded
as mutually agreed (e.g., in an e-mail delivering a link to
view a Greeting Product, if ordered from the ICQ Service, then
the e-mail itself should contain a statement to the effect of:
"Sent to you by American Greetings, from ICQ" (or whichever is
the appropriate brand from which the Greeting Product was
ordered), or a substantially similar and/or mutually agreed
upon message. If the Greeting Product as ordered is an AOL
Exclusive Offer (as defined in Section 2.9), or otherwise
consists of content exclusively available to AOL Users or a
subset thereof, then such Greeting Media and Online Viewing
Area, if any, should contain a statement to the effect of:
"This Greeting available exclusively on AOL from American
Greetings" or a substantially similar and/or mutually agreed
message. [
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<PAGE> 9
]
2.5. PRODUCTION WORK. Except as agreed to in writing by the Parties
pursuant to the "Production Work" section of the Standard
Online Commerce Terms & Conditions attached hereto as Exhibit
F or otherwise, AG will be responsible for all production work
associated with the Customized Site, including all related
costs and expenses, but excluding the costs and expenses of
operating and maintaining the AOL Network (and AOL shall be
responsible for any integration of any Integrated Promotions
within the AOL Network, including all related costs and
expenses, as required to implement such Promotions as
scheduled herein).
2.6. TECHNOLOGY. AG will conform its promotion and sale of Products
through the Customized Site to the then-existing technologies
identified by AOL which are optimized for the AOL Service
including, without limitation, any "quick checkout" tool which
AOL may implement to facilitate purchase of products by AOL
Users through the Customized Site; provided, however, without
limiting any other terms hereof (e.g., without limitation,
Section 1 of Exhibit E), in the case of any future technology
(and the cost of integration of such technology into the
Customized Site) that such technology is generally available
on commercially reasonable prices and terms [
]). AOL will be entitled to
require reasonable changes to the Content (including, without
limitation, the features or functionality) within any linked
pages of the Customized Site to the extent such Content will,
in AOL's good faith judgment, adversely affect, for
technological reasons such as Content format incompatibility
or excessive demand on bandwidth, any operational aspect of
the AOL Network. AOL reserves the right to review and test the
Customized Site from time to time to determine whether the
site is compatible with AOL's then-available client and host
software and the AOL Network, provided that such review and
testing is reasonable, is done using non-production system
copies of the Customized Site or planned and scheduled in
advance to prevent any performance degradation of the
production environment of the Customized Site.
2.7. PRODUCT OFFERING.
2.7.1. INITIAL PRODUCT OFFERINGS. The Product Line Depth
Requirements set forth in Section 2.2 shall not apply
to the extent it is commercially or technically
impractical to either Party (i.e., compliance would
cause either Party to incur substantial incremental
costs); and the Product Line Depth Requirements and
the Product Line Four Corners Requirements shall not
be deemed to have been violated to the extent that
any such Content is included briefly in one area on a
test basis.
2.7.2. AOL'S RIGHTS TO REQUEST ADDITIONAL PRODUCTS AND
SERVICES. AG (subject to its availability of
resources and the allocation, in AG's discretion, of
its development priorities) shall, upon reasonable
request (including reasonable advance notice) from
AOL, produce and deliver additional Content
("Broadband Content") tailored to broadband products
and services (e.g., animation clips, audio,
backgrounds (e.g., for AOL Member profiles, desktops
or screensavers)) provided, however, that if such
Content requires any additional technology, such
technology is generally available on commercially
reasonable prices and terms, or, in the case of
technology of AOL, that such technology is made
available by AOL [ ]. If and to the extent
AG creates or distributes any Products based on
Broadband Content, AG shall make the same available
to AOL
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<PAGE> 10
hereunder (subject to Section 2.7.1 and the lead in
clauses (i) through (iii) of Section 2.2.1).
2.7.3. PARENTAL CONTROLS. AG shall cooperate with AOL to
develop appropriate and effective "parental controls"
for any AG Content that may not be suitable for
children, if any. AG acknowledges that this is in
addition to, and not in lieu of, AOL's Terms of
Service (available online on the AOL Service at
Keyword "TOS"), the terms of which shall still apply
to all AG Content as and to the extent provided
herein, including without limitation in Section 2 of
Exhibit F.
2.7.4. [
]
2.8. PRICING AND TERMS. [
]
provided, however, that AG shall not be restricted from
offering special or promotional pricing or from conducting
marketing tests of pricing with respect to any Additional AG
Channel (on a limited basis and to the extent such does not
have a material detrimental impact on AOL); provided further,
that AG shall not be restricted with respect to any marketing
or distribution channel that is not an Additional AG Channel;
and, provided further that AG shall not be deemed in violation
of the foregoing to the extent that its offerings are limited
by the capabilities and functionality of the AOL Network.
Without limiting the foregoing, AG and AOL will meet at least
[ ] to review whether the pricing and terms and
conditions of the Greeting Products within the Customized Site
are generally competitive compared with substantially similar
Greeting Products sold by or on behalf of any other major
greeting card provider offering a full line of Greeting
Products through any other online or Interactive Site
(including without limitation the mix of free products versus
upsells); and provided further that AOL agrees that AG will
not be deemed to have violated the provisions of this
Agreement by offering lower prices than those available
through the Customized Site in the following circumstances:
[
]
2.9. EXCLUSIVE OFFERS & CONTENT/MEMBER BENEFITS. AG will promote
through the Customized Site a program of special or
promotional offers [
] provided that
such promotions need not be identical or simultaneous to such
other offers. In addition, AG shall promote through the
Customized Site, [
] special offers which are exclusively
available to AOL Users (the "AOL Exclusive Offers"). The AOL
Exclusive Offers made available by AG shall provide a
substantial member benefit to AOL Users, either by virtue of a
meaningful price discount, product enhancement, unique service
benefit or other special feature. Specific AOL Exclusive
Offers to be made available by AG shall from time to time
include without limitation one or more of the AOL Exclusive
Offers listed on Exhibit D-1.
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AG will provide AOL with reasonable prior notice of AOL
Exclusive Offers so that AOL can market the availability of
such AOL Exclusive Offers in the manner AOL deems appropriate
in its editorial discretion. In addition to such Exclusive
Offers, AG will also create certain items of Greetings Content
exclusively for AOL Users (e.g., certain kids related content)
(the "Exclusive Content"). The Exclusive Content shall
include, at a minimum, that listed on Exhibit D-1.
2.10. OPERATING STANDARDS. In the event AG fails to comply with any
material term of this Agreement or any Exhibit attached
hereto, which failure, by its nature and in the specific case
has an immediate and material adverse effect on AOL [ ]
requires timely or immediate action by AOL [ ] any
of: [
]
then AOL will have the right (as the sole remedies available
to AOL hereunder, other than Sections 8.6, 8.7, and any
indemnification provisions hereof, (it being understood that
"sole remedies" as used in this Section 2.10 shall mean the
sole remedies for such immediate and material adverse effect
itself, but not for any other breaches of this Agreement that
may be caused as a direct or indirect consequence thereof nor
by the underlying failure to so comply by AG, e.g., if and to
the extent such failure results in another breach hereof,
e.g., if it causes, in whole or in part, AG to fail to comply
with Section 1 of Exhibit E, then any such separate breach
shall still be deemed a breach, with its own remedies and
repercussions as set forth herein)) to immediately, without
notice to AG (provided AOL uses reasonable efforts to so
notify AG and in any event so notifies AG immediately
thereafter), decrease the promotion it provides to AG
hereunder (but such decrease shall only be to the extent
reasonably necessary to address such specific problem, to the
extent feasible (e.g., by blocking certain Promotions in
certain channels rather than blocking all Promotions, if and
to the extent that is all that is necessary to prevent the
problem), until such time as AG corrects its non-compliance.
AOL shall promptly restore any such Promotions if and after AG
corrects such problems. In such event, AOL will be relieved of
that percentage of any promotional commitment made to AG by
AOL hereunder equal to the total number of days AG's violation
of clauses (i), (ii) or (iii) above divided by the total
number of days in the originally scheduled Initial Term
(without extensions or renewals) and any Hurdles & Thresholds
set forth herein will each be reduced by the same percentage
(but only to the extent applicable during the period of
non-compliance). The Parties acknowledge and agree that AOL
may take the immediate actions as set forth herein, but may
not immediately terminate this Agreement as a result of such
non-compliance by AG with the terms of this Section 2.10
unless after giving AG [ ] days notice and an
opportunity to cure during such [ ] day period, such breach is
continuing (provided that AG has not demonstrated a pattern of
such breaches, each under [ ] days, but in total having a
material adverse impact).
2.11. TRAFFIC FLOW. AG will take reasonable efforts to ensure that
AOL traffic is either kept within the Customized Site or
channeled back into the AOL Network (with the exception of
Advertising, sponsorship or other Links sold and implemented
as expressly permitted by this Agreement). The Parties will
work together on implementing mutually acceptable links from
the Customized Site back to the AOL Service or other
applicable area of the AOL Network. In the event that AOL
points to the Customized Site or any other AG Interactive Site
or otherwise delivers traffic to such site hereunder, AG will
ensure that navigation back to the AOL Network from such site,
whether through a particular pointer or link, the "back"
button on an Internet browser, the closing of an active
window, or any other return mechanism, is reasonably available
(as mutually agreed) to the user.
2.12. ROLLOUT. The Parties shall cooperate to implement a phased
roll out (the "Rollout") of the Customized Sites and ramp up
of certain of AG's obligations hereunder, in each case to the
extent set forth in this Section 2.12, and of certain of AOL's
Promotional obligations, in each case to the extent set forth
in this Section 2.12. The first phase of the Rollout shall
begin on the Interim Date and end on [ ] (or
earlier, if and to the extent mutually agreed) ("Phase One");
the second and final phase of the Rollout shall begin after
Phase One and end on [
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<PAGE> 12
] (or earlier, if and to the extent mutually agreed), after
which, the Rollout shall be complete ("Phase Two", with Phase
One and Phase Two collectively being the "Ramp Up Period").
This Section 2.12 shall only apply during the Ramp Up Period,
and thereafter shall in no way limit any obligations elsewhere
herein. Notwithstanding anything to the contrary herein,
including without limitation the requirements of Section 1 of
Exhibit E, the following shall apply:
2.12.1. DURING PHASE ONE. (i) During Phase One (except as
provided below in clause (iii) with respect to the
AOL Service) AG shall be excused from any obligation
hereunder it is then not meeting relating directly to
the technical and operational ability of AG's
Customized Site to withstand traffic levels from
scheduled Promotions as set forth in Exhibit E); (ii)
During Phase One AOL shall cooperate with AG to
gradually ramp up Promotions hereunder (e.g., one
brand at a time) (and AOL shall therefore be excused
from any obligations to implement Promotions to the
extent reasonably necessary to comply herewith, and
AG shall be excused from any obligations (subject to
clauses (iii), (iv) and (v) below) to have the
Customized Site and all individual Brand Specific
Customized Sites launched on the Effective Date or
during Phase One to the extent reasonably necessary
to comply herewith (it being understood and agreed
that, so long as the requirement to have a Customized
Site or Modified Customized Site is excused, so are
necessarily all related obligations (e.g., without
limitation, that such site have customized content,
pick up windows, technology requirements, etc.))), to
allow load testing (it being understood and agreed
that, during the entire Ramp Up Period (including
during Phase One), AOL shall reserve its rights under
Section 2.10 to act immediately for timely issues,
but not any termination right as a result thereof
pursuant to Section 2.10, until after the end of
Phase One); (iii) During Phase One the Brand Specific
Customized Site for the AOL Service will be launched
and fully compliant with all terms of this Agreement
applicable thereto by the Scheduled Transition
Completion Date; (iv) During Phase One AG will launch
all of the other Brand Specific Customized Sites, but
such sites may be merely Modified Customized Sites
(subject to clause (v) with respect to international
sites) (it being understood and agreed that the
obligation to have a Customized Site and all the
related requirements thereof are excused provided
that the obligations to have Modified Customized
Sites and all related obligations thereof are met in
accordance herewith); and (v) During Phase One AG
will launch Content meeting the requirements of
Section 1 of Exhibit E for each Brand Specific
Customized Site, including each international Brand
Specific Customized Site in each Foreign Local
Market, except that during Phase One the
international Brand Specific Customized Sites need
not be fully localized (i.e., Greeting Products and
other Content therein shall be provided in the local
language, but the Brand Specific Customized Site
website itself may still be in English by the end of
Phase One).
2.12.2. DURING THE ENTIRE RAMP UP PERIOD. (i) During Phase
Two, AG shall convert each of the Modified Customized
Sites to the compliant various Brand Specific
Customized Sites; (ii) During the entire Ramp Up
Period AOL shall not be required to link Promotions
to any site that is not a Customized Site, but may
link to a Modified Customized Site if the Parties
mutually agree (in which case AOL shall share in the
revenues to any site linked to in accordance with the
terms hereof on the terms provided for a Modified
Customized Site; and (iii) During the entire Ramp Up
Period AG shall not be deemed in breach of this
Agreement for AG's failure, with respect to
individual international Brand Specific Customized
Sites in any Foreign Local Markets, to meet the
obligations of Section 1 of Exhibit E with respect
thereto (and therefore AOL shall not be entitled to
terminate the Agreement for a material breach of AG
for such event); provided that AOL shall still be
entitled, subject to Section (v) of Section 2.12.1
above, to terminate the exclusivity and/or the
carriage in any such Foreign Local Market for such
failure to meet such obligations (i.e., in such case,
AOL may terminate the exclusivity or the agreement
with respect to only those Foreign Local Markets
which are not compliant with Section 1 of Exhibit E,
but such may not be deemed a material breach of the
entire Agreement by AG). By the end of Phase Two, AG
will have launched each Brand Specific Customized
Site and each
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shall be fully compliant with all requirements
hereof, including being customized to the applicable
audience to the extent required by Section 2.3.
3. AOL EXCLUSIVITY OBLIGATIONS.
3.1. [
]
3.2. [
]
3.2.1. [
]
[
]
[
]
[
]
3.2.2. [
]
3.2.3. [
]
3.2.4. [
]
13
<PAGE> 14
3.2.5. [
]
3.2.6. [
]
3.2.7. [ ]
3.2.8. [
]
3.2.9. [
]
3.2.10. [
]
14
<PAGE> 15
3.3. [ ]
3.3.1. [
]
3.3.2. [
]
4. PAYMENTS.
4.1. MINIMUM GUARANTEED CASH CONSIDERATION TO AOL. AG will pay AOL
a guaranteed cash payment of One Hundred Million Dollars (US
$100,000,000.00), payable as follows:
4.1.1. [
]
4.1.2. [
]
4.1.3. [
]
4.1.4. [
]
4.1.5. [
]
4.2. ADDITIONAL FINANCIAL SECURITY. [
]
4.3. IN-KIND PROGRAMMING AND PROMOTION. AG shall provide AOL with
the in-kind promotional commitments specified on Exhibit C-1
attached hereto (the "In-Kind Promotions"). AG shall be
responsible for operation and supervision of such promotions,
and for compliance with all applicable laws, rules and
regulations related to any such promotions. All In-Kind
Promotions shall be delivered in accordance with the terms of
such Exhibit C-1, including without limitation, subject to the
makegood provisions and remedies therein.
4.4. SHARING OF TRANSACTION REVENUES. With respect to each quarter,
AG will pay AOL an amount equal to the Applicable Percentage
of all Transaction Revenues in such quarter. Such amount shall
be due and payable for each quarter within [ ] days after the
end of such quarter. The "Applicable Percentage" for any
Transaction Revenues shall be [ ]%, except that the
Applicable Percentage shall be [ ]% with respect to any
Transaction Revenue that is in excess of the
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<PAGE> 16
Threshold Amount of Transaction Revenue applicable to the
Contract Period in which such quarter occurs. Notwithstanding
the foregoing, after the applicable Threshold Amounts has been
achieved, the Applicable Percentage with respect to
Transaction Revenues generated directly for the sale of (a)
physical (offline) paper greeting cards shall only be [ ]%
and (b) plain paper or any other physical products which are
listed on Exhibit D shall only be [ ]%. Failure to hit any
Threshold Amount is not a breach hereof, but merely affects
the Applicable Percentage; if the Transaction Revenues in any
period do not exceed the Threshold Amount, then the amount of
the shortfall shall be added to the following period's
Threshold Amount (such that, if in calendar year 2001, only $[
] million in Transaction Revenues are generated, then for
calendar year 2002, the Threshold Amount shall be $[ ]
million (rather than $[ ] million). The Contract Periods and
the Threshold Amounts for each Contract Period during the
Initial Term of this Agreement shall be as follows (in each
case, the actual and reasonable expenses incurred by AG during
such period directly for the actual hosting and hardware costs
directly related to the Customized Site (but not any Standard
Site) shall be added to the Threshold Amounts listed below):
[
]
4.5. ADVERTISING ON THE CUSTOMIZED SITE. All Advertising on the
Customized Site shall be governed by the Advertising Inventory
Agreement Annex.
4.6. LATE PAYMENTS; WIRED PAYMENTS. All amounts owed hereunder not
paid when due and payable will bear interest from the date
such amounts are due and payable at the prime rate in effect
at such time. All payments to AOL required hereunder will be
paid in immediately available, non-refundable U.S. funds wired
to the "America Online" account, Account Number [ ] at
The Chase Manhattan Bank, 1 Chase Manhattan Plaza, New York,
NY 10081 (ABA: 021000021).
4.7. AUDITING RIGHTS. Each party will maintain complete, clear and
accurate records of all expenses, revenues and fees in
connection with the performance of this Agreement (i.e., with
respect to AG auditing AOL, only to the extent required for
collection of Customized Site Advertising Payments hereunder
by AOL and for which AG is sharing in such revenues; and with
respect to AOL auditing AG, only to the extent required for
collection of Site Revenues. For the sole purpose of ensuring
compliance with this Agreement, each party (or its
representative) will have the right to conduct a reasonable
and necessary inspection of portions of the books and records
of the other which are relevant to such other's performance
pursuant to this Agreement. Any such audit may be conducted
after [ ] business days prior written notice to the
party being audited. The party requesting the audit shall bear
the expense of any audit conducted pursuant to this Section
4.7 unless such audit shows an error in such party's favor
amounting to a deficiency in excess of [ ] percent ([ ]%) of
the actual amounts paid and/or payable hereunder, in which
event the other party shall bear the reasonable expenses of
the audit. The parties shall pay the amount of any deficiency
discovered by an audit within [ ] days after receipt
of notice thereof.
4.8. TAXES. Each party will collect and pay and indemnify and hold
the other harmless from, any sales, use, excise, import or
export value added or similar tax or duty not based on the
other's net income and arising out of that party's activities
hereunder, including any penalties and interest, as well as
any costs associated with the collection or withholding
thereof, including attorneys' fees.
4.9. REPORTS.
4.9.1. SALES REPORTS. AG will, subject to applicable legal
and privacy restrictions, provide AOL with monthly
reports (but shall have [ ] days to cure
non-delivery), providing information necessary to AOL
to optimize the marketing plan and the Promotions,
and information
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<PAGE> 17
reasonably required for measuring revenue activity to
calculate any revenue sharing, including, for each
Brand Specific Customized Site, summary sales
information and e-mail address, data used for
calculating Transaction Revenues and Site Revenues,
and other mutually agreed information (the "Sales
Reports"). AOL will be entitled to use the Sales
Reports in its business operations, subject to the
terms of this Agreement (and provided that AOL
acknowledges that such reports may contain
Confidential Information as defined herein).
4.9.2. USAGE REPORTS. AOL shall provide AG (but shall have
[ ] days to cure non-delivery) with reasonable usage
information related to the Promotions (e.g., a
schedule of the Impressions delivered by AOL at such
time) which is similar in substance and form to the
reports provided by AOL to other interactive
marketing partners similar to AG; AOL shall use
commercially reasonable efforts to include in such
reports other data mutually agreed as relevant, as
reasonably requested by AG, to the extent feasible.
AG acknowledges that such information may be
Confidential Information as defined herein.
4.9.3. CUSTOMIZED SITE ADVERTISING SALES REPORTS. AOL shall
provide AG (but shall have [ ] days to cure
non-delivery) with reasonable information with
respect to sales of Advertisements by AOL in the
Customized Site pursuant to the Advertising Agreement
Annex (e.g., Impressions, dollar amounts, advertising
entity) which is similar in substance and form to any
similar reports provided by AOL to other interactive
marketing partners similar to AG; AOL shall use
commercially reasonable efforts to include in such
reports other data mutually agreed as relevant, as
reasonably requested by AG, to the extent feasible.
AOL shall deliver such reports at least quarterly,
but shall use commercially reasonable efforts to
deliver such reports monthly within [ ] business days
after the end of the applicable month. If and to the
extent AG is permitted to sell any Advertisements in
the Customized Site, AG shall so provide similar
reports to AOL. Each Party acknowledges that certain
information within such reports may be Confidential
Information as defined herein.
4.9.4. FRAUDULENT TRANSACTIONS. To the extent permitted by
applicable laws, AG will provide AOL with a prompt
report of any fraudulent order, including the date,
screenname or email address and amount associated
with such order, promptly following obtaining
knowledge that the order is, in fact, fraudulent.
5. INTEGRATION OF AOL COMPONENT PRODUCTS.
5.1. AG INTEGRATION. To the extent AG determines, in its discretion
(except as provided in Section 5.3 below), to offer any third
party Component Product on the Customized Site or any Standard
Site (on a case by case basis for each Standard Site) (except
for any Third Party Customized Site), AG shall offer
exclusively (except as otherwise provided below) an AOL
version of such Component Product, so long as AOL is willing,
at its option, to license such Component Product to AG for use
on the Customized Site or Standard Site in question at no cost
to AG (e.g., if AG decides to introduce instant messaging on
the Customized Site, AG shall introduce either the ICQ Service
or AOL's Instant Messenger brand product, if AOL is willing to
license such products without charge to AG). AG shall be
permitted reasonable time to implement any Component Product
required hereunder, which time may be dependent on, among
other things, the Ramp Up Period for the Customized Site. Any
AOL Component Products offered by AG on the Customized Site or
any Standard Site described in this Section 5.1 shall be
prominently co-branded with the appropriate AOL brand and AG's
brand, if and to the extent feasible, subject as to AOL's
branding to AOL's generally applicable branding requirements
for such product, and shall contain a link to an AOL
Interactive Site where the user can learn more about the AOL
Component Product and/or AOL. AOL may, with respect to
Component Products on any Standard Site, if and as mutually
determined by the Parties, permit AG to privately label such
Component Product.
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<PAGE> 18
5.2. SPECIFIC INTEGRATION REQUIREMENTS. At AOL's option, AG shall
include on the Customized Site links to the appropriate areas
of the AOL Network (as mutually agreed) containing the
following Component Products, and shall include the following
Component Products on the Standard Site, in each case on an
exclusive basis (i.e., shall only include an AOL version of
such Component Products), except to the extent otherwise
expressly set forth below): (i) AOL Calendar, (ii) YGP
(exclusively on the Customized Site and with equal or greater
prominence to all similar products on any Standard Site),
(iii) e-mail (if and to the extent AOL can deliver a product
within six months of the Interim Date) and (iv) the ICQ
Service instant messaging product or AOL Instant Messenger
(exclusively on the Customized Site and, on the Standard Site,
exclusively for [ ] months from and after the Interim
Date and thereafter on all Standard Sites with equal or
greater prominence to all similar products on any such
Standard Site) (in each case including any successor versions
or products). AG shall be entitled to all Advertising revenues
arising as a direct result of the inclusion of AOL Calendar or
e-mail on AG's Standard Site. Any AOL Component Products
offered by AG or any Standard Site described in this Section
5.2 (i.e. AOL Calendar, YGP, e-mail or instant messaging)
shall be prominently co-branded with the appropriate AOL
brand, and AG's brand, if and to the extent AOL co-brands such
product with any third party, subject to AOL's generally
applicable branding requirements for such product, and shall
contain a link to an AOL Interactive Site where the user can
learn more about the AOL Component Product and/or AOL. AOL
may, with respect to Component Products on any Standard Site,
if and as mutually determined by the Parties, permit AG to
privately label such Component Product.
5.3. INTEGRATION EXCEPTIONS. Notwithstanding anything to the
contrary herein (other than Section clause (ii) of 5.2, which
is not subject to clauses (i) and (ii) of this Section 5.3,
but only for the first [ ] months of the Initial Term
hereof), AG shall not be required to offer any AOL Component
Products (i) on any Third Party Customized Site; (ii) that is
not, in AG's reasonable determination, clearly supported by
reasonable objective market criteria, and such determination
is agreed with by AOL (such consent not to be unreasonably
withheld) generally competitive in all the following areas:
(a) end-user pricing, (b) functionality, (c) quality, (d)
customer service and fulfillment available from AOL; and (e)
ease of use; (iii) would require AG to expend more than a
commercially reasonable amount in order to implement
technologically; (iv) is not made available pursuant to a
license granting AG and its customers all necessary legal
rights on commercially reasonable terms and conditions
[ ]; (v)
with respect to the Standard Site (but not the Customized
Site) in any case or circumstance where AG is already using a
Component Product pursuant to an existing agreement with a
third party or is already using a Component Product listed in
Section 5.2 developed by or on behalf of AG as of the Interim
Date; provided AG hereby represents and warrants to AOL that,
to the best of its Knowledge, there are currently (as of the
Interim Date) no such pre-existing Component Product
obligations relating to the specific Component Products
expressly described in Section 5.2 only except as follows:
[ ];
or (vi) as to which AOL fails to meet its obligations pursuant
to Section 5.4.
5.4. AOL RESPONSIBILITY TO CUSTOMIZE. With respect to the Standard
Site (but not the Customized Site) AOL agrees to customize any
and all Component Products to AG's reasonable specifications
subject to AOL's consent, not to be unreasonably withheld;
provided that AOL shall have a reasonable period of time to
implement such customization according to a mutually agreed
timeline, taking into consideration the nature and extent of
such customization (but in no event less than [ ]). Such
customization may include, by way of example, a greetings tab
on YGP and top line integration into calendar.
5.5. CONTINUED USE. To the extent AG is then currently using any
AOL Component Product pursuant to the terms hereof at the time
of expiration or termination of the Term (subject to Section
8.9), then AG may continue to use such AOL Component Product
to the extent consistent with the terms hereof for [ ]
after the end of the Term.
6. PARTNER MARKETING. AG shall use best efforts to negotiate in good faith
with AOL to enter into a separate acquisition marketing agreement (but
will not be in breach hereof if, despite such efforts to
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<PAGE> 19
negotiate, no agreement can be reached), within a reasonable time after the
Interim Date, in form and substance substantially similar to that generally used
by AOL for similar activities.
7. ENTERPRISE / E-COMMERCE SOLUTIONS. AOL and AG will explore the
potential of AOL supplying back-end commerce solutions through the
Sun-Netscape Alliance. Any such supply shall be subject to mutual
agreement.
8. TERM; RENEWAL; TERMINATION.
8.1. TERM. Unless earlier terminated or extended as set forth
herein, the initial term of this Agreement (the "Initial
Term") will commence on the Effective Date and will continue
until December 31, 2004 and thereafter, if and to the extent
applicable, until the conclusion of any applicable Extension
Weeks as provided in Section 1.1.4. (the "Extension Period").
8.2. RENEWAL. Upon the conclusion of the Initial Term or any
applicable Extension Period, AOL will have the right to renew
the Agreement for successive one-year renewal terms (each a
"Renewal Term" and together with the Initial Term, the
"Term"). A Non-Exclusive Renewal Term (as defined in Section
8.3 below) shall automatically commence following the
expiration of the Initial Term (or prior Renewal Term, as the
case may be), unless AOL shall have given notice of
non-renewal at least[ ] days prior to
the end of the then current term, or notice of AOL's desire to
start an Exclusive Renewal Term (as defined in Section 8.3
below) rather than a Non-Exclusive Renewal Term, at any time
prior to the end of the then current term. AOL shall be able
to terminate any Exclusive Renewal Term at any time by giving
[ ] days notice to AG, or to change an Exclusive Renewal Term
to a Non-Exclusive Renewal Term at any time by giving [ ] days
notice to AG. If AOL meets the Final Advertising Hurdle Amount
for the Final Advertising Hurdle Dates (in each case as
defined in the Advertising Inventory Annex Agreement), subject
to all terms applicable thereto, e.g., any reductions or
extensions in timing of the obligations to achieve such Final
Advertising Hurdle Amount for the Final Advertising Hurdle
Dates to the extent expressly set forth herein, then AOL shall
retain the right to continue to act as the exclusive sales
agent for Advertisements within the Customized Site for the
first Renewal Term (but expressly not any subsequent Renewal
Terms unless otherwise mutually agreed) as set forth in the
Advertising Inventory Annex Agreement for the Initial Term.
8.3. TERMS AND CONDITIONS DURING RENEWAL TERM; TYPES OF RENEWALS.
AOL may designate any Renewal Term as exclusive (an "Exclusive
Renewal Term") or non-exclusive (including any Renewal Term
not expressly designated as an Exclusive Renewal Term, a
"Non-Exclusive Renewal Term"). Any payments required by a
Party during any Renewal Term (e.g., revenue sharing) shall be
due and payable to the other Party quarterly, within [ ] days
after the end of each applicable quarter.
