10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                          to                                         

Commission file number 1-13859

AMERICAN GREETINGS CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	34-0065325
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One American Road, Cleveland, Ohio	44144
(Address of principal executive offices)	(Zip Code)

(216) 252-7300

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 4, 2005, the number of shares outstanding of each of the issuer’s classes of common stock was:

Class A Common	61,496,467
Class B Common	4,221,126

AMERICAN GREETINGS CORPORATION
INDEX

EXHIBITS

 Exhibit 10.1 Executive Deferred Comp Plan

 Exhibit 10.2 Amendment 1 to Executive Deferred Comp Plan

 Exhibit 10.3 Amendment 2 to Executive Deferred Comp Plan

 Exhibit 10.4 Amendment 3 to Executive Deferred Comp Plan

 Exhibit 10.5 Form of Agreement for Deferred Comp benefits

 Exhibit 10.6 Form of Agrmt Under Amend 3 to Exec Deferred Comp

 Exhibit 10.7 Performance Share Grant Agreement/Zev Weiss

 Exhibit 10.8 Performance Share Grant Agreement/Jeffrey Weiss

 Exhibit 31(a) Section 302 Certification of CEO

 Exhibit 31(b) Section 302 Certification of CFO

 Exhibit 32 Section 906 Certification of CEO and CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Thousands of dollars except share and per share amounts)

	(Unaudited)
	Three Months Ended						Six Months Ended
	August 31,						August 31,
	2005			2004			2005			2004
Net sales	$	387,556		$	392,084		$	830,832		$	825,625
Costs and expenses:
Material, labor and other production costs		176,316			186,717			356,789			368,332
Selling, distribution and marketing		147,328			146,303			302,602			292,955
Administrative and general		58,970			57,505			122,098			121,642
Interest expense		8,587			9,163			18,269			61,857
Other income — net		(11,932	)		(17,230	)		(20,303	)		(33,576	)
Total costs and expenses		379,269			382,458			779,455			811,210
Income from continuing operations before income tax expense		8,287			9,626			51,377			14,415
Income tax expense		5,046			3,726			21,722			5,579
Income from continuing operations		3,241			5,900			29,655			8,836
Income from discontinued operations, net of tax		—			1,010			—			2,312
Net income	$	3,241		$	6,910		$	29,655		$	11,148
Earnings per share — basic:
Income from continuing operations	$	0.05		$	0.09		$	0.44		$	0.13
Income from discontinued operations		—			0.01			—			0.03
Net income	$	0.05		$	0.10		$	0.44		$	0.16
Earnings per share — assuming dilution:
Income from continuing operations	$	0.05		$	0.09		$	0.41		$	0.13
Income from discontinued operations		—			0.01			—			0.03
Net income	$	0.05		$	0.10		$	0.41		$	0.16
Average number of common shares outstanding		67,101,944			68,418,773			67,848,865			68,209,732
Average number of common shares outstanding — assuming dilution		67,913,912			69,265,799			81,240,972			69,057,063
Dividends declared per share	$	0.08		$	—		$	0.16		$	—

See notes to condensed consolidated financial statements (unaudited).

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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Thousands of dollars)

	(Unaudited)			(Note 1)			(Unaudited)
	August 31, 2005			February 28, 2005			August 31, 2004
ASSETS
Current assets
Cash and cash equivalents	$	163,807		$	250,267		$	152,763
Short-term investments		208,750			208,740			—
Trade accounts receivable, net		172,020			188,987			232,054
Inventories		296,133			222,874			308,977
Deferred and refundable income taxes		176,265			193,497			152,143
Assets of businesses held for sale		—			—			40,390
Prepaid expenses and other		219,244			204,253			218,931
Total current assets		1,236,219			1,268,618			1,105,258
Goodwill		260,276			270,057			231,886
Other assets		603,757			644,140			628,619
Property, plant and equipment — at cost		976,308			995,281			992,348
Less accumulated depreciation		657,361			653,889			652,049
Property, plant and equipment — net		318,947			341,392			340,299
	$	2,419,199		$	2,524,207		$	2,306,062
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	132,978		$	143,041		$	150,513
Accrued liabilities		118,980			118,090			101,951
Accrued compensation and benefits		76,933			96,789			65,891
Income taxes		21,462			38,777			15,012
Liabilities of businesses held for sale		—			—			4,462
Other current liabilities		116,564			79,549			68,201
Total current liabilities		466,917			476,246			406,030
Long-term debt		476,222			486,099			483,876
Other liabilities		121,467			137,868			105,480
Deferred income taxes		37,077			37,214			27,427
Shareholders’ Equity
Common shares — Class A		62,170			64,867			64,022
Common shares — Class B		4,221			4,160			4,603
Capital in excess of par value		391,174			368,777			348,474
Treasury stock		(536,249	)		(445,618	)		(435,107	)
Accumulated other comprehensive income		12,853			29,039			10,325
Retained earnings		1,383,347			1,365,555			1,290,932
Total shareholders’ equity		1,317,516			1,386,780			1,283,249
	$	2,419,199		$	2,524,207		$	2,306,062

See notes to condensed consolidated financial statements (unaudited).

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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Thousands of dollars)

	(Unaudited)
	Six Months Ended
	August 31,
	2005			2004
OPERATING ACTIVITIES:
Net income	$	29,655		$	11,148
Income from discontinued operations		—			2,312
Income from continuing operations		29,655			8,836
Adjustments to reconcile to net cash provided by operating activities:
Gain on sale of investment		—			(3,095	)
Loss on sale of fixed assets		1,628			1,127
Loss on extinguishment of debt		863			39,056
Depreciation and amortization		28,426			28,321
Deferred income taxes		25,773			(5,787	)
Other non-cash charges		1,749			1,038
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in trade accounts receivable		11,685			(238	)
Increase in inventories		(75,697	)		(72,229	)
(Increase) decrease in other current assets		(17,865	)		8,590
Decrease in deferred costs — net		52,774			71,006
(Decrease) increase in accounts payable and other liabilities		(29,901	)		2,358
Other — net		4,580			2,672
Cash Provided by Operating Activities		33,670			81,655
INVESTING ACTIVITIES:
Proceeds from sale of short-term investments		1,070,480			—
Purchases of short-term investments		(1,070,490	)		—
Property, plant and equipment additions		(18,780	)		(15,019	)
Proceeds from sale of fixed assets		7,369			115
Cash payments for business acquisitions		—			(3,894	)
Investment in corporate owned life insurance		(2,219	)		(2,861	)
Other — net		(5,893	)		19,783
Cash Used by Investing Activities		(19,533	)		(1,876	)
FINANCING ACTIVITIES:
Reduction of long-term debt		(10,782	)		(216,417	)
Sale of stock under benefit plans		21,302			18,739
Purchase of treasury shares		(98,026	)		(9,363	)
Dividends to shareholders		(10,906	)		—
Cash Used by Financing Activities		(98,412	)		(207,041	)
CASH USED BY DISCONTINUED OPERATIONS		—			(2,789	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(2,185	)		(2,636	)
DECREASE IN CASH AND CASH EQUIVALENTS		(86,460	)		(132,687	)
Cash and Cash Equivalents at Beginning of Year		250,267			285,450
Cash and Cash Equivalents at End of Period	$	163,807		$	152,763

See notes to condensed consolidated financial statements (unaudited).

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AMERICAN GREETINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Three and Six Months Ended August 31, 2005 and 2004

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the period have been included.

The Corporation’s fiscal year ends on February 28 or 29. References to a particular year refer to the fiscal year ending in February of that year. For example, 2005 refers to the year ended February 28, 2005. For 2005, the Corporation’s subsidiary, AG Interactive, was consolidated on a two-month lag corresponding with its fiscal year-end of December 31. For 2006, AG Interactive has changed its fiscal year-end to coincide with the Corporation’s fiscal year-end. As a result, the six months ended August 31, 2005 includes eight months of AG Interactive’s operations. The additional two months of activity generated revenues of approximately $11 million for the six month period ended August 31, 2005, but had no significant impact on segment earnings.

These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended February 28, 2005 of American Greetings Corporation (the “Corporation”), from which the Condensed Consolidated Statement of Financial Position at February 28, 2005, presented herein, has been derived. Certain amounts in the prior year financial statements have been reclassified to conform to the 2006 presentation.

Note 2 – Seasonal Nature of Business

A significant portion of the Corporation’s business is seasonal in nature. Therefore, the results of operations for interim periods are not necessarily indicative of the results for the fiscal year taken as a whole.

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Note 3 — Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151 (“SFAS 151”), “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. SFAS 151 also establishes the concept of “normal capacity” and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. Any unallocated overhead would be treated as a current period expense in the period incurred. This statement is effective for fiscal years beginning after July 15, 2005. The Corporation does not believe that the adoption of SFAS 151 will have a significant impact on the Corporation’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment.” SFAS 123(R) requires that compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) eliminates the alternative to use the intrinsic value method of accounting in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” The Corporation is in the process of evaluating the impact that the adoption of this statement will have on the consolidated financial statements. It is, however, expected to reduce consolidated net income. This statement was originally effective for the first interim or annual period beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission amended the compliance date of SFAS 123(R) through an amendment of Regulation S-X. The new effective date for the Corporation is March 1, 2006. Refer to Note 12 for the Corporation’s current accounting for stock-based compensation.

Note 4 — Other Income — Net

	Three Months Ended						Six Months Ended
	August 31,						August 31,
(In thousands)	2005			2004			2005			2004
Royalty revenue	$	(9,481	)	$	(1,408	)	$	(15,160	)	$	(11,891	)
Foreign exchange (gain) loss		(720	)		(112	)		519			(417	)
Interest income		(2,694	)		(1,530	)		(5,334	)		(2,236	)
Gain on sale of investment		—			(5	)		—			(3,095	)
Other		963			(14,175	)		(328	)		(15,937	)
	$	(11,932	)	$	(17,230	)	$	(20,303	)	$	(33,576	)

During the three months ended August 31, 2004, other included a $10.0 million one-time receipt related to licensing activities. Other includes, among other things, gains and losses on asset disposals and rental income. Proceeds of $19.1 million received from the sale of an investment in the prior year are included in “Other — net” investing activities in the Condensed Consolidated Statement of Cash Flows for the period.

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Note 5 — Earnings Per Share

The following table sets forth the computation of earnings per share and earnings per share — assuming dilution:

	Three Months Ended				Six Months Ended
	August 31,				August 31,
	2005		2004		2005		2004
Numerator (in thousands):
Income from continuing operations	$	3,241	$	5,900	$	29,655	$	8,836
Add back — interest on convertible subordinated notes, net of tax		—		—		3,750		—
Income from continuing operations	$	3,241	$	5,900	$	33,405	$	8,836
Denominator (in thousands):
Weighted average shares outstanding		67,102		68,419		67,849		68,210
Effect of dilutive securities:
Convertible debt		—		—		12,591		—
Stock options and other		812		847		801		847
Weighted average shares outstanding — assuming dilution		67,914		69,266		81,241		69,057
Income from continuing operations per share	$	0.05	$	0.09	$	0.44	$	0.13
Income from continuing operations per share — assuming dilution	$	0.05	$	0.09	$	0.41	$	0.13

Approximately 1.6 million and 1.7 million stock options outstanding in the three and six month periods ended August 31, 2005, respectively, were excluded because the effect would have been antidilutive (3.9 million and 4.1 million stock options outstanding in the three and six month periods ended August 31, 2004, respectively). In addition, the effect of the convertible subordinated notes has been excluded for the three months ended August 31, 2005, and for the three and six months ended August 31, 2004, because the effect would have been antidilutive. See Note 10 for further discussion.

Note 6 — Comprehensive Income

The Corporation’s total comprehensive income is as follows:

(In thousands)	Three Months Ended						Six Months Ended
	August 31,						August 31,
	2005			2004			2005			2004
Net income	$	3,241		$	6,910		$	29,655		$	11,148
Other comprehensive (loss) income:
Foreign currency translation adjustments		(2,043	)		(3,519	)		(16,187	)		(10,566	)
Unrealized gains on securities		2			253			1			253
Total comprehensive income	$	1,200		$	3,644		$	13,469		$	835

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Note 7 — Trade Accounts Receivable, Net

Trade accounts receivable are reported net of certain allowances and discounts. The most significant of these are as follows:

(In thousands)	August 31, 2005		February 28, 2005		August 31, 2004
Allowance for seasonal sales returns	$	39,595	$	94,672	$	39,329
Allowance for doubtful accounts		17,255		16,684		17,398
Allowance for cooperative advertising and marketing funds		28,394		30,288		20,295
Allowance for rebates		46,077		50,638		44,570
	$	131,321	$	192,282	$	121,592

Note 8 — Inventories

(In thousands)	August 31, 2005		February 28, 2005		August 31, 2004
Raw materials	$	33,320	$	23,241	$	38,142
Work in process		23,502		19,719		25,792
Finished products		291,687		228,088		286,454
		348,509		271,048		350,388
Less LIFO reserve		77,444		75,890		70,606
		271,065		195,158		279,782
Display materials and factory supplies		25,068		27,716		29,195
Inventories	$	296,133	$	222,874	$	308,977

The valuation of inventory under the Last-In, First-Out (LIFO) method is made at the end of each fiscal year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations, by necessity, are based on estimates of expected fiscal year-end inventory levels and costs and are subject to final fiscal year-end LIFO inventory calculations.

Note 9 — Deferred Costs

In the normal course of its business, the Corporation enters into agreements with certain customers for the supply of greeting cards and related products. Under these agreements, the customer typically receives from the Corporation a combination of cash payments, credits, discounts, allowances and other incentive considerations to be earned by the customer as product is purchased from the Corporation over the effective time period of the agreement to meet a minimum purchase volume commitment. In the event a contract is not completed, the Corporation has a claim for unearned advances under the agreement. The Corporation periodically reviews the progress toward the commitment and adjusts the estimated amortization period accordingly to match the costs with the revenue associated with the agreement. The agreements may or may not specify the Corporation as the sole supplier of social expression products to the customer.

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The Corporation classifies the total contractual amount of the incentive consideration committed to the customer but not yet earned as a deferred cost asset at the inception of an agreement, or any future amendments. Deferred costs estimated to be earned by the customer and charged to operations during the next twelve months are classified as “Prepaid expenses and other” in the Condensed Consolidated Statement of Financial Position, and the remaining amounts to be charged beyond the next twelve months are classified as “Other assets.”

A portion of the total consideration may be payable by the Corporation at the time the agreement is consummated. All future payment commitments are classified as liabilities at inception until paid. The payments that are expected to be made in the next twelve months are classified as “Other current liabilities” in the Condensed Consolidated Statement of Financial Position, and the remaining payment commitments beyond the next twelve months are classified as “Other liabilities.” The Corporation believes that it maintains adequate reserves for deferred costs related to supply agreements and does not expect that the non-completion of any particular contract would result in a material loss.

As of August 31, 2005, February 28, 2005 and August 31, 2004, deferred costs and future payment commitments are included in the following financial statement captions:

(In thousands)	August 31, 2005			February 28, 2005			August 31, 2004
Prepaid expenses and other	$	161,689		$	156,665		$	169,770
Other assets		540,121			582,401			568,247
Deferred cost assets		701,810			739,066			738,017
Other current liabilities		(96,653	)		(65,944	)		(52,621	)
Other liabilities		(80,905	)		(95,452	)		(67,549	)
Deferred cost liabilities		(177,558	)		(161,396	)		(120,170	)
Net deferred costs	$	524,252		$	577,670		$	617,847

Note 10 — Debt

On May 11, 2004, the Corporation amended and restated its senior secured credit facility. This facility was originally entered into on August 9, 2001, as a $350 million facility and was amended on July 22, 2002, to a $320 million facility. The amended and restated senior secured credit facility consists of a $200 million revolving facility maturing on May 10, 2008. There were no outstanding balances under this facility at August 31, 2005, February 28, 2005 or August 31, 2004.

The amended and restated credit facility is secured by the domestic assets of the Corporation and a 65% interest in the capital stock of certain of its foreign subsidiaries. The Corporation pays an annual commitment fee of 25 basis points on the undrawn portion of the facility. The facility contains various restrictive covenants. Some of these restrictions require that the Corporation meet specified periodic financial ratios, minimum net worth, maximum leverage, and interest coverage. The credit facility places certain restrictions on the Corporation’s ability to incur additional indebtedness, to engage in acquisitions of other businesses, to repurchase its own capital stock and to

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pay shareholder dividends. These covenants are less restrictive than the covenants previously in place.

In April 2005, the Corporation amended its amended and restated senior secured credit facility dated May 11, 2004. The amendment, among other things, increased the maximum amount of dividends that the Corporation may pay to its shareholders, increased the maximum amount of its own capital stock that it may repurchase and extended the period during which the Corporation may repurchase its 11.75% senior subordinated notes due July 15, 2008.

The Corporation is also party to a three-year accounts receivable securitization financing agreement that provides for up to $200 million of financing and is secured by certain trade accounts receivable. Under the terms of the agreement, the Corporation transfers receivables to a wholly-owned consolidated subsidiary that in turn utilizes the receivables to secure borrowings through a credit facility with a financial institution. On August 2, 2004, the agreement was amended to extend the maturity date to August 1, 2007. The related interest rate is commercial paper-based. The Corporation pays an annual commitment fee of 25 basis points on the undrawn portion of the accounts receivable facility. There were no outstanding balances under this agreement at August 31, 2005, February 28, 2005 or August 31, 2004.

During the three months ended May 31, 2004, the Corporation commenced a cash tender offer for all of its outstanding 11.75% senior subordinated notes due July 15, 2008. As a result of this tender offer, a total of $186.2 million of these senior subordinated notes were repurchased and the Corporation recorded a charge of $39.1 million, included in “Interest expense” on the Condensed Consolidated Statement of Income, for the payment of the premium and other fees associated with the notes repurchased as well as for the write-off of related deferred financing costs. As part of this transaction, substantially all restrictive covenants were eliminated from the approximately $10 million remaining outstanding notes. On July 15, 2005, the Corporation called the remaining 11.75% senior subordinated notes. As a result, a charge of $0.9 million, included in “Interest expense” on the Condensed Consolidated Statement of Income, was recorded during the six months ended August 31, 2005, for the premium associated with the notes as well as for the write-off of related deferred financing costs.

At August 31, 2005, the Corporation was in compliance with its financial covenants.

At August 31, 2005, February 28, 2005 and August 31, 2004, long-term debt and their related calendar year due dates were as follows:

(In thousands)	August 31, 2005		February 28, 2005		August 31, 2004
6.10% Senior Notes, due 2028	$	298,703	$	298,503	$	298,310
11.75% Senior Subordinated Notes, due 2008		—		10,016		9,990
7.00% Convertible Subordinated Notes, due 2006		175,000		175,000		175,000
Other (due 2007-2011)		2,519		2,580		576
	$	476,222	$	486,099	$	483,876

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The 7.00% convertible subordinated notes are convertible at the option of the holders into shares of the Corporation’s class A common shares at any time before the close of business on July 15, 2006, at a conversion rate of 71.9466 common shares per $1 thousand principal amount of notes.

