<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission File
Ended February 28, 1997 Number 0-1502
----------------- ------
AMERICAN GREETINGS CORPORATION
------------------------------
(Exact name of registrant as specified in Charter)
OHIO 34-0065325
- ------------------------ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
One American Road , Cleveland, Ohio 44144
- ---------------------------------------- --------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,including area code (216) 252-7300
-------------
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class
-------------------
Class A Common Shares, Par Value $1.00
Class B Common Shares, Par Value $1.00
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE> 2
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of May 2, 1997 - $2,318,348,384
Number of shares outstanding as of May 2, 1997:
CLASS A COMMON - 70,816,480
CLASS B COMMON - 4,391,989
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement filed with the Securities and Exchange
Commission on May 14 , 1997 with respect to the 1997 Annual Meeting of
Shareholders called for June 27, 1997, are incorporated by reference into Part
III.
PART I
Item 1. Business
American Greetings Corporation and its subsidiaries operate
predominantly in a single industry: the design, manufacture and sale of everyday
and seasonal greeting cards and other social expression products. Greeting
cards, gift wrap, paper party goods, candles and giftware are manufactured and
/or sold in the United States by American Greetings Corporation, Plus Mark,
Inc., Carlton Cards Retail, Inc., and Quality Greeting Card Distributing
Company; in Canada by Carlton Cards Limited; in the United Kingdom by Carlton
Cards Limited and Carlton Cards Ltd. (Ireland); in France by Carlton Cards
(France) SNC; in Mexico by Carlton Mexico, S.A. de C.V. ; in Australia by John
Sands (Australia) Ltd.; in New Zealand by John Sands (N.Z.) Ltd.; and in South
Africa by S.A. Greetings Corporation (PTY) Ltd. (80% owned). Personalized
greeting cards are sold through CreataCard machines by CreataCard, Inc. in the
United States, by CreataCard Canada, Inc. in Canada and by CreataCard (UK) Ltd.
in the United Kingdom. Electronic marketing efforts are provided by CreataCard
Interactive, Inc., which distributes a CD-ROM product, CreataCard Plus, for
personal computers and also operates a site on the World Wide Web,
www.americangreetings.com. Wilhold, Inc. produces and sells hair accessory
items, Acme Frame Products, Inc. produces and sells picture frames, Magnivision,
Inc. produces and sells non-prescription reading glasses and eyeware
accessories, and Learning Horizons distributes supplemental educational
products. Design licensing and character licensing are done by AGC, Inc. and
Those Characters From Cleveland, Inc., respectively. AG Industries, Inc.
manufactures custom display fixtures for the Corporation's products and products
of others. (Although other subsidiaries of American Greetings Corporation exist,
they are either inactive, of minor importance or of a holding company nature.)
Many of the Corporation's products are manufactured at common
production facilities and marketed by a common sales force. Marketing and
manufacturing functions in the United States and Canada are combined; dual
priced cards are produced and distributed in both countries. Information
concerning sales by major product classifications is included in Part II, Item
7. Additionally, information by geographic area is included in Note L to the
Consolidated Financial Statements included in Part II, Item 8.
2
<PAGE> 3
The Corporation's products are primarily sold in about 100,000
retail outlets in more than 75 nations around the world. The greeting card and
gift wrap industry is intensely competitive. Competitive factors include
quality, design, customer service and terms, which may include payments and
other concessions to retail customers under long-term agreements. These
agreements are discussed in greater detail below. There are an estimated 500
companies in this industry. The Corporation's principal competitors, however,
are Hallmark Cards, Incorporated and Gibson Greetings, Inc. Based upon its
general familiarity with the greeting card and gift wrap industry and limited
information as to its competitors, the Corporation believes that it is the
second largest company in the industry and the largest publicly owned company in
the industry.
The greeting card and gift wrap industry is generally mature.
Total unit sales of greeting cards increased 2% in 1997 after remaining flat
from 1995 to 1996.
Production of the Corporation's products is on a level basis
throughout the year. Everyday inventories remain relatively constant throughout
the year, while seasonal inventories peak in advance of each major holiday
season, including Christmas, Valentine's Day, Easter, Mother's Day, Father's Day
and Graduation. Also characteristic of the business, accounts receivable for
seasonal merchandise are carried for relatively long periods, as product is
normally shipped three to five months prior to a holiday. Payments for seasonal
shipments are generally received during the month in which the major holiday
occurs, or shortly thereafter. Extended payment terms may also be offered in
response to competitive situations with individual customers. The Corporation
and many of its competitors sell seasonal greeting cards with the right of
return.
During the fiscal year, the Corporation experienced no
difficulty in obtaining raw materials from suppliers.
At February 28, 1997, the Corporation employed approximately
15,800 full-time employees and approximately 20,500 part-time employees which,
when jointly considered, equate to approximately 20,700 full-time employees.
Approximately 3,300 of the Corporation's hourly plant employees are unionized,
of which approximately 2,400 are covered by the following collective bargaining
agreements:
<TABLE>
<CAPTION>
Union Plant Location Contract Expiration Date
----- -------------- ------------------------
<S> <C> <C>
International Brotherhood Bardstown, Kentucky 4/15/98
of Teamsters Corbin, Kentucky 12/01/97
Unite (Union of Needletrader, Knoxville, Tennessee 10/20/98
Industrial and Textile (Plus Mark)
Employees)
Communication, Energy Toronto, Ontario 1/31/98
and Paperworkers Canada (Carlton Cards Limited)
</TABLE>
Other locations with unions are Cleveland, Ohio, the United Kingdom, Mexico,
Australia, New Zealand, and South Africa.
3
<PAGE> 4
Labor relations at each location have been satisfactory. The Corporation's
headquarters and other manufacturing locations are not unionized.
The Corporation has a number of patents and registered
trademarks which are used in connection with its products. The Corporation's
designs and verses are protected by copyright. Although the licensing of
copyrighted designs and trademarks produces additional revenue, in the opinion
of the Corporation, the Corporation's operations are not dependent upon any
individual patent, trademark, copyright or intellectual property license. The
collective value of the Corporation's copyrights and trademarks is substantial
and the Corporation follows an aggressive policy of protecting its patents,
copyrights and trademarks.
In fiscal 1997, the Corporation's major channel of
distribution continues to be mass retail (which is comprised of mass
merchandisers, chain drug stores and supermarkets), where it is the social
expression industry leader. Other major channels of distribution include card
and gift shops, combo stores (stores combining food, general merchandise and
drug items), military post exchanges, variety stores, and department stores.
Sales to the Corporation's five largest customers, which
include mass merchandisers and major drug stores, accounted for approximately
29.4% of net sales. Sales to retail customers are made through 22 sales offices
in the United States, Canada, United Kingdom, Australia, New Zealand, France,
Mexico and South Africa.
The Corporation has agreements with various customers for the
supply of greeting cards and related products. Contracts are separately
negotiated to meet competitive situations; therefore, while some aspects of the
agreements may be the same or similar, important contractual terms often vary
from contract to contract. No one contract is significant to the Corporation's
financial position. Under the agreements, customers typically receive
allowances, discounts and/or advances in consideration for the Corporation being
allowed to supply customers' stores for a stated term. Some of these competitive
agreements have been negotiated with customers covering a period following that
covered by current agreements and requiring the Corporation to make advances
prior to the start of such future period. The Corporation views the use of such
agreements as advantageous in developing and maintaining business with retail
customers. Although risk is inherent in the granting of advances, payments and
credits, the Corporation subjects such customers to its normal credit review.
Losses attributable to these agreements have historically not been material.
Advances, payments and credits made under these agreements are accounted for as
deferred costs. The current and long-term portions of such deferred costs,
including future payment commitments, are disclosed in Note D to the
Consolidated Financial Statements included in Part II, Item 8. Note D also
discusses the amortization policy. The Corporation believes that these
agreements represent a common practice within the industry. Since Hallmark
Cards, one of the Corporation's two principal competitors, is a non-public
company, public disclosure of its practices has been limited. Gibson Greetings,
the Corporation's other principal competitor and a public company, has made
comparable disclosures with respect to such agreements.
4
<PAGE> 5
Item 2. Properties
As of February 28, 1997, the Corporation owns or leases
approximately 15.9 million square feet of plant, warehouse, store and office
space, of which approximately 5.9 million square feet are leased. Space needs in
the United States have been met primarily through long-term leases of properties
constructed and financed by community development corporations and
municipalities.
The following table summarizes the principal plants and
materially important physical properties of the Corporation:
<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- ----------------- ------------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Bardstown, 413,500 Cutting, folding, finishing,
Kentucky and packaging of greeting
cards
Cleveland, 1,100,000 International headquarters;
Ohio general offices of U.S. Greeting
Card Division, Plus Mark, Inc., AG
Industries, Inc., Wilhold, Inc.,
Carlton Cards Retail, Inc.,
CreataCard Inc., CreataCard
Interactive, Inc., Acme Frame
Products, Inc., and Learning
Horizons, Inc.; creation and
design of greeting cards and
related products
Corbin, 1,010,000 Printing of greeting cards,
Kentucky gift wrapping and paper party
goods and manufacture
other related products
Danville, 1,374,000 2001 Distribution of everyday greeting
Kentucky and related products
Forest City, 498,000 277,500 1999 Manufacture of the Corporation's
North Carolina display fixtures and other custom
display fixtures by AG Industries, Inc.
Greeneville, 1,410,000 Printing and packaging of
Tennessee seasonal wrapping items and
(2 locations) order filling and shipping for Plus
Mark, Inc.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- ----------------- ------------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Harrisburg, 417,000 2007 Manufacture and distribution
Arkansas of picture frames for Acme
Frame Products Inc.
Lafayette, 194,000 Manufacture of envelopes
Tennessee for greeting cards and
packaging of cards
McCrory, 771,000 2005 Order filling and shipping of
Arkansas everyday and seasonal
products
Osceola, 2,800,800 Cutting, folding, finishing and
Arkansas packaging of seasonal
greeting cards and ware-
housing; distribution of
seasonal products
Ft. Lauderdale / 108,000 1999 Manufacture, order filling and
Miami, and shipping of non-prescription
Florida 2000 reading glasses for
(2 locations) Magnivision, Inc.
Philadelphia, 120,000 2017 Hand finishing of greeting
Mississippi cards
Ripley, 165,000 Seasonal card printing and
Tennessee forms
Shelbyville, 250,000 2002 Warehousing for Carlton
Kentucky Cards Retail, Inc.
Sunbury, 145,000 58,000 1998 Manufacture, order filling and
Pennsylvania shipping of hair accessory
(2 locations) products for Wilhold, Inc.
Auckland, 80,000 General offices of John Sands
New Zealand (New Zealand) Ltd.; manu-
facture of greeting cards and
related products
Clayton, 208,000 General offices of John Sands
Australia (Australia) Ltd.; manufacture
of greeting cards and related
products
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- ----------------- ------------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Corby, 85,000 Distribution of greeting
England cards and related products for
Carlton Cards Limited
Dewsbury, 361,000 87,000 2002, General offices of Carlton
England 2008, Cards Limited and manufacture
(5 locations) and of greeting cards and related
2015 products
Mexico City, 166,000 General offices of Carlton
Mexico Mexico, S.A. de C.V. and
manufacture of greeting cards
and related products
Paris, 70,000 2000 Distribution of greeting cards
France and related products for
Carlton Cards (France) SNC
Roodepoort, 105,000 2001 General offices of S.A.
South Africa Greetings Corporation;
manufacture and distribution
of greeting cards and related
products
Toronto, 1,084,500 General offices of Carlton
Ontario, Cards Limited; manu-
Canada facture of greeting cards and
(2 locations) related products
</TABLE>
Item 3. Legal Proceedings
1) J. E. and Z.B. Butler Foundation, Inc. v. American Greetings
Corp., Morry Weiss, Edward Fruchtenbaum, John M. Klipfell,
Irving I. Stone and Dale A. Cable, Case No. 1:95CV 2411, United
States District Court, Northern District of Ohio
On November 14, 1995, the above class lawsuit was filed against
the Corporation and certain of its officers, alleging violations
of (i) Section 10 (b) of the Securities Exchange Act of 1934
(the "Act") and Rule 10b-5 promulgated thereunder and (ii)
Section 20 (a) of the Act. The Complaint is based on the alleged
failure to disclose, as well as misleading disclosure, of
material information regarding the Corporation's CreataCard unit
prior to the Corporation's November 10, 1995 announcement that
it had elected to write down certain of CreataCard's assets
pursuant to Statement of Financial Accounting Standards No. 121.
7
<PAGE> 8
The Complaint also alleges that certain of the Corporation's
officers improperly benefited from this activity.
The Complaint in this action seeks unspecified compensatory and
punitive damages (as well as attorney fees) on behalf of all
purchasers of the Corporation's publicly traded shares who were
allegedly injured during the period of the alleged wrongdoing,
March 30-November 10, 1995.
The Corporation and the individual defendants deny liability,
but in order to avoid the cost and risks of protracted
litigation, they have reached an agreement in principle to
settle all disputes with the named plantiff and proposed class.
The parties plan to file a Stipulation of Settlement on or
before May 30, 1997. The settlement contemplates that the
Corporation and the individual defendants will pay the
settlement amount (an amount that will not have a material
effect on the Corporation's consolidated financial position)
into a fund to be distributed to class members after payment of
plantiff's expenses and attorney fees. All of the terms of the
settlement are subject to court approval. A portion of the
settlement payment is covered by insurance proceeds.
2) As of May 2, 1997, the Corporation is a party to six legal
proceedings relating to state and federal environmental laws.
One or more governmental authorities is a party to each
proceeding. The proceedings allege, among other things, that
hazardous waste material generated by the Corporation was
improperly disposed of by others. In all of these cases the
Corporation has entered into consent decrees under which the
Corporation has agreed to pay a pro rata share of clean-up
costs. In addition, in April 1997, the Corporation was notified
by the Kentucky Department of Environmental Protection of an
alleged escape of certain chemicals from an underground storage
tank at its Corbin, Kentucky plant. The Corporation is
conducting a site investigation. Costs of remediation in each of
the proceedings cannot be estimated at this time; however, in
the opinion of management, based on the amounts involved in each
proceeding and in the aggregate, such liabilities will not have
a material effect on the Corporation's consolidated financial
position.
3) BEC Group, Inc. v. American Greetings Corporation, Magnivision,
Inc., and Erwin Weiss in the District Court of Dallas County
Texas, 160th Judicial District, Case Number 97-00761-H
On January 27, 1997, BEC Group filed suit alleging breach of
confidentiality agreement, unfair competition, and other tort
claims following the termination of the purchase negotiations in
September 1996. The Corporation was contemplating purchase of
the Foster Grant business from BEC Group. The complaint seeks in
excess of $18 million in damages. The Corporation, Magnivision,
and Mr. Weiss deny liability, and Mr. Weiss has moved to dismiss
for lack of jurisdiction.
8
<PAGE> 9
4) Thorntons Plc. v. Carlton Cards Limited, in the High Court of
Justice, Queen's Bench Division, Birmingham District Registry,
1997 No. ML40017A
In December 1995, Thornton Plc. filed suit in the United Kingdom
claiming breach of contract arising out of the discontinuance of
29 franchise agreements after the sale of Carlton Cards
Limited's retail stores to Clinton Cards in September 1995.
Plaintiff claims damages of at least (pound)2.2 million. Carlton
Cards Limited denies liability. Trial is scheduled for September
30, 1997.
Item 4. Submission of Matters to Vote of Security Holders
None
Executive Officers of the Registrant
- ------------------------------------
The following is a list of the Corporation's executive officers,
their ages as of May 2, 1997, their positions and offices, and number of years
in executive office:
<TABLE>
<CAPTION>
Years as
Name Age Executive Officer Current Position and Office
- ---- --- ----------------- ---------------------------
<S> <C> <C> <C>
Irving I. Stone 88 47 Founder-Chairman and
Chairman of the Executive
Committee
Morry Weiss 57 25 Chairman and
Chief Executive Officer
Edward Fruchtenbaum 49 11 President and
Chief Operating Officer
Mary Ann Corrigan-Davis 43 --- Senior Vice President
Jon Groetzinger, Jr. 48 9 Senior Vice President,
General Counsel and
Secretary
John M. Klipfell 47 14 Senior Vice President
Harvey Levin 64 16 Senior Vice President
William R. Mason 52 15 Senior Vice President
William S. Meyer 50 9 Senior Vice President,
Chief Financial Officer
Patricia A. Papesh 49 2 Senior Vice President
James R. Van Arsdale 58 14 Senior Vice President
Erwin Weiss 48 7 Senior Vice President
Dale A. Cable 49 5 Vice President, Treasurer
Patricia L. Ripple 41 1 Vice President,
Corporate Controller
</TABLE>
9
<PAGE> 10
Mr. Irving I. Stone is the father-in-law of Morry Weiss. Morry
Weiss and Erwin Weiss are brothers. The Board of Directors annually elects all
executive officers; however, executive officers are subject to removal, with or
without cause, at any time.
All of the executive officers listed above have served in the
capacity shown or similar capacities with the Corporation (or major subsidiary)
over the past five years, with the following exceptions.
Mary Ann Corrigan-Davis was Vice President, Product Management
of the Corporation's U.S. Greeting Card Division from November 1988 until
December 1992; President of Carlton Cards Retail, Inc. from December 1992 until
January 1996; and Group Managing Director of the John Sands Group from January
1996 until becoming Senior Vice President in May 1997.
Patricia A. Papesh was Vice President, Marketing Services of the
Corporation's U.S. Greeting Card Division from June 1991 until December 1992;
and Vice President, Creative of the U.S. Greeting Card Division from December
1992 until becoming Senior Vice President in April 1995.
Patricia L. Ripple was Director, Tax and Financial Reporting of
the Corporation from November 1991 until April 1993; and Executive Director, Tax
and Financial Reporting of the Corporation from April 1993 until becoming Vice
President and Corporate Controller in September 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
- ----------------------
The high and low stock prices for the Corporation's Class A Common Shares, as
reported in the NASDAQ National Market Listing, for the years ended February 28,
1997 and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
High Low High Low
---- --- ---- ---
<C> <C> <C> <C> <C>
1st Quarter ..... $30-1/2 $25-7/8 $31-1/8 $26-3/4
2nd Quarter ..... 27-3/8 23-1/2 32-1/2 27-7/8
3rd Quarter ..... 30-1/4 25-1/8 32-5/8 25-1/2
4th Quarter ..... 31-3/8 25 28-3/8 25-3/4
</TABLE>
The Corporation's Class A Common Shares, $1.00 par value per
share, are traded on the NASDAQ National Market under the trading symbol: AGREA.
National City Bank, Cleveland, Ohio, is the Corporation's registrar and transfer
agent. There is no public market for the Class B Common Shares of the
Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a
holder of Class B Common Shares
10
<PAGE> 11
may not transfer such Class B Common Shares (except to permitted transferees, a
group that generally includes members of the holder's extended family, family
trusts and charities) unless such holder first offers such shares to the
Corporation for purchase at the most recent closing price for the Corporation's
Class A Common Shares. If the Corporation does not purchase such Class B Common
Shares, the holder must convert such shares, on a share for share basis, into
Class A Common Shares prior to any transfer.
(b) Shareholders
- ----------------
At May 2, 1997, there were approximately 26,750 holders of Class
A Common Shares and 250 holders of Class B Common Shares of record and
individual participants in security position listings.
(c) Cash Dividends
- ------------------
<TABLE>
<CAPTION>
Dividends Per Share 1997 1996
--------- --------
<S> <C> <C> <C>
1st Quarter (paid June 10, 1996 and June 9, 1995) $ .16 $ .14
2nd Quarter (paid September 10, 1996 and
September 8, 1995) .17 .16
3rd Quarter (paid December 10, 1996 and
December 8, 1995) .17 .16
4th Quarter (paid March 10, 1997 and March 8, 1996) .17 .16
--------- --------
$ .67 $ .62
========= ========
</TABLE>
11
<PAGE> 12
Item 6. Selected Financial Data
Years ended February 28 or 29
Thousands of dollars except per share amounts*
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales ............................................. $ 2,161,089 $ 2,003,038 $ 1,868,927 $ 1,769,964 $ 1,671,692
Gross profit .......................................... 1,355,965 1,241,032 1,192,842 1,097,944 1,010,509
Asset impairment loss ................................. -- 52,061 -- -- --
Interest expense ...................................... 30,749 24,290 16,871 16,897 26,924
Income before cumulative effect of accounting changes . 167,095 115,135 148,792 130,884 112,288
Cumulative effect of accounting changes, net of tax ... -- -- -- 17,182 --
Net income ............................................ 167,095 115,135 148,792 113,702 112,288
Income per share:
Before cumulative effect of accounting changes .... 2.23 1.54 2.00 1.77 1.55
Cumulative effect of accounting changes, net of tax -- -- -- .23 --
Net income ........................................ 2.23 1.54 2.00 1.54 1.55
Cash dividends per share .............................. .67 .62 .55 .48 .42
Fiscal year end market price per share ................ 31.00 27.38 29.38 27.88 24.00
Average number of shares outstanding .................. 74,818,960 74,528,809 74,305,346 73,809,132 72,440,114
FINANCIAL POSITION
Accounts receivable ................................... $ 375,324 $ 353,671 $ 324,329 $ 322,675 $ 276,932
Inventories ........................................... 303,611 335,074 279,270 243,357 228,123
Working capital ....................................... 562,148 516,346 531,199 474,280 581,651
Total assets .......................................... 2,135,120 2,005,832 1,761,751 1,565,234 1,548,400
Property, plant and equipment additions ............... 92,895 91,590 97,290 102,859 77,099
Long-term debt ........................................ 219,639 231,073 74,480 54,207 169,381
Shareholders' equity .................................. 1,361,655 1,235,022 1,159,541 1,053,442 952,535
Shareholders' equity per share ........................ 18.16 16.53 15.61 14.21 13.07
Net return on average shareholders' equity
before cumulative effect of accounting changes .... 12.9% 9.6% 13.4% 13.0% 12.4%
Return on net sales before income taxes and
cumulative effect of accounting changes ........... 11.8% 8.7% 12.2% 11.8% 10.8%
<FN>
* Share and per share amounts for 1993 have been restated to reflect the 1994
stock split.
