-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SVU3/z3M6sf3og/j5L7bXAwo1rVefjqLJZ3/M5qabOuxrpMYEHHf4QsjkQ7UWnxC RYkoVshMkAt8XOhABrTrlg== 0000950152-97-004192.txt : 19970528 0000950152-97-004192.hdr.sgml : 19970528 ACCESSION NUMBER: 0000950152-97-004192 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970527 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01502 FILM NUMBER: 97614109 BUSINESS ADDRESS: STREET 1: 10500 AMERICAN RD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: 10500 AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 10-K 1 AMERICAN GREETINGS CORPORATION 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Commission File Ended February 28, 1997 Number 0-1502 ----------------- ------ AMERICAN GREETINGS CORPORATION ------------------------------ (Exact name of registrant as specified in Charter) OHIO 34-0065325 - ------------------------ ------------------- (State of incorporation) (I.R.S. Employer Identification No.) One American Road , Cleveland, Ohio 44144 - ---------------------------------------- -------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number,including area code (216) 252-7300 ------------- Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Title of Each Class ------------------- Class A Common Shares, Par Value $1.00 Class B Common Shares, Par Value $1.00 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 2 State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of May 2, 1997 - $2,318,348,384 Number of shares outstanding as of May 2, 1997: CLASS A COMMON - 70,816,480 CLASS B COMMON - 4,391,989 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement filed with the Securities and Exchange Commission on May 14 , 1997 with respect to the 1997 Annual Meeting of Shareholders called for June 27, 1997, are incorporated by reference into Part III. PART I Item 1. Business American Greetings Corporation and its subsidiaries operate predominantly in a single industry: the design, manufacture and sale of everyday and seasonal greeting cards and other social expression products. Greeting cards, gift wrap, paper party goods, candles and giftware are manufactured and /or sold in the United States by American Greetings Corporation, Plus Mark, Inc., Carlton Cards Retail, Inc., and Quality Greeting Card Distributing Company; in Canada by Carlton Cards Limited; in the United Kingdom by Carlton Cards Limited and Carlton Cards Ltd. (Ireland); in France by Carlton Cards (France) SNC; in Mexico by Carlton Mexico, S.A. de C.V. ; in Australia by John Sands (Australia) Ltd.; in New Zealand by John Sands (N.Z.) Ltd.; and in South Africa by S.A. Greetings Corporation (PTY) Ltd. (80% owned). Personalized greeting cards are sold through CreataCard machines by CreataCard, Inc. in the United States, by CreataCard Canada, Inc. in Canada and by CreataCard (UK) Ltd. in the United Kingdom. Electronic marketing efforts are provided by CreataCard Interactive, Inc., which distributes a CD-ROM product, CreataCard Plus, for personal computers and also operates a site on the World Wide Web, www.americangreetings.com. Wilhold, Inc. produces and sells hair accessory items, Acme Frame Products, Inc. produces and sells picture frames, Magnivision, Inc. produces and sells non-prescription reading glasses and eyeware accessories, and Learning Horizons distributes supplemental educational products. Design licensing and character licensing are done by AGC, Inc. and Those Characters From Cleveland, Inc., respectively. AG Industries, Inc. manufactures custom display fixtures for the Corporation's products and products of others. (Although other subsidiaries of American Greetings Corporation exist, they are either inactive, of minor importance or of a holding company nature.) Many of the Corporation's products are manufactured at common production facilities and marketed by a common sales force. Marketing and manufacturing functions in the United States and Canada are combined; dual priced cards are produced and distributed in both countries. Information concerning sales by major product classifications is included in Part II, Item 7. Additionally, information by geographic area is included in Note L to the Consolidated Financial Statements included in Part II, Item 8. 2 3 The Corporation's products are primarily sold in about 100,000 retail outlets in more than 75 nations around the world. The greeting card and gift wrap industry is intensely competitive. Competitive factors include quality, design, customer service and terms, which may include payments and other concessions to retail customers under long-term agreements. These agreements are discussed in greater detail below. There are an estimated 500 companies in this industry. The Corporation's principal competitors, however, are Hallmark Cards, Incorporated and Gibson Greetings, Inc. Based upon its general familiarity with the greeting card and gift wrap industry and limited information as to its competitors, the Corporation believes that it is the second largest company in the industry and the largest publicly owned company in the industry. The greeting card and gift wrap industry is generally mature. Total unit sales of greeting cards increased 2% in 1997 after remaining flat from 1995 to 1996. Production of the Corporation's products is on a level basis throughout the year. Everyday inventories remain relatively constant throughout the year, while seasonal inventories peak in advance of each major holiday season, including Christmas, Valentine's Day, Easter, Mother's Day, Father's Day and Graduation. Also characteristic of the business, accounts receivable for seasonal merchandise are carried for relatively long periods, as product is normally shipped three to five months prior to a holiday. Payments for seasonal shipments are generally received during the month in which the major holiday occurs, or shortly thereafter. Extended payment terms may also be offered in response to competitive situations with individual customers. The Corporation and many of its competitors sell seasonal greeting cards with the right of return. During the fiscal year, the Corporation experienced no difficulty in obtaining raw materials from suppliers. At February 28, 1997, the Corporation employed approximately 15,800 full-time employees and approximately 20,500 part-time employees which, when jointly considered, equate to approximately 20,700 full-time employees. Approximately 3,300 of the Corporation's hourly plant employees are unionized, of which approximately 2,400 are covered by the following collective bargaining agreements:
Union Plant Location Contract Expiration Date ----- -------------- ------------------------ International Brotherhood Bardstown, Kentucky 4/15/98 of Teamsters Corbin, Kentucky 12/01/97 Unite (Union of Needletrader, Knoxville, Tennessee 10/20/98 Industrial and Textile (Plus Mark) Employees) Communication, Energy Toronto, Ontario 1/31/98 and Paperworkers Canada (Carlton Cards Limited)
Other locations with unions are Cleveland, Ohio, the United Kingdom, Mexico, Australia, New Zealand, and South Africa. 3 4 Labor relations at each location have been satisfactory. The Corporation's headquarters and other manufacturing locations are not unionized. The Corporation has a number of patents and registered trademarks which are used in connection with its products. The Corporation's designs and verses are protected by copyright. Although the licensing of copyrighted designs and trademarks produces additional revenue, in the opinion of the Corporation, the Corporation's operations are not dependent upon any individual patent, trademark, copyright or intellectual property license. The collective value of the Corporation's copyrights and trademarks is substantial and the Corporation follows an aggressive policy of protecting its patents, copyrights and trademarks. In fiscal 1997, the Corporation's major channel of distribution continues to be mass retail (which is comprised of mass merchandisers, chain drug stores and supermarkets), where it is the social expression industry leader. Other major channels of distribution include card and gift shops, combo stores (stores combining food, general merchandise and drug items), military post exchanges, variety stores, and department stores. Sales to the Corporation's five largest customers, which include mass merchandisers and major drug stores, accounted for approximately 29.4% of net sales. Sales to retail customers are made through 22 sales offices in the United States, Canada, United Kingdom, Australia, New Zealand, France, Mexico and South Africa. The Corporation has agreements with various customers for the supply of greeting cards and related products. Contracts are separately negotiated to meet competitive situations; therefore, while some aspects of the agreements may be the same or similar, important contractual terms often vary from contract to contract. No one contract is significant to the Corporation's financial position. Under the agreements, customers typically receive allowances, discounts and/or advances in consideration for the Corporation being allowed to supply customers' stores for a stated term. Some of these competitive agreements have been negotiated with customers covering a period following that covered by current agreements and requiring the Corporation to make advances prior to the start of such future period. The Corporation views the use of such agreements as advantageous in developing and maintaining business with retail customers. Although risk is inherent in the granting of advances, payments and credits, the Corporation subjects such customers to its normal credit review. Losses attributable to these agreements have historically not been material. Advances, payments and credits made under these agreements are accounted for as deferred costs. The current and long-term portions of such deferred costs, including future payment commitments, are disclosed in Note D to the Consolidated Financial Statements included in Part II, Item 8. Note D also discusses the amortization policy. The Corporation believes that these agreements represent a common practice within the industry. Since Hallmark Cards, one of the Corporation's two principal competitors, is a non-public company, public disclosure of its practices has been limited. Gibson Greetings, the Corporation's other principal competitor and a public company, has made comparable disclosures with respect to such agreements. 4 5 Item 2. Properties As of February 28, 1997, the Corporation owns or leases approximately 15.9 million square feet of plant, warehouse, store and office space, of which approximately 5.9 million square feet are leased. Space needs in the United States have been met primarily through long-term leases of properties constructed and financed by community development corporations and municipalities. The following table summarizes the principal plants and materially important physical properties of the Corporation:
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - ----------------- ------------- -------------- -------------- --------- Bardstown, 413,500 Cutting, folding, finishing, Kentucky and packaging of greeting cards Cleveland, 1,100,000 International headquarters; Ohio general offices of U.S. Greeting Card Division, Plus Mark, Inc., AG Industries, Inc., Wilhold, Inc., Carlton Cards Retail, Inc., CreataCard Inc., CreataCard Interactive, Inc., Acme Frame Products, Inc., and Learning Horizons, Inc.; creation and design of greeting cards and related products Corbin, 1,010,000 Printing of greeting cards, Kentucky gift wrapping and paper party goods and manufacture other related products Danville, 1,374,000 2001 Distribution of everyday greeting Kentucky and related products Forest City, 498,000 277,500 1999 Manufacture of the Corporation's North Carolina display fixtures and other custom display fixtures by AG Industries, Inc. Greeneville, 1,410,000 Printing and packaging of Tennessee seasonal wrapping items and (2 locations) order filling and shipping for Plus Mark, Inc.
5 6
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - ----------------- ------------- -------------- -------------- --------- Harrisburg, 417,000 2007 Manufacture and distribution Arkansas of picture frames for Acme Frame Products Inc. Lafayette, 194,000 Manufacture of envelopes Tennessee for greeting cards and packaging of cards McCrory, 771,000 2005 Order filling and shipping of Arkansas everyday and seasonal products Osceola, 2,800,800 Cutting, folding, finishing and Arkansas packaging of seasonal greeting cards and ware- housing; distribution of seasonal products Ft. Lauderdale / 108,000 1999 Manufacture, order filling and Miami, and shipping of non-prescription Florida 2000 reading glasses for (2 locations) Magnivision, Inc. Philadelphia, 120,000 2017 Hand finishing of greeting Mississippi cards Ripley, 165,000 Seasonal card printing and Tennessee forms Shelbyville, 250,000 2002 Warehousing for Carlton Kentucky Cards Retail, Inc. Sunbury, 145,000 58,000 1998 Manufacture, order filling and Pennsylvania shipping of hair accessory (2 locations) products for Wilhold, Inc. Auckland, 80,000 General offices of John Sands New Zealand (New Zealand) Ltd.; manu- facture of greeting cards and related products Clayton, 208,000 General offices of John Sands Australia (Australia) Ltd.; manufacture of greeting cards and related products
6 7
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - ----------------- ------------- -------------- -------------- --------- Corby, 85,000 Distribution of greeting England cards and related products for Carlton Cards Limited Dewsbury, 361,000 87,000 2002, General offices of Carlton England 2008, Cards Limited and manufacture (5 locations) and of greeting cards and related 2015 products Mexico City, 166,000 General offices of Carlton Mexico Mexico, S.A. de C.V. and manufacture of greeting cards and related products Paris, 70,000 2000 Distribution of greeting cards France and related products for Carlton Cards (France) SNC Roodepoort, 105,000 2001 General offices of S.A. South Africa Greetings Corporation; manufacture and distribution of greeting cards and related products Toronto, 1,084,500 General offices of Carlton Ontario, Cards Limited; manu- Canada facture of greeting cards and (2 locations) related products
Item 3. Legal Proceedings 1) J. E. and Z.B. Butler Foundation, Inc. v. American Greetings Corp., Morry Weiss, Edward Fruchtenbaum, John M. Klipfell, Irving I. Stone and Dale A. Cable, Case No. 1:95CV 2411, United States District Court, Northern District of Ohio On November 14, 1995, the above class lawsuit was filed against the Corporation and certain of its officers, alleging violations of (i) Section 10 (b) of the Securities Exchange Act of 1934 (the "Act") and Rule 10b-5 promulgated thereunder and (ii) Section 20 (a) of the Act. The Complaint is based on the alleged failure to disclose, as well as misleading disclosure, of material information regarding the Corporation's CreataCard unit prior to the Corporation's November 10, 1995 announcement that it had elected to write down certain of CreataCard's assets pursuant to Statement of Financial Accounting Standards No. 121. 7 8 The Complaint also alleges that certain of the Corporation's officers improperly benefited from this activity. The Complaint in this action seeks unspecified compensatory and punitive damages (as well as attorney fees) on behalf of all purchasers of the Corporation's publicly traded shares who were allegedly injured during the period of the alleged wrongdoing, March 30-November 10, 1995. The Corporation and the individual defendants deny liability, but in order to avoid the cost and risks of protracted litigation, they have reached an agreement in principle to settle all disputes with the named plantiff and proposed class. The parties plan to file a Stipulation of Settlement on or before May 30, 1997. The settlement contemplates that the Corporation and the individual defendants will pay the settlement amount (an amount that will not have a material effect on the Corporation's consolidated financial position) into a fund to be distributed to class members after payment of plantiff's expenses and attorney fees. All of the terms of the settlement are subject to court approval. A portion of the settlement payment is covered by insurance proceeds. 2) As of May 2, 1997, the Corporation is a party to six legal proceedings relating to state and federal environmental laws. One or more governmental authorities is a party to each proceeding. The proceedings allege, among other things, that hazardous waste material generated by the Corporation was improperly disposed of by others. In all of these cases the Corporation has entered into consent decrees under which the Corporation has agreed to pay a pro rata share of clean-up costs. In addition, in April 1997, the Corporation was notified by the Kentucky Department of Environmental Protection of an alleged escape of certain chemicals from an underground storage tank at its Corbin, Kentucky plant. The Corporation is conducting a site investigation. Costs of remediation in each of the proceedings cannot be estimated at this time; however, in the opinion of management, based on the amounts involved in each proceeding and in the aggregate, such liabilities will not have a material effect on the Corporation's consolidated financial position. 3) BEC Group, Inc. v. American Greetings Corporation, Magnivision, Inc., and Erwin Weiss in the District Court of Dallas County Texas, 160th Judicial District, Case Number 97-00761-H On January 27, 1997, BEC Group filed suit alleging breach of confidentiality agreement, unfair competition, and other tort claims following the termination of the purchase negotiations in September 1996. The Corporation was contemplating purchase of the Foster Grant business from BEC Group. The complaint seeks in excess of $18 million in damages. The Corporation, Magnivision, and Mr. Weiss deny liability, and Mr. Weiss has moved to dismiss for lack of jurisdiction. 8 9 4) Thorntons Plc. v. Carlton Cards Limited, in the High Court of Justice, Queen's Bench Division, Birmingham District Registry, 1997 No. ML40017A In December 1995, Thornton Plc. filed suit in the United Kingdom claiming breach of contract arising out of the discontinuance of 29 franchise agreements after the sale of Carlton Cards Limited's retail stores to Clinton Cards in September 1995. Plaintiff claims damages of at least (pound)2.2 million. Carlton Cards Limited denies liability. Trial is scheduled for September 30, 1997. Item 4. Submission of Matters to Vote of Security Holders None Executive Officers of the Registrant - ------------------------------------ The following is a list of the Corporation's executive officers, their ages as of May 2, 1997, their positions and offices, and number of years in executive office:
Years as Name Age Executive Officer Current Position and Office - ---- --- ----------------- --------------------------- Irving I. Stone 88 47 Founder-Chairman and Chairman of the Executive Committee Morry Weiss 57 25 Chairman and Chief Executive Officer Edward Fruchtenbaum 49 11 President and Chief Operating Officer Mary Ann Corrigan-Davis 43 --- Senior Vice President Jon Groetzinger, Jr. 48 9 Senior Vice President, General Counsel and Secretary John M. Klipfell 47 14 Senior Vice President Harvey Levin 64 16 Senior Vice President William R. Mason 52 15 Senior Vice President William S. Meyer 50 9 Senior Vice President, Chief Financial Officer Patricia A. Papesh 49 2 Senior Vice President James R. Van Arsdale 58 14 Senior Vice President Erwin Weiss 48 7 Senior Vice President Dale A. Cable 49 5 Vice President, Treasurer Patricia L. Ripple 41 1 Vice President, Corporate Controller
9 10 Mr. Irving I. Stone is the father-in-law of Morry Weiss. Morry Weiss and Erwin Weiss are brothers. The Board of Directors annually elects all executive officers; however, executive officers are subject to removal, with or without cause, at any time. All of the executive officers listed above have served in the capacity shown or similar capacities with the Corporation (or major subsidiary) over the past five years, with the following exceptions. Mary Ann Corrigan-Davis was Vice President, Product Management of the Corporation's U.S. Greeting Card Division from November 1988 until December 1992; President of Carlton Cards Retail, Inc. from December 1992 until January 1996; and Group Managing Director of the John Sands Group from January 1996 until becoming Senior Vice President in May 1997. Patricia A. Papesh was Vice President, Marketing Services of the Corporation's U.S. Greeting Card Division from June 1991 until December 1992; and Vice President, Creative of the U.S. Greeting Card Division from December 1992 until becoming Senior Vice President in April 1995. Patricia L. Ripple was Director, Tax and Financial Reporting of the Corporation from November 1991 until April 1993; and Executive Director, Tax and Financial Reporting of the Corporation from April 1993 until becoming Vice President and Corporate Controller in September 1996. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters (a) Market Information - ---------------------- The high and low stock prices for the Corporation's Class A Common Shares, as reported in the NASDAQ National Market Listing, for the years ended February 28, 1997 and February 29, 1996 are as follows:
1997 1996 ------------------ ------------------- High Low High Low ---- --- ---- --- 1st Quarter ..... $30-1/2 $25-7/8 $31-1/8 $26-3/4 2nd Quarter ..... 27-3/8 23-1/2 32-1/2 27-7/8 3rd Quarter ..... 30-1/4 25-1/8 32-5/8 25-1/2 4th Quarter ..... 31-3/8 25 28-3/8 25-3/4
The Corporation's Class A Common Shares, $1.00 par value per share, are traded on the NASDAQ National Market under the trading symbol: AGREA. National City Bank, Cleveland, Ohio, is the Corporation's registrar and transfer agent. There is no public market for the Class B Common Shares of the Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a holder of Class B Common Shares 10 11 may not transfer such Class B Common Shares (except to permitted transferees, a group that generally includes members of the holder's extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation's Class A Common Shares. If the Corporation does not purchase such Class B Common Shares, the holder must convert such shares, on a share for share basis, into Class A Common Shares prior to any transfer. (b) Shareholders - ---------------- At May 2, 1997, there were approximately 26,750 holders of Class A Common Shares and 250 holders of Class B Common Shares of record and individual participants in security position listings. (c) Cash Dividends - ------------------
Dividends Per Share 1997 1996 --------- -------- 1st Quarter (paid June 10, 1996 and June 9, 1995) $ .16 $ .14 2nd Quarter (paid September 10, 1996 and September 8, 1995) .17 .16 3rd Quarter (paid December 10, 1996 and December 8, 1995) .17 .16 4th Quarter (paid March 10, 1997 and March 8, 1996) .17 .16 --------- -------- $ .67 $ .62 ========= ========
11 12 Item 6. Selected Financial Data Years ended February 28 or 29 Thousands of dollars except per share amounts*
SUMMARY OF OPERATIONS 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Net sales ............................................. $ 2,161,089 $ 2,003,038 $ 1,868,927 $ 1,769,964 $ 1,671,692 Gross profit .......................................... 1,355,965 1,241,032 1,192,842 1,097,944 1,010,509 Asset impairment loss ................................. -- 52,061 -- -- -- Interest expense ...................................... 30,749 24,290 16,871 16,897 26,924 Income before cumulative effect of accounting changes . 167,095 115,135 148,792 130,884 112,288 Cumulative effect of accounting changes, net of tax ... -- -- -- 17,182 -- Net income ............................................ 167,095 115,135 148,792 113,702 112,288 Income per share: Before cumulative effect of accounting changes .... 2.23 1.54 2.00 1.77 1.55 Cumulative effect of accounting changes, net of tax -- -- -- .23 -- Net income ........................................ 2.23 1.54 2.00 1.54 1.55 Cash dividends per share .............................. .67 .62 .55 .48 .42 Fiscal year end market price per share ................ 31.00 27.38 29.38 27.88 24.00 Average number of shares outstanding .................. 74,818,960 74,528,809 74,305,346 73,809,132 72,440,114 FINANCIAL POSITION Accounts receivable ................................... $ 375,324 $ 353,671 $ 324,329 $ 322,675 $ 276,932 Inventories ........................................... 303,611 335,074 279,270 243,357 228,123 Working capital ....................................... 562,148 516,346 531,199 474,280 581,651 Total assets .......................................... 2,135,120 2,005,832 1,761,751 1,565,234 1,548,400 Property, plant and equipment additions ............... 92,895 91,590 97,290 102,859 77,099 Long-term debt ........................................ 219,639 231,073 74,480 54,207 169,381 Shareholders' equity .................................. 1,361,655 1,235,022 1,159,541 1,053,442 952,535 Shareholders' equity per share ........................ 18.16 16.53 15.61 14.21 13.07 Net return on average shareholders' equity before cumulative effect of accounting changes .... 12.9% 9.6% 13.4% 13.0% 12.4% Return on net sales before income taxes and cumulative effect of accounting changes ........... 11.8% 8.7% 12.2% 11.8% 10.8% * Share and per share amounts for 1993 have been restated to reflect the 1994 stock split.
