10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended August 29, 2008

OR

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

For the transition period from              to             

Commission file number 1-13859

AMERICAN GREETINGS CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	34-0065325
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One American Road, Cleveland, Ohio	44144
(Address of principal executive offices)	(Zip Code)

(216) 252-7300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x	Accelerated filer  ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

As of October 6, 2008, the number of shares outstanding of each of the issuer’s classes of common stock was:

Class A Common             41,915,171

Class B Common                3,496,845

AMERICAN GREETINGS CORPORATION

INDEX

		Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 6.	Exhibits	27
SIGNATURES		28
EXHIBITS

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Thousands of dollars except share and per share amounts)

	(Unaudited)
	Three Months Ended		Six Months Ended
	August 29, 2008	August 24, 2007	August 29, 2008	August 24, 2007
Net sales	$372,942	$365,878	$798,405	$783,894
Other revenue	12,893	11,607	15,730	13,558
Total revenue	385,835	377,485	814,135	797,452
Material, labor and other production costs	170,112	163,052	363,454	324,180
Selling, distribution and marketing expenses	154,387	144,586	305,262	285,280
Administrative and general expenses	57,162	56,351	119,723	118,586
Other operating income – net	(111)	(320)	(838)	(680)
Operating income	4,285	13,816	26,534	70,086
Interest expense	5,434	4,839	10,339	9,596
Interest income	(898)	(2,234)	(1,888)	(3,733)
Other non-operating income – net	(2,617)	(1,353)	(3,518)	(2,896)
Income from continuing operations before income tax expense	2,366	12,564	21,601	67,119
Income tax expense	69	4,189	5,971	28,481
Income from continuing operations	2,297	8,375	15,630	38,638
Loss from discontinued operations, net of tax	-	-	-	(213)
Net income	$    2,297	$    8,375	$  15,630	$  38,425
Earnings per share – basic:
Income from continuing operations	$      0.05	$      0.15	$      0.32	$      0.69
Loss from discontinued operations	-	-	-	-
Net income	$      0.05	$      0.15	$      0.32	$      0.69
Earnings per share – assuming dilution:
Income from continuing operations	$      0.05	$      0.15	$      0.32	$      0.69
Loss from discontinued operations	-	-	-	-
Net income	$      0.05	$      0.15	$      0.32	$      0.69
Average number of shares outstanding	47,769,594	55,766,802	48,285,267	55,514,759
Average number of shares outstanding – assuming dilution	47,807,313	56,180,165	48,328,659	55,902,189
Dividends declared per share	$      0.12	$      0.10	$      0.24	$      0.20

See notes to consolidated financial statements (unaudited).

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AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Thousands of dollars)

	(Unaudited)	(Note 1)	(Unaudited)
	August 29, 2008	February 29, 2008	August 24, 2007
ASSETS
Current assets
Cash and cash equivalents	$    84,040	$   123,500	$   192,450
Trade accounts receivable, net	62,918	61,902	71,199
Inventories	260,845	216,671	248,176
Deferred and refundable income taxes	54,149	72,280	66,399
Prepaid expenses and other	182,526	195,017	215,375
Total current assets	644,478	669,370	793,599
Goodwill	289,662	285,072	226,920
Other assets	437,633	420,219	405,283
Deferred and refundable income taxes	133,827	133,762	98,968
Property, plant and equipment – at cost	983,723	974,073	950,385
Less accumulated depreciation	682,025	678,068	672,642
Property, plant and equipment – net	301,698	296,005	277,743
	$1,807,298	$1,804,428	$1,802,513
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Debt due within one year	$   209,645	$     42,790	$     22,690
Accounts payable	125,648	123,713	126,376
Accrued liabilities	66,007	79,345	70,903
Accrued compensation and benefits	39,378	68,669	50,397
Income taxes payable	7,729	29,037	1,456
Other current liabilities	113,379	108,867	97,766
Total current liabilities	561,786	452,421	369,588
Long-term debt	200,689	200,518	200,988
Other liabilities	147,906	181,720	148,721
Deferred income taxes and noncurrent income taxes payable	23,343	26,358	29,930
Shareholders’ equity
Common shares – Class A	42,208	45,324	51,497
Common shares – Class B	3,494	3,434	4,291
Capital in excess of par value	447,502	445,696	439,985
Treasury stock	(914,262)	(872,949)	(720,027)
Accumulated other comprehensive (loss) income	(9,711)	21,244	10,690
Retained earnings	1,304,343	1,300,662	1,266,850
Total shareholders’ equity	873,574	943,411	1,053,286
	$1,807,298	$1,804,428	$1,802,513

See notes to consolidated financial statements (unaudited).