</TABLE>
12
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
- ---------------------
REVENUES
In 1997, strong greeting card performance resulted in a net sales increase of
7.9% over 1996. Net sales of everyday cards increased 10.3% while seasonal cards
increased 12.5%. The increase in everyday card sales reflects the strength of
the everyday card market in the United States and also in Australia and New
Zealand where everyday cards represent nearly 65% of the Corporation's net sales
in those markets. In late 1996, the Corporation entered into these two markets
by acquiring substantially all of the assets of the John Sands Group, the
largest greeting card business in these countries. In 1996, total net sales of
everyday cards increased 6.2% due primarily to price increases. The seasonal
card sales increase reflected the improvement in the retail environment compared
to 1996, particularly in the fourth quarter. In 1996, net sales of seasonal
cards increased less than 1% from 1995 due to a weak retail environment. Total
unit sales of all greeting cards increased 2% in 1997 after remaining flat from
1995 to 1996. After increasing 13.0% in 1996, net sales of non-card products
slowed somewhat in 1997 due to softer demand for certain consumer products,
particularly non-prescription reading glasses and custom display fixtures. Total
net sales in 1996 increased 7.2% from 1995.
The contribution of each major product category as a percent of net sales for
the past three years is:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Everyday Greeting Cards 44% 44% 44%
Seasonal Greeting Cards 22% 21% 22%
Gift Wrapping and Party Goods 18% 19% 18%
All Other Products 16% 16% 16%
</TABLE>
The All Other Products classification includes giftware, picture frames,
non-prescription reading glasses, hair care accessories, educational products,
candles, stationery, plush, balloons, stickers, and custom display fixtures.
EXPENSES AND PROFIT MARGINS
In 1997, strong high margin card sales, along with benefits from the North
American Plan and a focused effort to control costs resulted in an improvement
in pre-tax margin. Material, labor and other production costs were 37.3% of net
sales, down from 38.0% in 1996. In 1995 these costs were 36.2% of net sales.
Product cost variances related to the conversion of the Canadian manufacturing
operations to United States manufacturing processes decreased $11.7 million in
1997 as integration of the North American Plan progressed. In 1996, the
unfavorable product cost variances from Canadian manufacturing contributed
significantly to the increase, from 1995, in material, labor and other
production costs as a percent of sales. The cost of greeting card cabinets and
point of purchase displays in the United States was well managed in 1997 and
decreased $11.1 million from 1996. In 1996, the expense of providing these
cabinets and displays increased $12.4 million in the United States from 1995 to
support new product offerings.
13
<PAGE> 14
Selling, distribution and marketing expenses increased 9.1% in 1997 after
increasing 5.9% in 1996 due primarily to an increase in competitive expense and
the impact of the John Sands Group acquisition. The increase in competitive
costs in both years resulted from higher amortization of deferred costs and
other expenses related to the Corporation's agreements with certain retail
customers. Deferred costs and the Corporation's method of accounting for them
are described in Note D to the Consolidated Financial Statements. Selling,
distribution and marketing expenses other than competitive costs increased just
3.1% in 1997 after increasing 2.1% in 1996. While total selling, distribution
and marketing expenses increased in both 1997 and 1996, these costs as a percent
of net sales have remained relatively stable at 38.9% in 1997, 38.4% in 1996 and
38.9% in 1995.
Administrative and general expenses increased $13.6 million or 6.0% after
decreasing $2.7 million or 1.2% in 1996. Changes in the expense of the United
States profit sharing plan contributed to the variances in both years. In 1997,
profit sharing expense increased $6.1 million due to higher pre-tax income
while, in 1996, the asset impairment loss led to lower pre-tax income and a $3.4
million reduction in profit sharing expense. The 1997 increase also includes
$6.2 million more administrative and general expense from the operations of the
John Sands Group. In 1996, the reduction in profit sharing expense was partially
offset by a $2.4 million loss related to an investment accounted for under the
equity method and a $2.3 million increase in the pre-tax cost of corporate owned
life insurance.
In the third quarter of 1996, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". This Statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In November, 1995, the Corporation determined that the trends in
the CreataCard business indicated that the undiscounted future cash flows from
that business would be less than the carrying value of the long-lived assets
related to that business. As a result, the Corporation recognized a pre-tax,
non-cash loss of $52.1 million for the asset impairment. After the effect of
income taxes, the loss was $35.1 million or $.47 cents per share. See Note K to
the Consolidated Financial Statements for further discussion of the impairment
loss.
Interest expense increased $6.5 million in 1997 after increasing $7.4 million in
1996. The increase in 1997 was due primarily to the long term debt incurred to
purchase the John Sands Group. The higher interest expense in 1996 reflected
increased debt levels to support the growth in both inventories and deferred
costs.
The 1997 effective tax rate was 34.3%, comparable to 34.2% in 1996 and 34.5% in
1995. While the rate for all three years reflected tax benefits of the corporate
owned life insurance, the benefit in 1997 was reduced due to the phasing out of
the Federal income tax deduction for interest on loans associated with these
policies. In 1996, the effective rate was negatively impacted by the write down
of nondeductible goodwill which was included in the asset impairment loss.
Excluding the impairment loss, the effective rate was 33.5%. See Note H to the
Consolidated Financial Statements for details of the differences between the
Federal statutory rate and the effective tax rate.
14
<PAGE> 15
Net income in 1997 increased to $167.1 million or $2.23 per share compared to
net income of $115.1 million or $1.54 per share in 1996. However, the 1996 net
income included the impact of the asset impairment loss recognized upon the
adoption of SFAS No. 121 and, without this non-recurring charge, net income
would have been $150.2 million or $2.01 per share. In 1995, net income was
$148.8 million or $2.00 per share.
LIQUIDITY AND CAPITAL RESOURCES
In 1997, the Corporation's initiatives to manage working capital resulted in a
significant improvement in cash flow. Cash flow from operations in 1997
increased $121.1 million to $153.9 million from $32.8 million in 1996 and $107.0
million in 1995. The significant improvement in 1997 was due to higher earnings,
slower growth in accounts receivable and a reduction of inventories. In 1996,
higher levels of accounts receivable, inventories and cash payments related to
deferred costs resulted in the decrease in cash flow from operations from 1995.
Trade accounts receivable increased $21.7 million in 1997 after increasing $29.3
million in 1996. The receivable balance in both years reflect strong fourth
quarter sales of everyday cards and accessories. As a percent of net sales,
accounts receivable were 17.4% in 1997, 17.7% in 1996 and 17.4% in 1995.
Inventories as a percent of material, labor and other production costs were
37.7% in 1997, down notably from 44% in 1996 and 41.3% in 1995. The improvement
in 1997 reflected the Corporation's focused efforts to reduce inventory levels.
While the most significant improvements in inventory management were
accomplished in the greeting card divisions, where inventories decreased $16.0
million in 1997 after increasing $57.1 million from 1995 to 1996, improvements
were realized in almost all business units. The increase in 1996 was due
primarily to the growth in non-card product inventory, which has a higher cost
than greeting cards, to support expanding sales and the acquisition of the John
Sands Group.
Payments under agreements with certain retailers (net of related amortization)
increased $10.0 million in 1997, less than the $25.3 million increase in 1996.
Payments in both years were made in connection with both new and existing
agreements. Although actual payments fluctuate from year-to-year, the deferred
costs which result from the payments are amortized over the effective period of
the agreement. Total commitments under the agreements are capitalized as
deferred costs when the agreements are consummated, and any future payment
commitments are recorded as liabilities at that time. Commitments under existing
agreements at the end of 1997 were $105.3 million with $51.2 million due within
the next year. See Note D to the Consolidated Financial Statements for further
discussion of deferred costs related to certain customer agreements.
Effective January 1, 1996, the Corporation acquired substantially all of the
assets from the John Sands Group for $85.1 million in cash. This acquisition was
accounted for under the purchase method of accounting and the purchase price was
allocated to the acquired assets and liabilities based upon their fair market
values at the date of acquisition. Results of operations were included
prospectively from the acquisition date. The acquisition was not significant to
the Corporation's financial position or results of operations as a whole.
15
<PAGE> 16
Capital expenditures were $92.9 million in 1997, up slightly from $91.6 million
in 1996 but down from $97.3 million in 1995. Expenditures for the automation of
distribution systems and the replacement and upgrade of manufacturing equipment,
which began in 1996, continued during 1997. The 1995 expenditures included the
conclusion of the initial roll out of the CreataCard personalized greeting card
units that began in 1994. Capital expenditures for 1998 are expected to
approximate $75 million.
Investing activities other than capital expenditures and acquisitions used $9.0
million less cash in 1997 after increasing $23.5 million in 1996. The increase
in 1996 was due primarily to investments related to expanded product offerings.
These investments decreased substantially in 1997. This decrease was partially
offset by an increase in the investment in corporate owned life insurance
policies. In 1997, fewer policy loans resulted in a cash investment of $8.4
million, which exceeded the 1996 investment by $7.3 million.
In 1997, financing activities used $44.0 million of cash, including $50.2
million in dividend payments to shareholders. Dividend payments increased $4.0
million in 1997 and $5.6 million in 1996. In 1996, financing activities included
a $154.4 million increase in long-term debt used to fund the purchase of assets
from the John Sands Group. The increase in 1996 long-term debt also reflected a
shift in Canadian borrowings from short-term to long-term. Debt as a percent of
total capitalization decreased to 20.6% in 1997 from 22.1% in 1996 after
increasing from 14.6% in 1995.
The Corporation's operating cash flow and existing credit facilities are
expected to meet currently anticipated funding requirements. The seasonal nature
of the business results in peak working capital requirements which are financed
primarily through short term borrowings. See Note F to the Consolidated
Financial Statements for further discussion of the Corporation's credit
facilities.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In 1997, the Corporation continued its long-term record of sales growth and
profitability. A focused effort on working capital management improved cash flow
and increased the Corporation's financial strength. However, future revenue
trends, profit margins and customer viability are difficult to predict.
The Corporation is well represented in a wide variety of channels of
distribution, such as mass merchandisers, drug stores and supermarkets. In 1997,
consolidation among retailers, particularly in the drug store business,
increased. Although the Corporation did not suffer any significant loss of
business because of these transactions, the impact of future retailer
consolidations on the Corporation's business is difficult to assess. The retail
business environment continues to be highly competitive and downturns in the
financial strength of retailers may impact the Corporation's future results.
The Corporation's investment in deferred costs related to agreements with
certain retailers continues to increase. The long-term business relationship
created by these agreements has been instrumental in the Corporation's growth
and has insulated it from short-term loss of business during retail
consolidations. The Corporation continues to evaluate and monitor the financial
condition of its retail customers to reduce risk.
16
<PAGE> 17
The Corporation reviews its portfolio of businesses on an ongoing basis to
ensure that growth opportunities and return on investments are in line with its
long-term goals. While possible acquisitions or divestitures are part of that
review process, the consummation of any transaction is unlikely to have a
material effect on the Corporation's results as a whole.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENT OF INCOME
Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except
per share amounts
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 2,161,089 $ 2,003,038 $ 1,868,927
Other income 11,209 8,916 9,513
----------- ----------- -----------
Total revenue 2,172,298 2,011,954 1,878,440
Costs and expenses:
Material, labor and other production costs 805,124 762,006 676,085
Selling, distribution and marketing 839,916 770,044 727,087
Administrative and general 242,179 228,544 231,234
Asset impairment loss -- 52,061 --
Interest 30,749 24,290 16,871
----------- ----------- -----------
1,917,968 1,836,945 1,651,277
----------- ----------- -----------
Income before income taxes 254,330 175,009 227,163
Income taxes 87,235 59,874 78,371
----------- ----------- -----------
Net income $ 167,095 $ 115,135 $ 148,792
=========== =========== ===========
Net income per share $ 2.23 $ 1.54 $ 2.00
=========== =========== ===========
Average number of shares outstanding 74,818,960 74,528,809 74,305,346
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
February 28, 1997 and February 29, 1996
Thousands of dollars
<TABLE>
<CAPTION>
ASSETS 1997 1996
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 35,050 $ 30,130
Trade accounts receivable, less allowances for
sales returns of $121,856 ($141,412 in 1996) and
for doubtful accounts of $15,264 ($16,214 in 1996) 375,324 353,671
Inventories 303,611 335,074
Deferred income taxes 100,732 102,889
Prepaid expenses and other 190,174 148,429
---------- ----------
Total current assets 1,004,891 970,193
OTHER ASSETS 667,442 595,369
PROPERTY, PLANT AND EQUIPMENT - NET 462,787 440,270
---------- ----------
$2,135,120 $2,005,832
========== ==========
</TABLE>
<PAGE> 19
18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED
February 28, 1997 and February 29, 1996
Thousands of dollars
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Debt due within one year $ 133,171 $ 119,174
Accounts payable and accrued liabilities 157,628 144,242
Accrued compensation and benefits 82,569 74,713
Income taxes 5,475 21,210
Other current liabilities 63,900 94,508
----------- -----------
Total current liabilities 442,743 453,847
LONG-TERM DEBT 219,639 231,073
OTHER LIABILITIES 67,839 40,806
DEFERRED INCOME TAXES 43,244 45,084
SHAREHOLDERS' EQUITY Common shares - par value $1:
Class A - 70,608,745 shares issued
less 14,193 Treasury shares in 1997 and
70,285,336 shares issued less
137,331 Treasury shares in 1996 70,594 70,148
Class B - 6,066,096 shares issued
less 1,678,197 Treasury shares in 1997 and
6,066,096 shares issued less
1,506,286 Treasury shares in 1996 4,388 4,560
Capital in excess of par value 272,262 265,387
Treasury stock (34,850) (32,835)
Cumulative translation adjustment (19,646) (24,202)
Retained earnings 1,068,907 951,964
----------- -----------
Total shareholders' equity 1,361,655 1,235,022
----------- -----------
$ 2,135,120 $ 2,005,832
=========== ===========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended February 28 or 29, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Thousands of dollars
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 167,095 $ 115,135 $ 148,792
Adjustments to reconcile to net cash
provided (used) by operating activities:
Asset impairment loss -- 52,061 --
Depreciation 64,566 75,319 68,438
Deferred income taxes 294 (48,184) (9,736)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in trade accounts receivable (25,389) (33,967) (4,973)
Decrease (increase) in inventories 32,371 (43,804) (37,944)
Increase in other current assets (2,050) (3,434) (2,009)
Increase in deferred costs - net (93,961) (83,939) (58,597)
Increase (decrease) in accounts payable
and other liabilities 5,877 (6,907) (4,879)
Other - net 5,100 10,542 7,906
--------- --------- ---------
Cash Provided by Operating Activities 153,903 32,822 106,998
INVESTING ACTIVITIES:
Business acquisitions -- (85,056) --
Property, plant and equipment additions (92,895) (91,590) (97,290)
Proceeds from sale of fixed assets 2,579 2,065 3,447
Investment in corporate-owned life insurance (8,454) (1,117) 1,813
Other (6,283) (22,103) (2,966)
--------- --------- ---------
Cash Used by Investing Activities (105,053) (197,801) (94,996)
FINANCING ACTIVITIES:
Increase in long-term debt 8,451 154,406 30,914
Reduction of long-term debt (12,232) (1,012) (29,862)
Increase (decrease) in short-term debt 4,869 (6,558) 9,919
Sale of stock under benefit plans 6,997 9,572 7,130
Purchase of treasury shares (1,863) (2,251) (3,462)
Dividends to shareholders (50,152) (46,199) (40,556)
--------- --------- ---------
Cash (Used) Provided by Financing Activities (43,930) 107,958 (25,917)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,920 (57,021) (13,915)
Cash and Equivalents at Beginning of Year 30,130 87,151 101,066
--------- --------- ---------
Cash and Equivalents at End of Year $ 35,050 $ 30,130 $ 87,151
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except
per share amounts
<TABLE>
<CAPTION>
Common Shares Capital in Cumulative
-------------------- Excess of Treasury Translation Retained
Class A Class B Par Value Stock Adjustment Earnings Total
-------- -------- --------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE MARCH 1, 1994 $ 69,546 $ 4,573 $ 249,192 $ (28,240) $ (16,421) $ 774,792 $ 1,053,442
Net income 148,792 148,792
Cash dividends - $.55 per share (40,556) (40,556)
Exchange of shares 19 (19)
Sale of shares under benefit
plans, including tax benefits 239 5 4,854 123 5,221
Purchase of treasury shares (130) (5) (3,469) (3,604)
Sale of treasury shares 74 976 1,001 2,051
Translation adjustment (5,805) (5,805)
---------- -------- ---------- --------- ------------ ----------- -------------
BALANCE FEBRUARY 28, 1995 69,674 4,628 255,022 (30,585) (22,226) 883,028 1,159,541
Net income 115,135 115,135
Cash dividends - $.62 per share (46,199) (46,199)
Exchange of shares 15 (15)
Sale of shares under benefit
plans, including tax benefits 424 36 9,116 486 10,062
Purchase of treasury shares (1) (97) (2,849) (2,947)
Sale of treasury shares 8 128 113 249
Translation adjustment (1,976) (1,976)
Issuance of shares 36 1,121 1,157
---------- --------- ----------- --------- ----------- ----------- ----------
BALANCE FEBRUARY 29, 1996 70,148 4,560 265,387 (32,835) (24,202) 951,964 1,235,022
Net income 167,095 167,095
Cash dividends - $.67 per share (50,152) (50,152)
Exchange of shares 131 (131)
Sale of shares under benefit
plans, including tax benefits 323 44 6,872 587 7,826
Purchase of treasury shares (8) (85) (2,609) (2,702)
Sale of treasury shares 3 7 10
Translation adjustment 4,556 4,556
---------- -------- ----------- ----------- ----------- ----------- ------------
BALANCE FEBRUARY 28, 1997 $ 70,594 $ 4,388 $ 272,262 $ (34,850) $ (19,646) $ 1,068,907 $ 1,361,655
========== ======== =========== ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except
per share amounts
NOTE A - ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All intercompany accounts and transactions are
eliminated.
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.
Cash Equivalents: The Corporation considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents.
Financial Instruments: The carrying value of the Corporation's financial
instruments approximate their fair market values.
Concentration of Credit Risks: The Corporation sells primarily to customers in
the retail trade, including those in the mass merchandiser, drug store,
supermarket and other channels of distribution. These customers are located
throughout the United States, Canada, the United Kingdom, Australia, New
Zealand, France, Mexico and South Africa. The Corporation conducts business
based on periodic evaluations of its customers' financial condition and
generally does not require collateral. While the competitiveness of the retail
industry presents an inherent uncertainty, the Corporation does not believe a
significant risk of loss from a concentration of credit exists.
Inventories: Finished products, work in process and raw material inventories are
carried at cost, principally last-in, first-out (LIFO), not in excess of market.
Display material and factory supplies are carried at average cost.
Investment in Life Insurance: The Corporation's investment in corporate-owned
life insurance policies is recorded net of policy loans in other assets. The net
life insurance expense, including interest expense, is included in
administrative and general expenses in the Consolidated Statement of Income. The
related interest expense, which approximates amounts paid, was $67,788, $70,485
and $59,344 in 1997, 1996 and 1995, respectively.
Property and Depreciation: Property, plant and equipment is carried at cost,
except for certain assets as described in Note K. Depreciation and amortization
of buildings, equipment and fixtures is computed principally by the
straight-line method over the useful lives of the various assets. The cost of
buildings is depreciated over 25 to 40 years and equipment and fixtures over 3
to 20 years.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition: Sales and related costs are recorded by the Corporation
upon shipment of products to non-related retailers and upon the sale of products
at Corporation-owned retail locations. Seasonal cards are sold with the right of
return on unsold merchandise. The Corporation provides for estimated returns of
seasonal cards when those products are shipped to non-related retailers.
Advertising Expense: Advertising costs are expensed as incurred. Advertising
expense was $58,794, $61,124 and $58,342 in 1997, 1996 and 1995, respectively.
Income Taxes: Deferred income taxes are provided for temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Stock-Based Compensation: The Corporation has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock options.
Because the exercise price of the Corporation's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. The Corporation has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation".
Earnings Per Share: Income per share information is based on the average number
of shares outstanding during each year. For the years presented, stock options
do not have a material dilutive effect. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 "Earnings Per Share". The Corporation plans to adopt this standard, as
required, in fiscal year 1998. The Corporation is currently analyzing the
effects of adopting the Statement.
NOTE B - INVENTORIES
Components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw material $ 48,299 $ 57,415
Work in process 47,113 49,741
Finished products 253,096 274,713
-------- --------
348,508 381,869
Less LIFO reserve 89,061 92,020
-------- --------
259,447 289,849
Display material and factory supplies 44,164 45,225
-------- --------
Inventories $303,611 $335,074
======== ========
</TABLE>
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land $ 10,028 $ 10,018
Buildings 282,726 269,191
Equipment and fixtures 627,440 571,934
-------- --------
920,194 851,143
Less accumulated depreciation 457,407 410,873
-------- --------
Property, plant and equipment - net $462,787 $440,270
======== ========
</TABLE>
NOTE D - DEFERRED COSTS
Deferred costs relating to agreements with certain customers are charged to
operations on a straight-line basis over the effective period of each agreement,
generally three to six years. Deferred costs estimated to be charged to
operations during the next year are classified with prepaid expenses and other.
Total commitments under the agreements are capitalized as deferred costs and
future payment commitments, if any, are recorded as liabilities when the
agreements are consummated.
At February 28, 1997 and February 29, 1996 deferred costs and future payment
commitments are included in the following financial statement captions:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Prepaid expenses and other $161,601 $121,937
Other assets 464,599 410,119
Other current liabilities (51,153) (82,533)
Other liabilities (54,199) (25,089)
-------- --------
$520,848 $424,434
======== ========
</TABLE>
NOTE E - RETIREMENT PLANS
The Corporation has a non-contributory profit-sharing plan with a contributory
401(k) provision covering most of its United States employees. Contributions to
the profit-sharing plan were $22,990, $16,846 and $20,414 for 1997, 1996 and
1995, respectively. The Corporation matches a portion of 401(k) employee
contributions contingent upon meeting specified annual operating results goals.
The Corporation's matching contributions were $2,698, $2,760 and $2,557 for
1997, 1996 and 1995, respectively.
The Corporation also has several defined benefit and defined contribution
pension plans covering certain employees in foreign countries. The cost of these
plans was not material in any of the years presented. In the aggregate, the
actuarially computed plan benefit obligation was fully funded.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG AND SHORT-TERM DEBT
The borrowings of the Corporation in the United States consist primarily of
commercial paper. At February 28, 1997, commercial paper borrowings were
$128,605. The commercial paper borrowing arrangements are supported by a
$650,000 revolving credit agreement. The agreement provides an option to convert
up to $200,000 to a term loan. The agreement extends through June 2001, except
for $250,000 which extends through June 1997. The expiration date of $400,000 of
the agreement can be extended annually for one year to the June 30 next
following the expiration date. A commitment fee is due on the unused portion of
the credit facility and can range from 0.08% to 0.25%. As of February 28, 1997,
the commitment fee was 0.125% on $400,000 of the facility, and 0.08% on $250,000
of the facility. No borrowings are outstanding under this facility as of
February 28, 1997.