8.3.1. EXCLUSIVE RENEWAL TERMS. During any Renewal Term
expressly designated as an Exclusive Renewal Term by
AOL, (i) AOL shall continue to fulfill its
obligations with respect to Section 3 hereof; (ii)
AOL shall continue to provide integrated carriage in
e-mail to AG in similar scope and nature to any such
carriage as it existed immediately prior to the end
of the immediately preceding term or as otherwise
mutually agreed; (iii) AG will not be required to pay
any guaranteed, fixed payment (i.e., as described in
Section 4.1) nor perform the In-Kind Promotions
referred to in Section 4.2 and Exhibit C-1; (iv) AOL
will be entitled to [ ] percent([ ]%) and AG [ ]
percent ([ ]%) of all Customized Site Advertising
Payments; and (v) all other terms and conditions
hereof shall continue in full force and effect except
as otherwise expressly stated herein.
8.3.2 NON-EXCLUSIVE RENEWAL TERMS. During any Renewal Term
designated as a Non-Exclusive Renewal Term by AOL (or
not expressly designated as an Exclusive Renewal
Term) (i) AG will not be required to pay any
guaranteed, fixed payment (i.e., as described in
Section 4.1) or perform the cross-promotional
obligations specified or referred to in Exhibit C or
the In-Kind promotions referred to in Section 4.3 and
Exhibit C-1; (ii) AG will determine, in its
discretion (subject to the last sentence of Section
8.2 above), whether or not AOL shall be appointed as
AG's exclusive Advertising sales agent on the
Customized Site and (iii) AG
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shall pay AOL [ ] percent ([ ] %) of Site Revenues
(or[ ]% or [ ]% as provided in clauses (a) and (b) of
Section 4.3), regardless of any Hurdles & Thresholds
set forth herein (except that if at the end of the
Initial Term, the final Threshold Amount has not been
met, then the percentage payable shall remain at [ ]%
for [ ] days, and then shall become [ ]% (or [ ]% or
[ ]% as provided above) immediately thereafter); (iv)
AOL will be entitled to [ ] percent ([ ]%) and AG
[ ] percent ([ ]%) of all Customized Site
Advertising Payments; (v) AG will maintain a Modified
Renewal Customized Site and comply with all the
requirements thereof; (vi) AOL shall not be required
to comply with the provisions of Section 3 (e.g.,
exclusivity); (vii) AOL shall have no placement or
promotion obligations; (viii) AG shall comply with
the Product Line Four Corners Requirement and (ix)
the terms and conditions of Sections 4.6 through 4.9,
9 and 10 hereof (including the terms and conditions
incorporated therein (i.e., Exhibits F and G)) shall
continue in full force and effect except as otherwise
expressly stated herein.
8.4. CONTINUED LINKS. Upon expiration of the Term, AOL may, at its
discretion (subject to the obligations to redirect for six
months as set forth below), continue to promote one or more
"pointers" or links from the AOL Network to an AG Interactive
Site and, continue to use AG's trade names, trade marks and
service marks in connection therewith (collectively, a
"Continued Link"). So long as AOL maintains a Continued Link,
(a) the provisions of a Non-Exclusive Renewal Term shall
apply, except only that clause (viii) of Section 8.3.2 shall
no longer apply, and (b) Sections 4.6 through 4.9 along with
the terms of Exhibits F and G hereto shall continue to apply
with respect to the Continued Link and any transactions
arising therefrom. For a period of at least [ ] months
after any termination of this Agreement (including any
renewals or extensions hereof), AOL shall be required to
redirect traffic from such co-branded URLs to an AG designated
URL and maintain a Continued Link, and AG shall be required to
maintain the Modified Renewal Customized Site at such
location; provided that AOL shall not be required to redirect
to any site that is not a Customized Site, Modified Customized
Site or Modified Renewal Customized Site meeting all the
requirements thereof (e.g., without limitation, if the
location to which AG requests redirection to promotes any
Interactive Service in violation of Section 1.2, then AOL
shall not be required to link thereto)). Thereafter, AOL may
choose to maintain such a Continued Link, but shall not be
required to.
8.5. CERTAIN STANDARD SITE LINKS. In the case of any link from the
AOL Network to a Customized Site or a Modified Renewal
Customized Site during a Renewal Term or a Continued Link, in
accordance with the applicable terms hereof, in the event that
AOL reasonably determines that the Customized Site or Modified
Renewal Customized Site is not being maintained in compliance
with the applicable requirements hereof AOL may, in addition
to any other applicable rights or remedies hereunder, link
instead (i.e. upon terminating any link to the Customized Site
or Modified Renewal Customized Site) to AG's primary Standard
Site. In such event the calculation of AOL's applicable
revenue shares shall be made as if such Standard Site were the
Customized Site, and using the definition of "AOL Standard
Site Purchaser" as the definition of "AOL Purchaser" in place
thereof, and, in the case of Customized Site Advertising
Payments to the extent of the following fraction of
advertising revenues of such Standard Site: (a) Impressions on
such Standard Site attributable to AOL Users, divided by (b)
total Impressions on such Standard Site.
8.6. TERMINATION FOR BREACH. Except as expressly provided elsewhere
in this Agreement, either Party may terminate this Agreement
at any time in the event of a material breach of the Agreement
by the other Party which remains uncured and continuing after
[ ] days written notice thereof to the other Party (or
such shorter or equal period, in each case without duplication
hereof, as may be specified elsewhere in this Agreement (e.g.,
if a[ ] day cure period is expressly provided elsewhere in
this Agreement, such cure period is not in addition to this[ ]
day period)); provided that AOL will not be required to
provide notice to AG in connection with AG's failure to make
any payment to AOL required hereunder, and the cure period
with respect to any scheduled payment will be [ ]
days from the date for such payment provided for herein.
Notwithstanding the foregoing, in the event of a material
breach of a provision that expressly requires action (other
than the giving of a notice with respect to a breach) to be
completed within an express period
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shorter than [ ] days, either Party may terminate this
Agreement if the breach remains uncured and continuing after
written notice thereof to the other Party.
8.7. TERMINATION FOR BANKRUPTCY/INSOLVENCY. Either Party may
terminate this Agreement immediately following written notice
to the other Party if the other Party (i) ceases to do
business in the normal course, (ii) becomes or is declared
insolvent or bankrupt, (iii) is the subject of any proceeding
related to its liquidation or insolvency (whether voluntary or
involuntary) which is not dismissed within [ ]
calendar days or (iv) makes an assignment for the benefit of
creditors.
8.8. TERMINATION FOR NON-COMPETITIVE PRODUCT. In the event that AG
(due to AG's act or omission, and not due to the act or
omission of AOL or any AOL Affiliate) fails to comply with the
requirements of Section 1 of Exhibit E (overall; or with
respect to the U.S. market; or with respect to any Foreign
Local Market; or on any one Brand Specific Customized Site
(e.g., if the ICQ Service Brand Specific Customized Site [
]
fails to comply with the requirements of Section 1 of Exhibit
E), then AOL may deliver to AG a notice specifying the nature
of such failure (a "Non-Competitive Status Notice"), and AG
shall have [ ] days after the Non-Competitive Status Notice to
cure such non-compliance. If AG fails to so comply, then AOL
will have the right, at its option, immediately upon written
notice from AOL (a "Termination Notice") (i) to terminate its
obligations under this Agreement only with respect to the
specific brand or Foreign Local Market in which AG is then
continuing to fail to meet the requirements of Section 1 of
Exhibit E, or, if AG is then continuing to fail to meet the
requirements of Section 1 of Exhibit E overall, then with
respect to the entire Agreement (in which case subject to the
elimination of any applicable remaining payment obligations by
AG and subject to the survival obligations herein), (ii) to
terminate the application of Section 3 hereof (AOL Exclusivity
Obligations) terminating the exclusivity for the remainder of
the then current Term only with respect to the specific brand
or Foreign Local Market in which AG is then continuing to fail
to meet the requirements of Section 1 of Exhibit E.
8.9. TERMINATION ON CHANGE OF CONTROL. In the event of a Change of
Control of AG resulting in control of AG by an Interactive
Service, AOL may terminate this Agreement by providing [ ]
days prior written notice of such intent to terminate. In the
event of any such termination, AOL may, at its option, by [ ]
days advance written notice to AG, elect to require AG to
maintain, for a period of no more than two years (the
"Transition Period"), a Modified Renewal Customized Site,
subject to the following different requirements: the Modified
Renewal Customized Site shall be branded as AOL determines in
its reasonable discretion and shall not include any branding
of AG (other than "ingredient branding" of AG (e.g. "powered
by americangreetings.com" with appropriate logo reference),
and shall not contain any branding whatsoever of the
Interactive Service that acquired or otherwise controls AG
(the "New Parent"). Any links that AOL maintains to such a
Modified Renewal Customized Site shall be deemed "Continued
Links" subject to the requirements of Section 8.4 and 8.5
(including applicable revenue sharing for AOL, or the right to
point to the primary Standard Site if AG fails to comply
herewith as a non-exclusive remedy). In such event, (but only
if AOL was then acting as exclusive Advertising sales agent)
AOL shall act as exclusive sales agent for all advertising
inventory on such Modified Renewal Customized Site and shall
share in revenues therefrom [ ]% (with [ ]% going to
AOL), notwithstanding anything to the contrary herein. Upon
any such termination, any restrictions on use by AG of AOL
User or AOL Member data (but only to the extent otherwise
expressly set forth herein) applicable after the Term shall be
applicable for two years after the end of such Transition
Period (e.g., if otherwise applicable for [ ] after the
Term hereof, shall be applicable for such full [ ] period
after the Transition Period in this Section 8.9 expires), and
the New Parent shall be treated as a third party and not an
affiliate of AG for purposes of use of data or sharing of
Confidential Information hereunder.
8.10. PRO RATA REFUND. [
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8.11. [
]
]
8.12. PRESS RELEASES. Each Party will submit to the other Party, for
its prior written approval, which will not be unreasonably
withheld or delayed, any press release or any statement
intended for general public distribution (other than
advertising or similar statements which qualify as
"Promotional Materials" pursuant to Exhibit G, Section 1 and
which are governed thereby) ("Press Release") regarding the
transactions contemplated hereunder. Notwithstanding the
foregoing, either Party may issue Press Releases and other
disclosures as required by law without the consent of the
other Party and in such event, the disclosing Party will
provide at least [ ] business days prior written notice
of such disclosure. The failure by one Party to obtain the
prior written approval of the other Party prior to issuing a
Press Release (except as required by law) shall be deemed a
material breach of this Agreement.
9. MANAGEMENT COMMITTEE/ARBITRATION.
9.1. MANAGEMENT COMMITTEE. The Parties will act in good faith and
use commercially reasonable efforts to promptly resolve any
claim, dispute, controversy or disagreement (each a "Dispute")
between the Parties or any of their respective subsidiaries,
affiliates, successors and assigns under or related to this
Agreement or any document executed pursuant to this Agreement
or any of the transactions contemplated hereby. If the Parties
cannot resolve the Dispute within such time frame, the Dispute
will be submitted to the Management Committee for resolution.
For ten (10) business days following submission of the Dispute
to the Management Committee, the Management Committee will
have the exclusive right to resolve such Dispute; provided
further
22
<PAGE> 23
that the Management Committee will have the final and
exclusive right to resolve Disputes arising from any provision
of the Agreement which expressly or implicitly provides for
the Parties to reach mutual agreement as to certain terms. If
the Management Committee is unable to amicably resolve the
Dispute during the ten-day period, then the Management
Committee will consider in good faith the possibility of
retaining a third party mediator to facilitate resolution of
the Dispute. In the event the Management Committee elects not
to retain a mediator, the dispute will be subject to the
resolution mechanisms described below. "Management Committee"
will mean a committee made up of a senior executive at at
least the Senior Vice President (or equivalent) level from
each of the Parties for the purpose of resolving Disputes
under this Section 9 and generally overseeing the relationship
between the Parties contemplated by this Agreement. Neither
Party will seek, nor will be entitled to seek, binding outside
resolution of the Dispute unless and until the Parties have
been unable amicably to resolve the Dispute as set forth in
this Section 9 and then, only in compliance with the
procedures set forth in this Section 9.
9.2. ARBITRATION. Except for Disputes relating to issues of (i)
proprietary rights, including but not limited to intellectual
property and confidentiality, and (ii) any provision of the
Agreement which expressly or implicitly provides for the
Parties to reach mutual agreement as to certain terms (which
will be resolved by the Parties solely and exclusively through
amicable resolution as set forth in Section 9.1), any Dispute
not resolved by amicable resolution as set forth in Section
9.1 will be governed exclusively and finally by arbitration.
Such arbitration will be conducted by the American Arbitration
Association ("AAA") in Washington, D.C. and will be initiated
and conducted in accordance with the Commercial Arbitration
Rules ("Commercial Rules") of the AAA, including the AAA
Supplementary Procedures for Large Complex Commercial Disputes
("Complex Procedures"), as such rules will be in effect on the
date of delivery of a demand for arbitration ("Demand"),
except to the extent that such rules are inconsistent with the
provisions set forth herein. Notwithstanding the foregoing,
the Parties may agree in good faith that the Complex
Procedures will not apply in order to promote the efficient
arbitration of Disputes where the nature of the Dispute,
including without limitation the amount in controversy, does
not justify the application of such procedures.
9.3. SELECTION OF ARBITRATORS. The arbitration panel will consist
of three arbitrators. Each Party will name an arbitrator
within ten (10) business days after the delivery of the
Demand. The two arbitrators named by the Parties may have
prior relationships with the naming Party, which in a judicial
setting would be considered a conflict of interest. The third
arbitrator, selected by the first two, should be a neutral
participant, with no prior working relationship with either
Party. If the two arbitrators are unable to select a third
arbitrator within ten (10) business days, a third neutral
arbitrator will be appointed by the AAA from the panel of
commercial arbitrators of any of the AAA Large and Complex
Resolution Programs.
9.4. GOVERNING LAW. The Federal Arbitration Act, 9 U.S.C. Secs.
1-16, and not state law, will govern the arbitrability of all
Disputes. The arbitrators will allow such discovery as is
appropriate to the purposes of arbitration in accomplishing a
fair, speedy and cost-effective resolution of the Disputes.
The arbitrators will reference the Federal Rules of Civil
Procedure then in effect in setting the scope and timing of
discovery. The Federal Rules of Evidence will apply in toto.
The arbitrators may enter a default decision against any Party
who fails to participate in the arbitration proceedings.
9.5. ARBITRATION AWARDS. The arbitrators will have the authority to
award compensatory damages only. Any award by the arbitrators
will be accompanied by a written opinion setting forth the
findings of fact and conclusions of law relied upon in
reaching the decision. The award rendered by the arbitrators
will be final, binding and non-appealable, and judgment upon
such award may be entered by any court of competent
jurisdiction. The Parties agree that the existence, conduct
and content of any arbitration will be kept confidential and
no Party will disclose to any person any information about
such arbitration, except as may be required by law or by any
governmental authority or for financial reporting purposes in
each Party's financial statements.
23
<PAGE> 24
9.6. FEES. Each Party will pay the fees of its own attorneys,
expenses of witnesses and all other expenses and costs in
connection with the presentation of such Party's case
(collectively, "Attorneys' Fees"). The remaining costs of the
arbitration, including without limitation, fees of the
arbitrators, costs of records or transcripts and
administrative fees (collectively, "Arbitration Costs") will
be borne equally by the Parties. Notwithstanding the
foregoing, the arbitrators may modify the allocation of
Arbitration Costs and award Attorneys' Fees in those cases
where fairness dictates a different allocation of Arbitration
Costs between the Parties and an award of Attorneys' Fees to
the prevailing Party as determined by the arbitrators.
9.7. NON ARBITRATABLE DISPUTES. Any Dispute that is not subject to
final resolution by the Management Committee or to arbitration
under this Section 9 or by law (collectively, "Non-Arbitration
Claims") will be brought in a court of competent jurisdiction
in the Commonwealth of Virginia. Each Party irrevocably
consents to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia and the federal courts situated in
the Commonwealth of Virginia, over any and all Non-Arbitration
Claims and any and all actions to enforce such claims or to
recover damages or other relief in connection with such
claims.
10. STANDARD AND MISCELLANEOUS TERMS.
10.1. STANDARD TERMS. The Standard Online Commerce Terms &
Conditions set forth on Exhibit F and Standard Legal Terms &
Conditions set forth on Exhibit G are each hereby made a part
of this Agreement.
10.2. SUBCONTRACTING. AOL agrees that AG may subcontract or delegate
the performance of any or all of its duties and obligations
hereunder to any Affiliate of AG, subject to AOL's approval,
which shall not be unreasonably withheld and which shall not
be required for subcontracting to AGCM, Inc. or to American
Greetings Corporation, provided that in the event of any such
subcontracting or delegation, AG shall remain liable
hereunder.
10.3. TREATMENT OF EXISTING AGREEMENT.
10.3.1. When fully executed and binding on all Parties
hereto, (a) this Agreement shall supercede and
replace (i) that certain Interactive Marketing
Agreement, dated as of September 1, 1997, by and
between AOL and American Greetings Corporation (the
"Prior Agreement"), and (ii) that certain Advertising
Insertion Order Agreement, dated as of May 4, 1999,
by and between AOL and American Greetings Corporation
(the "Prior Insertion Order"); and (b) the Prior
Agreement and the Prior Insertion Order shall
immediately terminate (provided that any accrued but
unpaid payment obligations thereunder (including
without limitation the unrecognized portions of any
subscription revenues, but calculated in accordance
with this Section 10.3) as of the date of termination
shall remain due and payable, and all payments made
by American Greetings Corporation thereunder shall
not be refunded by AOL, but the Credit Balance shall
be applied hereto to the extent provided in Section
4.1.1 hereof).
10.3.2. AG and AOL agree that they each, themselves and on
behalf of all their Affiliates, forever waive any
claim for breach of the Prior Agreement directly
resulting from any of the following activities to the
extent occurring prior to the Effective Date hereof:
i. [
]
ii. [
]
24
<PAGE> 25
[
iii.
iv.
v.
]
10.3.3. Notwithstanding Section 14.6 of the Prior Agreement,
Section 5.3(d) of the Prior Agreement is superseded
by Section 1.1.6.1 hereof.
10.3.4. Notwithstanding Section 14.6 of the Prior Agreement,
Sections 4.8, 9.1, 10.1 through 10.4 and 14.5 of the
Prior Agreement, respectively, are hereby amended
with respect to actions or events under the Prior
Agreement and superseded by the corresponding
applicable provision of this Agreement (e.g., Section
4.8, Section 8 of Exhibit G, Sections 11 through 13
of Exhibit G and Section 20 of Exhibit G of this
Agreement, respectively).
25
<PAGE> 26
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the Effective Date.
AMERICA ONLINE, INC. AMERICANGREETINGS.COM, INC.
By: /s/ David Colburn By: /s/ Josef Mandelbaum
------------------------------- ---------------------------
Name: David Colburn Name:
Title: Senior Vice President, Business Affairs Title:
AG.COM, INC.
By: /s/ Josef Mandelbaum
---------------------------
Name:
Title:
The undersigned is executing this Agreement solely for purposes of Section 10.3
hereof and expressly subject to the provisions of the first sentence of Section
4.2 hereof:
AMERICAN GREETINGS CORPORATION
By: /s/ John Klipfell
-------------------------------
Name
Title:
26
<PAGE> 27
EXHIBIT A
PLACEMENT/PROMOTION(1)
----------------------
[
]
A-1
<PAGE> 28
[
]
A-2
<PAGE> 29
[
]
A-3
<PAGE> 30
[
]
A-4
<PAGE> 31
[
]
A-5
<PAGE> 32
[
]
[
]
[
]
[
]
[
]
[
]
A-6
<PAGE> 33
[
]
A-7
<PAGE> 34
EXHIBIT A-1
"MISSION CRITICAL" PROMOTIONS
-----------------------------
[
]
A-8
<PAGE> 35
[
]
A-9
<PAGE> 36
[
]
A-10
<PAGE> 37
[
]
A-11
<PAGE> 38
EXHIBIT B
DEFINITIONS
-----------
The following definitions will apply to this Agreement:
ADDITIONAL AG CHANNEL. Any other online distribution channel (e.g., an
Interactive Service other than AOL) through which AG makes available an offering
comparable in nature to the Customized Site; but expressly excluding any
licensing to a software developer or marketer for inclusion in retail or OEM
software.
ADVERTISEMENTS. Any advertisements, links, pointers, sponsorships, buttons,
banners, navigation, or any other placements or promotions or similar services
or rights ("Links") to the extent generally recognized and used as a medium for
advertisements (including without limitation "affiliate programs" or referral
sales, i.e., promotions and links to promote sales of Products related to a
promoted or purchased AG Product, whether for a fixed placement fee or a bounty
based on sales), but excluding [
]
ADVERTISING INVENTORY AGREEMENT ANNEX. The Advertising Inventory Agreement Annex
attached hereto as Annex 2 (and incorporated herein and made a part hereof).
ADVERTISING SALES COMMISSION. The [ ]% commission payable to AOL for the sale
of any Advertisements pursuant to the terms hereof.
AFFILIATE or AFFILIATE. As to any entity, another entity that is controlled by,
controlling or under common control with such first entity, where control means
the ownership of [ ]% or more of the voting equity interest in such entity.
AG COMPETITORS. [
]
AIM SERVICE. AOL's "Instant Messenger(TM)" branded service, to the extent within
the Exclusive AOL Properties ("IM"), or the "AOL Instant Messenger(TM)" or "AIM"
branded service to the extent within the AOL Service or the CompuServe Service
("AIM"), in each case that enables end-users of such service to exchange, in
real-time, private, personalized messages with, and to monitor the online status
of, other end-users of such service and AOL Members.
AOL INTERACTIVE SITE. Any Interactive Site which is managed, maintained, owned
or controlled by AOL or its agents.
AOL INTERNATIONAL. The standard, narrow-band versions of AOL or AOL Affiliate
branded services primarily aimed at users outside of the United States, launched
and commercially available as of the Effective Date hereof, and offered under
the following brand names and targeted to the corresponding Foreign Local
Markets: AOL UK, AOL France, AOL Germany, AOL Canada, AOL Japan, AOL Australia,
CSI UK, CSI Germany, CSI France, CSI Netherlands, and CSI Canada, but in each
case, specifically excluding (a), [
]
AOL LOOK AND FEEL. The elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with Interactive
Sites within the AOL Service or AOL.com.
B-1
<PAGE> 39
AOL MEMBER. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL NETWORK. (i) The AOL Service, (ii) AOL.com, (iii) the CompuServe Service and
CompuServe.com, (iv) Digital City, (v) Netcenter, (vi) the ICQ Service, (vii)
ICQ.com, (viii) AOL International, (ix) [
] It is understood and agreed that, except as provided herein,
the rights of AG relate only to the specific areas within the AOL Network as
expressly set forth herein and not generally to the AOL Network.
[
]
AOL PURCHASER. Any person or entity [
] or [ ] who prior to the Effective Date hereof, entered the
"Online Social Expression Store" under the Prior Agreement and generated
revenues therein (to the extent the identity of such person or entity is
traceable though AG's commercially reasonably efforts) (regardless of whether
such person or entity provided an e-mail address which included a domain other
than an "AOL.com" domain).
[
]
AOL SERVICE. The primary, narrow-band U.S. version of the America Online(R)
brand service as it exists at any time during the Term hereof (i.e., the current
primary, narrow-band U.S. version of the America Online(R) brand service as of
the Effective Date and any replacement successor primary, narrow-band U.S.
version of the America Online(R) brand service), specifically excluding [
]
B-2
<PAGE> 40
[
]
AOL STANDARD SERVICE EXCEPTIONS. [
]
AOL STANDARD SITE PURCHASER. (i) Any person or entity who enters the Customized
Site, a Modified Customized Site, a Modified Renewal Customized Site or the
Standard Site, or any other AG Site (but not any Third Party Customized Site)
(an "AG Site") from the AOL Network including, without limitation, from any
third party area therein (to the extent entry from such third party area is
traceable through both Parties' commercially reasonable efforts), and generates
Transaction Revenues (regardless of whether such person or entity provides an
e-mail address during registration or entrance to an AG Site which includes a
domain other than an "AOL.com" domain); and (ii) any other person or entity who,
when purchasing a product, good or service through an AG Site, provides an
AOL.com domain name or a Compuserve.com domain name (or any other AOL
affiliate's domain name) as part of such person or entity's e-mail address and
provided that any person or entity who has previously satisfied the definition
of AOL Purchaser or AOL Standard Site Purchaser will be or remain an AOL
Standard Site Purchaser, and any subsequent purchases by such person or entity
(e.g., as a result of e-mail solicitations or any off-line means for receiving
orders requiring purchasers to reference a specific promotional identifier or
tracking code) will also give rise to Transaction Revenues hereunder (and will
not be conditioned on the person or entity's satisfaction of clauses (i) or (ii)
above).
AOL USER. Any person or entity who uses the AOL Service, AOL.com, CompuServe,
Digital City, Netcenter, or the AOL Network, only to the extent of the person's
use of these properties as an Interactive Site or Interactive Service. A person
or entity shall not be considered an "AOL User" as a result of or in connection
with their use of these properties other than as an end-user thereof. For
example, use of the AOL Service to carry advertising shall not result in the
advertiser being considered an AOL User.
AOL.com. AOL's primary, narrow-band Internet-based Interactive Site marketed
under the "AOL.COM(TM)" brand as it exists at any timE during the Term hereof
(i.e., the current primary, narrow-band U.S. version of the AOL.com brand
Interactive Site as of the Effective Date and any replacement successor primary,
narrow-band U.S. version thereof), specifically excluding [
]
B-3
<PAGE> 41
]
AOL WHITE PAGES. AOL's own branded (or co-branded) online, interactive directory
generally available to the public containing national listings of names,
addresses, telephone numbers and e-mail addresses for individuals, organized and
searchable by name, address, telephone number or e-mail address as it exists on
the Interim Date as supplied pursuant to the Current White Pages Agreements, to
the extent within the AOL Exclusive Properties (without inclusion of clause (c)
of the AOL Standard Service Exceptions definition); but expressly excluding: [
]
[
]
[ ]
CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a party or (b) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933,
as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors. Neither the IPO, nor any transaction directly related
thereto (and within approximately the same timeframe thereof), shall constitute
a Change of Control of AG for purposes of this Agreement.
COMPONENT PRODUCTS. Any of the following products or services: (i)
Communications or community tools, products or services (e.g., instant
messaging, chat, voice-activated chat, voice message, IP telephony, e-mail,
message boards) (but specifically excluding a reminder service), (ii) search
engines, navigation services, or directories/listings (e.g., web search, white
pages, yellow pages), (iii) personalization services (e.g.,
homesteading/personal web publishing, calendar functions, "You've Got Pictures"
or other similar photographic services), (iv) shopping guides, decision guides,
"robots", or other similar shopping or decision aids, or (v) commerce/content
aggregation.
CompuServe.com. CompuServe's primary, narrow-band Internet-based interactive
site located at "www.compuserve.com" and marketed under the "CompuServe.com(TM)"
brand as it exists at any time during the Term hereof (i.e., the current
primary, narrow-band U.S. version of the CompuServe.com brand Interactive Site
as of the Effective Date and any replacement successor primary, narrow-band U.S.
version thereof), specifically excluding [
]
CompuServe SERVICE. The primary, narrow-band U.S. version of the CompuServe
brand service as it exists at any time during the Term hereof (i.e., the current
primary, narrow-band U.S. version of the CompuServe brand service as of the
Effective Date and any replacement successor primary, narrow-band U.S. version
thereto), specifically excluding [
]
B-4
<PAGE> 42
[
]
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course
of the Agreement, which is or should be reasonably understood to be confidential
or proprietary to the disclosing Party, including, but not limited to, the
material terms of this Agreement, information about AOL Members, AOL Users, AOL
Purchasers and AG customers, technical processes and formulas, source codes,
product designs, sales, cost and other unpublished financial information,
product and business plans, projections, and marketing data. "Confidential
Information" will not include information (a) already lawfully known to or
independently developed by the receiving Party, (b) disclosed in published
materials, (c) generally known to the public, or (d) lawfully obtained from any
third party.
CONTENT. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Products,
advertisements, promotions, URLs, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
COOPERATIVE ADVERTISING CATEGORIES. The following categories: [
]
COST OF PREMIUMS. The actual and reasonable cost to AG of promotional and
premium items approved by AOL (such approval not to be unreasonably withheld)
that are provided to an AOL Purchaser in conjunction with the purchase of
Products. Premiums may include, without limitation and solely by way of example,
umbrellas, t-shirts and tote bags.