12 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations - --------------------- REVENUES In 1997, strong greeting card performance resulted in a net sales increase of 7.9% over 1996. Net sales of everyday cards increased 10.3% while seasonal cards increased 12.5%. The increase in everyday card sales reflects the strength of the everyday card market in the United States and also in Australia and New Zealand where everyday cards represent nearly 65% of the Corporation's net sales in those markets. In late 1996, the Corporation entered into these two markets by acquiring substantially all of the assets of the John Sands Group, the largest greeting card business in these countries. In 1996, total net sales of everyday cards increased 6.2% due primarily to price increases. The seasonal card sales increase reflected the improvement in the retail environment compared to 1996, particularly in the fourth quarter. In 1996, net sales of seasonal cards increased less than 1% from 1995 due to a weak retail environment. Total unit sales of all greeting cards increased 2% in 1997 after remaining flat from 1995 to 1996. After increasing 13.0% in 1996, net sales of non-card products slowed somewhat in 1997 due to softer demand for certain consumer products, particularly non-prescription reading glasses and custom display fixtures. Total net sales in 1996 increased 7.2% from 1995. The contribution of each major product category as a percent of net sales for the past three years is:
1997 1996 1995 ---- ---- ---- Everyday Greeting Cards 44% 44% 44% Seasonal Greeting Cards 22% 21% 22% Gift Wrapping and Party Goods 18% 19% 18% All Other Products 16% 16% 16%
The All Other Products classification includes giftware, picture frames, non-prescription reading glasses, hair care accessories, educational products, candles, stationery, plush, balloons, stickers, and custom display fixtures. EXPENSES AND PROFIT MARGINS In 1997, strong high margin card sales, along with benefits from the North American Plan and a focused effort to control costs resulted in an improvement in pre-tax margin. Material, labor and other production costs were 37.3% of net sales, down from 38.0% in 1996. In 1995 these costs were 36.2% of net sales. Product cost variances related to the conversion of the Canadian manufacturing operations to United States manufacturing processes decreased $11.7 million in 1997 as integration of the North American Plan progressed. In 1996, the unfavorable product cost variances from Canadian manufacturing contributed significantly to the increase, from 1995, in material, labor and other production costs as a percent of sales. The cost of greeting card cabinets and point of purchase displays in the United States was well managed in 1997 and decreased $11.1 million from 1996. In 1996, the expense of providing these cabinets and displays increased $12.4 million in the United States from 1995 to support new product offerings. 13 14 Selling, distribution and marketing expenses increased 9.1% in 1997 after increasing 5.9% in 1996 due primarily to an increase in competitive expense and the impact of the John Sands Group acquisition. The increase in competitive costs in both years resulted from higher amortization of deferred costs and other expenses related to the Corporation's agreements with certain retail customers. Deferred costs and the Corporation's method of accounting for them are described in Note D to the Consolidated Financial Statements. Selling, distribution and marketing expenses other than competitive costs increased just 3.1% in 1997 after increasing 2.1% in 1996. While total selling, distribution and marketing expenses increased in both 1997 and 1996, these costs as a percent of net sales have remained relatively stable at 38.9% in 1997, 38.4% in 1996 and 38.9% in 1995. Administrative and general expenses increased $13.6 million or 6.0% after decreasing $2.7 million or 1.2% in 1996. Changes in the expense of the United States profit sharing plan contributed to the variances in both years. In 1997, profit sharing expense increased $6.1 million due to higher pre-tax income while, in 1996, the asset impairment loss led to lower pre-tax income and a $3.4 million reduction in profit sharing expense. The 1997 increase also includes $6.2 million more administrative and general expense from the operations of the John Sands Group. In 1996, the reduction in profit sharing expense was partially offset by a $2.4 million loss related to an investment accounted for under the equity method and a $2.3 million increase in the pre-tax cost of corporate owned life insurance. In the third quarter of 1996, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In November, 1995, the Corporation determined that the trends in the CreataCard business indicated that the undiscounted future cash flows from that business would be less than the carrying value of the long-lived assets related to that business. As a result, the Corporation recognized a pre-tax, non-cash loss of $52.1 million for the asset impairment. After the effect of income taxes, the loss was $35.1 million or $.47 cents per share. See Note K to the Consolidated Financial Statements for further discussion of the impairment loss. Interest expense increased $6.5 million in 1997 after increasing $7.4 million in 1996. The increase in 1997 was due primarily to the long term debt incurred to purchase the John Sands Group. The higher interest expense in 1996 reflected increased debt levels to support the growth in both inventories and deferred costs. The 1997 effective tax rate was 34.3%, comparable to 34.2% in 1996 and 34.5% in 1995. While the rate for all three years reflected tax benefits of the corporate owned life insurance, the benefit in 1997 was reduced due to the phasing out of the Federal income tax deduction for interest on loans associated with these policies. In 1996, the effective rate was negatively impacted by the write down of nondeductible goodwill which was included in the asset impairment loss. Excluding the impairment loss, the effective rate was 33.5%. See Note H to the Consolidated Financial Statements for details of the differences between the Federal statutory rate and the effective tax rate. 14 15 Net income in 1997 increased to $167.1 million or $2.23 per share compared to net income of $115.1 million or $1.54 per share in 1996. However, the 1996 net income included the impact of the asset impairment loss recognized upon the adoption of SFAS No. 121 and, without this non-recurring charge, net income would have been $150.2 million or $2.01 per share. In 1995, net income was $148.8 million or $2.00 per share. LIQUIDITY AND CAPITAL RESOURCES In 1997, the Corporation's initiatives to manage working capital resulted in a significant improvement in cash flow. Cash flow from operations in 1997 increased $121.1 million to $153.9 million from $32.8 million in 1996 and $107.0 million in 1995. The significant improvement in 1997 was due to higher earnings, slower growth in accounts receivable and a reduction of inventories. In 1996, higher levels of accounts receivable, inventories and cash payments related to deferred costs resulted in the decrease in cash flow from operations from 1995. Trade accounts receivable increased $21.7 million in 1997 after increasing $29.3 million in 1996. The receivable balance in both years reflect strong fourth quarter sales of everyday cards and accessories. As a percent of net sales, accounts receivable were 17.4% in 1997, 17.7% in 1996 and 17.4% in 1995. Inventories as a percent of material, labor and other production costs were 37.7% in 1997, down notably from 44% in 1996 and 41.3% in 1995. The improvement in 1997 reflected the Corporation's focused efforts to reduce inventory levels. While the most significant improvements in inventory management were accomplished in the greeting card divisions, where inventories decreased $16.0 million in 1997 after increasing $57.1 million from 1995 to 1996, improvements were realized in almost all business units. The increase in 1996 was due primarily to the growth in non-card product inventory, which has a higher cost than greeting cards, to support expanding sales and the acquisition of the John Sands Group. Payments under agreements with certain retailers (net of related amortization) increased $10.0 million in 1997, less than the $25.3 million increase in 1996. Payments in both years were made in connection with both new and existing agreements. Although actual payments fluctuate from year-to-year, the deferred costs which result from the payments are amortized over the effective period of the agreement. Total commitments under the agreements are capitalized as deferred costs when the agreements are consummated, and any future payment commitments are recorded as liabilities at that time. Commitments under existing agreements at the end of 1997 were $105.3 million with $51.2 million due within the next year. See Note D to the Consolidated Financial Statements for further discussion of deferred costs related to certain customer agreements. Effective January 1, 1996, the Corporation acquired substantially all of the assets from the John Sands Group for $85.1 million in cash. This acquisition was accounted for under the purchase method of accounting and the purchase price was allocated to the acquired assets and liabilities based upon their fair market values at the date of acquisition. Results of operations were included prospectively from the acquisition date. The acquisition was not significant to the Corporation's financial position or results of operations as a whole. 15 16 Capital expenditures were $92.9 million in 1997, up slightly from $91.6 million in 1996 but down from $97.3 million in 1995. Expenditures for the automation of distribution systems and the replacement and upgrade of manufacturing equipment, which began in 1996, continued during 1997. The 1995 expenditures included the conclusion of the initial roll out of the CreataCard personalized greeting card units that began in 1994. Capital expenditures for 1998 are expected to approximate $75 million. Investing activities other than capital expenditures and acquisitions used $9.0 million less cash in 1997 after increasing $23.5 million in 1996. The increase in 1996 was due primarily to investments related to expanded product offerings. These investments decreased substantially in 1997. This decrease was partially offset by an increase in the investment in corporate owned life insurance policies. In 1997, fewer policy loans resulted in a cash investment of $8.4 million, which exceeded the 1996 investment by $7.3 million. In 1997, financing activities used $44.0 million of cash, including $50.2 million in dividend payments to shareholders. Dividend payments increased $4.0 million in 1997 and $5.6 million in 1996. In 1996, financing activities included a $154.4 million increase in long-term debt used to fund the purchase of assets from the John Sands Group. The increase in 1996 long-term debt also reflected a shift in Canadian borrowings from short-term to long-term. Debt as a percent of total capitalization decreased to 20.6% in 1997 from 22.1% in 1996 after increasing from 14.6% in 1995. The Corporation's operating cash flow and existing credit facilities are expected to meet currently anticipated funding requirements. The seasonal nature of the business results in peak working capital requirements which are financed primarily through short term borrowings. See Note F to the Consolidated Financial Statements for further discussion of the Corporation's credit facilities. FACTORS THAT MAY AFFECT FUTURE RESULTS In 1997, the Corporation continued its long-term record of sales growth and profitability. A focused effort on working capital management improved cash flow and increased the Corporation's financial strength. However, future revenue trends, profit margins and customer viability are difficult to predict. The Corporation is well represented in a wide variety of channels of distribution, such as mass merchandisers, drug stores and supermarkets. In 1997, consolidation among retailers, particularly in the drug store business, increased. Although the Corporation did not suffer any significant loss of business because of these transactions, the impact of future retailer consolidations on the Corporation's business is difficult to assess. The retail business environment continues to be highly competitive and downturns in the financial strength of retailers may impact the Corporation's future results. The Corporation's investment in deferred costs related to agreements with certain retailers continues to increase. The long-term business relationship created by these agreements has been instrumental in the Corporation's growth and has insulated it from short-term loss of business during retail consolidations. The Corporation continues to evaluate and monitor the financial condition of its retail customers to reduce risk. 16 17 The Corporation reviews its portfolio of businesses on an ongoing basis to ensure that growth opportunities and return on investments are in line with its long-term goals. While possible acquisitions or divestitures are part of that review process, the consummation of any transaction is unlikely to have a material effect on the Corporation's results as a whole. Item 8. Financial Statements and Supplementary Data CONSOLIDATED STATEMENT OF INCOME Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except per share amounts
1997 1996 1995 ----------- ----------- ----------- Net sales $ 2,161,089 $ 2,003,038 $ 1,868,927 Other income 11,209 8,916 9,513 ----------- ----------- ----------- Total revenue 2,172,298 2,011,954 1,878,440 Costs and expenses: Material, labor and other production costs 805,124 762,006 676,085 Selling, distribution and marketing 839,916 770,044 727,087 Administrative and general 242,179 228,544 231,234 Asset impairment loss -- 52,061 -- Interest 30,749 24,290 16,871 ----------- ----------- ----------- 1,917,968 1,836,945 1,651,277 ----------- ----------- ----------- Income before income taxes 254,330 175,009 227,163 Income taxes 87,235 59,874 78,371 ----------- ----------- ----------- Net income $ 167,095 $ 115,135 $ 148,792 =========== =========== =========== Net income per share $ 2.23 $ 1.54 $ 2.00 =========== =========== =========== Average number of shares outstanding 74,818,960 74,528,809 74,305,346
See notes to consolidated financial statements. 17 18 CONSOLIDATED STATEMENT OF FINANCIAL POSITION February 28, 1997 and February 29, 1996 Thousands of dollars
ASSETS 1997 1996 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 35,050 $ 30,130 Trade accounts receivable, less allowances for sales returns of $121,856 ($141,412 in 1996) and for doubtful accounts of $15,264 ($16,214 in 1996) 375,324 353,671 Inventories 303,611 335,074 Deferred income taxes 100,732 102,889 Prepaid expenses and other 190,174 148,429 ---------- ---------- Total current assets 1,004,891 970,193 OTHER ASSETS 667,442 595,369 PROPERTY, PLANT AND EQUIPMENT - NET 462,787 440,270 ---------- ---------- $2,135,120 $2,005,832 ========== ==========
19 18 CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED February 28, 1997 and February 29, 1996 Thousands of dollars
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 ----------- ----------- CURRENT LIABILITIES Debt due within one year $ 133,171 $ 119,174 Accounts payable and accrued liabilities 157,628 144,242 Accrued compensation and benefits 82,569 74,713 Income taxes 5,475 21,210 Other current liabilities 63,900 94,508 ----------- ----------- Total current liabilities 442,743 453,847 LONG-TERM DEBT 219,639 231,073 OTHER LIABILITIES 67,839 40,806 DEFERRED INCOME TAXES 43,244 45,084 SHAREHOLDERS' EQUITY Common shares - par value $1: Class A - 70,608,745 shares issued less 14,193 Treasury shares in 1997 and 70,285,336 shares issued less 137,331 Treasury shares in 1996 70,594 70,148 Class B - 6,066,096 shares issued less 1,678,197 Treasury shares in 1997 and 6,066,096 shares issued less 1,506,286 Treasury shares in 1996 4,388 4,560 Capital in excess of par value 272,262 265,387 Treasury stock (34,850) (32,835) Cumulative translation adjustment (19,646) (24,202) Retained earnings 1,068,907 951,964 ----------- ----------- Total shareholders' equity 1,361,655 1,235,022 ----------- ----------- $ 2,135,120 $ 2,005,832 =========== ===========
See notes to consolidated financial statements. 19 20 CONSOLIDATED STATEMENT OF CASH FLOWS Years ended February 28 or 29, 1997, 1996 and 1995
Thousands of dollars 1997 1996 1995 --------- --------- --------- OPERATING ACTIVITIES: Net income $ 167,095 $ 115,135 $ 148,792 Adjustments to reconcile to net cash provided (used) by operating activities: Asset impairment loss -- 52,061 -- Depreciation 64,566 75,319 68,438 Deferred income taxes 294 (48,184) (9,736) Changes in operating assets and liabilities, net of effects from acquisitions: Increase in trade accounts receivable (25,389) (33,967) (4,973) Decrease (increase) in inventories 32,371 (43,804) (37,944) Increase in other current assets (2,050) (3,434) (2,009) Increase in deferred costs - net (93,961) (83,939) (58,597) Increase (decrease) in accounts payable and other liabilities 5,877 (6,907) (4,879) Other - net 5,100 10,542 7,906 --------- --------- --------- Cash Provided by Operating Activities 153,903 32,822 106,998 INVESTING ACTIVITIES: Business acquisitions -- (85,056) -- Property, plant and equipment additions (92,895) (91,590) (97,290) Proceeds from sale of fixed assets 2,579 2,065 3,447 Investment in corporate-owned life insurance (8,454) (1,117) 1,813 Other (6,283) (22,103) (2,966) --------- --------- --------- Cash Used by Investing Activities (105,053) (197,801) (94,996) FINANCING ACTIVITIES: Increase in long-term debt 8,451 154,406 30,914 Reduction of long-term debt (12,232) (1,012) (29,862) Increase (decrease) in short-term debt 4,869 (6,558) 9,919 Sale of stock under benefit plans 6,997 9,572 7,130 Purchase of treasury shares (1,863) (2,251) (3,462) Dividends to shareholders (50,152) (46,199) (40,556) --------- --------- --------- Cash (Used) Provided by Financing Activities (43,930) 107,958 (25,917) --------- --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,920 (57,021) (13,915) Cash and Equivalents at Beginning of Year 30,130 87,151 101,066 --------- --------- --------- Cash and Equivalents at End of Year $ 35,050 $ 30,130 $ 87,151 ========= ========= =========
See notes to consolidated financial statements. 20 21 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except per share amounts
Common Shares Capital in Cumulative -------------------- Excess of Treasury Translation Retained Class A Class B Par Value Stock Adjustment Earnings Total -------- -------- --------- ----------- ---------- ------------ ------------ BALANCE MARCH 1, 1994 $ 69,546 $ 4,573 $ 249,192 $ (28,240) $ (16,421) $ 774,792 $ 1,053,442 Net income 148,792 148,792 Cash dividends - $.55 per share (40,556) (40,556) Exchange of shares 19 (19) Sale of shares under benefit plans, including tax benefits 239 5 4,854 123 5,221 Purchase of treasury shares (130) (5) (3,469) (3,604) Sale of treasury shares 74 976 1,001 2,051 Translation adjustment (5,805) (5,805) ---------- -------- ---------- --------- ------------ ----------- ------------- BALANCE FEBRUARY 28, 1995 69,674 4,628 255,022 (30,585) (22,226) 883,028 1,159,541 Net income 115,135 115,135 Cash dividends - $.62 per share (46,199) (46,199) Exchange of shares 15 (15) Sale of shares under benefit plans, including tax benefits 424 36 9,116 486 10,062 Purchase of treasury shares (1) (97) (2,849) (2,947) Sale of treasury shares 8 128 113 249 Translation adjustment (1,976) (1,976) Issuance of shares 36 1,121 1,157 ---------- --------- ----------- --------- ----------- ----------- ---------- BALANCE FEBRUARY 29, 1996 70,148 4,560 265,387 (32,835) (24,202) 951,964 1,235,022 Net income 167,095 167,095 Cash dividends - $.67 per share (50,152) (50,152) Exchange of shares 131 (131) Sale of shares under benefit plans, including tax benefits 323 44 6,872 587 7,826 Purchase of treasury shares (8) (85) (2,609) (2,702) Sale of treasury shares 3 7 10 Translation adjustment 4,556 4,556 ---------- -------- ----------- ----------- ----------- ----------- ------------ BALANCE FEBRUARY 28, 1997 $ 70,594 $ 4,388 $ 272,262 $ (34,850) $ (19,646) $ 1,068,907 $ 1,361,655 ========== ======== =========== ============ ============ =========== ============
See notes to consolidated financial statements. 21 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except per share amounts NOTE A - ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All intercompany accounts and transactions are eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: The Corporation considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Financial Instruments: The carrying value of the Corporation's financial instruments approximate their fair market values. Concentration of Credit Risks: The Corporation sells primarily to customers in the retail trade, including those in the mass merchandiser, drug store, supermarket and other channels of distribution. These customers are located throughout the United States, Canada, the United Kingdom, Australia, New Zealand, France, Mexico and South Africa. The Corporation conducts business based on periodic evaluations of its customers' financial condition and generally does not require collateral. While the competitiveness of the retail industry presents an inherent uncertainty, the Corporation does not believe a significant risk of loss from a concentration of credit exists. Inventories: Finished products, work in process and raw material inventories are carried at cost, principally last-in, first-out (LIFO), not in excess of market. Display material and factory supplies are carried at average cost. Investment in Life Insurance: The Corporation's investment in corporate-owned life insurance policies is recorded net of policy loans in other assets. The net life insurance expense, including interest expense, is included in administrative and general expenses in the Consolidated Statement of Income. The related interest expense, which approximates amounts paid, was $67,788, $70,485 and $59,344 in 1997, 1996 and 1995, respectively. Property and Depreciation: Property, plant and equipment is carried at cost, except for certain assets as described in Note K. Depreciation and amortization of buildings, equipment and fixtures is computed principally by the straight-line method over the useful lives of the various assets. The cost of buildings is depreciated over 25 to 40 years and equipment and fixtures over 3 to 20 years. 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - ACCOUNTING POLICIES (CONTINUED) Revenue Recognition: Sales and related costs are recorded by the Corporation upon shipment of products to non-related retailers and upon the sale of products at Corporation-owned retail locations. Seasonal cards are sold with the right of return on unsold merchandise. The Corporation provides for estimated returns of seasonal cards when those products are shipped to non-related retailers. Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $58,794, $61,124 and $58,342 in 1997, 1996 and 1995, respectively. Income Taxes: Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Stock-Based Compensation: The Corporation has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. Because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Corporation has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Earnings Per Share: Income per share information is based on the average number of shares outstanding during each year. For the years presented, stock options do not have a material dilutive effect. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share". The Corporation plans to adopt this standard, as required, in fiscal year 1998. The Corporation is currently analyzing the effects of adopting the Statement. NOTE B - INVENTORIES Components of inventories are as follows:
1997 1996 -------- -------- Raw material $ 48,299 $ 57,415 Work in process 47,113 49,741 Finished products 253,096 274,713 -------- -------- 348,508 381,869 Less LIFO reserve 89,061 92,020 -------- -------- 259,447 289,849 Display material and factory supplies 44,164 45,225 -------- -------- Inventories $303,611 $335,074 ======== ========
23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - PROPERTY, PLANT AND EQUIPMENT Components of property, plant and equipment are as follows:
1997 1996 -------- -------- Land $ 10,028 $ 10,018 Buildings 282,726 269,191 Equipment and fixtures 627,440 571,934 -------- -------- 920,194 851,143 Less accumulated depreciation 457,407 410,873 -------- -------- Property, plant and equipment - net $462,787 $440,270 ======== ========
NOTE D - DEFERRED COSTS Deferred costs relating to agreements with certain customers are charged to operations on a straight-line basis over the effective period of each agreement, generally three to six years. Deferred costs estimated to be charged to operations during the next year are classified with prepaid expenses and other. Total commitments under the agreements are capitalized as deferred costs and future payment commitments, if any, are recorded as liabilities when the agreements are consummated. At February 28, 1997 and February 29, 1996 deferred costs and future payment commitments are included in the following financial statement captions:
1997 1996 -------- -------- Prepaid expenses and other $161,601 $121,937 Other assets 464,599 410,119 Other current liabilities (51,153) (82,533) Other liabilities (54,199) (25,089) -------- -------- $520,848 $424,434 ======== ========