The borrowings of the Corporation in Canada consist primarily of commercial
paper. At February 28, 1997, commercial paper borrowings were $78,614, of which
$77,475 was classified as long-term. The commercial paper borrowing arrangements
up to $73,090 are supported by a revolving credit agreement for that amount that
extends through January 2000. The expiration date of the agreement can be
extended for one year during each of the next two years to the January 15 next
following the expiration date. A facility fee is due on the aggregate amount of
the facility, and can range from 0.07% to 0.25%. At February 28, 1997, the
facility fee was 0.08%. No borrowings are outstanding under this facility as of
February 28, 1997. However, the amount available under this facility is reduced
by $73,090 of commercial paper issued at February 28, 1997. Commercial paper
borrowings in Canada up to an additional $36,545 are supported by the revolving
credit agreement in the United States.
The Corporation's subsidiaries in the United Kingdom, Australia, France and
South Africa have credit agreements permitting borrowings of up to $191,595. At
February 28, 1997, $142,756 is outstanding under these foreign revolving credit
facilities, of which $139,765 is classified as long-term.
All of the Corporation's revolving credit and term loan agreements provide for
various borrowing alternatives in their respective currencies with interest
rates ranging from 4.25% to 7.7% for amounts borrowed as of February 28, 1997.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG AND SHORT-TERM DEBT (CONTINUED)
At February 28, 1997 and February 29, 1996, debt due within one year consists of
the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current maturities of long-term debt $ 436 $ 354
Notes payable 2,991 6,173
Commercial paper 129,744 112,647
-------- --------
Total $133,171 $119,174
======== ========
</TABLE>
At February 28, 1997 and February 29, 1996, long-term debt consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revolving credit, commercial paper,
and term loan agreements $217,240 $230,345
Other 2,835 1,082
-------- --------
220,075 231,427
Less current maturities 436 354
-------- --------
$219,639 $231,073
======== ========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 436
1999 56,005
2000 77,959
2001 449
2002 84,777
Thereafter 449
---------
$ 220,075
=========
</TABLE>
At February 28, 1997 the Corporation had credit arrangements to support the
issuance of letters of credit in the amount of $57,309 with $20,723 of open
credits outstanding.
Interest paid on short-term and long-term debt was $29,914 in 1997, $23,395 in
1996 and $16,081 in 1995.
The weighted average interest rate on short-term borrowings outstanding was 5.5%
and 5.6% as of February 28, 1997 and February 29, 1996, respectively.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who are age 65 or over at
retirement with 15 or more years of service and who were hired on or before
December 31, 1991. In addition, for retirements on or after January 2, 1992 the
retiree must have been continuously enrolled for health care for a minimum of
five years or since January 2, 1992. The plan is contributory, with retiree
contributions adjusted periodically, and contains other cost-sharing features
such as deductibles and coinsurance. The Corporation maintains a trust for the
payment of retiree health care benefits. This trust is funded at the discretion
of management.
The following table presents the plan's funded status at February 28, 1997 and
February 29, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 22,821 $ 21,620
Fully eligible active plan participants 5,778 5,474
Other active plan participants 22,728 21,533
-------- --------
Accumulated postretirement benefit obligation 51,327 48,627
Plan assets, primarily listed stocks and bonds (32,358) (27,473)
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets 18,969 21,154
Unrecognized net loss (5,546) (5,658)
-------- --------
Accrued postretirement benefit obligation $ 13,423 $ 15,496
======== ========
</TABLE>
The accrued postretirement benefit obligation is included in the other
liabilities financial statement caption.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost $ 1,594 $ 1,280 $ 1,313
Interest cost 3,441 3,239 2,965
Actual return on plan assets (2,379) (2,864) (1,209)
Asset gain deferred 274 1,193 --
Amortization of loss 53 -- --
------- ------- -------
$ 2,983 $ 2,848 $ 3,069
======= ======= =======
Assumptions used in the computations:
Assumed discount rate 7.25% 7.25% 8.0%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
</TABLE>
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - OTHER POSTRETIREMENT BENEFITS (CONTINUED)
A 7.5% annual rate of increase in per capita cost of covered benefits was
assumed for 1997. This rate decreases to 6% in 2002 and remains at that level
thereafter. This health care trend rate has a significant impact on the amount
reported. For example, a 1% increase in the trend rate in each year would
increase the accumulated postretirement benefit obligation at February 28, 1997
by $8,400 and increase aggregate service and interest cost for the year by
$1,010.
NOTE H - INCOME TAXES
<TABLE>
<CAPTION>
Income (loss) before income taxes:
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States $ 264,077 $ 191,649 $ 235,515
Foreign (9,747) (16,640) (8,352)
--------- --------- ---------
$ 254,330 $ 175,009 $ 227,163
========= ========= =========
Income taxes have been provided as follows:
1997 1996 1995
--------- --------- ---------
Current:
Federal $ 71,582 $ 94,094 $ 72,242
Foreign 936 (1,045) 1,416
State and local 14,400 14,917 14,393
--------- --------- ---------
86,918 107,966 88,051
Deferred (principally federal) 317 (48,092) (9,680)
--------- --------- ---------
$ 87,235 $ 59,874 $ 78,371
========= ========= =========
</TABLE>
Significant components of the Corporation's deferred tax assets and liabilities
at February 28, 1997 and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
1997 1996
--------- ---------
<S> <C> <C>
Sales returns $ 34,643 $ 43,064
Other 109,345 100,688
--------- ---------
143,988 143,752
Valuation allowance (11,515) (12,189)
--------- ---------
Total deferred tax assets 132,473 131,563
Deferred tax liabilities:
Depreciation 46,005 44,908
Other 28,980 28,850
--------- ---------
Total deferred tax liabilities 74,985 73,758
--------- ---------
Net deferred tax assets $ 57,488 $ 57,805
========= =========
</TABLE>
The decrease in the valuation allowance was due to decreases in net operating
loss carryforwards in the United Kingdom and Mexico.
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES (CONTINUED)
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax benefit 3.9 4.0 3.8
Asset impairment loss - 1.8 -
Subsidiaries' losses without tax benefit 1.0 1.8 1.3
Corporate-owned life insurance investments (4.3) (10.6) (6.7)
Other (1.3) 2.2 1.1
------ ------ ------
Effective tax rate 34.3% 34.2% 34.5%
====== ====== ======
</TABLE>
Income taxes paid were $99,391 in 1997, $94,267 in 1996 and $101,982 in 1995.
Deferred taxes have not been provided on approximately $11,000 of undistributed
earnings of foreign subsidiaries since substantially all of these earnings are
necessary to meet their business requirements. It is not practicable to
calculate the deferred taxes associated with these earnings, however, foreign
tax credits would be available to reduce federal income taxes in the event of
distribution. At February 28, 1997 the Corporation had approximately $38,781 of
foreign operating loss carryforwards, of which $27,935 have no expiration dates
and $10,846 have expiration dates ranging from 1999 through 2007.
NOTE I - COMMON SHARES AND STOCK OPTIONS
At February 28, 1997 and February 29, 1996, common shares authorized consisted
of 93,800,000 Class A and 7,916,484 Class B shares. Class A shares have one vote
per share and Class B shares have ten votes per share. There is no public market
for the Class B common shares of the Corporation. Pursuant to the Corporation's
Amended Articles of Incorporation, a holder of Class B common shares may not
transfer such Class B common shares (except to permitted transferees, a group
that generally includes members of the holder's extended family, family trusts
and charities) unless such holder first offers such shares to the Corporation
for purchase at the most recent closing price for the Corporation's Class A
common shares. If the Corporation does not purchase such Class B common shares,
the holder must convert such shares, on a share for share basis, into Class A
common shares prior to any transfer.
Under the Corporation's Stock Option Plans, options to purchase Class A and
Class B shares are granted to directors, officers and other key employees at the
then-current market price. In general, subject to continuing employment, options
become exercisable commencing one year after date of grant in four equal annual
installments and expire over a period of not more than ten years from the date
of grant. The options granted to non-employee directors become exercisable in
six installments over five years. The options for certain Class B shares become
exercisable commencing one year after date of grant in ten equal annual
installments.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMON SHARES AND STOCK OPTIONS (CONTINUED)
The Corporation has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Corporation's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123 and has been determined as if the Corporation had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest rates of 6.4%
and 5.7%; dividend yield of 2.4% and 2.3%; volatility factor of the expected
market price of the Corporation's common stock of 0.25 and 0.27 and a
weighted-average expected life of the options of 4.6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Corporation's pro
forma information follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net income
As reported $167,095 $115,135
Pro forma 164,748 114,955
Earnings per share
As reported $2.23 $1.54
Pro forma 2.20 1.54
</TABLE>
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMON SHARES AND STOCK OPTIONS (CONTINUED)
Stock option transactions and prices are summarized as follows:
<TABLE>
<CAPTION>
Number of Options Options Price Range Per Share
----------------- -----------------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
March 1, 1994 2,043,540 775,090 $ 6.75 - $ 31.25 $ 19.25 - $ 26.75
Granted 76,791 - 26.13 - 30.00 -
Exercised (235,366) (5,000) 6.75 - 29.31 19.25
Cancelled (58,000) -
----------- --------
Options outstanding
February 28, 1995 1,826,965 770,090 $ 6.75 - $ 31.25 $ 7.16 - $ 26.75
Granted 105,291 6,000 25.75 - 31.63 28.13
Exercised (417,959) (36,000) 7.16 - 30.88 19.25
Cancelled (47,300) -
----------- --------
1,466,997 740,090 $ 6.75 - $ 31.63 $ 7.16 - $ 28.13
<CAPTION>
Weighted-Average Exercise Price Per Share
-----------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
February 29, 1996 1,466,997 740,090 $ 20.29 $ 11.01
Granted 891,595 215,922 27.29 27.32
Exercised (317,409) (43,500) 18.10 19.31
Cancelled (84,800) - 27.13 -
----------- --------
Options outstanding
February 28, 1997 1,956,383 912,512 $ 23.57 $ 14.42
========= =======
Options exercisable at February 28 or 29:
1997 1,169,083 689,762 $ 20.90 $ 12.79
1996 1,191,347 562,590 18.63 12.31
</TABLE>
Exercise prices for options outstanding as of February 28, 1997 ranged from
$6.75 to $31.63. The weighted average remaining contractual life of those
options is 7.1 years.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - LONG-TERM LEASES
The Corporation is committed under noncancelable operating leases for commercial
properties (certain of which have been subleased) and equipment, terms of which
are generally less than 25 years. Rental expense under operating leases for the
years ended February 28 or 29, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Gross rentals $59,228 $61,198 $63,247
Less sublease rentals 7,423 7,876 8,378
------- ------- -------
Net rental expense $51,805 $53,322 $54,869
======= ======= =======
</TABLE>
At February 28, 1997, future minimum rental payments for noncancelable operating
leases, net of aggregate future minimum noncancelable sublease rentals, follow:
<TABLE>
<CAPTION>
<S> <C>
Gross Rentals:
1998 $ 42,541
1999 38,499
2000 35,268
2001 31,814
2002 27,488
Later years 67,572
---------
243,182
Sublease rentals (23,022)
---------
Net rentals $ 220,160
=========
</TABLE>
NOTE K - ASSET IMPAIRMENT LOSS
During 1996, in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Corporation recorded an impairment loss on the
long-lived assets of its CreataCard business. The trends in the CreataCard
business indicated that the undiscounted future cash flows from this business
would be less than the carrying value of the long-lived assets related to that
business. Accordingly, on November 1, 1995, the Corporation recognized an asset
impairment loss of $52,061 ($35,094 net of tax, or $.47 per share). This loss is
the difference between the carrying value of the CreataCard machines and related
goodwill and other intangibles, and the fair value of these assets based on
discounted estimated future cash flows.
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - BUSINESS SEGMENT INFORMATION
The Corporation operates predominantly in a single industry: the design,
manufacture and sale of greeting cards and other social expression products.
While the Corporation offers a wide range of items for sale, many of them are
manufactured at common production facilities and marketed by a common sales
force. The Corporation's products are sold primarily to drug stores, mass
merchandisers, supermarkets and card and gift stores.
In addition to its North American operations, which include the United States
and Canada, the Corporation has subsidiaries in Europe, Australia, New Zealand,
Mexico and South Africa.
Revenue transfers between geographic areas and other intergeographic
eliminations are not material. The Corporation does not derive more than 10% of
its total revenue from any individual customer, government agency or export
sales. Operating profit (loss) by geographic segment is revenue less operating
costs, excluding interest and income taxes.
Segment information by geographic area for the years ended February 28 or 29,
1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
North Other
America Foreign Consolidated
------- ------- ------------
1997
- ----
<S> <C> <C> <C>
Total revenue $2,009,455 $ 162,843 $2,172,298
Operating profit 279,212 5,867 285,079
Total assets excluding
cash and equivalents 1,870,569 229,501 2,100,070
1996
- ----
Total revenue $1,907,942 $ 104,012 $2,011,954
Operating profit (loss)
before asset impairment loss 257,667 (6,307) 251,360
Asset impairment loss 49,432 2,629 52,061
---------- --------- ----------
Operating profit (loss) 208,235 (8,936) 199,299
Total assets excluding
cash and equivalents 1,744,465 231,237 1,975,702
1995
- ----
Total revenue $1,775,957 $ 102,483 $1,878,440
Operating profit (loss) 251,990 (7,956) 244,034
Total assets excluding
cash and equivalents 1,565,973 108,627 1,674,600
</TABLE>
33
<PAGE> 34
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
Thousands of dollars except per share amounts
The following is a summary of the unaudited quarterly results of operations for
the years ended February 28, 1997 and February 29, 1996.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
May 31 August 31 November 30 February 28 or 29
-------- --------- ----------- -----------------
<S> <C> <C> <C> <C>
Fiscal 1997
- -----------
Net sales $438,212 $466,536 $647,723 $608,618
Total revenue 440,127 469,024 651,074 612,073
Gross profit 283,545 278,277 397,568 396,575
Net income 27,772 11,429 74,597 53,297
Per share .37 .15 1.00 .71
Fiscal 1996
- -----------
Net sales $438,509 $431,171 $587,602 $545,756
Total revenue 440,617 433,168 588,689 549,480
Gross profit 294,923 259,112 340,432 346,565
Asset impairment loss - - 52,061 -
Net income 37,300 15,029 17,484 45,322
Per share .50 .20 .24 .60
</TABLE>
34
<PAGE> 35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
American Greetings Corporation
We have audited the accompanying consolidated statements of financial position
of American Greetings Corporation as of February 28, 1997 and February 29, 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended February 28, 1997.
Our audits also included the financial statement schedule listed in the index at
Item 14. These financial statements and schedule are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 consolidated financial position of American Greetings
Corporation at February 28, 1997 and February 29, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 28, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note K to the consolidated financial statements, in 1996 the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
Ernst & Young LLP
Cleveland, Ohio
March 27, 1997
35
<PAGE> 36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Corporation's independent
accountants on accounting and financial disclosure matters within the three year
period ended February 28, 1997, or in any period subsequent to such date.
PART III
The Corporation hereby incorporates by reference the information
called for by Part III of Form 10-K from the Corporation's Notice of Annual
Meeting of Shareholders to be held June 27, 1997, and related Proxy Statement
filed with the Securities and Exchange Commission on May 14, 1997.
(Next item is Part IV)
36
<PAGE> 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements
--------------------
Included in Part II of this report:
Consolidated Statement of Income Years ended February
28 or 29, 1997, 1996 and 1995
Consolidated Statement of Financial Position -
February 28, 1997 and February 29, 1996
Consolidated Statement of Cash Flows Years ended
February 28 or 29, 1997, 1996 and 1995
Consolidated Statement of Shareholders' Equity Years
ended February 28 or 29, 1997, 1996 and 1995
Notes to Consolidated Financial Statements Years
ended February 28 or 29, 1997, 1996 and 1995
Quarterly Results of Operations (Unaudited)
Report of Ernst & Young LLP, Independent Auditors
2. Exhibits required by Item 601 of Regulation S-K:
------------------------------------------------
(3) Articles of Incorporation and By-laws
(i) Amended Articles of Incorporation of the
Registrant
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form S-3
Registration Statement (Registration No.
33-50255) filed on September 15, 1993, and
is incorporated herein by reference.
(ii) Amended Regulations of the Registrant
This Exhibit has been previously filed as an
Exhibit to the Amendment No. 1 to the
Registrant's Form S-3 Registration Statement
(Registration No. 33-39726) filed on May 17,
1991, and is incorporated herein by
reference.
(10) Material Contracts
(i) (A) (i) Officers' contracts*
37
<PAGE> 38
PART IV - Continued
(ii) Employment Agreement with Edward
Fruchtenbaum, dated May 18, 1992 (as
amended)*
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1994, and is
incorporated herein by reference.
(iii) Employment Agreement with Jon Groetzinger,
Jr. dated April 25, 1988 (as amended)
(ii) (A) (i) Shareholders Agreement dated November 19,
1984
(ii) Executive Bonus Plan*
(iii) Executive Incentive Compensation Plan (as
Amended and Restated as at March 6, 1989)*
(iv) Executive Deferred Compensation Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form 10-K
Annual Report for the Fiscal Year ended
February 28, 1993, and is incorporated
herein by reference.
(v) 1982 Incentive Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
2-84911) dated July 1, 1983, and is
incorporated herein by
reference.
(vi) 1985 Incentive Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-975) dated November 7, 1985, and is
incorporated herein by
reference.
(vii) Supplemental Executive Retirement Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form 10-K
Annual Report for the Fiscal Year ended
February 28, 1993, and is incorporated
herein by reference.
38
<PAGE> 39
PART IV - Continued
(viii) 1987 Class B Stock Option Plan
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-16180) dated July 31, 1987, and is
incorporated herein by
reference.
(ix) Stock Option Agreement with Morry Weiss
dated January 25,1988*
(x) Loan Agreement with Edward Fruchtenbaum
dated March 1,1990*
(xi) 1992 Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-58582) dated February 22,1993, and is
incorporated herein
by reference.
(xii) CEO/COO Compensation Plans*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form 10-K
Annual Report for the Fiscal Year ended
February 28,1995, and is incorporated
herein by reference.
(xiii) 1995 Director Stock Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-61037) dated July 14, 1995, and is
incorporated herein by
reference.
(xiv) 1996 Employee Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-08123) dated July 15, 1996, and is
incorporated herein by
reference.
(xv) 1997 Equity and Performance Incentive Plan
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
39
<PAGE> 40
PART IV - Continued
Executive Compensation Plans and Arrangements
The Corporation's executive compensation plans and
arrangements are listed under Exhibit 10 hereof and
marked by an asterisk(*).
(b) Reports on Form 8-K
None
(c) Exhibits listed in Item 14(a) 3. are included
herein or incorporated herein by reference.
(d) Financial Statement Schedules
The response to this portion of Item 14 is
submitted below.
3. Financial Statement Schedules
----------------------------
Included in Part IV of the report:
Schedule II - Valuation and Qualifying Accounts
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, and
therefore have been omitted.
40
<PAGE> 41
PART IV - Continued
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN GREETINGS CORPORATION
------------------------------
(Registrant)
Date: May 27, 1997 By: /s/ Jon Groetzinger, Jr.
-------------- ------------------------------
Jon Groetzinger, Jr.
Secretary
41
<PAGE> 42
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ Irving I. Stone Founder - Chairman; )
- -------------------------------- Chairman of the )
Irving I. Stone Executive Committee: )
Director )
)
/s/ Morry Weiss Chairman of the Board; )
- -------------------------------- Chief Executive Officer; )
Morry Weiss Director )
)
/s/ Edward Fruchtenbaum President; )
- -------------------------------- Chief Operating Officer; )
Edward Fruchtenbaum Director )
)
/s/ Scott S. Cowen Director ) May 27, 1997
- -------------------------------- )
Scott S. Cowen )
)
/s/ Herbert H. Jacobs Director )
- -------------------------------- )
Herbert H. Jacobs )
)
/s/ Albert B. Ratner Director )
- -------------------------------- )
Albert B. Ratner )
)
/s/ Harry H. Stone Director )
- -------------------------------- )
Harry H. Stone )
)
/s/ Jeanette S. Wagner Director )
- -------------------------------- )
Jeanette S. Wagner )
)
/s/ Milton A. Wolf Director )
- -------------------------------- )
Milton A. Wolf )
)
/s/ Abraham Zaleznik Director )
- -------------------------------- )
Abraham Zaleznik )
)
/s/ William S. Meyer Senior Vice President; )
- -------------------------------- Chief Financial Officer; )
William S. Meyer (principal financial officer) )
)
/s/ Patricia L. Ripple Vice President; )
- -------------------------------- Corporate Controller; )
Patricia L. Ripple (principal accounting officer) )
</TABLE>
42
<PAGE> 43
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES
(000)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------
Balance (1) (2) Balance
Description at Beginning Charged to Costs Charged to Other Deductions-Describe at End
of Period and Expenses Accounts-Describe of Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1997:
Deduction from asset account:
Allowance for doubtful accounts $ 16,214 $ 8,210 $ 113(A) $ 9,273(B) $ 15,264
======== ======== ===== ======== ========
Allowance for sales returns $141,412 $306,755 $ 164(A) $326,475(C) $121,856
======== ======== ===== ======== ========
Allowance for other assets $ 16,400 $ 0 $ 0 $ 0 $ 16,400
======== ======== ===== ======== ========
Year ended February 29, 1996:
Deduction from asset account:
Allowance for doubtful accounts $ 14,968 $ 13,905 $ 367(A) $ 13,026(B) $ 16,214
======== ======== ===== ======== ========
Allowance for sales returns $102,004 $321,693 $ 238(A) $282,523(C) $141,412
======== ======== ===== ======== ========
Allowance for other assets $ 5,000 $ 11,400 $ 0 0 $ 16,400
======== ======== ===== ======== ========
Year ended February 28, 1995:
Deduction from asset account:
Allowance for doubtful accounts $ 13,084 $ 8,674 $ (36)(A) $ 6,754(B) $ 14,968
======== ======== ===== ======== ========
Allowance for sales returns $ 97,903 $297,899 $ 41(A) $293,839(C) $102,004
======== ======== ===== ======== ========
Allowance for other assets $ 0 $ 5,000 $ 0 $ 0 $ 5,000
======== ======== ===== ======== ========
<FN>
Note A: Includes translation adjustment on foreign subsidiary balances and
other minor reclasses and adjustments.
Note B: Accounts charged off, less recoveries.
Note C: Sales returns charged to the allowance account for actual returns for
the year.