Note 11 — Retirement Benefits

The components of periodic benefit cost for the Corporation’s defined benefit pension and postretirement benefit plans are as follows:

	Defined Benefit Pension
	Three Months Ended						Six Months Ended
	August 31,						August 31,
(In thousands)	2005			2004			2005			2004
Service cost	$	128		$	112		$	256		$	224
Interest cost		1,811			1,851			3,622			3,692
Expected return on plan assets		(1,721	)		(1,428	)		(3,442	)		(2,843	)
Amortization of prior service cost		23			—			46			—
Amortization of actuarial loss		358			22			716			22
	$	599		$	557		$	1,198		$	1,095

	Postretirement Benefit
	Three Months Ended						Six Months Ended
	August 31,						August 31,
(In thousands)	2005			2004			2005			2004
Service cost	$	711		$	628		$	1,422		$	1,256
Interest cost		1,872			2,221			3,744			4,442
Expected return on plan assets		(1,201	)		(1,336	)		(2,402	)		(2,672	)
Amortization of prior service cost		(1,849	)		(1,559	)		(3,698	)		(3,118	)
Amortization of actuarial loss		1,771			1,546			3,542			3,092
	$	1,304		$	1,500		$	2,608		$	3,000

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act provides plan sponsors a federal subsidy for certain qualifying prescription drug benefits covered under the sponsor’s postretirement health care plans. FASB Staff Position No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (“FSP 106-2”) was issued on May 19, 2004. FSP 106-2 provides guidance on accounting for the effects of the new Medicare prescription drug legislation by employers whose prescription drug benefits are actuarially equivalent to the drug benefit under Medicare Part D. FSP 106-2 also contains basic guidance on related income tax accounting and complex rules for transition that permit various alternative prospective and retroactive transition approaches. The Corporation adopted the provisions of FSP 106-2 effective September 1, 2004. The effect of the adoption of FSP 106-2 was a reduction of the net periodic postretirement benefit cost of approximately $0.2 million and $0.4 million for the three and six months ended August 31, 2005, respectively.

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The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. The profit-sharing plan expense for the six months ended August 31, 2005 was $3.5 million, compared to $2.5 million in the prior year period. The profit-sharing plan expense for the six month periods are estimates as actual contributions to the profit-sharing plan are made after fiscal year-end and are contingent upon final year-end results. The Corporation matches a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The expenses recognized for the three and six month periods ended August 31, 2005 were $1.1 million and $1.8 million ($1.1 million and $2.3 million for the three and six month periods ended August 31, 2004), respectively.

Note 12 — Stock-Based Compensation

The Corporation follows APB Opinion No. 25 and related Interpretations in accounting for its stock options granted to employees and directors. Because the exercise price of the Corporation’s 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 SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Refer to Note 3 for information regarding recent changes to the accounting guidance for stock-based compensation.

The following illustrates the pro forma effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS 123:

(In thousands, except per share amounts)	Three Months Ended				Six Months Ended
	August 31,				August 31,
	2005		2004		2005		2004
Net income as reported	$	3,241	$	6,910	$	29,655	$	11,148
Add: Stock-based compensation expense included in net income, net of tax		451		—		451		—
Deduct: Stock-based compensation expense determined under fair value based method, net of tax		1,849		1,735		2,878		3,065
Pro forma net income	$	1,843	$	5,175	$	27,228	$	8,083
Earnings per share:
As reported	$	0.05	$	0.10	$	0.44	$	0.16
Pro forma		0.03		0.08		0.40		0.12
Earnings per share — assuming dilution:
As reported	$	0.05	$	0.10	$	0.41	$	0.16
Pro forma		0.03		0.07		0.38		0.12

During the three months ended May 31, 2004, shares held in trust related to a deferred compensation plan were withdrawn from the trust. This transaction had no impact on the Corporation’s results of operations during the six months ended August 31, 2004.

13

Approximately 0.9 million and 1.3 million stock options were exercised during the three and six months ended August 31, 2005, respectively, compared to approximately 0.5 million and 1.6 million stock options exercised during the three and six months ended August 31, 2004, respectively.

Note 13 — Business Segment Information

The Social Expression Products segment primarily designs, manufactures and sells greeting cards and other related products through various channels of distribution, with mass retailers as the primary channel, and is managed by geographic location.

At August 31, 2005, the Corporation owned and operated 527 card and gift retail stores in the United States and Canada through its Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the Social Expression Products segment and products purchased from other vendors.

AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms.

Non-reportable operating segments primarily include the design, manufacture and sale of display fixtures.

Segment results are internally reported and evaluated at consistent exchange rates between years to eliminate the impact of foreign currency fluctuations. An exchange rate adjustment is included in the reconciliation of the segment results to the consolidated results; this adjustment represents the impact on the segment results of the difference between the exchange rates used for segment reporting and evaluation and the actual exchange rates for the periods presented.

Centrally-incurred and managed costs are not allocated back to the operating segments. The unallocated items include interest expense on centrally-incurred debt and domestic profit-sharing expense. In addition, the costs associated with corporate operations including the senior management, corporate finance, legal and human resource functions, among other costs, are included in the unallocated items.

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Operating Segment Information

(In thousands)	Three Months Ended						Six Months Ended
	August 31,						August 31,
	2005			2004			2005			2004
Net Sales:
Social Expression Products	$	336,129		$	340,374		$	708,197		$	721,923
Intersegment items		(13,879	)		(17,324	)		(25,554	)		(32,148	)
Exchange rate adjustment		956			196			5,518			586
Net		323,206			323,246			688,161			690,361
Retail Operations		39,085			48,239			81,945			99,562
Exchange rate adjustment		1,557			401			2,939			617
Net		40,642			48,640			84,884			100,179
AG Interactive		19,583			12,959			47,630			22,404
Exchange rate adjustment		(98	)		—			116			—
Net		19,485			12,959			47,746			22,404
Non-reportable segments		3,156			8,187			7,926			13,578
Unallocated items — net		1,067			(948	)		2,115			(897	)
Consolidated	$	387,556		$	392,084		$	830,832		$	825,625
Segment Earnings:
Social Expression Products	$	50,413		$	60,795		$	135,378		$	155,757
Intersegment items		(10,163	)		(12,295	)		(18,697	)		(23,231	)
Exchange rate adjustment		603			202			1,355			359
Net		40,853			48,702			118,036			132,885
Retail Operations		(11,049	)		(11,376	)		(17,287	)		(15,520	)
Exchange rate adjustment		(133	)		(4	)		(175	)		11
Net		(11,182	)		(11,380	)		(17,462	)		(15,509	)
AG Interactive		485			(2,046	)		815			(1,683	)
Exchange rate adjustment		41			—			(54	)		—
Net		526			(2,046	)		761			(1,683	)
Non-reportable segments		167			(2,150	)		641			(9,056	)
Unallocated items — net		(22,280	)		(23,496	)		(50,900	)		(92,210	)
Exchange rate adjustment		203			(4	)		301			(12	)
Net		(22,077	)		(23,500	)		(50,599	)		(92,222	)
Consolidated	$	8,287		$	9,626		$	51,377		$	14,415

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Other

During 2005, the Corporation recorded a severance accrual of $18.3 million related to an overhead reduction program that eliminated approximately 300 associates and the Franklin, Tennessee plant closure. Substantially all of the associates receiving payments separated from the Corporation on or prior to February 28, 2005. Approximately 70% of the severance will be paid prior to February 28, 2006, with the remaining payments extending through 2008. The remaining balance of the severance accrual was $8.7 million at August 31, 2005.

In connection with the Franklin plant closing, the Social Expression Products segment recorded an additional charge of $5.3 million during the six months ended August 31, 2005 for the remaining shutdown and relocation costs incurred during the period, including $2.1 million incurred during the second quarter.

Note 14 — Discontinued Operations

On July 30, 2004, the Corporation announced it had signed a letter of agreement to sell its Magnivision nonprescription reading glasses business to AAiFosterGrant, a unit of sunglasses maker Foster Grant. The sale reflects the Corporation’s strategy to focus its resources on business units closely related to its core social expression business. The sale closed in the third quarter of fiscal 2005 although an additional amount may be recorded during the next six months based on closing balance sheet adjustments. This adjustment is not expected to exceed 10% of the cash proceeds. During the third quarter of fiscal 2005, the Corporation received cash proceeds of $77.0 million and recorded a gain of $35.5 million for the sale of Magnivision.

Magnivision meets the definition of a “component of an entity” and has been accounted for as a discontinued operation under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the Corporation’s condensed consolidated financial statements and related notes have been presented to reflect Magnivision as a discontinued operation for all periods presented. Magnivision was previously included within the Corporation’s “non-reportable segments.”

The following summarizes the results of discontinued operations for the three and six months ended August 31, 2004:

	Three Months		Six Months
	Ended		Ended
	August 31, 2004		August 31, 2004
(In thousands)
Net sales	$	13,024	$	25,658
Pretax income from operations		1,647		3,771
Income tax expense		637		1,459
Income from discontinued operations	$	1,010	$	2,312

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“Assets of businesses held for sale” and “Liabilities of businesses held for sale” in the Condensed Consolidated Statement of Financial Position include the following:

(In thousands)	August 31, 2004
Assets of businesses held for sale:
Current assets	$	23,077
Other assets		6,566
Fixed assets		10,747
	$	40,390
Liabilities of businesses held for sale:
Current liabilities	$	2,844
Noncurrent liabilities		1,618
	$	4,462

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

During the second quarter of 2006, the Corporation continued to benefit from strong everyday card sales in North America due to ongoing initiatives, which focus on better understanding and meeting consumer needs and improving the retail shopping experience. Seasonal card units increased dramatically from the prior year quarter due to timing differences related to customers who were recently converted to scan-based trading, the change in strategy for seasonal space management and fall seasonal shipments. These seasonal shifts are not expected to significantly impact full year seasonal results. AG Interactive achieved net sales growth due to prior year acquisitions, new products in the instant messenger business and increased subscribers in the core online greeting card business. Also contributing to the quarter was the continued performance of the licensing business.

Sales in the Retail Operations segment declined from the prior year period, but margins improved as the segment relied less on promotional pricing to drive sales volume. Consolidated margins also improved as a result of product mix, more card product versus non-card product, and business mix, with an increased percentage of sales from higher margin businesses compared to the prior year second quarter. The Corporation also completed a plant closure and consolidation during the quarter and expects to realize cost savings from this activity in the next fiscal year.

Despite these positive indicators, the Corporation remains concerned with its international businesses, particularly the United Kingdom (“U.K.”) market, which remained soft during the second quarter, but improved from the first quarter. In addition to the demand reduction, general cost pressure throughout the business and customer mix are impacting international margins. The Corporation is also experiencing sales and earnings shortfalls in the promotional gift wrap business and the wireless business in Europe.

Balance sheet management, particularly from working capital, continued to provide favorable cash flow. Also during the second quarter, the Corporation repurchased debt of approximately $10 million and repurchased approximately 2 million shares of stock for $46 million under the stock repurchase program. Despite this usage from financing activities, the Corporation ended the second quarter in a strong cash position with combined cash, cash equivalents and short-term investments of $372.6 million compared to $152.8 million at the prior year quarter end.

During the three months ended August 31, 2005, the Corporation recognized income from continuing operations of $3.2 million compared to $5.9 million in the prior year quarter. The current year quarter included $2.1 million pretax for shutdown and relocation costs incurred during the period in connection with the closure of a manufacturing facility. The prior year quarter included a $10.0 million pretax gain as a result of a one-time receipt relating to the Corporation’s licensing activities.

For 2006, AG Interactive changed its fiscal year-end to coincide with the Corporation’s fiscal year-end. As a result, the six months ended August 31, 2005 included eight months of AG Interactive’s operations.

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Results of Operations

Three months ended August 31, 2005 and 2004

Net income was $3.2 million, or $0.05 per share, in the quarter compared to $6.9 million, or $0.10 per share, in the prior year second quarter (all per-share amounts assume dilution). Income from discontinued operations, net of tax, contributed $1.0 million, or $0.01 per share, of the net income in the prior year second quarter.

The Corporation’s results for the three months ended August 31, 2005 and 2004 are summarized below:

				% Net						% Net
(Dollars in thousands)	2005			Sales			2004			Sales
Net sales	$	387,556			100.0	%	$	392,084			100.0	%
Material, labor and other production costs		176,316			45.5	%		186,717			47.6	%
Selling, distribution and marketing		147,328			38.0	%		146,303			37.3	%
Administrative and general		58,970			15.2	%		57,505			14.7	%
Interest expense		8,587			2.2	%		9,163			2.3	%
Other income — net		(11,932	)		(3.0	%)		(17,230	)		(4.4	%)
Total costs and expenses		379,269			97.9	%		382,458			97.5	%
Income from continuing operations before income tax expense		8,287			2.1	%		9,626			2.5	%
Income tax expense		5,046			1.3	%		3,726			1.0	%
Income from continuing operations		3,241			0.8	%		5,900			1.5	%
Income from discontinued operations, net of tax		—			0.0	%		1,010			0.3	%
Net income	$	3,241			0.8	%	$	6,910			1.8	%

For the three months ended August 31, 2005, consolidated net sales were $387.6 million, down from $392.1 million in the prior year second quarter. This 1.2% decrease was primarily the result of lower sales in the Corporation’s Retail Operations segment and the fixtures business. The Retail Operations segment was down approximately $9 million, half of which is attributable to a decrease in same-store sales and half due to fewer stores. The fixtures business decreased approximately $5 million compared to the prior year as this business unit has focused on eliminating lower margin sales. These decreases were partially offset by an increase in AG Interactive. AG Interactive sales increased approximately $7 million due to the prior year acquisitions in the wireless unit and growth in the online business. The Social Expression Products segment was relatively flat compared to the prior year period as a strong performance in the North American greeting card business was offset by declining gift wrap and international sales. Favorable foreign currency translation added approximately $2 million to net sales.

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Unit and Pricing Analysis

Unit and pricing comparatives (on a sales less returns basis) for the three months ended August 31, 2005 and 2004 are summarized below:

	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2005			2004			2005			2004			2005			2004
Unit volume		0.5	%		(2.1	%)		42.6	%		(19.7	%)		4.4	%		(3.9	%)
Selling prices		(0.9	%)		—			(5.7	%)		5.8	%		(1.1	%)		0.3	%
Overall Increase/ (Decrease)		(0.4	%)		(2.1	%)		34.5	%		(15.0	%)		3.2	%		(3.6	%)

Seasonal card unit volume increased 42.6% in the current quarter, driven primarily by the North American business unit. Approximately half of this increase is due to Father’s Day and Graduation card sales, primarily affected by timing differences with customers that implemented scan-based trading subsequent to the prior year second quarter. As noted in the Corporation’s Form 10-Q for the quarter ended May 31, 2005, the implementation of scan-based trading shifted the Corporation’s recognition of a significant portion of sales of Father’s Day and Graduation cards from the first quarter to the second quarter for these customers. Further, since the second quarter is the smallest seasonal card quarter, the unit increase in this quarter appears larger than the decrease in the first quarter on a percentage basis. The remaining increase relates to timing differences on summer seasonal product, shifting from the first quarter compared to the prior year, and earlier shipments of fall and Christmas seasonal product compared to the prior year quarter. Slightly offsetting the North America increases are timing differences of Christmas product shipments in the U.K. due to varying customer delivery date preferences. The 5.7% decrease in selling prices of seasonal cards is due to higher sales of value priced cards across all seasonal programs and the higher volume of fall products that generally include lower priced cards.

Sales of everyday card units increased 0.5% compared to the prior year quarter as continued growth in North America was slightly offset by lower unit sales from the Corporation’s international business operations, however the international business, particularly in the U.K., showed improvements compared to the results in the first quarter. The 0.9% decrease in selling prices of everyday cards was driven by a higher mix of value priced cards.

Expense Overview

Material, labor and other production costs (MLOPC) for the three months ended August 31, 2005 were $176.3 million, a decrease from $186.7 million for the same period in the prior year. As a percentage of net sales, these costs were 45.5% in the current period compared to 47.6% for the three months ended August 31, 2004. The $10.4 million decrease from the prior year is attributable to favorable mix, both product and business, and favorable volume variances partially offset by increased spending. Changes in business mix accounted for approximately $8 million of the decrease as lower margin businesses shrunk and higher margin businesses grew or held revenues flat. The Corporation’s fixtures business

20

experienced improved margins as that business focused on eliminating lower margin sales. The quality of sales or product mix within certain businesses reduced MLOPC by approximately $10 million. Less promotional pricing in the Retail Operations segment improved margins in that business. The overall reduced sales volume in the current period accounted for approximately $2 million of the decrease in MLOPC. Offsetting these decreases were approximately $2 million of shutdown and relocation costs for the plant closure announced in 2005, increased creative content costs of approximately $2 million and approximately $4 million for increased costs for raw materials and plant operations, particularly paper costs. Also, changes in the LIFO reserve added approximately $2 million in the current year quarter.

Selling, distribution and marketing costs for the three months ended August 31, 2005 were $147.3 million, increasing from $146.3 million for the same period in the prior year. As a percentage of net sales, these costs were 38.0% in the current period compared to 37.3% for the three months ended August 31, 2004. The $1.0 million change is due to higher licensing related expenses of approximately $4 million (as a result of higher royalty revenue) partially offset by reduced costs of approximately $3 million in the Retail Operations segment arising from fewer stores.

Administrative and general expenses were $59.0 million for the three months ended August 31, 2005, an increase from $57.5 million for the same period in the prior year. The increase of $1.5 million from the prior year period is primarily the result of increased systems development spending and administrative costs embedded in the acquisitions made during the last six months of the prior year.

Interest expense for the three months ended August 31, 2005 was $8.6 million, a decrease from $9.2 million for the same period in the prior year. The decrease of $0.6 million is due primarily to interest savings resulting from the debt repurchase in July 2005.

Other income – net was $11.9 million for the three months ended August 31, 2005, a decrease from $17.2 million for the same period in the prior year. The $5.3 million decrease is partially due to the one-time receipt of $10.0 million in the prior year period related to licensing activities partially offset by increased royalty revenue of $8.1 million in the current quarter compared to the prior year.

The effective tax rate was 60.9% and 38.7% for the three months ended August 31, 2005 and 2004, respectively. Since the second quarter has seasonally low income from continuing operations before income tax expense, any changes to the tax assets and reserves on the Condensed Consolidated Statement of Financial Position are magnified in the effective tax rate calculation. During the three months ended August 31, 2005, the Corporation eliminated deferred tax assets relating to certain foreign net operating loss carryforwards. In addition, the Corporation reduced its deferred income tax assets to reflect the change in Ohio tax laws.

21

Results of Operations

Six months ended August 31, 2005 and 2004

Net income was $29.7 million, or $0.41 per share, in the six months ended August 31, 2005, compared to net income of $11.1 million, or $0.16 per share, in the prior year period. Income from discontinued operations, net of tax, contributed $2.3 million, or $0.03 per share, of the net income in the prior year six months.