CREDIT BALANCE. The credit balance AG has from funds actually paid by AG to AOL
under the Prior Agreement (as defined in Section 10.3), but not yet accrued
under the Prior Agreement as of the Effective Date hereof, in an amount of[
]
CREDIT CARD COMPANIES. Credit card companies and credit card processing
companies (e.g., Master Card and Visa) and others performing a substantially
similar online payment facilitation service (i.e., "e-money") (it being
understood and agreed that any use thereof must still comply with all the terms
hereof (including without limitation regarding AOL Component Products, such that
an AOL wallet or AOL QuickCheckout should be used rather than a competitively
branded one)).
CURRENT WHITE PAGES AGREEMENTS. The current pre-existing agreements (as of the
Interim Date) between AOL and any third party partner providers of the
functionality and databases for the AOL White Pages, excluding any renewals or
amendments thereto, the term of which such agreements are as separately
disclosed to AG confidentially in writing.
CUSTOMIZED SITE. The specific customized area(s) or web site(s) to be promoted
and distributed by AOL hereunder through which AG can market and complete
transactions regarding its Products, as more further described in Section 2.
CUSTOMIZED SITE ADVERTISING PAYMENTS. Aggregate amounts collected plus the fair
market value of any other compensation received (such as barter advertising)
(but with respect to Referral Sales only, expressly only including only one half
of any amounts actually received by AG (e.g., commissions) pursuant thereto (the
"AG Referral Sales Revenues")) by AG, AOL or either Party's agents, arising from
the license or sale of Advertisements that appear within any pages of the
Customized Site (but excluding the same on any screens or forms preceding,
framing or otherwise directly associated with the Customized Site, which are
owned exclusively by AOL), including all applicable Advertising Sales
Commissions; provided that, [
]
B-5
<PAGE> 43
]
Digital City or DCI. The primary, narrow-band U.S. version of Digital City's
local content offerings marketed under the Digital City(R) brand name as it
exists at any time during the Term hereof (i.e., the current primary,
narrow-band U.S. version of the Digital City brand service as of the Effective
Date and any replacement successor primary, narrow-band U.S. version thereto),
specifically excluding [
]
EXCLUSIVE AOL PROPERTIES. The AOL Service, AOL.com, Digital City, the CompuServe
Service, CompuServe.com, the ICQ Service, ICQ.com, Netcenter, and (for two (2)
years from and after the Interim Date) AOL International.
EXCLUSIVE AOL TOOLS. AOL's e-mail, calendar and instant messaging products,
LOVE@AOL, and "AOL Hometown", and the AOL White Pages (provided that solely with
respect to AOL White Pages, Exclusive AOL Tools shall include AOL White Pages
only for the current term of the Current AOL White Pages Agreements (except as
otherwise expressly set forth on Exhibit A)); but in each case, only to the
extent offered directly through and within each of the Exclusive AOL Properties,
except that, [
]
- ---------------
[
]
B-6
<PAGE> 44
[
]
EXCLUSIVE AREAS. The Exclusive AOL Properties and the Exclusive AOL Tools.
EXCLUSIVE MENTIONS. Mentions which contain only references to an AOL brand,
logo, name or trade name or to an AOL property, product, or service within the
AOL Network, as designated by AOL (without any reference to AG or any AG
product, service, brand, logo, name or trade name).
[ ]
FOREIGN LOCAL COMPETITOR. A Marketer of Greeting Products headquartered outside
the U.S. (it being understood and agreed that affiliates and licensees of U.S.
based Marketers of Greeting Products shall be considered headquartered in the
U.S., whose Greeting Products are specifically targeted (both by language and
cultural content) to the audience in a particular Foreign Local Market.
FOREIGN LOCAL MARKET. Any specific, local, geographic area.
GREETING PRODUCT. [
]
[ ]
HURDLES & THRESHOLDS. Collectively, the Threshold Amount (as described in
Section 4.4 hereof) and the Advertising Hurdle Amount (as described in the
Advertising Inventory Agreement Annex).
B-7
<PAGE> 45
[ ]
ICQ SERVICE. The primary, narrow-band English language version of the ICQ brand
communications and messaging service (e.g., to U.S. based ICQ Members) as it
exists at any time during the Term hereof (i.e., the current primary,
narrow-band U.S. version of the ICQ brand service as of the Effective Date and
any replacement successor primary, narrow-band U.S. version thereto),
specifically excluding [
]
ICQ.com. ICQ's primary, narrow-band Internet-based English language Interactive
Site marketed under the "ICQ.com" brand as it exists at any time during the Term
hereof (i.e., the current primary, narrow-band U.S. version of the ICQ brand
Interactive Site as of the Effective Date and any replacement successor primary,
narrow-band U.S. version thereto), specifically excluding [
]
IMPRESSION. User exposure to the applicable Promotion, as such exposure may be
reasonably and consistently determined and measured by AOL in accordance with
its standard methodologies and protocols.
INTERACTIVE SERVICE. [
]
INTERACTIVE SITE. Any interactive site or area, including, by way of example and
without limitation, (i) an AG site on the World Wide Web portion of the Internet
or (ii) a channel or area delivered through a "push" product such as the
Pointcast Network or interactive environment such as Microsoft's Active Desktop.
INTEGRATED PROMOTIONS. As defined within the definition of Promotions below.
INTERIM DATE. [ ]
IPO. Any public offering of securities (e.g., an initial public offering) by AG
Parent.
KEYWORD SEARCH TERMS. or KEYWORDS (a) The Keyword(TM) online search terms made
available on the AOL Service, combining AOL's Keyword(TM) online search modifier
with a term or phrase specifically related to AG (and determined in accordance
with the terms of this Agreement), and (b) the Go Word online search terms made
available on CompuServe, combining CompuServe's Go Word online search modifier
with a term or phrase specifically related to AG and determined in accordance
with the terms of this Agreement).
KNOWLEDGE. The actual knowledge of the applicable Party's senior management
personnel that has substantial managerial authority with respect to the
applicable subject matter, after having made reasonable inquiry of each employee
to whom and in a manner that a prudent business person would inquire under
similar circumstances.
LICENSED CONTENT. All Content offered through the Customized Site by AG pursuant
to this Agreement or otherwise provided by AG or its agents in connection
herewith (e.g., offline or online promotional Content, Promotions, AOL
"slideshows", or pursuant to Section 2.2.1, etc.), including in each case, any
modifications, upgrades, updates, enhancements expressly authorized by AG and
provided hereunder, and, to the extent delivered to AOL, related documentation.
B-8
<PAGE> 46
[
]
MARKET. Sell, market, distribute (including for free), promote or advertise a
product.
MARKETER. Any person or other entity that sells, markets, distributes (including
for free), promotes or advertises a product.
MENTIONS. With respect to the Traditional Media In-Kind Promotions (as defined
on Exhibit C-1), any on-air audio and/or graphic references (of at least 10
seconds in length) to AOL or any trademark, trade name or logo thereof,
consistent with AOL's promotional and trademark and logo policies.
MODIFIED CUSTOMIZED SITE. A form of a Customized Site, meeting all the
requirements thereof; but excusing (1) the full extent of the otherwise required
co-branding required for a Customized Site and (2) the full extent of the
otherwise required brand specific customization (e.g., look and feel, etc.); but
expressly not excusing any other requirements, and therefor, without limitation,
(a) is a mirrored, cul de sac site (b) contains some co-branding for AOL or the
appropriate property (though not necessarily full co-branded customization such
as header), (c) is located on the appropriate AOL property's URL (e.g.,
www.ag.aol.com), (d) contains only the Products and Content listed on exhibit D
and otherwise permitted herein, (e) does not promote any Interactive Service
(other than if and to the extent expressly allowed by Section 1.2 for a
Customized Site) and (f) is fully compliant with Exhibit E Section 1, and (g)
shall enable tracking of visitors to the full extent necessary to track revenue
sharing as set forth herein. For purposes of calculations of revenue sharing
hereunder (e.g., for purposes of the definitions of Site Revenues, Transaction
Revenues, AOL Purchaser, Customized Site Advertising Payments and any other
provisions applicable, directly or indirectly, to calculating AOL's revenue
shares hereunder), but subject to the limitations above, a "Modified Customized
Site" shall be considered a form of a Customized Site.
MODIFIED RENEWAL CUSTOMIZED SITE. Shall not be a Customized Site (except to the
extent otherwise expressly set forth herein), but expressly subject to the
following requirements herein for a Customized Site: (a) is a mirrored, cul de
sac site; (b) contains some co-branding for AOL or the appropriate property
(though not necessarily full co-branded customization such as header); (c) is
located on the appropriate AOL property's URL (e.g., www.ag.aol.com); (d)
complies with the provisions of Exhibit E (e.g., operational and scalability
requirements) (but subject to clause (f) below); (e) does not promote any
Interactive Service (other than if and to the extent expressly allowed by
Section 1.2 for a Customized Site); (f) need not comply with the requirements of
Exhibit E-1, but shall be at least as comprehensive, competitive and compelling
(e.g., with respect to pricing of Products, scope and selection of Products,
functionality, quality of Products, customer service and fulfillment, and ease
of use) as AG's primary Standard Site (provided that to the extent such Modified
Renewal Customized Site is not so comprehensive, competitive and compelling
solely as a direct result of such restrictions by AOL on AG hereunder, this
obligation to be so comprehensive, competitive and compelling shall be deemed
satisfied); (g) during any Exclusive Renewal Term and for one full year after
the start of any Non-Exclusive Renewal Term, shall comply with all Content and
Product scope restrictions herein applicable to a Customized Site (e.g., shall
contain only Products and Content to the extent permitted by Exhibit D or
otherwise herein); (h) Subject to all terms and conditions applicable to a
Customized Site in Exhibits F and G (e.g., management of such site in a
professional manner, AG shall provide to AOL license to use such Licensed
Content therein, AG shall represent and warrant that it has rights to such
Licensed Content, etc.); (i) shall be subject to Sections 2.10 and 2.11 as if it
were a Customized Site; (j) expressly excusing (1) the full extent of the
otherwise required co-branding required for a Customized Site and (2) the full
extent of the otherwise required brand specific customization (e.g., look and
feel, etc.); (k) shall enable tracking of visitors to the full extent necessary
to track revenue sharing as set forth herein. For purposes of calculations of
revenue sharing hereunder (e.g., for purposes of the definitions of Site
Revenues, Transaction Revenues, AOL Purchaser, Customized Site Advertising
Payments and any other provisions applicable, directly or indirectly, to
calculating AOL's revenue shares hereunder), but for no other purposes (except
to the extent otherwise expressly set forth herein), subject to the limitations
above, a "Modified Renewal Customized Site" shall be considered a form of a
Customized Site.
NET CUSTOMIZED SITE ADVERTISING PAYMENTS. Customized Site Advertising Payments,
less all applicable Advertising Sales Commissions.
NETCENTER. Netscape Communications Corporation's primary, narrow-band
Internet-based Interactive Site marketed under the "Netscape Netcenter(TM)"
brand as it exists at any time during the Term hereof (i.e., the current
primary, narrow-band U.S. version of the Netcenter brand Interactive Site as of
the Effective Date and any replacement successor primary, narrow-band U.S.
version thereto), specifically excluding [
B-9
<PAGE> 47
]
[
]
PRIOR AGREEMENT. As defined in Section 10.3 hereof.
PRODUCT. Any product, good or service which AG (or others acting on its behalf
or as distributors) offers, sells, provides, distributes or licenses to AOL
Users.
PROMO CONTENT. As defined in Section 1.1.2.
PROMOTIONS. The promotions described on Exhibit A or Exhibit A-1, residing
within the AOL Network and not the Customized Site, plus any comparable
promotions delivered by AOL in accordance herewith (e.g., as set forth in
Section 1.1), including without limitation any buttons, banners, links,
pointers, sponsorships, or other promotions, advertisements or similar services
or rights ("Standard Promotions"), plus any additional promotions of the
Customized Site provided by AOL (including, without limitation, more integrated
promotions such as Keyword Search Terms, pull down menus, list boxes and other
navigational tools integrated into the AOL Network (including Promotions which
would be Standard Promotions (e.g., buttons or links) but which are more
integration into the AOL Network than standard advertising inventory, e.g., with
respect to the ICQ Service) ("Integrated Promotions").
[
]
REMNANT INVENTORY. Non-integrated, banner Advertising inventory which is unsold
at the end of the business day prior to the day on which that inventory will
run. If AG has purchased Remnant Inventory, AG's creative will be slotted into
such unsold inventory by AOL from time to time in accordance with internal AOL
policies. AOL does not guarantee that Remnant Inventory Impressions will be
delivered on any particular day(s) or that such Impressions will be delivered
evenly over the Term. Further, AOL does not guarantee placement on any
particular screen or group of screens (except that Channel level Remnant
Inventory will be run only within the specified Channel).
RUN OF SERVICE INVENTORY or ROS. A collection of non-integrated, banner
Advertising inventory made up of all areas of the relevant AOL property or
service. If Advertiser has purchased Run of Service Inventory, AOL will place
Advertiser's creative in different locations throughout the relevant property or
service in accordance with AOL internal policies. Run of Service Impressions
will be delivered reasonably evenly over a given time period. Advertiser may not
control placement within a Run of Service Inventory purchase and AOL does not
guarantee placement on any particular screen or group of screens (except that
Run of Channel Inventory will be run only in the specified Channel).
SCHEDULED TRANSITION COMPLETION DATE. As defined in Section 1.1.6.
SEARCH or SEARCH TERMS. An AOL branded online search tool, as made available by
AOL for use by AOL Users using the NetFind brand search engine and within the
AOL Network (the results of which such search are non-exclusive, and result in
references to many entities; any references to a Promotion related thereto is to
a rotational banner within the standard Advertising inventory available on a
page pulled up as a result thereof, not a manipulation of the results
themselves).
SITE REVENUES. The combination of Transaction Revenues and Customized Site
Advertising Payments.
STANDARD PROMOTIONS. As defined within the definition of Promotions above.
B-10
<PAGE> 48
STANDARD SITE. Any Interactive Site(s) (other than the Customized Site) which is
managed, maintained, owned or controlled by AG or its agents.
THIRD PARTY CUSTOMIZED SITE. As defined in Section 1.2 hereof.
TRANSACTION REVENUES. [
]
TRANSITION COMPLETION DATE. The date on which the transition from V3 to V4 is
100% complete, such that, thereafter, V4 is used and V3 is no longer used
(except with respect to ART, as set forth in Section 1.1.6), the system meets
AG's and AOL's scalability specifications, and no longer requires support from
AOL [
]
[
]
V3. The software system for AG's existing site on the AOL Service under the
Prior Agreement generally known as V3, usable by certain AOL Users but not on
the internet generally; provided that additional features may be implemented
from time to time on V3 codebase but will not cause the system to be known as
anything other than V3.
V4. [
]
[
]
B-11
<PAGE> 49
EXHIBIT C
AG CROSS-PROMOTION
------------------
1. Within AG's primary non-customized Interactive Sites (specifically
excluding any Third Party Customized Site), AG shall include at least
one of the following (collectively, the "AOL Promos"): (i) a prominent
"Try AOL" feature (at least 90 x 30 pixels or 70 x 70 pixels in size)
through which users can obtain promotional information about AOL
products or services designated by AOL and, at AOL's option, download
or order the then-current version of client software for such AOL
products or services; (ii) a promotional banner or button (at least 90
x 30 pixels or 70 x 70 pixels in size) appearing in a mutually agreed
location on the first screen of the AG Interactive Site, to promote
such AOL products or services as AOL may designate (for example, the
ICQ Service or the AOL Instant Messenger(TM)service); or (iii) a link
back to a location on the AOL Network that AOL shall designate (such as
a certain screen within the AOL Service or Aol.com). AOL will provide
the creative content to be used in the AOL Promos (including
designation of links from such content to other content pages). AG
shall post (or update, as the case may be) the creative content
supplied by AOL within the spaces for the AOL Promos within five days
of its receipt of such content from AOL. Without limiting any other
reporting obligations of the Parties contained herein, AG shall provide
AOL with monthly written reports specifying the number of impressions
to the pages containing the AOL Promos during the prior month. In the
event that AOL elects to serve the AOL Promos to the AG Interactive
Site from an ad server controlled by AOL or its agent, AG shall take
all reasonable operational steps necessary to facilitate such ad
serving arrangement including, without limitation, inserting HTML code
designated by AOL on the pages of the AG Interactive Site on which the
AOL Promos will appear.
2. In AG's television, radio, print and "out of home" (e.g., buses and
billboards) advertisements and in any publications, programs, features
or other forms of media over which AG exercises at least partial
editorial control, AG will include specific references or mentions
(verbally where possible) of the availability of the Customized Site
through the AOL Network, which are at least as prominent as any
references that AG makes to any AG Interactive Site (by way of site
name, URL or otherwise). Without limiting the generality of the
foregoing, AG's listing of the "URL" for any AG Interactive Site will
be accompanied by a substantially equally prominent listing of the
"keyword" term on AOL for the Customized Site. [
]
C-1
<PAGE> 50
EXHIBIT C-1
IN-KIND PROMOTION OF AOL
1. BACK OF AMERICAN GREETINGS PAPER CARDS
Description: The following shall appear on English language printed greeting
cards manufactured or distributed in the U.S. by or on behalf of American
Greetings Corporation during the Initial Term (the "Physical Greeting Cards"),
to appear substantially as shown on Annex 1 hereto (but placement location on
the back of the card to be at the discretion of American Greetings Corporation),
with a guaranteed minimum aggregate number of [ ] such
cards to be distributed per year (provided that, in the event of a shortfall in
the first year hereof, AG shall not be in breach provided AG makes up such
shortfall during the Initial Term):
www.americangreetings.com
(Logo) AOL Keyword: AG
or
www.americangreetings.com
America Online Keyword: AG
2. AMERICAN GREETINGS CORPORATION PRINT ADVERTISING
Description: The following shall be included in [ ] impressions per year
of American Greetings Corporation's 4 color print ad placements (to appear
substantially similar as shown on Annex 1 hereto):
www.americangreetings.com
(Logo) AOL Keyword: AG
or
www.americangreetings.com
America Online Keyword: AG
3. AG (americangreetings.com) PRINT AND RADIO ADVERTISING
Description: The following shall be included in AG's 4 color print and radio ad
placements (based on a $[ ] media plan per year related to this section 3
of this exhibit) (provided that such reference to AOL is, in the case of print
placements, to appear substantially similar as shown on Annex 1 hereto, and in
the case of radio placements, to account for [ ]% of the on air time, e.g., at
least [ ] seconds of a 60 second radio spot, or be at least as prominent as
mention of AG's URL):
C-2
<PAGE> 51
Print -
www.americangreetings.com
(Logo) America Online Keyword: AG
Radio -
Announcer mention, such as "www.americangreetings.com
or on America Online at Keyword: AG"
4. EXCLUSIVE CONTENT
Description: Exclusive content shall be provided as described on Exhibit D-1 of
the Interactive Marketing Agreement.
IN EACH CASE ABOVE, THE FOLLOWING SHALL APPLY:
(a) All In-Kind Promotions must be exclusive to AOL, such that AOL is the only
[ ] Interactive Service to be promoted in any In-Kind Promotion.
(b) All In-Kind Promotions shall be produced by AG at AG's sole cost and
expense and without charge (including without limitation advertising,
placement or integration charges) to AOL.
(c) All In-Kind Promotions shall be consistent with AOL's promotional and
trademark and logo policies, subject to AOL's prior review, current copies
of which AG hereby acknowledges receipt of (except as expressly set forth
in paragraphs 1, 2 or 3 of this Exhibit C-1 or on Annex-1 attached hereto,
which are expressly hereby approved).
(d) (i)AOL hereby consents to American Greetings Corporation's continued sale
and distribution of any Physical Greeting Cards containing the foregoing
reference to AOL as set forth above, notwithstanding any lapse, expiration
or termination of this Agreement; provided that all other terms and
conditions of such In-Kind Promotions, except for such lapse of the term,
are complied with.
(ii)For so long as AG sells cards with the Keyword "AG" appearing on the
back (e.g., after the term, if cards have already been printed and are
still available in stores), then AOL shall be required to maintain such
Keyword "AG" (subject to AOL's Keyword policies to the extent set forth
herein) and AG shall be required to maintain the Modified Renewal
Customized Site for AOL to direct users of the Keyword thereto; provided
that AOL shall not be required to link the Keyword to any site that is not
a Modified Renewal Customized Site meeting all the requirements thereof
(e.g., without limitation, such site shall not promote any Interactive
Service); provided further that AOL shall not be required to maintain such
Keyword and/or link any longer than [ ] after the Initial Term; and
provided further that any maintenance of the Keyword by AOL shall be
considered a Continued Link pursuant to Section 8.4 of this Agreement,
subject to the terms thereof (e.g., revenue sharing)).
(e) All print and radio ads provided for herein shall either (i) comply with
AG's (or American Greetings Corporation's) media plan, as delivered to AOL
in writing, and appear in the
C-3
<PAGE> 52
publications, or radio programs and time slots, as expressly set forth
therein, or (ii) appear in substantially similar placements having the same
market value as in such media plan; provided that AG shall deliver to AOL a
revised copy of any such media plan promptly upon any revisions thereto.
(f) AG shall provide to AOL on a quarterly basis detailed reports with respect
to all In-Kind Promotions in a mutually agreed manner and level of detail,
including at a minimum a statement reflecting the number of Physical Cards
delivered, in the form attached hereto as Annex 2 to this Exhibit C-1.
Notwithstanding anything to the contrary herein, should AG fail, in any given
year of the Initial Term, to deliver the scheduled portion of any particular
In-Kind Promotions for such year, then any such failure or shortfall shall not
itself constitute a breach hereof but shall be remedied as follows: AG shall
have [ ] days after the end of the applicable year to deliver replacement
in-kind promotion(s) which is mutually agreed by the Parties to have comparable
value to the undelivered In-Kind Promotions (the "Mutually Agreed Replacement
Promotion"). If AG fails to deliver such Mutually Agreed Replacement Promotion
within such [ ] day period then AOL may reduce certain Promotions provided by
AOL to AG hereunder (other than those identified as "Mission Critical") by an
amount demonstrably equivalent in value to the amount of such shortfall of
undelivered In-Kind Promotions. In the event of a disagreement as to the value
of any undelivered In-Kind Promotions, AOL's third party media buying agency
shall determine the value therefor based on the standard rate card for such a
promotion, if available, or, if a standard rate card is not available, then
based on a proportionate value of the standard rate card for a similar
promotion. If there is a material variation between AG' third party media
valuation agency's valuation and AOL's media buying agency's valuation, AOL's
media buying agency's valuation shall govern, subject only to AG' right to
demonstrate that AOL's media buying agency's valuation is inaccurate. If the
Parties still cannot agree, then both Parties' media buying agencies shall
mutually agree upon a third, independent, media buying agency to settle such
dispute. [
]
C-4
<PAGE> 53
ANNEX 1 TO EXHIBIT C-1
----------------------
MOCK-UP OF LOGO-ON-CARD IN KIND-PROMOTION
[SEE ATTACHED]
C-5
<PAGE> 54
[Recycle Logo] PRINTED ON RECYCLED PAPER
40% Pre Consumer - 10% Post Consumer
LOGO
AMERICAN GREETINGS
www.americangreetings.com
America Online Keyword: AG
According to him.......Love Talk....According to her(TM)
[Bar Code]
Traditional Cards
C-6
<PAGE> 55
ANNEX 2 TO EXHIBIT C
CERTIFICATION OF COMPLIANCE WITH COMMITMENTS
REGARDING PROMOTIONS
Pursuant to Section 4.3 and Exhibit C-1 of the Interactive Marketing Agreement
between ____________ ("AG") and America Online, Inc. ("AOL"), dated as of
_________________, 1999 (the "Agreement"), the following report is delivered to
AOL for the period beginning _____________ and ending __________ (the "Period"):
I. PROMOTIONAL COMMITMENTS
AG hereby certifies to AOL that AG (or American Greetings Corporation, as the
case may be) completed the following promotional commitments during the Period:
<TABLE>
<CAPTION>
TYPE OF PROMOTION DATE(S) OF DURATION/CIRCULATION OF RELEVANT CONTRACT
PROMOTION PROMOTION SECTION
- ------ ---------------------- -------------------- --------------------------------- -----------------------
<S> <C> <C> <C> <C>
1.
- ------ ---------------------- -------------------- --------------------------------- -----------------------
2.
- ------ ---------------------- -------------------- --------------------------------- -----------------------
3.
</TABLE>
IN WITNESS WHEREOF, this Certificate has been executed this ___ day of
___________, 199_.
- ----------------------------------
By: _______________________________
Print Name: ________________________
Title: ______________________________
Date: ______________________________
C-7
<PAGE> 56
EXHIBIT D
DESCRIPTION OF PRODUCTS AND OTHER CONTENT
-----------------------------------------
[
]
D-1
<PAGE> 57
[
]
D-2
<PAGE> 58
EXHIBIT D-1
AOL EXCLUSIVE OFFERS & EXCLUSIVE CONTENT
----------------------------------------
EXCLUSIVE OFFERS: "AOL Exclusive Offers" by AG may include:
- Sweepstakes offering gifts such as cash;
- Promotions, including holiday promotions, which may include a [
] shopping spree; "Refer a Friend" promotions
offering a free subscription of equal or lesser value for every friend
signed for subscription, "Golden Greeting" promotion awarding a prize
for every 10,000th card sent or certain designated greeting, and
promotional tie with licensed partners such as [
] etc.
- Partner marketing specials for clothing, music, books, etc. (subject to
all AOL exclusivities)
- Contests requiring creative input, (e.g., create a Greeting or comic)
or entry with the winner receiving a personalized song, Greeting or
comic strip with a winners picture in it; or
- Channel specific special limited time pricing on subscriptions.
EXCLUSIVE CONTENT:
FUN SITE FOR KIDS
Description: Will include hundreds of designs of greetings, games,
interactive storybooks, comics, and print creativity projects
in an online greetings and interactive entertainment area for
kids. All new content developed solely for the area will be
available from AG on the Customized Site on an exclusive basis
for [ ] months from its introduction.
AOL EXCLUSIVE ON LICENSED PROPERTIES
------------------------------------
Description: AG will provide AOL three-month exclusives on new content for
no less than [ ] licensed properties per year (i.e. such
content will be available from AG on the Customized Site on an
exclusive basis for [ ] months from its introduction).
CAPTIONS FOR YGP
----------------
Description: AG will provide a library of exclusive captions for use on the
YGP service. Content to be updated regularly. Such captions
will be available from AG on the Customized Site on an
exclusive basis for [ ] months from introduction.
D-3
<PAGE> 59
AOL HOMETOWN CONTENT
--------------------
Description: AG will provide AOL with clip art, home page templates and
animated and/or interactive artwork for AOL Hometown. Such
Content will be available from AG on the Customized Site on an
exclusive basis for [ ] months from its introduction.
CUSTOMIZATION OF CONTENT
------------------------
Description: AG will provide customized content to the various AOL
properties (i.e. exclusives for Digital Cities, Compuserve,
Netcenter etc.) as required by the Interactive Marketing
Agreement.
INTERNATIONAL CONTENT
Description: AG will provide customized international content to AOL
International and ICQ as required by the contract.
D-4
<PAGE> 60
EXHIBIT E
OPERATIONS
----------
[
]
E-1
<PAGE> 61
[
]
E-2
<PAGE> 62
[
]
E-3
<PAGE> 63
EXHIBIT F
STANDARD ONLINE COMMERCE TERMS & CONDITIONS
-------------------------------------------
[
]
F-1
<PAGE> 64
[
]
F-2
<PAGE> 65
[
]
F-3
<PAGE> 66
EXHIBIT G
STANDARD LEGAL TERMS & CONDITIONS
---------------------------------
[
]
G-1
<PAGE> 67
[
]
G-2
<PAGE> 68
[
]
G-3
<PAGE> 69
[
]
G-4
<PAGE> 70
[
]
G-5
<PAGE> 71
EXHIBIT H
[INTENTIONALLY OMITTED]
I-1
<PAGE> 72
EXHIBIT I
AOL TECHNOLOGY REQUIREMENTS
---------------------------
[
]
I-1
<PAGE> 73
[
]
I-2
<PAGE> 74
TECHNOLOGY INTEGRATION DEVELOPMENT WORK
---------------------------------------
[
]
I-3
<PAGE> 75
[
]
I-4
<PAGE> 76
[
]
I-5
<PAGE> 77
ANNEX 2
ADVERTISING INVENTORY AGREEMENT ANNEX
-------------------------------------
1. RIGHTS TO SELL ADVERTISING.
1.1. APPOINTMENT AS SALES AGENT. AOL will act as AG's exclusive
sales agent, both with respect to third parties and with
respect to AG and its affiliates, subject to the terms hereof,
for any and all Advertisements on the Customized Site
(including, subject to the express limitations herein, the
exclusive rights to act as sales agent for any Advertisements
therein and all rights to receive, on AG's behalf (to the
extent set forth herein and subject to the terms hereof), all
Customized Site Advertising Payments). AOL agrees to use
commercially reasonable efforts to, after the sale of any
Advertisements on the Customized Site (i.e., after execution
of definitive documentation by such third party and AOL),
expose such personnel to the buyers of such Advertisements
(e.g., arrange a meeting and make initial introductions), it
being understood and agreed that in particular cases it may be
commercially reasonable to exclude AG (e.g. where AOL is
selling Advertisements across a broad range of AOL properties
or without any targeting based on Greeting Products). As
exclusive sales agent, AOL may receive and hold, on AG's
behalf (to the extent set forth herein and subject to the
terms hereof), funds owing to AG in respect of the sales of
Advertisements on the Customized Site. For all Advertisements
within the Customized Site sold by AOL pursuant to the terms
hereof, AOL shall be entitled to keep the Advertising Sales
Commission from all Customized Site Advertising Payments,
prior to all calculations set forth herein.