</TABLE>
S - 1
<PAGE> 1
Exhibit (10)(i)(A)(i)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made at Cleveland, Ohio, this ______ day of
____________, 19 , by and between AMERICAN GREETINGS CORPORATION, an Ohio
corporation (herein called the "Corporation") and
- ------------------------------------------------------------------------------
(herein called "Employee").
In consideration of the covenants hereinafter set forth, the parties
hereto mutually agree as follows:
1. Subject to the provisions hereof, the Corporation shall
employ Employee as an officer of the Corporation, either elected by
the Board of Directors or appointed by the Executive Committee, or as
an officer of a subsidiary company with such duties and
responsibilities as may be assigned to him from time to time by the
Board of Directors or the Executive Committee of the Board of
Directors of the Corporation and Employee shall devote his full
business time and attention and give his best efforts to the business
affairs of the Corporation and/or of such of its subsidiaries as the
Board of Directors or the Executive Committee of the Board of
Directors of the Corporation may from time to time determine. Employee
recognizes that in serving as an officer of the Corporation or as an
officer of a subsidiary he serves in such capacity solely at the
pleasure of the Board of Directors or the Executive Committee of the
Board of Directors of the Corporation and that his employment in such
capacity or in any other capacity may be terminated at any time by the
Board of Directors or the Executive Committee of the Corporation.
2. The Corporation or a subsidiary shall, during the term of
this Employment Agreement, pay to Employee as
<PAGE> 2
minimum compensation for his services a base salary at a rate to be
fixed by the Board of Directors or the Executive Committee or the
Chairman of the Executive Committee, which rate shall not be less than
$______________________ per year, plus such additional compensation as
the Board of Directors or the Chairman of the Executive Committee or
the Executive Committee of the Board of Directors of the Corporation
may from time to time determine.
3. Employee covenants and agrees that in consideration of
his employment as an officer of the Corporation or as an officer of a
subsidiary he shall not for a period of twelve months after leaving
the employ of the Corporation or a subsidiary, regardless of the
reason for such leaving, enter into the employment, directly or
indirectly or in a consulting or free lance capacity, of any person,
firm or corporation in the United States or Canada, which at such date
of leaving the employ of the Corporation or a subsidiary shall be
manufacturing or selling products that are substantially similar in
nature to the products being then manufactured or sold by the
Corporation or the subsidiary.
4. In the event that the employment of Employee under this
Employment Agreement is terminated by the Corporation or a subsidiary,
the Corporation covenants and agrees that it shall pay or cause to be
paid to Employee a continuing salary at a rate which shall be the
highest base salary rate paid Employee during the preceding six-month
period for a period of time equivalent to one-half month for each year
of employment by the Corporation or a subsidiary of the Employee, but
in no event to be less than a period of
-2-
<PAGE> 3
three months nor greater than a period of twelve months. The
provisions of this paragraph shall not be applicable if the Employee
is terminated because of a gross violation of his obligations to the
Corporation.
5. In the event that Employee shall cease to be employed as
an officer of the Corporation or a subsidiary but shall continue in
the employ of the Corporation or a subsidiary, then this Employment
Agreement shall terminate twelve months after the date that Employee
ceases to be employed as an officer of the Corporation or a
subsidiary.
6. I agree that during the period of my employment and
thereafter, I will keep confidential and will not disclose any
information, records, documents or trade secrets of the Corporation
acquired by me during my employment, and except as required by my
employment, will not remove from the Corporation's premises any record
or other document relating to the business of the Corporation; or make
copies thereof; it being recognized by me that such information is the
property of the Corporation.
7. This Agreement shall be applied and interpreted under the
laws of the State of Ohio.
AMERICAN GREETINGS CORPORATION
By
----------------------------
President
-----------------------------
Employee
-3-
<PAGE> 1
Exhibit (10)(i)(A)(iii)
AGREEMENT
---------
Morry, this will confirm our 6/25/91 agreement regarding my continuing
employment as an American Greetings Corporation (AG) officer and employee:
On 6/24/96, AG will pay Groetzinger $250,000, less normal withholdings. If prior
to 6/24/96, Groetzinger dies, becomes disabled, is terminated or is otherwise no
longer an AG employee, AG shall pay Groetzinger, his trust, estate or other
designee a PRO RATA portion of such $250,000. Provided AG shall owe Groetzinger
none of the $250,000 if prior to 6/24/96 he unilaterally and voluntarily leaves
AG's employ, without having been terminated, whether constructively or
otherwise. Beginning 4/25/96, Groetzinger's base salary will not be less than
the then current base salary + $50,000.
AMERICAN GREETINGS CORPORATION
By:
---------------------------------- ----------------------------------
Morry Weiss, President & CEO Jon Groetzinger, Jr.
Dated: 7/17/91
<PAGE> 2
This will confirm our agreement that American Greetings' payment of $250,000,
less normal withholdings, to Jon Groetzinger, Jr., previously payable on 6/24/96
under our agreement of 6/25/91, will not be payable until, and will be paid on,
1/2/98. However, the $250,000 will be considered fully earned as of 6/24/96.
If prior to 1/2/98 Groetzinger dies, becomes disabled, is terminated or is
otherwise no longer an AG employee, AG shall, within ten days of such date, pay
Groetzinger, his trust, estate or other designee a PRO RATA portion of such
$250,000 if such event occurs prior to 6/24/96 and the full amount if such event
occurs between 6/24/96 and 1/2/98. AG shall, however, owe Groetzinger none of
the $250,000 if prior to 6/24/96, he unilaterally and voluntarily leaves AG's
employ, without having been terminated, whether constructively or otherwise.
During the period from 6/24/96 to 1/2/98, the $250,000 will earn a return equal
to the highest return of the investment vehicle options available under the
Company's Deferred Compensation Plan during the same period. Such return will be
paid to Groetzinger, his trust, estate or other designee, as the case may be, on
the same date that the $250,000 is paid.
All other provisions of our 6/25/91 agreement remain unchanged and in effect.
AMERICAN GREETINGS CORPORATION
By:
-------------------------------- ---------------------------
Morry Weiss, Chairman & CEO Jon Groetzinger, Jr.
Dated: February 21, 1994
<PAGE> 3
AMENDMENT
---------
Under our 6/25/91 agreement, beginning 6/25/96, Jon Groetzinger's base salary
will not be less than his then-current base salary + $50,000.
This will confirm our agreement that such new base salary will be earned daily
on a PRO RATA basis, but American Greetings Corp. will defer payment of
$76,301.00 ([$50,000/365 da.] * 557 da. {6/25/96-1/2/98}) to Groetzinger until
1/2/98.
If prior to 1/2/98, Groetzinger dies, becomes disabled, is terminated or is
otherwise no longer an AG employee, AG shall, within ten days of such date, pay
Groetzinger, his trust, estate or other designee a PRO RATA portion of such
$76,301.00 if such event occurs prior to 1/2/98.
During the period 6/25/96 to 1/2/98, the earned portion of the $76,301.00 will
earn a return equal to the highest return each month of the investment vehicle
options available each month under the Company's Deferred Compensation Plan
during the same period. AG will pay such return to Groetzinger, his trust,
estate or other designee, as the case may be, on the same date that such
deferred base salary is paid.
All other provisions of our 6/25/91 agreement and 2/21/94 amendment thereto
remain unchanged and in effect.
AMERICAN GREETINGS CORPORATION
By:
------------------------------------ ----------------------------
Morry Weiss, Chairman & CEO Jon Groetzinger, Jr.
Dated: June 18, 1996
<PAGE> 1
Exhibit (10)(ii)(A)(i)
SHAREHOLDERS' AGREEMENT
This SHAREHOLDERS' AGREEMENT (this "Agreement") dated as of
November 19, 1984 among the individuals, fiduciaries and charitable
organizations which have become signatories hereto as permitted herein (as
"Participating Shareholders" described in Section 1.3 hereof) and
American Greetings Corporation, an Ohio corporation (the "Corporation").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Participating Shareholders own of record or beneficially
(including as beneficial owners of certain voting trust certificates) Class B
Common Shares, par value $1 per share ("Class B Common Shares"), of the
Corporation; and
WHEREAS, the Participating Shareholders desire to ensure the continued
independence of the Corporation by subjecting the Class B Common Shares now
owned or hereafter acquired by them to certain mutually agreeable limitations;
and
WHEREAS, the Board of Directors of the Corporation has approved certain
transactions as a result of which the terms of the Class B Common Shares are
proposed to be modified to impose certain restrictions on the transfer of such
Shares;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration had and received, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, hereby
agree as follows:
<PAGE> 2
2
1. Definitions.
------------
1.1 The term "Family Member" shall mean Jacob Sapirstein, founder of
the Corporation, his lineal descendants by blood or by legal adoption prior to
age 18, spouses of such descendants, the lineal descendants of any such spouses,
the spouses of any such spouses' lineal descendants and trusts (including voting
trusts) exclusively for the benefit of any such persons. In applying the term
"exclusively" for purposes of this Agreement, the interest of any Charity that
is a Participating Shareholder (or does not fail to become a Participating
Shareholder at the time provided in Section 1.3 hereof) or any contingent trust
interest having at the time of transfer an actuarial value (under valuation
tables then used for federal gift tax purposes for gifts between private
individuals) of not more than 5 percent of the value of the assets of the trust
or an unexercised power of appointment shall be ignored.
1.2 The term "Charity" shall mean an organization contributions to
which are deductible for federal income, estate or gift tax purposes.
1.3 The term "Participating Shareholder" shall mean any Family Member
or Charity which has signed or hereafter signs a counterpart of this Agreement,
delivered a copy thereof to all other Participating Shareholders (or to the
Depository (as defined in Section 7.1 hereof)) and is bound
<PAGE> 3
3
by the terms hereof. No Participating Shareholder shall be deemed to forfeit
such status upon divorce, remarriage or adoption. In the case of a trust (other
than a voting trust, which is governed by Section 6 hereof) exclusively for the
benefit of a Family Member or Members, the Trustee and all adult beneficiaries
having a current trust interest (as well as all ascertainable Charitable
beneficiaries having a current trust interest) shall sign this Agreement as
Participating Shareholders if the trust is to be considered a Participating
Shareholder. During his lifetime, the donor of a trust that is revocable by the
donor alone shall be considered the only beneficiary thereof so long as such
trust is so revocable. At such time, if any, as the trust shall have an adult
beneficiary having a current trust interest or an ascertainable Charitable
beneficiary having a current trust interest who or which shall fail or be unable
to sign this Agreement for a period of 30 days following notification to such
beneficiary of the terms of this Agreement by any Participating Shareholders or
by the Depository, the trust shall thereupon cease to be a Participating
Shareholder and Section 3 of this Agreement shall then apply as if the Class B
Common Shares held by the trust were then to be transferred. In the case of a
minor or incompetent beneficiary, the Trustee (or a Custodian under the
applicable Uniform Gifts to Minors Act or the practical equivalent thereof in
the case of Class B Common
<PAGE> 4
4
Shares held under such Act or equivalent) and a parent (in the case of a minor)
or legal guardian (in the case of a minor or an incompetent) of the beneficiary
shall sign on his behalf if the trust (or custodial arrangement) is to be
considered a Participating Shareholder. In the case of a minor or incompetent
beneficiary, the Trustee or custodian shall in any event be obligated to secure
the beneficiary's legally binding signature (or that of his legal guardian) to
this Agreement prior to an actual distribution of Class B Common Shares, and if
such signature is not so secured such beneficiary shall not be considered a
Participating Shareholder and such distribution shall be subject to Section 3 of
this Agreement.
2. Permitted Transfers.
--------------------
2.1 Any Participating Shareholder may at any time sell, give or
otherwise transfer Class B Common Shares or any interest therein to any Family
Member who is a Participating Shareholder. Any Participating Shareholder may at
any time give Class B Common Shares or any interest therein to a Charity that is
a Participating Shareholder. Any Class B Common Shares so transferred shall
remain subject to this Agreement in the hands of the transferee.
2.2 Any Participating Shareholder may pledge Class B Common Shares as
security for a loan if the pledgee (being competent to do so) agrees in writing
to be bound by this Agreement and to receive such Class B Common Shares subject
<PAGE> 5
5
to this Agreement and, in the event of default on such loan and levy upon the
collateral, to offer such Class B Common Shares to the Participating
Shareholders other than the pledgor in accordance with the procedures specified
in Section 4 hereof, and to convert into Class A Common Shares, par value $1 per
share ("Class A Common Shares"), of the Corporation in accordance with the
Articles of Incorporation of the Corporation any Class B Common Shares not
accepted by such Participating Shareholders.
3. Transfers for Which First Refusal Procedure is
----------------------------------------------
Required.
---------
3.1 Any Participating Shareholder who desires to sell, give or
otherwise transfer Class B Common Shares (or the Class A Common Shares into
which they are convertible) or any interest therein otherwise than as provided
in Section 2 hereof shall first offer to sell or exchange such Class B Common
Shares to or with the other Participating Shareholders and the Corporation. Such
offer shall be made, and may be accepted, in accordance with the procedures
specified in Section 4 hereof. During a period of 30 days following the last to
expire of the rights of the other Participating Shareholders and the
Corporation, the Participating Shareholder desiring to transfer such Shares or
any interest therein shall have the right, in accordance with the Articles of
Incorporation of the Corporation, to convert any Class B Common Shares not
acquired by any other Participating Shareholder or the
<PAGE> 6
6
Corporation into Class A Common Shares and may transfer such Class A Common
Shares or any interest therein free of the limitations provided for herein, but
only to the person to whom such transfer was originally proposed to be made and
only on terms (except for price in the case of a gift) no more favorable to such
person than those upon which the Class B Common Shares were offered to the other
Participating Shareholders. The Participating Shareholder desiring to transfer
shares may not transfer the Class B Common Shares not acquired by any other
Participating Shareholder without first converting them into Class A Common
Shares, and if such conversion is not accomplished within such 30-day period,
such Class B Common Shares shall continue to be subject to the provisions of
this Agreement.
3.2 Any Participating Shareholder who desires to convert Class B Common
Shares to Class A Common Shares (except as required by Section 3.1 or 3.3
hereof) in accordance with the Articles of Incorporation of the Corporation
shall first offer to transfer such Class B Common Shares to the other
Participating Shareholders and the Corporation in accordance with the procedures
specified in Section 4 hereof. During a period of 30 days following the last to
expire of the rights of the other Participating Shareholders and the
Corporation, the Participating Shareholder desiring to convert Class B Common
Shares may do so, but only to the extent such Class B Common Shares
<PAGE> 7
7
were not accepted by any other Participating Shareholder or the Corporation, and
the Class A Common Shares into which such Class B Common Shares are converted
shall be free from the limitations provided for herein.
3.3 Upon the death of a Participating Shareholder, any Class B
Common Shares then owned by such Participating Shareholder may be transferred in
accordance with Section 2.1 hereof to any other Participating Shareholder by the
personal representative of the estate of such deceased Participating Shareholder
(or by the trustee of any trust or by any other person (e.g., the trustee of a
profit sharing trust) by reason of the death of such deceased Participating
Shareholder). To the extent that any such personal representative, trustee or
other person is required or desires to transfer any Class B Common Shares (or
the Class A Common Shares into which they are convertible) owned by a deceased
Participating Shareholder, or any interest therein, otherwise than as permitted
by Section 2.1 hereof, such personal representative, trustee or other person
shall offer such Class B Common Shares to the other Participating Shareholders
and the Corporation in accordance with the procedures specified in Section 4
hereof. In the case of any Class B Common Shares that are so offered to the
other Participating Shareholders and the Corporation, upon completion of the
procedures specified in Section 4 hereof, those Class B Common Shares not
accepted
<PAGE> 8
8
by any other Participating Shareholder or the Corporation shall, in accordance
with the Articles of Incorporation of the Corporation, be converted into Class A
Common Shares, and thereafter such Class A Common Shares may be transferred to
the designated recipient thereof, free of the limitations provided for herein.
Each of the Participating Shareholders who is a natural person shall take all
steps appropriate to ensure that testamentary documents providing for
implementation upon such Participating Shareholder's death of the foregoing
procedures are in effect at all times after the date hereof.
4. First Refusal Procedures.
-------------------------
4.1 A Participating Shareholder, the personal representative of the
estate of a deceased Participating Shareholder, the trustee of any trust
agreement of which a deceased Participating Shareholder is donor (or any other
person in possession of Class B Common Shares which are to pass by reason of the
death of a Participating Shareholder), or a pledgee who is required by Section
2.2 or Section 3 hereof to offer Class B Common Shares to other Participating
Shareholders and the Corporation (an "Offeror") shall deliver to each of the
other participating Shareholders, the Corporation and the Depository a written
notice, dated the date on which it is sent, containing the following
information:
<PAGE> 9
9
(a) the number of Class B Common Shares proposed
to be transferred (after conversion) or converted (the "Offered Shares");
(b) whether the Offeror proposes to transfer under Section
3.1 hereof or convert under Section 3.2 hereof the Offered Shares;
(c) if the Offeror proposes to transfer the Offered Shares
under Section 3.1 hereof, the name and address of each proposed
transferee and the price per share, if any, payable to the Offeror upon
such transfer;
(d) the date on which the Offeror desires to carry out the
proposed transfer or conversion of the Offered Shares, which shall be
consistent with the procedures provided for in this Agreement
(generally such date should be not less than 20 nor more than 50
business days after the date of such notice).
If the Offeror proposes to make a transfer under Section 3.1 hereof, such
notice shall be accompanied by written evidence that any price per share payable
to the Offeror as specified in such notice is being offered for the Offered
Shares in good faith by the proposed transferee.
4.2 The other Participating Shareholders shall thereupon have the
right and option to acquire the Offered Shares, or any of them, for the
consideration specified in Section 4.3 hereof. Such Participating Shareholders
may
<PAGE> 10
10
exercise such right, at any time before the expiration of 7 business days after
such written notice and accompanying evidence (if applicable) have been given to
the last of such Participating Shareholders and the Corporation, in proportion
to the respective holdings of Class B Common Shares of each such Participating
Shareholder compared to the aggregate holdings of all such Participating
Shareholders; and if any such Participating Shareholder entitled thereto fails
to exercise such Participating Shareholder's right to acquire the Offered Shares
to its full extent, then such right may be exercised (to the extent that it has
not been exercised by such Participating Shareholder) within a further period of
5 business days by the other such Participating Shareholders, in whatever
proportion they may agree upon and, if they cannot agree, in proportion to the
respective holdings of each compared to the aggregate holdings of all of them;
and if the Participating Shareholders fail to exercise their rights to acquire
the Offered Shares to their full extent, then such rights may be exercised (to
the extent of any Offered Shares remaining) within a further period of 3
business days by the Corporation. The right to acquire Offered Shares may be
exercised by a Participating Shareholder or by the Corporation by the delivery
of written notice to the Offeror and the Depository, dated the date it is sent,
specifying the number of Class B Common Shares such
<PAGE> 11
11
Participating Shareholder or the Corporation will acquire and the consideration
such Participating Shareholder or the Corporation will deliver in accordance
with Section 4.3 hereof. In applying the term "holdings" in this Section 4.2 in
the case of Class B Common Shares owned by a trust (other than a voting trust),
the trust shall be considered to own the holding; except that, if the trustee
fails to any extent to exercise a right to acquire Offered Shares, beneficiaries
of the trust who are Participating Shareholders owning more than 50% of either
the then current income or the remainder interest in the trust, and desiring to
exercise such right shall be considered to own the holding in such proportions
as such beneficiaries shall agree upon.
4.3 Class B Common Shares accepted by a Participating Shareholder or
the Corporation in accordance with Section 4.2 hereof may be acquired, at the
election of such purchasing Participating Shareholder or the Corporation, as the
case may be, for cash, Class A Common Shares or a combination of such
considerations as follows:
(a) to the extent such purchasing Participating Shareholder or the
Corporation elects that the price be paid in Class A Common Shares, the
number of Class A Common Shares that shall be delivered in exchange shall
be equal to the number of Class B Common Shares to be exchanged,
<PAGE> 12
12
(b) to the extent such purchasing Participating Shareholder or the
Corporation elects that the price shall be paid in cash, the cash price for
Class B Common Shares shall be equal to the average of the last sale price
(if available) or, if not, the midpoints of the bid and asked prices, of
the Class A Common Shares in the NASDAQ National Market (or in the
principal national securities exchange or market on which the Class A
Common Shares may then be traded) on the 5 trading days preceding the date
of the Offeror's notice sent pursuant to Section 4.1 hereof, as reported
in the Wall Street Journal (or, if such periodical is not then published,
the most comparable periodical then being published) or, in the case of a
transfer under Section 3.1 hereof, such higher price as may have been
specified in such notice.
4.4 The sale or exchange contemplated by these procedures shall be
closed at the principal corporate trust office of the Depository, by delivery of
a certified, cashier's or bank check for the amount of any cash payable and the
delivery of certificates representing the Class B Common Shares and any Class A
Common Shares (endorsed in blank with signature guaranteed), on the day which is
19 business days after the date of the notice given pursuant to Section 4.1
hereof or on such later day as all
<PAGE> 13
13
applicable legal requirements pertaining to such sale or exchange shall have
been met.
5. Changes in Class B Common Shares.
---------------------------------
5.1 In the event of any change in the terms of the Class B Common
Shares, or any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Corporation, or
any merger, reorganization, consolidation or other corporate transaction having
an effect similar to the foregoing, the provisions of this Agreement shall
continue to apply to the Class B Shares of the Corporation or any securities of
any corporation issued in lieu thereof or with respect thereto subject, however,
to such equitable adjustment, if any, as may be necessary to reflect any change
in the relative rights and privileges of the Class A and Class B Common Shares.
5.2 Without limiting the generality of Section 5.1, the Participating
Shareholders acknowledge that the Articles of Incorporation of the Corporation
may be modified (by amendment or merger) to impose restrictions on transfer and
conversion of the Class B Common Shares in terms substantially similar to those
set forth in Exhibit A to this Agreement. The Participating Shareholders shall
vote the Class A Common Shares and Class B Common Shares held by them (as voting
trustee or otherwise) in favor of such modification, and the provisions of this
Agreement
<PAGE> 14
14
shall continue to apply without adjustment to the Class B Common Shares of the
Corporation (or any shares of any corporation issued in lieu thereof or with
respect thereto) owned by them if such modification becomes effective.
6. Reconciliation With Voting Trusts.
----------------------------------
6.1 Certain of the Participating Shareholders are now holders or
beneficial owners of voting trust certificates issued pursuant to a Voting Trust
Agreement dated December 9, 1976. The parties to such agreement hereby agree to
terminate such agreement effective upon the taking effect of provisions of the
Articles of Incorporation of the Corporation substantially to the effect set
forth in Exhibit A hereto. Unless and until such provisions become effective,
such agreement shall remain in full force and effect.