NOTE E - RETIREMENT PLANS The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. Contributions to the profit-sharing plan were $22,990, $16,846 and $20,414 for 1997, 1996 and 1995, respectively. The Corporation matches a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The Corporation's matching contributions were $2,698, $2,760 and $2,557 for 1997, 1996 and 1995, respectively. The Corporation also has several defined benefit and defined contribution pension plans covering certain employees in foreign countries. The cost of these plans was not material in any of the years presented. In the aggregate, the actuarially computed plan benefit obligation was fully funded. 24 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - LONG AND SHORT-TERM DEBT The borrowings of the Corporation in the United States consist primarily of commercial paper. At February 28, 1997, commercial paper borrowings were $128,605. The commercial paper borrowing arrangements are supported by a $650,000 revolving credit agreement. The agreement provides an option to convert up to $200,000 to a term loan. The agreement extends through June 2001, except for $250,000 which extends through June 1997. The expiration date of $400,000 of the agreement can be extended annually for one year to the June 30 next following the expiration date. A commitment fee is due on the unused portion of the credit facility and can range from 0.08% to 0.25%. As of February 28, 1997, the commitment fee was 0.125% on $400,000 of the facility, and 0.08% on $250,000 of the facility. No borrowings are outstanding under this facility as of February 28, 1997. The borrowings of the Corporation in Canada consist primarily of commercial paper. At February 28, 1997, commercial paper borrowings were $78,614, of which $77,475 was classified as long-term. The commercial paper borrowing arrangements up to $73,090 are supported by a revolving credit agreement for that amount that extends through January 2000. The expiration date of the agreement can be extended for one year during each of the next two years to the January 15 next following the expiration date. A facility fee is due on the aggregate amount of the facility, and can range from 0.07% to 0.25%. At February 28, 1997, the facility fee was 0.08%. No borrowings are outstanding under this facility as of February 28, 1997. However, the amount available under this facility is reduced by $73,090 of commercial paper issued at February 28, 1997. Commercial paper borrowings in Canada up to an additional $36,545 are supported by the revolving credit agreement in the United States. The Corporation's subsidiaries in the United Kingdom, Australia, France and South Africa have credit agreements permitting borrowings of up to $191,595. At February 28, 1997, $142,756 is outstanding under these foreign revolving credit facilities, of which $139,765 is classified as long-term. All of the Corporation's revolving credit and term loan agreements provide for various borrowing alternatives in their respective currencies with interest rates ranging from 4.25% to 7.7% for amounts borrowed as of February 28, 1997. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - LONG AND SHORT-TERM DEBT (CONTINUED) At February 28, 1997 and February 29, 1996, debt due within one year consists of the following:
1997 1996 -------- -------- Current maturities of long-term debt $ 436 $ 354 Notes payable 2,991 6,173 Commercial paper 129,744 112,647 -------- -------- Total $133,171 $119,174 ======== ========
At February 28, 1997 and February 29, 1996, long-term debt consists of the following:
1997 1996 -------- -------- Revolving credit, commercial paper, and term loan agreements $217,240 $230,345 Other 2,835 1,082 -------- -------- 220,075 231,427 Less current maturities 436 354 -------- -------- $219,639 $231,073 ======== ========
Aggregate maturities of long-term debt are as follows: 1998 $ 436 1999 56,005 2000 77,959 2001 449 2002 84,777 Thereafter 449 --------- $ 220,075 =========
At February 28, 1997 the Corporation had credit arrangements to support the issuance of letters of credit in the amount of $57,309 with $20,723 of open credits outstanding. Interest paid on short-term and long-term debt was $29,914 in 1997, $23,395 in 1996 and $16,081 in 1995. The weighted average interest rate on short-term borrowings outstanding was 5.5% and 5.6% as of February 28, 1997 and February 29, 1996, respectively. 26 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to full-time employees who are age 65 or over at retirement with 15 or more years of service and who were hired on or before December 31, 1991. In addition, for retirements on or after January 2, 1992 the retiree must have been continuously enrolled for health care for a minimum of five years or since January 2, 1992. The plan is contributory, with retiree contributions adjusted periodically, and contains other cost-sharing features such as deductibles and coinsurance. The Corporation maintains a trust for the payment of retiree health care benefits. This trust is funded at the discretion of management. The following table presents the plan's funded status at February 28, 1997 and February 29, 1996:
1997 1996 -------- -------- Accumulated postretirement benefit obligation: Retirees $ 22,821 $ 21,620 Fully eligible active plan participants 5,778 5,474 Other active plan participants 22,728 21,533 -------- -------- Accumulated postretirement benefit obligation 51,327 48,627 Plan assets, primarily listed stocks and bonds (32,358) (27,473) -------- -------- Accumulated postretirement benefit obligation in excess of plan assets 18,969 21,154 Unrecognized net loss (5,546) (5,658) -------- -------- Accrued postretirement benefit obligation $ 13,423 $ 15,496 ======== ========
The accrued postretirement benefit obligation is included in the other liabilities financial statement caption. Net periodic postretirement benefit cost includes the following components:
1997 1996 1995 ------- ------- ------- Service cost $ 1,594 $ 1,280 $ 1,313 Interest cost 3,441 3,239 2,965 Actual return on plan assets (2,379) (2,864) (1,209) Asset gain deferred 274 1,193 -- Amortization of loss 53 -- -- ------- ------- ------- $ 2,983 $ 2,848 $ 3,069 ======= ======= ======= Assumptions used in the computations: Assumed discount rate 7.25% 7.25% 8.0% Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - OTHER POSTRETIREMENT BENEFITS (CONTINUED) A 7.5% annual rate of increase in per capita cost of covered benefits was assumed for 1997. This rate decreases to 6% in 2002 and remains at that level thereafter. This health care trend rate has a significant impact on the amount reported. For example, a 1% increase in the trend rate in each year would increase the accumulated postretirement benefit obligation at February 28, 1997 by $8,400 and increase aggregate service and interest cost for the year by $1,010. NOTE H - INCOME TAXES
Income (loss) before income taxes: 1997 1996 1995 --------- --------- --------- United States $ 264,077 $ 191,649 $ 235,515 Foreign (9,747) (16,640) (8,352) --------- --------- --------- $ 254,330 $ 175,009 $ 227,163 ========= ========= ========= Income taxes have been provided as follows: 1997 1996 1995 --------- --------- --------- Current: Federal $ 71,582 $ 94,094 $ 72,242 Foreign 936 (1,045) 1,416 State and local 14,400 14,917 14,393 --------- --------- --------- 86,918 107,966 88,051 Deferred (principally federal) 317 (48,092) (9,680) --------- --------- --------- $ 87,235 $ 59,874 $ 78,371 ========= ========= =========
Significant components of the Corporation's deferred tax assets and liabilities at February 28, 1997 and February 29, 1996 are as follows:
Deferred tax assets: 1997 1996 --------- --------- Sales returns $ 34,643 $ 43,064 Other 109,345 100,688 --------- --------- 143,988 143,752 Valuation allowance (11,515) (12,189) --------- --------- Total deferred tax assets 132,473 131,563 Deferred tax liabilities: Depreciation 46,005 44,908 Other 28,980 28,850 --------- --------- Total deferred tax liabilities 74,985 73,758 --------- --------- Net deferred tax assets $ 57,488 $ 57,805 ========= =========
The decrease in the valuation allowance was due to decreases in net operating loss carryforwards in the United Kingdom and Mexico. 28 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES (CONTINUED) The statutory federal income tax rate and the effective income tax rate are reconciled as follows:
1997 1996 1995 ------ ------ ------ Statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit 3.9 4.0 3.8 Asset impairment loss - 1.8 - Subsidiaries' losses without tax benefit 1.0 1.8 1.3 Corporate-owned life insurance investments (4.3) (10.6) (6.7) Other (1.3) 2.2 1.1 ------ ------ ------ Effective tax rate 34.3% 34.2% 34.5% ====== ====== ======
Income taxes paid were $99,391 in 1997, $94,267 in 1996 and $101,982 in 1995. Deferred taxes have not been provided on approximately $11,000 of undistributed earnings of foreign subsidiaries since substantially all of these earnings are necessary to meet their business requirements. It is not practicable to calculate the deferred taxes associated with these earnings, however, foreign tax credits would be available to reduce federal income taxes in the event of distribution. At February 28, 1997 the Corporation had approximately $38,781 of foreign operating loss carryforwards, of which $27,935 have no expiration dates and $10,846 have expiration dates ranging from 1999 through 2007. NOTE I - COMMON SHARES AND STOCK OPTIONS At February 28, 1997 and February 29, 1996, common shares authorized consisted of 93,800,000 Class A and 7,916,484 Class B shares. Class A shares have one vote per share and Class B shares have ten votes per share. There is no public market for the Class B common shares of the Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a holder of Class B common shares may not transfer such Class B common shares (except to permitted transferees, a group that generally includes members of the holder's extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation's Class A common shares. If the Corporation does not purchase such Class B common shares, the holder must convert such shares, on a share for share basis, into Class A common shares prior to any transfer. Under the Corporation's Stock Option Plans, options to purchase Class A and Class B shares are granted to directors, officers and other key employees at the then-current market price. In general, subject to continuing employment, options become exercisable commencing one year after date of grant in four equal annual installments and expire over a period of not more than ten years from the date of grant. The options granted to non-employee directors become exercisable in six installments over five years. The options for certain Class B shares become exercisable commencing one year after date of grant in ten equal annual installments. 29 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - COMMON SHARES AND STOCK OPTIONS (CONTINUED) The Corporation has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement 123 and has been determined as if the Corporation had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997 and 1996, respectively: risk-free interest rates of 6.4% and 5.7%; dividend yield of 2.4% and 2.3%; volatility factor of the expected market price of the Corporation's common stock of 0.25 and 0.27 and a weighted-average expected life of the options of 4.6 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Corporation's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Corporation's pro forma information follows:
1997 1996 -------- -------- Net income As reported $167,095 $115,135 Pro forma 164,748 114,955 Earnings per share As reported $2.23 $1.54 Pro forma 2.20 1.54
30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - COMMON SHARES AND STOCK OPTIONS (CONTINUED) Stock option transactions and prices are summarized as follows:
Number of Options Options Price Range Per Share ----------------- ----------------------------- Class A Class B Class A Class B ------- ------- ------- ------- Options outstanding March 1, 1994 2,043,540 775,090 $ 6.75 - $ 31.25 $ 19.25 - $ 26.75 Granted 76,791 - 26.13 - 30.00 - Exercised (235,366) (5,000) 6.75 - 29.31 19.25 Cancelled (58,000) - ----------- -------- Options outstanding February 28, 1995 1,826,965 770,090 $ 6.75 - $ 31.25 $ 7.16 - $ 26.75 Granted 105,291 6,000 25.75 - 31.63 28.13 Exercised (417,959) (36,000) 7.16 - 30.88 19.25 Cancelled (47,300) - ----------- -------- 1,466,997 740,090 $ 6.75 - $ 31.63 $ 7.16 - $ 28.13 Weighted-Average Exercise Price Per Share ----------------------------------------- Options outstanding February 29, 1996 1,466,997 740,090 $ 20.29 $ 11.01 Granted 891,595 215,922 27.29 27.32 Exercised (317,409) (43,500) 18.10 19.31 Cancelled (84,800) - 27.13 - ----------- -------- Options outstanding February 28, 1997 1,956,383 912,512 $ 23.57 $ 14.42 ========= ======= Options exercisable at February 28 or 29: 1997 1,169,083 689,762 $ 20.90 $ 12.79 1996 1,191,347 562,590 18.63 12.31
Exercise prices for options outstanding as of February 28, 1997 ranged from $6.75 to $31.63. The weighted average remaining contractual life of those options is 7.1 years. 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - LONG-TERM LEASES The Corporation is committed under noncancelable operating leases for commercial properties (certain of which have been subleased) and equipment, terms of which are generally less than 25 years. Rental expense under operating leases for the years ended February 28 or 29, 1997, 1996 and 1995 follows:
1997 1996 1995 ------- ------- ------- Gross rentals $59,228 $61,198 $63,247 Less sublease rentals 7,423 7,876 8,378 ------- ------- ------- Net rental expense $51,805 $53,322 $54,869 ======= ======= =======
At February 28, 1997, future minimum rental payments for noncancelable operating leases, net of aggregate future minimum noncancelable sublease rentals, follow:
Gross Rentals: 1998 $ 42,541 1999 38,499 2000 35,268 2001 31,814 2002 27,488 Later years 67,572 --------- 243,182 Sublease rentals (23,022) --------- Net rentals $ 220,160 =========
NOTE K - ASSET IMPAIRMENT LOSS During 1996, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Corporation recorded an impairment loss on the long-lived assets of its CreataCard business. The trends in the CreataCard business indicated that the undiscounted future cash flows from this business would be less than the carrying value of the long-lived assets related to that business. Accordingly, on November 1, 1995, the Corporation recognized an asset impairment loss of $52,061 ($35,094 net of tax, or $.47 per share). This loss is the difference between the carrying value of the CreataCard machines and related goodwill and other intangibles, and the fair value of these assets based on discounted estimated future cash flows. 32 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - BUSINESS SEGMENT INFORMATION The Corporation operates predominantly in a single industry: the design, manufacture and sale of greeting cards and other social expression products. While the Corporation offers a wide range of items for sale, many of them are manufactured at common production facilities and marketed by a common sales force. The Corporation's products are sold primarily to drug stores, mass merchandisers, supermarkets and card and gift stores. In addition to its North American operations, which include the United States and Canada, the Corporation has subsidiaries in Europe, Australia, New Zealand, Mexico and South Africa. Revenue transfers between geographic areas and other intergeographic eliminations are not material. The Corporation does not derive more than 10% of its total revenue from any individual customer, government agency or export sales. Operating profit (loss) by geographic segment is revenue less operating costs, excluding interest and income taxes. Segment information by geographic area for the years ended February 28 or 29, 1997, 1996 and 1995 follows:
North Other America Foreign Consolidated ------- ------- ------------ 1997 - ---- Total revenue $2,009,455 $ 162,843 $2,172,298 Operating profit 279,212 5,867 285,079 Total assets excluding cash and equivalents 1,870,569 229,501 2,100,070 1996 - ---- Total revenue $1,907,942 $ 104,012 $2,011,954 Operating profit (loss) before asset impairment loss 257,667 (6,307) 251,360 Asset impairment loss 49,432 2,629 52,061 ---------- --------- ---------- Operating profit (loss) 208,235 (8,936) 199,299 Total assets excluding cash and equivalents 1,744,465 231,237 1,975,702 1995 - ---- Total revenue $1,775,957 $ 102,483 $1,878,440 Operating profit (loss) 251,990 (7,956) 244,034 Total assets excluding cash and equivalents 1,565,973 108,627 1,674,600
33 34 QUARTERLY RESULTS OF OPERATIONS (Unaudited) Thousands of dollars except per share amounts The following is a summary of the unaudited quarterly results of operations for the years ended February 28, 1997 and February 29, 1996.
Quarter Ended ----------------------------------------------------------------- May 31 August 31 November 30 February 28 or 29 -------- --------- ----------- ----------------- Fiscal 1997 - ----------- Net sales $438,212 $466,536 $647,723 $608,618 Total revenue 440,127 469,024 651,074 612,073 Gross profit 283,545 278,277 397,568 396,575 Net income 27,772 11,429 74,597 53,297 Per share .37 .15 1.00 .71 Fiscal 1996 - ----------- Net sales $438,509 $431,171 $587,602 $545,756 Total revenue 440,617 433,168 588,689 549,480 Gross profit 294,923 259,112 340,432 346,565 Asset impairment loss - - 52,061 - Net income 37,300 15,029 17,484 45,322 Per share .50 .20 .24 .60
34 35 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders American Greetings Corporation We have audited the accompanying consolidated statements of financial position of American Greetings Corporation as of February 28, 1997 and February 29, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1997. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Greetings Corporation at February 28, 1997 and February 29, 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note K to the consolidated financial statements, in 1996 the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Ernst & Young LLP Cleveland, Ohio March 27, 1997 35 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements with the Corporation's independent accountants on accounting and financial disclosure matters within the three year period ended February 28, 1997, or in any period subsequent to such date. PART III The Corporation hereby incorporates by reference the information called for by Part III of Form 10-K from the Corporation's Notice of Annual Meeting of Shareholders to be held June 27, 1997, and related Proxy Statement filed with the Securities and Exchange Commission on May 14, 1997. (Next item is Part IV) 36 37 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1. Financial Statements -------------------- Included in Part II of this report: Consolidated Statement of Income Years ended February 28 or 29, 1997, 1996 and 1995 Consolidated Statement of Financial Position - February 28, 1997 and February 29, 1996 Consolidated Statement of Cash Flows Years ended February 28 or 29, 1997, 1996 and 1995 Consolidated Statement of Shareholders' Equity Years ended February 28 or 29, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Years ended February 28 or 29, 1997, 1996 and 1995 Quarterly Results of Operations (Unaudited) Report of Ernst & Young LLP, Independent Auditors 2. Exhibits required by Item 601 of Regulation S-K: ------------------------------------------------ (3) Articles of Incorporation and By-laws (i) Amended Articles of Incorporation of the Registrant This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-3 Registration Statement (Registration No. 33-50255) filed on September 15, 1993, and is incorporated herein by reference. (ii) Amended Regulations of the Registrant This Exhibit has been previously filed as an Exhibit to the Amendment No. 1 to the Registrant's Form S-3 Registration Statement (Registration No. 33-39726) filed on May 17, 1991, and is incorporated herein by reference. (10) Material Contracts (i) (A) (i) Officers' contracts* 37 38 PART IV - Continued (ii) Employment Agreement with Edward Fruchtenbaum, dated May 18, 1992 (as amended)* This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1994, and is incorporated herein by reference. (iii) Employment Agreement with Jon Groetzinger, Jr. dated April 25, 1988 (as amended) (ii) (A) (i) Shareholders Agreement dated November 19, 1984 (ii) Executive Bonus Plan* (iii) Executive Incentive Compensation Plan (as Amended and Restated as at March 6, 1989)* (iv) Executive Deferred Compensation Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. (v) 1982 Incentive Stock Option Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 2-84911) dated July 1, 1983, and is incorporated herein by reference. (vi) 1985 Incentive Stock Option Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-975) dated November 7, 1985, and is incorporated herein by reference. (vii) Supplemental Executive Retirement Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. 38 39 PART IV - Continued (viii) 1987 Class B Stock Option Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-16180) dated July 31, 1987, and is incorporated herein by reference. (ix) Stock Option Agreement with Morry Weiss dated January 25,1988* (x) Loan Agreement with Edward Fruchtenbaum dated March 1,1990* (xi) 1992 Stock Option Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-58582) dated February 22,1993, and is incorporated herein by reference. (xii) CEO/COO Compensation Plans* This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28,1995, and is incorporated herein by reference. (xiii) 1995 Director Stock Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-61037) dated July 14, 1995, and is incorporated herein by reference. (xiv) 1996 Employee Stock Option Plan* This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-08123) dated July 15, 1996, and is incorporated herein by reference. (xv) 1997 Equity and Performance Incentive Plan (11) Statement Re Computation of Per Share Earnings (21) Subsidiaries of the Registrant (23) Consent of Independent Auditors (27) Financial Data Schedule 39 40 PART IV - Continued Executive Compensation Plans and Arrangements The Corporation's executive compensation plans and arrangements are listed under Exhibit 10 hereof and marked by an asterisk(*). (b) Reports on Form 8-K None (c) Exhibits listed in Item 14(a) 3. are included herein or incorporated herein by reference. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted below. 3. Financial Statement Schedules ---------------------------- Included in Part IV of the report: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 40 41 PART IV - Continued SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN GREETINGS CORPORATION ------------------------------ (Registrant) Date: May 27, 1997 By: /s/ Jon Groetzinger, Jr. -------------- ------------------------------ Jon Groetzinger, Jr. Secretary 41 42 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Irving I. Stone Founder - Chairman; ) - -------------------------------- Chairman of the ) Irving I. Stone Executive Committee: ) Director ) ) /s/ Morry Weiss Chairman of the Board; ) - -------------------------------- Chief Executive Officer; ) Morry Weiss Director ) ) /s/ Edward Fruchtenbaum President; ) - -------------------------------- Chief Operating Officer; ) Edward Fruchtenbaum Director ) ) /s/ Scott S. Cowen Director ) May 27, 1997 - -------------------------------- ) Scott S. Cowen ) ) /s/ Herbert H. Jacobs Director ) - -------------------------------- ) Herbert H. Jacobs ) ) /s/ Albert B. Ratner Director ) - -------------------------------- ) Albert B. Ratner ) ) /s/ Harry H. Stone Director ) - -------------------------------- ) Harry H. Stone ) ) /s/ Jeanette S. Wagner Director ) - -------------------------------- ) Jeanette S. Wagner ) ) /s/ Milton A. Wolf Director ) - -------------------------------- ) Milton A. Wolf ) ) /s/ Abraham Zaleznik Director ) - -------------------------------- ) Abraham Zaleznik ) ) /s/ William S. Meyer Senior Vice President; ) - -------------------------------- Chief Financial Officer; ) William S. Meyer (principal financial officer) ) ) /s/ Patricia L. Ripple Vice President; ) - -------------------------------- Corporate Controller; ) Patricia L. Ripple (principal accounting officer) )
42 43 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES (000)
- ------------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------------------------- ADDITIONS ----------------------------------- Balance (1) (2) Balance Description at Beginning Charged to Costs Charged to Other Deductions-Describe at End of Period and Expenses Accounts-Describe of Period - ------------------------------------------------------------------------------------------------------------------------------- Year ended February 28, 1997: Deduction from asset account: Allowance for doubtful accounts $ 16,214 $ 8,210 $ 113(A) $ 9,273(B) $ 15,264 ======== ======== ===== ======== ======== Allowance for sales returns $141,412 $306,755 $ 164(A) $326,475(C) $121,856 ======== ======== ===== ======== ======== Allowance for other assets $ 16,400 $ 0 $ 0 $ 0 $ 16,400 ======== ======== ===== ======== ======== Year ended February 29, 1996: Deduction from asset account: Allowance for doubtful accounts $ 14,968 $ 13,905 $ 367(A) $ 13,026(B) $ 16,214 ======== ======== ===== ======== ======== Allowance for sales returns $102,004 $321,693 $ 238(A) $282,523(C) $141,412 ======== ======== ===== ======== ======== Allowance for other assets $ 5,000 $ 11,400 $ 0 0 $ 16,400 ======== ======== ===== ======== ======== Year ended February 28, 1995: Deduction from asset account: Allowance for doubtful accounts $ 13,084 $ 8,674 $ (36)(A) $ 6,754(B) $ 14,968 ======== ======== ===== ======== ======== Allowance for sales returns $ 97,903 $297,899 $ 41(A) $293,839(C) $102,004 ======== ======== ===== ======== ======== Allowance for other assets $ 0 $ 5,000 $ 0 $ 0 $ 5,000 ======== ======== ===== ======== ======== Note A: Includes translation adjustment on foreign subsidiary balances and other minor reclasses and adjustments. Note B: Accounts charged off, less recoveries. Note C: Sales returns charged to the allowance account for actual returns for the year.