1.2. INVENTORY. Total advertising inventory on the Customized Site,
[
] policies
and parameters for discounting off of such rate card, and any
other mutually agreed relevant factors will be as set forth by
the Parties pursuant to quarterly mutually agreed upon
marketing plans (each, a "Quarterly Marketing Plan"). Each
Quarterly Marketing Plan shall factor in AOL's need to meet
its revenue goals and obligations herein, industry standard
sell through rates and CPMs (including, to the extent
analogous, those on the Standard Sites), AG's revenue goals
for Transaction Revenues and the quality of the customer
experience for AG's customers and the prior quarter's
Quarterly Marketing Plan and successes and shortcoming
therein. Each Quarterly Marketing Plan (and the available
inventory therein) shall be subject to adjustment as provided
in Section 2.4 in the main body of this Agreement in the event
of any changes in the initial delivery Greeting Media (i.e.,
if an Online Viewing Area is not the initial method of
delivery of the Greeting Products). The Parties shall mutually
agree on the first Quarterly Marketing Plan within sixty (60)
days of the Interim Date, and thereafter, on successive
Quarterly Marketing Plans at or before the first five (5) days
of each calendar quarter; if the Parties have not mutually
agreed upon any applicable Quarterly Marketing Plan by such
time, then AOL may continue to sell Advertisements under the
prior quarter's Quarterly Marketing Plan. For each full month
of such delay (except if and to the extent AOL unreasonably
withheld consent in order to so delay), AOL's deadlines in
Section 1.3 below to reach each subsequent Advertising Hurdle
Amount, and in Section 2 below to make payments to AG by any
particular date, shall each be extended by the same amount of
time.
1.3. EXCEPTIONS. Notwithstanding anything to the contrary herein
regarding which Party shall sell the Adverting inventory
within the Customized Site (but still subject to Section 1.4
below and all Content and Advertising restrictions applicable
to the Customized Site, e.g., as set forth in Sections 1.2,
2.2 and, if applicable, 8.9 of the main body of this
Agreement),
1.3.1. [
]
Annex 2; Page-1
<PAGE> 78
[
]
1.3.2. [
]
1.3.3. AG shall not be restricted from including a Link to
an American Greetings Corporation Interactive Site;
and
1.3.4. [
]
[
]
1.4. [
]
2. [
]
2.1. [
]
Annex 2; Page--2
<PAGE> 79
2.2. [ ]
2.3. [ ]
3. SHARING OF ADVERTISING PAYMENTS.
3.1. AMOUNTS BEFORE AUGUST 2002. Out of any funds received by
either Party that constitute Customized Site Advertising
Payments (including any such amount allocated out of a larger
payment for a Total Ad Package Payment (as defined in Section
4 below)), if AOL acted as the sales agent in respect thereof
there shall first be deducted and paid to (or retained by) AOL
the Advertising Sales Commission. The remaining Net Customized
Site Advertising Payment shall be paid to (or retained by) AOL
in the percentages set forth on the chart below based on the
Contract Period and the amount of Net Customized Site
Advertising Payments received in that Contract Period, as
shown on the chart below, subject to the terms hereof:
[
]
Annex 2; Page--3
<PAGE> 80
[
]
3.2. POST AUGUST 2002. From and after August 1, 2002, the portion
of Net Customized Site Advertising Payments to be paid to or
retained by AOL shall be [ ]% until such time as Net
Customized Site Advertising Payments equal or exceed $[
] after which it shall be [ ]%, provided however that if as
of August 1, 2002 Net Customized Site Advertising Payments
exceeds $[ ], the portion thereof to be paid to or
retained by AOL shall be [ ]% until such time as the amount
paid to or retained by AG (including pursuant to Section 2
hereof) is $[ ] plus [ ]% of the excess Net
Customized Site Advertising Payments over $[ ] and
thereafter shall be [ ]%.
3.3. PAYMENTS. Payment of any net amount due to AOL or AG as a
result of the revenue share set forth in this Section 3 shall
be due and payable each quarter by the collecting Party to the
other Party within 30 days after the end of such quarter.
4. PACKAGES OF AOL NETWORK ADVERTISEMENTS WITH CUSTOMIZED SITE
ADVERTISEMENTS. In the event AOL sells Advertisements in a grouping
with placements in both the Customized Site and within the AOL Network
(an "Ad Package") (it being expressly understood and agreed that AOL
owns and retains all right, title and interest in and to all the
promotional and advertising spaces within the AOL Network), then the
portion of the aggregate amounts collected (plus the fair market value
of any other compensation received) from such Ad Package ("Total Ad
Annex 2; Page--4
<PAGE> 81
Package Payment") that is allocated to and deemed to be Customized Site
Advertising Payment will be determined as follows:
4.1. [
]
4.2. The Parties will cooperate to make available targeted ad
serving for use on the Customized Site as soon as commercially
practical following the Interim Date. In order for such
targeted ad serving to be implemented, AG will use
commercially reasonable efforts to ensure that the data
necessary to facilitate such targeting will be made available
to AOL in a manner which allows proper incorporation into
AOL's ad server. In addition, each Party will cooperate with
the other Party in order to aid in tracking Impressions
through the Customized Site for purposes of fulfilling their
respective reporting and revenue payment requirements. AG will
permit AOL or its affiliates or agents to serve the
Advertisements appearing in the Customized Site. AG shall
cooperate with AOL to assist in AOL's due diligence of the
ability of the Customized Site to comply herewith, and in the
event of any delay in AOL's ability to sell the Advertisements
as a result of any problem to the extent in AG's control and
not AOL's, AOL's deadlines in Section 1.3 above to reach each
subsequent Advertising Hurdle Amount, and in Section 2 above
to make payments to AG by any particular date, shall each be
extended by the same amount of time.
5. [
]
6. [
]
Annex 2; Page--5
CONFIDENTIAL
<PAGE> 1
Exhibit 10.10
EXECUTION COPY
YAHOO! INC. - AMERICAN GREETINGS INC.
LICENSE AND PROMOTION AGREEMENT
This License and Promotion Agreement (this "Agreement") is entered into as of
August 2, 1999 (the "Effective Date") between Yahoo! Inc., a Delaware
corporation with offices at 3420 Central Expressway, Santa Clara, CA 95051
("Yahoo") and americangreetings.com, inc., a Delaware corporation ("AG Parent")
and its wholly-owned subsidiary, ag.com, inc., a Delaware corporation ("AG Sub"
and collectively with AG Parent, "American Greetings"), both with offices at One
American Road, Cleveland, Ohio, 44144).
WHEREAS, Yahoo is a global Internet media company that offers a network
of branded programming that serves millions of users daily; and
WHEREAS, American Greetings provides a variety of services relating to
greeting cards; and
WHEREAS, the parties wish to enter into this Agreement where, subject
to the terms contained herein, the parties will integrate their services and
conduct certain joint marketing activities.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
SECTION 1: DEFINITIONS.
- -----------------------
Capitalized terms used in this Agreement shall have the meanings
attributed to them in Exhibit A hereto or elsewhere in the Agreement.
SECTION 2: LICENSES AND LIMITED EXCLUSIVITY.
- --------------------------------------------
2.1. License to Yahoo.
-----------------
Subject to the terms and conditions of this Agreement, American
Greetings hereby grants to Yahoo, and Yahoo hereby accepts:
(a) A non-exclusive, worldwide, license, for the Term, to use, reproduce,
distribute, display and transmit the American Greetings Cards provided to Yahoo
hereunder in connection with the development and deployment of Yahoo Cards and
to permit Users to customize, send, view, download and print such American
Greetings Cards. Yahoo may modify features of the American Greetings Cards only
to the extent necessary to fit the format and look and feel of the Yahoo
Properties but shall not modify the content of any American Greetings Card.
(b) A non-exclusive, worldwide, fully paid license, for the Term, to use,
reproduce and display the American Greetings Brand Features only: (i) in
connection with the presentation of American Greetings Cards on Yahoo Cards; and
(ii) in connection with the marketing and promotion of the Yahoo Properties
provided that, in each case, American Greetings has approved any marketing and
promotional material and all other uses of the American Greetings Brand Features
prior to their first distribution, which approval shall not be unreasonably
withheld or delayed.
-1-
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(c) Yahoo shall be entitled to sublicense the rights set forth in this Section
2.1 only (i) to its Affiliates only for inclusion in Yahoo Properties, and (ii)
in connection with any mirror site, derivative site, or arrangement for the
distribution of a Yahoo Property (e.g., a "My Yahoo" property distributed and
co-branded with an original equipment manufacturer).
2.2. License to American Greetings.
------------------------------
(a) Subject to the terms and conditions of this Agreement, Yahoo hereby grants
to American Greetings, and American Greetings hereby accepts, a non-exclusive,
worldwide, fully paid license, for the Term, to use, reproduce and display the
Yahoo Brand Features (including, but not limited to, the Yahoo Graphic Link)
only: (i) in connection with the link described in Section 3.2(c) below and (ii)
in connection with the marketing and promotion of Yahoo Cards, provided that in
each case Yahoo has approved any marketing and promotional material and all
other uses of the Yahoo Brand Features prior to their first distribution, which
approval shall not be unreasonably withheld or delayed.
(b) Yahoo hereby grants to American Greetings a fully paid, perpetual,
non-transferable, non-revocable license to use the American Greetings Card User
Data solely for American Greetings' own use and subject to American Greetings'
agreement that none of the American Greetings Card User Data, and any reports or
data or information containing the American Greetings Card User Data will be
sold, loaned, rented or otherwise transferred or made available or otherwise
disclosed or conveyed directly or indirectly to any third parties without the
express, prior written consent of Yahoo, and provided that, in all cases
American Greetings agrees to use such information only in accordance with the
terms of Sections 6.1, 10.3(d) and the then current Yahoo Privacy Policy.
2.3. Limited Exclusivity.
--------------------
(a) During the Term, within [ ], Yahoo
shall not [
]. For clarity, the parties expressly agree that nothing in this Section
2.3(a) shall preclude Yahoo from [
].
(b) During the Term, Yahoo shall not [
].
(c) During the Term, Yahoo shall not [
].
(d) During the Term, Yahoo shall not [
-2-
<PAGE> 3
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]
(e) Except as explicitly set forth in this Section 2.3, nothing in this
Agreement shall preclude Yahoo from [
]
SECTION 3: RESPONSIBILITIES OF THE PARTIES.
3.1. Yahoo's Responsibilities.
-------------------------
(a) Yahoo shall host and be solely responsible for the design, layout and
posting of Yahoo Cards; provided that, Yahoo agrees to: (i) consider input from
American Greetings concerning the design of Yahoo Cards, and (ii) to work in
good faith with American Greetings to design the American Greetings Content
Pages in a manner mutually agreeable to both parties, provided, however that the
design of the American Greetings Content Pages (and any material modifications
thereto) shall be subject to the approval of American Greetings prior to
deployment which approval shall not be unreasonably withheld or delayed.
Notwithstanding anything to the contrary in this Section 3.1(a), American
Greetings understands and agrees that Yahoo shall have the final determination
over the design, layout and posting of Yahoo Cards.
(b) During the Term, Yahoo shall include American Greetings Cards in Yahoo Cards
as follows:
(i) No fewer than [ ] of the Greetings [
] displayed on [ ] shall be
American Greetings Cards.
(ii) No fewer than [ ] of the Greetings [
] displayed on [
] shall be American Greetings Cards for any
category in which American Greetings supplies Yahoo with American Greetings
Cards. By way of example, and not in limitation of the foregoing, if upon a
User's request for birthday cards, Yahoo Cards displays [
] with [ ] birthday cards on each Page, no fewer than [ ] American
Greetings Cards shall appear on each such [ ]. In the event that the
[ ] does not display any American Greetings Cards, Yahoo's
obligations pursuant to this Section 3.1(b)(ii) shall [
] for any category in which American Greetings supplies
Yahoo with American Greetings Cards.
(iii) American Greetings Cards provided to Yahoo, other than those appearing on
[ ] and [ ] (or [
] as the case may be), will be distributed throughout
the remaining applicable [ ] (based
upon the number of American Greetings Cards relative to the number of other
Greetings to be displayed on such Pages) until all American Greetings cards have
been displayed for that category; provided, however, that Yahoo may modify such
distribution if, in its good faith judgment, the quality or selection of such
Greetings warrants such re-distribution in order to address the needs of Yahoo
Cards customers. In connection with any such re-distribution, Yahoo agrees to
use commercially reasonable efforts to communicate any such decision and the
reasons therefore to American Greetings as soon as
-3-
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reasonably practicable. Additionally, at no time during the Term, shall Yahoo
[
] in the areas set forth therein.
(iv) Yahoo makes no guarantee as to the order or manner in which American
Greetings Cards shall appear on any Yahoo Cards Page. Notwithstanding the
foregoing, should Yahoo, in its sole discretion, determine to rotate which
Greetings are to appear on [ ] or [
] Yahoo shall rotate the American Greeting Cards appearing on such
Pages at the same rate as any other Greetings appearing on such Pages. If Yahoo,
in its sole discretion, determines to use a mechanism other than rotation to
determine the order or manner in which a particular Greeting appears on [
] or [ ] American Greetings Cards
shall be [
] as any Greetings provided by Yahoo or
any third party on [ ] and [ ]
It is expressly understood that nothing in this Section 3.1(b)(iv) shall in any
way reduce or waive Yahoo's obligations under Sections 3.1(b)(i) and 3.1(b)(ii)
above.
(v) All American Greetings Cards provided by American Greetings for use on Yahoo
Cards shall be displayed and otherwise made accessible in Yahoo Cards in
accordance with the provisions of this Section 3(b), in the category(ies)
specified by American Greetings. If Yahoo objects, in good faith, to any
category assigned to an American Greetings Card, the parties shall agree, in
good faith, upon the appropriate category for such American Greetings Card.
(vi) Notwithstanding anything else to the contrary in this Agreement, in no
event shall Yahoo be under any obligation, express or implied, to post or
otherwise include any American Greetings Card or other American Greetings
content in any Yahoo Property, including without limitation, in Yahoo Cards, if,
in good faith, Yahoo determines that such American Greetings Card or content (or
any portion thereof) is inappropriate for display based on a published terms of
service or published guideline applicable to such Yahoo Property. In addition,
in the event that Yahoo determines that any American Greetings Card or other
American Greetings content is inappropriate for display in any Yahoo Property,
including without limitation, in Yahoo Cards, based on a Yahoo Property's
content offerings, Yahoo and American Greetings shall agree on alternative
placements for such American Greetings Card or other American Greetings content,
or some other mutually acceptable resolution.
(vii) American Greetings may, upon written or email notice to Yahoo, request
that Yahoo remove any American Greetings Card(s) from display on Yahoo Cards and
Yahoo shall comply with any such request within [ ] from the
receipt thereof.
(c) Yahoo will maintain a link to Yahoo Cards on the Yahoo Properties set forth
below. The appearance and placement of such links shall be in Yahoo's sole
discretion.
(i) the compose screen of Yahoo Mail;
(ii) the navigation bar of Yahoo Mail;
(iii) Yahoo Calendar and the related reminder service;
-4-
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(iv) Yahoo Messenger;
(v) Yahoo Address Book;
(vi) Yahoo Classifieds personal section;
(vii) Yahoo Clubs.
In addition, Yahoo will maintain a link to Yahoo Cards on the Yahoo Main
Site front Page for a minimum of [ ] during each year of the
Term. At Yahoo's sole discretion, Yahoo may provide links to Yahoo Cards
in other locations across the Yahoo Properties (e.g., Geocities, Yahoo
People Search, and Broadcast.com).
(d) At all times during the Term, Yahoo shall place the American Greetings
Merchant Button on all American Greetings Button Pages. The American Greetings
Merchant Button's placement on any American Greetings Button Page may rotate
within an American Greetings Button Page Merchant Button Area equally with and
appear no less prominently (in terms of size and frequency of appearance in any
particular location within the Merchant Button Area) than any other Merchant
Button appearing on such American Greetings Button Page; provided, however, that
the American Greetings Merchant Button shall appear on each and every Page View
of the American Greetings Button Pages.
(e) During the Term, Yahoo shall provide the American Greetings Front Page
Promotion on the home Page of the Yahoo Main Site, on a rotating basis with
other promotions, on the dates specified on Exhibit J hereto (the "Front Page
Dates").
(f) At all times during the Term, Yahoo shall provide the American Greetings
Module on the front page of Yahoo Cards in a manner substantially similar to
that set forth on Exhibit D hereto.
(g) Yahoo shall ensure that all American Greetings Content Pages are co-branded
with Brand Features of both American Greetings and Yahoo as mutually agreed by
the parties, provided, however, that at all time the Brand Features of each
party shall be substantially similar in prominence (in terms of size and
placement) as set forth in Exhibit D. Additionally, Yahoo shall place an
"opt-in" option on the American Greetings Content Pages, subject to American
Greetings' approval, not to be unreasonably withheld, allowing users to choose
to receive promotional or other information from American Greetings. The parties
agree that Users that opt-in to receive such promotional or other information
from American Greetings may receive an e-mail from American Greetings that
contains a registration mechanism allowing Users to register as American
Greetings members and that American Greetings may independently collect certain
data pertaining to such Users through such registration mechanism and thereafter
(any such data being the "American Greetings Opt-In User Data").
(h) During the Term, Yahoo shall provide the American Greetings Banner, on a
rotating basis with other promotions, throughout Yahoo Cards and elsewhere
throughout the Yahoo Main Site (i.e., run of network) but in neither case on the
American Greetings Content Pages provided that it is technically feasible for
Yahoo to exclude such Pages after commercially reasonable efforts.
-5-
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(i) Yahoo shall assist American Greetings in developing, and shall host during
the Term, the American Greetings Store [
]
3.2. American Greetings Responsibilities.
------------------------------------
(a) American Greetings shall provide Yahoo: (i) a wide selection of Greetings;
and (ii) not less than [ ] of those American Greeting Cards made
available free of charge through the American Greetings Site (modified, if
necessary, to accommodate Yahoo's format) for display on Yahoo Cards. American
Greetings shall update and refresh the inventory of American Greetings Cards
provided to Yahoo not less often than [ ] provided,
however, that if such inventory is not updated and refreshed on the American
Greetings Site during [ ], American Greetings will update and
refresh the Yahoo inventory of American Greetings Cards promptly following the
next update and refresh of the inventory on the American Greetings Site.
American Greetings shall deliver all American Greetings Cards and all updates to
Yahoo in accordance with the delivery specifications set forth in Exhibit C.
(b) American Greetings shall ensure that all Pages of the American Greetings
Site to which users click-through from any American Greetings Link comply with
the scale, speed and performance specifications mutually agreed upon by the
parties.
(c) American Greetings shall operate and maintain the American Greetings Site to
be one of the top [ ] sites for the on-line provision of Greetings (as
determined, to the extent practical, over a reasonable period of time, by an
independent, qualified and industry-recognized third party based on the quantity
and quality of customers and product offerings).
(d) In no event shall any Page on the American Greetings Site, when linked
directly from any Yahoo Property, contain [
] This
restriction shall not apply in the case of [
]
(e) American Greetings shall place the Yahoo Graphic Link on those Pages of the
American Greetings Site to which Users click-through from any American Greetings
Link. The Yahoo Graphic Link shall be placed on the American Greetings Site: (i)
in a form and manner mutually agreed on by the parties; and (ii) directly link
the User back to a Page on the Yahoo Properties designated by Yahoo.
(f) American Greetings shall create, maintain and operate the American Greetings
Store in accordance with Yahoo Store standard terms and conditions; provided,
however, that if American Greetings determines, in its reasonable discretion,
that the resources required to maintain the American Greetings Store are not
justified by the business conducted (or projected to be conducted) therein,
American Greetings may terminate the American Greetings Store upon [
] written notice to Yahoo. Nothing herein shall be deemed to require American
Greetings to make its full range of Greetings or other products available on the
American Greetings Store. Yahoo may modify its Yahoo Store standard terms and
conditions from time to time, at its discretion, provided that American
Greetings shall be given notice in the same manner as other Yahoo Store
merchants in order to comply with any such changes.
-6-
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(g) American Greetings shall provide a link to American Greetings' privacy
policy on those Pages on the American Greetings Site through which User data is
collected.
3.3. Mutual Responsibilities.
------------------------
(a) Each party shall comply with the other party's trademark guidelines that are
attached as Exhibit K hereto.
(b) American Greetings will remain solely responsible for the operation of the
American Greetings Site, and Yahoo will remain solely responsible for the
operation of the Yahoo Properties. Each party, subject to the terms of this
Agreement, retains sole right and control over the programming, content and
conduct of transactions over its respective site.
(c) The parties each agree to cooperate and work together on technology related
issues, including but not limited to a implementing the ability of Users to use
their Yahoo address book to auto-populate a `send to' address on the American
Greetings Site linked from a Yahoo Property; or ensuring that American Greetings
products and services work seamlessly with Yahoo products (e.g., Yahoo Pager) in
accordance with applicable privacy and similar issues. Additionally, the parties
agree to explore methods by which users can be provided a seamless experience
when using American Greetings products that require a player or plug-in such as
"Flash" or "Real Player" (e.g., Broadcast.com). Notwithstanding the foregoing,
each party understands that the other may, at its sole discretion, elect not to
implement any of the above initiatives.
SECTION 4: PAGE VIEWS.
- ----------------------
4.1. Merchant Button and Front Page Promotion.
-----------------------------------------
With respect to the American Greetings Merchant Button, American Greetings
Banner and American Greetings Front Page Promotion, Yahoo shall deliver a
minimum of [ ] Page Views (the "Program Page
View Obligation") which shall include a minimum of [ ]
Page Views of the American Greetings Front Page Promotion. Yahoo shall use
reasonable commercial efforts to deliver a minimum of [ ]
Page Views of the American Greetings Merchant Button and [
] Page Views of the American Greetings Banner throughout Yahoo Cards
(excluding the American Greetings Content Pages provided that it is technically
feasible for Yahoo to exclude such Pages after commercially reasonable efforts)
and [ ] Page Views of the American Greetings Banner
throughout the Yahoo Main Site (excluding the American Greetings Content Pages
provided that it is technically feasible for Yahoo to exclude such Pages after
commercially reasonable efforts); provided, however, that Yahoo's Page View
obligations are with respect to the Program Page View Obligation as a whole and
Yahoo shall not be in breach of this Agreement for failure to deliver the number
of American Greetings Merchant Button or American Greetings Banner Page Views
set forth above.
4.2. Yahoo Card Promotions.
----------------------
Yahoo shall deliver a minimum of [ ]
Page Views of the links referenced in Section 3(c)(i)-(ii).
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4.3. Failure To Deliver Page Views.
------------------------------
The parties shall monitor, on an ongoing basis, the number of Page
Views delivered as against the total obligations set forth in Sections 4.1 and
4.2 (through the electronic database referenced in Section 4.4) and, after [
] the parties shall mutually agree,
in good faith, to any adjustments to the placement of promotions as may
reasonably be necessary to meet the Program Page View Obligations. In the event
that Yahoo fails to deliver the number of Page Views referred to in Sections 4.1
or 4.2 at the expiration of the Term, Yahoo will "make good" the shortfall by
extending its obligations under Sections 3.1(c)(i)-(ii), 3.1(d), 3.1(e) (for
additional front page promotion dates mutually agreed upon by the parties) and
3.1(h) in the areas of the Yahoo Main Site set forth therein (or similar
inventory mutually agreed upon by the parties) beyond the end of the Term until
such Page View obligation is satisfied. The provisions set forth in this Section
4.3 set forth the entire liability of Yahoo, and American Greetings' sole
remedy, for Yahoo's breach of its Page View obligations set forth in this
Section 4.
4.4. Page View Database.
-------------------
Yahoo shall provide American Greetings: (i) real-time access to an
electronic database that tracks and compiles Yahoo's standard reporting
information concerning the number of Page Views delivered pursuant to Section
4.1 during applicable periods, and (ii) monthly written reports that track such
information concerning the number of Page Views delivered pursuant to Section
4.2.
SECTION 5: COMPENSATION.
- ------------------------
5.1. Slotting Fee.
-------------
In consideration of Yahoo's performance and obligations as set forth
herein, American Greetings shall pay to Yahoo a total slotting fee equal to
[ ]. Such fee shall be paid to Yahoo as set forth
below with [ ] of the first payment
designated as a set up fee for the design, consultation and development of the
American Greetings Links. Unless otherwise mutually agreed upon in writing,
American Greetings shall not be charged any fees, beyond those set forth in this
Agreement, for any Page Views delivered beyond the Program Page View Obligation.
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Payment Date
------- ----
[ ] On or before [ ]
[ ] [ ] prior to the Launch Date as reasonably
projected by the parties (the "Launch Date Payment")
and
[ ]
On [
] (for a
total of [ ] payments, including the Launch
Date Payment). For example, if [ ] is
[ ], American Greetings shall pay Yahoo a
payment of [
]
5.2. Revenue Share.
--------------
In addition to the slotting fee set forth in Section 5.1 above,
beginning on [ ] American Greetings shall
pay to Yahoo a fee equal to [ ] of any American Greetings Net
Revenues in excess of [ ] earned during the
period between [
] Any such revenue sharing fees accrued pursuant to this Section 5.2
shall be paid [ ] together with the [ ] fee payment set forth in Section
5.1 and shall be due in [ ] following the [ ] in which
such revenues are earned.
5.3. Advertising Revenue.
--------------------
(a) Yahoo shall have the sole right, in its sole discretion, to sell, license or
otherwise dispose of all advertising and promotional rights with respect to the
Yahoo Properties (including Yahoo Cards and the American Greetings Content
Pages). Yahoo shall pay American Greetings [ ] [
] Yahoo Cards Content Page Advertising Revenue. For purposes of the
preceding sentence, the [ ] of Yahoo Cards Content Page Advertising
Revenue shall be [
] that encompasses such American Greetings
Content Pages. Thus, for example, if (x) Yahoo delivers [ ] Page Views
pursuant to a run of Yahoo Cards advertisement placement that generates [ ]
in Yahoo Cards Content Page Advertising Revenue, and (y) [ ] of such Page
Views are delivered on American Greetings Content Pages, then (z) American
Greetings shall be entitled to [ ] pursuant to this Section 5.3
[ ]. Yahoo shall use commercially reasonable
efforts to sell advertising on the American Greetings Content Pages but makes no
guarantee relating to the success of such efforts. Yahoo shall fill [
] of any unsold banner advertising space on the American Greetings
Content Pages with banner advertisements for American Greetings.
(b) American Greetings shall have the sole right to sell, license or otherwise
dispose of all advertising and promotional rights with respect to the American
Greetings Site and all other Page Views to American Greetings' servers.
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5.4. Payment Information.
--------------------
(a) All payments herein due from American Greetings to Yahoo are non-refundable
and non-creditable and shall be paid by American Greetings in U.S. dollars via
wire transfer into Yahoo's main account pursuant to the wire transfer
instructions set forth on Exhibit E. Any portion of the above payments which has
not been paid as set forth above shall bear interest at the lesser of (i) [
] per month or (ii) the maximum amount allowed by law.
Notwithstanding the foregoing, any failure by American Greetings to materially
make the payments specified in Section 5.1 and 5.2 as set forth above, shall
constitute a material breach of this Agreement.
(b) All payments herein due from Yahoo to American Greetings shall be paid in
U.S. dollars via wire transfer into American Greetings main account pursuant to
the wire transfer instructions set forth on Exhibit E. Any portion of the above
payments which has not been paid as set forth above shall bear interest at the
lesser of (i) [ ] per month or (ii) the maximum amount allowed by
law. Notwithstanding the foregoing, any failure by Yahoo to materially make the
payments specified in Sections 5.3(a) as set forth above shall constitute a
material breach of this Agreement.
SECTION 6: REPRESENTATIONS AND WARRANTIES.
6.1. By American Greetings.
----------------------
(a) American Greetings represents and warrants that at all times during the Term
it shall have all licenses and approvals (or exemptions thereto) necessary to
fulfill its obligations under this Agreement and that the negotiation, entry and
performance of this Agreement will not violate, conflict with, interfere with,
result in a breach of, or constitute a default under any other agreement to
which it is a party or any government order or decree to which it is subject.
(b) American Greetings represents and warrants that it is, and at all times
during the Term shall be, in compliance with any and all applicable laws, rules
and regulations of any jurisdiction now in effect and that may come into
existence during the Term, including all federal, state and local privacy laws,
rules and regulations, that may materially affect its performance of its
obligations hereunder.