The Corporation’s results for the six months ended August 31, 2005 and 2004 are summarized below:

				% Net						% Net
(In thousands)	2005			Sales			2004			Sales
Net sales	$	830,832			100.0	%	$	825,625			100.0	%
Material, labor and other production costs		356,789			42.9	%		368,332			44.6	%
Selling, distribution and marketing		302,602			36.4	%		292,955			35.5	%
Administrative and general		122,098			14.7	%		121,642			14.7	%
Interest expense		18,269			2.2	%		61,857			7.5	%
Other income — net		(20,303	)		(2.4	%)		(33,576	)		(4.1	%)
Total costs and expenses		779,455			93.8	%		811,210			98.2	%
Income from continuing operations before income tax expense		51,377			6.2	%		14,415			1.8	%
Income tax expense		21,722			2.6	%		5,579			0.7	%
Income from continuing operations		29,655			3.6	%		8,836			1.1	%
Income from discontinued operations, net of tax		—			0.0	%		2,312			0.3	%
Net income	$	29,655			3.6	%	$	11,148			1.4	%

For the six months ended August 31, 2005, consolidated net sales were $830.8 million, up from $825.6 million in the same period in the prior year. This 0.6% increase is due primarily to increases in AG Interactive as well as approximately $7 million of favorable foreign currency translation. The increase in net sales of approximately $25 million for AG Interactive is due to sales from the additional two months of activity resulting from the fiscal year change and from the prior year acquisitions. Partially offsetting these increases were lower sales in the Retail Operations and Social Expression Products segments and the fixtures business. The Retail Operations segment was down approximately $17 million, half due to fewer stores and half due to the decrease in same-store sales. The Social Expression Products segment decreased approximately $7 million as unfavorable gift wrap and international sales were only partially offset by improvements in the North American greeting card business. The fixtures business decreased approximately $6 million compared to the prior year due to the business unit’s focus on eliminating lower margin sales.

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Unit and Pricing Analysis

Unit and pricing comparatives (on a sales less returns basis) for the six months ended August 31, 2005 and 2004 are summarized below:

	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2005			2004			2005			2004			2005			2004
Unit volume		0.1	%		(0.8	%)		(4.0	%)		(3.7	%)		(0.9	%)		(1.5	%)
Selling prices		0.1	%		(0.9	%)		2.0	%		2.3	%		0.5	%		(0.2	%)
Overall Increase / (Decrease)		0.2	%		(1.8	%)		(2.0	%)		(1.5	%)		(0.5	%)		(1.7	%)

For the six month period, seasonal card units are 4.0% lower than in the prior year period. This decrease is primarily year over year timing differences related to the new merchandising strategy for seasonal space management and delayed Christmas unit shipments in the U.K. due to varying customer delivery date preferences. The increased selling prices in the period were driven primarily by improved product mix of Mother’s Day cards, with a lower volume of value priced cards than in the prior year.

Everyday card units are up slightly in the six month period, as improvements in North American card unit sales, due to product mix enhancements, were partially offset by soft international everyday card unit sales, particularly in the U.K., during the first quarter. The slight improvement in selling prices for the six month period was driven by the Corporation’s international business operations as the mix of cards sold shifted to higher priced units, partially offset by lower selling prices on everyday cards in the North American business with the shift to a higher volume of value priced cards.

Expense Overview

MLOPC for the six months ended August 31, 2005 was $356.8 million, a decrease from $368.3 million for the same period in the prior year. As a percentage of net sales, these costs were 42.9% in the current period compared to 44.6% for the six months ended August 31, 2004. The $11.5 million decrease from the prior year is attributable to a favorable mix partially offset by increased spending and unfavorable volume variances of approximately $2 million due to the change in sales volume. Both favorable product and business mix reduced MLOPC by approximately $34 million. Improved margins due to less promotional pricing in the Retail Operations segment and production improvements in the fixtures business both favorably impacted MLOPC. These decreases were only partially offset by spending increases of approximately $20 million. These increases included approximately $5 million of higher creative content costs, approximately $5 million of increased costs for AG Interactive, primarily related to the additional two months and the prior year acquisitions, and approximately $5 million of shutdown and relocation costs for the plant closure announced in 2005. Changes in the LIFO reserve added approximately $4 million to MLOPC in the current year period.

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Selling, distribution and marketing costs for the six months ended August 31, 2005 were $302.6 million, up from the $293.0 million for the same period in the prior year. As a percentage of net sales, these costs were 36.4% in the current period compared to 35.5% for the six months ended August 31, 2004. The $9.6 million increase from the prior year is due to increased costs of approximately $10 million in the AG Interactive segment primarily as a result of the additional two months of activity and the prior year acquisitions and higher licensing related expenses of approximately $2 million (as a result of higher royalty revenue). Also contributing to the increase are higher merchandiser and field sales expenses of approximately $3 million. These increases were partially offset by reduced costs of approximately $6 million in the Retail Operations segment due to fewer stores in the current year period.

Administrative and general expenses were $122.1 million for the six months ended August 31, 2005, an increase from $121.6 million for the same period in the prior year. The increase of $0.5 million compared to the prior year six months is due to costs embedded in the AG Interactive acquisitions and the additional two months of activity offset by lower consulting expenses.

Interest expense was $18.3 million for the six months ended August 31, 2005 down from $61.9 million for the same period in the prior year. The decrease of $43.6 million is due primarily to the debt repurchase from the first quarter of fiscal 2005. The Corporation recorded $39.1 million for the payment of the premium and other fees and the write-off of deferred financing costs associated with the repurchase of $186.2 million of the 11.75% senior subordinated notes during the prior year period. Interest savings of $4.7 million were realized due to the reduced level of debt. Partially offsetting these decreases is $0.9 million for the payment of the premium and the write-off of deferred financing costs associated with the repurchase of the remaining $10.2 million of the 11.75% senior subordinated notes during the current year period.

Other income – net was $20.3 million for the six months ended August 31, 2005, down from $33.6 million in the same period in the prior year. The decrease of $13.3 million is due primarily to the one-time receipt of $10.0 million related to the Corporation’s licensing activities and a $3.1 million gain on the sale of an investment, both in the prior year period.

The effective tax rate was 42.3% and 38.7% for the six months ended August 31, 2005 and 2004, respectively. During the six months ended August 31, 2005, the Corporation established additional tax reserves to cover anticipated examination adjustments. In addition, the Corporation reduced its deferred income tax assets to reflect the change in Ohio tax laws.

24

Segment Information

The Corporation is organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. The Social Expression Products segment primarily designs, manufactures and sells greeting cards and other related products through various channels of distribution, with mass retailers as the primary channel, and is managed by geographic location. As permitted under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” certain operating divisions have been aggregated into the Social Expression Products segment. These operating divisions have similar economic characteristics, products, production processes, types of customers and distribution methods. At August 31, 2005, the Corporation owned and operated 527 card and gift retail stores in the United States and Canada through its Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the Social Expression Products segment and products purchased from other vendors. AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms.

The Corporation reviews segment results using consistent exchange rates between periods to eliminate the impact of foreign currency fluctuations.

Social Expression Products Segment

	Three Months Ended							Six Months Ended
	August 31,							August 31,
(Dollars in thousands)	2005		2004		% Change			2005		2004		% Change
Net sales	$	322,250	$	323,050		(0.2	%)	$	682,643	$	689,775		(1.0	%)
Segment earnings		40,250		48,500		(17.0	%)		116,681		132,526		(12.0	%)

Net sales of the Social Expression Products segment excluding the impact of foreign exchange and intersegment items, for the three months ended August 31, 2005, decreased $0.8 million or 0.2% from the same period in the prior year. For the six months ended August 31, 2005, net sales decreased $7.1 million or 1.0% from the prior year period due to decreases in the gift wrap business and the international greeting card divisions, primarily the U.K. business, which were only partially offset by improvements in the North American greeting card business, primarily due to less terms granted to customers in the current period.

Segment earnings excluding the impact of foreign exchange and intersegment items for the three months ended August 31, 2005, decreased $8.3 million or 17.0% compared to the prior year period. Segment earnings during the six months ended August 31, 2005, decreased $15.8 million or 12.0% compared to the prior year period. These results reflect the impact of soft international sales, particularly in the U.K., lower sales in the gift wrap business and increased costs for raw materials, particularly paper costs, partially offset by the improvements in the North American greeting card business. Also included were shutdown and relocation costs associated with the plant closure of approximately $2 million during the three months ended August 31, 2005 and approximately $5 million for the six month period and LIFO reserve changes of approximately $2 million in the three months and $4 million in the six months.

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Retail Operations Segment

	Three Months Ended									Six Months Ended
	August 31,									August 31,
(Dollars in thousands)	2005			2004			% Change			2005			2004			% Change
Net sales	$	39,085		$	48,239			(19.0	%)	$	81,945		$	99,562			(17.7	%)
Segment loss		(11,049	)		(11,376	)		2.9	%		(17,287	)		(15,520	)		(11.4	%)

Net sales excluding the impact of foreign exchange in the Retail Operations segment decreased $9.2 million or 19.0% for the three months ended August 31, 2005, compared to the same period in the prior year as same-store sales were approximately $5 million or 11.4% lower compared to the prior year period. Net sales for the quarter decreased approximately $4 million due to fewer stores. For the six months ended August 31, 2005, net sales decreased $17.6 million or 17.7% compared to the prior year period as same-store sales declined approximately $8 million or 9.2% compared to the same period in the prior year. The average number of stores for the six months ended August 31, 2005, was approximately 9.7% less than in the prior year period, which accounted for approximately $9 million of the decrease in net sales.

Segment earnings excluding the impact of foreign exchange was a loss of $11.0 million in the three months ended August 31, 2005, compared to a loss of $11.4 million in the three months ended August 31, 2004. For the six months ended August 31, 2005, segment earnings was a loss of $17.3 million compared to a loss of $15.5 million in the prior year period. Earnings were unfavorably impacted by certain noncapitalizable implementation costs associated with a systems infrastructure upgrade. The impact of lower sales on earnings was softened due to less promotional activity and favorable product mix that improved the gross margins by approximately 5.6 percentage points. Segment earnings benefited from lower store rent and associate costs due to fewer stores.

AG Interactive Segment

	Three Months Ended								Six Months Ended
	August 31,								August 31,
(Dollars in thousands)	2005		2004			% Change			2005		2004			% Change
Net sales	$	19,583	$	12,959			51.1	%	$	47,630	$	22,404			112.6	%
Segment earnings (loss)		485		(2,046	)		123.7	%		815		(1,683	)		148.4	%

For 2006, AG Interactive changed its fiscal year-end to coincide with the Corporation’s fiscal year-end. As a result, the six months ended August 31, 2005 includes eight months of AG Interactive’s operations.

Net sales of AG Interactive excluding the impact of foreign exchange increased $6.6 million for the quarter ended August 31, 2005, compared to the same period in the prior year. For the six months ended August 31, 2005, net sales increased $25.2 million compared to the prior year

26

period. The $6.6 million increase in the quarterly period is primarily due to the prior year acquisitions within the AG Mobile wireless division, which contributed approximately $5 million to net sales in the current year quarter. Net sales in the core online business improved by approximately $1 million in the quarter and $3 million in the six months compared to the prior year periods. The additional two months of activity accounted for approximately $11 million of the $25.2 million increase in the six month period while the prior year acquisitions contributed approximately $11 million to the increase. At the end of the second quarter of 2006, AG Interactive had approximately 2.3 million paid subscribers versus 2.2 million at the prior year quarter end.

Segment earnings excluding the impact of foreign exchange increased by $2.5 million for the quarter ended August 31, 2005, compared to the prior year period. For the six months ended August 31, 2005, segment earnings improved by $2.5 million. Segment earnings for the core online business improved approximately $3 million in both the quarter and six months ended August 31, 2005, compared to the respective prior year periods, but were partially offset by acquisition costs, higher technology costs and the cost of new business initiatives. The additional two months of activity had no significant impact on segment earnings.

Liquidity and Capital Resources

The seasonal nature of the Corporation’s business precludes a useful comparison of the current period and the fiscal year-end financial statements; therefore, a Condensed Consolidated Statement of Financial Position for August 31, 2004, has been included.

Operating Activities

Operating activities provided $33.7 million of cash during the six months ended August 31, 2005, compared to providing $81.7 million of cash in the same period in the prior year.

Accounts receivable provided $11.7 million of cash from February 28, 2005, compared to using cash of $0.2 million in the same period in the prior year. As a percentage of the prior twelve months’ net sales, net accounts receivable were 9.0% at August 31, 2005, compared to 11.9% at August 31, 2004.

Inventory was a use of $75.7 million from February 28, 2005, compared to a use of $72.2 million in the same period in the prior year. As a percentage of the prior twelve months’ MLOPC, inventories were 33.1% at August 31, 2005, compared to 34.1% at August 31, 2004.

Other current assets were a use of $17.9 million of cash from February 28, 2005, compared to a source of $8.6 million in the same period in the prior year. The difference relates primarily to the timing of tax payments and refunds between the current and prior year periods.

Deferred costs — net represents payments under agreements with retailers net of the related amortization of those payments. During the six months ended August 31, 2005, amortization exceeded payments by $52.8 million; in the six months ended August 31, 2004, amortization

27

exceeded payments by $71.0 million. See Note 9 to the condensed consolidated financial statements for further discussion of deferred costs related to customer agreements.

Accounts payable and other liabilities were a use of $29.9 million during the six months ended August 31, 2005, compared to a source of $2.4 million in the prior year period. The change from the prior year is due primarily to tax payments, severance payments and bonus and profit sharing payments in the current period.

Investing Activities

Investing activities used $19.5 million of cash during the six months ended August 31, 2005, compared to a use of $1.9 million in the same period in the prior year. The increase of $17.6 million is primarily due to increased capital expenditures in the six months ended August 31, 2005 and the proceeds received from the sale of the marketable security investment of $19.1 million during the six months ended August 31, 2004.

Financing Activities

Financing activities used $98.4 million of cash during the six months ended August 31, 2005, compared to $207.0 million in the same period in the prior year. The current year amount relates primarily to the Corporation’s program to repurchase up to $200 million of its Class A common shares announced on April 5, 2005. During the six months ended August 31, 2005, $96.6 million was paid to repurchase approximately 3.9 million shares under the repurchase program. The prior year amount relates primarily to the repurchase of the Corporation’s 11.75% senior subordinated notes.

The receipt by the Corporation of the exercise price on stock options provided $21.3 million and $18.7 million during the six months ended August 31, 2005 and 2004, respectively. During the six months ended August 31, 2005, $96.6 million was paid to repurchase approximately 3.9 million Class A common shares under the Corporation’s $200 million repurchase program. In addition, in accordance with its Articles of Incorporation, the Corporation repurchased Class B common shares at a cost of approximately $1.4 million in the current period. In the prior year six months, the Corporation repurchased shares at a cost of approximately $9.4 million, primarily Class B common shares.

During the six months ended August 31, 2005, the Corporation paid quarterly dividends of $0.08 per common share, which totaled $10.9 million.

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Credit Sources

Substantial credit sources are available to the Corporation. In total, the Corporation had available sources of approximately $400 million at August 31, 2005. This includes the Corporation’s $200 million senior secured revolving credit facility and its $200 million accounts receivable securitization financing. There were no outstanding balances under either of these arrangements at August 31, 2005.

On May 11, 2004, the Corporation amended and restated its senior secured revolving credit facility. This facility was originally entered into on August 9, 2001, as a $350 million facility and was amended on July 22, 2002, to a $320 million facility. The amended and restated senior secured revolving credit facility consists of a $200 million revolving facility maturing on May 10, 2008. The amended facility is secured by the domestic assets of the Corporation and a 65% interest in the capital stock of certain of its foreign subsidiaries. The Corporation pays an annual commitment fee of 25 basis points on the undrawn portion of the facility. The facility contains various restrictive covenants. Some of these restrictions require that the Corporation meet specified periodic financial ratios, minimum net worth, maximum leverage, and interest coverage. The credit facility places certain restrictions on the Corporation’s ability to incur additional indebtedness, to engage in acquisitions of other businesses, to repurchase its own capital stock and to pay shareholder dividends. These covenants are less restrictive than the covenants previously in place.

In April 2005, the Corporation amended its amended and restated senior secured credit facility dated May 11, 2004. This amendment, among other things, increased the maximum amount of dividends that the Corporation may pay to its shareholders, increased the maximum amount of its own capital stock that it may repurchase and extended the period during which the Corporation may repurchase its 11.75% senior subordinated notes due July 15, 2008.

The accounts receivable securitization financing agreement was amended on August 2, 2004, to extend the maturity date to August 1, 2007. The Corporation pays an annual commitment fee of 25 basis points on the undrawn portion of the accounts receivable facility.

During the three months ended May 31, 2004, the Corporation commenced a cash tender offer for all of its outstanding 11.75% senior subordinated notes due July 15, 2008. As a result of this tender offer, a total of $186.2 million of these senior subordinated notes were repurchased and the Corporation recorded a charge of $39.1 million for the payment of the premium and other fees associated with the notes repurchased as well as for the write-off of related deferred financing costs. As part of this transaction, substantially all restrictive covenants were eliminated from the remaining outstanding notes. On July 15, 2005, the Corporation called the remaining notes outstanding. As a result, the remaining $10.2 million of 11.75% senior subordinated notes were repurchased and the Corporation recorded a charge of $0.9 million for the payment of the premium as well as for the write-off of related deferred financing costs.

There were no material changes in the financial condition, liquidity or capital resources of the Corporation from February 28, 2005, the end of its preceding fiscal year, to August 31, 2005, the end of its latest fiscal quarter and the date of the most recent balance sheet included in

29

this report, nor from August 31, 2004, the end of the corresponding fiscal quarter last year, to August 31, 2005, except for the changes discussed above and aside from normal seasonal fluctuations. The Corporation’s future operating cash flow and borrowing availability under existing credit facilities and its accounts receivable securitization financing program are expected to meet currently anticipated funding requirements.

Critical Accounting Policies

Please refer to the discussion of the Corporation’s Critical Accounting Policies as disclosed in the Corporation’s Annual Report on Form 10-K for the year ended February 28, 2005.

Prospective Information

Certain statements in this report may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning the Corporation’s operations and business environment, which are difficult to predict and may be beyond the control of the Corporation. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Corporation’s future financial performance, include, but are not limited to, the following: retail bankruptcies and consolidations; successful integration of acquisitions; successful transition of management; a weak retail environment; consumer acceptance of products as priced and marketed; the impact of technology on core product sales; competitive terms of sale offered to customers; successfully implementing supply chain improvements and achieving projected cost savings from those improvements; increases in the cost of material, energy and other product costs; the Corporation’s ability to generate revenues from licensing activities and maximize the value of its intellectual property; the Corporation’s ability to comply with its debt covenants; fluctuations in the value of currencies in major areas where the Corporation operates, including the U.S. Dollar, Euro, U.K. Pound Sterling and Canadian Dollar; the timing and impact of new product introductions; escalation in the cost of providing employee health care; and the outcome of any legal claims known or unknown. Risks pertaining specifically to AG Interactive include the viability of online advertising and subscriptions as revenue generators, the public’s acceptance of online greetings and other social expression products, and the ability of the mobile division to compete effectively in the wireless content aggregation market.