S - 1 EX-10.I.A.I 2 EXHIBIT 10(I)(A)(I) 1 Exhibit (10)(i)(A)(i) EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT made at Cleveland, Ohio, this ______ day of ____________, 19 , by and between AMERICAN GREETINGS CORPORATION, an Ohio corporation (herein called the "Corporation") and - ------------------------------------------------------------------------------ (herein called "Employee"). In consideration of the covenants hereinafter set forth, the parties hereto mutually agree as follows: 1. Subject to the provisions hereof, the Corporation shall employ Employee as an officer of the Corporation, either elected by the Board of Directors or appointed by the Executive Committee, or as an officer of a subsidiary company with such duties and responsibilities as may be assigned to him from time to time by the Board of Directors or the Executive Committee of the Board of Directors of the Corporation and Employee shall devote his full business time and attention and give his best efforts to the business affairs of the Corporation and/or of such of its subsidiaries as the Board of Directors or the Executive Committee of the Board of Directors of the Corporation may from time to time determine. Employee recognizes that in serving as an officer of the Corporation or as an officer of a subsidiary he serves in such capacity solely at the pleasure of the Board of Directors or the Executive Committee of the Board of Directors of the Corporation and that his employment in such capacity or in any other capacity may be terminated at any time by the Board of Directors or the Executive Committee of the Corporation. 2. The Corporation or a subsidiary shall, during the term of this Employment Agreement, pay to Employee as 2 minimum compensation for his services a base salary at a rate to be fixed by the Board of Directors or the Executive Committee or the Chairman of the Executive Committee, which rate shall not be less than $______________________ per year, plus such additional compensation as the Board of Directors or the Chairman of the Executive Committee or the Executive Committee of the Board of Directors of the Corporation may from time to time determine. 3. Employee covenants and agrees that in consideration of his employment as an officer of the Corporation or as an officer of a subsidiary he shall not for a period of twelve months after leaving the employ of the Corporation or a subsidiary, regardless of the reason for such leaving, enter into the employment, directly or indirectly or in a consulting or free lance capacity, of any person, firm or corporation in the United States or Canada, which at such date of leaving the employ of the Corporation or a subsidiary shall be manufacturing or selling products that are substantially similar in nature to the products being then manufactured or sold by the Corporation or the subsidiary. 4. In the event that the employment of Employee under this Employment Agreement is terminated by the Corporation or a subsidiary, the Corporation covenants and agrees that it shall pay or cause to be paid to Employee a continuing salary at a rate which shall be the highest base salary rate paid Employee during the preceding six-month period for a period of time equivalent to one-half month for each year of employment by the Corporation or a subsidiary of the Employee, but in no event to be less than a period of -2- 3 three months nor greater than a period of twelve months. The provisions of this paragraph shall not be applicable if the Employee is terminated because of a gross violation of his obligations to the Corporation. 5. In the event that Employee shall cease to be employed as an officer of the Corporation or a subsidiary but shall continue in the employ of the Corporation or a subsidiary, then this Employment Agreement shall terminate twelve months after the date that Employee ceases to be employed as an officer of the Corporation or a subsidiary. 6. I agree that during the period of my employment and thereafter, I will keep confidential and will not disclose any information, records, documents or trade secrets of the Corporation acquired by me during my employment, and except as required by my employment, will not remove from the Corporation's premises any record or other document relating to the business of the Corporation; or make copies thereof; it being recognized by me that such information is the property of the Corporation. 7. This Agreement shall be applied and interpreted under the laws of the State of Ohio. AMERICAN GREETINGS CORPORATION By ---------------------------- President ----------------------------- Employee -3- EX-10.I.A.III 3 EXHIBIT 10(I)(A)(III) 1 Exhibit (10)(i)(A)(iii) AGREEMENT --------- Morry, this will confirm our 6/25/91 agreement regarding my continuing employment as an American Greetings Corporation (AG) officer and employee: On 6/24/96, AG will pay Groetzinger $250,000, less normal withholdings. If prior to 6/24/96, Groetzinger dies, becomes disabled, is terminated or is otherwise no longer an AG employee, AG shall pay Groetzinger, his trust, estate or other designee a PRO RATA portion of such $250,000. Provided AG shall owe Groetzinger none of the $250,000 if prior to 6/24/96 he unilaterally and voluntarily leaves AG's employ, without having been terminated, whether constructively or otherwise. Beginning 4/25/96, Groetzinger's base salary will not be less than the then current base salary + $50,000. AMERICAN GREETINGS CORPORATION By: ---------------------------------- ---------------------------------- Morry Weiss, President & CEO Jon Groetzinger, Jr. Dated: 7/17/91 2 This will confirm our agreement that American Greetings' payment of $250,000, less normal withholdings, to Jon Groetzinger, Jr., previously payable on 6/24/96 under our agreement of 6/25/91, will not be payable until, and will be paid on, 1/2/98. However, the $250,000 will be considered fully earned as of 6/24/96. If prior to 1/2/98 Groetzinger dies, becomes disabled, is terminated or is otherwise no longer an AG employee, AG shall, within ten days of such date, pay Groetzinger, his trust, estate or other designee a PRO RATA portion of such $250,000 if such event occurs prior to 6/24/96 and the full amount if such event occurs between 6/24/96 and 1/2/98. AG shall, however, owe Groetzinger none of the $250,000 if prior to 6/24/96, he unilaterally and voluntarily leaves AG's employ, without having been terminated, whether constructively or otherwise. During the period from 6/24/96 to 1/2/98, the $250,000 will earn a return equal to the highest return of the investment vehicle options available under the Company's Deferred Compensation Plan during the same period. Such return will be paid to Groetzinger, his trust, estate or other designee, as the case may be, on the same date that the $250,000 is paid. All other provisions of our 6/25/91 agreement remain unchanged and in effect. AMERICAN GREETINGS CORPORATION By: -------------------------------- --------------------------- Morry Weiss, Chairman & CEO Jon Groetzinger, Jr. Dated: February 21, 1994 3 AMENDMENT --------- Under our 6/25/91 agreement, beginning 6/25/96, Jon Groetzinger's base salary will not be less than his then-current base salary + $50,000. This will confirm our agreement that such new base salary will be earned daily on a PRO RATA basis, but American Greetings Corp. will defer payment of $76,301.00 ([$50,000/365 da.] * 557 da. {6/25/96-1/2/98}) to Groetzinger until 1/2/98. If prior to 1/2/98, Groetzinger dies, becomes disabled, is terminated or is otherwise no longer an AG employee, AG shall, within ten days of such date, pay Groetzinger, his trust, estate or other designee a PRO RATA portion of such $76,301.00 if such event occurs prior to 1/2/98. During the period 6/25/96 to 1/2/98, the earned portion of the $76,301.00 will earn a return equal to the highest return each month of the investment vehicle options available each month under the Company's Deferred Compensation Plan during the same period. AG will pay such return to Groetzinger, his trust, estate or other designee, as the case may be, on the same date that such deferred base salary is paid. All other provisions of our 6/25/91 agreement and 2/21/94 amendment thereto remain unchanged and in effect. AMERICAN GREETINGS CORPORATION By: ------------------------------------ ---------------------------- Morry Weiss, Chairman & CEO Jon Groetzinger, Jr. Dated: June 18, 1996 EX-10.II.A.I 4 EXHIBIT 10(II)(A)(I) 1 Exhibit (10)(ii)(A)(i) SHAREHOLDERS' AGREEMENT This SHAREHOLDERS' AGREEMENT (this "Agreement") dated as of November 19, 1984 among the individuals, fiduciaries and charitable organizations which have become signatories hereto as permitted herein (as "Participating Shareholders" described in Section 1.3 hereof) and American Greetings Corporation, an Ohio corporation (the "Corporation"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Participating Shareholders own of record or beneficially (including as beneficial owners of certain voting trust certificates) Class B Common Shares, par value $1 per share ("Class B Common Shares"), of the Corporation; and WHEREAS, the Participating Shareholders desire to ensure the continued independence of the Corporation by subjecting the Class B Common Shares now owned or hereafter acquired by them to certain mutually agreeable limitations; and WHEREAS, the Board of Directors of the Corporation has approved certain transactions as a result of which the terms of the Class B Common Shares are proposed to be modified to impose certain restrictions on the transfer of such Shares; NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and other good and valuable consideration had and received, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, hereby agree as follows: 2 2 1. Definitions. ------------ 1.1 The term "Family Member" shall mean Jacob Sapirstein, founder of the Corporation, his lineal descendants by blood or by legal adoption prior to age 18, spouses of such descendants, the lineal descendants of any such spouses, the spouses of any such spouses' lineal descendants and trusts (including voting trusts) exclusively for the benefit of any such persons. In applying the term "exclusively" for purposes of this Agreement, the interest of any Charity that is a Participating Shareholder (or does not fail to become a Participating Shareholder at the time provided in Section 1.3 hereof) or any contingent trust interest having at the time of transfer an actuarial value (under valuation tables then used for federal gift tax purposes for gifts between private individuals) of not more than 5 percent of the value of the assets of the trust or an unexercised power of appointment shall be ignored. 1.2 The term "Charity" shall mean an organization contributions to which are deductible for federal income, estate or gift tax purposes. 1.3 The term "Participating Shareholder" shall mean any Family Member or Charity which has signed or hereafter signs a counterpart of this Agreement, delivered a copy thereof to all other Participating Shareholders (or to the Depository (as defined in Section 7.1 hereof)) and is bound 3 3 by the terms hereof. No Participating Shareholder shall be deemed to forfeit such status upon divorce, remarriage or adoption. In the case of a trust (other than a voting trust, which is governed by Section 6 hereof) exclusively for the benefit of a Family Member or Members, the Trustee and all adult beneficiaries having a current trust interest (as well as all ascertainable Charitable beneficiaries having a current trust interest) shall sign this Agreement as Participating Shareholders if the trust is to be considered a Participating Shareholder. During his lifetime, the donor of a trust that is revocable by the donor alone shall be considered the only beneficiary thereof so long as such trust is so revocable. At such time, if any, as the trust shall have an adult beneficiary having a current trust interest or an ascertainable Charitable beneficiary having a current trust interest who or which shall fail or be unable to sign this Agreement for a period of 30 days following notification to such beneficiary of the terms of this Agreement by any Participating Shareholders or by the Depository, the trust shall thereupon cease to be a Participating Shareholder and Section 3 of this Agreement shall then apply as if the Class B Common Shares held by the trust were then to be transferred. In the case of a minor or incompetent beneficiary, the Trustee (or a Custodian under the applicable Uniform Gifts to Minors Act or the practical equivalent thereof in the case of Class B Common 4 4 Shares held under such Act or equivalent) and a parent (in the case of a minor) or legal guardian (in the case of a minor or an incompetent) of the beneficiary shall sign on his behalf if the trust (or custodial arrangement) is to be considered a Participating Shareholder. In the case of a minor or incompetent beneficiary, the Trustee or custodian shall in any event be obligated to secure the beneficiary's legally binding signature (or that of his legal guardian) to this Agreement prior to an actual distribution of Class B Common Shares, and if such signature is not so secured such beneficiary shall not be considered a Participating Shareholder and such distribution shall be subject to Section 3 of this Agreement. 2. Permitted Transfers. -------------------- 2.1 Any Participating Shareholder may at any time sell, give or otherwise transfer Class B Common Shares or any interest therein to any Family Member who is a Participating Shareholder. Any Participating Shareholder may at any time give Class B Common Shares or any interest therein to a Charity that is a Participating Shareholder. Any Class B Common Shares so transferred shall remain subject to this Agreement in the hands of the transferee. 2.2 Any Participating Shareholder may pledge Class B Common Shares as security for a loan if the pledgee (being competent to do so) agrees in writing to be bound by this Agreement and to receive such Class B Common Shares subject 5 5 to this Agreement and, in the event of default on such loan and levy upon the collateral, to offer such Class B Common Shares to the Participating Shareholders other than the pledgor in accordance with the procedures specified in Section 4 hereof, and to convert into Class A Common Shares, par value $1 per share ("Class A Common Shares"), of the Corporation in accordance with the Articles of Incorporation of the Corporation any Class B Common Shares not accepted by such Participating Shareholders. 3. Transfers for Which First Refusal Procedure is ---------------------------------------------- Required. --------- 3.1 Any Participating Shareholder who desires to sell, give or otherwise transfer Class B Common Shares (or the Class A Common Shares into which they are convertible) or any interest therein otherwise than as provided in Section 2 hereof shall first offer to sell or exchange such Class B Common Shares to or with the other Participating Shareholders and the Corporation. Such offer shall be made, and may be accepted, in accordance with the procedures specified in Section 4 hereof. During a period of 30 days following the last to expire of the rights of the other Participating Shareholders and the Corporation, the Participating Shareholder desiring to transfer such Shares or any interest therein shall have the right, in accordance with the Articles of Incorporation of the Corporation, to convert any Class B Common Shares not acquired by any other Participating Shareholder or the 6 6 Corporation into Class A Common Shares and may transfer such Class A Common Shares or any interest therein free of the limitations provided for herein, but only to the person to whom such transfer was originally proposed to be made and only on terms (except for price in the case of a gift) no more favorable to such person than those upon which the Class B Common Shares were offered to the other Participating Shareholders. The Participating Shareholder desiring to transfer shares may not transfer the Class B Common Shares not acquired by any other Participating Shareholder without first converting them into Class A Common Shares, and if such conversion is not accomplished within such 30-day period, such Class B Common Shares shall continue to be subject to the provisions of this Agreement. 3.2 Any Participating Shareholder who desires to convert Class B Common Shares to Class A Common Shares (except as required by Section 3.1 or 3.3 hereof) in accordance with the Articles of Incorporation of the Corporation shall first offer to transfer such Class B Common Shares to the other Participating Shareholders and the Corporation in accordance with the procedures specified in Section 4 hereof. During a period of 30 days following the last to expire of the rights of the other Participating Shareholders and the Corporation, the Participating Shareholder desiring to convert Class B Common Shares may do so, but only to the extent such Class B Common Shares 7 7 were not accepted by any other Participating Shareholder or the Corporation, and the Class A Common Shares into which such Class B Common Shares are converted shall be free from the limitations provided for herein. 3.3 Upon the death of a Participating Shareholder, any Class B Common Shares then owned by such Participating Shareholder may be transferred in accordance with Section 2.1 hereof to any other Participating Shareholder by the personal representative of the estate of such deceased Participating Shareholder (or by the trustee of any trust or by any other person (e.g., the trustee of a profit sharing trust) by reason of the death of such deceased Participating Shareholder). To the extent that any such personal representative, trustee or other person is required or desires to transfer any Class B Common Shares (or the Class A Common Shares into which they are convertible) owned by a deceased Participating Shareholder, or any interest therein, otherwise than as permitted by Section 2.1 hereof, such personal representative, trustee or other person shall offer such Class B Common Shares to the other Participating Shareholders and the Corporation in accordance with the procedures specified in Section 4 hereof. In the case of any Class B Common Shares that are so offered to the other Participating Shareholders and the Corporation, upon completion of the procedures specified in Section 4 hereof, those Class B Common Shares not accepted 8 8 by any other Participating Shareholder or the Corporation shall, in accordance with the Articles of Incorporation of the Corporation, be converted into Class A Common Shares, and thereafter such Class A Common Shares may be transferred to the designated recipient thereof, free of the limitations provided for herein. Each of the Participating Shareholders who is a natural person shall take all steps appropriate to ensure that testamentary documents providing for implementation upon such Participating Shareholder's death of the foregoing procedures are in effect at all times after the date hereof. 4. First Refusal Procedures. ------------------------- 4.1 A Participating Shareholder, the personal representative of the estate of a deceased Participating Shareholder, the trustee of any trust agreement of which a deceased Participating Shareholder is donor (or any other person in possession of Class B Common Shares which are to pass by reason of the death of a Participating Shareholder), or a pledgee who is required by Section 2.2 or Section 3 hereof to offer Class B Common Shares to other Participating Shareholders and the Corporation (an "Offeror") shall deliver to each of the other participating Shareholders, the Corporation and the Depository a written notice, dated the date on which it is sent, containing the following information: 9 9 (a) the number of Class B Common Shares proposed to be transferred (after conversion) or converted (the "Offered Shares"); (b) whether the Offeror proposes to transfer under Section 3.1 hereof or convert under Section 3.2 hereof the Offered Shares; (c) if the Offeror proposes to transfer the Offered Shares under Section 3.1 hereof, the name and address of each proposed transferee and the price per share, if any, payable to the Offeror upon such transfer; (d) the date on which the Offeror desires to carry out the proposed transfer or conversion of the Offered Shares, which shall be consistent with the procedures provided for in this Agreement (generally such date should be not less than 20 nor more than 50 business days after the date of such notice). If the Offeror proposes to make a transfer under Section 3.1 hereof, such notice shall be accompanied by written evidence that any price per share payable to the Offeror as specified in such notice is being offered for the Offered Shares in good faith by the proposed transferee. 4.2 The other Participating Shareholders shall thereupon have the right and option to acquire the Offered Shares, or any of them, for the consideration specified in Section 4.3 hereof. Such Participating Shareholders may 10 10 exercise such right, at any time before the expiration of 7 business days after such written notice and accompanying evidence (if applicable) have been given to the last of such Participating Shareholders and the Corporation, in proportion to the respective holdings of Class B Common Shares of each such Participating Shareholder compared to the aggregate holdings of all such Participating Shareholders; and if any such Participating Shareholder entitled thereto fails to exercise such Participating Shareholder's right to acquire the Offered Shares to its full extent, then such right may be exercised (to the extent that it has not been exercised by such Participating Shareholder) within a further period of 5 business days by the other such Participating Shareholders, in whatever proportion they may agree upon and, if they cannot agree, in proportion to the respective holdings of each compared to the aggregate holdings of all of them; and if the Participating Shareholders fail to exercise their rights to acquire the Offered Shares to their full extent, then such rights may be exercised (to the extent of any Offered Shares remaining) within a further period of 3 business days by the Corporation. The right to acquire Offered Shares may be exercised by a Participating Shareholder or by the Corporation by the delivery of written notice to the Offeror and the Depository, dated the date it is sent, specifying the number of Class B Common Shares such 11 11 Participating Shareholder or the Corporation will acquire and the consideration such Participating Shareholder or the Corporation will deliver in accordance with Section 4.3 hereof. In applying the term "holdings" in this Section 4.2 in the case of Class B Common Shares owned by a trust (other than a voting trust), the trust shall be considered to own the holding; except that, if the trustee fails to any extent to exercise a right to acquire Offered Shares, beneficiaries of the trust who are Participating Shareholders owning more than 50% of either the then current income or the remainder interest in the trust, and desiring to exercise such right shall be considered to own the holding in such proportions as such beneficiaries shall agree upon. 4.3 Class B Common Shares accepted by a Participating Shareholder or the Corporation in accordance with Section 4.2 hereof may be acquired, at the election of such purchasing Participating Shareholder or the Corporation, as the case may be, for cash, Class A Common Shares or a combination of such considerations as follows: (a) to the extent such purchasing Participating Shareholder or the Corporation elects that the price be paid in Class A Common Shares, the number of Class A Common Shares that shall be delivered in exchange shall be equal to the number of Class B Common Shares to be exchanged, 12 12 (b) to the extent such purchasing Participating Shareholder or the Corporation elects that the price shall be paid in cash, the cash price for Class B Common Shares shall be equal to the average of the last sale price (if available) or, if not, the midpoints of the bid and asked prices, of the Class A Common Shares in the NASDAQ National Market (or in the principal national securities exchange or market on which the Class A Common Shares may then be traded) on the 5 trading days preceding the date of the Offeror's notice sent pursuant to Section 4.1 hereof, as reported in the Wall Street Journal (or, if such periodical is not then published, the most comparable periodical then being published) or, in the case of a transfer under Section 3.1 hereof, such higher price as may have been specified in such notice. 4.4 The sale or exchange contemplated by these procedures shall be closed at the principal corporate trust office of the Depository, by delivery of a certified, cashier's or bank check for the amount of any cash payable and the delivery of certificates representing the Class B Common Shares and any Class A Common Shares (endorsed in blank with signature guaranteed), on the day which is 19 business days after the date of the notice given pursuant to Section 4.1 hereof or on such later day as all 13 13 applicable legal requirements pertaining to such sale or exchange shall have been met. 5. Changes in Class B Common Shares. --------------------------------- 5.1 In the event of any change in the terms of the Class B Common Shares, or any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Corporation, or any merger, reorganization, consolidation or other corporate transaction having an effect similar to the foregoing, the provisions of this Agreement shall continue to apply to the Class B Shares of the Corporation or any securities of any corporation issued in lieu thereof or with respect thereto subject, however, to such equitable adjustment, if any, as may be necessary to reflect any change in the relative rights and privileges of the Class A and Class B Common Shares. 5.2 Without limiting the generality of Section 5.1, the Participating Shareholders acknowledge that the Articles of Incorporation of the Corporation may be modified (by amendment or merger) to impose restrictions on transfer and conversion of the Class B Common Shares in terms substantially similar to those set forth in Exhibit A to this Agreement. The Participating Shareholders shall vote the Class A Common Shares and Class B Common Shares held by them (as voting trustee or otherwise) in favor of such modification, and the provisions of this Agreement 14 14 shall continue to apply without adjustment to the Class B Common Shares of the Corporation (or any shares of any corporation issued in lieu thereof or with respect thereto) owned by them if such modification becomes effective. 6. Reconciliation With Voting Trusts. ---------------------------------- 6.1 Certain of the Participating Shareholders are now holders or beneficial owners of voting trust certificates issued pursuant to a Voting Trust Agreement dated December 9, 1976. The parties to such agreement hereby agree to terminate such agreement effective upon the taking effect of provisions of the Articles of Incorporation of the Corporation substantially to the effect set forth in Exhibit A hereto. Unless and until such provisions become effective, such agreement shall remain in full force and effect. 