(c) American Greetings represents and warrants that information provided to it
by or on behalf of Users shall be maintained, accessed and transmitted in a
secure environment and in compliance with industry standards for the security of
confidential data.
[
]
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6.2. By Yahoo.
---------
(a) Yahoo represents and warrants that at all times during the Term, it shall
have all licenses and approvals (or exemptions thereto) necessary to fulfill its
obligations under this Agreement and that the negotiation, entry and performance
of this Agreement will not violate, conflict with, interfere with, result in a
breach of, or constitute a default under any other agreement to which it is a
party or any government order or decree to which it is subject.
(b) Yahoo represents and warrants that it is, and at all times during the Term
shall be, in compliance with any and all applicable laws, rules and regulations
of any jurisdiction now in effect and that may come into existence during the
Term, including all federal, state and local privacy laws, rules and
regulations, that may materially affect its performance of its obligations
hereunder.
(c) Yahoo represents and warrants that information provided to it by Users shall
be maintained, accessed and transmitted in a secure environment and in
compliance with industry standards for the security of confidential data.
6.3. No Additional Warranties.
-------------------------
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES,
AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING
OR COURSE OF PERFORMANCE.
SECTION 7: INDEMNIFICATION.
- ---------------------------
7.1. By American Greetings.
----------------------
American Greetings, at its own expense, will indemnify, defend and hold
harmless Yahoo, its Affiliates and their employees, representatives, agents and
affiliates, against any claim, suit, action, or other proceeding brought by a
third party against Yahoo or its Affiliates based on or arising from a claim (a)
that [
] or (b) that [
] provided
however, that in any such case: (i)
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Yahoo provides American Greetings with prompt notice of any such claim;
(ii)Yahoo permits American Greetings to assume and control the defense of such
action, with counsel chosen by American Greetings; (iii) Yahoo and its
Affiliates cooperate, at the expense of American Greetings, with American
Greetings and its counsel in the defense, and Yahoo will have the right to
participate fully, at its own expense, in the defense of any such action, and
(iv) American Greetings does not enter into any settlement or compromise of any
such claim which would include relief other than the payment of monetary damages
without Yahoo's prior written consent, which consent shall not be unreasonably
withheld. American Greetings will pay any and all costs, damages, and expenses,
including, but not limited to, reasonable attorneys' fees and costs awarded
against or otherwise incurred by Yahoo or its Affiliates in connection with or
arising from any such claim, suit, action or proceeding. It is understood and
agreed that Yahoo does not intend and will not be required to [
]
7.2. By Yahoo.
---------
Yahoo, at its own expense, will indemnify, defend and hold harmless
American Greetings, its Affiliates and their employees, representatives, agents
and affiliates, against any claim, suit, action, or other proceeding brought by
a third party against American Greetings or its Affiliates based on or arising
from a claim (a) that [
] or (b) that [
] provided however, that in any such case: (i)
American Greetings provides Yahoo with prompt notice of any such claim;
(ii)American Greetings permits Yahoo to assume and control the defense of such
action, with counsel chosen by Yahoo; (iii) American Greetings and its
Affiliates cooperate, at the expense of Yahoo, with Yahoo and its counsel in the
defense, and American Greetings will have the right to participate fully, at its
own expense, in the defense of any such action, and (iv) Yahoo does not enter
into any settlement or compromise of any such claim which would include relief
other than the payment of monetary damages without American Greetings' prior
written consent, which consent shall not be unreasonably withheld. Yahoo will
pay any and all costs, damages, and expenses, including, but not limited to,
reasonable attorneys' fees and costs awarded against or otherwise incurred by
American Greetings or its Affiliates in connection with or arising from any such
claim, suit, action or proceeding.
SECTION 8: LIMITATION OF LIABILITY.
- -----------------------------------
8.1. Disclaimer of Liability.
------------------------
UNDER NO CIRCUMSTANCES SHALL AMERICAN GREETINGS, YAHOO, OR ANY
AFFILIATE OF EITHER PARTY BE LIABLE TO ANOTHER PARTY FOR
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INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING FROM
THIS AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR
LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY
WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE
CLAIMED BY A THIRD PARTY (OTHER THAN AN AFFILIATE) AND ARE SUBJECT TO
INDEMNIFICATION PURSUANT TO SECTION 7.
8.2. Limitation of Liability.
------------------------
EXCEPT AS PROVIDED IN SECTION 7 OR WITH RESPECT TO ANY CLAIMS ARISING
FROM THE RIGHTS OR OBLIGATIONS SET FORTH IN SECTIONS 6 OR 10, THE MAXIMUM
LIABILITY OF ONE PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION
WITH THIS AGREEMENT WILL NOT EXCEED [
]
SECTION 9: TERM AND TERMINATION.
- --------------------------------
9.1. Term.
-----
The term of this Agreement shall begin on the Effective Date and,
unless sooner terminated as provided below or as otherwise agreed, continue
until the second anniversary of the Launch Date (the "Term").
9.2. Termination by Yahoo.
---------------------
[
]
9.3. Termination by American Greetings; Reallocation of Payments.
------------------------------------------------------------
[
]
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acquisition described in this Section 9.3 within five (5) business days of the
completion of such acquisition.
(b) If, as of [ ] Yahoo has delivered less
than [ ] Page Views of the Yahoo Card Pages, the
parties shall negotiate in good faith a re-allocation of the American Greetings'
promotions to which all or a portion of the fees yet to be paid by American
Greetings to Yahoo hereunder apply. Such re-allocation could involve American
Greetings receiving additional banner or other advertisements on the Yahoo
Properties (subject, in all cases, to inventory availability). Notwithstanding
anything to the contrary in this Section 9.3(b), under no circumstances shall
American Greetings be released from making the payments due to Yahoo under
Section 5 (including in the event that the parties are unable to reach agreement
on any re-allocation of American Greetings' promotions pursuant to this Section
9.3(b)).
9.4. Termination by Either Party with Cause.
---------------------------------------
This Agreement may be terminated by either party immediately upon
notice to the other if the other party: (i) ceases to do business in the normal
course, becomes or is declared insolvent or bankrupt, becomes the subject of any
proceeding related to its liquidation or insolvency (whether voluntary or
involuntary) which is not dismissed within [ ] or makes
an assignment for the benefit of creditors; or (ii) breaches any of its
obligations under this Agreement in any material respect, which breach is not
remedied within [ ] following written notice to such party [
] in the case of a failure to pay). If, during the Term, Yahoo has
provided three (3) notices of termination under clause (ii) above due to a
failure to pay, Yahoo shall have the right to [
]
9.5. Right of First Presentation to Renew.
-------------------------------------
At least [ ] prior to the end of the Term, in the event
that Yahoo, at its sole discretion, intends to extend this Greeting Cards
Merchant Program, Yahoo will deliver to American Greetings a written notice
describing Yahoo's reasonable business requirements with respect to such
opportunity. If American Greetings declines to commence good faith negotiations
within [ ] of receiving such written notice from Yahoo, or if the
parties fail to reach agreement within [ ] following the commencement
of good faith negotiations (or such later date as is agreed by the parties),
Yahoo may [
] The parties
acknowledge that the promotional opportunities and terms offered in any
extension of this Greeting Cards Merchant Program may differ substantially from
those contained in this Agreement. Further, under no circumstances shall
anything in this Section 9.5 be deemed to restrict Yahoo's ability to extend
merchant positions in a subsequent Greeting Cards Merchant Program to any third
parties.
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9.6. Right of First Presentation for Related Initiatives.
----------------------------------------------------
In the event that Yahoo intends at any time during the Term to [
] Yahoo will deliver to American Greetings a written notice describing
Yahoo's reasonable business requirements with respect to such opportunity. If
American Greetings declines to commence good faith negotiations within [
] of receiving such written notice from Yahoo, or if the parties fail to
reach agreement within [ ] following the commencement of good faith
negotiations (or such later date as is agreed by the parties), Yahoo may [
] American Greetings
acknowledges that the foregoing applies only to [
]
9.7. Survival.
---------
Sections 1, 2.2(b), 4.3, 6.1(c) & (d), 7, 8, 10, 11, 12 and this
Section 9.7 shall survive the expiration or termination of this Agreement;
provided that, for the purpose of this Section 9.7, American Greetings'
obligation to abide by Yahoo's "then current" Privacy Policy set forth in
Section 2.2(b) shall not survive the expiration or termination of this Agreement
(i.e., upon expiration or termination of this Agreement and thereafter, American
Greetings shall adhere to the form of Yahoo's Privacy Policy in effect as of the
date of this Agreement's expiration).
SECTION 10: OWNERSHIP.
- ----------------------
10.1. By American Greetings.
----------------------
Yahoo and its Affiliates acknowledge and agree that: (i) as between
American Greetings on the one hand, and Yahoo and its Affiliates on the other,
American Greetings owns all right, title and interest in the American Greetings
Cards, the American Greetings Brand Features, and the American Greetings Site;
(ii) nothing in this Agreement shall confer in Yahoo or any Yahoo Affiliate any
right of ownership in the American Greetings Cards, the American Greetings Brand
Features, and the American Greetings Site; and (iii) neither Yahoo nor its
Affiliates shall now or in the future contest the validity of the foregoing.
10.2. By Yahoo.
---------
American Greetings and its Affiliates acknowledge and agree that: (i)
as between American Greetings and its Affiliates on the one hand, and Yahoo and
its Affiliates on the other, Yahoo or its Affiliates own all right, title and
interest in Yahoo Cards and any other Yahoo Property and the Yahoo Brand
Features; (ii) nothing in this Agreement shall confer in American Greetings any
right of ownership in the Yahoo Brand Features; and (iii) American Greetings
shall not now or in the future contest the validity of the foregoing.
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10.3. Data Ownership and Use.
-----------------------
(a) All information and data provided to Yahoo by Users (including the American
Greetings Card User Data) or otherwise collected by Yahoo relating to User
activity on the Yahoo Properties (including on Yahoo Cards) shall [
]
(b) During the Term, Yahoo shall collect the American Greeting Cards User Data
and provide the American Greetings Card User Data to American Greetings.
American Greetings agrees to [ ] only in
accordance with Section 2.2(b), Section 6.1 and this Section 10.3.
(c) The American Greetings Front Page Promotion Data and all information and
data provided to American Greetings on the American Greetings Site or otherwise
collected by American Greetings relating to user activity on the American
Greetings Site (including the American Greetings Opt-In User Data), shall be
[ ] During the Term, American
Greetings agrees to [
]
(d) Each party agrees to use all User information and data (including the
American Greetings Card User Data, American Greetings Front Page Promotion Data
and American Greetings Opt-In User Data) only as authorized by the User that
provided such information and shall not disclose, sell, license or otherwise
transfer any such user information to any third party or use the user
information for the transmission of "junk mail," "spam," or any other
unsolicited mass distribution of information.
(e) If any User requests, or if Yahoo requests on behalf of any User, that
American Greetings remove all personally identifiable information relating to
such User from American Greetings' database and other records, then American
Greetings shall promptly remove such personally identifiable information from
its database and other records.
SECTION 11: PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY.
- --------------------------------------------------
11.1. Public Announcements.
---------------------
The parties will cooperate to create any and all appropriate public
announcements relating to the relationship set forth in this Agreement. Neither
party shall make any public announcement regarding the existence or content of
this Agreement without the other party's prior written approval and consent.
11.2. Confidentiality.
----------------
Yahoo and American Greetings acknowledge and agree to the Mutual
Nondisclosure Agreement Terms attached hereto as Exhibit F with respect to the
use and disclosure of confidential information and all discussions pertaining to
or leading to this Agreement.
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SECTION 12: NOTICE; MISCELLANEOUS PROVISIONS.
- ---------------------------------------------
12.1. Notices.
--------
All notices, requests and other communications called for by this
Agreement shall be in writing and deemed to have been given upon receipt by the
addressee to which notice is provided. Any such notices, requests and other
communications may be given by mail, courier, telecopy or electronic mail
(confirmed by concurrent written notice sent first class U.S. mail, postage
prepaid), if to Yahoo at 3420 Central Expressway, Santa Clara, CA 95051, Fax:
[ ] Attention: Vice President ([ ]), with a
copy to its General Counsel ([ ]), and if to American
Greetings at the physical or electronic mail addresses set forth on the
signature page of this Agreement, or to such other addresses as either party
shall specify to the other.
12.2. Subcontracting.
---------------
Either party may subcontract or delegate the performance of any or all of its
duties and obligations hereunder to any Affiliate of such party (i) with the
other party's prior written approval, which shall not be unreasonably withheld
and (ii) provided that in the event of any such subcontracting or delegation,
the subcontracting or delegating party remains liable hereunder. Yahoo hereby
consents to American Greetings' subcontracting or delegating any or all of its
duties hereunder to the following American Greetings' Affiliates: AGCM, Inc.,
American Greetings Corporation and AGC, Inc.; provided that, in all cases,
American Greetings shall remain liable for such entities' compliance with the
terms of this Agreement.
12.3. Miscellaneous Provisions.
-------------------------
(a) This Agreement will bind and inure to the benefit of each party's permitted
successors and assigns. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent; provided, however, that either
party may assign this Agreement without such consent in connection with any
merger, consolidation, any sale of all or substantially all of such party's
assets or any other transaction in which more than fifty percent (50%) of such
party's voting securities are transferred. Any attempt to assign this Agreement
other than in accordance with this provision shall be null and void.
(b) This Agreement will be governed by and construed in accordance with the laws
of the State of California, without reference to conflicts of laws rules, and
without regard to its location of execution or performance.
(c) If any provision of this Agreement is found invalid or unenforceable, that
provision will be enforced to the maximum extent permissible and the other
provisions of this Agreement will remain in force.
(d) The prevailing party in any action to enforce this Agreement shall be
entitled to reimbursement of its expenses, including reasonable attorneys' fees.
(e) Neither this Agreement, nor any terms and conditions contained herein may be
construed as creating or constituting a partnership, joint venture or agency
relationship between the parties.
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(f) No failure of either party to exercise or enforce any of its rights under
this Agreement will act as a waiver of such rights.
(g) Neither Party will be liable for, or be considered in breach of or default
under this Agreement on account of, any delay or failure to perform as required
by this Agreement as a result of any causes or conditions which are beyond such
Party's reasonable control (except payment of money) and which such Party is
unable to overcome by the exercise of reasonable diligence.
(h) This Agreement and its exhibits are the
complete and exclusive agreement between the parties with respect to the subject
matter hereof, superseding and replacing any and all prior agreements,
communications, and understandings, both written and oral, regarding such
subject matter, including the Letter of Agreement between the parties dated June
2, 1999. This Agreement may only be modified, or any rights under it waived, by
a written document executed by both parties.
(i) No third party beneficiaries are created or established by this Agreement.
(j) Except as otherwise specifically provided for herein, each party shall bear
its own expenses for the negotiation of and the performance of this Agreement.
(k) The captions and headings used in this Agreement are inserted for
convenience only and will not affect the meaning or interpretation of this
Agreement. References to numbered sections and lettered Exhibits refer to the
sections and exhibits of this Agreement unless otherwise specified.
(l) This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute a single instrument. Execution and delivery of
this Agreement may be evidenced by facsimile transmission.
[signature page follows]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
<TABLE>
<S> <C>
YAHOO! INC. americangreetings.com, inc.
By: /s/ Ellen Siminoff By: /s/ Josef Mandelbaum
---------------------------- ---------------------------------------------------------
Title: /s/ Vice President Title: Senior Vice President, Sales and Business Development
------------------------- ------------------------------------------------------
Address: Address:
----------------------- ----------------------------------------------------
----------------------- ----------------------------------------------------
Telecopy: Telecopy:
---------------------- ---------------------------------------------------
E-mail: E-mail:
------------------------ -----------------------------------------------------
ag.com, inc.
By: /s/ Josef Mandelbaum
---------------------------------------------------------
Title: Senior Vice President, Sales and Business Development
------------------------------------------------------
Address:
----------------------------------------------------
----------------------------------------------------
Telecopy:
---------------------------------------------------
E-mail:
-----------------------------------------------------
</TABLE>
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EXHIBIT A
DEFINITIONS
-----------
"Affiliate" shall mean, as to any entity, any company or other entity
world-wide, including, without limitation, any corporation, partnership, joint
venture, or limited liability company, that is controlled by, controlling or
under common control with such first entity, where control means the ownership
of 50% or more of the voting equity interest in such entity.
"American Greetings Button Pages" shall mean the American Greetings
Directory Pages and the American Greetings Search Results Pages.
"American Greetings Cards" shall mean Greetings produced by or for
American Greetings and shall include any "thumbnail" images of such Greetings.
"American Greetings Cards User Data" shall mean all information and
data collected by Yahoo, including but not limited to sender and receiver email
addresses, solely in connection with Users' viewing, personalizing, sending,
receiving, downloading or purchasing American Greetings Cards, or other American
Greetings products or services; provided that American Greetings Card User Data
shall specifically exclude the American Greetings Front Page Promotion Data and
the American Greetings Opt-In User Data.
"American Greetings Competitor" shall mean the written list of entities
set forth on Exhibit G hereto and any successors to any such entities.
"American Greetings Content Pages" shall mean those Pages in Yahoo
Cards, substantially similar in structure to that set forth in Exhibit D,
through which a User may construct, preview and receive a specific American
Greetings Card.
"American Greetings Directory Pages" shall mean those Pages within the
subject matter directory of any Yahoo Property for the subjects and hierarchy
identified on Exhibit I.
"American Greetings Front Page Promotion" shall mean a promotion
substantially similar in structure to that set forth in Exhibit D, developed by
American Greetings in accordance with Yahoo's standard front-page promotion
guidelines attached as Exhibit H. Yahoo may modify its standard front-page
promotion guidelines at any time, provided that American Greetings shall be
given reasonable notice in order to modify the American Greetings Front Page
Promotion to comply with any such changes.
"American Greetings Front Page Promotion Data" shall mean the data
collected by American Greetings through the American Greetings Front Page
Promotion.
"American Greetings Link" shall mean any link to the American Greetings
Site placed by Yahoo under this Agreement, including, without limitation, the
American Greetings Banner, American Greetings Merchant Button (and accompanying
text links), American Greetings Module and the American Greetings Front Page
Promotion.
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"American Greetings Banner" shall mean a promotion substantially
similar in structure as that set forth on Exhibit D that conforms to Yahoo's
standard banner specifications as follows: (a) promotes the on-line sale of
greeting cards, (b) has dimensions no larger than 468 pixels wide by 60 pixels
high, (c) does not have "looped" animation, (d) does not have any animation
longer than six seconds, (e) has a file size of no greater than 15K, and (f)
will permit users to navigate directly to a Page on the American Greetings Site
relating to the American Greetings Banner content. Yahoo may modify these
standard banner specifications at any time provided that American Greetings
shall be given reasonable notice in order to modify the American Greetings
Banner to comply with any such changes.
"American Greetings Merchant Button" shall mean a link substantially
similar in structure to that set forth in Exhibit D, that conforms to Yahoo's
standard Merchant Button specifications as follows: (a) contains an American
Greetings logo and has dimensions no larger than 88 pixels wide by 31 pixels
high, (b) does not contain animation, (c) has a file size of no greater than 2K,
(d) contains alt text of no more than ten (10) characters (including spaces),
(e) contains three (3) text links of no more than sixteen (16) characters each
(including spaces), (f) and will permit users to navigate directly to a Page on
the American Greetings Site related to buying or sending greeting cards. Yahoo
may modify these standard Merchant Button specifications at any time, provided
that American Greetings shall be given reasonable notice in order to modify the
American Greetings Merchant Button to comply with any such changes.
"American Greetings Module" shall mean a promotion substantially
similar in structure to that set forth in Exhibit D, that conforms to Yahoo's
standard module specifications as follows: (a) has dimensions no larger than 125
pixels wide by 125 pixels high, (b) contains two lines of text, with no more
than twenty (20) characters of text (including spaces) in each line, (c)
contains no more than six (6) seconds of animation (with no looping), (d) is in
GIF format, (e) has a file size no greater than 4K, and (f) will permit users to
navigate directly to a Page on the American Greetings Site relating to the
online purchase of greeting cards. Yahoo may modify these standard Module
specifications at any time, provided that American Greetings shall be given
reasonable notice in order to modify the American Greetings Module to comply
with any such changes.
"American Greetings Net Revenues" shall mean [
]
"American Greetings Opt-In User Data" shall have the meaning ascribed
to such term in Section 3.1(g).
"American Greetings Search Results Pages" shall mean those Pages
displayed upon a user's searching the Yahoo Main Site for any of those keywords
identified on Exhibit I; provided that, Yahoo may substitute any such keyword
for a comparable keyword in its reasonable discretion and upon written approval
of American Greetings, which approval shall not be unreasonably withheld.
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"American Greetings Site" shall mean the American Greetings principal
U.S. based World Wide Web site located at http://www.americangreetings.com or
any successor URL.
"American Greetings Store" shall mean an online store created with
Yahoo Store technology on behalf of American Greetings and located in the Yahoo
Store.
"Brand Features" shall mean the trademarks, service marks, logos and
other distinctive brand features of the parties that are described in Exhibit B
hereto.
"FTC Order" will mean that certain "Decision and Consent Order" issued
by the U.S. Federal Trade Commission on February 5, 1999 against Geocities,
Inc., a California corporation acquired by Yahoo, attached hereto as Exhibit L
and any and all subsequent or related official materials, regulations, laws
judgements or orders.
"Greeting" means a communication consisting of elements (including,
but not limited to, images, text, photography, audio or animation) that are
pre-designed by the producer and elements that are user customizable or
selectable (including, but not limited to, messages, signatures, addresses,
images or audio) and marketed to consumers and businesses for delivery in
connection with an occasion (such as birthday, wedding, graduation, anniversary
or holiday), thank you wishes, get well wishes, invitations, and other social
expressions traditionally recognized as greetings. "Greetings" shall include
electronic Greetings (including, but not limited to, customizable greeting
cards, postcards and multimedia Greetings), and traditional tangible paper (or
similar media) Greetings (whether pre-printed, downloaded or printed using
"create-and-print" systems).
"Greeting Cards Merchant Program" shall mean Yahoo's program consisting
of certain marketing, advertising and promotional activities relating to the
online sale of Greetings as described in this Agreement.
"Intellectual Property Rights" shall mean all rights in and to trade
secrets, patents, copyrights, trademarks, know-how, as well as moral rights and
similar rights of any type under the laws of any governmental authority,
domestic or foreign.
"Internet" shall mean the collection of computer networks commonly
known as the Internet, and shall include, without limitation, the World Wide
Web.
"Launch Date" shall mean [
]
"Merchant Button" shall mean a link to a merchant's World Wide Web site
that substantially conforms to the specifications of the American Greetings
Merchant Button.
"Merchant Button Area" shall mean the area of any Page of any Yahoo
Property in which Merchant Buttons are displayed. Such area may involve buttons
appearing vertically or horizontally.
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"Page" means any World Wide Web page (or, for on-line media other than
Web sites, the equivalent unit of the relevant protocol).
"Page View" shall mean a User's request for a Page on which the
applicable advertisement or link appears, as such request is determined and
measured by Yahoo in accordance with its standard methodologies and protocols
that are regularly audited and reviewed by Ernst & Young or a similarly
reputable entity.
"User" shall mean any person or entity who uses any Yahoo Property. A
person or entity shall not be considered a "User" as a result of or in
connection with their use of a Yahoo Property other than as an end-user thereof.
For example, use of a Yahoo Property by Yahoo personnel (or personnel of any
Yahoo advertiser or Affiliate) for programming, development, testing and other
administrative functions shall not result in such personnel being considered
Users.
"Yahoo Cards" shall mean the U.S. targeted Yahoo Property that will
allow Users to, among other things, create, send, and view electronic Greetings
and/or purchase Greetings. Yahoo shall have the right to change the name and
content (but not the underlying line of business) of Yahoo Cards from time to
time in its sole discretion.
"Yahoo Cards Category Pages" shall mean those Pages in Yahoo Cards that
are displayed in response to a user's request for a particular type of greeting
card (e.g., birthday, get well, anniversary).
"Yahoo Cards Content Page Advertising Revenue" shall mean [
]
"Yahoo Cards Front Page" shall mean the home page of Yahoo Cards.
"Yahoo Cards Pages" shall mean any Page within the Yahoo Cards
property, including but not limited to the Yahoo Cards Front Page, the Yahoo
Cards Category Pages and the American Greetings Content Pages.
"Yahoo Competitor" shall mean the following entities: [
]
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"Yahoo Graphic Link" shall mean a graphic image containing the Yahoo
name and logo provided by Yahoo to American Greetings that: (a) has dimensions
no larger than 88 pixels wide by 31 pixels high, (b) does not contain animation,
(c) has a file size of no greater than 2K, (d) contains alt text of no more than
ten (10) characters (including spaces), (e) contains no more than 6seconds of
animation (with no looping), (f) is in GIF format, (g) will permit users to
navigate directly to a Page on the Yahoo Properties. These specifications may be
modified by American Greetings in its reasonable discretion, provided that Yahoo
shall be given reasonable notice in order to modify the Yahoo Graphic Link to
comply with any such changes.
"Yahoo Mail" shall mean Yahoo's principal U.S. based e-mail service
located at http://mail.yahoo.com or any successor URL.
"Yahoo Main Site" shall mean Yahoo's principal U.S. based directory to
the World Wide Web located at http://www.yahoo.com or any successor URL.
"Yahoo Privacy Policy" shall mean that privacy policy currently located
at http://docs.yahoo.com/info/privacy/ (as may be amended by Yahoo! from time to
time).
"Yahoo Properties" shall mean any Yahoo branded or co-branded media
properties, including, without limitation, Internet guides, developed in whole
or in part by Yahoo or its Affiliates and distributed or made available by Yahoo
or its Affiliates over the Internet or any wireless device.
"Yahoo Store" shall mean that Yahoo branded property containing various
online stores and currently located at http://store.yahoo.com or any successor
URL.
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EXHIBIT B
AMERICAN GREETINGS BRAND FEATURES
---------------------------------
American Greetings logo
[and such other brand features supplied by American Greetings]
YAHOO BRAND FEATURES
--------------------
Yahoo! logo in stylized type
Yahoo "Y Guy" logo
Do You Yahoo!?
[and such other brand features supplied by Yahoo]
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EXHIBIT C
Delivery Specifications
-----------------------
1) Images will be zipped and sent to Yahoo either through ftp or another
mutually agreed upon system.
2) American Greetings will provide Yahoo with a spreadsheet accompanying the
images which indicates each of the following for each image:
(a)category;
(b) whether or not it is animated;
(c) the location of the thumbnail, midi,background images, and any other files
or text which accompanies the card.
3) Each card may contain an American Greetings Logo. The logo size will be
approximately 100x30 pixels, will not be animated, and will be less than 5k in
file size.
4) The thumbnail images shall be 100x68 pixels unless mutually agreed upon
otherwise. The thumbnail images will not be animated, and will be less than 5k
in file size.
5) The images for the cards themselves will be approximately 300x300 pixels and
will be less than 30k in file size.
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EXHIBIT D
(Attach Screen Shots)
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EXHIBIT E
Wire Transfer Instructions
--------------------------
Yahoo's Bank Information:
Institution Name: [
Institution Address:
ABA:
Beneficiary Name:
Beneficiary Account Number: ]
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EXHIBIT F
Mutual Nondisclosure Agreement Terms
------------------------------------
1. "Confidential Information" as used in this Agreement shall mean any
and all technical and non-technical information, including patent, trade secret,
and proprietary information, techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, software programs,
software source documents, and formulae related to the current, future and
proposed products and services of each of the parties, and includes, without
limitation, their respective information concerning product and feature plans,
research, experimental work, development, design details and specifications,
engineering, financial information, procurement requirements, purchasing,
manufacturing, customer lists, business forecasts, sales and merchandising, and
marketing plans and information.
2. If the Confidential Information is disclosed orally or visually, it
shall be identified as such at the time of disclosure and confirmed in a writing
to the recipient within thirty (30) days of such disclosure.
3. Each of the parties agrees that it will not make use of,
disseminate, or in any way disclose any Confidential Information of the other
party to any person, firm or business, except to the extent necessary for
negotiations, discussions, and consultations with personnel or authorized
representatives of the other party and any purpose the other party may hereafter
authorize in writing. Each of the parties agrees that it shall disclose
Confidential Information of the other party only to those of its employees and
contractors who need to know such information and who have previously agreed,
either as a condition to employment or in order to obtain the Confidential
Information, to be bound by terms and conditions substantially similar to those
of this Agreement.
4. There shall be no liability for disclosure or use of Confidential
Information which is: (a) in the public domain through no fault of the receiving
party, (b) rightfully received from a third party without any obligation of
confidentiality, (c) rightfully known to the receiving party without any
limitation on use or disclosure prior to its receipt from the disclosing party,
(d) independently developed by the receiving party, (e) generally made available
to third parties without any restriction on disclosure, or (f) communicated in
response to a valid order by a court or other governmental body, as otherwise
required by law, or as necessary to establish the rights of either party under
this Agreement (provided that the party so disclosing has provided the other
party with a reasonable opportunity to seek protective legal treatment for such
Confidential Information).