The risks and uncertainties identified above are not the only risks the Corporation faces. Additional risks and uncertainties not presently known to the Corporation or that it believes to be immaterial also may adversely affect the Corporation. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Corporation’s business, financial condition and results of operations.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For further information, refer to the Corporation’s Annual Report on Form 10-K for the year ended February 28, 2005. There were no material changes in market risk, specifically interest rate and foreign currency exposure, for the Corporation from February 28, 2005, the end of its preceding fiscal year, to August 31, 2005, the end of its most recent fiscal quarter.

Item 4. Controls and Procedures

The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Corporation carries out a variety of on-going procedures, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on the foregoing, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this report.

There has been no change in the Corporation’s internal control over financial reporting during the Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Corporation is involved in certain legal actions and claims arising in the ordinary course of business. The Corporation does not believe that any of the litigation in which it is currently engaged, either individually or in the aggregate, will have a material adverse effect on its consolidated financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Not applicable
(b)	Not applicable
(c)	The following table provides information with respect to purchases of common shares of the Corporation made during the three months ended August 31, 2005, by American Greetings Corporation.

					Total Number			Maximum Number of
					Shares of			Shares (or
					Purchased as			Approximate Dollar
		Average			Part of Publicly			Value) that May Yet Be
	Total Number of	Price Paid			Announced			Purchased Under
Period	Shares Repurchased	per Share			Plans			the Plans
June 2005	Class A – 520,000	$	26.55	(2)		520,000	(3)	$	140,716,271
	Class B – 500(1)	$	26.97			—			—
July 2005	Class A – 630,000	$	25.93	(2)		630,000	(3)	$	124,383,348
	Class B – 52,153(1)	$	26.84			—			—
August 2005	Class A – 835,000	$	25.00	(2)		835,000	(3)	$	103,509,237
	Class B – 208(1)	$	25.52			—			—
Total	Class A – 1,985,000	$	25.70	(2)		1,985,000	(3)
	Class B – 52,861(1)	$	26.83			—

(1)	There is no public market for the Class B common shares of the Corporation. Pursuant to the Corporation’s Articles of Incorporation, all of the Class B common shares were repurchased by the Corporation for cash pursuant to its right of first refusal.
(2)	Excludes commissions paid, if any, related to the share repurchase transactions.
(3)	On April 5, 2005, American Greetings announced that its Board of Directors authorized a program to repurchase up to $200 million of its Class A common shares over a 12-month period, which will expire in April 2006. These repurchases will be made through a 10b5-1 program in open market or privately negotiated transactions in compliance with the SEC’s Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.

32

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

(a)	The Annual Meeting of Shareholders of the Corporation was held on June 24, 2005.
(b)	The following individuals were elected at the Annual Meeting of Shareholders to Class I of the Corporation’s Board of Directors with a term expiring in 2008: Morry Weiss and Stephen R. Hardis.

The following individuals were continuing Class III directors with a term expiring in 2007: Scott S. Cowen, Harriet Mouchly-Weiss, Charles A. Ratner and Zev Weiss.

The following individuals were continuing Class II directors with a term expiring in 2006: Joseph S. Hardin, Jr., Jerry Sue Thornton and Jeffrey M. Weiss.

(c) The voting result at the Annual Meeting of Shareholders for the election of Class I directors was as follows:

Nominee	Votes For		Votes Withheld
Morry Weiss		97,529,580		3,338,205
Stephen Hardis		78,667,529		22,200,256

Item 5. Other Information

Not applicable

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Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K

Exhibit
Number	Description
10.1	American Greetings Corporation Executive Deferred Compensation Plan, Effective October 26, 1993
10.2	Amendment One to American Greetings Corporation Executive Deferred Compensation Plan, Effective January 1, 1996
10.3	Amendment Two to American Greetings Corporation Executive Deferred Compensation Plan, Effective November 1, 2000
10.4	Amendment Number Three to the American Greetings Corporation Executive Deferred Compensation Plan – American Greetings Corporation Executive Third Party Option Plan, Dated March 27, 2002
10.5	Form of Agreement for Deferred Compensation Benefits
10.6	Form of Agreement under Amendment Number Three to the American Greetings Corporation Executive Deferred Compensation Plan – American Greetings Corporation Executive Third Party Option Plan
10.7	Performance Share Grant Agreement dated August 2, 2005, between American Greetings Corporation and Zev Weiss
10.8	Performance Share Grant Agreement dated August 2, 2005, between American Greetings Corporation and Jeffrey Weiss
(31) a	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31) b	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

34

SIGNATURES

Pursuant to the requirements 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
	By:	/s/ Joseph B. Cipollone
		Joseph B. Cipollone
			Vice President, Corporate Controller, and Chief Accounting Officer *
October 7, 2005

* (Signing on behalf of Registrant as a duly authorized officer of Registrant and signing as the chief accounting officer of Registrant.)

35

EX-10.1

EXHIBIT 10.1

AMERICAN GREETINGS CORPORATION

EXECUTIVE DEFERRED COMPENSATION PLAN

AMERICAN GREETINGS CORPORATION

EXECUTIVE DEFERRED COMPENSATION PLAN

Table of Contents

	Page
ARTICLE l — GENERAL
Section 1.1 Effective Date		1
Section l.2 Intent		1
ARTICLE ll — DEFINITIONS AND USAGE
Section 2.l Definitions		2
Section 2.2 Usage		3
ARTICLE lll — ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility		3
Section 3.2 Participation		4
Section 3.3 Agreement Procedure		4
ARTICLE lV — DEFERRED COMPENSATION BENEFIT
Section 4.1 Deferred Compensation Benefit		4
Section 4.2 Accounts		4
Section 4.3 Negotiated Contributions		5
Section 4.4 Matching Contributions		5
Section 4.5 Investment Procedure		5
Section 4.6 Investments		5
Section 4.7 Valuation of Accounts		5
ARTICLE V — RESTORATION BENEFIT
Section 5.1 Restoration Benefit		6
Section 5.2 Accounts		6
Section 5.3 Restoration Contributions		6
Section 5.4 Investment Procedure		6
Section 5.5 Investments		6
Section 5.6 Valuation of Accounts		6
ARTICLE Vl — PAYMENT OF BENEFIT PRIOR TO DEATH OR DISABILITY
Section 6.l Commencement of Benefit Payments		7
Section 6.2 Form of Benefit Payments		7

AMERICAN GREETINGS CORPORATION

EXECUTIVE DEFERRED COMPENSATION PLAN

Table of Contents

	Page
ARTICLE Vll — PAYMENT OF BENEFIT ON OR AFTER DEATH OR DISABILITY
Section 7.1 Commencement of Benefit Payments		8
Section 7.2 Designation of Beneficiary		8
ARTICLE Vlll — ADMINISTRATION
Section 8.1 General		8
Section 8.2 Administrative Rules		8
Section 8.3 Duties		9
Section 8.4 Fees		9
ARTICLE lX — CLAIMS PROCEDURE
Section 9.1 General		9
Section 9.2 Denials		9
Section 9.3 Notice		10
Section 9.4 Appeals Procedure		10
Section 9.5 Review		10
Section 9.6 Arbitration		10
ARTICLE X — MISCELLANEOUS PROVISIONS
Section 10.1 Amendment		10
Section 10.2 Termination		11
Section 10.3 No Assignment		11
Section 10.4 Successors		11
Section 10.5 Governing Law		11
Section 10.6 No Guarantee of Employment		11
Section 10.7 Severability		11
Section 10.8 Forfeiture Upon Termination for Cause		11
Section 10.9 Notification of Addresses		12
Section 10.10 Bonding		12
ARTICLE XI — TRUST
Section 11.1 Trust		12
Section 11.2 Contributions and Expenses		12
Section 11.3 Trustee Duties		12
Section 11.4 Reversion to the Employer		12

AMERICAN GREETINGS CORPORATION

EXECUTIVE DEFERRED COMPENSATION PLAN

PREAMBLE

WHEREAS, American Greetings Corporation (the “Employer”) has established one or more qualified retirement or deferred compensation plans for its employees; and

WHEREAS, the Employer recognizes that such qualified plans place limitations on the amount of retirement and deferred compensation benefits available to certain executive employees; and

WHEREAS, the Employer recognizes the unique qualifications of its executive employees and the valuable services that they have provided to or for the Employer; and

WHEREAS, the Employer desires to establish an unfunded plan to pay deferred compensation benefits to certain of its executive employees in excess of what is available under such qualified plans; and

WHEREAS, the Employer has determined that the implementation of a plan to provide such excess benefits will best serve its interest in retaining executive employees;

NOW, THEREFORE, the Employer hereby establishes the American Greetings Corporation Executive Deferred Compensation Plan as hereinafter provided:

ARTICLE l
GENERAL

Section 1.1 Effective Date. The provisions of the Plan shall be effective as of October 26, 1993. The rights, if any, of any person whose status as an employee of the Employer has terminated shall be determined pursuant to the Plan as in effect on the date such employee terminated, unless a subsequently adopted provision of the Plan states otherwise.

Section 1.2 Intent. The Plan is intended to be an unfunded plan primarily for the purpose of providing deferred compensation benefits to a select group of management or highly compensated employees as such group is described under Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. The Plan is not intended to be a plan described in Section 401(a) of the Code.

1

ARTICLE ll
DEFINITIONS AND USAGE

Section 2.1 Definitions. Wherever used in the Plan, the following words and phrases shall have the meaning set forth below unless the context plainly requires a different meaning:

“Account” means the account(s) established on behalf of the Participant as described in Section 4.2 and Section 5.2, as applicable.

“Administrator” means the person or persons described in Article Vlll.

“Agreement” means an Agreement for Deferred Compensation Benefits negotiated between the Employer and an eligible employee in accordance with Section 3.3.

“Board” means the members of the Board of Directors of American Greetings Corporation and any committee of the Board.

“Code” means the Internal Revenue Code of 1986, as amended.

“Compensation” means the total of all wages, salaries, bonuses, restricted stock grants, fees for professional service and other amounts received by an employee for personal services actually rendered in the course of employment with the Employer, including those items specified in Treasury Regulation §1.415-2(d)(2), but excluding amounts realized from the exercise of a non-qualified stock option, amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option, amounts paid or reimbursed for moving expenses to the extent such amounts are deductible by the employee, and mileage reported as income for the personal uses of an Employer automobile.

“Deferred Compensation Benefit” means the benefit of a Participant as determined under Article IV of this Plan.

“Disability” or “Disabled” means a physical or mental condition of a Participant resulting from a bodily injury, disease, or mental disorder which renders him incapable of continuing in the employment of the Employer. Such Disability shall be determined by the Administrator based upon appropriate medical advice and examination.

“Employer” means American Greetings Corporation, a corporation organized under the laws of the state of Ohio, and its controlled subsidiaries and affiliates.

2

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Participant” means an eligible employee of the Employer who is participating in the Plan in accordance with Section 3.2.

“Plan” means the American Greetings Corporation Executive Deferred Compensation Plan.

“Plan Year” means the calendar year.

“Restoration Benefit” means the benefit of a Participant as determined under Article V of this Plan.

“Termination for Cause” means the termination of a Participant’s employment due to any act which, in the Administrator’s reasonable discretion, is deemed to be materially inimical to the best interests of the Employer (or any Employer), including, but not limited to (i) serious, willful misconduct in respect to his duties for the Employer, (ii) conviction of a felony or perpetration of a common law fraud, relative to the Employer’s business, (iii) willful failure to comply materially with applicable laws with respect to the execution of the Employer’s business operations, (iv) theft, fraud, embezzlement, dishonesty or other conduct which has resulted in material economic damage to the Employer or (v) failure to materially comply with the requirements of the Employer’s drug and alcohol abuse policies, if any.

“Unforeseeable Emergency” means an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the individual if early withdrawal were not permitted. Such early withdrawal is limited to the amount necessary to meet the emergency.

Section 2.2 Usage. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa.

ARTICLE lII
ELIGIBILITY AND PARTICIPATION

Section 3.1 Eligibility. An employee of the Employer shall be eligible to participate in the Plan at such time and for such period as designated by the Administrator in accordance with the Plan and Agreement; provided, however, that such employee is a member of a select group of management or highly compensated employees as such group is described under sections 201(2), 301(a)(3), and 401(a)(1) of ERISA.

3

Section 3.2 Participation. Each eligible employee of the Employer shall become a Participant by entering into an Agreement in the manner provided in Section 3.3 below or by having Restoration Benefits credited to his Account pursuant to Section 5.3 hereof.

Section 3.3 Agreement Procedure.

(a) The Employer and each employee who is eligible to participate in the Plan may execute one or more Agreements for the portion of the employee’s Compensation which the employee elects to apply to the payment of the Deferred Compensation Benefit under the Plan. Each Agreement shall provide for the amount credited to a Participant’s Account in accordance with Section 4.3 below, the period of deferral in accordance with rules established by the Administrator, the investment of such amount in accordance with Section 4.6 below, and the payment of the Participant’s Deferred Compensation Benefit in accordance with Sections 6.1 and 6.2 below.

(b) For the initial Plan Year in which an employee becomes eligible to participate in the Plan, the Agreement shall be a properly completed, executed and delivered to the Administrator prior to the later of (i) the first day of the Plan Year for which the employee first becomes eligible to participate in the Plan, or (ii) 30 days after the date on which the employee first becomes eligible to participate in the Plan.

(c) For any subsequent Plan Year for which an employee is eligible to participate in the Plan, the Agreement shall be properly completed, executed and delivered to the Administrator prior to the first day of the Plan Year for which such Agreement shall be effective.

(d) The deferral period provided under a prior Agreement may be extended at the election of a Participant under rules established by the Administrator; provided, however, that any such election must be made six (6) months prior to the expiration of the deferral period provided under such prior Agreement.

(e) An Agreement shall be effective no earlier than the date on which it is delivered to the Administrator and shall continue in effect for all succeeding Plan Years until the Deferred Compensation Benefit attributable to such Agreement has been paid, unless otherwise provided under the Plan.

ARTICLE IV
DEFERRED COMPENSATOIN BENEFIT

Section 4.1 Deferred Compensation Benefit. A Participant’s Deferred Compensation Benefit shall be equal to the total amount credited to the Participant’s Account under this Article IV.

Section 4.2 Accounts. The Employer shall establish and maintain, pursuant to the terms of the Plan, an Account for each Participant consisting of amounts credited to

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such Account pursuant to Sections 4.3, 4.4, 4.5, 4.6 and 4.7 below. All amounts which are credited to the account shall be credited solely for purposes of accounting and computation, and shall remain assets of the Employer subject to the claims of the Employer’s general creditors.

Section 4.3 Negotiated Contributions. The Employer shall contribute such amount under the Plan as determined under the Agreement which is in effect for such Plan Year.

Section 4.4 Matching Contributions. An “Employer Matching Contribution” as determined under the American Greetings Corporation Employees’ Profit Sharing Plan, or successor plan, if any, shall be credited to a Participant’s Account for each Plan Year in which the Participant is an eligible employee of the Employer, but only to the extent such contribution was restricted under such plan due to the limitations imposed under Sections 401(k)(3), 401(m)(2) or 402(g)(1) of the Code.

Section 4.5 Investment Procedure. Periodically, a Participant may express his investment vehicle preferences and the allocation of his funds among those vehicles. However, the Board shall retain overriding discretion over the selection of investment vehicles available and the Board may change, alter or modify its investment policy as it deems appropriate, from time to time, to maximize benefits under the Plan. Any such change, alteration or modification shall be communicated to the Participants under procedures adopted by the Administrator.

Section 4.6 Investments. The portion of a Participant’s Account which is not invested pursuant to the Agreement with the Participant (including any matching contributions) shall be invested as reasonably determined by the Employer, in accordance with the procedures established by the Administrator.

Section 4.7 Valuation of Accounts. The value of a Participant’s Account shall be determined from time to time by the Administrator in the following manner:

(a) During any period of time in which a Participant’s Account is deemed invested in whole or in part pursuant to the Agreement with the Participant (in the manner described in Section 4.5 above), the income and expenses, gains and losses, both realized and unrealized, from such deemed investments shall be determined by the Administrator. The amount so determined shall be allocated to the Account of a Participant proportionately in accordance with the reasonable procedures established by the Administrator.

(b) The portion of a Participant’s Account which is not invested pursuant to the Agreement with the Participant shall be credited with earnings on the investments as specified in Section 4.6.

(c) All negotiated contributions and matching contributions for a Participant shall be credited to the Account of the Participant in accordance with Sections 4.3 and 4.4, respectively.

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(d) Each Participant’s Account shall be valued as of the last day of each Plan year or more frequently as agreed upon by the Administrator, and shall again be valued as of the date that a Participant receives a payment under the Plan, in accordance with the procedures established by the Administrator.

(e) All allocations to the Participant’s Account under this Section 4.7 shall be deemed to have been made on the applicable valuation date in the manner set forth in this Section 4.7, even though actually determined at a later date.

ARTICLE V
RESTORATION BENEFIT

Section 5.1 Restoration Benefit. A Participant’s Restoration Benefit shall be equal to the total amount credited to the Participant’s Account under this Article V.

Section 5.2 Accounts. The Employer shall establish and maintain, pursuant to the terms of the Plan, an Account for each Participant consisting of amounts credited to such Account pursuant to Sections 5.3, 5.4, 5.5 and 5.6 below. All amounts which are credited to the Account shall be credited solely for purposes of accounting and computation, and shall remain assets of the Employer subject to the claims of the Employer’s general creditors.

Section 5.3 Restoration Contributions. An amount determined by the Board, in its sole discretion, may be credited to a Participant’s Account for each Plan Year in which the Participant is an eligible employee of the Employer whose allocation of “Employer Contributions” under the American Greetings Corporation Employees’ Retirement Profit Sharing Plan, if any, is restricted due to the limitations imposed under Sections 401(a)(17) and 415 of the Code..

Section 5.4 Investment Procedure. Periodically, a Participant may express his investment vehicle preferences and the allocation of his respective share of restoration contributions among those vehicles. However, the Board shall retain overriding discretion over the selection of investment vehicles available and the Board may change, alter or modify its investment policy as it deems appropriate, from time to time, to maximize benefits under the Plan. Any such change, alternation or modification shall be communicated to the Participants under procedures adopted by the Administrator.

Section 5.5 Investments. The portion of a Participant’s Account which is not invested pursuant to an agreement with the Participant shall be invested as reasonably determined by the Employer, in accordance with the procedures established by the Administrator.

Section 5.6 Valuation of Accounts. The value of a Participant’s Account shall be determined from time to time by the Administrator in the following manner:

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(a) During any period of time in which a Participant’s Account is deemed invested in whole or in part pursuant to an agreement with the Participant (in the manner described in Section 5.4 above), the income and expenses, gains and losses, both realized and unrealized, from such deemed investments shall be determined by the Administrator. The amount so determined shall be allocated to the Account of a Participant proportionately in accordance with the reasonable procedures established by the Administrator.

(b) The portion of a Participant’s Account which is not invested pursuant to an agreement with the Participant shall be credited with earnings on the investments as specified in Section 5.5.