6.2 Certain of the Participating Shareholders are now holders or
beneficial owners of voting trust certificates issued pursuant to a Voting Trust
Agreement dated July 22, 1984 between Irving I. Stone, Judith S. Weiss and Morry
Weiss. Such agreement shall not be affected by this Agreement and shall remain
in full force and effect.
6.3 For purposes of this Agreement, voting trust certificates issued
pursuant to the voting trust agreements referred to in Sections 6.1 and 6.2
shall be treated as certificates for Class B Common Shares, and the Class B
Common Shares represented thereby shall be included in the
<PAGE> 15
15
Class B Common Shares to which this Agreement relates, so that any Participating
Shareholder (or the personal representative of the estate of a deceased
Participating Shareholder, the trustee of any trust agreement or any other
person in possession of Class B Common Shares which are to pass by reason of the
death of a Participating Shareholder) who desires to transfer any of such voting
trust certificates (other than as permitted by Section 2.1) or to convert into
Class A Common Shares any of the Class B Common Shares represented thereby shall
do so only after compliance with the procedures set forth herein. Any notices
required to be given pursuant to Section 4.1 and 4.2 hereof by or to an Offeror
who is a holder of any of such voting trust certificates shall be given
simultaneously, and the periods specified in such Sections shall run
concurrently, with the corresponding notices and periods provided for in Section
6 of each such voting trust agreement unless the group of participating
Shareholders to whom an offering is required to be made under this Agreement
differs from the group to whom such offer is required to be made under either
such voting trust agreement, in which case the offering procedures required by
this Agreement shall commence only upon completion of the procedures thereunder
and shall apply only to Class B Common Shares not theretofore accepted by a
Participating
<PAGE> 16
16
Shareholder pursuant to the procedures applicable under such voting trust
agreement.
6.4 Nothing herein shall prevent any of the Participating Shareholders
from depositing Class B Common Shares pursuant to the above-described voting
trust agreements or pursuant to such other voting trust agreements as they may
wish to enter into which are consistent with the terms of this Agreement and to
which Class B Common Shares are permitted to be transferred pursuant to Section
2.1 of this Agreement.
7. Compliance Provisions.
----------------------
7.1 Subject to the proviso stated below in this Section 7.1,
certificates representing the Class B Common Shares owned of record or
beneficially by the Participating Shareholders at the date of this Agreement
have been deposited with AmeriTrust Company National Association (the
"Depository"), and there has been marked on the face or the back of each such
certificate a legend to the following effect:
The Class B Common Shares, par value $1 per share, of American
Greeting Corporation (the "Corporation") represented by this Certificate
are subject to a Shareholders' Agreement dated as of November 19, 1984 and
originally entered into by the Corporation and Irving I. Stone, Morris S.
Stone, Harry H. Stone, Morry Weiss and other parties. Pursuant to such
Agreement, such Shares may not be sold, given or otherwise transferred or
converted into Class A Common Shares, par value $1 per share, of the
Corporation (except for transfers to certain persons specified in such
Agreement) except upon compliance with certain procedures,
<PAGE> 17
17
including, without limitation, offer of such Shares to certain other
shareholders of the Corporation and the Corporation and, in certain
situations, conversion into Class A Common Shares. The Corporation will
mail to the holder hereof a copy of such Agreement without charge within
five days after receipt of a written request therefor.
Each Participating Shareholder shall, to the extent legally able to do so,
forthwith upon becoming a Participating Shareholder by signing this Agreement
and thereafter upon becoming the record or beneficial owner of any other Class B
Common Shares, cause the certificates representing the same to be deposited with
the Depository for application of such legend, and the certificates representing
all Class B Common Shares now or hereafter owned (of record or beneficially) by
any of the Participating Shareholders shall continue to bear such legend and be
held by the Depository until such Class B Common Shares are converted into Class
A Common Shares in accordance with this Agreement or, if earlier, the
termination of this Agreement in accordance with the terms hereof; PROVIDED,
HOWEVER, that any Participating Shareholder may cause possession of such
certificates to be given to or retained by any pledgee to be held as security in
accordance with Section 2.2 hereof upon delivery to the Depository of the
written agreement of the pledgee referred to in such Section; and PROVIDED
FURTHER, that any Participating Shareholder owning any Class B Common Shares
held by a pledgee at the time such Participating Shareholder becomes a party to
this Agreement need only use reasonable
<PAGE> 18
18
efforts to cause such legend to be applied and to cause such pledgee to
agree in writing to be bound by the terms of this Agreement, and if such
Participating Shareholder is unable to cause such results the certificates
representing such Class B Common Shares may be retained by such pledgee
without his signing this Agreement and without such legend being applied.
Each Participating Shareholder shall at all times keep the Depository
advised of the number of Class B Common Shares such Participating
Shareholder owns.
7.2 The further rights and duties of the Depository shall be
governed by the terms and conditions of escrow contained in Exhibit B
attached hereto.
8. Amendment and Termination.
--------------------------
This Agreement may be amended or the term thereof extended only by a
written instrument referring specifically to this Agreement and signed by all of
the Participating Shareholders, provided, however, that
(a) any amendment to this Agreement for the purpose of including
additional persons among those to whom transfer of Class B Common Shares may be
made pursuant to Section 2.1 hereof,
(b) any amendment to change the Depository or to change the terms and
conditions of escrow set forth in Exhibit B hereto,
(c) any other amendment (not extending the term hereof) if no
Participating Shareholder files written objection thereto with the Depository
within 30 days after notice thereof (which notice shall include a statement that
Participating
<PAGE> 19
19
Shareholders have a right to file a written objection) is given
to all Participating Shareholders, and
(d) any instrument of termination,
need only be signed by Participating Shareholders owning beneficially
75% or more of the Class B Common Shares owned by all of the Participating
Shareholders. This Agreement, unless extended in accordance with the
immediately preceding sentence, shall terminate on December 31, 2014. This
Agreement, moreover, shall terminate in any event 21 years after the death of
the last to die of the lineal descendants of Jacob Sapirstein living on the
date of this Agreement.
9. Miscellaneous.
-------------
9.1 Notwithstanding any provision hereof to the contrary,
Class B Common Shares may be sold to the Corporation at any time it may offer to
purchase the same, free of the limitations provided for in this Agreement.
9.2 For purposes of this Agreement, ownership of Class
B Common Shares shall include ownership through the Employees' Retirement Profit
Sharing Plan of the Corporation, but only through the Common Stock Fund held
thereunder, and each separate account in which such shares are held shall be
considered a separate trust; provided, however, that notwithstanding Section 7.1
hereof, certificates representing Class B Common Shares held by the Trustee for
the benefit of participants in such plan shall remain in the custody of such
Trustee.
<PAGE> 20
20
9.3 As used herein, the term "spouse" includes a widow or a widower.
9.4 As used herein, the term "current trust interest" means the
interest of any beneficiary of a trust to whom interest or principal is
currently distributable either in the discretion of the trustee or otherwise.
9.5 As used herein, the term "business day" means any day other than
Saturday, Sunday or a federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight, Eastern Standard Time. In computing any time
period for purposes of this Agreement, the date of the event which begins the
running of such time period shall be included except that if such event occurs
on other than a business day such period shall begin to run on and shall include
the first business day thereafter.
9.6 As used herein, the term "personal representative" means the
executor, administrator or other personal representative of the estate of a
deceased Participating Shareholder.
9.7 All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered in hand or 72 hours after being deposited in a United States Post
Office, postage prepaid, registered or certified mail, and addressed to the
addressee at the address corresponding to such addressee's signature below, or
to such other address
<PAGE> 21
21
as may have been specified by such addressee to the Depository.
9.8 This Agreement shall inure to the benefit of and be binding
upon the Participating Shareholders and the Corporation, any pledgee who agrees
to be bound hereby pursuant to Section 2.2 hereof and their respective
successors, heirs, personal representatives, legatees and assigns. All
references herein to the Corporation shall include any other corporation to
which this Agreement may be assigned, by operation of law or otherwise, in
connection with any merger, reorganization, consolidation or other corporate
transaction having an effect similar to the foregoing, and all references herein
to the Articles of Incorporation of the Corporation shall refer to the Charter
of any such other corporation, however denominated.
9.9 If any provision of this Agreement shall be found unenforceable by
any court of competent jurisdiction to any extent, such holding shall not
invalidate or render unenforceable such provision to any greater extent or to
render unenforceable or invalidate any other provision hereof.
9.10 This Agreement may be executed in several counterparts, each of
which shall be an original and all of which shall constitute but one and the
same instrument, without production of the others.
<PAGE> 22
22
9.11 This Agreement shall be construed in accordance with the
internal substantive laws of the State of Ohio or such other jurisdiction as may
at the time of construction be the jurisdiction of incorporation of the issuer
of the Class B Common Shares.
IN WITNESS WHEREOF, the Participating Shareholders and the Corporation
have executed this Agreement or caused this Agreement to be executed in their
respective names, as the case may be, all as of the date and year first above
written.
Signature Address
--------- -------
/s/ Irving I. Stone 10500 American Road
- ------------------------ Cleveland, Ohio 44144
Irving I. Stone
/s/ Morris S. Stone 10500 American Road
- ------------------------ Cleveland, Ohio 44144
Morris S. Stone
/s/ Harry H. Stone 1540 Leader Building
- ------------------------ Cleveland, Ohio 44114
Harry H. Stone
/s/ Morry Weiss 10500 American Road
- ------------------------ Cleveland, Ohio 44144
Morry Weiss
/s/ Judith S. Weiss 4500 University Parkway
- ------------------------ University Heights, Ohio 44118
Judith S. Weiss
/s/ Judith S. Weiss 4500 University Parkway
- ------------------------ University Heights, Ohio 44118
Judith S. Weiss,
as Trustee under Revocable
Trust Agreement originally
dated April 21, 1947 for
the benefit of
Irving I. Stone
<PAGE> 23
23
AMERITRUST COMPANY Corporate Trust Division
NATIONAL ASSOCIATION, 900 Euclid Avenue
as Trustee under Cleveland, Ohio 44101
Trust Agreement
dated February 16,
1968 for the benefit
of Morris S. Stone
By /s/ , VP
--------------------------------
Title: Vice President
And /s/
-------------------------------
Title: Trust Officer
/s/ Harry H. Stone 1540 Leader Building
- ----------------------------------- Cleveland, Ohio 44114
/s/ Douglas B. Rose
- -----------------------------------
Harry H. Stone and
Douglas B. Rose,
as successor Trustees
under Trust Agreement
dated April 21, 1947
for the benefit of
Harry S. Stone
/s/ Irving I. Stone
- -----------------------------------
Irving I. Stone, as Trustee
under the Voting Trust Agreement
referred to in Sections 6.1 and
6.2 hereof
/s/ Morris S. Stone
- -----------------------------------
Morris S. Stone, as Trustee
under the Voting Trust Agreement
referred to in Section 6.1 hereof
/s/ Morry Weiss
- -----------------------------------
Morry Weiss as Trustee
under the Voting Trust Agreement
referred to in Section 6.2 hereof
/s/ Judith S. Weiss
- -----------------------------------
Judith S. Weiss, as Trustee
under the Voting Trust Agreement
referred to in Section 6.2 hereof
<PAGE> 24
24
AMERICAN GREETINGS 10500 American Road
Cleveland, Ohio 44144
By /s/ Morry Weiss
------------------------------
Title: President
<PAGE> 25
SHAREHOLDERS' AGREEMENT
-----------------------
COUNTERPART SIGNATURE PAGE
--------------------------
The undersigned, intending to become a party to and to be bound by the
Shareholders' Agreement dated as of November 19, 1984 (the "Agreement")
pertaining to Class B Common Shares, par value $1 per share, of American
Greetings Corporation, an Ohio Corporation, hereby executes this counterpart
signature page of the Agreement as of the 19th day of November, 1984.
/s/ Jacob Sapirstein
-----------------------------
JACOB SAPIRSTEIN, for himself
individually and as Trustee
under the Voting Trust
Agreement referred to in
Section 6.1 of the Agreement
<PAGE> 26
AmeriTrust Company National Association, by its duly authorized
officers, hereby acknowledges receipt of an executed counterpart of the
foregoing Shareholders' Agreement and agrees to act as Depository thereunder.
AMERITRUST COMPANY NATIONAL
ASSOCIATION, as Depository
By /s/
---------------------------
Title: Vice President
And /s/
--------------------------
Title: Trust Officer
Address: Corporate Trust Division
900 Euclid Avenue
Cleveland, Ohio 44101
<PAGE> 27
EXHIBIT A
---------
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 54,500,000, consisting of 50,000,000 shares of Class
A Common Stock, par value $1 per share ("Class A Common Stock"), and 4,500,000
shares of Class B Common Stock, par value $1 per share ("Class B Common Stock").
The powers, rights, privileges, qualifications, limitations and
restrictions of each class of common stock are as follows:
1. Each share of Class A Common Stock shall be entitled to one vote
upon all matters presented to stockholders. Each share of Class B Common Stock
shall be entitled to ten votes upon all matters presented to stockholders. Any
proposal to amend this Certificate of Incorporation to increase the authorized
number of shares of Class A Common Stock or the authorized number of shares of
Class B Common Stock shall require for its adoption the affirmative vote of the
holders of at least two-thirds of the then outstanding shares of Class A Common
Stock, voting as a class, and the affirmative vote of at least two-thirds of the
then outstanding shares of Class B Common Stock, voting as a class.
2. (a) Subject to and upon compliance with the provisions of this
Article FOURTH, the shares of Class B Common Stock shall be convertible at the
option of the holders thereof into shares of 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.
(b) The holders of shares of Class B Common Stock may exercise the
conversion privilege in respect thereof by delivering to any Transfer Agent of
the Class B Common Stock (i) the certificate for the shares of Class B Common
Stock to be converted and (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 shares of Class A Common Stock is to be issued. 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 Corporation shall issue and
deliver to the holder of the shares of 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 shares of Class B
Common Stock. The person in whose name the
<PAGE> 28
2
stock certificate is to be issued shall be deemed to have become a holder of
shares of Class A Common Stock of record on the conversion date. The Corporation
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 its duly authorized
shares of 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 shares of Class A Common Stock
as provided in this Article FOURTH shall not be reissued.
3. (a) No person (other than the Corporation) holding shares of Class B
Common Stock (herein referred to as a "Class B Holder") may transfer, and the
Corporation shall not register the transfer of, shares of Class B Common Stock,
whether by sale, assignment, gift, bequest, appointment or otherwise, except to
the Corporation or a Permitted Transferee of such Class B Holder.
(b) For purposes of this paragraph (3), the term
"Permitted Transferee" shall have the following meaning:
(i) in the case of a Class B Holder who is a natural person holding
record and beneficial ownership of the shares of Class B Common Stock in
question, "Permitted Transferee" means:
(A) a grandparent of such Class B Holder, (B) a lineal descendant of a
grandparent of such Class B Holder, (C) a spouse of a lineal
descendant of a grandparent of such Class B Holder, (D) a lineal
descendant of any spouse of a lineal descendent of a grandparent of
such Class B Holder or the spouse of any such spouse's lineal
descendant, (E) a gratuitous transferee that is an organization
contributions to which are deductible for federal income, estate or
gift tax purposes (any such gratuitous transferee being herein
referred to as a "Charitable Organization"), and (F) the trustee of a
trust (including, without limitation, a voting trust) for the
exclusive benefit of one or more of the foregoing if such trust by its
terms prohibits transfer of shares of Class B Common Stock to persons
other than Permitted Transferees referred to in the foregoing
subclauses of this clause (i);
(ii) in the case of a Class B Holder holding the shares of Class B
Common Stock in question as trustee pursuant to a trust other than a trust
described in clause (iii) below, "Permitted Transferee" means (A) the
person
<PAGE> 29
3
who established such trust, and (B) a Permitted Transferee of such person
determined pursuant to clause (i) above;
(iii) in the case of a Class B Holder holding the shares of Class B
Common Stock in question as trustee pursuant to a trust which was
irrevocable on the record date, for determining the persons to whom the
Class B Common Stock is first distributed by the Corporation, "Permitted
Transferee" means any person to whom or for whose benefit principal may be
distributed either during or at the end of the term of such trust whether
by power of appointment or otherwise;
(iv) in the case of a Class B Holder holding record (but not
beneficial) ownership of the shares of Class B Common Stock in question as
nominee for the person who was the beneficial owner thereof on the record
date, "Permitted Transferee" means such beneficial owner and any Permitted
Transferee of such beneficial owner determined pursuant to clause (i),
(ii), (iii), (v) or (vi) hereof, as the case may be;
(v) in the case of a Class B Holder which is a partnership holding
record and beneficial ownership of the shares of Class B Common Stock in
question, "Permitted Transferee" means any partner of such partnership;
(vi) in the case of a Class B Holder which is a corporation (other
than a Charitable Organization described in subclause (E) of clause (i)
above) holding record and beneficial ownership of the shares of Class B
Common Stock in question, "Permitted Transferee" means any stockholder of
such corporation receiving shares of Class B Common Stock through a
dividend or redemption or through a distribution made upon liquidation of
such corporation, and the survivor of a merger or consolidation of such
corporation; and
(vii) in the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or insolvent
Class B Holder, and provided such deceased, bankrupt or insolvent Class B
Holder, as the case may be, held record and beneficial ownership of the
shares of Class B Common Stock in question, "Permitted Transferee" means a
Permitted Transferee of such deceased, bankrupt or insolvent Class B Holder
as determined pursuant to clause (i), (v) or (vi) above, as the case may
be.
(c) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Holder's shares of Class B Common Stock to a
pledgee pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares
<PAGE> 30
4
shall not be transferred to or registered in the name of the pledgee and shall
remain subject to the provisions of this paragraph 3. In the event of
foreclosure or other similar action by the pledgee, such pledged shares of Class
B Common Stock may only be transferred to a Permitted Transferee of the pledgor
or converted into shares of Class A Common Stock, as the pledgee may elect.
(d) For purposes of this paragraph 3:
(i) the relationship of any person that is derived by or through legal
adoption prior to age 18 shall be considered a natural one;
(ii) the term "spouse" shall include a widow or widower;
(iii) each grandparent of any joint owner of particular shares of
Class B Common Stock shall be considered a grandparent of all joint owners
of such shares;
(iv) a minor for whom shares of Class B Common Stock are held pursuant
to a Uniform Gifts to Minors Act or similar law shall be considered a Class
B Holder of such shares;
(v) in applying the term "exclusive benefit," a contingent trust
interest having at the time of transfer an actuarial value (under actuarial
tables then used for federal gift tax purposes for gifts between private
individuals) of not more than five percent of the value of the assets of
the trust shall be ignored; and
(vi) unless otherwise specified, the term "person" means both natural
persons and legal entities.
(e) Any purported transfer of shares of Class B Common Stock not
permitted by this Article FOURTH shall be void and of no effect and the
purported transferee shall have no rights as a stockholder of the Corporation
and no other rights against or with respect to the Corporation. The Corporation
may, as a condition to the transfer or the registration of transfer of shares of
Class B Common Stock to a purported Permitted Transferee, require the furnishing
of such affidavits or other proof as it deems necessary to establish that such
transferee is a Permitted Transferee.
(f) The Corporation shall conspicuously note on the certificates
representing shares of Class B Common Stock the restrictions on transfer and
registration of transfer imposed by this paragraph (3).
<PAGE> 31
5
4. Subject to and upon compliance with the provisions of this
Article FOURTH, authorized and unissued shares of Class B Common Stock may be
issued (after the date shares of Class B Common Stock are first issued by the
Corporation) only simultaneously with the issuance of shares of Class A Common
Stock for cash at the same cash price (without deduction for any commissions
payable or discounts allowed) per share; provided, however, that the number of
shares of Class B Common Stock so issued shall not exceed the product of (i) the
number of shares of Class A Common Stock being so issued and (ii) the ratio of
the number of shares of Class B Common Stock issued and outstanding at the
record date fixed for determining the holders of Class B Common Stock who have
the right as provided below to purchase such shares of Class B Common Stock
being issued, to the number of shares of Class A Common Stock issued and
outstanding at such date, except that authorized and unissued shares of Class B
Common Stock may be issued without regard to the foregoing limitation pursuant
to any dividend reinvestment plan approved by the Board of Directors of the
Corporation.
5. The holders of shares of Class B Common Stock, upon the sale for
cash of additional shares of Class B Common Stock, have the right to purchase
such shares in proportion to their respective holdings of shares of Class B
Common Stock at the price prescribed in the preceding paragraph (4) during such
reasonable time and on such reasonable terms as may be fixed by the Board of
Directors of the Corporation. Such terms may include provision for the purchase
of shares of Class B Common Stock offered to holders who do not timely exercise
such right by the other holders of shares of Class B Common Stock; provided,
however, that no shareholder shall have any preemptive right with respect to any
shares of Class B Common Stock issued pursuant to any dividend reinvestment plan
approved by the Board of Directors of the Corporation. The holders of shares of
Class A Common Stock and shares of Class B Common Stock shall have no other
preemptive right to purchase or have offered to them for purchase any additional
shares of stock of any class of the Corporation.
6. No change of outstanding shares of Class A Common Stock or shares
of Class B Common Stock so as to effect a share dividend thereon or a split or
combination thereon shall be made unless a corresponding change is made with
respect to the shares of the stock of the other class.
7. Except as above provided each share of Class A Common Stock and
each share of Class B Common Stock shall be identical and have similar rights,
privileges, qualifications, limitations and restrictions.
<PAGE> 32
EXHIBIT B
---------
TERMS AND CONDITIONS OF ESCROW
SECTION 1. Upon receiving certificates representing Class B Common
Shares or Voting Trust Certificates representing Class B Common Shares (the
"Certificates") to be deposited with AmeriTrust Company National Association
(the "Depository") pursuant to the terms and conditions of the Agreement, the
Depository shall hold the same in escrow upon the terms and conditions
hereinafter set forth.
SECTION 2. The Depository shall mark the appropriate legend on the face
or the back of each Certificate deposited hereunder in accordance with Section
7.1 of the Agreement.
SECTION 3. The Depository shall hold the Certificates until such time
as it shall receive written notification, pursuant to the Agreement, that Class
B Common Shares are to be converted or transferred.