6.2 Certain of the Participating Shareholders are now holders or beneficial owners of voting trust certificates issued pursuant to a Voting Trust Agreement dated July 22, 1984 between Irving I. Stone, Judith S. Weiss and Morry Weiss. Such agreement shall not be affected by this Agreement and shall remain in full force and effect. 6.3 For purposes of this Agreement, voting trust certificates issued pursuant to the voting trust agreements referred to in Sections 6.1 and 6.2 shall be treated as certificates for Class B Common Shares, and the Class B Common Shares represented thereby shall be included in the 15 15 Class B Common Shares to which this Agreement relates, so that any Participating Shareholder (or the personal representative of the estate of a deceased Participating Shareholder, the trustee of any trust agreement or any other person in possession of Class B Common Shares which are to pass by reason of the death of a Participating Shareholder) who desires to transfer any of such voting trust certificates (other than as permitted by Section 2.1) or to convert into Class A Common Shares any of the Class B Common Shares represented thereby shall do so only after compliance with the procedures set forth herein. Any notices required to be given pursuant to Section 4.1 and 4.2 hereof by or to an Offeror who is a holder of any of such voting trust certificates shall be given simultaneously, and the periods specified in such Sections shall run concurrently, with the corresponding notices and periods provided for in Section 6 of each such voting trust agreement unless the group of participating Shareholders to whom an offering is required to be made under this Agreement differs from the group to whom such offer is required to be made under either such voting trust agreement, in which case the offering procedures required by this Agreement shall commence only upon completion of the procedures thereunder and shall apply only to Class B Common Shares not theretofore accepted by a Participating 16 16 Shareholder pursuant to the procedures applicable under such voting trust agreement. 6.4 Nothing herein shall prevent any of the Participating Shareholders from depositing Class B Common Shares pursuant to the above-described voting trust agreements or pursuant to such other voting trust agreements as they may wish to enter into which are consistent with the terms of this Agreement and to which Class B Common Shares are permitted to be transferred pursuant to Section 2.1 of this Agreement. 7. Compliance Provisions. ---------------------- 7.1 Subject to the proviso stated below in this Section 7.1, certificates representing the Class B Common Shares owned of record or beneficially by the Participating Shareholders at the date of this Agreement have been deposited with AmeriTrust Company National Association (the "Depository"), and there has been marked on the face or the back of each such certificate a legend to the following effect: The Class B Common Shares, par value $1 per share, of American Greeting Corporation (the "Corporation") represented by this Certificate are subject to a Shareholders' Agreement dated as of November 19, 1984 and originally entered into by the Corporation and Irving I. Stone, Morris S. Stone, Harry H. Stone, Morry Weiss and other parties. Pursuant to such Agreement, such Shares may not be sold, given or otherwise transferred or converted into Class A Common Shares, par value $1 per share, of the Corporation (except for transfers to certain persons specified in such Agreement) except upon compliance with certain procedures, 17 17 including, without limitation, offer of such Shares to certain other shareholders of the Corporation and the Corporation and, in certain situations, conversion into Class A Common Shares. The Corporation will mail to the holder hereof a copy of such Agreement without charge within five days after receipt of a written request therefor. Each Participating Shareholder shall, to the extent legally able to do so, forthwith upon becoming a Participating Shareholder by signing this Agreement and thereafter upon becoming the record or beneficial owner of any other Class B Common Shares, cause the certificates representing the same to be deposited with the Depository for application of such legend, and the certificates representing all Class B Common Shares now or hereafter owned (of record or beneficially) by any of the Participating Shareholders shall continue to bear such legend and be held by the Depository until such Class B Common Shares are converted into Class A Common Shares in accordance with this Agreement or, if earlier, the termination of this Agreement in accordance with the terms hereof; PROVIDED, HOWEVER, that any Participating Shareholder may cause possession of such certificates to be given to or retained by any pledgee to be held as security in accordance with Section 2.2 hereof upon delivery to the Depository of the written agreement of the pledgee referred to in such Section; and PROVIDED FURTHER, that any Participating Shareholder owning any Class B Common Shares held by a pledgee at the time such Participating Shareholder becomes a party to this Agreement need only use reasonable 18 18 efforts to cause such legend to be applied and to cause such pledgee to agree in writing to be bound by the terms of this Agreement, and if such Participating Shareholder is unable to cause such results the certificates representing such Class B Common Shares may be retained by such pledgee without his signing this Agreement and without such legend being applied. Each Participating Shareholder shall at all times keep the Depository advised of the number of Class B Common Shares such Participating Shareholder owns. 7.2 The further rights and duties of the Depository shall be governed by the terms and conditions of escrow contained in Exhibit B attached hereto. 8. Amendment and Termination. -------------------------- This Agreement may be amended or the term thereof extended only by a written instrument referring specifically to this Agreement and signed by all of the Participating Shareholders, provided, however, that (a) any amendment to this Agreement for the purpose of including additional persons among those to whom transfer of Class B Common Shares may be made pursuant to Section 2.1 hereof, (b) any amendment to change the Depository or to change the terms and conditions of escrow set forth in Exhibit B hereto, (c) any other amendment (not extending the term hereof) if no Participating Shareholder files written objection thereto with the Depository within 30 days after notice thereof (which notice shall include a statement that Participating 19 19 Shareholders have a right to file a written objection) is given to all Participating Shareholders, and (d) any instrument of termination, need only be signed by Participating Shareholders owning beneficially 75% or more of the Class B Common Shares owned by all of the Participating Shareholders. This Agreement, unless extended in accordance with the immediately preceding sentence, shall terminate on December 31, 2014. This Agreement, moreover, shall terminate in any event 21 years after the death of the last to die of the lineal descendants of Jacob Sapirstein living on the date of this Agreement. 9. Miscellaneous. ------------- 9.1 Notwithstanding any provision hereof to the contrary, Class B Common Shares may be sold to the Corporation at any time it may offer to purchase the same, free of the limitations provided for in this Agreement. 9.2 For purposes of this Agreement, ownership of Class B Common Shares shall include ownership through the Employees' Retirement Profit Sharing Plan of the Corporation, but only through the Common Stock Fund held thereunder, and each separate account in which such shares are held shall be considered a separate trust; provided, however, that notwithstanding Section 7.1 hereof, certificates representing Class B Common Shares held by the Trustee for the benefit of participants in such plan shall remain in the custody of such Trustee. 20 20 9.3 As used herein, the term "spouse" includes a widow or a widower. 9.4 As used herein, the term "current trust interest" means the interest of any beneficiary of a trust to whom interest or principal is currently distributable either in the discretion of the trustee or otherwise. 9.5 As used herein, the term "business day" means any day other than Saturday, Sunday or a federal holiday, and shall consist of the time period from 12:01 a.m. through 12:00 midnight, Eastern Standard Time. In computing any time period for purposes of this Agreement, the date of the event which begins the running of such time period shall be included except that if such event occurs on other than a business day such period shall begin to run on and shall include the first business day thereafter. 9.6 As used herein, the term "personal representative" means the executor, administrator or other personal representative of the estate of a deceased Participating Shareholder. 9.7 All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed given when delivered in hand or 72 hours after being deposited in a United States Post Office, postage prepaid, registered or certified mail, and addressed to the addressee at the address corresponding to such addressee's signature below, or to such other address 21 21 as may have been specified by such addressee to the Depository. 9.8 This Agreement shall inure to the benefit of and be binding upon the Participating Shareholders and the Corporation, any pledgee who agrees to be bound hereby pursuant to Section 2.2 hereof and their respective successors, heirs, personal representatives, legatees and assigns. All references herein to the Corporation shall include any other corporation to which this Agreement may be assigned, by operation of law or otherwise, in connection with any merger, reorganization, consolidation or other corporate transaction having an effect similar to the foregoing, and all references herein to the Articles of Incorporation of the Corporation shall refer to the Charter of any such other corporation, however denominated. 9.9 If any provision of this Agreement shall be found unenforceable by any court of competent jurisdiction to any extent, such holding shall not invalidate or render unenforceable such provision to any greater extent or to render unenforceable or invalidate any other provision hereof. 9.10 This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument, without production of the others. 22 22 9.11 This Agreement shall be construed in accordance with the internal substantive laws of the State of Ohio or such other jurisdiction as may at the time of construction be the jurisdiction of incorporation of the issuer of the Class B Common Shares. IN WITNESS WHEREOF, the Participating Shareholders and the Corporation have executed this Agreement or caused this Agreement to be executed in their respective names, as the case may be, all as of the date and year first above written. Signature Address --------- ------- /s/ Irving I. Stone 10500 American Road - ------------------------ Cleveland, Ohio 44144 Irving I. Stone /s/ Morris S. Stone 10500 American Road - ------------------------ Cleveland, Ohio 44144 Morris S. Stone /s/ Harry H. Stone 1540 Leader Building - ------------------------ Cleveland, Ohio 44114 Harry H. Stone /s/ Morry Weiss 10500 American Road - ------------------------ Cleveland, Ohio 44144 Morry Weiss /s/ Judith S. Weiss 4500 University Parkway - ------------------------ University Heights, Ohio 44118 Judith S. Weiss /s/ Judith S. Weiss 4500 University Parkway - ------------------------ University Heights, Ohio 44118 Judith S. Weiss, as Trustee under Revocable Trust Agreement originally dated April 21, 1947 for the benefit of Irving I. Stone 23 23 AMERITRUST COMPANY Corporate Trust Division NATIONAL ASSOCIATION, 900 Euclid Avenue as Trustee under Cleveland, Ohio 44101 Trust Agreement dated February 16, 1968 for the benefit of Morris S. Stone By /s/ , VP -------------------------------- Title: Vice President And /s/ ------------------------------- Title: Trust Officer /s/ Harry H. Stone 1540 Leader Building - ----------------------------------- Cleveland, Ohio 44114 /s/ Douglas B. Rose - ----------------------------------- Harry H. Stone and Douglas B. Rose, as successor Trustees under Trust Agreement dated April 21, 1947 for the benefit of Harry S. Stone /s/ Irving I. Stone - ----------------------------------- Irving I. Stone, as Trustee under the Voting Trust Agreement referred to in Sections 6.1 and 6.2 hereof /s/ Morris S. Stone - ----------------------------------- Morris S. Stone, as Trustee under the Voting Trust Agreement referred to in Section 6.1 hereof /s/ Morry Weiss - ----------------------------------- Morry Weiss as Trustee under the Voting Trust Agreement referred to in Section 6.2 hereof /s/ Judith S. Weiss - ----------------------------------- Judith S. Weiss, as Trustee under the Voting Trust Agreement referred to in Section 6.2 hereof 24 24 AMERICAN GREETINGS 10500 American Road Cleveland, Ohio 44144 By /s/ Morry Weiss ------------------------------ Title: President 25 SHAREHOLDERS' AGREEMENT ----------------------- COUNTERPART SIGNATURE PAGE -------------------------- The undersigned, intending to become a party to and to be bound by the Shareholders' Agreement dated as of November 19, 1984 (the "Agreement") pertaining to Class B Common Shares, par value $1 per share, of American Greetings Corporation, an Ohio Corporation, hereby executes this counterpart signature page of the Agreement as of the 19th day of November, 1984. /s/ Jacob Sapirstein ----------------------------- JACOB SAPIRSTEIN, for himself individually and as Trustee under the Voting Trust Agreement referred to in Section 6.1 of the Agreement 26 AmeriTrust Company National Association, by its duly authorized officers, hereby acknowledges receipt of an executed counterpart of the foregoing Shareholders' Agreement and agrees to act as Depository thereunder. AMERITRUST COMPANY NATIONAL ASSOCIATION, as Depository By /s/ --------------------------- Title: Vice President And /s/ -------------------------- Title: Trust Officer Address: Corporate Trust Division 900 Euclid Avenue Cleveland, Ohio 44101 27 EXHIBIT A --------- FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 54,500,000, consisting of 50,000,000 shares of Class A Common Stock, par value $1 per share ("Class A Common Stock"), and 4,500,000 shares of Class B Common Stock, par value $1 per share ("Class B Common Stock"). The powers, rights, privileges, qualifications, limitations and restrictions of each class of common stock are as follows: 1. Each share of Class A Common Stock shall be entitled to one vote upon all matters presented to stockholders. Each share of Class B Common Stock shall be entitled to ten votes upon all matters presented to stockholders. Any proposal to amend this Certificate of Incorporation to increase the authorized number of shares of Class A Common Stock or the authorized number of shares of Class B Common Stock shall require for its adoption the affirmative vote of the holders of at least two-thirds of the then outstanding shares of Class A Common Stock, voting as a class, and the affirmative vote of at least two-thirds of the then outstanding shares of Class B Common Stock, voting as a class. 2. (a) Subject to and upon compliance with the provisions of this Article FOURTH, the shares of Class B Common Stock shall be convertible at the option of the holders thereof into shares of Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class B Common Stock so converted. (b) The holders of shares of Class B Common Stock may exercise the conversion privilege in respect thereof by delivering to any Transfer Agent of the Class B Common Stock (i) the certificate for the shares of Class B Common Stock to be converted and (ii) written notice that the holder elects to convert such shares and stating the name or names (with address) in which the certificate for the shares of Class A Common Stock is to be issued. Conversion shall be deemed to have been effected on the date when such delivery is made, and such date is referred to herein as the "conversion date." On the conversion date or as promptly thereafter as practicable the Corporation shall issue and deliver to the holder of the shares of Class B Common Stock surrendered for conversion, or on his written order, a certificate for the number of full shares of Class A Common Stock issuable upon the conversion of such shares of Class B Common Stock. The person in whose name the 28 2 stock certificate is to be issued shall be deemed to have become a holder of shares of Class A Common Stock of record on the conversion date. The Corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued Class A Common Stock, for the purpose of effecting the conversion of the Class B Common Stock, such number of its duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock. Shares of Class B Common Stock which are converted into shares of Class A Common Stock as provided in this Article FOURTH shall not be reissued. 3. (a) No person (other than the Corporation) holding shares of Class B Common Stock (herein referred to as a "Class B Holder") may transfer, and the Corporation shall not register the transfer of, shares of Class B Common Stock, whether by sale, assignment, gift, bequest, appointment or otherwise, except to the Corporation or a Permitted Transferee of such Class B Holder. (b) For purposes of this paragraph (3), the term "Permitted Transferee" shall have the following meaning: (i) in the case of a Class B Holder who is a natural person holding record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means: (A) a grandparent of such Class B Holder, (B) a lineal descendant of a grandparent of such Class B Holder, (C) a spouse of a lineal descendant of a grandparent of such Class B Holder, (D) a lineal descendant of any spouse of a lineal descendent of a grandparent of such Class B Holder or the spouse of any such spouse's lineal descendant, (E) a gratuitous transferee that is an organization contributions to which are deductible for federal income, estate or gift tax purposes (any such gratuitous transferee being herein referred to as a "Charitable Organization"), and (F) the trustee of a trust (including, without limitation, a voting trust) for the exclusive benefit of one or more of the foregoing if such trust by its terms prohibits transfer of shares of Class B Common Stock to persons other than Permitted Transferees referred to in the foregoing subclauses of this clause (i); (ii) in the case of a Class B Holder holding the shares of Class B Common Stock in question as trustee pursuant to a trust other than a trust described in clause (iii) below, "Permitted Transferee" means (A) the person 29 3 who established such trust, and (B) a Permitted Transferee of such person determined pursuant to clause (i) above; (iii) in the case of a Class B Holder holding the shares of Class B Common Stock in question as trustee pursuant to a trust which was irrevocable on the record date, for determining the persons to whom the Class B Common Stock is first distributed by the Corporation, "Permitted Transferee" means any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise; (iv) in the case of a Class B Holder holding record (but not beneficial) ownership of the shares of Class B Common Stock in question as nominee for the person who was the beneficial owner thereof on the record date, "Permitted Transferee" means such beneficial owner and any Permitted Transferee of such beneficial owner determined pursuant to clause (i), (ii), (iii), (v) or (vi) hereof, as the case may be; (v) in the case of a Class B Holder which is a partnership holding record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means any partner of such partnership; (vi) in the case of a Class B Holder which is a corporation (other than a Charitable Organization described in subclause (E) of clause (i) above) holding record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means any stockholder of such corporation receiving shares of Class B Common Stock through a dividend or redemption or through a distribution made upon liquidation of such corporation, and the survivor of a merger or consolidation of such corporation; and (vii) in the case of a Class B Holder which is the estate of a deceased Class B Holder, or which is the estate of a bankrupt or insolvent Class B Holder, and provided such deceased, bankrupt or insolvent Class B Holder, as the case may be, held record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent Class B Holder as determined pursuant to clause (i), (v) or (vi) above, as the case may be. (c) Notwithstanding anything to the contrary set forth herein, any Class B Holder may pledge such Holder's shares of Class B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares 30 4 shall not be transferred to or registered in the name of the pledgee and shall remain subject to the provisions of this paragraph 3. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock may only be transferred to a Permitted Transferee of the pledgor or converted into shares of Class A Common Stock, as the pledgee may elect. (d) For purposes of this paragraph 3: (i) the relationship of any person that is derived by or through legal adoption prior to age 18 shall be considered a natural one; (ii) the term "spouse" shall include a widow or widower; (iii) each grandparent of any joint owner of particular shares of Class B Common Stock shall be considered a grandparent of all joint owners of such shares; (iv) a minor for whom shares of Class B Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Class B Holder of such shares; (v) in applying the term "exclusive benefit," a contingent trust interest having at the time of transfer an actuarial value (under actuarial tables then used for federal gift tax purposes for gifts between private individuals) of not more than five percent of the value of the assets of the trust shall be ignored; and (vi) unless otherwise specified, the term "person" means both natural persons and legal entities. (e) Any purported transfer of shares of Class B Common Stock not permitted by this Article FOURTH shall be void and of no effect and the purported transferee shall have no rights as a stockholder of the Corporation and no other rights against or with respect to the Corporation. The Corporation may, as a condition to the transfer or the registration of transfer of shares of Class B Common Stock to a purported Permitted Transferee, require the furnishing of such affidavits or other proof as it deems necessary to establish that such transferee is a Permitted Transferee. (f) The Corporation shall conspicuously note on the certificates representing shares of Class B Common Stock the restrictions on transfer and registration of transfer imposed by this paragraph (3). 31 5 4. Subject to and upon compliance with the provisions of this Article FOURTH, authorized and unissued shares of Class B Common Stock may be issued (after the date shares of Class B Common Stock are first issued by the Corporation) only simultaneously with the issuance of shares of Class A Common Stock for cash at the same cash price (without deduction for any commissions payable or discounts allowed) per share; provided, however, that the number of shares of Class B Common Stock so issued shall not exceed the product of (i) the number of shares of Class A Common Stock being so issued and (ii) the ratio of the number of shares of Class B Common Stock issued and outstanding at the record date fixed for determining the holders of Class B Common Stock who have the right as provided below to purchase such shares of Class B Common Stock being issued, to the number of shares of Class A Common Stock issued and outstanding at such date, except that authorized and unissued shares of Class B Common Stock may be issued without regard to the foregoing limitation pursuant to any dividend reinvestment plan approved by the Board of Directors of the Corporation. 5. The holders of shares of Class B Common Stock, upon the sale for cash of additional shares of Class B Common Stock, have the right to purchase such shares in proportion to their respective holdings of shares of Class B Common Stock at the price prescribed in the preceding paragraph (4) during such reasonable time and on such reasonable terms as may be fixed by the Board of Directors of the Corporation. Such terms may include provision for the purchase of shares of Class B Common Stock offered to holders who do not timely exercise such right by the other holders of shares of Class B Common Stock; provided, however, that no shareholder shall have any preemptive right with respect to any shares of Class B Common Stock issued pursuant to any dividend reinvestment plan approved by the Board of Directors of the Corporation. The holders of shares of Class A Common Stock and shares of Class B Common Stock shall have no other preemptive right to purchase or have offered to them for purchase any additional shares of stock of any class of the Corporation. 6. No change of outstanding shares of Class A Common Stock or shares of Class B Common Stock so as to effect a share dividend thereon or a split or combination thereon shall be made unless a corresponding change is made with respect to the shares of the stock of the other class. 7. Except as above provided each share of Class A Common Stock and each share of Class B Common Stock shall be identical and have similar rights, privileges, qualifications, limitations and restrictions. 32 EXHIBIT B --------- TERMS AND CONDITIONS OF ESCROW SECTION 1. Upon receiving certificates representing Class B Common Shares or Voting Trust Certificates representing Class B Common Shares (the "Certificates") to be deposited with AmeriTrust Company National Association (the "Depository") pursuant to the terms and conditions of the Agreement, the Depository shall hold the same in escrow upon the terms and conditions hereinafter set forth. SECTION 2. The Depository shall mark the appropriate legend on the face or the back of each Certificate deposited hereunder in accordance with Section 7.1 of the Agreement. SECTION 3. The Depository shall hold the Certificates until such time as it shall receive written notification, pursuant to the Agreement, that Class B Common Shares are to be converted or transferred. (a) In the event that such written notification states that Class B Common Shares are to be converted or transferred otherwise than as provided under Section 2.1 of the Agreement, then the Depository shall deliver the Certificates and take such further action, as contemplated by the Agreement, in accordance with written instructions executed by the parties to the Agreement who are transferring, converting or acquiring the Class B Common Shares represented by such Certificates; (b) In the event that such written notification states that Class B Common Shares are to be transferred by a Participating Shareholder as provided under Section 2.1 of the Agreement, then the Depository shall deliver the Certificates and take such further action, as contemplated by the Agreement, in accordance with the written instructions of the Participating Shareholder making such transfer. The Depository may, as a condition to taking any such action, require the furnishing of affidavits, or other proof as it deems necessary to establish that such transfer is permitted by such Section 2.1. (c) In no event shall the Depository be required to take any action under this Section 3 until it shall have received proper written instructions as stated herein. 