(c) All restoration contributions for a Participant shall be credited to the Account of the Participant in accordance with Section 5.3.

(d) Each Participant’s Account shall be valued as of the last day of each Plan Year or more frequently as agreed upon by the Administrator, and shall again be valued as of the date that a Participant receives a payment under the Plan, in accordance with the procedures established by the Administrator.

(e) All allocations to a Participant’s Account under this Section 5.6 shall be deemed to have been made on the applicable valuation date in the manner set forth in this Section 5.6, even though actually determined at a later date.

ARTICLE VI
PAYMENT OF BENEFIT PRIOR TO DEATH OR DISABILITY

Section 6.1 Commencement of Benefit Payments. Except as provided in Section 10.8, the payment of a Participant’s Deferred Compensation Benefit and Restoration Benefit shall commence within 30 days after the date on which the earlier of the following events occurs, as applicable:

(a) The expiration of the deferral period provided under the Participant’s Agreement.

(b) The Participant incurs an Unforeseeable Emergency (as determined by the Administrator in accordance with the Plan),

(c) The Participant terminates service with the Employer for any reason, or

(d) The Participant’s service is terminated by the Employer for any reason.

Section 6.2 Form of Benefit Payments. Except as provided in Article VII, the Participant’s Deferred Compensation Benefit shall be paid in the form provided under the Participant’s Agreement. If the Participant’s Agreement does not provide for a form of payment, then the Participant’s Deferred Compensation Benefit shall be paid in a single lump-sum. If the Participant has negotiated two or more Agreements which do

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not provide for the same form of payment, then a proportionate amount of the Participant’s Deferred Compensation Benefit shall be paid in the form provided under both this Section 6.2 and each respective Agreement in accordance with the procedures established by the Administrator.

Except as provided in Article VII, the Participant’s Restoration Benefit shall be paid in a single lump-sum unless a periodic payment is elected by the Participant under procedures established by the Administrator. Any election to receive a periodic payment under this Section 6.2 shall be made six (6) months prior to the effective date of the Participant’s termination of employment with the Employer.

However, if the Plan is terminated pursuant to Section 10.2, the Administrator reserves the right to pay all benefits in a single lump-sum.

ARTICLE VII
PAYMENT OF BENEFIT ON OR AFTER DEATH OR DISABILITY

Section 7.1 Commencement of Benefit Payments. If a Participant dies or becomes Disabled prior to receiving the entire Deferred Compensation Benefit and Restoration Benefit, then the remainder of such Benefits otherwise payable with respect to the Participant shall be paid in the Participant’s beneficiary or guardian (as the case may be) in a single lump-sum amount within 30 days following the date on which the Administrator is notified or otherwise determined such event has occurred.

Section 7.2 Designation of Beneficiary. A Participant may, by written instrument delivered to the Administrator during the Participant’s lifetime, designate one or more primary and contingent beneficiaries to receive the Deferred Compensation Benefit and Restoration Benefit which may be payable hereunder following the Participant’s death, and may designate the proportions in which such beneficiaries are to receive such payments. A Participant may change such designations from time to time, and the last written designation filed with the Administrator prior to the Participant’s death shall control. If a Participant fails to specifically designate a beneficiary, or if no designated beneficiary survives the Participant, payment shall be made by the Administrator to the Participant’s estate.

ARTICLE VIII
ADMINISTRATION

SECTION 8.1 General. The Administrator shall be the Board, or such other person or persons as designated by the Board. Except as otherwise specifically provided in the Plan, the Administrator shall be responsible for administration of the Plan.

Section 8.2 Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan.

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Section 8.3 Duties. The Administrator shall have the following rights, powers and duties:

(a) Subject to the terms of this Plan (including without limitation the claims procedure in Article IX) and the Agreement, the decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Employer and upon any other person affected by such decision.

(b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan, to decide any question which may arise regarding the rights of employees, Participants, and beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan, and to exercise any other rights, powers or privileges granted to the Administrator by the Board under the terms of the Plan.

(c) The Administrator shall maintain full and complete records of its decisions. The Administrator shall have the duty to maintain Account records of all Participants, including all relevant data pertaining to Participants. The Administrator shall within a reasonable time after the end of each calendar year provide each Participant a detailed report of the status of the Participant’s Account.

(d) The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents shall be available at the principal office of the Employer for inspection by the Participants at reasonable times determined by the Administrator.

(e) The Administrator shall periodically report to the Board with respect to the status of the Plan.

Section 8.4 Fees. No fee or compensation shall be paid to any person for services as the Administrator.

ARTICLE IX
CLAIMS PROCEDURE

Section 9.1 General. Any claim for Deferred Compensation or Restoration Benefits under the Plan shall be filed by the Participant or beneficiary (“claimant”) on the form prescribed for such purposes with the Administrator.

Section 9.2 Denials. If a claim for Deferred Compensation Benefits or Restoration Benefits under the Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of the claim by the Administrator.

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Section 9.3 Notice. Any claimant who is denied a claim for Deferred Compensation Benefits or Restoration Benefits shall be furnished written notice setting forth:

(a) The specific reason or reasons for the denial;

(b) Specific reference to the pertinent provision of the Plan upon which the denial is based;

(c) A description of any additional material or information necessary for the claimant to perfect the claim; and

(d) An explanation of the claim review procedure under the Plan.

Section 9.4 Appeals Procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant’s duly authorized representative may:

(a) Request a review by written application to the Administrator, or its designate, no later than 60 days after receipt by the claimant of written notification of denial of a claim;

(b) Review pertinent documents; and

(c) Submit issues and comments in writing.

Section 9.5 Review. A decision on review of a denied claim shall be made not later than 60 days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based.

Section 9.6 Arbitration. If a claimant disagrees with the decision on review, he shall have 30 days from receipt of the decision on review to demand binding confidential arbitration before three arbitrators in Cleveland, Ohio under Ohio law and the rules of Center for Public Resources or American Arbitration Association (as the claimant may choose) for arbitration of employment disputes as his sole remedy. The award of the arbitrator shall be enforceable under 9USC Sections 1-16 in any Court of competent jurisdiction.

ARTICLE X
MISCELLANEOUS PROVISIONS

Section 10.1 Amendment. The Employer reserves the right to amend the Plan retroactively or otherwise, in any manner that it deems advisable, by a resolution of the Board. No amendment shall, without the Participant’s or beneficiary’s, as the case may

10

be, consent, affect the amount of the Participant’s Deferred Compensation Benefit or Restoration Benefit at the time the amendment becomes effective or the right of the Participant to receive such Benefits.

Section 10.2 Termination. The Employer reserves the right to terminate the Plan at any time. No termination shall, without the Participant’s or beneficiary’s, as the case may be, consent, affect the amount of the Participant’s Deferred Compensation Benefit or Restoration Benefit prior to the termination or the right of the Participant to receive such Benefit(s).

Section 10.3 No Assignment. The Participant shall not have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, nor shall any interest in amounts payable hereunder or in any payments be subject to seizure for payments of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise.

In the event of an attempted seizure, any amounts payable hereunder may be paid to one or more of the Participant’s relatives or children, or his spouse, as the Administrator shall determine.

Section 10.4 Successors. The provisions of the Plan are binding upon and inure to the benefit of the Employer, its successors and assigns, and the Participant, his beneficiaries, heirs, and legal representatives.

Section 10.5. Governing Law. The Plan shall be subject to and construed in accordance with the laws of the State of Ohio to the extent not preempted by applicable law.

Section 10.6 No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of the Employer or any equity or other interest in the assets, business or affairs of the Employer. No Participant hereunder shall have a security interest in assets of the Employer used to make contributions or pay benefits.

Section 10.7 Severability. If any provision of the Plan shall be held illegal or invalid for any reasons, such illegality or invalidity shall not affect the remaining provision of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein.

Section 10.8 Forfeiture Upon Termination for Cause. Notwithstanding anything in this Plan to the contrary, a Participant’s Deferred Compensation Benefit (excepting that portion thereof attributable solely to amounts credited to such Participant’s Account as negotiated contributions under section 4.3 and earnings thereon) and Restoration Benefit shall be forfeited, and no such Benefits shall be payable under this Plan with respect to such Participant, in the event of his Termination for Cause.

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Section 10.9 Notification of Addresses. Each Participant and each beneficiary shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Participant or beneficiary as shown on the Employer’s records) shall be binding on the Participant and each beneficiary for all purposes of the Plan and neither the Administrator nor the Employer shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary.

Section 10.10 Bonding. The Administrator and all agents and advisors employed by it shall not be required to be bonded, except as otherwise required by applicable law.

ARTICLE XI
TRUST

Section 11.1 Trust. A trust to be known as the American Greetings Corporation Executive Deferred Compensation Benefit Trust (the “Trust”) has been established by the execution of a Trust agreement with one or more trustees and is intended to be maintained as a “grantor trust” under section 677 of the Code. The assets of the Trust will be held, invested and disposed of by the trustee, in accordance with the terms of the Trust, for the exclusive purpose of providing Deferred Compensation Benefits and Restoration Benefits for the Participants. Notwithstanding any provision of the Plan or the Trust to the contrary, the assets of the Trust shall at all times be subject to the claims of the Employer’s general creditors in the event of insolvency or bankruptcy.

Section 11.2 Contributions and Expenses. The Employer may, from time to time, make contributions to the Trust in accordance with the Agreement and Plan. All Deferred Compensation Benefits and Restoration Benefits under the Plan and expenses chargeable to the Plan, to the extent not paid directly by the Employer, shall be paid from the Trust.

Section 11.3 Trustee Duties. The powers, duties and responsibilities of the trustee shall be as set forth in the Trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the trustee.

Section 11.4 Reversion to the Employer. The Employer shall have no beneficial interest in the Trust and no part of the Trust shall ever revert or be repaid to the Employer, directly or indirectly, except as otherwise provided in Section 10.8 or 11.1 above or the Trust Agreement.

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The undersigned, pursuant to the approval of the Board on October 25, 1993, does herewith execute the American Greetings Corporation Executive Deferred Compensation Plan.

October 26, 1993

AMERICAN GREETINGS CORPORATION
By:	/s/ Dale A. Cable
Its:	Treasurer

WITNESS:	/s/ Harvey Levin
Its:	Senior Vice President

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EX-10.2

EXHIBIT 10.2

AMENDMENT ONE

To

American Greetings Corporation
Executive Deferred Compensation Plan

WHEREAS, American Greetings Corporation, an Ohio Corporation, (the “Employer”) hereby adopts this Amendment One to the American Greetings Corporation Executive Deferred Compensation Plan (the “Plan”).

WHEREAS, pursuant to Section 10.1 of the Plan, the Employer reserves the right to amend the Plan.

THEREFORE, the Employer hereby amends the Plan as follows:

1.	Section 6.2 of the Plan is amended in its entirety to read as follows:
	“6.2 Form of Benefit Payments. Except as provided in Article VII, the Participant’s Deferred Compensation Benefit shall be paid in the form provided under the Participant’s Agreement. If the participant does not provide for a form of payment, then the Participant’s Deferred Compensation Benefit shall be paid in a single lump sum. If the Participant has negotiated two or more Agreements which do not provide for the same form of payment, the payment of a Participant’s Deferred Compensation Benefit shall take the form provided in the Participant’s most recently executed Agreement.
	Except as provided in Article VII, the Participant’s Restoration Benefit shall be paid in the same form as the Participant’s Deferred Compensation Benefit.
	If the Plan is terminated pursuant to Section 10.2, the Administrator reserves the right to pay all benefits in a single lump sum.”
2.	This Amendment One shall be effective 1-1, 1996.

IN WITNESS HEREOF, the Company, by its duly authorized officers, has caused the Amendment One to be executed on 1-5, 1996.

AMERICAN GREETINGS CORPORATION
by:	/s/ Morry Weiss
its:

EX-10.3

EXHIBIT 10.3

AMENDMENT TWO

To

American Greetings Corporation
Executive Deferred Compensation Plan

WHEREAS, American Greetings Corporation, an Ohio Corporation, (the “Employer”) hereby adopts this Amendment Two to the American Greetings Corporation Executive Deferred Compensation Plan (the “Plan”).

WHEREAS, pursuant to Section 10.1 of the Plan, the Employer reserves the right to amend the Plan.

THEREFORE, the Employer hereby amends the Plan as follows:

1. Section 6.1 of the Plan is amended in its entirety to read as follows:

“6.1 Commencement of Benefit Payments. Except as provided in Section 10.8, the payment of a Participant’s Deferred Compensation Benefit and Restoration Benefit shall commence on a date after the following events occur and in accordance with the Participant’s Agreement For Deferred Compensation benefits, as applicable:

(a)	The expiration of the deferral period provided under the Participant’s Agreement,
(b)	The Participant incurs an Unforeseen Emergency (as determined by the Administrator in accordance with the Plan),
(c)	The Participant terminates service with the Employer for any reason, or
(d)	The Participant’s service is terminated by the Employer for any reason

2. This Amendment Two shall be effective November 1, 2000 .

IN WITNESS HEREOF, the Company, by its duly authorized officers, has caused the Amendment Two to be executed on Nov. 1, 2000.

AMERICAN GREETINGS CORPORATION
by:	/s/ Morry Weiss
	Morry Weiss
	Chairman & Chief Executive Officer

EX-10.4

EXHIBIT 10.4

Amendment Number Three to the American Greetings Corporation
Executive Deferred Compensation Plan

American Greetings Corporation

Executive Third Party Option Plan

1.	Purpose of the Plan. This plan shall be known as the American Greetings Corporation Executive Third Party Option Plan (the “Executive Option Plan” or the “Plan”). The purpose of the Plan is to attract and retain high quality employees for positions of substantial responsibility, and to provide additional incentives to a select group of management or highly compensated employees of American Greetings Corporation so as to promote the success of the Company. The Executive Option Plan shall serve as an amendment to the existing American Greetings Corporation Executive Deferred Compensation Plan (“Deferral Plan”).
2.	Provision to Amend Deferral Plan. Pursuant to §10.1 of the Deferral Plan, this Plan shall also serve as an amendment to the Deferral Plan to allow Participants, who otherwise have an opportunity to extend the deferral period for amounts deferred under rules adopted pursuant to §3.3(d) of the Deferral Plan, to elect instead to receive an award of discounted options hereinafter (“Option Agreement”) pursuant to this Plan in full satisfaction of such amounts due under the Deferral Plan. As a condition to the receipt of the option award, the participant acknowledges that they no longer have any right to such amounts under the Deferral Plan. The Options awarded in substitution of the deferred compensation benefit shall be governed by the terms of this Plan.
	In addition, adoption of this Plan shall also provide the Board of Directors (or the Compensation Committee to the extent delegated), the sole discretion to provide current participants in the Deferral Plan opportunities to substitute their rights to receive deferred compensation under the Deferral Plan for the right to receive discounted options pursuant to the Plan, provided the participant is at least 6 months from the payment date.
3.	Administration of the Plan. The Administrator shall be the Board, or such other person or persons as designated by the Board. The Board, in its sole discretion, is authorized to select the Employees who will receive Options and to determine the number of Options and the number of Shares under each Option. The Administrator in its sole discretion may delegate and pay compensation for services rendered relating to the ministerial duties of plan administration including, but not limited to, selection of investments available under the Plan. Except as otherwise specifically provided in the

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Plan, the Administrator shall be responsible for the administration of the Plan.

(a)	Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan.
(b)	Duties. The Administrator shall have the following rights, powers and duties:

i.	Subject to the terms of this Plan (including without limitation the claims procedure in paragraph 23) and the Option Agreement, the decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Employee and upon any other person affected by such decision.
ii.	The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan and the Option Agreement, to decide any question which may arise regarding the rights of employees, Participants, and beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan and the Option Agreement, and to exercise any other rights, powers or privileges granted to the Administrator by the Board under the terms of the Plan.
iii.	The Administrator shall maintain full and complete records of its decision. The Administrator shall have the duty to maintain Account records of all Participants, including all relevant data pertaining to Participants. The Administrator shall within a reasonable time after the end of each calendar year provide each Participant a detailed report of the status of the Participant’s Account.
iv.	The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents shall be available at the principal office of the Employer for inspection by the Participants at reasonable times determined by the Administrator.
v.	The Administrator shall periodically report to the Board with respect to the status of the Plan.

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(c) Fees. No fee or compensation shall be paid to any person for services as the Administrator.

4. Definitions. As used herein, the following definitions shall apply:

(a)	“Administrator” shall mean the person or persons described in paragraph 3, above.
(b)	“Award Date” shall mean the effective date of the Participant’s Option Agreement.
(c)	“Board” shall mean the Board of Directors of American Greetings Corporation, and it’s subsidiaries.
(d)	“Code” shall mean the Internal Revenue Code of 1986, as amended.
(e)	“Company” shall mean American Greetings Corporation, and its subsidiaries.
(f)	“Deferral Plan” shall mean the existing American Greetings Corporation Executive Deferred Compensation Plan.
(g)	“Employee” shall mean any employee of the Company.
(h)	“Employer” shall mean American Greetings Corporation, and its subsidiaries.
(i)	“Option” shall mean an option granted pursuant to this Plan to purchase one or more Shares.
(j)	“Option Agreement” means the written agreement evidencing the award of an Option under the Plan.
(k)	“Participant” shall mean any Employee who receives an Option under the Plan, as evidenced by an Option Agreement entered into between such Employee and the Company.
(l)	“Plan” shall mean the American Greetings Executive Third Party Option Plan as amended from time to time.
(m)	“Shares” shall mean the Shares of mutual funds, Shares of common or preferred stock of a corporation listed or reported on a national securities exchange or quotation system, or Shares of a regulated investment company, as designated and amended by the Board and

3

	referenced in Appendix A. In no way however, may Shares include units of any money market funds or other cash equivalents. Shares subject to purchase pursuant to any Option shall also include any earnings on such Shares subsequent to the Award Date.
(n)	“Termination of Employment” shall mean the date on which the employee ceases to perform services for the Company.