(a) In the event that such written notification states that Class
B Common Shares are to be converted or transferred otherwise than as
provided under Section 2.1 of the Agreement, then the Depository shall
deliver the Certificates and take such further action, as contemplated
by the Agreement, in accordance with written instructions executed by
the parties to the Agreement who are transferring, converting or
acquiring the Class B Common Shares represented by such Certificates;
(b) In the event that such written notification states that Class
B Common Shares are to be transferred by a Participating Shareholder
as provided under Section 2.1 of the Agreement, then the Depository
shall deliver the Certificates and take such further action, as
contemplated by the Agreement, in accordance with the written
instructions of the Participating Shareholder making such transfer.
The Depository may, as a condition to taking any such action, require
the furnishing of affidavits, or other proof as it deems necessary to
establish that such transfer is permitted by such Section 2.1.
(c) In no event shall the Depository be required to take any
action under this Section 3 until it shall have received proper
written instructions as stated herein.
<PAGE> 33
2
SECTION 4. DUTIES AND ADVERSE CLAIMS. The duties and obligations of the
Depository shall be determined solely by the express provisions of the Agreement
including this Exhibit "B" (hereinafter collectively referred to as the
Agreement). In the event of any disagreement or the presentation of any adverse
claim or demand in connection with the delivery of Certificates, the Depository
shall, at its option, be entitled to refuse to comply with any such claims or
demands during the continuance of such disagreement and may refrain from
delivering any Certificates affected hereby, and in so doing, the Depository
shall not become liable to any party to the Agreement or to any other person due
to its failure to comply with such adverse claim or demand. The Depository shall
be entitled to continue, without liability, to refrain and refuse to act:
(a) Until authorized to act by a court order from a court having
jurisdiction of the parties and the property, after which
time the Depository shall be entitled to act in conformity
with such adjudication; or
(b) Until all differences shall have been adjusted by agreement
and the Depository shall have been notified thereof and
shall have been directed in writing, signed jointly or in
counterpart by all persons making adverse claims or demands,
at which time the Depository shall be protected in acting in
compliance therewith.
SECTION 5. DEPOSITORY'S LIABILITY LIMITED. The Depository shall not be
liable to anyone whatsoever by reason of any error of judgment or for any act
done or step taken or omitted by it in good faith or for any mistake of fact or
law or for anything which it may do or refrain from doing in connection herewith
unless caused by or arising out of its own gross negligence or willful
misconduct. The parties to the Agreement represent to the Depository that they
have and shall continue to solicit the advice of their respective counsel
regarding compliance with all applicable state and federal securities laws in
connection with the transactions contemplated by the Agreement and that they
will act in accordance with such advice. The Depository shall have no
responsibility to ensure compliance with any such securities laws, and such
responsibility rests solely with the parties to the Agreement.
SECTION 6. RELIANCE BY DEPOSITORY ON DOCUMENTS, ETC. The Depository
shall be entitled to rely and shall be protected in acting in reliance upon any
instructions or directions furnished to it in writing pursuant to any provisions
of the
<PAGE> 34
3
Agreement and shall be entitled to treat as genuine, and as the document it
purports to be, any letter, paper or other document furnished to it and believed
by it to be genuine and to have been signed and presented by the proper party or
parties. Without limiting the generality of the foregoing, in the absence of
written notice received by the Depository to the contrary, the Depository shall
be entitled to rely upon its due receipt of any notice under the Agreement as
conclusive evidence that such notice was given to all other persons as required
by the Agreement if such notice so indicates by its terms.
SECTION 7. INDEMNIFICATION AND LEGAL COUNSEL FOR DEPOSITORY. The
parties to the Agreement hereby agree to indemnify the Depository and save it
harmless from and against all losses, damages, costs, charges, payments,
liabilities and expenses, including the costs of litigation, investigation and
reasonable legal fees incurred by the Depository and arising directly or
indirectly out of its role as Depository pursuant to the Agreement, including
such losses, damages, costs, charges, payments, and suits made or asserted,
whether groundless or otherwise, against the Depository unless the same arise
out of the willful misconduct or gross negligence of the Depository. The parties
to the Agreement agree that the Depository does not assume any responsibility
for the failure of any of the parties to make payments or perform the conditions
of the Agreement, nor shall the Depository be responsible for the collection of
any monies provided to be paid to it. The Depository may consult with counsel of
its own choice and shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. The provisions of this Section 7 shall survive
termination of the escrow arrangement contemplated hereby.
SECTION 8. COMPENSATION. The parties to the Agreement agree to pay the
Depository reasonable compensation for the services to be rendered hereunder and
will pay or reimburse the Depository upon request for all expenses,
disbursements and advances, including reasonable attorneys fees, incurred or
made by it in connection with carrying out its duties hereunder.
SECTION 9. LIENS. The Depository shall have a first lien on all items
held by it herewith for its compensation and for any costs, liability, expenses,
or fees it may incur and shall not be required to deliver or pay over any
instrument, money, or other property deposited with it under this Agreement
unless and until it shall have received full payment for its compensation,
costs, liability, expenses, or fees.
<PAGE> 35
4
SECTION 10. RESIGNATION. The Depository shall have the right to resign
upon giving thirty (30) days written notice by mailing said written notice
thereof to the proper party or parties; provided that no such resignation shall
become effective until a successor has been duly appointed to act as Depository
by amendment to the Agreement and such successor has agreed so to act.
<PAGE> 1
Exhibit (10)(ii)(A)(ii)
AMERICAN GREETINGS CORPORATION
RESOLUTIONS OF BOARD OF DIRECTORS CONSTITUTING
EXECUTIVES' BONUS PLAN
Resolution Adopted January 27, 1950
- -----------------------------------
RESOLVED that, until further order of this Board of Directors, the
basic salaries of the President and Vice Presidents shall be at the
following respective annual rates:
Jacob Sapirstein, President - $40,000
Irving I. Stone, Vice President - 40,000
Morris S. Stone, Vice President - 40,000
Harry H. Stone, Vice President - 40,000
Joe Zel, Vice President - 23,000
and that, within seventy-five days after the close of each fiscal year of
the Corporation, beginning with its present fiscal year, there shall be
paid to each of said officers a bonus computed by applying against his
basic salary the percentage by which the net profits of the Corporation for
that fiscal year exceed the sum of $1,100,000, the net profits, for the
purposes of this resolution, being defined to be the net profits before
adjustment for capital gains and losses, all taxes based on or measured by
net income, all contributions made or to be made to the employees' current
and deferred profit sharing plans as such plans now exist or may be
amended, and these bonuses; provided, however, that if in any fiscal year
the net profits, as above defined, are less than the sum of $1,100,000,
then such deficiency shall, for the purpose of computing these bonuses, be
carried over to the next succeeding fiscal year and applied to reduce the
amount, if any, by which the net profits, as above defined, for that fiscal
year exceed the sum of $1,100,000, and if there is no such excess in that
year, or if such deficiency is not entirely absorbed by such application,
then such deficiency or the unabsorbed remainder thereof, as the case may
be, shall, for the purpose of computing these bonuses, be carried over to
the second succeeding fiscal year and applied to reduce the amount, if any,
by which the net profits, as above defined, for that fiscal year exceed the
sum of $1,100,000, and if there is no such excess in that year, or if such
deficiency is not entirely absorbed by such application, then such
deficiency, or the unabsorbed remainder thereof, as the case may be,
shall, for the purpose of computing these bonuses, be similarly carried
over successively to the third and following fiscal years until entirely 50
absorbed; provided, further, that no bonus shall be paid to any of said
officers with respect to any fiscal year of the Corporation as of the end
of which the Corporation does not have an excess of current assets over
liabilities, as defined in the notes dated June 28, 1946 by the Corporation
to The Cleveland Trust Company and The National City Bank of Cleveland in
the amounts of $500,000 each, of at least $1,000,000 and a ratio of current
assets to such liabilities of at least 1.75 to 1, all determined as
provided in said notes; provided, further, that in no event shall the total
of the basic salary and bonus to be paid to any said officer with respect
to any fiscal year exceed by more than one-third the total
<PAGE> 2
2
of the basic salary and bonus paid to such officer with respect to the next
preceding fiscal year; and also provided, further, that all computations
made pursuant to this resolution and all questions arising under this
resolution shall be made and decided by Messrs. Ernst & Ernst, or such
other firm of certified public accountants as may then be acting as the
auditors of the Corporation, whose determination shall be final and
conclusive upon all parties.
Resolution Adopted February 24, 1950
- ------------------------------------
RESOLVED that, until further order of this Board of Directors, the
basic salary of Joe Zel, Vice President, shall be at the rate of $25,000.00
per annum, effective March 1, 1950, and that all other conditions of his
compensation remain the same as stipulated in the resolution of the Board
of Directors adopted at its January 27, 1950 meeting pertaining to the
compensation of the President and the Vice Presidents of the Corporation.
Resolution Adopted June 30, 1950
- --------------------------------
RESOLVED that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors of the Corporation held on January 27, 1950 be, and the same
hereby is, amended to include, until further order of this Board, Louis
F. Salchow, Controller, Assistant Secretary and Assistant Treasurer, at a
basic salary at the annual rate of $13,500, such inclusion to begin with
the present fiscal year of the Corporation, and such participation to be
subject to all the terms, conditions, provisions and limitations of said
executives' bonus plan as now or hereafter constituted.
Resolution Adopted February 23, 1951
- ------------------------------------
RESOLVED that, until further order of this Board of Directors, the
basic salary of Louis F. Salchow, Controller, Assistant Secretary and
Assistant Treasurer, shall be at the annual rate of $16,000.00, effective
March 1, 1951.
FURTHER RESOLVED that the resolution with reference to the
participation of Louis F, Salchow in the Executives' Bonus Plan as set
forth and adopted at the meeting of the Board of Directors of the
Corporation held on June 30, 1950, be and the same is hereby amended to
increase, until further order of this Board, the basic salary at the annual
rate of $13,500.00 to $16,000.00, effective March 1, 1951.
Resolution Adopted March 28, 1952
- ---------------------------------
RESOLVED that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors held on January 27, 1950 and as amended by the resolutions with
reference thereto adopted at the meetings of the Board of Directors held on
February 24, 1950, June 30, 1950, and February 23, 1951, respectively, be;
and the same hereby is;
<PAGE> 3
3
further amended to provide that until further order of this Board any bonus
payable under said resolution of January 27, 1950 for any fiscal year
beginning after February 29, 1952 to any of the following officers, to
wit, Jacob Sapirstein, President, Irving I. Stone, Vice President, Morris
S. Stone, Vice President, and Harry H. Stone, Vice President, shall in no
event exceed such amount which when added to the basic salary of such
officer for the fiscal year involved and the amount payable to him for such
fiscal year under the employees' current profit sharing plan of the
Corporation, as such plan now exists or may be amended, shall constitute a
total of $50,000 for such fiscal year.
Resolution Adopted February 4, 1953
- -----------------------------------
RESOLVED that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors held on January 27, 1950 and as amended by the resolutions with
reference thereto adopted at the meetings of the Board of Directors held on
February 24, 1950, June 30, 1950, February 23, 1951, and March 28, 1952,
respectively, be, and the same hereby is, further amended to provide that
until further order of this Board any bonus payable under said resolution
of January 27, 1950, as so amended, for any fiscal year beginning after
February 29, 1952 to either of the following officers, to wit, Joe Zel,
Vice President, and Louis F. Salchow, Vice President, shall in no event
exceed such amount which when added to the basic salary of such officer for
the fiscal year involved and the amount payable to him for such fiscal year
under the employees' current profit sharing plan of the Corporation, as
such plan now exists or may be amended, shall constitute in the case of
said Joe Zel a total of $48,000.00, and in the case of said Louis F.
Salchow a total of $30,000.00, for such fiscal year.
Resolution Adopted June 26, 1953
- --------------------------------
RESOLVED that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors held on January 27, 1950 and as amended by the resolutions with
reference thereto adopted at the meetings of the Board of Directors held on
February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, and
February 4, 1953, respectively, be, and the same hereby is, further amended
to provide that until further order of this Board the limitations imposed
by said resolutions adopted at the meetings of the Board of Directors
held on March 28, 1952 and February 4, 1953 with respect to the amount of
bonus shall apply only to any bonus payable for a fiscal year for which the
net profits of the Corporation as defined in said resolution of January
27, 1950 shall not exceed the sum of $2,500,000, and that if the net
profits of the Corporation as so defined shall for any fiscal year
beginning after February 28, 1953 exceed said sum of $2,500,000, then any
bonus payable for such fiscal year under said resolution of January 27,
1950 as amended by the resolutions with reference thereto adopted at the
meetings of the Board of Directors held on February 24, 1950, June 30,
1950, and February 23, 1951 shall in no event exceed such amount which when
added to the
<PAGE> 4
4
basic salary of such officer for such fiscal year and the amount payable to
him for such fiscal year under the employees' current profit sharing plan
of the Corporation as such plan now exists or may be amended shall
constitute a total sum which shall bear the same ratio in the case of each
of Jacob Sapirstein, President, Irving I. Stone, Vice President, Morris S.
Stone, Vice President, and Harry H. Stone, Vice President, to the sum of
$50,000, and in the case of Joe Zel, Vice President, to the sum of $48,000,
and in the case of Louis F. Salchow, Vice President, to the sum of $30,000,
as such net profits for such fiscal year shall bear to the sum of
$2,500,000.
Resolution Adopted August 27, 1954
- ----------------------------------
RESOLVED that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors held on January 27, 1950 and as amended by the resolutions with
reference thereto adopted at the meetings of the Board of Directors held on
February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952,
February 4, 1953 and June 26, 1953, respectively, be, and the same hereby
is, further amended to provide that, until further order of this Board, if
the net profits of the Corporation as defined in said resolution of January
27, 1950 shall for any fiscal year beginning after February 28, 1954 exceed
the sum of $2,500,000, then any bonus payable to any such officer for such
fiscal year under said resolution of January 27, 1950 as amended by said
resolutions of February 24, 1950, June 30, 1950, February 23, 1951, March
28, 1952, February 4, 1953, and June 26, 1953 shall in no event exceed the
greater of (i) an amount which when added to the basic salary of such
officer for such year shall equal, in the case of each of Jacob Sapirstein,
President, Irving I. Stone, Vice President, Morris S. Stone, Vice
President, and Harry H. Stone, Vice President, the sum of $50,000, and in
the case of Joe Zel, Vice President, the sum of $48,000, and in the case
of Louis F. Salchow, Vice President, the sum of $30,000, or (ii) an
amount determined by multiplying the basic salary of such officer for
such year by one-half of the ratio which such net profits in excess of
$2,500,000 bear to $2,500,000.
Resolution Adopted January 27, 1956
- -----------------------------------
RESOLVED that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors held on January 27, 1950 and as amended by the resolutions with
reference thereto adopted at the meetings of the Board of Directors held on
February 24, 1950, June 30, 1950, February 23, 1951, March 1952, February
1953, June 1953, 28, 4, 26, and August 27, 1954, respectively, be, and the
same hereby is, further amended to provide that, until further order of
this Board, the basic salary upon which the bonus payable thereunder (other
than the bonus determined by applying the maximum limitations prescribed
by such resolutions) to any officer for any fiscal year, beginning with
the current fiscal year, is computed shall be his annual rate of salary
at the end of such fiscal year.
<PAGE> 5
5
Resolution Adopted October 14, 1958
- -----------------------------------
RESOLVED, that the executives' bonus plan as set forth in the resolutions
with reference thereto adopted at the meeting of the Board of Directors held on
January 27, 1950 and as amended by the resolutions with reference thereto
adopted at the meetings of the Board of Directors held on February 24, 1950,
June 30, 1950, February 23,1951, March 28, 1952, February 4, 1953, June 26,
1953, August 27, 1954 and January 27, 1956 be, and the same hereby is, further
amended to provide that, until further order of this Board, (1) the bonus
payable to Joe Zel for the current fiscal year of the Corporation shall not
exceed the lesser of (a) two-thirds of the amount which would be payable to him
under said plan without regard to the limitations on his bonus therein set
forth or the limitations of this resolution, or (b) two-thirds of the greater of
(i) the amount which when added to his basic salary for such year shall equal
the sum of $48,000 or (ii) the amount determined by multiplying his basic
salary (as defined in said resolution of January 27, 1956) for such year by
one-half the ratio which the net profits of the Corporation for such year (as
defined in said resolution of January 27, 1950) in excess of $2,500,000 bear
to $2,500,000; and (2) Joe Zel shall not be entitled to receive any bonus under
said plan for any subsequent fiscal year of the Corporation.
Resolution Adopted May 29, 1959
- -------------------------------
FURTHER RESOLVED, that the executives' bonus plan as set forth in the
resolution with reference thereto adopted at the meeting of the Board of
Directors held on January 27, 1950 and as amended by the resolutions with
reference thereto adopted at the meetings of the Board of Directors held on
February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, February 4,
1953, June 26,1953, August 27, 1954, January 27, 1956 and October 14, 1958 be
and the same hereby is further amended to provide that, until further order of
this Board, Jacob Sapirstein and Louis F. Salchow shall not be entitled to
receive any bonus under said plan for the current or any subsequent fiscal year
of the Corporation.
<PAGE> 6
6
Resolution Adopted August 7, 1959
- ---------------------------------
RESOLVED, that the executives' bonus plan as set forth in the resolution
with reference thereto adopted at the meeting of the Board of Directors held on
January 27, 1950 and as amended by the resolutions with reference thereto
adopted at meetings of the Board of Directors held on February 24, 1950, June
30, 1950, February 23, 1951, March 28, 1952, February 4, 1953, June 26, 1953,
August 27, 1954, January 27, 1956, October 14, 1958 and May 29, 1959 be and the
same hereby is further amended so that, until further order of this Board, the
clause appearing in said resolution adopted at the meeting of the Board of
Directors held on January 27, 1950 that reads as follows:
"provided, further, that no bonus shall be paid to any of said officers
with respect to any fiscal year of the Corporation as of the end of which
the Corporation does not have an excess of current assets over liabilities,
as defined in the notes dated June 28, 1946 by the Corporation to The
Cleveland Trust Company and The National City Bank of Cleveland in the
amounts of $500,000 each, of at least $1,000,000 and a ratio of current
assets to such liabilities of at least 1.75 to 1, all determined as
provided in said notes"
shall be changed to read as follows:
"provided, further, that no bonus shall be paid to any of said officers
with respect to any fiscal year of the Corporation as of the end of which
the Corporation does not have an excess of current assets over current
liabilities of at least $1,000,000 and a ratio of current assets to current
liabilities of at least 1.75 to 1".
Resolution Adopted July 24, 1969
- --------------------------------
RESOLVED, that the Executive Bonus Plan adopted on January 27, 1950 and
as amended, be and the same hereby is further amended to provide that Harry H.
Stone shall not be entitled to receive any bonus under said Plan for the current
or any subsequent fiscal year of the Company.
Resolution Adopted January 12, 1979
- -----------------------------------
FURTHER RESOLVED, that the Executive Bonus Plan as set forth in the
resolutions with reference thereto adopted at the meeting of the Board of
Directors held January 27, 1950 and as subsequently amended, is hereby further
amended as follows:
"the term 'net profits' as appearing in said Plan shall be defined to
mean 'the net profits of American Greetings Corporation before adjustment
for equity gains and losses of any subsidiary corporation, any dividend
received from any subsidiary corporation, capital gains and losses, all
taxes based on or measured by net income, all contributions made or to be
made to the American Greetings Corporation Employees' Retirement Profit
Sharing Plan as such Plan now exists or may be amended and these
bonuses;'"
<PAGE> 7
AMERICAN GREETINGS CORPORATION
Action by Directors without a Meeting
-------------------------------------
The undersigned, constituting all of the directors of the
Corporation, acting without a meeting pursuant to Section 1701.54 of the Ohio
General Code, hereby adopt, effective April 10, 1980, the following resolution:
WHEREAS, in light of limitations applicable to the compensation
of other employees of the Corporation, such action is considered necessary and
appropriate and in the best interests of the Corporation,
RESOLVED, that amounts payable to executives under the
Executive Bonus Plan of the Corporation for its fiscal year
ended February 29, 1980 shall be limited to the amounts payable
under such plan to such executives, respectively, for the fiscal
year ended February 28, 1979.
FURTHER RESOLVED, that except as above set forth such Plan
shall continue in force unchanged.
Date: April 28 , 1980 /s/ Frank E. Joseph
------------ -----------------------------
Frank E. Joseph
/s/ Albert B. Ratner
Date: April 28 , 1980 ----------------------------
------------ Albert B. Ratner
Date: April 28 , 1980 /s/ Jacob Sapirstein
----------- -------------------------------
Jacob Sapirstein
Date: April 10 , 1980 /s/ Sy Scheckner
----------- -------------------------------
Sy Scheckner
Date: April 10 , 1980 /s/ Harry H. Stone
----------- -------------------------------
Harry H. Stone
Date: April 10 , 1980 /s/ Irving I. Stone
----------- -------------------------------
Irving I. Stone
Date: April 10 , 1980 /s/ Morris S. Stone
----------- -------------------------------
Morris S. Stone
<PAGE> 8
2
Date: April 10 , 1980 /s/ Morry Weiss
----------- -------------------------------
Morry Weiss
Date: April 10 , 1980 /s/ Morton Wyman
----------- -------------------------------
Morton Wyman
<PAGE> 9
1912
AMERICAN GREETINGS CORPORATION
Action by Directors without a Meeting
-------------------------------------
The undersigned, constituting all of the directors of the Corporation,
acting without a meeting pursuant to Section 1701.54 of the Ohio General Code,
hereby adopt, effective March 24, 1981, the following resolution:
WHEREAS, the participants under the Executive Bonus Plan of the
Corporation have agreed to limit the amount of bonus to be paid to them pursuant
to such Plan for the fiscal year ended February 28, 1981 and such action is
considered acceptable, appropriate and in the best interest of the
Corporation,
RESOLVED, that the amount payable to executives under the Executive
Bonus Plan of the Corporation for its fiscal year ended February 28, 1981
shall be limited to the amount of $210,000.
FURTHER RESOLVED, that except as above set forth such Plan shall
continue in force unchanged.
Date: 4/21/81 /s/ Morry Weiss for Jacob Sapirstein Attorney-in-fact
-------------- -------------------------------
Jacob Sapirstein
Date: Mar 30/1981 /s/ Irving I. Stone
-------------- -------------------------------
Irving I. Stone
Date: 4-3-81 /s/ Morris S. Stone
-------------- -------------------------------
Morris S. Stone
Date: 3/30/81 /s/ Harry H. Stone
-------------- -------------------------------
Harry H. Stone
Date: 3/30/81 /s/ Morry Weiss
-------------- -------------------------------
Morry Weiss
Date: 3/30/81 /s/ Morton Wyman
-------------- -------------------------------
Morton Wyman
Date: 4/13/81 /s/ Frank E. Joseph
-------------- -------------------------------
Frank E. Joseph
Date: 4/15/81 /s/ Albert B. Ratner
-------------- -------------------------------
Albert B. Ratner
Date: 4/22/81 /s/ Sy Scheckner
-------------- -------------------------------
Sy Scheckner
<PAGE> 1
Exhibit (10)(ii)(A)(iii)
EXECUTIVE INCENTIVE COMPENSATION PLAN
(AS AMENDED AND RESTATED THROUGH MARCH 6, 1989)
BASIC PLAN
- ----------
American Greetings Corporation ("Corporation") has established this Executive
Incentive Compensation Plan for certain officers and other key management
personnel. The plan, as amended, is effective with the fiscal years beginning
March 1, 1988, for the Corporation or February 1, 1988, for certain subsidiaries
of the Corporation.