33 2 SECTION 4. DUTIES AND ADVERSE CLAIMS. The duties and obligations of the Depository shall be determined solely by the express provisions of the Agreement including this Exhibit "B" (hereinafter collectively referred to as the Agreement). In the event of any disagreement or the presentation of any adverse claim or demand in connection with the delivery of Certificates, the Depository shall, at its option, be entitled to refuse to comply with any such claims or demands during the continuance of such disagreement and may refrain from delivering any Certificates affected hereby, and in so doing, the Depository shall not become liable to any party to the Agreement or to any other person due to its failure to comply with such adverse claim or demand. The Depository shall be entitled to continue, without liability, to refrain and refuse to act: (a) Until authorized to act by a court order from a court having jurisdiction of the parties and the property, after which time the Depository shall be entitled to act in conformity with such adjudication; or (b) Until all differences shall have been adjusted by agreement and the Depository shall have been notified thereof and shall have been directed in writing, signed jointly or in counterpart by all persons making adverse claims or demands, at which time the Depository shall be protected in acting in compliance therewith. SECTION 5. DEPOSITORY'S LIABILITY LIMITED. The Depository shall not be liable to anyone whatsoever by reason of any error of judgment or for any act done or step taken or omitted by it in good faith or for any mistake of fact or law or for anything which it may do or refrain from doing in connection herewith unless caused by or arising out of its own gross negligence or willful misconduct. The parties to the Agreement represent to the Depository that they have and shall continue to solicit the advice of their respective counsel regarding compliance with all applicable state and federal securities laws in connection with the transactions contemplated by the Agreement and that they will act in accordance with such advice. The Depository shall have no responsibility to ensure compliance with any such securities laws, and such responsibility rests solely with the parties to the Agreement. SECTION 6. RELIANCE BY DEPOSITORY ON DOCUMENTS, ETC. The Depository shall be entitled to rely and shall be protected in acting in reliance upon any instructions or directions furnished to it in writing pursuant to any provisions of the 34 3 Agreement and shall be entitled to treat as genuine, and as the document it purports to be, any letter, paper or other document furnished to it and believed by it to be genuine and to have been signed and presented by the proper party or parties. Without limiting the generality of the foregoing, in the absence of written notice received by the Depository to the contrary, the Depository shall be entitled to rely upon its due receipt of any notice under the Agreement as conclusive evidence that such notice was given to all other persons as required by the Agreement if such notice so indicates by its terms. SECTION 7. INDEMNIFICATION AND LEGAL COUNSEL FOR DEPOSITORY. The parties to the Agreement hereby agree to indemnify the Depository and save it harmless from and against all losses, damages, costs, charges, payments, liabilities and expenses, including the costs of litigation, investigation and reasonable legal fees incurred by the Depository and arising directly or indirectly out of its role as Depository pursuant to the Agreement, including such losses, damages, costs, charges, payments, and suits made or asserted, whether groundless or otherwise, against the Depository unless the same arise out of the willful misconduct or gross negligence of the Depository. The parties to the Agreement agree that the Depository does not assume any responsibility for the failure of any of the parties to make payments or perform the conditions of the Agreement, nor shall the Depository be responsible for the collection of any monies provided to be paid to it. The Depository may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The provisions of this Section 7 shall survive termination of the escrow arrangement contemplated hereby. SECTION 8. COMPENSATION. The parties to the Agreement agree to pay the Depository reasonable compensation for the services to be rendered hereunder and will pay or reimburse the Depository upon request for all expenses, disbursements and advances, including reasonable attorneys fees, incurred or made by it in connection with carrying out its duties hereunder. SECTION 9. LIENS. The Depository shall have a first lien on all items held by it herewith for its compensation and for any costs, liability, expenses, or fees it may incur and shall not be required to deliver or pay over any instrument, money, or other property deposited with it under this Agreement unless and until it shall have received full payment for its compensation, costs, liability, expenses, or fees. 35 4 SECTION 10. RESIGNATION. The Depository shall have the right to resign upon giving thirty (30) days written notice by mailing said written notice thereof to the proper party or parties; provided that no such resignation shall become effective until a successor has been duly appointed to act as Depository by amendment to the Agreement and such successor has agreed so to act. EX-10.II.A.II 5 EXHIBIT 10(II)(A)(II) 1 Exhibit (10)(ii)(A)(ii) AMERICAN GREETINGS CORPORATION RESOLUTIONS OF BOARD OF DIRECTORS CONSTITUTING EXECUTIVES' BONUS PLAN Resolution Adopted January 27, 1950 - ----------------------------------- RESOLVED that, until further order of this Board of Directors, the basic salaries of the President and Vice Presidents shall be at the following respective annual rates: Jacob Sapirstein, President - $40,000 Irving I. Stone, Vice President - 40,000 Morris S. Stone, Vice President - 40,000 Harry H. Stone, Vice President - 40,000 Joe Zel, Vice President - 23,000 and that, within seventy-five days after the close of each fiscal year of the Corporation, beginning with its present fiscal year, there shall be paid to each of said officers a bonus computed by applying against his basic salary the percentage by which the net profits of the Corporation for that fiscal year exceed the sum of $1,100,000, the net profits, for the purposes of this resolution, being defined to be the net profits before adjustment for capital gains and losses, all taxes based on or measured by net income, all contributions made or to be made to the employees' current and deferred profit sharing plans as such plans now exist or may be amended, and these bonuses; provided, however, that if in any fiscal year the net profits, as above defined, are less than the sum of $1,100,000, then such deficiency shall, for the purpose of computing these bonuses, be carried over to the next succeeding fiscal year and applied to reduce the amount, if any, by which the net profits, as above defined, for that fiscal year exceed the sum of $1,100,000, and if there is no such excess in that year, or if such deficiency is not entirely absorbed by such application, then such deficiency or the unabsorbed remainder thereof, as the case may be, shall, for the purpose of computing these bonuses, be carried over to the second succeeding fiscal year and applied to reduce the amount, if any, by which the net profits, as above defined, for that fiscal year exceed the sum of $1,100,000, and if there is no such excess in that year, or if such deficiency is not entirely absorbed by such application, then such deficiency, or the unabsorbed remainder thereof, as the case may be, shall, for the purpose of computing these bonuses, be similarly carried over successively to the third and following fiscal years until entirely 50 absorbed; provided, further, that no bonus shall be paid to any of said officers with respect to any fiscal year of the Corporation as of the end of which the Corporation does not have an excess of current assets over liabilities, as defined in the notes dated June 28, 1946 by the Corporation to The Cleveland Trust Company and The National City Bank of Cleveland in the amounts of $500,000 each, of at least $1,000,000 and a ratio of current assets to such liabilities of at least 1.75 to 1, all determined as provided in said notes; provided, further, that in no event shall the total of the basic salary and bonus to be paid to any said officer with respect to any fiscal year exceed by more than one-third the total 2 2 of the basic salary and bonus paid to such officer with respect to the next preceding fiscal year; and also provided, further, that all computations made pursuant to this resolution and all questions arising under this resolution shall be made and decided by Messrs. Ernst & Ernst, or such other firm of certified public accountants as may then be acting as the auditors of the Corporation, whose determination shall be final and conclusive upon all parties. Resolution Adopted February 24, 1950 - ------------------------------------ RESOLVED that, until further order of this Board of Directors, the basic salary of Joe Zel, Vice President, shall be at the rate of $25,000.00 per annum, effective March 1, 1950, and that all other conditions of his compensation remain the same as stipulated in the resolution of the Board of Directors adopted at its January 27, 1950 meeting pertaining to the compensation of the President and the Vice Presidents of the Corporation. Resolution Adopted June 30, 1950 - -------------------------------- RESOLVED that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors of the Corporation held on January 27, 1950 be, and the same hereby is, amended to include, until further order of this Board, Louis F. Salchow, Controller, Assistant Secretary and Assistant Treasurer, at a basic salary at the annual rate of $13,500, such inclusion to begin with the present fiscal year of the Corporation, and such participation to be subject to all the terms, conditions, provisions and limitations of said executives' bonus plan as now or hereafter constituted. Resolution Adopted February 23, 1951 - ------------------------------------ RESOLVED that, until further order of this Board of Directors, the basic salary of Louis F. Salchow, Controller, Assistant Secretary and Assistant Treasurer, shall be at the annual rate of $16,000.00, effective March 1, 1951. FURTHER RESOLVED that the resolution with reference to the participation of Louis F, Salchow in the Executives' Bonus Plan as set forth and adopted at the meeting of the Board of Directors of the Corporation held on June 30, 1950, be and the same is hereby amended to increase, until further order of this Board, the basic salary at the annual rate of $13,500.00 to $16,000.00, effective March 1, 1951. Resolution Adopted March 28, 1952 - --------------------------------- RESOLVED that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, and February 23, 1951, respectively, be; and the same hereby is; 3 3 further amended to provide that until further order of this Board any bonus payable under said resolution of January 27, 1950 for any fiscal year beginning after February 29, 1952 to any of the following officers, to wit, Jacob Sapirstein, President, Irving I. Stone, Vice President, Morris S. Stone, Vice President, and Harry H. Stone, Vice President, shall in no event exceed such amount which when added to the basic salary of such officer for the fiscal year involved and the amount payable to him for such fiscal year under the employees' current profit sharing plan of the Corporation, as such plan now exists or may be amended, shall constitute a total of $50,000 for such fiscal year. Resolution Adopted February 4, 1953 - ----------------------------------- RESOLVED that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23, 1951, and March 28, 1952, respectively, be, and the same hereby is, further amended to provide that until further order of this Board any bonus payable under said resolution of January 27, 1950, as so amended, for any fiscal year beginning after February 29, 1952 to either of the following officers, to wit, Joe Zel, Vice President, and Louis F. Salchow, Vice President, shall in no event exceed such amount which when added to the basic salary of such officer for the fiscal year involved and the amount payable to him for such fiscal year under the employees' current profit sharing plan of the Corporation, as such plan now exists or may be amended, shall constitute in the case of said Joe Zel a total of $48,000.00, and in the case of said Louis F. Salchow a total of $30,000.00, for such fiscal year. Resolution Adopted June 26, 1953 - -------------------------------- RESOLVED that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, and February 4, 1953, respectively, be, and the same hereby is, further amended to provide that until further order of this Board the limitations imposed by said resolutions adopted at the meetings of the Board of Directors held on March 28, 1952 and February 4, 1953 with respect to the amount of bonus shall apply only to any bonus payable for a fiscal year for which the net profits of the Corporation as defined in said resolution of January 27, 1950 shall not exceed the sum of $2,500,000, and that if the net profits of the Corporation as so defined shall for any fiscal year beginning after February 28, 1953 exceed said sum of $2,500,000, then any bonus payable for such fiscal year under said resolution of January 27, 1950 as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, and February 23, 1951 shall in no event exceed such amount which when added to the 4 4 basic salary of such officer for such fiscal year and the amount payable to him for such fiscal year under the employees' current profit sharing plan of the Corporation as such plan now exists or may be amended shall constitute a total sum which shall bear the same ratio in the case of each of Jacob Sapirstein, President, Irving I. Stone, Vice President, Morris S. Stone, Vice President, and Harry H. Stone, Vice President, to the sum of $50,000, and in the case of Joe Zel, Vice President, to the sum of $48,000, and in the case of Louis F. Salchow, Vice President, to the sum of $30,000, as such net profits for such fiscal year shall bear to the sum of $2,500,000. Resolution Adopted August 27, 1954 - ---------------------------------- RESOLVED that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, February 4, 1953 and June 26, 1953, respectively, be, and the same hereby is, further amended to provide that, until further order of this Board, if the net profits of the Corporation as defined in said resolution of January 27, 1950 shall for any fiscal year beginning after February 28, 1954 exceed the sum of $2,500,000, then any bonus payable to any such officer for such fiscal year under said resolution of January 27, 1950 as amended by said resolutions of February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, February 4, 1953, and June 26, 1953 shall in no event exceed the greater of (i) an amount which when added to the basic salary of such officer for such year shall equal, in the case of each of Jacob Sapirstein, President, Irving I. Stone, Vice President, Morris S. Stone, Vice President, and Harry H. Stone, Vice President, the sum of $50,000, and in the case of Joe Zel, Vice President, the sum of $48,000, and in the case of Louis F. Salchow, Vice President, the sum of $30,000, or (ii) an amount determined by multiplying the basic salary of such officer for such year by one-half of the ratio which such net profits in excess of $2,500,000 bear to $2,500,000. Resolution Adopted January 27, 1956 - ----------------------------------- RESOLVED that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23, 1951, March 1952, February 1953, June 1953, 28, 4, 26, and August 27, 1954, respectively, be, and the same hereby is, further amended to provide that, until further order of this Board, the basic salary upon which the bonus payable thereunder (other than the bonus determined by applying the maximum limitations prescribed by such resolutions) to any officer for any fiscal year, beginning with the current fiscal year, is computed shall be his annual rate of salary at the end of such fiscal year. 5 5 Resolution Adopted October 14, 1958 - ----------------------------------- RESOLVED, that the executives' bonus plan as set forth in the resolutions with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23,1951, March 28, 1952, February 4, 1953, June 26, 1953, August 27, 1954 and January 27, 1956 be, and the same hereby is, further amended to provide that, until further order of this Board, (1) the bonus payable to Joe Zel for the current fiscal year of the Corporation shall not exceed the lesser of (a) two-thirds of the amount which would be payable to him under said plan without regard to the limitations on his bonus therein set forth or the limitations of this resolution, or (b) two-thirds of the greater of (i) the amount which when added to his basic salary for such year shall equal the sum of $48,000 or (ii) the amount determined by multiplying his basic salary (as defined in said resolution of January 27, 1956) for such year by one-half the ratio which the net profits of the Corporation for such year (as defined in said resolution of January 27, 1950) in excess of $2,500,000 bear to $2,500,000; and (2) Joe Zel shall not be entitled to receive any bonus under said plan for any subsequent fiscal year of the Corporation. Resolution Adopted May 29, 1959 - ------------------------------- FURTHER RESOLVED, that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at the meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, February 4, 1953, June 26,1953, August 27, 1954, January 27, 1956 and October 14, 1958 be and the same hereby is further amended to provide that, until further order of this Board, Jacob Sapirstein and Louis F. Salchow shall not be entitled to receive any bonus under said plan for the current or any subsequent fiscal year of the Corporation. 6 6 Resolution Adopted August 7, 1959 - --------------------------------- RESOLVED, that the executives' bonus plan as set forth in the resolution with reference thereto adopted at the meeting of the Board of Directors held on January 27, 1950 and as amended by the resolutions with reference thereto adopted at meetings of the Board of Directors held on February 24, 1950, June 30, 1950, February 23, 1951, March 28, 1952, February 4, 1953, June 26, 1953, August 27, 1954, January 27, 1956, October 14, 1958 and May 29, 1959 be and the same hereby is further amended so that, until further order of this Board, the clause appearing in said resolution adopted at the meeting of the Board of Directors held on January 27, 1950 that reads as follows: "provided, further, that no bonus shall be paid to any of said officers with respect to any fiscal year of the Corporation as of the end of which the Corporation does not have an excess of current assets over liabilities, as defined in the notes dated June 28, 1946 by the Corporation to The Cleveland Trust Company and The National City Bank of Cleveland in the amounts of $500,000 each, of at least $1,000,000 and a ratio of current assets to such liabilities of at least 1.75 to 1, all determined as provided in said notes" shall be changed to read as follows: "provided, further, that no bonus shall be paid to any of said officers with respect to any fiscal year of the Corporation as of the end of which the Corporation does not have an excess of current assets over current liabilities of at least $1,000,000 and a ratio of current assets to current liabilities of at least 1.75 to 1". Resolution Adopted July 24, 1969 - -------------------------------- RESOLVED, that the Executive Bonus Plan adopted on January 27, 1950 and as amended, be and the same hereby is further amended to provide that Harry H. Stone shall not be entitled to receive any bonus under said Plan for the current or any subsequent fiscal year of the Company. Resolution Adopted January 12, 1979 - ----------------------------------- FURTHER RESOLVED, that the Executive Bonus Plan as set forth in the resolutions with reference thereto adopted at the meeting of the Board of Directors held January 27, 1950 and as subsequently amended, is hereby further amended as follows: "the term 'net profits' as appearing in said Plan shall be defined to mean 'the net profits of American Greetings Corporation before adjustment for equity gains and losses of any subsidiary corporation, any dividend received from any subsidiary corporation, capital gains and losses, all taxes based on or measured by net income, all contributions made or to be made to the American Greetings Corporation Employees' Retirement Profit Sharing Plan as such Plan now exists or may be amended and these bonuses;'" 7 AMERICAN GREETINGS CORPORATION Action by Directors without a Meeting ------------------------------------- The undersigned, constituting all of the directors of the Corporation, acting without a meeting pursuant to Section 1701.54 of the Ohio General Code, hereby adopt, effective April 10, 1980, the following resolution: WHEREAS, in light of limitations applicable to the compensation of other employees of the Corporation, such action is considered necessary and appropriate and in the best interests of the Corporation, RESOLVED, that amounts payable to executives under the Executive Bonus Plan of the Corporation for its fiscal year ended February 29, 1980 shall be limited to the amounts payable under such plan to such executives, respectively, for the fiscal year ended February 28, 1979. FURTHER RESOLVED, that except as above set forth such Plan shall continue in force unchanged. Date: April 28 , 1980 /s/ Frank E. Joseph ------------ ----------------------------- Frank E. Joseph /s/ Albert B. Ratner Date: April 28 , 1980 ---------------------------- ------------ Albert B. Ratner Date: April 28 , 1980 /s/ Jacob Sapirstein ----------- ------------------------------- Jacob Sapirstein Date: April 10 , 1980 /s/ Sy Scheckner ----------- ------------------------------- Sy Scheckner Date: April 10 , 1980 /s/ Harry H. Stone ----------- ------------------------------- Harry H. Stone Date: April 10 , 1980 /s/ Irving I. Stone ----------- ------------------------------- Irving I. Stone Date: April 10 , 1980 /s/ Morris S. Stone ----------- ------------------------------- Morris S. Stone 8 2 Date: April 10 , 1980 /s/ Morry Weiss ----------- ------------------------------- Morry Weiss Date: April 10 , 1980 /s/ Morton Wyman ----------- ------------------------------- Morton Wyman 9 1912 AMERICAN GREETINGS CORPORATION Action by Directors without a Meeting ------------------------------------- The undersigned, constituting all of the directors of the Corporation, acting without a meeting pursuant to Section 1701.54 of the Ohio General Code, hereby adopt, effective March 24, 1981, the following resolution: WHEREAS, the participants under the Executive Bonus Plan of the Corporation have agreed to limit the amount of bonus to be paid to them pursuant to such Plan for the fiscal year ended February 28, 1981 and such action is considered acceptable, appropriate and in the best interest of the Corporation, RESOLVED, that the amount payable to executives under the Executive Bonus Plan of the Corporation for its fiscal year ended February 28, 1981 shall be limited to the amount of $210,000. FURTHER RESOLVED, that except as above set forth such Plan shall continue in force unchanged. Date: 4/21/81 /s/ Morry Weiss for Jacob Sapirstein Attorney-in-fact -------------- ------------------------------- Jacob Sapirstein Date: Mar 30/1981 /s/ Irving I. Stone -------------- ------------------------------- Irving I. Stone Date: 4-3-81 /s/ Morris S. Stone -------------- ------------------------------- Morris S. Stone Date: 3/30/81 /s/ Harry H. Stone -------------- ------------------------------- Harry H. Stone Date: 3/30/81 /s/ Morry Weiss -------------- ------------------------------- Morry Weiss Date: 3/30/81 /s/ Morton Wyman -------------- ------------------------------- Morton Wyman Date: 4/13/81 /s/ Frank E. Joseph -------------- ------------------------------- Frank E. Joseph Date: 4/15/81 /s/ Albert B. Ratner -------------- ------------------------------- Albert B. Ratner Date: 4/22/81 /s/ Sy Scheckner -------------- ------------------------------- Sy Scheckner EX-10.II.A.III 6 EXHIBIT 10(II)(A)(III) 1 Exhibit (10)(ii)(A)(iii) EXECUTIVE INCENTIVE COMPENSATION PLAN (AS AMENDED AND RESTATED THROUGH MARCH 6, 1989) BASIC PLAN - ---------- American Greetings Corporation ("Corporation") has established this Executive Incentive Compensation Plan for certain officers and other key management personnel. The plan, as amended, is effective with the fiscal years beginning March 1, 1988, for the Corporation or February 1, 1988, for certain subsidiaries of the Corporation. Under the Plan, the Board of Directors of the Corporation shall, prior to the commencement of each fiscal year, or as promptly as possible thereafter, establish a Profit Goal for each Division or subsidiary of the Corporation and the desired pro forma pre-tax profit of each Division or subsidiary of the Corporation for the fiscal year as determined by the Board of Directors of the Corporation at its absolute discretion. The Consolidated Profit Goal for the Corporation, however, shall be stated in terms of the pre-tax profit of the Consolidated Corporation. One or more of these profit goals are assigned to each Eligible Participant, which becomes the Eligible Participant's target profit goal and on which the participant is assigned a target bonus which in no instance may exceed 60% of the Eligible Participant's base salary. If the target goal or goals are achieved, cash bonuses are to be paid to the achieving Eligible Participants equal to the individual Eligible Participant's target bonus. If actual performance is above the target profit goal by a percentage not more than 10%, or below the target profit goal by a percentage not more than 20%, the bonus is increased or decreased by a percentage equal to twice the excess or shortfall. If actual performance is less than 80% of the target profit goal, no bonus is paid; if it is greater than 110% of the target profit goal, the bonus remains at 120% of the target bonus. For computation purposes, profit goals and actual performance shall be rounded to the nearest thousand dollars or other local currency unit and achievement of profit goals shall be computed with reference to the nearest one-tenth of one percent. All bonuses hereunder will be paid in cash. For each Division or subsidiary corporation, the term "pro forma pre-tax profit" as used herein shall mean its income before investment interest income, income taxes, and actual interest expense, exclusive of: profits and losses on the sale or disposal of assets classified on the Corporation's balance sheet as property, plant and equipment (excluding display cabinets, in the case of greeting card divisions); gains or losses resulting 2 from foreign currency transactions (excluding gains or losses resulting from intra-Divisional transactions); bonus provisions or payments under this Executive Incentive Compensation Plan; and, such other adjustments as may from time to time be established by the Board of Directors of the Corporation in the course of their determination of the Division's or subsidiary corporation's performance goal for such fiscal year, less interest on the Division's or subsidiary corporation's average monthly net capital employed. Net capital employed is defined to be the total assets of a division or subsidiary corporation excluding cash and marketable securities, intercompany balances and investments, and goodwill, less all non-interest bearing liabilities excluding income taxes deferred or payable. All bonus achievement computations shall be determined by the independent accountants of each Division or subsidiary corporation in accordance with generally accepted accounting principles, or in the case of Divisions that are not audited by independent accountants, as determined in accordance with generally accepted accounting principles and as reviewed and approved by the Chief Financial Officer of the Corporation. For the Consolidated Corporation, the term "pre-tax profit" shall mean the "consolidated pre-tax, pre-interest profits" as defined above after adjustment for consolidated investment interest income and actual interest expense. The determination of which officers and key management personnel shall be considered as Eligible Participants and which profit goals and target bonuses they are assigned shall be the responsibility of the Chief Executive Officer of the Corporation, subject, however, to whatever guidelines and policies may be approved by the Board of Directors of the Corporation, or the Executive Committee or Compensation Committee of the Board of Directors of the Corporation. Target bonuses under this Plan shall be based on a percentage of the Eligible Participant's base salary. The term "base salary" as used herein shall mean all compensation (exclusive of fringe benefits, benefits paid under any long-term disability plan, or other forms of indirect compensation) actually paid to a participant during the fiscal year, excluding amounts paid under this Plan. (For purposes of this Plan, base salary is to be determined on the cash rather than the accrual basis.) If an employee becomes an Eligible Participant under this Plan subsequent to the beginning of a fiscal year, his base salary upon which his target bonus is derived shall include his base salary (as defined herein) paid to him from the date of his eligibility, to the end of such fiscal year. If an Eligible Participant ceases to be classified as an Eligible Participant by virtue of a change in his work duties during a fiscal year but remains in the employ of the Corporation, subsidiary of the Corporation, or Division, his base salary and target bonus shall be similarly based on the actual period of his eligibility. 