5.	Term of Plan. The Plan shall become effective on the date it is adopted by the Board or its designee and shall continue in effect as amended from time to time until terminated pursuant to paragraph 20.
6.	Shares Subject to the Plan. The aggregate number and type of Shares subject to Options will be fully described in each Option Agreement.
7.	Eligibility. All Employees of the Company who are both in the group of employees determined by the Board to be part of the select group of management or highly compensated employees and are also designated as Participants by the Board are eligible to receive Options under the Plan.
8.	Grant of Options. The Board shall determine the number of Shares to be offered from time to time and grant Options under the Plan. The grant of Options shall be evidenced by written Option Agreements containing such terms and provisions as are approved by the Board. The Administrator of the Plan shall execute the Option Agreements on behalf of the Company upon instructions from the Board.
9.	Time of Grant of Options. The date of grant of an Option under the Plan shall, for all purposes, be the date on which the Board awards the Option, as evidenced by the execution of an Option Agreement.
10.	Option Price. The Option Price for each Share shall be expressed in each Option Agreement, provided, however, the Option Price shall at no time be less than 25 percent of the fair market value of a Share on the date of grant of the Option. Fair market value on any day of reference shall be the closing price of the Share on such date, unless the Board, in its sole discretion shall determine otherwise in a fair and uniform manner. For this purpose, the closing price of the Share on any business day shall be (i) if the Share is listed or admitted for trading on any United States national securities exchange, the last reported sale price of the Share on such exchange, as reported in any newspaper of general circulation, (ii) if the Share is not listed or admitted for trading on any United States national securities exchange, the average of the high and low sale prices of the Share for such day reported on the NASDAQ SmallCap Market or a comparable consolidated

4

	transaction reporting system, or if no sales are reported for such day, such average for the most recent business day within five business days before such day which sales are reported, or (iii) if neither clause (i) or (ii) is applicable, the average between the lowest bid and highest asked quotations for the Share on such day as reported by the NASDAQ SmallCap Market or the National Quotation Bureau, Incorporated, if at least two securities dealers have inserted both bid and asked quotations for the Share on at least 5 of the 10 preceding business days.
11.	Exercise. Except as otherwise provided in the Option Agreement, all Options granted under the Plan will be vested at grant and therefore may be exercisable immediately.
	The Option may be exercised, as provided in the Option Agreement, in full or in part from the date of the grant at increments of no less than 100% of each grant. However, in no event shall any option be exercised more than 20 years after the date of grant, with the option to extend the exercise period at the discretion of the Board.
	Reinvested dividends shall be attributed proportionally to the property subject to the Option awards and will be purchased when the underlying award is exercised. For example, if an original grant of an Option to purchase 400 shares (after the payment of the exercise price) generated 100 additional shares on such 400 shares from reinvested dividends, an exercise of one-fourth of the originally granted options will result in the purchase (after the payment of the exercise price) of 125 shares in order to proportionally include the resulting reinvested dividends.
	In addition, all Options granted under the Plan may only be exercised subject to any other terms specified in the Option Agreement and if such terms conflict with the terms of this Plan, the terms of this Plan Document control.
12.	Limitations on Option Disposition. Any Option granted under the Plan and the rights and privileges conferred therewith shall not be sold, transferred, encumbered, hypothecated or otherwise anticipated by the Participant other than by will or the laws of descent and distribution. Options shall not be subject to, in whole or in part, the debts, contracts, liabilities, or torts of the Participant, nor shall they be subject to garnishment, attachment, execution, levy or other legal or equitable process.
13.	Limitations on Option Exercise and Distribution. In the event that the listing, registration or qualification of an Option or Shares on any securities exchange or under any state or federal law, or the consent of approval of any governmental regulatory body, or the availability of any exemption

5

	therefrom, is necessary as a condition of, or in connection with, the exercise of an Option, then the Option shall not be exercised in whole or in part until such listing, registration, qualification, consent or approval has been effected or obtained. Notwithstanding any provision of the Plan to the contrary, the Company shall have no obligation or liability to deliver any Shares under the Plan unless such delivery would comply with all applicable laws and all applicable requirements of any securities exchange or similar entity.
14.	Option Financing. Upon the exercise of any Option granted under the Plan, the Participant may instruct the Administrator to sell or deem to sell a number of Shares otherwise deliverable to the Participant and attributable to the exercise of the Option in order to pay the exercise price of the Option. The Board will, in a matter similar to that provided under §4 of the 1997 Equity and Performance Incentive Plan, make financing available to the Participant to facilitate the exercise of the Option, subject to such terms as the Board may specify.
15.	Withholding of Taxes. The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes which is required by any law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with any Option including, but not limited to, the withholding of the issuance of all or any portion of such Shares until the Participant reimburses the Company for the amount the Company is required to withhold with respect to such taxes, canceling any portion of such issuance in an amount sufficient to reimburse itself for the amount it is required to so withhold, or taking any other action reasonably required to satisfy the Company’s withholding obligation.
16.	Modification of Option or Plan. At any time and from time to time the Board may execute an instrument providing for the modification, extension, or renewal of any outstanding Option and or the Plan. However, no such modification, extension, or renewal shall impair the rights of any Participant except to the extent necessary to comply with any provision of the federal or applicable state laws or except to the extent necessary to prevent detriment to the Company as so determined by the Board.
17.	Substitution of Option. If a Participant has been granted an Option to purchase Shares under an Option Agreement, then except as limited by the terms of the Option Agreement, the Participant may direct that the Option be converted into an Option to purchase other Shares as listed in Appendix A. Such substitution shall only be allowed to the extent that, immediately following the substitution, the difference between the fair market value of the Shares subject to the substituted Option and the exercise price of the

6

	substituted Option is no greater than the difference which existed immediately prior to the substitution between the fair market value of the Shares subject to the original Option and the exercise price of the original Option. In no event shall a participant make substitutions more often than the frequency set forth in the Option Agreement or administrative procedures adopted by the Board from time to time.
18.	Change in Control. In the event of a Change in Control as defined in the Company’s Employee Stock Option Plan, the executive’s options shall continue to be exercisable for the remaining term of the option.
19.	Continued Employment Not Presumed. Nothing in the Plan or any document describing it nor the grant of an Option via an Option Agreement shall give any Participant the right to continue in employment with the Company or affect the right of the Company to terminate the employment of any such person with or without cause.
20.	Amendment and Termination of the Plan or Option Agreement. The Board, in its sole discretion, may amend, suspend or discontinue the Plan or Option Agreement. No amendment, suspension, or discontinuance shall impair the rights of any Participant except to the extent necessary to comply with any provision of federal or applicable state laws or except to the extent necessary to prevent detriment to the Company as so determined by the Board.
21.	Governing Law. The Plan shall be governed by and construed in accordance with the laws of Ohio.
22.	Severability of Provisions. Should any provision of the Plan be determined to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if such provision had never been inserted herein.
23.	Claims Procedure. In general, any claim for benefits under the Plan shall be filed by the Participant or beneficiary (“claimant”) on the form prescribed for such purpose with the Administrator. If a claim for benefits under the Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of the claim by the Administrator. The claims procedure shall be as follows:

(a) Any claimant who is denied a claim for benefits shall be furnished written notice setting forth:

7

(i)	The specific reason or reasons for the denial;
(ii)	Specific reference to the pertinent provision of the Plan upon which the denial is based;
(iii)	A description of any additional material or information necessary for the claimant to perfect the claim; and
(iv)	An explanation of the claim review procedure under the Plan.

(b) In order that a claimant may appeal a denial of a claim, the claimant or the claimant’s duly authorized representative may:

(i)	Request a review by written application to the Administrator, or its designate, no later than sixty (60) days after receipt by the claimant of written notification of denial of a claim;
(ii)	Review pertinent documents; and
(iii)	Submit issues and comments in writing.

(c) A decision on review of a denied claim shall be made not later than sixty (60) days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than one hundred and twenty (120) days after receipt of a request for review. The decision on a review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based.

24.

Designation of Beneficiary. A Participant, by filing the prescribed form with the Administrator (See Appendix B), may designate one or more beneficiaries and successor beneficiaries who shall be given the right to exercise Options in accordance with the terms of the Plan in the event of the Participant’s death. In the event the Participant does not file a form designating one or more beneficiaries, or no designated beneficiary survives the Participant, the Option shall be exercisable by the individual to whom such right passes by will or the laws of descent and distribution.

25.

Intent. The Plan is intended to be unfunded and maintained by the Company solely to provide options to a select group of management or highly compensated employees as such group is described under Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”) as interpreted by the U.S. Department of Labor. The Plan is not intended to be a plan described in Sections 401(a) or 457 of the Code. The obligation of the Company to deliver Shares subject to the

8

Options granted under this Plan constitutes nothing more than an unsecured promise of the Company to fulfill such obligations and any property of the Company that may be set aside to permit it to fulfill such obligations under the Plan shall, in the event of the Company’s bankruptcy or insolvency, remain subject to the claims of the Company’s general creditors until such Options are exercised.

******************

     As evidence of its adoption of the Plan, the Company has caused this instrument to be signed by its officer of representative duly authorized on this 27 day of March, 2002.

American Greetings Corporation
By:	/s/ Dale Cable
Title:	Vice President

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APPENDIX A

Mutual Funds Available by the Company for Grant or
Substitution

     Description

APPENDIX B

Beneficiary Designation for the
American Greetings Corporation
Executive Third Party Option Plan

To: Administrator of American Greetings Corporation Executive Third Party Option Plan

From:

     Pursuant to Section 24 of the American Greetings Corporation Executive Third Party Option Plan, adopted as of ___, 2002, I hereby designate the following person(s) as beneficiary(ies) who on my death shall be entitled to exercise options and receive amounts under the Option Plan and Agreement:

Primary Beneficiary(ies):
Name:	%
	%
	%
Secondary Beneficiary(ies)
Name:	%
	%
	%
	%

     In making the above designation, I reserve the right to revoke this beneficiary designation or change the beneficiary(ies) designated at any time or times and without the consent of any beneficiary.

2

       This beneficiary designation cancels and supersedes any beneficiary designation previously made with respect to this Agreement.

Signed:

Participant

Date

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EX-10.5

EXHIBIT 10.5

Participant Name: «First» «Last»

AGREEMENT FOR
DEFERRED COMPENSATION BENEFITS

American Greetings Corporation (the “Employer”) has established the American Greetings Corporation Executive Deferred Compensation Plan (together with any amendments thereto, the “Plan”), under which the Employer and <<NAME>> (the “Participant”) may negotiate the portion of such Participant’s annual Compensation (as defined under the Plan) to be paid as Deferred Compensation Benefits (as defined by the Plan) pursuant to the terms of the Plan. To defer a portion of such Compensation (as defined under the Plan) consisting of all or a portion of any incentive award the Participant qualifies to receive under the Employer’s annual performance bonus program (the “Incentive”), the Participant and the Employer hereby enter into this Agreement for Deferred Compensation Benefits (the “Agreement”). In consideration of the mutual covenants contained within this Agreement and subject to the terms of the Plan, the Employer and the undersigned Participant hereby agree as follows:

Section 1 — Deferred Amount

The Participant hereby elects to defer an amount equal to ___% or $___of his or her Incentive for the fiscal year ending                . In so doing, the Participant understands that if no Incentive is otherwise payable, no deferral will occur; and that if a fixed amount is elected, the lesser of the fixed amount or the actual amount of Incentive award (if any) will be deferred. Any deferral made under this Agreement will be credited to an account bearing the Participant’s name (hereinafter referred to as the “Account”), net of all required payroll deductions.

Section 2 — Deferral Period

The Participant’s Deferred Compensation Benefits shall be deferred until:

One (1) year from the ending date set forth in Section 1.*

Three (3) years from the ending date set forth in Section 1.

Five (5) years from the ending date set forth in Section 1.

Participant’s Separation from Service (as defined by Internal Revenue Code Section 409A and related regulations).**

* Note: A Participant may not re-defer a one-year deferral.

**If Separation from Service is not elected by the Participant, the Plan may require the Participant to wait to receive his or her Deferred Compensation Benefits until the date selected above.

Section 3 — Form of Benefits Payment

Upon Separation from Service, the Participant’s Deferred Compensation Benefits will be paid to the Participant in either a lump sum payment, five annual installments, or ten annual installments. (See Attachment 1). Please indicate below your choice of the Form of Benefits Payment upon Separation from Service.

Lump Sum Payment.

Payment over five (5) years, as outlined in Attachment 1.

Payment over ten (10) years, as outlined in Attachment 1.

Except as provided for under Section 1 above, the Participant has the option of either re-deferring his/her compensation (subject to the federal and state laws and regulations governing re-deferral), or receiving payment of the Deferred Amount, plus any investment earnings paid in a lump sum at the end of the Deferral Period selected in Section 2.

Section 4 — Amendments

This Agreement may not be amended or modified by either party, except by a written document signed by both parties in accordance with the terms of the Plan.

Section 5 — Term of Agreement

The term of this Agreement shall be from the last date set forth below until all amounts in the Participant’s Account have been paid out.

Section 6 — Rights and Obligations

The Participant’s right to Deferred Compensation Benefits and the Employer’s obligations to pay such Deferred Compensation Benefits shall be governed by the Plan to the extent not addressed in this Agreement. In the event of a conflict between the terms of this Agreement and the Plan, the Plan shall govern.

By signing this Agreement, the Participant acknowledges that: this election is based on guidance currently available for determining the requirements imposed on the Plan by the American Jobs Creation Act of 2004 (the “Act”), determined as of the date of this Agreement; and that the Employer expects to amend the Plan to bring the Plan into compliance with new guidance expected to be promulgated under the Act. Employer will operate the Plan during 2005 based on its understanding of the Act’s rules.

AGREED TO BY:
«First» «Last»	Employer Signature
Date	Date

2

Attachment 1

Form of Benefits Payment Options.

Upon Separation from Service, the Participant’s Deferred Compensation Benefits will be paid as follows:

Option 1. Lump Sum Distribution paid within 30 days after the date that occurs six (6) months after Separation from Service.

Option 2. Five annual installments according to the following schedule.

	Payment Date	Payment Amount
Payment Number 1	within 30 days after the date that occurs six (6) months after Separation from Service	20% of the then current balance
Payment Number 2	January 15 of the calendar year following the calendar year of Payment Number 1	25% of the then current balance
Payment Number 3	Twelve (12) months after the date of Payment Number 2	33% of the then current balance
Payment Number 4	Twelve (12) months after the date of Payment Number 3	50% of the then current balance
Payment Number 5	Twelve (12) months after the date of Payment Number 4	current balance

Option 3. Ten annual installments according to the following schedule.

	Payment Date	Payment Amount
Payment No. 1	1st Anniversary of Separation from Service	1/10 of Account Balance
Payment No. 2	2nd Anniversary of Separation from Service	1/9 of Account Balance
Payment No. 3	3rd Anniversary of Separation from Service	1/8 of Account Balance
Payment No. 4	4th Anniversary of Separation from Service	1/7 of Account Balance
Payment No. 5	5th Anniversary of Separation from Service	1/6 of Account Balance
Payment No. 6	6thAnniversary of Separation from Service	1/5 of Account Balance
Payment No. 7	7thAnniversary of Separation from Service	1/4 of Account Balance
Payment No. 8	8thAnniversary of Separation from Service	1/3 of Account Balance
Payment No. 9	9thAnniversary of Separation from Service	1/2 of Account Balance
Payment No. 10	10thAnniversary of Separation from Service	Entire Account Balance

3

CONFIDENTIAL

Date:
To:	«Name»
From:
Subject:	Executive Deferred Compensation Plan

The Executive Deferred Compensation Plan allows participants to defer various elements of their compensation for one year, three years, five years, or until separation from American Greetings. Six months prior to the end of the deferral periods, the participant has three choices. Elect to:

1.	Receive a lump sum distribution including investment earnings (losses) at the end of the deferral period,
2.	re-defer the balance, or
3.	Receive discounted options pursuant to the American Greetings Corporation Executive Third Party Option Plan in lieu of deferred compensation at the end of the deferral period

We are approaching the deadline to elect one of the choices above for the following previously deferred item(s):

«Item_Deferred»

If you wish to re-defer these items or receive discounted options in lieu of your deferred compensation account, please indicate your choices on the attached Amendment to Agreement for Deferred Compensation Benefits.

If you wish to receive payment of any of these items, please indicate below.

Pay Now ___«Item_Deferred»

If you choose not to re-defer, the deferred income, plus investment earnings, will be paid to you in accordance with your Agreement.

If your election is not received by ___, I will assume you have chosen to re-defer all of the above for the same period of time as the original deferral period, to be reviewed again at the expiration of that period.

Feel free to call me on extension ___if you have any questions.

Participant Signature

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EX-10.6

EXHIBIT 10.6

AMERICAN GREETINGS CORPORATION EXECUTIVE THIRD PARTY OPTION AGREEMENT

     THIS AGREEMENT, effective as of the ___day of ___, ___(the “Award Date”), is between American Greetings Corporation (hereinafter referred to as the “Company”), and ___(hereinafter referred to as the “Participant”).

WITNESSETH:

     WHEREAS, the Company has adopted the American Greetings Corporate Executive Third Party Option Plan (the “Plan”), which was adopted by the Company (“Board”) on ___, 2002, pursuant to an amendment of the American Greetings Corporation Executive Deferred Compensation Plan, and which provides for the grant of options to certain employees of the Company to purchase shares of mutual funds (the “Shares”) as listed in Appendix A as attached hereto;

     WHEREAS, the Participant has been selected by the Board to participate in the Plan, in accordance with the provisions thereof;

     WHEREAS, the Participant has been awarded an option on the Award Date; and

     WHEREAS, the parties hereto desire to evidence in writing the terms and conditions of the option.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements herein contained and as an inducement to Participant to continue as an employee of the Company, the parties hereto hereby agree as follows:

1. The Company awards to Participant on the Award Date this option (“Option”) to purchase from the Company, on the terms and conditions set forth herein and in the Plan, all or any part of the number of Shares listed in Appendix A (attached hereto) at the option price per Share equal to fifty percent (50%) of the fair market value of the underlying Share at the Award Date. The option exercise price thereafter shall adjust to 50 percent (50%) of the fair market value of the shares as of the closing price each business day. Notwithstanding, the Option Price shall not at any time be lower than 25 percent (25%) of the fair market value of a Share on the date of grant of the Option. The grant of this Option is effective on the Award Date.

2.	The Option shall vest immediately upon grant. If this Option Agreement covers base salary, then it shall govern all option awards with respect to base salary for the calendar year.
3.	This Option may be substituted in full or in part or may be exercised in full during the term of this Option. An Option shall be exercisable or may be substituted at any time during the plan year, but limited to once monthly. For each such exercise, the Participant must exercise that portion of the Option that is not less than one hundred percent (100%) of the fair market value of the underlying Shares at the date of exercise. For each such substitution, the Participant may substitute that portion of the Option that is equivalent to the fair market value of the underlying Shares at the date of substitution in ten percent (10%) increments. The term of the option will be ___years from the date of grant. Upon the Participant’s separation from service with the Company without cause or due to retirement, death or disability, or voluntary resignation, the exercise period generally will end on the tenth anniversary of the termination of employment or the full original term of the option, whichever occurs first. Should the Participant’s employment be terminated by the Company with cause, then the exercise period will end on the first anniversary of the termination of employment, or the full original term of the option, whichever occurs first.
4.	Change in Control. In the event of a Change in Control as defined in the Company’s Employee Stock Option Plan, the executive’s options shall remain exercisable for the remaining term of the option.
5.	In order to exercise this Option, or to substitute other Options for this Option as provided in Paragraph 17 of the Plan, the Participant must deliver written notice to the Company of her/his intent to exercise or substitute seven (7) days prior to the desired date of exercise or substitution. The written notice must be addressed to                  at One American Road, Cleveland, OH, 44144, and will be deemed delivered to the Company on the date of postmark by first class U.S. Mail. The Company will process the exercise or substitution as soon as practicable. In no event shall any transfer, substitution, or payment due to the participant from the sale of shares otherwise deliverable be made later than ten (10) days after the desired date of exercise.
6.	Upon exercise, the option price is payable either in cash or, at the election of the Participant, in Shares otherwise due to the Participant by

2

	exercise of this Option. Upon exercise of this Option in full, the Option Agreement shall be surrendered to the Company for cancellation. Upon payment of the option price, the Company shall deliver the Shares or cash to the Participant as soon as administratively feasible.
7.	The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes which are required by any law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with any Option, including, but not limited to, the withholding of the issuance of all or any portion of such Shares until the Participant reimburses the Company for the amount the Company is required to withhold with respect to such taxes, canceling any portion of such issuance in an amount sufficient to reimburse itself for the amount it is required to so withhold, or taking any other action reasonably required to satisfy the Company’s withholding obligation.
8.	This Option and the rights and privileges conferred herewith shall not be sold, transferred, encumbered, hypothecated or otherwise anticipated by the Participant other than by will or the laws of descent and distribution. This Option is not liable for or subject to, in whole or in part, the debts, contracts, liabilities, or torts of the Participant, nor shall it be subject to garnishment, attachment, execution, levy or other legal or equitable process.
9.	The Participant (or his executor, administrator or beneficiary, should the Participant be deceased) may transfer at any time all or any of the shares acquired pursuant to the exercise of the Option (whether or not the Participant is then employed by the Company).
10.	Subject to the limitations on the transferability of this Option, this agreement shall be binding upon and inure to the benefit of the heirs, legal representative, successors and assigns of the parties hereto.
11.	The interpretation, performance and enforcement of this Agreement shall be governed by the laws of Ohio.
12.	The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision, and all other provisions shall remain in full force and effect.