5. "Residual Information" shall mean any Confidential Information of
the disclosing party which may be retained in intangible form in the minds of
those individuals of the receiving party who have had proper access to such
Confidential Information. Notwithstanding anything else in this Agreement, the
receiving party shall be free to use any Residual Information for any purpose
whatsoever, including, without limitation, the development of its own products,
or business, provided that such Residual Information is not used in connection
with products that are directly competitive to those of the disclosing party.
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6. Each of the parties agrees that it shall treat all Confidential
Information of the other party with the same degree of care as it accords to its
own Confidential Information, and each of the parties represents that it
exercises reasonable care to protect its own Confidential Information.
7. Each of the parties agrees that it will not modify, reverse
engineer, decompile, create other works from, or disassemble any software
programs contained in the Confidential Information of the other party unless
specifically permitted to do so, in writing, by the disclosing party.
8. All materials (including, without limitation, documents, drawings,
models, apparatus, sketches, designs and lists) furnished to one party by the
other, and which are designated in writing to be the property of such party,
shall remain the property of such party and shall be returned to it promptly at
its request, together with any copies thereof.
9. This Agreement shall govern all communications between the parties
that are made during the period from the effective date of this Agreement to the
date on which either party receives from the other written notice that
subsequent communications shall not be so governed, provided, however, that each
party's obligations under Sections 2 and 3 with respect to Confidential
Information of the other party which it has previously received shall continue
unless and until such Confidential Information falls within Sections 4 or 5.
Neither party shall communicate any information to the other in violation of the
proprietary rights of any third party. Neither party acquires any licenses under
any intellectual property rights of the other party under this Agreement.
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EXHIBIT G
American Greetings Competitors
American Greetings Competitors shall include:
[
]
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EXHIBIT H
Front Page Promotion Guidelines
-------------------------------
The Front Page Promotion shall be in the form of a banner advertisement and
subsequent promotion pages, and shall have the following specifications and
characteristics (references to the "sponsor" apply to the advertiser on whose
behalf the front page promotion is run).
Banner Specifications:
- ----------------------
Size: 230 pixels wide by 33 pixels high. File size must not exceed 3k.
The banner can animate for a period of not more than 6 seconds. No endless
looping is permitted.
For a [ ] promotion campaign, the sponsor may run up to [ ] different
banners that will rotate equally.
Background Color: Backgrounds which are not transparent must have a color(s)
which are using a HSB color space, between 0% and 50% in saturation, and between
50% and 80% in brightness. The hue may be any value. Yahoo reserves the right to
define the portions of a submitted image that comprises the background.
Transparent backgrounds are permitted.
All banners are subject to aesthetic and content approval by Yahoo. All artwork
must be submitted to Yahoo at least five (5) business days prior to the
promotion's launch date. Yahoo reserves the right to review, reject or modify
any part of any creative at its sole discretion. The sponsor shall ensure that
their promotion complies in all respects with applicable laws and regulations.
The sponsor expressly understands and agrees that the approval of the official
rules for any promotion by Yahoo shall not constitute an opinion as to the legal
appropriateness or adequacy of such rules or their manner of use.
Sweepstakes Prizes: Yahoo requires that front page promotion sponsors provide a
prize package of a minimum retail value. Values for different types of front
page promotions are set forth below.
Type of Promotion: Prize Package Minimum
- ------------------ ---------------------
Front Page Banner [ ]
Front Page Text [ ]
Prize values for multi-sponsored promotions vary.
Sponsor is responsible for all shipping/handling charges and any other expenses
associated with prize fulfillment.
Sponsor is responsible for sending 1099 notifications to the promotion winners
and the IRS.
Sponsor shall deliver prizes to winning contestant within six (6) weeks of the
promotion's conclusion.
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Sponsor hosted promotions.
- --------------------------
A standard promotion hosted by the sponsor shall consist of the following:
Banner(s) or text links on a Yahoo hosted page that link to the sponsor hosted
promotion jump page.
A jump page consisting of promotion graphics, client graphics, copy/content and
contest description.
A rules page consisting of official rules that govern the promotion.
An entry form page consisting of promotion graphics and the entry form. The
entry form shall include the following disclaimer located directly next to the
"submit" button.
(Sponsor's Name) is solely responsible for the use of this information.
A thank you page consisting of graphics and text.
Total size of all graphics on each promotion page must be less than 35K. This is
to optimize loading times for contestants and to reduce the amount of people
that turn away from the promotion before the page loads.
If sponsor host's the promotion, sponsor further agrees to the following:
To allow Yahoo engineers to run a stress test program to test the sponsor's
server(s) capacity. A mutually agreed upon time will be arranged with sponsor to
run this test program, which simulates the traffic level that can be expected
from a front page promotion. Sponsor shall make necessary modifications to its
server capacity so that it will pass such test prior to the start date of the
promotion.
Submit promotion URLs at least [ ] prior to the starting date
of the promotion for Yahoo final approval (which may include Yahoo required
modifications to the promotion).
Sponsor may not post any contest page until it receives final approval of the
entire page from Yahoo.
Yahoo reserves the right to access all aggregate information captured on entry
form submissions through the promotion. Sponsor agrees to provide such
information to Yahoo immediately upon Yahoo's request. Yahoo's use of this
information will be restricted to internal purposes.
Traffic sent to sponsor home page.
- ----------------------------------
In order to send traffic from the promotional banner on Yahoo directly to a
sponsor's home page instead of a jump page, the following requirements must be
met, with no exceptions:
Sponsor agrees to create a customized prominent graphic dedicated to
prize/contest details to be displayed on sponsor's home page. Such graphic shall
always be above the fold of the sponsor's home page and link directly to the
sweepstakes page/entry form.
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Total pixel area of the graphic must be at least 28,080 k or the equivalent of a
468x60 banner.
All artwork/creative must be submitted to Yahoo at least [ ]
prior to the promotion's start date.
Yahoo reserves the right to review, reject or modify any part of any creative at
its sole discretion.
Sponsor shall be responsible for the design, layout, posting and maintenance of
the promotion pages.
Sponsor shall operate the contest on computers and network hardware under its
ownership or control.
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EXHIBIT I
AMERICAN GREETINGS DIRECTORY PAGES:
- -----------------------------------
[
]
AMERICAN GREETINGS KEYWORDS:
- ----------------------------
[
]
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[
]
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EXHIBIT J
Front Page Dates
----------------
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EXHIBIT K
Trademark Guidelines
--------------------
Yahoo Trademark Guidelines:
- ---------------------------
1. GENERAL. All Yahoo Brand Features will be used only as explicitly
licensed by Yahoo, and only under the terms and conditions and for the purposes
described in such license. The other party to such license shall herein be
referred to as the "Licensee". All such uses shall be in a manner consistent
with the following guidelines.
2. APPEARANCE OF LOGOS. The Licensee shall ensure that the presentation
of the Yahoo Brand Features shall be consistent with Yahoo's own use of the
Yahoo Brand Features in comparable media.
3. NOTICES. All trademarks and service marks included in the Yahoo
Brand Features shall be designated with "SM", "TM" or "(R)", in the manner
directed by Yahoo.
4. APPEARANCE. From time to time during the term of the license, Yahoo
may provide the Licensee with guidelines for the size, typeface, colors and
other graphic characteristics of the Yahoo Brand Features, which upon delivery
to the Licensee shall be deemed to be incorporated into these "Yahoo Trademark
Usage Guidelines".
5. RESTRICTIONS UPON USE. The Yahoo Brand Features shall not be
presented or used:
A. in a manner that could be reasonably interpreted to suggest
editorial content has been authored by, or represents the views or opinions of,
Yahoo or any Yahoo personnel;
B. in a manner that is misleading, defamatory, libelous,
obscene or otherwise objectionable, in Yahoo's reasonable opinion;
C. in a way that infringes, derogates, dilutes or impairs the
rights of Yahoo in the Yahoo Brand Features;
D. as part of a name of a product or service of a company
other than Yahoo, except as expressly provided in a written agreement by Yahoo.
6. NONEXCLUSIVE REMEDY. The Licensee will make any changes to its use
of the Yahoo Brand Features as requested by Yahoo. The foregoing remedy shall be
in addition to any other legal and equitable rights that Yahoo may possess
relating to Licensee's use of the Yahoo Brand Features.
7. REVISIONS. These Guidelines may be modified at any time by Yahoo
upon written notice to the Licensee.
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American Greetings Trademark Guidelines
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EXHIBIT L
FTC DECISION AND ORDER
9823015
B251544
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
COMMISSIONERS:
ROBERT PITOFSKY, CHAIRMAN
SHEILA F. ANTHONY
MOZELLE W. THOMPSON
ORSON SWINDLE
IN THE MATTER OF
GEOCITIES, A CORPORATION.
DOCKET NO. C-3850
DECISION AND ORDER
The Federal Trade Commission having initiated an investigation of certain acts
and practices of the respondent named in the caption hereof, and the respondent
having been furnished thereafter with a copy of a draft of complaint which the
Bureau of Consumer Protection proposed to present to the Commission for its
consideration and which, if issued by the Commission, would charge respondent
with violation of the Federal Trade Commission Act; and
The respondent, its attorneys, and counsel for Federal Trade Commission having
thereafter executed an agreement containing a consent order, an admission by the
respondent of all the jurisdictional facts set forth in the aforesaid draft of
complaint, a statement that the signing of said agreement is for settlement
purposes only and does not constitute an admission by respondent that the law
has been violated as alleged in such complaint, or that the facts as alleged in
such complaint, other than jurisdictional facts, are true and waivers and other
provisions as required by the Commission's Rules; and
The Commission having considered the matter and having determined that it had
reason to believe that the respondent has violated the said Act, and that
complaint should issue stating its charges in that respect, and having thereupon
accepted the executed consent agreement and placed such agreement on the public
record for a period of sixty (60) days, and having duly considered the comments
filed thereafter by interested persons pursuant to ss. 2.34 of its Rules, now in
further conformity with the procedure prescribed in ss. 2.34 of its Rules, the
Commission hereby issues its complaint, makes the following jurisdictional
findings and enters the following order:
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1. Respondent GeoCities, is a corporation organized, existing, and doing
business under and by virtue of the laws of the State of California, with
its office or principal place of business located at 1918 Main Street,
Suite 300, Santa Monica, California 90405.
2. The Federal Trade Commission has jurisdiction of the subject matter of
this proceeding and of the respondent, and the proceeding is in the
proceeding is in the public interest.
ORDER
DEFINITIONS
For purposes of this order, the following definitions shall apply:
1. "Child" or "children" shall mean a person of age twelve (12) or under.
2. "Parents" or "parental" shall mean a legal guardian, including, but not
limited to, a biological or adoptive parent.
3. "Personal identifying information" shall include, but is not limited to,
first and last name, home or other physical address (e.g., school), e-mail
address, telephone number, or any information that identifies a specific
individual, or any information which when tied to the above becomes
identifiable to a specific individual.
4. "Disclosure" or "disclosed to third party(ies)" shall mean (a) the
release of information in personally identifiable form to any other
individual, firm, or organization for any purpose or (b) making publicly
available such information by any means including, but not limited to,
public posting on or through home pages, pen pal services, e-mail services,
message boards, or chat rooms.
5. "Clear(ly) and prominent(ly)" shall mean in a type size and location
that are not obscured by any distracting elements and are sufficiently
noticeable for an ordinary consumer to read and comprehend, and in a
typeface that contrasts with the background against which it appears.
6. "Archived" database shall mean respondent's off-site "back-up" computer
tapes containing member profile information and GeoCities Web site
information.
7. "Electronically verifiable signature" shall mean a digital signature or
other electronic means that ensures a valid consent by requiring: (1)
authentication (guarantee that the message has come from the person who
claims to have sent it); (2) integrity (proof that the message contents
have not been altered, deliberately or accidentally, during transmission);
and (3) non-repudiation (certainty that the sender of the message cannot
later deny sending it).
8. "Express parental consent" shall mean a parent's affirmative agreement
that is obtained by any of the following means: (1) a signed statement
transmitted by postal mail or facsimile; (2) authorizing a charge to a
credit card via a secure server; (3) e-mail accompanied by an
electronically verifiable signature; (4) a procedure that is specifically
authorized by statute, regulation, or guideline issued by the Commission;
or (5) such other procedure that ensures verified parental consent and
ensures the identity of the parent, such as the use of a reliable
certifying authority.
9. Unless otherwise specified, "respondent" shall mean GeoCities, its
successors and assigns and its officers, agents, representatives, and
employees.
10. "Commerce" shall mean as defined in Section 4 of the Federal Trade
Commission Act, 15 U.S.C. ss. 44.
I.
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IT IS ORDERED that respondent, directly or through any corporation, subsidiary,
division, or other device, in connection with any online collection of personal
identifying information from consumers, in or affecting commerce, shall not make
any misrepresentation, in any manner, expressly or by implication, about its
collection or use of such information from or about consumers, including, but
not limited to, what information will be disclosed to third parties and how the
information will be used.
II.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with any online collection
of personal identifying information from consumers, in or affecting commerce,
shall not misrepresent, in any manner, expressly or by implication, the identity
of the party collecting any such information or the sponsorship of any activity
on its Web site.
III.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with the online collection
of personal identifying information from children, in or affecting commerce,
shall not collect personal identifying information from any child if respondent
has actual knowledge that such child does not have his or her parent's
permission to provide the information to respondent. Respondent shall not be
deemed to have actual knowledge if the child has falsely represented that (s)he
is not a child and respondent does not knowingly possess information that such
representation is false.
IV.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with the online collection
of personal identifying information, in or affecting commerce, shall provide
clear and prominent notice to consumers, including the parents of children, with
respect to respondent's practices with regard to its collection and use of
personal identifying information. Such notice shall include, but is not limited
to, disclosure of:
A. what information is being collected (e.g., "name," "home address,"
"e-mail address," "age," "interests");
B. its intended use(s);
C. the third parties to whom it will be disclosed (e.g., "advertisers of
consumer products," mailing list companies," "the general public");
D. the consumer's ability to obtain access to or directly access such
information and the means by which (s)he may do so;
E. the consumer's ability to remove directly or have the information
removed from respondent's databases and the means by which (s)he may do so;
and
F. the procedures to delete personal identifying information from
respondent's databases and any limitations related to such deletion.
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Such notice shall appear on the home page of respondent's Web site(s) and
at each location on the site(s) at which such information is collected.
PROVIDED THAT, respondent shall not be required to include the notice at the
locations at which information is collected if such information is limited to
tracking information and the collection of such information is described in the
notice required by this Part.
PROVIDED FURTHER THAT, for purposes of this Part, compliance with all of the
following shall be deemed adequate notice: (a) placement of a clear and
prominent hyperlink or button labeled PRIVACY NOTICE on the home page(s), which
directly links to the privacy notice screen(s); (b) placement of the information
required in this Part clearly and prominently on the privacy notice screen(s),
followed on the same screen(s) with a button that must be clicked on to make it
disappear; and (c) at each location on the site at which any personal
identifying information is collected, placement of a clear and prominent
hyperlink on the initial screen on which the collection takes place, which links
directly to the privacy notice and which is accompanied by the following
statement in bold typeface:
NOTICE: WE COLLECT PERSONAL INFORMATION ON THIS SITE. TO LEARN MORE ABOUT HOW WE
USE YOUR INFORMATION CLICK HERE.
V.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with the online collection
of personal identifying information from children, in or affecting commerce,
shall maintain a procedure by which it obtains express parental consent prior to
collecting and using such information.
PROVIDED THAT, respondent may implement the following screening procedure that
shall be deemed to be in compliance with this Part. Respondent shall collect and
retain certain personal identifying information from a child, including birth
date and the child's and parent's e-mail addresses (hereafter "screening
information"), enabling respondent to identify the site visitor as a child and
to block the child's attempt to register with respondent without express
parental consent. If respondent elects to have the child register with it,
respondent shall: (1) give notice to the child to have his/her parent provide
express parental consent to register; and/or (2) send a notice to the parent's
e-mail address for the purpose of obtaining express parental consent. The notice
to the child or parent shall provide instructions for the parent to: (1) go to a
specific URL on the Web site to receive information on respondent's practices
regarding its collection and use of personal identifying information from
children and (2) provide express parental consent for the collection and use of
such information. Respondent's collection of screening information shall be by a
manner that discourages children from providing personal identifying information
in addition to the screening information. All personal identifying information
collected from a child shall be held by respondent in a secure manner and shall
not be used in any manner other than to effectuate the notice to the child or
parent, or to block the child from further attempts to register or otherwise
provide personal identifying information to respondent without express parental
consent. The personal identifying information collected shall not be disclosed
to any third party prior to the receipt of express parental consent. If express
parental consent is not received by twenty (20) days after respondent's
collection of the information from the child, respondent shall remove all such
personal identifying information from its databases, except
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such screening information necessary to block the child from further attempts to
register or otherwise provide personal identifying information to respondent
without express parental consent.
VI.
Nothing in this order shall prohibit respondent from collecting personal
identifying information from children or from using such information, as
specifically permitted in the Children's Online Privacy Protection Act of 1998
(without regard to the effective date of the Act) or as such Act may hereafter
be amended; regulations or guides promulgated by the Commission; or
self-regulatory guidelines approved by the Commission pursuant to the Act.
VII.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall provide a reasonable means for consumers, including the parents of
children, to obtain removal of their or their children's personal identifying
information collected and retained by respondent and/or disclosed to third
parties, prior to the date of service of this order, as follows:
A. Respondent shall provide a clear and prominent notice to each consumer
over the age of twelve (12) from whom it collected personal identifying
information and disclosed that information to CMG Information Services,
Inc., describing such consumer's options as stated in Part VI.C and the
manner in which (s)he may exercise them.
B. Respondent shall provide a clear and prominent notice to the parent of
each child from whom it collected personal identifying information prior to
May 20, 1998, describing the parent's options as stated in Part VI.C and
the manner in which (s)he may exercise them.
C. Respondent shall provide the notice within thirty (30) days after the
date of service of this order by e-mail, postal mail, or facsimile. Notice
to the parent of a child may be to the e-mail address of the parent and, if
not known by respondent, to the e-mail address of the child. The notice
shall include the following information:
1. the information that was collected (e.g., "name," "home address,"
"e-mail address," "age," "interests"); its use(s) and/or intended
use(s); and the third parties to whom it was or will be disclosed
(e.g., "advertisers of consumer products," "mailing list companies,"
"the general public") and with respect to children, that the child's
personal identifying information may have been made public through
various means, such as by publicly posting on the child's personal home
page or disclosure by the child through the use of an e-mail account;
2. the consumer's and childs parents right to obtain access to such
information and the means by which (s)he may do so;
3. the consumer's and childs parent's right to have the information
removed from respondent's or a third party's databases and the means by
which (s)he may do so;
4. a statement that childrens information will not be disclosed to
third parties, including public posting, without express parental
consent to the disclosure or public posting;
5. the means by which express parental consent may be communicated to
the respondent permitting disclosure to third parties of a child's
information; and
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6. a statement that the failure of a consumer over the age of twelve
(12) to request removal of the information from respondent's databases
will be deemed as approval to its continued retention and/or disclosure
to third parties by respondent.
D. Respondent shall provide to consumers, including the parents of
children, a reasonable and secure means to request access to or directly
access their or their childrens personal identifying information. Such
means may include direct access through password protected personal
profile, return e-mail bearing an electronically verifiable signature,
postal mail, or facsimile.
E. Respondent shall provide to consumers, including the parents of
children, a reasonable means to request removal of their or their childrens
personal identifying information from respondent's and/or the applicable
third party's databases or an assurance that such information has been
removed. Such means may include e-mail, postal mail, or facsimile.
F. The failure of a consumer over the age of twelve (12) to request the
actions specified above within twenty (20) days after his/her receipt of
the notice required in Part VI.A shall be deemed to be consent to the
information's continued retention and use by respondent and any third
party.
G. Respondent shall provide to the parent of a child a reasonable means to
communicate express parental consent to the retention and/or disclosure to
third parties of his/her child's personal identifying information.
Respondent shall not use any such information or disclose it to any third
party unless and until it receives express parental consent.
H. If, in response to the notice required in Part VI.A, respondent has
received a request by a consumer over the age of twelve (12) that
respondent should remove from its databases the consumer's personal
identifying information or has not received the express consent of a parent
of a child to the continued retention and/or disclosure to third parties of
a child's personal identifying information by respondent within twenty (20)
days after the parent's receipt of the notice required in Part VI.B,
respondent shall within ten (10) days:
1. Discontinue its retention and/or disclosure to third parties of such
information, including but not limited to (a) removing from its
databases all such information, (b) removing all personal home pages
created by the child, and (c) terminating all e-mail accounts for the
child; and
2. Contact all third parties to whom respondent has disclosed the
information, requesting that they discontinue using or disclosing that
information to other third parties, and remove the information from
their databases.
With respect to any consumer over the age of twelve (12) or any parent
of a child who has consented to respondent's continued retention and
use of personal identifying information pursuant to this Part, such
consumer's or parent's continuing right to obtain access to his/her or
a child's personal identifying information or removal of such
information from respondent's databases shall be as specified in the
notice required by Part IV of this order.
I. Within thirty (30) days after the date of service of this order,
respondent shall obtain from a responsible official of each third party to
whom it has disclosed personal identifying information and from each
GeoCities Community Leader a statement stating that (s)he has been advised
of the terms of this order and of respondent's obligations under this Part,
and that (s)he agrees, upon notification from respondent, to discontinue
using or disclosing a consumer's or child's personal identifying
information to other third parties and to remove any such information from
its databases.
J. As may be permitted by law, respondent shall cease to do business with
any third party that fails within thirty (30) days of the date of service
of this order to provide the statement set forth in Part VI.I or whom
respondent knows or has reason to know has failed at any time to (a)
discontinue using or disclosing a child's personal identifying information
to other third parties, or (b) remove any such information from their
databases. With respect to any GeoCities Community Leader, the respondent
shall cease the Community Leader status of any person who fails to provide
the statement set forth in Part VI.I or whom
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respondent knows or has reason to know has failed at any time to (a)
discontinue using or disclosing a child's personal identifying information
to other third parties, or (b) remove any such information from their
databases.
FOR PURPOSES OF THIS PART: "third party(ies)" shall mean each GeoCities
Community Leader, CMG Information Services, Inc., Surplus Software, Inc.
(Surplus Direct/Egghead Computer), Sage Enterprises, Inc. (GeoPlanet/Planetall),
Netopia, Inc. (Netopia), and InfoBeat/Mercury Mail (InfoBeat).
VIII.
IT IS FURTHER ORDERED that for the purposes of this order, respondent shall not
be required to remove personal identifying information from its archived
database if such information is retained solely for the purposes of Web site
system maintenance, computer file back-up, to block a child's attempt to
register with or otherwise provide personal identifying information to
respondent without express parental consent, or to respond to requests for such
information from law enforcement agencies or pursuant to judicial process.
Except as necessary to respond to requests from law enforcement agencies or
pursuant to judicial process, respondent shall not disclose to any third party
any information retained in its archived database. In any notice required by
this order, respondent shall include information, clearly and prominently, about
its policies for retaining information in its archived database.
IX.
IT IS FURTHER ORDERED that for five (5) years after the date of this order,
respondent GeoCities, and its successors and assigns, shall place a clear and
prominent hyperlink within its privacy statement which states as follows in bold
typeface:
NOTICE: CLICK HERE FOR IMPORTANT INFORMATION ABOUT SAFE SURFING FROM THE FEDERAL
TRADE COMMISSION.
The hyperlink shall directly link to a hyperlink/URL to be provided to
respondent by the Commission. The Commission may change the hyperlink/URL upon
thirty (30) days prior written notice to respondent.
X.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall maintain and upon request make available to the Federal Trade Commission
for inspection and copying the following:
A. For five (5) years after the last date of dissemination of a notice
required by this order, a print or electronic copy in HTML format of all
documents relating to compliance with Parts IV through VIII of this order,
including, but not limited to, a sample copy of every information
collection form, Web page, screen, or document containing any
representation regarding respondent's information collection and use
practices, the notice required by Parts IV through VI, any communication to
third parties required by Part VI, and every Web page or screen linking to
the Federal Trade Commission Web site. Each Web page copy shall be
accompanied by the URL of the Web page where the material was posted
online. Electronic copies shall include all text and graphics files, audio
scripts, and other computer files used in presenting information on the
World Wide Web; and
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PROVIDED THAT, after creation of any Web page or screen in compliance with this
order, respondent shall not be required to retain a print or electronic copy of
any amended Web page or screen to the extent that the amendment does not affect
respondent's compliance obligations under this order.
B. For five (5) years after the last collection of personal identifying
information from a child, all materials evidencing the express parental
consent given to respondent.
XI.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall deliver a copy of this order to all current and future principals,
officers, directors, and managers, and to all current and future employees,
agents, and representatives having responsibilities with respect to the subject
matter of this order. Respondent shall deliver this order to current personnel
within thirty (30) days after the date of service of this order, and to future
personnel within thirty (30) days after the person assumes such position or
responsibilities.
XII.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall establish an "information practices training program" for any employee or
GeoCities Community Leader engaged in the collection or disclosure to third
parties of consumers' personal identifying information. The program shall
include training about respondent's privacy policies, information security
procedures, and disciplinary procedures for violations of its privacy policies.
Respondent shall provide each such current employee and GeoCities Community
Leader with information practices training materials within thirty (30) days
after the date of service of this order, and each such future employee or
GeoCities Community Leader such materials and training within thirty (30) days
after (s)he assumes his/her position or responsibilities.
XIII.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall notify the Commission at least thirty (30) days prior to any change in the
corporation that may affect compliance obligations arising under this order,
including, but not limited to, a dissolution, assignment, sale, merger, or other
action that would result in the emergence of a successor corporation; the
creation or dissolution of a subsidiary, parent, or affiliate that engages in
any acts or practices subject to this order; the proposed filing of a bankruptcy
petition; or a change in the corporate name or address. PROVIDED, HOWEVER, that,
with respect to any proposed change in the corporation about which respondent
learns less than thirty (30) days prior to the date such action is to take
place, respondent shall notify the Commission as soon as is practicable after
obtaining such knowledge. All notices required by this Part shall be sent by
certified mail to the Associate Director, Division of Enforcement, Bureau of
Consumer Protection, Federal Trade Commission, Washington, D.C. 20580.
XIV.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall, within sixty (60) days after service of this order, and at such other
times as the Federal Trade
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<PAGE> 48
EXECUTION COPY CONFIDENTIAL
Commission may require, file with the Commission a report, in writing, setting
forth in detail the manner and form in which they have complied with this order.
XV.
This order will terminate on February 5, 2019, or twenty (20) years from the
most recent date that the United States or the Federal Trade Commission files a
complaint (with or without an accompanying consent decree) in federal court
alleging any violation of the order, whichever comes later; PROVIDED, HOWEVER,
that the filing of such a complaint will not affect the duration of:
A. Any Part in this order that terminates in less than twenty (20) years;
B. This order's application to any respondent that is not named as a
defendant in such complaint; and
C. This order if such complaint is filed after the order has terminated
pursuant to this Part.
PROVIDED, FURTHER, that if such complaint is dismissed or a federal court rules
that the respondent did not violate any provision of the order, and the
dismissal or ruling is either not appealed or upheld on appeal, then the order
will terminate according to this Part as though the complaint had never been
filed, except that the order will not terminate between the date such complaint
is filed and the later of the deadline for appealing such dismissal or ruling
and the date such dismissal or ruling is upheld on appeal.
By the Commission.
Donald S. Clark
Secretary
ISSUED: February 5, 1999
SEAL
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<PAGE> 1
Exhibit 10.11
ELECTRONIC PUBLISHING DEVELOPMENT AGREEMENT
This Electronic Publishing Development Agreement (this "Agreement"), is
made as of February 26, 1998 (the "Effective Date"), by and among American
Greetings Corporation, an Ohio corporation ("AG"), AGC, Inc., an Ohio
corporation ("AGC" and, together with AG, the "AG Parties"), and Mindscape, Inc.
a Delaware corporation ("Mindscape"). Except where the context otherwise
requires, the term "AG Parties" is to be read as if it was a single party to
this Agreement.
Background
A. Mindscape is in the business of developing, marketing, publishing and
distributing computer software applications; and
B. The AG Parties are in the business of development, marketing, publishing
and distributing social expression products; and
C. The parties' objective is to use their respective strengths and work
together to produce several American Greetings/Mindscape co-branded
software products.
Agreements
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows (capitalized terms herein not otherwise defined being used as defined in
Section 9):
1. PRODUCT DEVELOPMENT AND MARKETING.
1.1. OVERVIEW. Subject to the terms and conditions hereof, the parties
agree to cooperate with the goal of developing, marketing, publishing
and selling co-branded personal computer software and content pack
products in the Full Feature Print Creativity Category and in various
user and feature focused subcategories thereof, and in the Greeting
Card Category. In addition to marketing through traditional channels,
the parties agree to work together to develop an online distribution
strategy for the products sold hereunder. The categories of products
to be developed and published and the intended time table for product
introductions is set forth on Exhibit A hereto.