3 In the event an Eligible Participant leaves the employ of the Corporation, subsidiary of the Corporation, or Division during the fiscal year, there shall be no bonus paid to him for that fiscal year. However, if a participant leaves the employ of the Corporation, subsidiary of the Corporation, or Division during the fiscal year as a result of disability or death or upon retirement after achieving at least 60 years of age, his base salary and target bonus shall be based on the actual period of his eligibility as outlined above. All bonuses payable under this Plan shall be paid on the date (or shortly thereafter) that American Greetings Corporation announces its fiscal year end results to the public, such date generally being during the first full week of April. All questions of interpretation and application of this Plan shall be decided by the Chief Executive Officer of the Corporation or the Board of Directors of the Corporation, whose decisions, made in good faith, shall be final and binding on all parties. In the absence of bad faith or gross neglect of duty on their part, neither the Chief Executive Officer of the Corporation or the Board of Directors of the Corporation shall have any liability to the Corporation, subsidiary of the Corporation, or any Division or to any of their employees arising out of or in connection with the administration of this Plan. SUPPLEMENTAL PLAN (FISCAL YEARS 1989, 1990 AND 1991) - ---------------------------------------------------- In addition to the foregoing (but independent of the one year corporate, divisional and subsidiary goals that are established annually under the Basic Plan outlined above, if in the fiscal years ending February 28, 1989, 1990 and 1991, the original Profit Goals for those years as approved at the Board of Directors meetings in January and April, 1988 (the Original Profit Goals) are achieved in whole or in part, then a special supplemental bonus may be payable under this Supplemental Plan. Terms and qualifications for the supplemental bonus are as follows: To qualify for bonus participation in each year, an Eligible Participant's Division or subsidiary must first achieve at least 80% of its Original Profit Goal for that year. Secondly, 100% of the Original Corporate Consolidated Profit Goal must be achieved for that year. If these qualifications are achieved in all three years, then a bonus equal to 100% of the total of the Targeted Bonuses for each of the three years shall be payable. However, if an Eligible Participant qualifies for this supplemental bonus in only two of the three fiscal years, then only 60% of the total of the Targeted Bonuses for each of the three years shall be payable. If an Eligible Participant qualifies in less than two of the three years, then no bonus will be paid under this Supplemental Plan. All bonuses payable under this Supplemental Plan shall be paid on the date (or shortly thereafter) that American Greetings Corporation announces its Fiscal 1991 year end results to the public in April, 1991. EX-10.II.A.IX 7 EXHIBIT 10(II)(A)(IX) 1 Exhibit (10)(ii)(A)(ix) AMERICAN GREETINGS CORPORATION Stock Option Agreement 1987 Class B Stock Option Plan ------------------------------ WHEREAS, MORRY WEISS (hereinafter called the "Optionee") is President of American Greetings Corporation, an Ohio corporation (the "Company"); and WHEREAS, the execution of this Stock Option Agreement pursuant to the Company's 1987 Class B Stock Option Plan has been duly authorized by a resolution of the Board of Directors of the Company duly adopted on January 25, 1988; NOW, THEREFORE, the Company hereby grants to the Optionee an option to purchase 425,000 Class B Common Shares, par value $1 per share, of the Company at the price of Fourteen and 5/16 Dollars ($14.3125) per share, and agrees to cause certificates for any shares purchased hereunder to be delivered to the Optionee upon payment of the purchase price in full, all subject, however, to the terms and conditions hereinafter set forth. 1. This option (until terminated as hereinafter provided) shall be exercisable only to the extent of one-quarter of the shares hereinabove specified after the Optionee shall have been in the continuous employ of the Company or any Subsidiary for one full year from the date hereof and to the extent of an additional one-quarter of such shares after each of the next three successive years thereafter during which the Optionee shall have been in the continuous employ of the Company or any Subsidiary. If the Optionee should retire at normal retirement age or at an early retirement age with the consent of the Board of Directors, die or become permanently disabled after having been in the continuous employ of the Company or any Subsidiary for a period of at least ten years, this option shall, notwithstanding the preceding sentence, immediately become exercisable in full. For the purposes of this paragraph, leaves of absence approved by the Board of Directors or Stock Option Committee of the Company for illness, military or governmental service, or other cause, shall be considered as employment. To the extent exercisable, this option may be exercised in whole or in part from time to time. 2. This Option shall terminate on the earliest of the following dates: (A) On the date on which the Optionee ceases to be an employee of the Company or a Subsidiary, unless he ceases to be such employee by reason of retirement as described in Section (1) above, death or permanent disability or in a manner described in (B) below; 2 (B) Three months after the Optionee ceases to be an employee of the Company or a Subsidiary by reason of termination of employment under circumstances determined by the Board of Directors to be for the convenience of the Company; (C) One year after the death or permanent disability of the Optionee if the Optionee dies or becomes permanently disabled while an employee of the Company or a subsidiary or within the three-month period referred to in (B) above; (D) Ten years and three months from the date on which this option was granted. Nothing contained in this Stock Option Agreement shall limit whatever the right the Company or a Subsidiary might otherwise have to terminate the employment of the Optionee. 3. This option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution, and is exercisable, during the lifetime of the Optionee, only by him or his legal representative. The purchase price payable upon exercise of this option may, at the election of the Optionee, be paid (a) in cash or by check acceptable to the Company; (b) if specifically approved at or prior to the time of exercise by the Board of Directors, by the transfer to the Company by the Optionee of Class A or Class B Common Shares of the Company that have been owned by him for at least six months and have a value at the time of exercise equal to the total option price or (c) by a combination of such methods of payment. 4. This option shall not be exercisable if such exercise would involve a violation of any applicable federal or state securities law, and the Company hereby agrees to make reasonable efforts to comply with such securities laws. If the Ohio Securities Act shall be applicable to this option, it shall not be exercisable unless under such Act at the time of exercise the Class B Common Shares or other securities purchasable hereunder are exempt, are the subject matter of an exempt transaction, are registered by description or by qualification, or at such time are the subject matter of a transaction which has been registered by description. 5. The Board of Directors shall make such adjustments in the option price and in the number or kind of Class B Common Shares or other securities covered by this option as such Board in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of the Optionee that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other changes in the capital structure of the Company, or (b) any merger, consolidation, separation, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase stock, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. 3 EXECUTED at Cleveland, Ohio as of the 25th day of January, 1988. AMERICAN GREETINGS CORPORATION By /s/ Henry Lowenthal ---------------------------------- Title: Senior Vice President and Chief Financial Officer The undersigned Optionee hereby acknowledges receipt of an executed original of this Stock Option Agreement and accepts the option granted thereunder. The Optionee acknowledges that he has been advised that the Class B Common Shares covered by such Agreement have not been registered under the Securities Act of 1933 and agrees that he will not make any disposition of such shares unless either (a) such shares have been registered under such Act or (b) an exemption from the registration provisions of such Act is applicable to the Optionee's proposed disposition of such shares. The Optionee understands that the certificates for such shares may bear a legend substantially as follows: The shares evidenced by this Certificate have not been registered under the Securities Act of 1933. Such shares may not be sold or otherwise transferred until the same have been registered under such Act or until the Company shall have received an opinion of legal counsel or a copy of a letter from the Staff of the Division of Corporation Finance of the Securities and Exchange Commission, in either case satisfactory to the Company, that such shares may legally be sold or otherwise transferred without such registration." /s/ Morry Weiss --------------------------- EX-10.II.A.X 8 EXHIBIT 10(II)(A)(X) 1 Exhibit (10)(ii)(A)(x) LOAN AGREEMENT This Loan Agreement is executed this 1st day of March, 1990, by and between American Greetings Corporation (AGC) and Edward Fruchtenbaum (Fruchtenbaum). In consideration for the attached signed promissory note, AGC hereby loans Fruchtenbaum $200,000.00, receipt of which Fruchtenbaum hereby acknowledges. At the end of each fiscal year commencing February 28, 1991, AGC agrees to forgive $20,000.00 of principal. Beginning February 28, 1991, and on each February 28th thereafter until February 28; 2001, Fruchtenbaum shall pay simple interest of 10% per annum based on the principal balance at the beginning of each fiscal year plus accrued unpaid interest. AGC agrees to forgive the entire remaining principal balance plus accrued interest if and when Fruchtenbaum dies, becomes totally disabled, is terminated by AGC, is terminated as a result of a change in control of AGC, or retires or terminates his employment as mutually agreed to by AGC and Fruchtenbaum. Fruchtenbaum will report the forgiveness of principal hereunder on his individual tax returns. This loan shall be unsecured. American Greetings Corporation By: /s/ Irving I. Stone /s/ Edward Fruchtenbaum -------------------------- ----------------------------- Edward Fruchtenbaum 2
ANNUAL PAYMENTS Period Principal Principal Payment/ Interest Interest (Fiscal Year) At Beginning At End Forgive Rate Expense ------------- ------------ ------ ------- ---- ------- Year 1 200,000 180,000 20,000 10.00% 20,000 Year 2 180,000 160,000 20,000 10.00% 18,000 Year 3 160,000 140,000 20,000 10.00% 16,000 Year 4 140,000 120,000 20,000 10.00% 14,000 Year 5 120,000 100,000 20,000 10.00% 12,000 Year 6 100,000 80,000 20,000 10.00% 10,000 Year 7 80,000 60,000 20,000 10.00% 8,000 Year 8 60,000 40,000 20,000 10.00% 6,000 Year 9 40,000 20,000 20,000 10.00% 4,000 Year 10 20,000 0 20,000 10.00% 2,000 110,000
3 PROMISSORY NOTE March 1, 1990 Cleveland, Ohio On terminating my employment with American Greetings Corporation (AGC) without AGC's written consent, for value received, I promise to pay to the order of AGC within two business days of such termination the beginning principal balance set forth in the attached schedule for the fiscal year of my termination at 10500 American Road, Cleveland, Ohio, with accrued unpaid simple interest at the rate of 10% per annum on the beginning principal balance for each fiscal year as set forth in attached schedule. /s/ Edward Fruchtenbaum ----------------------------------- Edward Fruchtenbaum EX-10.II.A.XV 9 EXHIBIT 10(II)(A)(XV) 1 Exhibit (10)(ii)(A)(xv) APPENDIX A APPROVAL OF 1997 AMERICAN GREETINGS CORPORATION 1997 Equity and Performance Incentive Plan 1. PURPOSE. The purpose of the 1997 Equity and Performance Incentive Plan (the "Plan") is to attract and retain directors, officers and other key employees for American Greetings Corporation (the "Company") and its Subsidiaries and to provide to such persons incentives and rewards for superior performance. 2. DEFINITIONS. As used in this Plan, "Appreciation Right" means a right granted pursuant to Section 5 of this Plan, and shall include both Tandem Appreciation Rights and Free-Standing Appreciation Rights. "Board" means the Board of Directors of the Company and, to the extent of any delegation by the Board to a committee (or subcommittee thereof) pursuant to Section 16 of this Plan, such committee (or subcommittee). "Change in Control" shall have the meaning provided in Section 12 of this Plan. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Class A Common Shares" means Class A Common Shares, par value $1 per share, of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 11 of this Plan. "Class B Common Shares" means Class B Common Shares, par value $1 per share, of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 11 of this Plan. "Common Shares" means Class A Common Shares, Class B Common Shares or both. "Covered Employee" means a Participant who is, or is determined by the Board to be likely to become, a "covered employee" within the meaning of Section 162(m) of the Code (or any successor provision). "Date of Grant" means the date specified by the Board on which a grant of Option Rights, Appreciation Rights, Performance Shares or Performance Units or a grant or sale of Restricted Shares or Deferred Shares shall become effective (which date shall not be earlier than the date on which the Board takes action with respect thereto). "Deferral Period" means the period of time during which Deferred Shares are subject to deferral limitations under Section 7 of this Plan. "Deferred Shares" means an award made pursuant to Section 7 of this Plan of the right to receive Common Shares at the end of a specified Deferral Period. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time. "Exercise Right" means the price payable upon exercise of a Free-Standing Appreciation Right. "Free-Standing Appreciation Right" means an Appreciation Right not granted in tandem with an Option Right. "Incentive Stock Options" means Option Rights that are intended to qualify as "incentive stock options" under Section 422 of the Code or any successor provision. "Management Objectives" means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or Performance Units or, when so determined by the Board, Option Rights, Appreciation Rights, Restricted Shares and dividend credits pursuant to this Plan. Management Objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or of the Subsidiary, division, department, region or function within the Company or Subsidiary in which the Participant is employed. The Management Objectives may be made relative to the performance of other corporations. The Management Objectives applicable to any award to a Covered Employee shall be based on specified levels of or growth in one or more of the following criteria: 2 1. cash flow/net assets ratio; 2. debt/capital ratio; 3. return on total capital; 4. return on equity; 5. earnings per share growth; 6. revenue growth; and 7. total return to shareholders. Except where a modification would result in an award no longer qualifying as performance based compensation within the meaning of Section 162(m) of the Code, the Board may in its discretion modify such Management Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Board deems appropriate and equitable. "Market Value per Share" means, as of any particular date, the fair market value of the Class A Common Shares as listed on NASDAQ as of the close of business on such date or the latest such date in which there is a listing. "Non-Employee Director" means a Director of the Company who is not an employee of the Company or any Subsidiary. "Optionee" means the optionee named in an agreement evidencing an outstanding Option Right. "Option Price" means the purchase price payable on exercise of an Option Right. "Option Right" means the right to purchase Common Shares upon exercise of an option granted pursuant to Section 4 or Section 9 of this Plan. "Participant" means a person who is selected by the Board to receive benefits under this Plan and who is at the time an officer, or other key employee of the Company or any one or more of its Subsidiaries, or who has agreed to commence serving in any of such capacities within 90 days of the Date of Grant, and shall also include each Non-Employee Director who receives an award of Option Rights or Restricted Shares. "Performance Period" means, in respect of a Performance Share or Performance Unit, a period of time established pursuant to Section 8 of this Plan within which the Management Objectives relating to such Performance Share or Performance Unit are to be achieved. "Performance Share" means a bookkeeping entry that records the equivalent of one Common Share awarded pursuant to Section 8 of this Plan. "Performance Unit" means a bookkeeping entry that records a unit equivalent to $1.00 awarded pursuant to Section 8 of this Plan. "Reload Option Rights" means additional Option Rights granted automatically to an Optionee upon the exercise of Option Rights pursuant to Section 4(g) of this Plan. "Restricted Shares" means Common Shares granted or sold pursuant to Section 6 or Section 9 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers referred to in such Section 6 has expired. "Rule l6b-3" means Rule 16b-3 of the Securities and Exchange Commission (or any successor rule to the same effect) as in effect from time to time. "Spread" means the excess of the Market Value per Share on the date when an Appreciation Right is exercised, or on the date when Option Rights are surrendered in payment of the Option Price of other Option Rights, over the Option Price or Exercise Price provided for in the related Option Right or Free-Standing Appreciation Right, respectively. "Subsidiary" means a corporation, company or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company except that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, "Subsidiary" means any corporation in which at the time the Company owns or controls, directly or indirectly, more than 50% of the total combined voting power represented by all classes of stock issued by such corporation. 3 "Tandem Appreciation Right" means an Appreciation Right granted in tandem with an Option Right. "Voting Power" means at any time, the total votes relating to the then-outstanding securities entitled to vote generally in the election of directors of the Company. 3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided in paragraph (b) below and Section 11 of this Plan, the number of Class A Common Shares and Class B Common Shares that may be issued or transferred (i) upon the exercise of Option Rights or Appreciation Rights; (ii) as Restricted Shares and released from substantial risk of forfeiture thereof; (iii) as Deferred Shares; (iv) in payment of Performance Shares or Performance Units that have been earned; (v) as awards to Non-Employee Directors; or (vi) in payment of dividend equivalents paid with respect to awards made under the Plan, shall not exceed in the aggregate 4,500,000 Class A Common Shares and 500,000 Class B Common Shares, respectively, plus any shares described in paragraph (b) below. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. (b) The number of shares available in paragraph (a) above shall be adjusted to account for shares relating to awards that expire; are forfeited; or are transferred, surrendered, or relinquished upon the payment of any Option Price by the transfer to the Company of Common Shares or upon satisfaction of any withholding amount. (c) Notwithstanding anything in this Section 3 or elsewhere in this Plan to the contrary, the aggregate number of Common Shares actually issued or transferred by the Company upon the exercise of Incentive Stock Options shall not exceed 4,500,000 Class A Common Shares or 500,000 Class B Common Shares, respectively, subject to adjustments as provided in Section 11 of this Plan. Further, no Participant shall be granted Option Rights for more than 500,000 Common Shares during any period of five years, subject to adjustments as provided in Section 11 of this Plan. (d) Upon payment in cash of the benefit provided by any award granted under this Plan, any shares that were covered by that award shall again be available for issue or transfer hereunder. (e) Notwithstanding any other provision of this Plan to the contrary, in no event shall any Participant in any period of five years receive more than 500,000 Appreciation Rights, subject to adjustments as provided in Section 11 of this Plan. (f) Notwithstanding any other provision of this Plan to the contrary, the number of shares issued as Restricted Shares shall not in the aggregate exceed 450,000 Class A Common Shares and 50,000 Class B Common Shares, respectively, subject to adjustments as provided in Section 11 of this Plan; and, in no event shall any Participant in any period of five years receive more than 500,000 Restricted Shares or 500,000 Deferred Shares, subject to adjustments as provided in Section 11 of this Plan. (g) Notwithstanding any other provision of this Plan to the contrary, in no event shall any Participant in any calendar year receive an award of Performance Shares or Performance Units having an aggregate maximum value as of their respective Dates of Grant in excess of $3,000,000. 4. OPTION RIGHTS. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of options to purchase Common Shares. Each such grant may utilize any or all of the authorizations, and shall be subject to all of the requirements, contained in the following provisions: (a) Each grant shall specify the number of Class A Common Shares or Class B Common Shares to which it pertains subject to the limitations set forth in Section 3 of this Plan. (b) Each grant shall specify an Option Price per share, which may not be less than the Market Value per Share on the Date of Grant. (c) Each grant shall specify whether the Option Price shall be payable (i) in cash or by check acceptable to the Company; (ii) by the actual or constructive transfer to the Company of nonforfeitable, unrestricted Common Shares owned by the Optionee (or other consideration authorized pursuant to subparagraph (d) below) having a value at the time of exercise equal to the total Option Price; or (iii) by a combination of such methods of payment. 