Under the Plan, the Board of Directors of the Corporation shall, prior to the
commencement of each fiscal year, or as promptly as possible thereafter,
establish a Profit Goal for each Division or subsidiary of the Corporation and
the desired pro forma pre-tax profit of each Division or subsidiary of the
Corporation for the fiscal year as determined by the Board of Directors of the
Corporation at its absolute discretion. The Consolidated Profit Goal for the
Corporation, however, shall be stated in terms of the pre-tax profit of the
Consolidated Corporation.
One or more of these profit goals are assigned to each Eligible Participant,
which becomes the Eligible Participant's target profit goal and on which the
participant is assigned a target bonus which in no instance may exceed 60% of
the Eligible Participant's base salary. If the target goal or goals are
achieved, cash bonuses are to be paid to the achieving Eligible Participants
equal to the individual Eligible Participant's target bonus. If actual
performance is above the target profit goal by a percentage not more than 10%,
or below the target profit goal by a percentage not more than 20%, the bonus is
increased or decreased by a percentage equal to twice the excess or shortfall.
If actual performance is less than 80% of the target profit goal, no bonus is
paid; if it is greater than 110% of the target profit goal, the bonus remains at
120% of the target bonus. For computation purposes, profit goals and actual
performance shall be rounded to the nearest thousand dollars or other local
currency unit and achievement of profit goals shall be computed with reference
to the nearest one-tenth of one percent. All bonuses hereunder will be paid in
cash.
For each Division or subsidiary corporation, the term "pro forma pre-tax profit"
as used herein shall mean its income before investment interest income, income
taxes, and actual interest expense, exclusive of: profits and losses on the sale
or disposal of assets classified on the Corporation's balance sheet as property,
plant and equipment (excluding display cabinets, in the case of greeting card
divisions); gains or losses resulting
<PAGE> 2
from foreign currency transactions (excluding gains or losses resulting from
intra-Divisional transactions); bonus provisions or payments under this
Executive Incentive Compensation Plan; and, such other adjustments as may from
time to time be established by the Board of Directors of the Corporation in the
course of their determination of the Division's or subsidiary corporation's
performance goal for such fiscal year, less interest on the Division's or
subsidiary corporation's average monthly net capital employed. Net capital
employed is defined to be the total assets of a division or subsidiary
corporation excluding cash and marketable securities, intercompany balances and
investments, and goodwill, less all non-interest bearing liabilities excluding
income taxes deferred or payable. All bonus achievement computations shall be
determined by the independent accountants of each Division or subsidiary
corporation in accordance with generally accepted accounting principles, or in
the case of Divisions that are not audited by independent accountants, as
determined in accordance with generally accepted accounting principles and as
reviewed and approved by the Chief Financial Officer of the Corporation. For the
Consolidated Corporation, the term "pre-tax profit" shall mean the "consolidated
pre-tax, pre-interest profits" as defined above after adjustment for
consolidated investment interest income and actual interest expense.
The determination of which officers and key management personnel shall be
considered as Eligible Participants and which profit goals and target bonuses
they are assigned shall be the responsibility of the Chief Executive Officer of
the Corporation, subject, however, to whatever guidelines and policies may be
approved by the Board of Directors of the Corporation, or the Executive
Committee or Compensation Committee of the Board of Directors of the
Corporation.
Target bonuses under this Plan shall be based on a percentage of the Eligible
Participant's base salary. The term "base salary" as used herein shall mean all
compensation (exclusive of fringe benefits, benefits paid under any long-term
disability plan, or other forms of indirect compensation) actually paid to a
participant during the fiscal year, excluding amounts paid under this Plan. (For
purposes of this Plan, base salary is to be determined on the cash rather than
the accrual basis.)
If an employee becomes an Eligible Participant under this Plan subsequent to the
beginning of a fiscal year, his base salary upon which his target bonus is
derived shall include his base salary (as defined herein) paid to him from the
date of his eligibility, to the end of such fiscal year. If an Eligible
Participant ceases to be classified as an Eligible Participant by virtue of a
change in his work duties during a fiscal year but remains in the employ of the
Corporation, subsidiary of the Corporation, or Division, his base salary and
target bonus shall be similarly based on the actual period of his eligibility.
<PAGE> 3
In the event an Eligible Participant leaves the employ of the Corporation,
subsidiary of the Corporation, or Division during the fiscal year, there shall
be no bonus paid to him for that fiscal year. However, if a participant leaves
the employ of the Corporation, subsidiary of the Corporation, or Division during
the fiscal year as a result of disability or death or upon retirement after
achieving at least 60 years of age, his base salary and target bonus shall be
based on the actual period of his eligibility as outlined above.
All bonuses payable under this Plan shall be paid on the date (or shortly
thereafter) that American Greetings Corporation announces its fiscal year end
results to the public, such date generally being during the first full week of
April.
All questions of interpretation and application of this Plan shall be decided by
the Chief Executive Officer of the Corporation or the Board of Directors of the
Corporation, whose decisions, made in good faith, shall be final and binding on
all parties. In the absence of bad faith or gross neglect of duty on their part,
neither the Chief Executive Officer of the Corporation or the Board of Directors
of the Corporation shall have any liability to the Corporation, subsidiary of
the Corporation, or any Division or to any of their employees arising out of or
in connection with the administration of this Plan.
SUPPLEMENTAL PLAN (FISCAL YEARS 1989, 1990 AND 1991)
- ----------------------------------------------------
In addition to the foregoing (but independent of the one year corporate,
divisional and subsidiary goals that are established annually under the Basic
Plan outlined above, if in the fiscal years ending February 28, 1989, 1990 and
1991, the original Profit Goals for those years as approved at the Board of
Directors meetings in January and April, 1988 (the Original Profit Goals) are
achieved in whole or in part, then a special supplemental bonus may be payable
under this Supplemental Plan. Terms and qualifications for the supplemental
bonus are as follows: To qualify for bonus participation in each year, an
Eligible Participant's Division or subsidiary must first achieve at least 80% of
its Original Profit Goal for that year. Secondly, 100% of the Original Corporate
Consolidated Profit Goal must be achieved for that year. If these qualifications
are achieved in all three years, then a bonus equal to 100% of the total of the
Targeted Bonuses for each of the three years shall be payable. However, if an
Eligible Participant qualifies for this supplemental bonus in only two of the
three fiscal years, then only 60% of the total of the Targeted Bonuses for each
of the three years shall be payable. If an Eligible Participant qualifies in
less than two of the three years, then no bonus will be paid under this
Supplemental Plan. All bonuses payable under this Supplemental Plan shall be
paid on the date (or shortly thereafter) that American Greetings Corporation
announces its Fiscal 1991 year end results to the public in April, 1991.
<PAGE> 1
Exhibit (10)(ii)(A)(ix)
AMERICAN GREETINGS CORPORATION
Stock Option Agreement
1987 Class B Stock Option Plan
------------------------------
WHEREAS, MORRY WEISS (hereinafter called the
"Optionee") is President of American Greetings
Corporation, an Ohio corporation (the "Company"); and
WHEREAS, the execution of this Stock Option Agreement pursuant to the
Company's 1987 Class B Stock Option Plan has been duly authorized by a
resolution of the Board of Directors of the Company duly adopted on January 25,
1988;
NOW, THEREFORE, the Company hereby grants to the Optionee an option to
purchase 425,000 Class B Common Shares, par value $1 per share, of the Company
at the price of Fourteen and 5/16 Dollars ($14.3125) per share, and agrees to
cause certificates for any shares purchased hereunder to be delivered to the
Optionee upon payment of the purchase price in full, all subject, however, to
the terms and conditions hereinafter set forth.
1. This option (until terminated as hereinafter provided) shall be
exercisable only to the extent of one-quarter of the shares hereinabove
specified after the Optionee shall have been in the continuous employ of the
Company or any Subsidiary for one full year from the date hereof and to the
extent of an additional one-quarter of such shares after each of the next
three successive years thereafter during which the Optionee shall have been
in the continuous employ of the Company or any Subsidiary. If the Optionee
should retire at normal retirement age or at an early retirement age with the
consent of the Board of Directors, die or become permanently disabled after
having been in the continuous employ of the Company or any Subsidiary for a
period of at least ten years, this option shall, notwithstanding the preceding
sentence, immediately become exercisable in full. For the purposes of this
paragraph, leaves of absence approved by the Board of Directors or Stock
Option Committee of the Company for illness, military or governmental service,
or other cause, shall be considered as employment. To the extent exercisable,
this option may be exercised in whole or in part from time to time.
2. This Option shall terminate on the earliest of the following dates:
(A) On the date on which the Optionee ceases to be an employee of
the Company or a Subsidiary, unless he ceases to be such employee by reason
of retirement as described in Section (1) above, death or permanent disability
or in a manner described in (B) below;
<PAGE> 2
(B) Three months after the Optionee ceases to be an employee of
the Company or a Subsidiary by reason of termination of employment under
circumstances determined by the Board of Directors to be for the convenience
of the Company;
(C) One year after the death or permanent disability of the
Optionee if the Optionee dies or becomes permanently disabled while an
employee of the Company or a subsidiary or within the three-month period
referred to in (B) above;
(D) Ten years and three months from the date on which this option
was granted.
Nothing contained in this Stock Option Agreement shall limit
whatever the right the Company or a Subsidiary might otherwise
have to terminate the employment of the Optionee.
3. This option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by him or his legal representative. The
purchase price payable upon exercise of this option may, at the election of
the Optionee, be paid (a) in cash or by check acceptable to the Company; (b)
if specifically approved at or prior to the time of exercise by the Board of
Directors, by the transfer to the Company by the Optionee of Class A or Class
B Common Shares of the Company that have been owned by him for at least six
months and have a value at the time of exercise equal to the total option
price or (c) by a combination of such methods of payment.
4. This option shall not be exercisable if such exercise would involve
a violation of any applicable federal or state securities law, and the Company
hereby agrees to make reasonable efforts to comply with such securities laws.
If the Ohio Securities Act shall be applicable to this option, it shall not be
exercisable unless under such Act at the time of exercise the Class B Common
Shares or other securities purchasable hereunder are exempt, are the subject
matter of an exempt transaction, are registered by description or by
qualification, or at such time are the subject matter of a transaction which
has been registered by description.
5. The Board of Directors shall make such adjustments in the option
price and in the number or kind of Class B Common Shares or other securities
covered by this option as such Board in its sole discretion, exercised in good
faith, may determine is equitably required to prevent dilution or enlargement
of the rights of the Optionee that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization or other
changes in the capital structure of the Company, or (b) any merger,
consolidation, separation, reorganization, partial or complete liquidation,
issuance of rights or warrants to purchase stock, or (c) any other corporate
transaction or event having an effect similar to any of the foregoing.
<PAGE> 3
EXECUTED at Cleveland, Ohio as of the 25th day of January, 1988.
AMERICAN GREETINGS CORPORATION
By /s/ Henry Lowenthal
----------------------------------
Title: Senior Vice President
and Chief Financial Officer
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Stock Option Agreement and accepts the option granted
thereunder.
The Optionee acknowledges that he has been advised that the Class B
Common Shares covered by such Agreement have not been registered under the
Securities Act of 1933 and agrees that he will not make any disposition of
such shares unless either (a) such shares have been registered under such Act
or (b) an exemption from the registration provisions of such Act is applicable
to the Optionee's proposed disposition of such shares. The Optionee
understands that the certificates for such shares may bear a legend
substantially as follows:
The shares evidenced by this Certificate have not been
registered under the Securities Act of 1933. Such shares may
not be sold or otherwise transferred until the same have been
registered under such Act or until the Company shall have
received an opinion of legal counsel or a copy of a letter
from the Staff of the Division of Corporation Finance of the
Securities and Exchange Commission, in either case
satisfactory to the Company, that such shares may legally be
sold or otherwise transferred without such registration."
/s/ Morry Weiss
---------------------------
<PAGE> 1
Exhibit (10)(ii)(A)(x)
LOAN AGREEMENT
This Loan Agreement is executed this 1st day of March, 1990, by and
between American Greetings Corporation (AGC) and Edward Fruchtenbaum
(Fruchtenbaum).
In consideration for the attached signed promissory note, AGC hereby
loans Fruchtenbaum $200,000.00, receipt of which Fruchtenbaum hereby
acknowledges. At the end of each fiscal year commencing February 28, 1991, AGC
agrees to forgive $20,000.00 of principal. Beginning February 28, 1991, and on
each February 28th thereafter until February 28; 2001, Fruchtenbaum shall pay
simple interest of 10% per annum based on the principal balance at the
beginning of each fiscal year plus accrued unpaid interest.
AGC agrees to forgive the entire remaining principal balance plus
accrued interest if and when Fruchtenbaum dies, becomes totally disabled, is
terminated by AGC, is terminated as a result of a change in control of AGC, or
retires or terminates his employment as mutually agreed to by AGC and
Fruchtenbaum.
Fruchtenbaum will report the forgiveness of principal hereunder on his
individual tax returns.
This loan shall be unsecured.
American Greetings Corporation
By: /s/ Irving I. Stone /s/ Edward Fruchtenbaum
-------------------------- -----------------------------
Edward Fruchtenbaum
<PAGE> 2
<TABLE>
<CAPTION>
ANNUAL PAYMENTS
Period Principal Principal Payment/ Interest Interest
(Fiscal Year) At Beginning At End Forgive Rate Expense
------------- ------------ ------ ------- ---- -------
<S> <C> <C> <C> <C> <C>
Year 1 200,000 180,000 20,000 10.00% 20,000
Year 2 180,000 160,000 20,000 10.00% 18,000
Year 3 160,000 140,000 20,000 10.00% 16,000
Year 4 140,000 120,000 20,000 10.00% 14,000
Year 5 120,000 100,000 20,000 10.00% 12,000
Year 6 100,000 80,000 20,000 10.00% 10,000
Year 7 80,000 60,000 20,000 10.00% 8,000
Year 8 60,000 40,000 20,000 10.00% 6,000
Year 9 40,000 20,000 20,000 10.00% 4,000
Year 10 20,000 0 20,000 10.00% 2,000
110,000
</TABLE>
<PAGE> 3
PROMISSORY NOTE
March 1, 1990
Cleveland, Ohio
On terminating my employment with American Greetings Corporation (AGC)
without AGC's written consent, for value received, I promise to pay to the
order of AGC within two business days of such termination the beginning
principal balance set forth in the attached schedule for the fiscal year of my
termination at 10500 American Road, Cleveland, Ohio, with accrued unpaid
simple interest at the rate of 10% per annum on the beginning principal
balance for each fiscal year as set forth in attached schedule.
/s/ Edward Fruchtenbaum
-----------------------------------
Edward Fruchtenbaum
<PAGE> 1
Exhibit (10)(ii)(A)(xv)
APPENDIX A
APPROVAL OF 1997
AMERICAN GREETINGS CORPORATION
1997 Equity and Performance Incentive Plan
1. PURPOSE. The purpose of the 1997 Equity and Performance Incentive Plan (the
"Plan") is to attract and retain directors, officers and other key
employees for American Greetings Corporation (the "Company") and its
Subsidiaries and to provide to such persons incentives and rewards for
superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of this
Plan, and shall include both Tandem Appreciation Rights and Free-Standing
Appreciation Rights.
"Board" means the Board of Directors of the Company and, to the extent of
any delegation by the Board to a committee (or subcommittee thereof)
pursuant to Section 16 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 12 of this
Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Class A Common Shares" means Class A Common Shares, par value $1 per
share, of the Company or any security into which such Common Shares may be
changed by reason of any transaction or event of the type referred to in
Section 11 of this Plan.
"Class B Common Shares" means Class B Common Shares, par value $1 per
share, of the Company or any security into which such Common Shares may be
changed by reason of any transaction or event of the type referred to in
Section 11 of this Plan.
"Common Shares" means Class A Common Shares, Class B Common Shares or both.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant of
Option Rights, Appreciation Rights, Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which date shall not be earlier than the date on which the Board
takes action with respect thereto).
"Deferral Period" means the period of time during which Deferred Shares are
subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this Plan of
the right to receive Common Shares at the end of a specified Deferral
Period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, as such law, rules and regulations
may be amended from time to time.
"Exercise Right" means the price payable upon exercise of a Free-Standing
Appreciation Right.
"Free-Standing Appreciation Right" means an Appreciation Right not granted
in tandem with an Option Right.
"Incentive Stock Options" means Option Rights that are intended to qualify
as "incentive stock options" under Section 422 of the Code or any successor
provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have
received grants of Performance Shares or Performance Units or, when so
determined by the Board, Option Rights, Appreciation Rights, Restricted
Shares and dividend credits pursuant to this Plan. Management Objectives
may be described in terms of Company-wide objectives or objectives that are
related to the performance of the individual Participant or of the
Subsidiary, division, department, region or function within the Company or
Subsidiary in which the Participant is employed. The Management Objectives
may be made relative to the performance of other corporations. The
Management Objectives applicable to any award to a Covered Employee shall
be based on specified levels of or growth in one or more of the following
criteria:
<PAGE> 2
1. cash flow/net assets ratio;
2. debt/capital ratio;
3. return on total capital;
4. return on equity;
5. earnings per share growth;
6. revenue growth; and
7. total return to shareholders.
Except where a modification would result in an award no longer qualifying
as performance based compensation within the meaning of Section 162(m) of
the Code, the Board may in its discretion modify such Management Objectives
or the related minimum acceptable level of achievement, in whole or in
part, as the Board deems appropriate and equitable.
"Market Value per Share" means, as of any particular date, the fair market
value of the Class A Common Shares as listed on NASDAQ as of the close of
business on such date or the latest such date in which there is a listing.
"Non-Employee Director" means a Director of the Company who is not an
employee of the Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an Option
Right.
"Option Right" means the right to purchase Common Shares upon exercise of
an option granted pursuant to Section 4 or Section 9 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer, or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 90 days of the
Date of Grant, and shall also include each Non-Employee Director who
receives an award of Option Rights or Restricted Shares.
"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of
this Plan within which the Management Objectives relating to such
Performance Share or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit equivalent
to $1.00 awarded pursuant to Section 8 of this Plan.
"Reload Option Rights" means additional Option Rights granted automatically
to an Optionee upon the exercise of Option Rights pursuant to Section 4(g)
of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 or Section 9 of this Plan as to which neither the substantial
risk of forfeiture nor the prohibition on transfers referred to in such
Section 6 has expired.
"Rule l6b-3" means Rule 16b-3 of the Securities and Exchange Commission (or
any successor rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date when an
Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Exercise Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i) more than 50%
of whose outstanding shares or securities (representing the right to vote
for the election of directors or other managing authority) are, or (ii)
which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than
50% of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of
determining whether any person may be a Participant for purposes of any
grant of Incentive Stock Options, "Subsidiary" means any corporation in
which at the time the Company owns or controls, directly or indirectly,
more than 50% of the total combined voting power represented by all classes
of stock issued by such corporation.
<PAGE> 3
"Tandem Appreciation Right" means an Appreciation Right granted in tandem
with an Option Right.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
directors of the Company.
3. SHARES AVAILABLE UNDER THE PLAN.
(a) Subject to adjustment as provided in paragraph (b) below and Section 11
of this Plan, the number of Class A Common Shares and Class B Common
Shares that may be issued or transferred (i) upon the exercise of
Option Rights or Appreciation Rights; (ii) as Restricted Shares and
released from substantial risk of forfeiture thereof; (iii) as Deferred
Shares; (iv) in payment of Performance Shares or Performance Units that
have been earned; (v) as awards to Non-Employee Directors; or (vi) in
payment of dividend equivalents paid with respect to awards made under
the Plan, shall not exceed in the aggregate 4,500,000 Class A Common
Shares and 500,000 Class B Common Shares, respectively, plus any shares
described in paragraph (b) below. Such shares may be shares of original
issuance or treasury shares or a combination of the foregoing.
(b) The number of shares available in paragraph (a) above shall be adjusted
to account for shares relating to awards that expire; are forfeited; or
are transferred, surrendered, or relinquished upon the payment of any
Option Price by the transfer to the Company of Common Shares or upon
satisfaction of any withholding amount.
(c) Notwithstanding anything in this Section 3 or elsewhere in this Plan to
the contrary, the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options
shall not exceed 4,500,000 Class A Common Shares or 500,000 Class B
Common Shares, respectively, subject to adjustments as provided in
Section 11 of this Plan. Further, no Participant shall be granted
Option Rights for more than 500,000 Common Shares during any period of
five years, subject to adjustments as provided in Section 11 of this
Plan.
(d) Upon payment in cash of the benefit provided by any award granted under
this Plan, any shares that were covered by that award shall again be
available for issue or transfer hereunder.
(e) Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any period of five years receive more
than 500,000 Appreciation Rights, subject to adjustments as provided in
Section 11 of this Plan.
(f) Notwithstanding any other provision of this Plan to the contrary, the
number of shares issued as Restricted Shares shall not in the aggregate
exceed 450,000 Class A Common Shares and 50,000 Class B Common Shares,
respectively, subject to adjustments as provided in Section 11 of this
Plan; and, in no event shall any Participant in any period of five
years receive more than 500,000 Restricted Shares or 500,000 Deferred
Shares, subject to adjustments as provided in Section 11 of this Plan.
(g) Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any calendar year receive an award of
Performance Shares or Performance Units having an aggregate maximum
value as of their respective Dates of Grant in excess of $3,000,000.
4. OPTION RIGHTS. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each grant shall specify the number of Class A Common Shares or Class B
Common Shares to which it pertains subject to the limitations set forth
in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per share, which may not be
less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable (i)
in cash or by check acceptable to the Company; (ii) by the actual or
constructive transfer to the Company of nonforfeitable, unrestricted
Common Shares owned by the Optionee (or other consideration authorized
pursuant to subparagraph (d) below) having a value at the time of
exercise equal to the total Option Price; or (iii) by a combination of
such methods of payment.