1.2. MINDSCAPE ROLE.
1.2.1. Mindscape shall publish the Approved Products and shall carry
out the manufacturing, distribution, software development,
product design, marketing, and sales for all Approved Products
(except for marketing and sales through AG Channels).
1.2.2. Mindscape agrees to pursue an aggressive marketing strategy
with respect to Unlockable Content Packs. Mindscape shall
include Unlockable Content Packs on all Approved Products sold
by Mindscape, and as
<PAGE> 2
mutually agreed on approved versions of PrintMaster and other
Mindscape product CD's.
1.3. AG ROLE.
1.3.1. AG shall provide content and marketing expertise, digitized
artwork and content (including the licensing to Mindscape as
provided hereafter of certain proprietary copyrighted material
and Trademarks) as may be agreed among the parties for all
Approved Products developed hereunder.
1.3.2. The AG Parties shall be permitted (but not required) to
purchase Approved Products for marketing and sale through AG
Channels.
1.4. PRODUCT DEVELOPMENT OVERVIEWS.
1.4.1. For each Listed Product to be developed hereunder, Mindscape shall
prepare a development plan overview (the "Product Development
Overview") in consultation with the AG Parties identifying, in
reasonable detail: a specification of all product features, systems
requirements, content specifications, resource allocations, the
development schedule (detailing milestones from project launch at least
to product launch), content deliverable schedules and the tasks and
resources generally required of each party. Except as otherwise agreed
by the parties, each Product Development Overview shall be consistent
with the overall timeline set forth on Exhibit A.
1.4.2. The Product Development Overview shall also identify one or more
individuals from each party to serve as Product Development Manager for
each party to serve as the primary point of contact and coordination
between the parties with respect to any Listed Product. Each party may
change its designation upon notice to the other.
1.4.3. Each Product Development Overview shall be at a level of detail that
provides overall project guidance and a timeline for major milestones.
It shall not be required to detail project tasks comprehensively and
shall not limit operational or implementation flexibility. The Product
Development Overview shall be a summary of, but shall not necessarily
contain all the detail of, the operational product development plan.
1.4.4. Each Product Development Overview shall be in writing and signed by the
parties hereto. When a Product Development Overview is signed by the
parties it shall become a part of this Agreement and the parties shall
timely carry out their respective obligations under the Product
Development Overview in accordance with its terms and the terms of this
Agreement. No Product Development Overview shall be deemed to amend or
modify any contrary term herein unless specific reference to this
Section 1.4.4 is made therein and specifically agreed to (by initialing
or other reasonable means) by duly authorized officers of the parties
hereto.
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<PAGE> 3
1.4.5. Prior to marketing any Listed Product resulting from
the activities under a Product Development Overview,
each party shall each have the right to review and
approve relevant materials in connection with each
Listed Product. The AG Parties shall be entitled to
review and approve the following: (i) at the alpha
stage:[
], (ii) at
the beta stage:[
] and
(iii) at or before product launch, the final
implementation of the foregoing items. Subject to the
provisions of paragraph 10.14, the parties shall each
use commercially reasonable efforts to provide the
other with approval within ten (10) business days of
the date it receives a request for approval, but no
public announcement, marketing or sales shall be made
until such final approval is given and the form and
content of any announcement is mutually agreed upon
by the parties. Upon approval by both parties hereto
of all materials for a Listed Product, the Listed
Product shall be considered an Approved Product. Any
subsequent non-trivial changes or additions to
materials approved for an Approved Product shall
require the further approval of both parties.
1.5. TERMS OF END-USER SALES.
1.5.1. The parties shall cooperate in good faith to
establish an End User License Agreement ("EULA")
incorporating reasonable terms, conditions and
procedures on which Approved Products may be sold so
as to protect the Intellectual Property rights and
commercial interests of the parties hereto, which
terms, conditions and procedures may limit the means
by which Approved Products are "sold" so that such
products are intended to be licensed rather than
sold. Neither party shall sell or otherwise
distribute Approved Products other than by means
reasonably calculated to make the EULA effective and
references herein to "sales" of Approved Products
shall refer to such transactions.
2. EXCLUSIVITY.
2.1. GENERAL NON-EXCLUSIVITY. Except as specifically set forth in
this Section 2, this Agreement and the rights granted herein
shall be non-exclusive and neither party shall be restricted
in any way from developing, marketing or selling any product
or service.[
]
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<PAGE> 4
2.2. SPECIFIC EXCLUSIVE RIGHTS.
[
]
2.3. END OF EXCLUSIVITY. Notwithstanding Section 2.2, the
AG Parties may market, sell, license Creative Content
for and otherwise distribute a product in the
categories listed on Exhibit A if
2.3.1. in the case of Listed Products in any category, (i) a Product
Development Overview has been agreed to for a Listed Product
in a category and
4
<PAGE> 5
(ii) sales of an Approved Product in such category
have not commenced within [ ] after the launch
date specified on Exhibit A; or
2.3.2. in the case of Listed Products in the [
], an Approved Product has been in existence
for at least [ ] and such Listed Product is not
within the top [ ] products in the United States
marketplace in its category as reported by [
]; or
2.3.3. in the case of Listed Products in categories other
than the [ ], (i) either (x) sales
of an Approved Product in such category have not
commenced or (y) sales of an Approved Product in such
category have commenced, but an updated version of
such Approved Product has not begun selling for the
current Fiscal Year and (ii) Mindscape commences
sales of a Listed Product in such category that is
not an Approved Product; or
2.3.4. in the case of a Listed Product in any category that
is principally designed for use in one of the
languages listed on Exhibit B, sales of an Approved
Product have not commenced within [ ] of the
commencement of sales of an Approved Product in that
category that is principally designed for use in the
English language.
[
]
3. PAYMENTS, REVENUE SHARE, GUARANTEES.
3.1. OVERALL GUARANTY. The overall minimum royalties payable by
Mindscape hereunder shall be [
]
3.2. INITIAL LICENSE FEE. On the date hereof, Mindscape shall pay
AGC a single nonrefundable trademark licensing fee of [
]. This fee shall not be creditable
against any other minimum payments due hereunder.
3.3. ROYALTIES.
3.3.1. ROYALTY RATES. Mindscape shall pay the following
royalties to AGC with respect to all sales of
Approved Products (including, without limitation,
products sold to AG):
i. [ ]% of the wholesale price received less
returns, credits, allowances, discounts and
rebates, before any reduction of direct
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<PAGE> 6
Coat of Goods Sold, on all Approved Products sold direct to
retail at a suggested retail price of $[ ] and above;
ii. [ ]% of the wholesale price received less returns, credits,
allowances, discounts and rebates, after reduction for the
direct Cost of Goods Sold on all Approved Products sold direct
to retail at a suggested retail price under $[ ];
iii. [ ]% of the direct to consumer price received less returns,
credits, allowances, discounts and rebates, after Direct Cost
of Goods Sold on all Approved Products sold direct to
consumers by mail and/or electronic fulfillment;
iv. [ ]% of the direct to consumer price received less returns,
credits, allowances, discounts and rebates, after Direct Cost
of Goods Sold on Unlockable Content Packs;
v. [ ]% of net revenues received from distribution of products
that are OEM Versions of Approved Products, except as follows:
vi. in the case of any OEM Version of the [ ] that
contains any content provided by the AG Parties, [ ]% of net
revenues; and
vii. in the case of an OEM Version produced for [
] a
percentage of net revenues as mutually agreed in good faith
but in no event less than [ ]%; and
viii. [ ] for each unit of [ ] that is sold containing AG
Content;
3.3.2. ADVANCES AND MINIMUMS. For each product category listed on Exhibit C,
Mindscape shall pay AGC the amounts set forth with respect to such
product category set forth on such Exhibit. Such minimum payments for
products in the [ ] shall be required in the
specified Fiscal Year, whether or not a Product Development Overview or
Approved Product is produced for such category in such Fiscal Year.
Minimums shall be reviewed as provided in Section 3.3.5. Minimum
payments shall be made for each product category in [
] due as follows:
i. Upon agreement to the Product Development Overview for such
product;
ii. Upon final approval of the Approved Product;
iii. Upon first shipment of the Approved Product; and
iv. [ ] after first shipment of the Approved
Product;
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<PAGE> 7
provided, however, that, subject to Section 3.3.5, the full amount of
the minimum payments due for any Fiscal Year shall, if not previously
paid, be due and payable on the first business day of the last full
calendar week of that Fiscal Year.
3.3.3. MINIMUM INCREASES. Effective upon the approval, pursuant to Section
1.4.5 of an Approved Product principally designed for a language listed
on Exhibit B, the minimum royalty hereunder for that Approved Product's
category may be increased or decreased based on the parties' respective
expenses incurred in producing such version, as is mutually agreed.
3.3.4. REPORTING AND PAYMENT. Unless otherwise agreed in writing, Mindscape
shall provide to AGC, within [ ] days after the close of each
calendar [ ], commencing after the first full calendar [ ]
after the Effective Date, a written report of royalties accrued during
the prior [ ] for each product category hereunder, any amounts
advanced pursuant to Section 3.3.2 against such royalties and the net
amount of royalties owed. Payment of such net amount shall be made
within [ ] days of the end of the quarter. Mindscape shall have
the right to withhold [ ] of royalties payable for each
calendar quarter as a reserve against refunds, returns and other
credits as provided above. This reserve shall be reconciled and the
following quarterly report In addition, Mindscape shall also provide
AGC with a monthly report within 5 days of the end of each month of
estimated product shipped within such month.
3.3.5. CROSS-APPLICATION OF ADVANCES AND MINIMUMS.
i. Royalties in excess of the minimums payable for any Approved
Product within any category [
] may be applied against the advances and minimums
paid in any other category [
] (such other category referred to as the "Shortfall
Category") so long as either (i) an Approved Product in the
Shortfall Category has commenced shipping and, if applicable,
has been updated to the current Fiscal Year or (ii) any delay
in the development of an Approved Product in the Shortfall
Category was due to action or inaction by AG or (iii) AG
consents.
ii. Each Fiscal Year, no later than March 31, the parties shall
meet and confer regarding the requirements of Section 3.3.2
and the categories in which it is advisable to develop and
launch Approved Products. In the event that market conditions
in certain categories and/or product development delays have
adversely affected royalties hereunder for that Fiscal Year,
then the minimums for that Fiscal Year may be deferred into
the next Fiscal Year to the extent mutually agreed, provided
that in no event shall any deferral of minimums extend beyond
the Term.
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<PAGE> 8
3.3.6. BUNDLE ALLOCATION. Mindscape shall not sell or otherwise
distribute Approved Products together with other products as a
single-priced bundle (a "Bundle") without the prior written
approval of the AG. [
]
3.4. RECORDS AND INSPECTION RIGHTS. Mindscape shall keep and maintain proper
records and books of account relating to Mindscape's marketing and
sales of all products containing AG Content and the accounting of
royalties hereunder. AG may inspect such records to verify rendered
statements but not more than once in any 12 month period. Any such
inspection will be conducted after reasonable notice of at least 10
business days and during regular business hours at Mindscape's offices
in a manner that does not unreasonably interfere with Mindscape's
business activities. Such inspection shall be at AG's cost and expense;
provided, however, if the audit reveals overdue payments in excess of
[ ] of the payments owed to date, Mindscape shall pay the
reasonable cost of such audit.
3.5. SALES TO AG.
3.5.1. Mindscape shall sell up to [ ] copies of each Approved
Product to AG at a price not exceeding that product's Direct
Cost of Goods Sold for promotional purposes only and not for
resale. Such purchases shall not be eligible for a royalty. In
addition, Mindscape shall supply AG with at least [ ] free
copies of each Approved Product upon first shipment of each.
3.5.2. Mindscape shall sell to AG or to its foreign licensees such
quantity as AG requests of Approved Product for resale by AG
through AG Channels at a price [
]
3.6. CERTAIN CREDITS. Mindscape shall be entitled to a credit against
royalties otherwise becoming due hereunder in excess of the Threshold
Amount for a Fiscal Year up to a maximum of $[ ] per Fiscal Year
commencing in the [ ] year of the term hereof, up to an aggregate
maximum of $[ ]. The "Threshold Amount" for a Fiscal Year is the
aggregate minimum payments required by Section 3.3.2 and Exhibit C for
that Fiscal Year for each Listed Product other than the Listed Product
in the [ ] and [
] categories (as such categories are
described on Exhibit A); provided that if there is an Approved Product
in either or both of such categories then the Threshold Amount shall
also include the minimum payments
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<PAGE> 9
required by Section 3.3.2 and Exhibit C for that Fiscal Year
for either or both such categories.
4. TERM AND TERMINATION.
4.1. TERM. The Term of this agreement ("Term") shall be from
February 1, 1998 to [ ], subject to extension as
provided below.
4.2. RENEWAL BY MINDSCAPE.
4.2.1. Mindscape may, by written notice to AG prior to the
expiration of the Term, extend the Term to [
] if the total royalty payments to AG pursuant
to Section 3.3 for periods prior to [ ]
exceed $[ ], and for the twelve month period
ending [ ], exceed $[ ].
4.2.2. Mindscape may, by written notice to AG prior to the
expiration of the Term, extend the Term of this
agreement to [ ] if the total royalty
payments to AG pursuant to Section 3.3 for periods
prior to [ ] exceed $[ ], and
for the twelve month period ending [ ],
exceed $[ ].
4.3. JOINT RENEWAL. The Term may also be extended by the mutual
written agreement of the parties.
4.4. TERMINATION.
4.4.1. Either party may terminate this Agreement if the
other fails to perform any material term or condition
of this Agreement and such failure continues for a
period of [ ] following receipt of
written notice ("Breach Notice") thereof by the
breaching party; provided, however, that if the
breach is not susceptible of cure within such [
] period termination shall be effective upon notice
or such later date as is provided in the notice,
except as provided in the next sentence. If the
breach is a "Channel Breach" then cure will be deemed
effective if the party in breach (i) has diligently
commenced to cure in good faith and continues
thereafter to pursue such cure diligently (ii)
effects a cure within [ ] of receipt of the
Breach Notice. A "Channel Breach" is a breach
consisting solely of a matter which may be cured only
by replacement of Approved Product already delivered
to distributors.
4.4.2. Either party may terminate this Agreement immediately
if (1) the other commences a voluntary case or other
proceeding under any bankruptcy or insolvency law, or
seeks the appointment of a trustee, receiver,
liquidation, custodian or similar official of all or
any substantial part of its property, or (2) an
involuntary case or other proceeding under any
bankruptcy or insolvency law seeking the appointment
of a trustee, receiver, liquidator, custodian, or
similar official for all or any substantial part of
the other party's property, is commenced against the
other party, and the other party consents to any
relief requested, or such proceeding is not stayed or
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<PAGE> 10
discharged within [ ] days, or (3) the other
party makes a general assignment for the benefit of
creditors or fails generally to pay its debts as they
become due.
4.4.3. Either party may terminate this Agreement upon [
] written notice in the event of a change in
control of the other party [
]. In the event of any
such termination by the AG parties, Mindscape will be
entitled to be reimbursed in the full amount of any
unrecouped advances paid to the AG Parties pursuant
to Section 3.3.2(i) and (ii) with respect to Approved
Products that have not yet been shipped.
4.5. POST TERMINATION SALES. Upon termination or expiration of this
Agreement by either party, either party shall have, for a
period of [ ] months, the right to sell, subject to the
royalties provided for herein, all of the unsold Approved
Products in such party's inventory as of the date of
termination up to the Permitted Quantity of each Approved
Product; provided, however, that prior to disposing of such
unsold Approved Products, each party shall give the other an
itemized statement of all such unsold Approved Products. The
"Permitted Quantity" of an Approved Product shall be [
] of the quantity of that Approved Product sold by that
party during the [ ] calendar months immediately preceding
the date of termination.
4.6. SURVIVAL. Sections 4, 6.1.1(v), 6.1.2(iii), 6.1.3, 6.1.4, 6.3,
7 and 8 shall survive the termination or expiration of this
Agreement.
5. PRODUCT TRANSITION.
1. LIMITATIONS PRIOR TO SEPTEMBER 1, 1999. Notwithstanding
anything to the contrary herein, the parties agree that in no
event will they incorporate any AG Intellectual Property into
any computer software product designed and marketed primarily
for the in-home printing of Social Expression Products in the
English or Japanese languages prior to September 1, 1999.
2. SALES OF THIRD PARTY INVENTORY. The AG Parties further agree
that, should any third party royalties paid to the AG Parties
with respect to the sale of unsold inventories of now existing
American Greetings branded software products in the Greeting
Card Category exceed $[ ] for the [ ] month period
commencing [ ], then the minimum royalty payment
for such category for such period, as set forth on Exhibit C
shall be deemed reduced for the Fiscal Year ending [
] by the amount of such excess, but not exceeding a
total reduction of $[ ].
5.3. REGISTRATION DATABASE. To the extent that the AG Parties are
legally able to do so, it shall give Mindscape reasonable
access to its database of customer names which
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<PAGE> 11
has been accumulated from software registration of the
CreataCard series of products.
6. PROPRIETARY RIGHTS.
6.1. LICENSING AND OWNERSHIP.
6.1.1. AG GRANT OF RIGHTS.
i. AGC grants Mindscape a license under the AG
Copyrights to copy and distribute the AG Delivered
Content during the Term solely in Approved Products
in the form and in accordance with the marketing
plans approved by AG pursuant to the applicable
Product Development Overview and Section 1.4.5.
ii. AGC grants Mindscape a license under the AG
Trademarks to use the AG Trademarks during the Term
on the packaging, documentation and promotional
materials used in conjunction with and to identify
Approved Products, such Trademarks to be used in the
form and in accordance with the marketing plans
approved by AG pursuant to the applicable Product
Development Overview and Section 1.4.5.
iii. The foregoing licenses shall be exclusive to the
extent (but only to the extent) so provided in
Article 2 hereof.
iv. Pursuant to the license granted in clause (i) above,
but subject to the approval, royalty and other
requirements of this Agreement, during the Term,
Mindscape may: (a) incorporate the AG Delivered
Content into the Approved Products; (b) edit or
otherwise modify the AG Delivered Content and create
derivative works of the AG Delivered Content for
solely for inclusion in Approved Products; (c)
prepare translations and conversions of the Approved
Products, solely to the extent such translations and
conversions constitute Approved Products; (d)
reproduce the Approved Products; (e) sell, marker,
distribute for rental, and otherwise distribute the
Approved Products; and (f) publicly display and
perform the Approved Products incidental to the
promotion and sale of the Approved Products.
v. Mindscape acknowledges that nothing herein shall give
to Mindscape any right, title or interest in any AG
Intellectual Property (including any modifications,
translations, transformations or other derivative
works thereof) except the rights specifically granted
in this Article 6; and that any and all goodwill
generated by use of the AG Trademarks shall inure to
the benefit of AG.
vi. The rights granted Mindscape under this Article 6
shall include the right to sublicense these rights to
third parties in connection with the localization and
distribution of foreign language versions of any
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<PAGE> 12
Approved Product and for the distribution of any Approved
Product through the OEM channel, subject to the approval
rights of the AG Parties contained in this Agreement and
provided that such third parties agree to adhere to the rights
and obligations imposed on Mindscape hereunder with respect to
the protection of AGC's Intellectual Property rights.
6.1.2. MINDSCAPE GRANT OF RIGHTS.
i. Mindscape grants the AG Parties a license to use and
distribute the Approved Products.
ii. Pursuant to the license granted in clause (i) above, the AG
Parties may; (a) sell, market, distribute for rental, and
otherwise distribute the Approved Products; and (b) publicly
display and perform the Approved Products incidental to the
promotion and sale of the Approved Products.
iii. AG acknowledges that nothing herein shall give to the AG
Parties any right, title or interest in any Mindscape
Intellectual Property (including any modifications,
translations, transformations or other derivative works
thereof) except the rights specifically granted in this
Article 6 and except to the extent that any AG Intellectual
Property is incorporated therein.
6.1.3. DEVELOPMENTS. To the extent there is developed, conceived, invented or
otherwise created any new Intellectual Property as a result of
activities hereunder involving material participation by both parties
hereto:
i. to the extent it (i) consists of a [
] or (ii)
otherwise constitutes [ ], then, to such extent,
such Intellectual Property shall be the property of and is
hereby assigned to [ ]; and
ii. to the extent it consists of [
]
then to such extent, such Intellectual Property shall be the
property of and is hereby assigned to [ ], and
iii. to the extent it consists of any other Intellectual Property,
other than [ ] rights
therein, to such extent, such Intellectual Property shall be
the property of and is hereby assigned to [ ], subject
to a fully paid, perpetual, assignable (but only to any
current or future Affiliate of [ ]) license, with the right to
sublicense (other than to a [ ]),
which is hereby granted to the [ ] to use, copy,
modify, display and perform such Intellectual Property and to
make, have made, use, sell and import any invention,
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<PAGE> 13
product or process embodied in such Intellectual Property,
provided that such license may be exercised only in connection
with the [
]; and
iv. to the extent it consists of product names and the
Intellectual Property rights therein ("Names"), to such
extent, such Intellectual Property shall be the [
] and is hereby assigned to [
], but subject to the following:
a. [
]
b. [
]
c. [
]
6.1.4. RESTRICTIONS ON TRADEMARK USE. Neither party shall take any
action that would undermine, conflict with or be contrary to
the other's rights and interest in its Trademarks. Each parry
acknowledges the other's exclusive ownership of such other's
Trademarks, and this Agreement does not grant either party any
right, title or interest in or to the other's Trademarks other
than the license granted herein. Each party shall have the
right to control the nature and quality of the Approved
Products, as well as all packaging, display, promotional and
advertising materials that bear such party's Trademarks
pursuant to the terms of the applicable Product Development
Overview. Pursuant to such tight, any materials developed by
either party that use the other's Trademarks shall be subject
to the prior written approval of the panty owning the
Trademarks. The Approved Products and all packaging,
advertising and promotional materials, including on-line and
other screen displays, shall include such copyright, trademark
and other intellectual property notices as are specified by
the parties to each other. Mindscape shall manufacture, have
manufactured, package, label, sell, distribute, advertise and
promote the Approved Products in conformity with AG's
reasonable marketing guidelines and practices as set forth in
Exhibit D, as modified by AG from time to time with written
notice
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<PAGE> 14
to and approval of Mindscape (such approval not to be
unreasonably withheld) and in accordance with all applicable
laws and regulations.
6.2. REGISTRATION INFORMATION. All product registration information (names,
addresses, e-mail address) from all Approved Products (excluding
PrintMaster and other Mindscape products containing Unlockable Content
Packs, but not excluding products containing an Unlockable Content Pack
that has been unlocked) shall be [
]. Each month during the Term, Mindscape shall deliver a copy
of all such information received the prior month in an electronic
format reasonably requested by the AG Parties.
6.3. CONFIDENTIAL INFORMATION.
6.3.1. Each party agrees that, with respect to Confidential
Information of the other party that it obtains hereunder it
shall:
i. not disclose such Confidential Information
ii. use the same care and discretion to prevent
disclosure of such Confidential Information as it
uses with similar Confidential Information of its own
that it does not desire to disclose, but in no event
with less than a reasonable degree of care;
iii. receive such Confidential Information and use such
Confidential Information only for the purposes and
within the scope of this Agreement; and
iv. restrict disclosure of Confidential Information
solely to its officers, directors, employees and
advisors (collectively, "Representatives") who have a
need to know and agree or are bound not disclose such
Confidential Information to any third parties.
6.3.2. The foregoing restrictions shall not apply to information
that:
i. is or hereafter becomes part of the public domain
through no wrongful act, fault or negligence on the
part of the recipient;
ii. the recipient can reasonably demonstrate, was already
in its possession and not subject to an existing
agreement of confidentiality;
iii. is received from a third party without restriction
and without breach of this Agreement;
iv. was independently developed by the recipient as
evidenced by its records; or
v. recipient is required to disclose pursuant to a valid
order of a court or other governmental body;
provided, however, that the recipient shall first
have given notice to the disclosing party and shall
give the disclosing party a reasonable opportunity to
interpose an objection or obtain a protective order
requiring that the Confidential
14
<PAGE> 15
Information so disclosed be used only for the
purposes for which the order was issued.
6.3.3. All notes, data, reference manuals, sketches, drawings,
memoranda, electronic media and records in any way
incorporating or reflecting any Confidential Information of
the disclosing party and all proprietary rights therein shall
belong exclusively to such disclosing party and the recipient
agrees to return all copies of such materials to the
disclosing party as soon as reasonably practicable upon
request or upon termination or expiration of this Agreement.
6.3.4. Unless required by law or otherwise mutually agreed by the
parties, neither of the parties shall disclose the terms of
this Agreement. Each party may, however, disclose such terms
to its officers, directors, employees, shareholders, outside
counsel and auditors who have a need to know and are advised
of the nondisclosure requirements contained herein, whether or
not they remain employed or affiliated with that party.
7. REPRESENTATIONS AND WARRANTIES.
7.1. RECIPROCAL. Each party represents and warrants that (i) it has
corporate power and authority to enter into and perform this
Agreement; (ii) it is the sole author or authorized licensee
of its intellectual property delivered to the other party
pursuant to this Agreement; (iii) the intellectual property
delivered by it to the other party hereunder does not and will
not infringe or misappropriate any third party proprietary
right.
7.2. MINDSCAPE. Mindscape represents and warrants that the Approved
Products will documentation function in accordance with and
other specifications thereof and will not contain any viruses
or other similar codes that may be reasonably expected to
damage data, software, systems or operations of the users of
such products.
7.3. DISCLAIMERS. EXCEPT AS EXPRESSLY PROVIDED HEREIN, EACH PARTY
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
8. LIABILITY AND INDEMNITY.
8.1 INDEMNIFICATION. Each party ("Indemnifying Party") agrees
that, at its own expense, it shall defend or settle any
action, claim, suit or proceeding ("Claim") brought against
the other or the other's directors, officers, affiliates,
employees or agents (collectively "Indemnified Parties") based
upon the Indemnifying Party's breach or alleged breach of any
representation or warranty contained herein. In addition, the
Indemnifying Party shall indemnify and hold harmless the
Indemnified Parties from and against any and all damages,
liabilities, losses, settlement amounts and any other costs
and expenses (including but not limited to reasonable
attorneys' fees), incurred as a result of any such Claim. The
Indemnified Parties shall provide the Indemnifying Party with
prompt written notification of any Claim,
15
<PAGE> 16
with sole control over the defense, and with reasonable
cooperation in the defense of any such Claim at the
Indemnifying Party's expense.
8.2. LIMITATION ON LIABILITY. NEITHER PARTY SHALL BE LIABLE
HEREUNDER FOR ANY LOSS OF PROFITS, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THE LIABILITY OF EITHER PARTY FOR
ANY CLAIM CONCERNING PERFORMANCE OR NONPERFORMANCE BY THE
OTHER (EXCLUDING CLAIMS FOR PERSONAL INJURY OR BREACH OF
INTELLECTUAL PROPERTY RIGHTS) PURSUANT TO, OR IN ANY WAY
RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT, REGARDLESS
OF THE FORM OF ACTION, WHETHER IN CONTRACT OR IN TORT,
INCLUDING NEGLIGENCE OR STRICT LIABILITY, SHALL BE LIMITED TO
THE GREATER OF (i) 4.25 MILLION DOLLARS OR (ii) THE AGGREGATE
ROYALTIES PAID HEREUNDER OVER THE 12 MONTH PERIOD PRECEDING
THE EVENTS GIVING RISE THE CLAIM.
9. DEFINITIONS.
9.1. "Affiliate" of an entity shall mean any other entity
controlled by, in control of, or under common control with
such first entity.
9.2. "AG Channels" shall mean websites and online stores of the AG
Parties, any AG direct mail programs as may be agreed among
the parties, and in any AG traditional retail in-store
greeting card departments.
9.3. "AG Delivered Content" shall mean the images, text and
characters delivered by AG to Mindscape pursuant to Product
Development Overviews hereunder.
9.4. "AG Trademarks" shall mean the trademarks specifically
identified on Exhibit E hereto.
9.5. "AG Copyrights" shall mean the copyright in AG Delivered
Content.
9.6. "Approved Products" shall mean software products developed
pursuant to a Product Development Overview hereunder and
approved pursuant to Section 1.4.5.
9.7. "Confidential Information" shall mean oral or written
information, of whatever kind and in whatever form, relating
to past, present or future products, software, research,
development, inventions, processes, techniques, designs or
other technical information and data, and marketing plans,
provided that such information has been reasonably identified
as or could be reasonably considered to be proprietary or
confidential, that either party (a) may have received prior to
the date of this Agreement, whether directly from the other or
indirectly from third parties, or (b) may receive hereunder
from the other.
9.8. "Creative Content" shall mean images, text and characters of a
nature similar to any contemplated by the parties to become AG
Delivered Content.