4 (d) The Board may determine, at or after the Date of Grant, that payment of the Option Price of any option (other than an Incentive Stock Option) may also be made in whole or in part in the form of Restricted Shares or other Common Shares that are forfeitable or subject to restrictions on transfer, Deferred Shares, Performance Shares (based, in each case, on the Market Value per Share on the date of exercise), other Option Rights (based on the Spread on the date of exercise) or Performance Units. Unless otherwise determined by the Board at or after the Date of Grant, whenever any Option Price is paid in whole or in part by means of any of the forms of consideration specified in this paragraph, the Common Shares received upon the exercise of the Option Rights shall be subject to such risk of forfeiture or restrictions on transfer as may correspond to any that apply to the consideration surrendered, but only to the extent of (i) the number of shares or Performance Shares; (ii) the Spread of any unexercisable portion of Option Rights; or (iii) the stated value of Performance Units surrendered. (e) Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the shares to which such exercise relates. (f) Any grant may provide for payment of the Option Price, at the election of the Optionee, in installments, with or without interest, upon terms determined by the Board. (g) Any grant may, at or after the Date of Grant, provide for the automatic grant of Reload Option Rights to an Optionee upon the exercise of Option Rights (including Reload Option Rights) using Common Shares or other consideration specified in paragraph (d) above. Reload Option Rights shall cover up to the number of Common Shares, Deferred Shares, Option Rights or Performance Shares (or the number of Common Shares having a value equal to the value of any Performance Units) surrendered to the Company upon any such exercise in payment of the Option Price or to meet any withholding obligations. Reload Options may have an Option Price that is no less than the applicable Market Value per Share at the time of exercise and shall be on such other terms as may be specified by the Directors, which may be the same as or different from those of the original Option Rights. (h) Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised. (i) Each grant shall specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary following the grant which is necessary before the Option Rights or installments thereof will become exercisable and may provide for the earlier exercise of such Option Rights in the event of a Change in Control or other similar transaction or event. (j) Any grant of Option Rights may specify Management Objectives that must be achieved as a condition to the exercise of such rights. (k) Option Rights granted under this Plan may be (i) options, including, without limitation, Incentive Stock Options, that are intended to qualify under particular provisions of the Code; (ii) options that are not intended to so qualify; or (iii) combinations of the foregoing. (l) The Board may, at or after the Date of Grant of any Option Rights (other than Incentive Stock Options), provide for the payment of dividend equivalents to the Optionee on either a current or deferred or contingent basis or may provide that such equivalents shall be credited against the Option Price. (m) The exercise of an Option Right shall result in the cancellation on a share-for-share basis of any Tandem Appreciation Right authorized under Section 5 of this Plan. (n) No Option Right shall be exercisable more than ten years from the Date of Grant. (o) Each grant of Option Rights shall be evidenced by an agreement executed on behalf of the Company by an officer and delivered to the Optionee and containing such terms and provisions, consistent with this Plan, as the Board may approve. 5. APPRECIATION RIGHTS. (a) The Board may also authorize the granting to any Optionee of Tandem Appreciation Rights in respect of Option Rights granted hereunder at any time prior to the exercise or termination of such related Option Rights; provided, however, that a Tandem Appreciation Right awarded in relation to an Incentive Stock Option must be granted concurrently with such Incentive Stock Option. A Tandem Appreciation Right shall be a right of the Optionee, exercisable by surrender of the related Option Right, to receive from the Company an amount determined by the Board, which shall be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. 5 (b) The Board may also authorize the granting to any Participant of Free-Standing Appreciation Rights. A Free-Standing Appreciation Right shall be a right of the Participant to receive from the Company an amount determined by the Board, which shall be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. (c) Each grant of Appreciation Rights may utilize any or all of the authorizations, and shall be subject to all of the requirements, contained in the following provisions: (i) Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by the Company in cash, in Common Shares or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives. (ii) Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Board at the Date of Grant. (iii) Any grant may specify waiting periods before exercise and permissible exercise dates or periods and shall provide that no Appreciation Right may be exercised except at a time when the related Option Right (if applicable) is also exercisable and at a time when the Spread is positive. (iv) Any grant may specify that such Appreciation Right may be exercised only in the event of a Change in Control or other similar transaction or event. (v) Each grant of Appreciation Rights shall be evidenced by an agreement executed on behalf of the Company by an officer and delivered to and accepted by the Participant, which agreement shall describe such Appreciation Rights, identify the related Option Rights (if applicable), state that such Appreciation Rights are subject to all the terms and conditions of this Plan, and contain such other terms and provisions, consistent with this Plan, as the Board may approve. (vi) Any grant of Appreciation Rights may specify Management Objectives that must be achieved as a condition of the exercise of such rights. 6. RESTRICTED SHARES. The Board may also authorize the grant or sale of Restricted Shares to Participants. Each such grant or sale may utilize any or all of the authorizations, and shall be subject to all of the requirements, contained in the following provisions: (a) Each such grant or sale shall constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to. (b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than Market Value per Share at the Date of Grant. (c) Each such grant or sale shall provide that the Restricted Shares covered by such grant or sale shall be subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code except (if the Board shall so determine) in the event of a Change in Control or other similar transaction or event, for a period of not less than three years to be determined by the Board at the Date of Grant. (d) Each such grant or sale shall provide that during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Board at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Shares to a continuing substantial risk of forfeiture in the hands of any transferee). (e) Any grant of Restricted Shares may specify Management Objectives which, if achieved, will result in termination or early termination of the restrictions applicable to such shares, and each grant may specify in respect of such specified Management Objectives, a minimum acceptable level of achievement and shall set forth a formula for determining the number of Restricted Shares on which restrictions will terminate if performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives. (f) Any such grant or sale of Restricted Shares may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional Restricted Shares, which may be subject to the same restrictions as the underlying award. 6 (g) Each grant or sale of Restricted Shares shall be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant and shall contain such terms and provisions, consistent with this Plan, as the Board may approve. Unless otherwise directed by the Board, all certificates representing Restricted Shares shall be held in custody by the Company until all restrictions thereon shall have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such shares. 7. DEFERRED SHARES. The Board may also authorize the granting or sale of Deferred Shares to Participants. Each such grant or sale may utilize any or all of the authorizations, and shall be subject to all of the requirements, contained in the following provisions: (a) Each such grant or sale shall constitute the agreement by the Company to deliver Common Shares to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the Deferral Period as the Board may specify. (b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share at the Date of Grant. (c) Each such grant or sale shall be subject to a Deferral Period of not less than one year, as determined by the Board at the Date of Grant except (if the Board shall so determine) in the event of a Change in Control or other similar transaction or event. (d) During the Deferral Period, the Participant shall have no right to transfer any rights under his or her award and shall have no rights of ownership in the Deferred Shares and shall have no right to vote them, but the Board may, at or after the Date of Grant, authorize the payment of dividend equivalents on such shares on either a current or deferred or contingent basis, either in cash or in additional Common Shares. (e) Each grant or sale of Deferred Shares shall be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant and shall contain such terms and provisions, consistent with this Plan, as the Board may approve. 8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also authorize the granting of Performance Shares and Performance Units that will become payable to a Participant upon achievement of specified Management Objectives. Each such grant may utilize any or all of the authorizations, and shall be subject to all of the requirements, contained in the following provisions: (a) Each grant shall specify the number of Performance Shares or Performance Units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors; provided, however, that no such adjustment shall be made in the case of a Covered Employee. (b) The Performance Period with respect to each Performance Share or Performance Unit shall be such period of time (not less than three years, except in the event of a Change in Control or other similar transaction or event, if the Board shall so determine) commencing with the Date of Grant (as shall be determined by the Board at the time of grant). (c) Any grant of Performance Shares or Performance Units shall specify Management Objectives which, if achieved, will result in payment or early payment of the award, and each grant may specify in respect of such specified Management Objectives a minimum acceptable level of achievement and shall set forth a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives. The grant of Performance Shares or Performance Units shall specify that, before the Performance Shares or Performance Units shall be earned and paid, the Board must certify that the Management Objectives have been satisfied. (d) Each grant shall specify a minimum acceptable level of achievement in respect of the specified Management Objectives below which no payment will be made and shall set forth a formula for determining the amount of payment to be made if performance is at or above such minimum but short of full achievement of the Management Objectives. (e) Each grant shall specify the time and manner of payment of Performance Shares or Performance Units which have been earned. Any grant may specify that the amount payable with respect thereto may be paid by the Company in cash, in Common Shares or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives. 7 (f) Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Board at the Date of Grant. Any grant of Performance Units may specify that the amount payable or the number of Common Shares issued with respect thereto may not exceed maximums specified by the Board at the Date of Grant. (g) The Board may, at or after the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof on either a current or deferred or contingent basis, either in cash or in additional Common Shares. (h) Each grant of Performance Shares or Performance Units shall be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant, which agreement shall state that such Performance Shares or Performance Units are subject to all the terms and conditions of this Plan, and contain such other terms and provisions, consistent with this Plan, as the Board may approve. 9. AWARDS TO NON-EMPLOYEE DIRECTORS. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Non-Employee Directors of Option Rights and may also authorize the grant or sale of Restricted Shares to Non-Employee Directors. (a) Each grant of Option Rights awarded pursuant to this Section 9 shall be upon terms and conditions consistent with Section 4 of this Plan and shall be evidenced by an agreement in such form as shall be approved by the Board. Each grant shall specify an Option Price per share, which shall not be less than the Market Value per Share on the Date of Grant. Each such Option Right granted under the Plan shall expire not more than ten years from the Date of Grant and shall be subject to earlier termination as hereinafter provided. Unless otherwise determined by the Board, such Option Rights shall be subject to the following additional terms and conditions: (i) Each grant shall specify the number of Common Shares to which it pertains, subject to the limitations set forth in Section 3 of this Plan. (ii) Each such Option Right shall become exercisable to the extent of one-fourth of the number of shares covered thereby one year after the Date of Grant and to the extent of an additional one-fourth of such shares after each of the next three successive years thereafter. Such Option Rights shall become exercisable in full immediately in the event of a Change in Control or other similar transaction or event. (iii) In the event of the termination of service on the Board by the holder of any such Option Rights, other than by reason of disability or death, the then-outstanding Option Rights of such holder may be exercised to the extent that they would be exercisable on the date that is six months and one day after the date of such termination and shall expire six months and one day after such termination, or on their stated expiration date, whichever occurs first. (iv) In the event of the death or disability of the holder of any such Option Rights, each of the then-outstanding Option Rights of such holder may be exercised at any time within one year after such death or disability, but in no event after the expiration date of the term of such Option Rights. (v) If a Non-Employee Director subsequently becomes an employee of the Company or a Subsidiary while remaining a member of the Board, any Option Rights held under the Plan by such individual at the time of such commencement of employment shall not be affected thereby. (vi) Option Rights may be exercised by a Non-Employee Director only upon payment to the Company in full of the Option Price of the Common Shares to be delivered. Such payment shall be made in cash or in Common Shares then-owned by the Optionee for at least six months, or in a combination of cash and such Common Shares. (vii) Common Shares acquired upon the exercise of these Option Rights may not be transferred for one year except in the case of the director's death, disability or other termination of service as a director. (b) Each grant or sale of Restricted Shares pursuant to this Section 9 shall be upon terms and conditions consistent with Section 6 of this Plan. 8 10. TRANSFERABILITY. (a) Except as otherwise determined by the Board on a case-by-case basis, no Option Right, Appreciation Right or other derivative security granted under the Plan shall be transferable by an Optionee other than by will or the laws of descent and distribution. Except as otherwise determined by the Board on a case-by-case basis, Option Rights and Appreciation Rights shall be exercisable during the Optionee's lifetime only by him or her or by his or her guardian or legal representative. (b) The Board may specify at the Date of Grant that part or all of the Common Shares that are (i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights, upon the termination of the Deferral Period applicable to Deferred Shares or upon payment under any grant of Performance Shares or Performance Units or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 6 of this Plan, shall be subject to further restrictions on transfer. 11. ADJUSTMENTS. The Board may make or provide for such adjustments in the numbers of Common Shares covered by outstanding Option Rights, Appreciation Rights, Deferred Shares, and Performance Shares granted hereunder, in the prices per share applicable to such Option Rights and Appreciation Rights and in the kind of shares covered thereby, as the Board, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants or Optionees that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company; or (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities; or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Board, in its discretion, may provide in substitution for any or all outstanding awards under this Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced. The Board may also make or provide for such adjustments in the numbers of shares specified in Section 3 of this Plan as the Board, in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described in this Section 11. 12. CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control" shall mean if at any time any of the following events shall have occurred: (a) The Company is merged or consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction is held in the aggregate by the holders of Common Shares immediately prior to such transaction; (b) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Common Shares immediately prior to such sale or transfer; (c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the Voting Power; (d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; or (e) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's shareholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period. 9 Notwithstanding the foregoing provisions of Section 12(c) and (d) above, a "Change in Control" shall not be deemed to have occurred for purposes of this Plan (i) solely because (A) the Company; (B) a Subsidiary; (C) any Company-sponsored employee stock ownership plan or other employee benefit plan of the Company; or (D) any family member of Jacob Sapirstein (including lineal descendants, spouses of such descendants, the lineal descendants of any such spouses, the spouses of any such spouses' lineal descendants and trusts [including voting trusts]) either files or becomes obligated to file a report or proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares, whether in excess of 20% of the Voting Power or otherwise, or because the Company reports that a Change in Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership or (ii) solely because of a Change in Control of any Subsidiary. 13. FRACTIONAL SHARES. The Company shall not be required to issue any fractional Common Shares pursuant to this Plan. The Board may provide for the elimination of fractions or for the settlement of fractions in cash. 14. WITHHOLDING TAXES. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. The Company and a Participant or such other person may also make similar arrangements with respect to the payment of any taxes with respect to which withholding is not required. 15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or combination of grants under this Plan, the Board may provide for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America as the Board may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Board may approve such supplements to or amendments, restatements or alternative versions of this Plan as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of the Company. 16. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by the Board, which may from time to time delegate all or any part of its authority under this Plan to a committee of the Board (or subcommittee thereof) consisting of not less than three Non-Employee Directors appointed by the Board. A majority of the committee (or subcommittee) shall constitute a quorum, and the action of the members of the committee (or subcommittee) present at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be the acts of the committee (or subcommittee). To the extent of any such delegation, references in this Plan to the Board shall be deemed to be references to any such committee or subcommittee. (b) The interpretation and construction by the Board of any provision of this Plan or of any agreement, notification or document evidencing the grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares or Performance Units and any determination by the Board pursuant to any provision of this Plan or of any such agreement, notification or document shall be final and conclusive. No member of the Board shall be liable for any such action or determination made in good faith. 17. AMENDMENTS, ETC. (a) The Board may at any time and from time to time amend this Plan in whole or in part; provided, however, that any amendment which must be approved by the shareholders of the Company in order to comply with applicable law or the rules of the NASD or, if the Common Shares are not traded on NASDAQ, the principal national securities exchange upon which the Common Shares are traded or quoted, shall not be effective unless and until such approval has been obtained. Presentation of this Plan or any amendment hereof for shareholder approval shall not be construed to limit the Company's authority to offer similar or dissimilar benefits under other plans without shareholder approval. 10 (b) The Board shall not, without the further approval of the shareholders of the Company, authorize the amendment of any outstanding Option Right to reduce the Option Price. Furthermore, no Option Right shall be cancelled and replaced with awards having a lower Option Price without further approval of the shareholders of the Company. This section 17(b) is intended to prohibit the repricing of "underwater" Option Rights and shall not be construed to prohibit the adjustments provided for in Section 11 of this Plan. (c) The Board also may permit Participants to elect to defer the issuance of Common Shares or the settlement of awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of this Plan. The Board also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts. (d) The Board may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant. (e) In case of termination of employment by reason of death, disability or normal or early retirement, or in the case of hardship or other special circumstances, of a Participant who holds an Option Right or Appreciation Right not immediately exercisable in full, or any Restricted Shares as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Deferred Shares as to which the Deferral Period has not been completed, or any Performance Shares or Performance Units which have not been fully earned, or of a Participant who holds Common Shares subject to any transfer restriction imposed pursuant to Section 10(b) of this Plan, the Board may, in its sole discretion, accelerate the time at which such Option Right or Appreciation Right may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Deferral Period will end or the time at which such Performance Shares or Performance Units will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award. (f) This Plan shall not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor shall it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant's employment or other service at any time. (g) To the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision shall be null and void with respect to such Option Right. Such provision, however, shall remain in effect for other Option Rights and there shall be no further effect on any provision of this Plan. 18. TERMINATION. No grant shall be made under this Plan more than ten years after the date on which this Plan is first approved by the shareholders of the Company, but all grants made on or prior to such date shall continue in effect thereafter subject to the terms thereof and of this Plan. EX-11 10 EXHIBIT 11 1 EXHIBIT 11 AMERICAN GREETINGS CORPORATION ------------------------------ COMPUTATION OF PER SHARE EARNINGS --------------------------------- Computation of Earnings Per Share --------------------------------- Years Ended February 28 or 29, 1997, 1996 and 1995 --------------------------------------------------
1997 1996 1995 ---------- ---------- ----------- Average number of common shares outstanding 74,818,960 74,528,809 74,305,346 ========== ========== =========== Net income (thousands) $ 167,095 $ 115,135 $ 148,792 ========== ========== =========== Earnings per share $ 2.23 $ 1.54 $ 2.00 ========== ========== ===========
Computation of Fully-Diluted Earnings Per Share (a) Years Ended February 28 or 29, 1997, 1996 and 1995
1997 1996 1995 ---------- ---------- ---------- Average number of common shares outstanding on a fully diluted basis assuming exercise of stock options based on the treasury stock method using the higher of the year-end price or the average market price (b) 75,975,109 75,551,118 75,739,055 ========== ========== ============== Net income (thousands) $ 167,095 $ 115,135 $ 148,792 ========== ========== ============== Earnings per share $ 2.20 $ 1.52 $ 1.96 ========== ========== ============== (a) This calculation is submitted in accordance with the Securities Exchange Act of 1934, although not required by Accounting Principles Board Opinion No. 15, since less than a 3% dilution results. (b) The year-end market price was used for the years ended February 28, 1997 and 1995. Average market price was used for year ended February 29, 1996.
EX-21 11 EXHIBIT 21 1 EXHIBIT 21 AMERICAN GREETING CORPORATION SUBSIDIARIES OF THE REGISTRANT State/Jurisdiction Subsidiary of Incorporation ---------- ---------------- Acme Frame Products, Inc. Delaware AGC Inc. Delaware A.G. Industries, Inc. North Carolina Carlton Cards (France) SNC France Carlton Cards Limited Canada Carlton Cards Limited United Kingdom Carlton Cards Retail, Inc. Connecticut CreataCard Interactive, Inc. Ohio John Sands (Australia) Ltd. Delaware Magnivision, Inc. Delaware Plus Mark, Inc. Ohio EX-23 12 EXHIBIT 23 1 EXHIBIT 23 AMERICAN GREETINGS CORPORATION CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in (i) Post-Effective Amendment Number 1 dated May 27, 1986 to Registration Statement No. 2-89471 on Form S-3, (ii) Post-Effective Amendment Number 1 dated May 31, 1984 to Registration Statement No. 2-84911 on Form S-8, (iii) Registration Statement No. 33-975 on Form S-8 dated November 7, 1985, (iv) Registration Statement No. 33-16180 on Form S-8 dated July 31, 1987, (v) Post-Effective Amendment Number 1 dated May 17, 1991 to Registration Statement No. 33-39726 on Form S-3, (vi) Registration Statement No. 33-45673 on Form S-8 dated February 4, 1992, (vii) Registration Statement No. 33-58582 on Form S-8 dated February 22, 1993, (viii) Post-Effective Amendment Number 1 dated March 29, 1993 to Registration Statement No. 33-52196 on Form S-3, (ix) Registration Statement No. 33-50255 on Form S-3 dated September 15,1993, (x) Registration Statement No. 33-57221 on Form S-3 dated January 16, 1995, (xi) Registration Statement No. 33-61037 on Form S-8 dated July 14, 1995, and (xii) Registration Statement No. 33-08123 on Form S-8 dated July 15, 1996 of our report dated March 27, 1997 with respect to the consolidated financial statements and schedule of American Greetings Corporation included in this annual report on Form 10-K for the year ended February 28, 1997. Ernst & Young LLP Cleveland, Ohio May 22, 1997 EX-27 13 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART II, ITEM 8 OF THE FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-28-1997 MAR-01-1996 FEB-28-1997 35,050 0 375,324 15,264 303,611 1,004,891 920,194 457,407 2,135,120 442,743 0 74,982 0 0 1,286,673 2,135,120 2,161,089 2,172,298 805,124 805,124 0 8,210 30,749 254,330 87,235 167,095 0 0 0 167,095 2.23 2.20
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