<PAGE> 4
(d) The Board may determine, at or after the Date of Grant, that payment of
the Option Price of any option (other than an Incentive Stock Option)
may also be made in whole or in part in the form of Restricted Shares
or other Common Shares that are forfeitable or subject to restrictions
on transfer, Deferred Shares, Performance Shares (based, in each case,
on the Market Value per Share on the date of exercise), other Option
Rights (based on the Spread on the date of exercise) or Performance
Units. Unless otherwise determined by the Board at or after the Date of
Grant, whenever any Option Price is paid in whole or in part by means
of any of the forms of consideration specified in this paragraph, the
Common Shares received upon the exercise of the Option Rights shall be
subject to such risk of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only
to the extent of (i) the number of shares or Performance Shares;
(ii) the Spread of any unexercisable portion of Option Rights; or
(iii) the stated value of Performance Units surrendered.
(e) Any grant may provide for deferred payment of the Option Price from the
proceeds of sale through a bank or broker on a date satisfactory to the
Company of some or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at the election
of the Optionee, in installments, with or without interest, upon terms
determined by the Board.
(g) Any grant may, at or after the Date of Grant, provide for the automatic
grant of Reload Option Rights to an Optionee upon the exercise of
Option Rights (including Reload Option Rights) using Common Shares or
other consideration specified in paragraph (d) above. Reload Option
Rights shall cover up to the number of Common Shares, Deferred Shares,
Option Rights or Performance Shares (or the number of Common Shares
having a value equal to the value of any Performance Units) surrendered
to the Company upon any such exercise in payment of the Option Price or
to meet any withholding obligations. Reload Options may have an Option
Price that is no less than the applicable Market Value per Share at the
time of exercise and shall be on such other terms as may be specified
by the Directors, which may be the same as or different from those of
the original Option Rights.
(h) Successive grants may be made to the same Participant whether or not
any Option Rights previously granted to such Participant remain
unexercised.
(i) Each grant shall specify the period or periods of continuous service by
the Optionee with the Company or any Subsidiary following the grant
which is necessary before the Option Rights or installments thereof
will become exercisable and may provide for the earlier exercise of
such Option Rights in the event of a Change in Control or other similar
transaction or event.
(j) Any grant of Option Rights may specify Management Objectives that must
be achieved as a condition to the exercise of such rights.
(k) Option Rights granted under this Plan may be (i) options, including,
without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code; (ii) options that are
not intended to so qualify; or (iii) combinations of the foregoing.
(l) The Board may, at or after the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of
dividend equivalents to the Optionee on either a current or deferred or
contingent basis or may provide that such equivalents shall be credited
against the Option Price.
(m) The exercise of an Option Right shall result in the cancellation on a
share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(n) No Option Right shall be exercisable more than ten years from the Date
of Grant.
(o) Each grant of Option Rights shall be evidenced by an agreement executed
on behalf of the Company by an officer and delivered to the Optionee
and containing such terms and provisions, consistent with this Plan, as
the Board may approve.
5. APPRECIATION RIGHTS.
(a) The Board may also authorize the granting to any Optionee of Tandem
Appreciation Rights in respect of Option Rights granted hereunder at
any time prior to the exercise or termination of such related Option
Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with
such Incentive Stock Option. A Tandem Appreciation Right shall be a
right of the Optionee, exercisable by surrender of the related Option
Right, to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding
100%) at the time of exercise.
<PAGE> 5
(b) The Board may also authorize the granting to any Participant of
Free-Standing Appreciation Rights. A Free-Standing Appreciation Right
shall be a right of the Participant to receive from the Company an
amount determined by the Board, which shall be expressed as a
percentage of the Spread (not exceeding 100%) at the time of exercise.
(c) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(i) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in cash, in Common
Shares or in any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among those
alternatives.
(ii) Any grant may specify that the amount payable on exercise of an
Appreciation Right may not exceed a maximum specified by the
Board at the Date of Grant.
(iii) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods and shall provide that no
Appreciation Right may be exercised except at a time when the
related Option Right (if applicable) is also exercisable and at a
time when the Spread is positive.
(iv) Any grant may specify that such Appreciation Right may be
exercised only in the event of a Change in Control or other
similar transaction or event.
(v) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and
delivered to and accepted by the Participant, which agreement
shall describe such Appreciation Rights, identify the related
Option Rights (if applicable), state that such Appreciation
Rights are subject to all the terms and conditions of this Plan,
and contain such other terms and provisions, consistent with this
Plan, as the Board may approve.
(vi) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise
of such rights.
6. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any
or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of the
ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend
and other ownership rights, but subject to the substantial risk of
forfeiture and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional consideration or
in consideration of a payment by such Participant that is less than
Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk
of forfeiture" within the meaning of Section 83 of the Code except (if
the Board shall so determine) in the event of a Change in Control or
other similar transaction or event, for a period of not less than three
years to be determined by the Board at the Date of Grant.
(d) Each such grant or sale shall provide that during the period for which
such substantial risk of forfeiture is to continue, the transferability
of the Restricted Shares shall be prohibited or restricted in the
manner and to the extent prescribed by the Board at the Date of Grant
(which restrictions may include, without limitation, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the
hands of any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives which,
if achieved, will result in termination or early termination of the
restrictions applicable to such shares, and each grant may specify in
respect of such specified Management Objectives, a minimum acceptable
level of achievement and shall set forth a formula for determining the
number of Restricted Shares on which restrictions will terminate if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives.
(f) Any such grant or sale of Restricted Shares may require that any or all
dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be subject to the same restrictions as the
underlying award.
<PAGE> 6
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and
delivered to and accepted by the Participant and shall contain such
terms and provisions, consistent with this Plan, as the Board may
approve. Unless otherwise directed by the Board, all certificates
representing Restricted Shares shall be held in custody by the Company
until all restrictions thereon shall have lapsed, together with a stock
power or powers executed by the Participant in whose name such
certificates are registered, endorsed in blank and covering such
shares.
7. DEFERRED SHARES. The Board may also authorize the granting or sale of
Deferred Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the Company
to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the
fulfillment of such conditions during the Deferral Period as the Board
may specify.
(b) Each such grant or sale may be made without additional consideration or
in consideration of a payment by such Participant that is less than the
Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of not
less than one year, as determined by the Board at the Date of Grant
except (if the Board shall so determine) in the event of a Change in
Control or other similar transaction or event.
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of
ownership in the Deferred Shares and shall have no right to vote them,
but the Board may, at or after the Date of Grant, authorize the payment
of dividend equivalents on such shares on either a current or deferred
or contingent basis, either in cash or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and
delivered to and accepted by the Participant and shall contain such
terms and provisions, consistent with this Plan, as the Board may
approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also authorize the
granting of Performance Shares and Performance Units that will become
payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations,
and shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors;
provided, however, that no such adjustment shall be made in the case of
a Covered Employee.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time (not less than three
years, except in the event of a Change in Control or other similar
transaction or event, if the Board shall so determine) commencing with
the Date of Grant (as shall be determined by the Board at the time of
grant).
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives which, if achieved, will result in payment or
early payment of the award, and each grant may specify in respect of
such specified Management Objectives a minimum acceptable level of
achievement and shall set forth a formula for determining the number of
Performance Shares or Performance Units that will be earned if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives. The grant of
Performance Shares or Performance Units shall specify that, before the
Performance Shares or Performance Units shall be earned and paid, the
Board must certify that the Management Objectives have been satisfied.
(d) Each grant shall specify a minimum acceptable level of achievement in
respect of the specified Management Objectives below which no payment
will be made and shall set forth a formula for determining the amount
of payment to be made if performance is at or above such minimum but
short of full achievement of the Management Objectives.
(e) Each grant shall specify the time and manner of payment of Performance
Shares or Performance Units which have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the
Company in cash, in Common Shares or in any combination thereof and may
either grant to the Participant or retain in the Board the right to
elect among those alternatives.
<PAGE> 7
(f) Any grant of Performance Shares may specify that the amount payable
with respect thereto may not exceed a maximum specified by the Board at
the Date of Grant. Any grant of Performance Units may specify that the
amount payable or the number of Common Shares issued with respect
thereto may not exceed maximums specified by the Board at the Date of
Grant.
(g) The Board may, at or after the Date of Grant of Performance Shares,
provide for the payment of dividend equivalents to the holder thereof
on either a current or deferred or contingent basis, either in cash or
in additional Common Shares.
(h) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by any
officer and delivered to and accepted by the Participant, which
agreement shall state that such Performance Shares or Performance Units
are subject to all the terms and conditions of this Plan, and contain
such other terms and provisions, consistent with this Plan, as the
Board may approve.
9. AWARDS TO NON-EMPLOYEE DIRECTORS. The Board may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
Non-Employee Directors of Option Rights and may also authorize the grant or
sale of Restricted Shares to Non-Employee Directors.
(a) Each grant of Option Rights awarded pursuant to this Section 9 shall be
upon terms and conditions consistent with Section 4 of this Plan and
shall be evidenced by an agreement in such form as shall be approved by
the Board. Each grant shall specify an Option Price per share, which
shall not be less than the Market Value per Share on the Date of Grant.
Each such Option Right granted under the Plan shall expire not more
than ten years from the Date of Grant and shall be subject to earlier
termination as hereinafter provided. Unless otherwise determined by the
Board, such Option Rights shall be subject to the following additional
terms and conditions:
(i) Each grant shall specify the number of Common Shares to which it
pertains, subject to the limitations set forth in Section 3 of
this Plan.
(ii) Each such Option Right shall become exercisable to the extent of
one-fourth of the number of shares covered thereby one year after
the Date of Grant and to the extent of an additional one-fourth
of such shares after each of the next three successive years
thereafter. Such Option Rights shall become exercisable in full
immediately in the event of a Change in Control or other similar
transaction or event.
(iii) In the event of the termination of service on the Board by the
holder of any such Option Rights, other than by reason of
disability or death, the then-outstanding Option Rights of such
holder may be exercised to the extent that they would be
exercisable on the date that is six months and one day after the
date of such termination and shall expire six months and one day
after such termination, or on their stated expiration date,
whichever occurs first.
(iv) In the event of the death or disability of the holder of any such
Option Rights, each of the then-outstanding Option Rights of such
holder may be exercised at any time within one year after such
death or disability, but in no event after the expiration date of
the term of such Option Rights.
(v) If a Non-Employee Director subsequently becomes an employee of
the Company or a Subsidiary while remaining a member of the
Board, any Option Rights held under the Plan by such individual
at the time of such commencement of employment shall not be
affected thereby.
(vi) Option Rights may be exercised by a Non-Employee Director only
upon payment to the Company in full of the Option Price of the
Common Shares to be delivered. Such payment shall be made in cash
or in Common Shares then-owned by the Optionee for at least six
months, or in a combination of cash and such Common Shares.
(vii) Common Shares acquired upon the exercise of these Option Rights
may not be transferred for one year except in the case of the
director's death, disability or other termination of service as a
director.
(b) Each grant or sale of Restricted Shares pursuant to this Section 9
shall be upon terms and conditions consistent with Section 6 of this
Plan.
<PAGE> 8
10. TRANSFERABILITY.
(a) Except as otherwise determined by the Board on a case-by-case basis, no
Option Right, Appreciation Right or other derivative security granted
under the Plan shall be transferable by an Optionee other than by will
or the laws of descent and distribution. Except as otherwise determined
by the Board on a case-by-case basis, Option Rights and Appreciation
Rights shall be exercisable during the Optionee's lifetime only by him
or her or by his or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company
upon the exercise of Option Rights or Appreciation Rights, upon the
termination of the Deferral Period applicable to Deferred Shares or
upon payment under any grant of Performance Shares or Performance Units
or (ii) no longer subject to the substantial risk of forfeiture and
restrictions on transfer referred to in Section 6 of this Plan, shall
be subject to further restrictions on transfer.
11. ADJUSTMENTS. The Board may make or provide for such adjustments in the
numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the
prices per share applicable to such Option Rights and Appreciation Rights
and in the kind of shares covered thereby, as the Board, in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants or Optionees
that otherwise would result from (a) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital
structure of the Company; or (b) any merger, consolidation, spin-off,
split-off, spin-out, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of rights or warrants
to purchase securities; or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. Moreover, in the event of
any such transaction or event, the Board, in its discretion, may provide in
substitution for any or all outstanding awards under this Plan such
alternative consideration as it, in good faith, may determine to be
equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for
such adjustments in the numbers of shares specified in Section 3 of this
Plan as the Board, in its sole discretion, exercised in good faith, may
determine is appropriate to reflect any transaction or event described in
this Section 11.
12. CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control" shall
mean if at any time any of the following events shall have occurred:
(a) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction is held in the
aggregate by the holders of Common Shares immediately prior to such
transaction;
(b) The Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person, and less
than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of Common Shares
immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to
the Exchange Act, disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 20% or more of the Voting
Power;
(d) The Company files a report or proxy statement with the Securities and
Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change in control of the Company has or may
have occurred or will or may occur in the future pursuant to any
then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals who at the
beginning of any such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the Company's
shareholders, of each director of the Company first elected during such
period was approved by a vote of at least two-thirds of the directors
of the Company then still in office who were directors of the Company
at the beginning of any such period.
<PAGE> 9
Notwithstanding the foregoing provisions of Section 12(c) and (d) above, a
"Change in Control" shall not be deemed to have occurred for purposes of
this Plan (i) solely because (A) the Company; (B) a Subsidiary; (C) any
Company-sponsored employee stock ownership plan or other employee benefit
plan of the Company; or (D) any family member of Jacob Sapirstein
(including lineal descendants, spouses of such descendants, the lineal
descendants of any such spouses, the spouses of any such spouses' lineal
descendants and trusts [including voting trusts]) either files or becomes
obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares, whether in excess of 20%
of the Voting Power or otherwise, or because the Company reports that a
Change in Control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership or (ii) solely
because of a Change in Control of any Subsidiary.
13. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for
the elimination of fractions or for the settlement of fractions in cash.
14. WITHHOLDING TAXES. To the extent that the Company is required to withhold
federal, state, local or foreign taxes in connection with any payment made
or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient,
it shall be a condition to the receipt of such payment or the realization
of such benefit that the Participant or such other person make arrangements
satisfactory to the Company for payment of the balance of such taxes
required to be withheld, which arrangements (in the discretion of the
Board) may include relinquishment of a portion of such benefit. The Company
and a Participant or such other person may also make similar arrangements
with respect to the payment of any taxes with respect to which withholding
is not required.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such
special terms for awards to Participants who are foreign nationals or who
are employed by the Company or any Subsidiary outside of the United States
of America as the Board may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Moreover, the
Board may approve such supplements to or amendments, restatements or
alternative versions of this Plan as it may consider necessary or
appropriate for such purposes, without thereby affecting the terms of this
Plan as in effect for any other purpose, and the Secretary or other
appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in
effect unless this Plan could have been amended to eliminate such
inconsistency without further approval by the shareholders of the Company.
16. ADMINISTRATION OF THE PLAN.
(a) This Plan shall be administered by the Board, which may from time to
time delegate all or any part of its authority under this Plan to a
committee of the Board (or subcommittee thereof) consisting of not less
than three Non-Employee Directors appointed by the Board. A majority of
the committee (or subcommittee) shall constitute a quorum, and the
action of the members of the committee (or subcommittee) present at any
meeting at which a quorum is present, or acts unanimously approved in
writing, shall be the acts of the committee (or subcommittee). To the
extent of any such delegation, references in this Plan to the Board
shall be deemed to be references to any such committee or subcommittee.
(b) The interpretation and construction by the Board of any provision of
this Plan or of any agreement, notification or document evidencing the
grant of Option Rights, Appreciation Rights, Restricted Shares,
Deferred Shares, Performance Shares or Performance Units and any
determination by the Board pursuant to any provision of this Plan or of
any such agreement, notification or document shall be final and
conclusive. No member of the Board shall be liable for any such action
or determination made in good faith.
17. AMENDMENTS, ETC.
(a) The Board may at any time and from time to time amend this Plan in
whole or in part; provided, however, that any amendment which must be
approved by the shareholders of the Company in order to comply with
applicable law or the rules of the NASD or, if the Common Shares are
not traded on NASDAQ, the principal national securities exchange upon
which the Common Shares are traded or quoted, shall not be effective
unless and until such approval has been obtained. Presentation of this
Plan or any amendment hereof for shareholder approval shall not be
construed to limit the Company's authority to offer similar or
dissimilar benefits under other plans without shareholder approval.
<PAGE> 10
(b) The Board shall not, without the further approval of the shareholders
of the Company, authorize the amendment of any outstanding Option Right
to reduce the Option Price. Furthermore, no Option Right shall be
cancelled and replaced with awards having a lower Option Price without
further approval of the shareholders of the Company. This section 17(b)
is intended to prohibit the repricing of "underwater" Option Rights and
shall not be construed to prohibit the adjustments provided for in
Section 11 of this Plan.
(c) The Board also may permit Participants to elect to defer the issuance
of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Board also may provide that deferred
issuances and settlements include the payment or crediting of dividend
equivalents or interest on the deferral amounts.
(d) The Board may condition the grant of any award or combination of awards
authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(e) In case of termination of employment by reason of death, disability or
normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately exercisable in full, or any
Restricted Shares as to which the substantial risk of forfeiture or the
prohibition or restriction on transfer has not lapsed, or any Deferred
Shares as to which the Deferral Period has not been completed, or any
Performance Shares or Performance Units which have not been fully
earned, or of a Participant who holds Common Shares subject to any
transfer restriction imposed pursuant to Section 10(b) of this Plan,
the Board may, in its sole discretion, accelerate the time at which
such Option Right or Appreciation Right may be exercised or the time at
which such substantial risk of forfeiture or prohibition or restriction
on transfer will lapse or the time when such Deferral Period will end
or the time at which such Performance Shares or Performance Units will
be deemed to have been fully earned or the time when such transfer
restriction will terminate or may waive any other limitation or
requirement under any such award.
(f) This Plan shall not confer upon any Participant any right with respect
to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the
Company or any Subsidiary would otherwise have to terminate such
Participant's employment or other service at any time.
(g) To the extent that any provision of this Plan would prevent any Option
Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect
to such Option Right. Such provision, however, shall remain in effect
for other Option Rights and there shall be no further effect on any
provision of this Plan.
18. TERMINATION. No grant shall be made under this Plan more than ten years
after the date on which this Plan is first approved by the shareholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
<PAGE> 1
EXHIBIT 11
AMERICAN GREETINGS CORPORATION
------------------------------
COMPUTATION OF PER SHARE EARNINGS
---------------------------------
Computation of Earnings Per Share
---------------------------------
Years Ended February 28 or 29, 1997, 1996 and 1995
--------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Average number of common
shares outstanding 74,818,960 74,528,809 74,305,346
========== ========== ===========
Net income (thousands) $ 167,095 $ 115,135 $ 148,792
========== ========== ===========
Earnings per share $ 2.23 $ 1.54 $ 2.00
========== ========== ===========
</TABLE>
Computation of Fully-Diluted Earnings Per Share (a)
Years Ended February 28 or 29, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Average number of common
shares outstanding on
a fully diluted basis
assuming exercise of
stock options based on
the treasury stock
method using the
higher of the year-end
price or the average
market price (b) 75,975,109 75,551,118 75,739,055
========== ========== ==============
Net income (thousands) $ 167,095 $ 115,135 $ 148,792
========== ========== ==============
Earnings per share $ 2.20 $ 1.52 $ 1.96
========== ========== ==============
<FN>
(a) This calculation is submitted in accordance with the Securities
Exchange Act of 1934, although not required by Accounting Principles
Board Opinion No. 15, since less than a 3% dilution results.
(b) The year-end market price was used for the years ended February 28,
1997 and 1995. Average market price was used for year ended February
29, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 21
AMERICAN GREETING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
State/Jurisdiction
Subsidiary of Incorporation
---------- ----------------
Acme Frame Products, Inc. Delaware
AGC Inc. Delaware
A.G. Industries, Inc. North Carolina
Carlton Cards (France) SNC France
Carlton Cards Limited Canada
Carlton Cards Limited United Kingdom
Carlton Cards Retail, Inc. Connecticut
CreataCard Interactive, Inc. Ohio
John Sands (Australia) Ltd. Delaware
Magnivision, Inc. Delaware
Plus Mark, Inc. Ohio
<PAGE> 1
EXHIBIT 23
AMERICAN GREETINGS CORPORATION
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) Post-Effective Amendment
Number 1 dated May 27, 1986 to Registration Statement No. 2-89471 on Form S-3,
(ii) Post-Effective Amendment Number 1 dated May 31, 1984 to Registration
Statement No. 2-84911 on Form S-8, (iii) Registration Statement No. 33-975 on
Form S-8 dated November 7, 1985, (iv) Registration Statement No. 33-16180 on
Form S-8 dated July 31, 1987, (v) Post-Effective Amendment Number 1 dated May
17, 1991 to Registration Statement No. 33-39726 on Form S-3, (vi) Registration
Statement No. 33-45673 on Form S-8 dated February 4, 1992, (vii) Registration
Statement No. 33-58582 on Form S-8 dated February 22, 1993, (viii)
Post-Effective Amendment Number 1 dated March 29, 1993 to Registration Statement
No. 33-52196 on Form S-3, (ix) Registration Statement No. 33-50255 on Form S-3
dated September 15,1993, (x) Registration Statement No. 33-57221 on Form S-3
dated January 16, 1995, (xi) Registration Statement No. 33-61037 on Form S-8
dated July 14, 1995, and (xii) Registration Statement No. 33-08123 on Form S-8
dated July 15, 1996 of our report dated March 27, 1997 with respect to the
consolidated financial statements and schedule of American Greetings Corporation
included in this annual report on Form 10-K for the year ended February 28,
1997.
Ernst & Young LLP
Cleveland, Ohio
May 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART II,
ITEM 8 OF THE FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 35,050
<SECURITIES> 0
<RECEIVABLES> 375,324
<ALLOWANCES> 15,264
<INVENTORY> 303,611
<CURRENT-ASSETS> 1,004,891
<PP&E> 920,194
<DEPRECIATION> 457,407
<TOTAL-ASSETS> 2,135,120
<CURRENT-LIABILITIES> 442,743
<BONDS> 0
<COMMON> 74,982
0
0
<OTHER-SE> 1,286,673
<TOTAL-LIABILITY-AND-EQUITY> 2,135,120
<SALES> 2,161,089
<TOTAL-REVENUES> 2,172,298
<CGS> 805,124
<TOTAL-COSTS> 805,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,210
<INTEREST-EXPENSE> 30,749
<INCOME-PRETAX> 254,330
<INCOME-TAX> 87,235
<INCOME-CONTINUING> 167,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,095
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.20
</TABLE>