16
<PAGE> 17
9.9. "Direct Cost of Goods Sold" shall mean the direct cost to
source, manufacture (including reasonable manufacturing
overhead and obsolescence), (including royalties paid to third
parties in connection with the licensing of third party
intellectual property). Direct Cost of Goods Sold shall not
include technical support cost, development costs,
advertising, promotion, selling costs, distribution,
warehousing costs, administrative overhead costs or interest.
9.10. "Fiscal Year" shall mean the period commencing March 1 each
calendar year and ending the last day of February the
following calendar year.
9.11. "Full Feature Print Creativity Category" shall mean the
category of personal computer software products that support a
broad range of printable projects for both home and business
use such as the currently existing versions of [
]. Products in this
category may include functionality to produce greeting cards,
but they are not designed and marketed primarily for the
purpose of creating greeting cards.
9.12. "Greeting Card Category" shall mean the category of personal
computer software products that, from both a marketing and
product focus standpoint, feature primarily greeting cards and
related social expression products, such as Micrografx'
CreataCard series, [
].
9.13. "Greeting Card Company" shall mean [
] and any other entity or
business unit of an entity the primary business of which is
the greeting card business.
9.14. "Intellectual Property" shall mean intellectual property of
any kind, including, without limitation, copyrights, patents,
trade secrets and trademarks and any applications or
registrations (as applicable) for the foregoing and any
licenses from third parties for any of the foregoing.
9.15. "Listed Product" shall mean a [ ] in one
of the categories listed on Exhibit A.
9.16. "OEM Versions" shall mean a modified version of a product
developed and sold pursuant to an agreement between AG or
Mindscape and a third party that sells its own product, and
bundled with such product for sale to consumers.
9.17. "Restricted Entity" shall mean any entity listed on Exhibit F
and any Affiliate of such entities.
9.18. "Social Expression Product" shall mean a combination of art
and verse designed to convey sentiment regarding an array of
human interaction and emotion, specifically, (i) a Social
Expression Product that is printed on paper (or similar
substance) and readable by the ultimate recipient without the
use of a computer or (ii) a Social Expression Product which is
to be electronically delivered, i.e., in an electronically
transmitted format, (iii) post cards, (iv) invitations, (y)
announcements, (vi) awards and (vii) certificates.
17
<PAGE> 18
9.19. "Trademark" shall mean any trademark, service mark, trade
name, trade dress, design logo or similar proprietary right.
9.20. "Unlockable Content Pack" shall mean a collection of
theme-specific or occasion- specific Creative Content that is
either (i) sold as a separate product or (ii) embedded within
another product such that the consumer can be charged a
separate fee to obtain access to such content.
10. MISCELLANEOUS.
10.1. AMENDMENT. This Agreement may only be amended by a writing
signed by the authorized representatives of the parties
hereto.
10.2. ASSIGNMENT. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective
transferees, successors and assigns. Either party hereto may
make an assignment of this Agreement or any of its rights or
interests herein. No such assignment shall relieve the
assignor of any obligation hereunder. Notwithstanding the
foregoing, without the prior written consent of AG, which may
be withheld in its sole discretion, Mindscape may not assign
or delegate its rights or obligations hereunder to a
Restricted Entity of if the assignment or delegation can
reasonably be expected to impair Mindscape's performance
hereunder.
10.3. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and
all of which together shall be deemed the same agreement.
10.4. DISPUTE RESOLUTION. Any disputes arising out of or relating to
this Agreement ("Disputes") shall be governed by the following
procedures in the following order until finally resolved:
10.4.1. If a dispute arises out of or relates to this
Agreement, or the breach hereof, within [ ] days of
receipt of written notice of a dispute, the parties
shall attempt in good faith to resolve such dispute
by negotiation among senior executives who have
authority to settle the controversy;
10.4.2. If the dispute cannot be settled through such
negotiations within the [ ] day period set forth
above, the parties agree to try in good faith to
settle the dispute by mediation within [ ] days
immediately following the [ ] day period set forth
above, in the forum of the party against whom a
dispute resolution is sought or claim is made under
the Commercial Mediation Rules of the American
Arbitration Association. For clarification, the forum
shall be Cleveland, Ohio for claims made or
resolutions sought by Mindscape and San Francisco,
California for claims made or resolutions sought by
the AG Parties.
10.4.3. If the dispute cannot be settled by such mediation,
the parties agree to submit the dispute to binding
arbitration in the forum of the party against whom a
dispute resolution is sought or claim is made as
provided above, under the forum state and applicable
Federal law upon receipt of a written
18
<PAGE> 19
demand for arbitration by either of the parties setting forth
the names of the other party or parties. Within [ ] days
after such commencement, each party shall select one person to
act as arbitrator, and the two selected shall select a third
arbitrator within [ ] days of appointment. If the arbitrators
fail to select a third arbitrator, then the American
Arbitration Association shall select the third arbitrator.
Except as otherwise provided herein, the arbitrator shall have
the authority to award any remedy or relief a state or federal
court of the state of the forum could order or grant,
including, without limitation, specific performance, the
awarding of compensatory damages, the issuance of an
injunction and other equitable relief, but excluding any
punitive or consequential damages. If the remedy sought is a
monetary award, each party shall simultaneously, on the
[ ] business day following the commencement of the
arbitration, propose to the arbitrators the amount that party
believes should be awarded, and with respect to compensatory
damages, the arbitrators shall make an award in whichever of
the two amounts they deem most reasonable. The Arbitrators'
decision shall be issued with findings of fact and conclusions
of law and shall be non-appealable. Notwithstanding anything
in this Section 10.4 to the contrary, the losing party in a
dispute hereunder shall pay all reasonable legal fees and
expenses incurred by the prevailing party in connection with
the arbitration.
10.5. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the subject
matter hereof and supersedes all prior contracts, memoranda,
agreements, arrangements, communications and discussions,
whether oral or written.
10.6 FORCE MAJEURE. Neither party shall be liable for any failure
or delay in performing its obligations under this Agreement,
or for any loss or damage resulting therefrom, due to causes
beyond its control (each, a "Force Majeure"), including but
not limited to, acts of God, the public enemy, riots, fires,
natural catastrophes or epidemics. In the event of such
failure or delay, the date of delivery or performance shall be
extended for a period not to exceed the time lost by reason of
the failure or delay; provided that the party affected by such
delay is using reasonable commercial efforts to mitigate or
eliminate the cause of such delay or its effects. Each party
shall notify the other in writing promptly of any failure or
delay in, and the effect on, its performance.
10.7. FURTHER ASSURANCES. The parties each agree to execute and
deliver any appropriate instruments or documents to confirm
the assignments and licenses provided for herein and to enable
the other to perfect the same by filing, registration or
otherwise in any state, territory, or country, as may be
reasonably requested and prepared by such other from time to
time.
10.8. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the substantive laws
of the State of Ohio.
10.9. NOTICES.
19
<PAGE> 20
10.9.1. All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be sent by registered or
certified mail, return receipt requested, postage prepaid, addressed to
the intended recipient as set forth below:
If to Mindscape:
Mindscape, Inc.
88 Rowland Way
Novato, CA 94945
Attention: Executive Vice President Home Products
with a copy to:
Mindscape, Inc.
88 Rowland Way
Novato, CA 94945
Attention: General Counsel
If to the AG Parties (or either of them):
American Greetings Corporation
10500 American Road
Cleveland, Ohio 44144
Attention: Senior Vice President - Electronic Marketing
with a copy to:
American Greetings Corporation
10500 American Road
Cleveland, Ohio 44144
Attention: General Counsel
All notices shall be effective only upon receipt. Any party may send
any notice, request, demand, claim, or other communication hereunder to
the intended recipient at the address set forth above using any other
means (including personal delivery, expedited courier, messenger
service. telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received
by the intended recipient. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other parties notice in the manner
herein set forth.
10.10. PUBLICITY. Neither party shall make any public announcement regarding
the terms or existence of this Agreement without the prior written
consent of the other.
10.11. RELATIONSHIP. This Agreement is not intended by the parties to, and
shall not be deemed to, constitute or create a joint venture, pooling
arrangement, partnership,
20
<PAGE> 21
or other business organization or entity of any kind and the rights and
obligations of the parties shall be only those expressly set forth
herein. Each party shall operate as an independent contractor in the
performance of this Agreement and not as agents or employees of the
other. Each party shall ensure that neither it nor its agents or
employees shall act or hold themselves Out as agents or employees of
the other.
10.12. WAIVERS. No purported waiver by any party of any default by any other
party of any term or provision contained herein shall be deemed to be a
waiver of such term or provision unless the waiver is in writing and
signed by the waiving party. No such waiver shall in any event be
deemed a waiver of any subsequent default under the same or any other
term or provision contained herein.
10.13. APPROVALS: This Agreement requires the parties to secure approval from
each other for various activities. Unless there is a specific provision
to the contrary, it is understood that all responses to requests for
approval shall be made within [ ] business days of receipt of the
request for approval (and all necessary materials for making a
reasonably informed decision) by the party from whom approval is sought
and that approvals shall not be unreasonably withheld. Each party shall
be entitled to learn the reason for a refusal to approve and shall have
a reasonable period of time to meet the objection. Mindscape
understands that if any refusal to approve by the AG parties is because
it believes the material, presentation or use in questions impairs the
Trademarks and goodwill of the AG Parties, the refusal to approve shall
be deemed reasonable. In any such case, the AG Parties agree to specify
the problem and help suggest a solution. When an item is submitted by
one party (the "Sending Party") to the other for approval and no
approval or rejection is received within [ ] business days, the
Sending Party shall notify the other party (the "Receiving Party") by
sending a further written notice that an approval or rejection has not
been received, such notice to be conspicuously labeled "Urgent Legal
Notice," and sent as provided in Section 10.9 by overnight courier,
requiring signature verification of receipt. If the Receiving Party,
after said notification, still does not give approval or rejection
within a further [ ] business days, the item shall be deemed
[ ].
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this agreement as of the date set forth above.
AMERICAN GREETINGS CORPORATION AGC, INC.
By: /s/ John M. Klipfell By: /s/ Dale A. Cable
---------------------------- -------------------------
Name: John M. Klipfell Name: Dale A. Cable
---------------------------- -------------------------
Title: SR VP ELECTRONIC MARKETING Title: TREASURER
---------------------------- -------------------------
MINDSCAPE, INC.
By: /s/ John Moore
----------------------------
Name: John Moore
----------------------------
Title: CEO
----------------------------
22
<PAGE> 23
[
]
<PAGE> 24
Exhibit B
[ ] Languages other than English
[
]
<PAGE> 25
[
]
Page 1
<PAGE> 26
Exhibit 1
[
]
<PAGE> 27
[
]
<PAGE> 28
[
]
<PAGE> 29
[
]
<PAGE> 30
[
]
<PAGE> 31
[
]
<PAGE> 32
[
]
<PAGE> 33
[
]
<PAGE> 34
[
]
<PAGE> 35
[
]
<PAGE> 36
[
]
<PAGE> 37
[
]
<PAGE> 38
[
]
<PAGE> 39
Exhibit E
LICENSED TRADEMARKS
1. American Greetings
2. Carlton Cards
3. CreataCard
4. John Sands
<PAGE> 40
EXHIBIT F
[
]
<PAGE> 41
LICENSED PROPERTIES EXHIBIT G
1. King Features
- Betty Boop
- Popeye
- Berenstain Bears
- Sunday Funnies
- School House Rock
2. Team NFL
- All team logos
- The Quarterback Club
3. National Enquirer
- Banner Front Page
4. Rock Art (Grateful Dead Art)
5. Three Stooges
6. Elvis
7 Major League Baseball (MLB)
- All team logos
8. Duckman
9. Gary Patterson
10. Marvel Comics
- All Marvel Characters
11. Simpsons
12. NBA
13. NHL
14. WWF
15. Nickelodeon
- Rugrats
- Ren & Stimpy
- AAHHA! Real Monsters
16. Scooby Doo
17. The Mask
18. Power Rangers
19. Flintstones
20. Drew Carey
21. Ace Ventura
22. Opus n' Bill
23. Married w/ Children
24. Nintendo
- Super Mario Brothers
- Donkey-Kong
25. The Beatles
26. I Love Lucy
27. Muppets
28. Pink Panther
29. MTV
- Beavis & Butthead
30. United Media
- Dilbert
- Comic Zone
31. South Park
32. Looney Tunes
33. Cartoon Network
34. DC Comics
- Batman
- Superman
35. Star Trek
36. X-Files
<PAGE> 42
Exhibit H
[
]
<PAGE> 43
Draft of June 29, 1998
AMENDMENT NUMBER 1 TO
ELECTRONIC PUBLISHING DEVELOPMENT AGREEMENT
This Amendment Number 1 to Electronic Publishing Development Agreement
(this "Amendment"), is made as of June __, 1998 (the "Effective Date"), by and
among American Greetings Corporation, an Ohio corporation ("AG"), AGC, Inc., an
Ohio corporation ("AGC" and, together with AG, the "AG Parties"), and Mindscape,
Inc. a Delaware corporation ("Mindscape"). Except where the context otherwise
requires, the term "AG Parties" is to be read as if it was a single party to
this Agreement.
Background
A. Mindscape and the AG Parties entered into an Electronic Publishing
Development Agreement on February 25, 1998 (the "Existing Agreement"); and
B. Mindscape and the AG parties now wish to append the same.
Agreements
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows (capitalized terms herein not otherwise defined being used as defined in
the Existing Agreement):
1. AMENDMENTS
The Existing Agreement is amended in the following respects:
1.1 ROYALTY CALCULATION. Section 3.3 is hereby amended by inserting at the
end thereof a Section 3.3.7, as follows:
In determining the amount of royalties due hereunder, rebates to
consumers shall be deemed marketing expenses and, as such, shall not
be applied as a deduction in the calculation of royalties. REBATES TO
RETAILERS OR WHOLESALERS, HOWEVER, SHALL NOT BE AFFECTED BY THE
FOREGOING.
1.2 APPLICATION OF MINIMUM ROYALTY. Section 3.3.5 is hereby amended by
renumbering subparagraphs (i) and (ii) to be (ii) and (iii),
respectively, and inserting a new subparagraph (i) as follows:
Any royalties paid pursuant to Section 3.3.1 in a Fiscal Year with
respect to any product in any product category listed on Exhibit C
shall be applied to reduce the amount of the minimum payments
otherwise applicable pursuant to Section 3.3.2 for that product
category in that Fiscal Year.
1.3 FISCAL YEAR. Section 9.10 is hereby amended in its entirety to read as
follows:
"Fiscal Year" shall mean the period ending the last day of February of
each calendar year and commencing March 1 of the prior calendar year.
Fiscal year 1999, for example, commenced on March 1, 1998 and ends on
February 28, 1999.
<PAGE> 44
1.4. CONFIDENTIALITY. This Amendment shall be deemed part of the
Agreement for purposes of Section 6.3.4 and 10.10 of the Existing
Agreement.
2. MISCELLANEOUS.
2.1. EFFECT OF AMENDMENT. As amended hereby, the Existing Agreement
shall continue in full force and effect in accordance with its
terms.
2.2. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which together shall be deemed the same agreement.
2.3. DISPUTE RESOLUTION. The dispute resolution provisions of the
Existing Agreement shall apply to this Amendment.
2.4. GOVERNING LAW. This Amendment shall be governed by and construed
and enforced in accordance with the substantive laws of the State
of Ohio.
2.5. NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be given in the manner and with the
effect provided in the Existing Agreement.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this agreement as of the date set forth above.
AMERICAN GREETINGS CORPORATION AGC, INCL
By: /s/ John M. Klipfell By: /s/ John M. Klipfell
------------------------------- -------------------------------
Name: John M. Klipfell Name: John M. Klipfell
Title: SR VP - ELECTRONIC MARKETING TITLE: VICE PRESIDENT
MINDSCAPE, INC.
By: /s/ Cynthia Hudson
-------------------------------
Name: -----------------------------
Title: ----------------------------
<PAGE> 45
AMENDMENT NUMBER 2 TO
ELECTRONIC PUBLISHING DEVELOPMENT AGREEMENT
This Amendment Number 2 to Electronic Publishing Development Agreement
(this "Amendment"), is made as of September 3, 1998 (the "Effective Date"), by
and among American Greetings Corporation, an Ohio corporation ("AG"), AGC, Inc.,
an Ohio corporation ("AGC" and, together with AG, the "AG Parties"), and
Mindscape, Inc. a Delaware corporation ("Mindscape"). Except where the context
otherwise requires, the term "AG Parties" is to be read as if it was a single
party to this Amendment.
Background
A. Mindscape and the AG Parties entered into an Electronic Publishing
Development Agreement on February 25. 1998 (as subsequently amended by
Amendment No. 1 thereto, the "Existing Agreement"); and
B. In connection with certain transactions between Mindscape and Micrografx,
Inc. ("Micrografx"). Mindscape and the AG Parties now wish to further amend
the same.
Agreements
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows (capitalized terms herein not otherwise defined being used as
defined in Section 3 hereof):
1. CONDITIONAL AMENDMENTS.
Subject to the terms and conditions of this Agreement, the Existing
Agreement is amended in the following respects:
1.1. ROYALTY CREDIT.
1.1.1 Section 3.3 of the Existing Agreement is hereby
amended by inserting at the end thereof a Section
3.3.8 as follows:
Notwithstanding the foregoing, in the event
that the Transfer Payment is greater than
$[ ], then, solely with respect to the
[ ], the royalty rate
identified in clauses [
] of Section 3.3.1 shall be reduced by[ ]%
([ ]%, rather than [ ]% for clauses[
], and [ ] % rather than [ ]% for
clause [ ]) until such time as the aggregate
amount of such royalty reduction equals the
lesser of: (i)[ ] of the
Transfer Payment or (ii) $[ ]
1.1.2. The following additional definitions are inserted in
Section 9 of the Existing Agreement:
"CreataCard Products" shall mean the
Approved Products that are identified on
part I of Exhibit A to Amendment No. 2 to
this Agreement and any later approved
versions of the same.
<PAGE> 46
"Transfer Payment" shall mean the total cash
payments by Mindscape to Micrografx pursuant
to the agreement referred to in Section 2.1.
of Amendment No. 2 to this Agreement.
1.2. EXCLUSIVITY EXCEPTION. Sections 5.1 of the Existing Agreement
(Limitations prior to September 1, 1999) and 9.18 of the
Existing Agreement (Social Expression Products) are hereby
deleted in their entirety.
1.3. GUARANTY SCHEDULE. Exhibit C of the Existing Agreement
(Guaranty Schedule) is hereby amended by (i) setting all
amounts under the column headed "1999" to zero and (ii)
adjusting the column designated "Total" so as to reflect the
foregoing and be mathematically accurate.
1.4. AGREEMENT SCOPE. For all purposes of the Existing Agreement,
including, without limitation, Section 3.3 thereof, each of
the products listed on Exhibit A hereto (part 1 and part 2)
shall be deemed to be Approved Products under the Existing
Agreement and any Creative Content of the AG Parties embodied
therein shall be deemed to be AG Delivered Content under the
Existing Agreement. Mindscape and AG shall cooperate in good
faith with respect to appropriate approvals of any necessary
collateral materials in accordance with Section 1.4.5 and
10.13 of the Existing Agreement
1.5. TRANSFERRED AGREEMENTS. Immediately upon their assignment to
Mindscape, the Transferred Agreements shall be deemed
terminated and shall be of no further force or effect.
Mindscape and the AG Parties each hereby irrevocably release
and forever waive any claims, actions, causes of action,
remedies, obligations, damages and liabilities of every name
and nature, whether in law or in equity, whether known or
unknown, absolute or contingent arising out of the Transferred
Agreements, including but any limited to any Claim in any way
relating to any breach or alleged breach thereof occurring
prior to the date hereof Mindscape and the AG Parties shall
have no claim or obligation whatsoever to the other under or
with respect to the Transferred Agreements
1.6. CONFIDENTIALITY. This Amendment shall be deemed part of the
Agreement for purposes of Section 6.3.4 and 10.10 of the
Existing Agreement.
1.7. CORRECTION OF TYPOGRAPHICAL ERROR. The reference in Section
1.4.5 of the Existing Agreement to "Section 10.14" is hereby
corrected to refer to Section 10.13.
1.8. UNLOCKABLE CONTENT. Mindscape shall provide reporting of
revenue deriving from unlockable content packs in sufficient
detail for the AG Parties to pay any royalties that must be
paid to their licensors.
1.9. MINDSCAPE AFFILIATE. Learning Company Properties, Inc. an
affiliate of Mindscape, by its execution hereof, agrees to be
subject to all applicable restrictions in the Existing
Agreement, as amended hereby, on the use or other exercise of
rights with respect to AG Copyrights, AG Delivered Content, AG
Trademarks and any other intellectual property of the AG
Parties. Mindscape agrees that any funds received by Learning
Company Properties, Inc. in respect of
<PAGE> 47
Approved Products shall be subject to the royalties provided
in the Existing Agreement.
2. CONDITIONS.
The rights and obligations of the parties hereto shall not be effective
until, and shall be subject to the satisfaction or waiver in writing
of, the following conditions:
2.1. MINDSCAPE/MICROGRAFX AGREEMENT. AG shall have been provided
with and given an opportunity to review the agreement between
Micrografx and Mindscape providing for the assignment of the
Transferred Agreements and shall have been satisfied, in its
sole discretion, with the terms and conditions thereof.
2.2. MICROGRAFX/AG AGREEMENT. AG shall have entered into an
agreement with Micrografx providing the AG Parties' consent to
the assignment to Mindscape of the Transferred Agreements and
AG shall have been satisfied. in its sole discretion, with the
terms and conditions thereof.
provided however, that AG and Mindscape shall use commercially
reasonable efforts to cause such conditions to be satisfied as promptly
as possible.
3. DEFINITIONS.
3.1. "Transferred Agreements" shall mean (i) that certain Master
Agreement between the AG Parties and Micrografx dated February
9, 1996 as amended April 1, 1997: (ii) Subagreement A between
the AG Parties and Micrografx dated February 9, 1996 as
amended April 1, 1997; (iii) Subagreement B between the AG
Parties and Micrografx dated February 9, 1996 as amended April
1, 1997; (iv) Subagreement D between the AG Parties and
Micrografx dated April 1, 1997; (y) Subagreement E between the
AG Panties and Micrografx dated April 1, 1997.
3.2. Capitalized terms used herein without definition are used as
defined in the Existing Agreement.
4. MISCELLANEOUS.
4.1. EFFECT OF AMENDMENT. As amended hereby, the Existing Agreement
shall continue in full force and effect in accordance with its
terms.
4.2. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and
all of which together shall be deemed the same agreement.
4.3. DISPUTE RESOLUTION. The dispute resolution provisions of the
Existing Agreement shall apply to this Amendment.
4.4. GOVERNING LAW. This Amendment shall be governed by and
construed and enforced in accordance with the substantive laws
of the State of Ohio.
4.5. NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be given in the manner and with
the effect provided in the Existing Agreement.
<PAGE> 48
4.6. TERMINATION. This Agreement shall terminate and be of no
further force or effect in the event the assignment of the
Transferred Agreements shall not have occurred by September 4,
1998 at 5 p.m. Eastern Time.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this agreement as of the date set forth above.
AMERICAN GREETINGS CORPORATION AGC, INC.
By: /s/ John M. Klipfell By: /s/ John M. Klipfell
--------------------------------------- -------------------------------
Name: JOHN M. KLIPFELL Name: JOHN M. KLIPFELL
------------------------------------- -----------------------------
Title: Sr VP Electronic Marketing Title: Sr VP Electronic Marketing
------------------------------------ -----------------------------
MINDSCAPE, INC.
By: /s/ R. Scott Murray
--------------------------------------------------------
Name: R. SCOTT MURRAY
------------------------------------------------------
Title: Executive Vice President and Chief Financial Officer
-----------------------------------------------------
as to Section 1.9:
LEARNING COMPANY PROPERTIES, INC.
By: /s/ R. Scott Murray
--------------------------------------------------------
Name: R. SCOTT MURRAY
------------------------------------------------------
Title: Executive Vice President and Chief Financial Officer
-----------------------------------------------------
<PAGE> 49
AMENDMENT NUMBER 4 TO
ELECTRONIC PUBLISHING DEVELOPMENT AGREEMENT
This Amendment Number 4 to Electronic Publishing Development Agreement
(this "Amendment"), is made as of April 12, 1999 (the "Effective Date"), by and
among American Greetings Corporation, an Ohio corporation ("AG"), AGC, Inc., an
Ohio corporation ("AGC" and, together with AG, the "AG Parties"), and Mindscape,
Inc. a Delaware corporation ("Mindscape"). Except where the context otherwise
requires, the term "AG Parties" is to be read as if it was a single party to
this Amendment.
Background
A. Mindscape and the AG Parties entered into an Electronic Publishing
Development Agreement on February 26, 1998 (as subsequently amended by
Amendment No. 1, Amendment No. 2 and Amendment No: 3 thereto, the "Existing
Agreement"); and
B. Mindscape and the AG Parties now wish to further amend the same:
Agreements
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows (capitalized terms herein not otherwise defined being used as defined in
Section 3 hereof):
1. CLARIFICATION OF PAYMENT TIMING. The Existing Agreement is amended in the
following respects:
1.1. In each of clauses i, ii, iii, iv and v of Section 3.3. 1 of the
Existing Agreement, the term "received" is replaced with the term
"invoiced."
1.2 At the end of Section 3.3.1 of the Existing Agreement, the following
is inserted: Mindscape agrees that invoices are issued upon product
shipment and that all amounts required to be paid are reflected in
such invoices.
1.3 In Section 3.3.4 of the Existing Agreement, the figure [
] is replaced with [ ] and the following is
added at the end of the section:
With respect to each [ ], Mindscape shall report and pay
based on product sales that occur in that [ ], without regard
to whether payment for such sales shall have been actually
received by Mindscape, subject to subsequent reconciliation of
refunds, returns and credits as provided in the preceding
sentence.
2. TRANSITION. The parties acknowledge that as of the date hereof, there is an
amount (the "Transition Amount") that would be past due if the timing of
Mindscape's payment obligations were determined in compliance with the
terms of Section 3.3.1 as amended hereby. The AG Parties hereby agree, that
notwithstanding the requirements of the Existing Agreement, as amended
hereby, Mindscape may pay the Transition Amount in [ ] installments
payable on [ ] and July 15, 1999 provided that
Mindscape provides a report of the amount thereof no later than April 30,
1999 such report to be subject to Section 3.4 and the other requirements of
the Existing Agreement.
<PAGE> 50
3. MISCELLANEOUS.
3.1. EFFECT OF AMENDMENT. As amended hereby, the Existing Agreement shall
continue in full force and effect in accordance with its terms.
3.2. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which together
shall be deemed the same agreement.
3.3. DISPUTE RESOLUTION. The dispute resolution provisions of the Existing
Agreement shall apply to this Amendment.
3.4. GOVERNING LAW. This Amendment shall be governed by and construed and
enforced in accordance with the substantive laws of the State of Ohio.
3.5. NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be given in the manner and with the
effect provided in the Existing Agreement; provided, however, that an
additional copy of any notices to Mindscape shall be sent as follows:
The Learning Company
One Athenaeum Street
Cambridge, MA 02142
Attn: Scott Murray, Executive Vice President and Chief Financial
Officer
Attn: General Counsel
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this agreement as of the date set forth above.
AMERICAN GREETINGS CORPORATION AGC, INC.
By: /s/ John M. Klipfell By: /s/ John M. Klipfell
------------------------------ -------------------------------
Name: JOHN M. KLIPFELL Name: JOHN M. KLIPFELL
---------------------------- -----------------------------
Title: SR VP Title: VP
--------------------------- ----------------------------
MINDSCAPE, INC.
By: /s/ John Moore
------------------------------
Name: JOHN MOORE
----------------------------
Title: Pres
---------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Financial
Data", "Selected Financial Data" and "Experts" and to the use of our report
dated July 28, 1999 in the Registration Statement (Form S-1 No. 333-00000) and
related Prospectus of AmericanGreetings.com, Inc. for the registration of its
common stock.
Ernst & Young LLP
Cleveland, Ohio
August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF AMERICAN GREETINGS.COM, INC. FOR THE YEAR ENDED FEBRUARY
28, 1999 AND THE UNAUDITED FINANCIAL STATEMENTS FOR THE FOUR MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 4-MOS
<FISCAL-YEAR-END> FEB-28-1999 DEC-31-1999
<PERIOD-START> MAR-01-1998 MAR-01-1999
<PERIOD-END> FEB-28-1999 JUN-30-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 3,696 2,598
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,668 8,226
<PP&E> 1,471 3,482
<DEPRECIATION> 888 1,151
<TOTAL-ASSETS> 11,251 11,300
<CURRENT-LIABILITIES> 3,658 4,907
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (2,168) (2,252)
<TOTAL-LIABILITY-AND-EQUITY> 11,251 11,300
<SALES> 12,347 6,247
<TOTAL-REVENUES> 12,347 6,247
<CGS> 1,623 1,512
<TOTAL-COSTS> 1,623 1,512
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,683 (130)
<INCOME-TAX> (966) 46
<INCOME-CONTINUING> 1,717 (84)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,717 (84)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