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13. The Participant accepts this Option subject to all the provisions of the Plan, which are incorporated herein, including the provisions that authorize the Board to administer and interpret the Plan and that provide that the Board’s decisions, determinations, and interpretations with respect to the Plan are final and conclusive on all persons affected thereby.

     IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above written.

AMERICAN GREETINGS CORPORATION

By:

Title:

Participant

Address:

4

APPENDIX A

Shares Subject to Option

Date of Grant _________________

					Net Value
Percentage	Number	Description	Exercise Price of	Fair Market Value	of Shares	Vesting
of Award	of Shares	of Shares	Shares at Grant	of Shares at Grant	at Grant	Date

Request For Award of Options in Lieu of Current Deferred Compensation Plan Balance
American Greetings Corporation Executive Third Party Option Plan

This form is being submitted as written notice requesting a substitution of the balance currently attributable to the employee under the American Greetings Corporation Executive Deferred Compensation Plan (“the Deferral Plan”), into options under the American Greetings Corporation Executive Third Party Option Plan (“the Plan”). Pursuant to the Plan once you have substituted the balance from the Deferral Plan, you may not substitute the option for a credit to Deferral Plan.

Full Balance of Deferral to which this substitution relates: $                      or                     %

Identify the name of mutual fund(s) currently	Amount of Deferral to
in the Deferral Plan which you wish to convert from	be converted to Options
1.
2.
3.

	Invest the following
Identify the name of mutual fund(s) you wish to	percentage of value
to be converted into	converted into this fund
1.		%
2.		%
3.		%
Total percent (must equal 100%)

The Deferral Amounts described above should be converted into an Option to acquire Shares in the new mutual fund(s) as of the close of trading on the following date (or the next business day if the date specified is a holiday):                       

By signing this form, I represent that I have fully read and understand the terms and conditions of the Plan, Deferral Plan and the related agreement as well as the prospectus of each mutual fund into which I am converting amounts under the above referenced Deferral and Option Plans. I acknowledge that my employer is in no way responsible for the investment results of the above option allocation.

Signature of Optionee Print Name Date

Request For Substitution of Option

American Greetings Corporation
Executive Third Party Option Plan

Pursuant to Section 17 of the above referenced Plan, this form is being submitted as written notice requesting a substitution of part or all of the Shares awarded under the Option Agreement identified below into other permissible Shares.

Date of Option Agreement to which this substitution relates:                     
               (Specify only one agreement per form)

Identify the name of mutual fund(s) currently specified	Number or % of Shares
in the Option which you wish to converted from	Option to be converted
	(Minimum of 10%)
1.
2.
3.

	Invest the following
Identify the name of mutual fund(s) you wish to	percentage of value
to be converted into	converted into this fund
1.		%
2.		%
3.		%
Total percent (must equal 100%)

The Optioned Shares described above should be converted into an Option to acquire Shares in the new mutual fund(s) as of the close of trading on the following date (or the next business day if the date specified is a holiday):                    

By signing this form, I represent that I have fully read and understand the terms and conditions of the Plan and the related agreement as well as the prospectus of each mutual fund into which I am converting Shares under the above referenced Option. I acknowledge that my employer is in no way responsible for the investment results of the above option allocation.

Signature of Optionee Print Name Date

American Greetings Corporation Executive Third Party Option Plan

Instructions for completing form for Request For Substitution of Option.

The plan documents for both the American Greetings Corporation Executive Third Party Option Plan (“Plan”) and the related Option Agreement under which your option was granted include specific provisions which control the substitution of one type of mutual fund shares into one or more other types of mutual fund shares subject to the Option. Accordingly, you should review those provisions carefully before completing this form.

American Greetings Corporation and its related entities (the “Employer”) are in no way providing you with any investment advice in connection with your decisions related to selecting mutual fund shares under any Option Agreement. You are responsible for all investment decisions made in connection with your selection of Shares under any Option Agreement, notwithstanding any other oral or written comments (direct or implied) by any employee of the Employer. It is highly recommended that you carefully read the prospectus for any mutual fund associated with the Option Plan before you elect to allocate any portion of your Options into such funds.

To assist you in completing this form, the following excerpts from the Plan document and the standard Option Agreement are set forth below. However, you are responsible for having read the entire Plan document and Option Agreement before completing this form.

Section 17 of the Plan document for the American Greetings Corporation Executive Third Party Option Plan (the “Plan”) provides as follows:

Substitution of Option. If a Participant has been granted an Option to purchase Shares under an Option Agreement, then except as limited by the terms of the Option Agreement, the Participant may direct that the Option be converted into an Option to purchase other Shares as listed in Appendix A. Such substitution shall only be allowed to the extent that, immediately following the substitution, the difference between the fair market value of the Shares subject to the substituted Option and the exercise price of the substituted Option is no greater than the difference which existed immediately prior to the substitution between the fair market value of the Shares subject to the original Option and the exercise price of the original Option. In no event shall a participant make substitutions more often than the frequency set forth in the Option Agreement or administrative procedures adopted by the Board from time to time.

Section 5 of the American Greetings Corporation Option Agreement provides:

In order to exercise this Option, or to substitute other Options for this Option as provided in Paragraph 17 of the Plan, the Participant must deliver written notice to the Company of her/his intent to exercise or substitute seven (7) days prior to the desired date of exercise or substitution. The written notice must be addressed to                 at One American Road, Cleveland, OH, 44144, and will be deemed delivered to the Company on the date of postmark by first class U.S. Mail. The Company will process the exercise or substitution as soon as practicable. In no event shall any transfer, substitution, or payment due to the participant from the sale of shares otherwise deliverable be made later than ten (10) days after the desired date of exercise.

EX-10.7

EXHIBIT 10.7

AMERICAN GREETINGS CORPORATION 1997 EQUITY AND
PERFORMANCE INCENTIVE PLAN

PERFORMANCE SHARE GRANT AGREEMENT

Grantee:	Zev Weiss
Target Grant:	102,624 Class B Common Shares (the “Shares”)
Performance Period:	August 2, 2005 through
	August 2, 2010
Grant Date:	August 2, 2005

THIS AGREEMENT, dated as of the Grant Date stated above, is by and between American Greetings Corporation (the “Company” or “American Greetings”) and Grantee.

W I T N E S S E T H:

WHEREAS, the Company wishes to give Grantee an opportunity to acquire or enlarge his equity ownership in the Company for purposes of augmenting Grantee’s proprietary interest in the success of American Greetings and thereby focusing Grantee’s efforts on increasing shareholder value.

A G R E E M E N T

NOW, THEREFORE, the Company and Grantee hereby agree as follows:

1. Performance Share Grant. Subject to the terms and conditions of this Agreement, the Company hereby grants to Grantee the Target Grant of Shares (the “Performance Shares”) as specified above. The grant of Performance Shares shall represent the right to receive such number of Shares, if any, as determined in accordance with Section 2 upon the achievement of certain management objectives over the Performance Period. The Performance Shares described in this Agreement are in all respects subject to the terms, conditions and provisions of this Agreement and the Company’s 1997 Equity and Performance Incentive Plan (the “Plan”).

2. Award of Performance Shares.

     (a) The number of Performance Shares actually earned will be based on the percentage of Grantee’s target incentive award, if any, that Grantee achieves during the Performance Period under the Company’s Key Management Annual Incentive Plan (the “Annual Incentive Plan”). Subject to the certification of the Company’s Compensation and Management Development Committee (the “Committee”) required by Section 2(b), and provided that Grantee is actively employed by the Company or a subsidiary thereof as of the last day of such fiscal year with respect to which a calculation is made to determine if Grantee is entitled to payment of Performance Shares, Grantee will be entitled to payment of a portion of the Target Grant of Performance Shares as calculated in this Section 2(a) if he achieves all or a portion of his target incentive award for a given fiscal year during the Performance Period.

          (i) Grantee will be entitled to payment of all or a portion of his Target Grant of Performance Shares during the first three years of the Performance Period as follows:

               (1) With respect to each of fiscal years 2006, 2007 and 2008, Grantee will be deemed to have earned a number of Performance Shares, if any, determined by multiplying an amount equal to one-third of the Target Grant of Performance Shares (the “Annual Target Amount”) by the percentage of the target incentive award that Grantee achieves for such fiscal year under the Annual Incentive Plan as in effect for that fiscal year, not to exceed 100%, and then rounding the resulting number up to the nearest whole number.

               (2) If Grantee achieves 100% of his target incentive award under the Annual Incentive Plan in each of fiscal years 2006, 2007 and 2008, he will be deemed to have earned 100% of the Target Grant of Performance Shares.

               (3) If Grantee earns a portion but less than 100% of the Annual Target Amount of Performance Shares with respect to any of fiscal years 2006, 2007 or 2008, Grantee shall forfeit the remaining portion of the Annual Target Amount not earned with respect to such fiscal year.

               (4) If with respect to any of fiscal years 2006, 2007 or 2008 Grantee does not earn any portion of the Annual Target Amount of Performance Shares, Grantee shall be entitled to earn all or a portion of such Performance Shares in the fourth and fifth years of the Performance Period in accordance with Section 2(a)(ii) below.

          (ii) Subject to Section 2(a)(iii), any Performance Shares not earned or not otherwise forfeited during the first three years of the Performance Period in accordance with Section 2(a)(i) will be deemed earned as follows:

               (1) With respect to each of fiscal 2009 and 2010, Grantee will be deemed to have earned a number of Performance Shares, if any, determined by multiplying the Annual Target Amount by the percentage of the target incentive award that Grantee achieves for such fiscal year under the Annual Incentive Plan as in effect for that fiscal year, not to exceed 100%, and then rounding the resulting number up to the nearest whole number.

               (2) If Grantee earns a portion but less than 100% of the Annual Target Amount of Performance Shares with respect to any of fiscal years 2009 or 2010, Grantee shall forfeit the remaining portion of the Annual Target Amount not earned with respect to such fiscal year.

               (3) If Grantee does not earn any portion of the Annual Target Amount of Performance Shares with respect to fiscal 2009, Grantee shall be entitled to earn all or a portion of such Performance Shares with respect to fiscal 2010.

          (iii) Any portion of the Target Grant of Performance Shares not earned as of the end of the Performance Period shall be forfeited and Grantee shall have no right to receive such Performance Shares. Except as contemplated by Section 7(f), in no event may Grantee earn under this Agreement more than (1) the Annual Target Amount of Performance Shares with respect to any fiscal year, (2) an aggregate of two-thirds of the Target Grant of Performance Shares with respect to fiscal 2009 and 2010, any excess to be forfeited and (3) the total Target Grant of Performance Shares.

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     (b) If Grantee is deemed to have earned any of the Performance Shares as of the end of any fiscal year within the Performance Period as set forth in Section 2(a), the Company will pay Grantee in accordance with Section 4 an award of Shares equal to the number of Performance Shares so earned; provided, however, that prior to the payment of Shares pursuant to this Agreement, the Committee must certify that the objectives establishing entitlement to the payment of Shares have been achieved.

3. Awards on Certain Events. Notwithstanding the requirement in Section 2 of this Agreement that a Grantee be actively employed on the last day of any fiscal year of the Company during the Performance Period for which Grantee has earned Performance Shares, all of the Performance Shares that have not otherwise been earned or forfeited shall be deemed earned, and Shares shall be awarded pursuant to this Agreement, as of the date of (i) Grantee’s death or disability, (ii) a Change in Control (as defined in the Plan) of the Company, or (iii) a termination of Grantee’s employment by the Company “without cause”. Termination shall be deemed to be “without cause” unless the Board of Directors of the Company, or its designee, in good faith determines that termination is because of any one or more of the following:

Grantee’s:

(i)	fraud;
(ii)	misappropriation of funds;
(iii)	commission of a felony or of an act or series of acts which result in material injury to the business reputation of the Company;
(iv)	commission of a crime or act or series of acts involving moral turpitude;
(v)	commission of an act or series of repeated acts of dishonesty that are materially inimical to the best interests of the Company;
(vi)	willful and repeated failure to perform his duties, which failure has not been cured in all substantial respects within fifteen (15) days after the Company gives written notice thereof to Grantee; or
(vii)	material breach of any material provision of any employment agreement with the Company, which breach has not been cured in all substantial respects within ten (10) days after the Company gives written notice thereof to Grantee.

In addition, Grantee may terminate his employment with the Company, and such termination shall be deemed a termination by the Company “without cause” if:

(i)

the Company reduces Grantee’s title, responsibilities, power or authority in comparison with his title, responsibilities, power or authority on the date hereof;

(ii)

the Company assigns Grantee duties which are inconsistent with the duties assigned to Grantee on the date hereof and which duties the Company persists in assigning to Grantee despite the prior written objection of Grantee; or the Company reduces Grantee’s annual base compensation (unless such decrease is proportionate with a decrease in the base compensation of the executive officers of the Company as a group), or materially reduces his group health, life, disability or other insurance programs (including any such benefits provided to Grantee’s family), his pension, retirement or profit-sharing benefits or any benefits provided by the Company, or excludes him from any plan, program or arrangement, including but not limited to bonus or incentive plans, in which the other executive officers of the Company are included.

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For purposes of this Agreement Grantee shall be considered “disabled” if Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or at such earlier time as the Committee shall determine.

4. Payment of Award. As soon as practicable after any Performance Shares are deemed earned by Grantee pursuant to Section 2 (which shall be no longer than the time period required under Internal Revenue Code Section 409A (“Section 409A”) to qualify as a short-term deferral as contemplated thereby), such Performance Shares shall be issued to Grantee in the form of Shares; provided, however, in no event shall any Shares earned with respect to the fiscal year ended February 28, 2006 be issued prior to the first anniversary of the Date of Grant. At such time, Grantee shall enjoy full shareholder and ownership rights with respect to such Shares. A stock certificate representing all such Shares shall be delivered to Grantee (or any person who makes a claim through a Grantee) and shall be registered in his or her name. In the case of Grantee’s death or disability, payment of any Shares that Grantee has earned will be made to the beneficiary designated by Grantee in a writing filed with the Company or, if none, to Grantee’s estate.

5. Ownership Rights. Except as otherwise provided herein, Grantee will not have the rights of a shareholder of the Company with respect to any Shares issuable upon the earning of any Performance Shares. Upon receipt of any portion of Shares issued pursuant to Performance Shares awarded under Section 2, Grantee shall exercise all ownership rights (including, without limitation, the right to vote and the right to receive dividends) with respect to such Shares, provided that voting and dividend rights with respect to the Shares will be exercisable only if the record date for determining shareholders entitled to vote and receive dividends, as the case may be, falls on or after the date as of which Shares are earned and issued to Grantee pursuant to this Agreement.

6. Deferral of Exercise or Delivery of Shares. Notwithstanding any provision in this Agreement to the contrary, if any law or regulation of any governmental authority having jurisdiction in the matter requires the Company, the Board, the Committee or Grantee to take any action or refrain from action in connection with the award or delivery of Shares under this Agreement, or to delay such award or delivery, then the award or delivery of such Shares shall be deferred until such action has been taken or such restriction on action has been removed.

7. General Provisions. Grantee acknowledges that he has read, understands and agrees with all of the provisions in this Agreement and the Plan, including, but not limited to, the following:

     (a) Administration. The interpretation and construction by the Board and/or the Committee of any provision of this Agreement, the Plan or any notification or document evidencing the grant of Performance Shares and that any determination by the Board or such Committee pursuant to any provision of this Agreement or the Plan or of any such agreement, notification or document shall be final and conclusive.

     (b) Notices. Any notice that is required or permitted under this Agreement shall be in writing (unless otherwise specified in the Agreement or in a writing from the Company to Grantee), and delivered personally or by mail, postage prepaid, addressed as follows: (i) if to the Company, at One American Road, Cleveland, Ohio 44144, Attention: Human Resources Department, or at such other address as the Company by notice to Grantee may have designated from time to time; (ii) if to Grantee, at the address indicated in Grantee’s then-current personnel records, or at such other address as Grantee by notice to the Company may have designated from time to time. Such notice shall be deemed given upon receipt.

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     (c) Taxation. Grantee shall be responsible for all applicable income and withholding taxes and the employee share of FICA taxes with respect to any compensation income generated upon the award of his earned Performance Shares under this Agreement. No later than the date as of which an amount first becomes includable in the gross income of Grantee for federal income tax purposes with respect to the Performance Shares awarded hereunder, Grantee shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to that amount. Unless otherwise determined by the Committee, withholding obligations may be settled with previously owned common shares or Shares that have been earned and that are issuable hereunder. The making of that payment or those arrangements is a condition to the obligations of the Company under the Plan, and the Company may, to the extent permitted by law, deduct any taxes from any payment of any kind otherwise payable to Grantee or the Company may retain such number of the Shares issuable upon the earning of Performance Shares covered by the grant evidenced by this Agreement as shall be equal in value to the amount of the remaining withholding obligation.

     (d) Nontransferability. This Agreement and the Performance Shares granted to Grantee shall be nontransferable and shall not be sold, hypothecated or otherwise assigned or conveyed by Grantee to any other person, except as specifically permitted in this Agreement. No assignment or transfer of this Agreement or the rights represented thereby, whether voluntary or involuntary, or by operation of law or otherwise, shall vest in the assignee or transferee any interest or right whatsoever, except as specifically permitted in this Agreement. The Agreement shall terminate, and be of no force or effect, immediately upon any attempt to assign or transfer the Agreement or any of the Performance Shares to which the Agreement applies.

     (e) Not an Employment Contract. This Agreement shall not be deemed to limit or restrict the right of the Company to terminate Grantee’s employment at any time, for any reason, with or without cause, or to limit or restrict the right of Grantee to terminate his employment with the Company at any time.

     (f) Adjustments. On any change in the number or kind of outstanding common shares of the Company by reason of a recapitalization, merger, consolidation, reorganization, separation, liquidation, share split, share dividend, combination of shares or any other change in the corporate structure or common shares of the Company, the Company, by action of the Board or the Committee is empowered to make such adjustment, if any, in the number and kind of Performance Shares subject to this agreement as it considers appropriate for the protection of the Company and of Grantee.

     (g) Unsecured Creditor Status. This grant of Performance Shares constitutes a mere promise by the Company to pay Grantee the benefits described in this grant (to the extent earned). Grantee shall have the status of a general unsecured creditor of the Company with respect to the benefits payable under this Agreement.

     (h) Fractional Shares. Notwithstanding anything in this Agreement to the contrary, in the event that any adjustment to the Target Grant of Performance Shares or an award of Shares or the calculation of an award pursuant to this Agreement would otherwise result in the creation of a fractional share interest, the affected award shall be rounded up to the nearest whole share.

     (i) Amendment or Termination. This Agreement may be amended or terminated at any time by the mutual agreement and written consent of Grantee and the Company, but only to the extent permitted under the Plan. The provisions set forth in this Agreement are subject to the restrictions and other requirements of Section 409A and related regulations and rulings. Without limiting the generality of the preceding sentence, such provisions shall be modified and amended, as and where necessary, to bring such provisions into compliance with the requirements set forth in Section 409A

5

and related regulations and rulings. This Agreement shall be interpreted (and if necessary, amended) to comply with Section 409A and to the extent any provision of this Agreement is inconsistent with Section 409A, said Section 409A shall control even if such action may reduce or diminish the value of Grantee’s award.

     (j) Severability. If any provision of this Agreement should be held illegal or invalid for any reason, such determination shall not affect the other provisions of this Agreement, and it shall be construed as if such provision had never been included herein.

     (k) Headings/Gender. Headings in this Agreement are for convenience only and shall not be construed to be part of this Agreement. Any reference to the masculine, feminine or neuter gender shall be a reference to other genders as appropriate.

     (l) Governing Law. This Agreement shall be construed, and its provisions enforced and administered, in accordance with the laws of the State of Ohio and, where applicable, federal law.

     (m) Definitions. Initial capitalized terms used in this Agreement that are not otherwise defined herein shall have the meaning set forth in the Plan.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Grantee has executed this Agreement, as of the Grant Date.

AMERICAN GREETINGS CORPORATION
By:	/s/ Brian T. McGrath
	Brian McGrath, Vice President,
	Human Resources

GRANTEE
/s/ Zev Weiss
Name:	Zev Weiss

6

EX-10.8

EXHIBIT 10.8

AMERICAN GREETINGS CORPORATION 1997 EQUITY AND
PERFORMANCE INCENTIVE PLAN

PERFORMANCE SHARE GRANT AGREEMENT

Grantee:	Jeffrey Weiss
Target Grant:	76,968 Class B Common Shares (the “Shares”)
Performance Period:	August 2, 2005 through
	August 2, 2010
Grant Date:	August 2, 2005

THIS AGREEMENT, dated as of the Grant Date stated above, is by and between American Greetings Corporation (the “Company” or “American Greetings”) and Grantee.

W I T N E S S E T H:

WHEREAS, the Company wishes to give Grantee an opportunity to acquire or enlarge his equity ownership in the Company for purposes of augmenting Grantee’s proprietary interest in the success of American Greetings and thereby focusing Grantee’s efforts on increasing shareholder value.

A G R E E M E N T

NOW, THEREFORE, the Company and Grantee hereby agree as follows:

1. Performance Share Grant. Subject to the terms and conditions of this Agreement, the Company hereby grants to Grantee the Target Grant of Shares (the “Performance Shares”) as specified above. The grant of Performance Shares shall represent the right to receive such number of Shares, if any, as determined in accordance with Section 2 upon the achievement of certain management objectives over the Performance Period. The Performance Shares described in this Agreement are in all respects subject to the terms, conditions and provisions of this Agreement and the Company’s 1997 Equity and Performance Incentive Plan (the “Plan”).

2. Award of Performance Shares.

     (a) The number of Performance Shares actually earned will be based on the percentage of Grantee’s target incentive award, if any, that Grantee achieves during the Performance Period under the Company’s Key Management Annual Incentive Plan (the “Annual Incentive Plan”). Subject to the certification of the Company’s Compensation and Management Development Committee (the “Committee”) required by Section 2(b), and provided that Grantee is actively employed by the Company or a subsidiary thereof as of the last day of such fiscal year with respect to which a calculation is made to determine if Grantee is entitled to payment of Performance Shares, Grantee will be entitled to payment of a portion of the Target Grant of Performance Shares as calculated in this Section 2(a) if he achieves all or a portion of his target incentive award for a given fiscal year during the Performance Period.

          (i) Grantee will be entitled to payment of all or a portion of his Target Grant of Performance Shares during the first three years of the Performance Period as follows:

               (1) With respect to each of fiscal years 2006, 2007 and 2008, Grantee will be deemed to have earned a number of Performance Shares, if any, determined by multiplying an amount equal to one-third of the Target Grant of Performance Shares (the “Annual Target Amount”) by the percentage of the target incentive award that Grantee achieves for such fiscal year under the Annual Incentive Plan as in effect for that fiscal year, not to exceed 100%, and then rounding the resulting number up to the nearest whole number.

               (2) If Grantee achieves 100% of his target incentive award under the Annual Incentive Plan in each of fiscal years 2006, 2007 and 2008, he will be deemed to have earned 100% of the Target Grant of Performance Shares.

               (3) If Grantee earns a portion but less than 100% of the Annual Target Amount of Performance Shares with respect to any of fiscal years 2006, 2007 or 2008, Grantee shall forfeit the remaining portion of the Annual Target Amount not earned with respect to such fiscal year.

               (4) If with respect to any of fiscal years 2006, 2007 or 2008 Grantee does not earn any portion of the Annual Target Amount of Performance Shares, Grantee shall be entitled to earn all or a portion of such Performance Shares in the fourth and fifth years of the Performance Period in accordance with Section 2(a)(ii) below.

          (ii) Subject to Section 2(a)(iii), any Performance Shares not earned or not otherwise forfeited during the first three years of the Performance Period in accordance with Section 2(a)(i) will be deemed earned as follows:

               (1) With respect to each of fiscal 2009 and 2010, Grantee will be deemed to have earned a number of Performance Shares, if any, determined by multiplying the Annual Target Amount by the percentage of the target incentive award that Grantee achieves for such fiscal year under the Annual Incentive Plan as in effect for that fiscal year, not to exceed 100%, and then rounding the resulting number up to the nearest whole number.

               (2) If Grantee earns a portion but less than 100% of the Annual Target Amount of Performance Shares with respect to any of fiscal years 2009 or 2010, Grantee shall forfeit the remaining portion of the Annual Target Amount not earned with respect to such fiscal year.

               (3) If Grantee does not earn any portion of the Annual Target Amount of Performance Shares with respect to fiscal 2009, Grantee shall be entitled to earn all or a portion of such Performance Shares with respect to fiscal 2010.

          (iii) Any portion of the Target Grant of Performance Shares not earned as of the end of the Performance Period shall be forfeited and Grantee shall have no right to receive such Performance Shares. Except as contemplated by Section 7(f), in no event may Grantee earn under this Agreement more than (1) the Annual Target Amount of Performance Shares with respect to any fiscal year, (2) an aggregate of two-thirds of the Target Grant of Performance Shares with respect to fiscal 2009 and 2010, any excess to be forfeited and (3) the total Target Grant of Performance Shares.

2

          (b) If Grantee is deemed to have earned any of the Performance Shares as of the end of any fiscal year within the Performance Period as set forth in Section 2(a), the Company will pay Grantee in accordance with Section 4 an award of Shares equal to the number of Performance Shares so earned; provided, however, that prior to the payment of Shares pursuant to this Agreement, the Committee must certify that the objectives establishing entitlement to the payment of Shares have been achieved.

3. Awards on Certain Events. Notwithstanding the requirement in Section 2 of this Agreement that a Grantee be actively employed on the last day of any fiscal year of the Company during the Performance Period for which Grantee has earned Performance Shares, all of the Performance Shares that have not otherwise been earned or forfeited shall be deemed earned, and Shares shall be awarded pursuant to this Agreement, as of the date of (i) Grantee’s death or disability, (ii) a Change in Control (as defined in the Plan) of the Company, or (iii) a termination of Grantee’s employment by the Company “without cause”. Termination shall be deemed to be “without cause” unless the Board of Directors of the Company, or its designee, in good faith determines that termination is because of any one or more of the following:

Grantee’s:

(i)	fraud;
(ii)	misappropriation of funds;
(iii)	commission of a felony or of an act or series of acts which result in material injury to the business reputation of the Company;
(iv)	commission of a crime or act or series of acts involving moral turpitude;
(v)	commission of an act or series of repeated acts of dishonesty that are materially inimical to the best interests of the Company;
(vi)	willful and repeated failure to perform his duties, which failure has not been cured in all substantial respects within fifteen (15) days after the Company gives written notice thereof to Grantee; or
(vii)	material breach of any material provision of any employment agreement with the Company, which breach has not been cured in all substantial respects within ten (10) days after the Company gives written notice thereof to Grantee.

In addition, Grantee may terminate his employment with the Company, and such termination shall be deemed a termination by the Company “without cause” if:

(i)

the Company reduces Grantee’s title, responsibilities, power or authority in comparison with his title, responsibilities, power or authority on the date hereof;

(ii)

the Company assigns Grantee duties which are inconsistent with the duties assigned to Grantee on the date hereof and which duties the Company persists in assigning to Grantee despite the prior written objection of Grantee; or the Company reduces Grantee’s annual base compensation (unless such decrease is proportionate with a decrease in the base compensation of the executive officers of the Company as a group), or materially reduces his group health, life, disability or other insurance programs (including any such benefits provided to Grantee’s family), his pension, retirement or profit-sharing benefits or any benefits provided by the Company, or excludes him from any plan, program or arrangement, including but not limited to bonus or incentive plans, in which the other executive officers of the Company are included.

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For purposes of this Agreement Grantee shall be considered “disabled” if Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or at such earlier time as the Committee shall determine.

4. Payment of Award. As soon as practicable after any Performance Shares are deemed earned by Grantee pursuant to Section 2 (which shall be no longer than the time period required under Internal Revenue Code Section 409A (“Section 409A”) to qualify as a short-term deferral as contemplated thereby), such Performance Shares shall be issued to Grantee in the form of Shares; provided, however, in no event shall any Shares earned with respect to the fiscal year ended February 28, 2006 be issued prior to the first anniversary of the Date of Grant. At such time, Grantee shall enjoy full shareholder and ownership rights with respect to such Shares. A stock certificate representing all such Shares shall be delivered to Grantee (or any person who makes a claim through a Grantee) and shall be registered in his or her name. In the case of Grantee’s death or disability, payment of any Shares that Grantee has earned will be made to the beneficiary designated by Grantee in a writing filed with the Company or, if none, to Grantee’s estate.

5. Ownership Rights. Except as otherwise provided herein, Grantee will not have the rights of a shareholder of the Company with respect to any Shares issuable upon the earning of any Performance Shares. Upon receipt of any portion of Shares issued pursuant to Performance Shares awarded under Section 2, Grantee shall exercise all ownership rights (including, without limitation, the right to vote and the right to receive dividends) with respect to such Shares, provided that voting and dividend rights with respect to the Shares will be exercisable only if the record date for determining shareholders entitled to vote and receive dividends, as the case may be, falls on or after the date as of which Shares are earned and issued to Grantee pursuant to this Agreement.

6. Deferral of Exercise or Delivery of Shares. Notwithstanding any provision in this Agreement to the contrary, if any law or regulation of any governmental authority having jurisdiction in the matter requires the Company, the Board, the Committee or Grantee to take any action or refrain from action in connection with the award or delivery of Shares under this Agreement, or to delay such award or delivery, then the award or delivery of such Shares shall be deferred until such action has been taken or such restriction on action has been removed.

7. General Provisions. Grantee acknowledges that he has read, understands and agrees with all of the provisions in this Agreement and the Plan, including, but not limited to, the following:

     (a) Administration. The interpretation and construction by the Board and/or the Committee of any provision of this Agreement, the Plan or any notification or document evidencing the grant of Performance Shares and that any determination by the Board or such Committee pursuant to any provision of this Agreement or the Plan or of any such agreement, notification or document shall be final and conclusive.

     (b) Notices. Any notice that is required or permitted under this Agreement shall be in writing (unless otherwise specified in the Agreement or in a writing from the Company to Grantee), and delivered personally or by mail, postage prepaid, addressed as follows: (i) if to the Company, at One American Road, Cleveland, Ohio 44144, Attention: Human Resources Department, or at such other address as the Company by notice to Grantee may have designated from time to time; (ii) if to Grantee, at the address indicated in Grantee’s then-current personnel records, or at such other address as Grantee by notice to the Company may have designated from time to time. Such notice shall be deemed given upon receipt.

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     (c) Taxation. Grantee shall be responsible for all applicable income and withholding taxes and the employee share of FICA taxes with respect to any compensation income generated upon the award of his earned Performance Shares under this Agreement. No later than the date as of which an amount first becomes includable in the gross income of Grantee for federal income tax purposes with respect to the Performance Shares awarded hereunder, Grantee shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to that amount. Unless otherwise determined by the Committee, withholding obligations may be settled with previously owned common shares or Shares that have been earned and that are issuable hereunder. The making of that payment or those arrangements is a condition to the obligations of the Company under the Plan, and the Company may, to the extent permitted by law, deduct any taxes from any payment of any kind otherwise payable to Grantee or the Company may retain such number of the Shares issuable upon the earning of Performance Shares covered by the grant evidenced by this Agreement as shall be equal in value to the amount of the remaining withholding obligation.

     (d) Nontransferability. This Agreement and the Performance Shares granted to Grantee shall be nontransferable and shall not be sold, hypothecated or otherwise assigned or conveyed by Grantee to any other person, except as specifically permitted in this Agreement. No assignment or transfer of this Agreement or the rights represented thereby, whether voluntary or involuntary, or by operation of law or otherwise, shall vest in the assignee or transferee any interest or right whatsoever, except as specifically permitted in this Agreement. The Agreement shall terminate, and be of no force or effect, immediately upon any attempt to assign or transfer the Agreement or any of the Performance Shares to which the Agreement applies.

     (e) Not an Employment Contract. This Agreement shall not be deemed to limit or restrict the right of the Company to terminate Grantee’s employment at any time, for any reason, with or without cause, or to limit or restrict the right of Grantee to terminate his employment with the Company at any time.

     (f) Adjustments. On any change in the number or kind of outstanding common shares of the Company by reason of a recapitalization, merger, consolidation, reorganization, separation, liquidation, share split, share dividend, combination of shares or any other change in the corporate structure or common shares of the Company, the Company, by action of the Board or the Committee is empowered to make such adjustment, if any, in the number and kind of Performance Shares subject to this agreement as it considers appropriate for the protection of the Company and of Grantee.

     (g) Unsecured Creditor Status. This grant of Performance Shares constitutes a mere promise by the Company to pay Grantee the benefits described in this grant (to the extent earned). Grantee shall have the status of a general unsecured creditor of the Company with respect to the benefits payable under this Agreement.

     (h) Fractional Shares. Notwithstanding anything in this Agreement to the contrary, in the event that any adjustment to the Target Grant of Performance Shares or an award of Shares or the calculation of an award pursuant to this Agreement would otherwise result in the creation of a fractional share interest, the affected award shall be rounded up to the nearest whole share.

     (i) Amendment or Termination. This Agreement may be amended or terminated at any time by the mutual agreement and written consent of Grantee and the Company, but only to the extent permitted under the Plan. The provisions set forth in this Agreement are subject to the restrictions and other requirements of Section 409A and related regulations and rulings. Without limiting the generality of the preceding sentence, such provisions shall be modified and amended, as and where necessary, to bring such provisions into compliance with the requirements set forth in Section 409A

5

and related regulations and rulings. This Agreement shall be interpreted (and if necessary, amended) to comply with Section 409A and to the extent any provision of this Agreement is inconsistent with Section 409A, said Section 409A shall control even if such action may reduce or diminish the value of Grantee’s award.

     (j) Severability. If any provision of this Agreement should be held illegal or invalid for any reason, such determination shall not affect the other provisions of this Agreement, and it shall be construed as if such provision had never been included herein.

     (k) Headings/Gender. Headings in this Agreement are for convenience only and shall not be construed to be part of this Agreement. Any reference to the masculine, feminine or neuter gender shall be a reference to other genders as appropriate.

     (l) Governing Law. This Agreement shall be construed, and its provisions enforced and administered, in accordance with the laws of the State of Ohio and, where applicable, federal law.

     (m) Definitions. Initial capitalized terms used in this Agreement that are not otherwise defined herein shall have the meaning set forth in the Plan.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Grantee has executed this Agreement, as of the Grant Date.

AMERICAN GREETINGS CORPORATION
By:	/s/ Brian T. McGrath
	Brian McGrath, Vice President,
	Human Resources
GRANTEE
/s/ Jeffrey Weiss
Name:	Jeffrey Weiss

6

EX-31.A

Exhibit (31) a

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Zev Weiss, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Greetings Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of American Greetings Corporation as of, and for, the periods presented in this report;
4.	American Greetings Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for American Greetings Corporation and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to American Greetings Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of American Greetings Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in American Greetings Corporation’s internal control over financial reporting that occurred during American Greetings Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, American Greetings Corporation’s internal control over financial reporting; and

5. American Greetings Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to American Greetings Corporation’s auditors and the audit committee of American Greetings Corporation’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect American Greetings Corporation’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in American Greetings Corporation’s internal control over financial reporting.

October 7, 2005	/s/ Zev Weiss
	Zev Weiss    Chief Executive Officer    (principal executive officer)

EX-31.B

Exhibit (31) b

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael J. Merriman, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Greetings Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of American Greetings Corporation as of, and for, the periods presented in this report;
4.	American Greetings Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for American Greetings Corporation and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to American Greetings Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of American Greetings Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in American Greetings Corporation’s internal control over financial reporting that occurred during American Greetings Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, American Greetings Corporation’s internal control over financial reporting; and

5. American Greetings Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to American Greetings Corporation’s auditors and the audit committee of American Greetings Corporation’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect American Greetings Corporation’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in American Greetings Corporation’s internal control over financial reporting.

October 7, 2005	/s/ Michael J. Merriman, Jr.
	Michael J. Merriman, Jr.
	Senior Vice President and
	Chief Financial Officer (principal financial officer)

EX-32

Exhibit (32)

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this quarterly report of American Greetings Corporation on Form 10-Q as filed with the Securities and Exchange Commission on the date therein specified (the “Report”), each of the undersigned certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of American Greetings Corporation.

October 7, 2005

/s/ Zev Weiss

Zev Weiss

Chief Executive Officer (principal executive officer)

/s/ Michael J. Merriman, Jr.

Michael J. Merriman, Jr.

Senior Vice President and

Chief Financial Officer (principal financial officer)