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AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Thousands of dollars)

	(Unaudited)
	Six Months Ended
	August 29, 2008	August 24, 2007
OPERATING ACTIVITIES:
Net income	$  15,630	$  38,425
Loss from discontinued operations	-	213
Income from continuing operations	15,630	38,638
Adjustments to reconcile income from continuing operations to cash flows from operating activities:
Net loss (gain) on disposal of fixed assets	385	(41)
Depreciation and amortization	25,324	23,930
Deferred income taxes	15,394	14,335
Other non-cash charges	3,379	3,861
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Trade accounts receivable	(584)	33,389
Inventories	(47,606)	(61,980)
Other current assets	(55)	(2,641)
Deferred costs – net	14,654	28,451
Accounts payable and other liabilities	(69,511)	(23,376)
Other – net	(10,684)	2,784
Total Cash Flows From Operating Activities	(53,674)	57,350
INVESTING ACTIVITIES:
Proceeds from sale of short-term investments	-	480,630
Purchases of short-term investments	-	(480,630)
Property, plant and equipment additions	(28,545)	(13,577)
Cash payments for business acquisitions, net of cash acquired	(15,625)	(6,056)
Cash receipts related to discontinued operations	-	3,419
Proceeds from sale of fixed assets	275	1,105
Other – net	(44,153)	-
Total Cash Flows From Investing Activities	(88,048)	(15,109)
FINANCING ACTIVITIES:
Reduction of long-term debt	(22,509)	-
Net increase in short-term debt	189,545	-
Sale of stock under benefit plans	434	24,250
Purchase of treasury shares	(46,137)	(11,883)
Dividends to shareholders	(11,667)	(11,115)
Total Cash Flows From Financing Activities	109,666	1,252
DISCONTINUED OPERATIONS:
Operating cash flows from discontinued operations	-	(59)
Total Cash Flows From Discontinued Operations	-	(59)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(7,404)	4,303
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(39,460)	47,737
Cash and Cash Equivalents at Beginning of Year	123,500	144,713
Cash and Cash Equivalents at End of Period	$  84,040	$ 192,450

See notes to consolidated financial statements (unaudited).

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AMERICAN GREETINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and Six Months Ended August 29, 2008 and August 24, 2007

Note 1 – Basis of Presentation

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

The Corporation’s fiscal year ends on February 28 or 29. References to a particular year refer to the fiscal year ending in February of that year. For example, 2008 refers to the year ended February 29, 2008.

These interim financial statements should be read in conjunction with the Corporation’s financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended February 29, 2008, from which the Consolidated Statement of Financial Position at February 29, 2008, presented herein, has been derived. During the fourth quarter of 2008, it was determined that the Corporation’s entertainment development and production joint venture no longer met all of the criteria necessary to be classified as held for sale in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result, this business unit has been reclassified into continuing operations for all periods presented. In addition, certain other amounts in the prior year financial statements have also been reclassified to conform to the 2009 presentation. These reclassifications had no material impact on earnings or cash flows.

Note 2 – Seasonal Nature of Business

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

Note 3 – Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements,” which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. In November 2007, the FASB deferred the effective date of SFAS 157 for non-financial assets and liabilities until fiscal years and interim periods beginning after November 15, 2008. SFAS 157 is still effective for the Corporation in fiscal 2009 for financial assets and liabilities. The Corporation adopted SFAS 157 for financial assets and liabilities on March 1, 2008. See Note 12.

In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 allows companies to choose to measure financial instruments and certain other financial assets and financial liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Corporation adopted SFAS 159 on March 1, 2008 and elected not to measure any additional financial instruments or other items at fair value.

In April 2008, the FASB issued FASB Staff Position FAS 142-3 (“FSP 142-3”), “Determination of the Useful Life of Intangible Assets.” FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under other U.S. generally accepted accounting principles (“GAAP”). FSP 142-3 is effective for

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financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. Certain disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.

In May 2008, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles.” The new standard is intended to improve financial reporting by identifying a consistent framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board’s related amendments to remove the GAAP hierarchy from auditing standards, where it has previously resided. The Corporation does not expect the adoption of SFAS 162 to have a significant impact on its consolidated financial statements.

Note 4 – Other Income and Expense

	Three Months Ended		Six Months Ended
(In thousands)	August 29,   2008	August 24,   2007	August 29,   2008	August 24,   2007
Other operating income – net	$    (111)	$    (320)	$    (838)	$    (680)
Foreign exchange gain	$ (2,343)	$ (1,149)	$ (2,880)	$ (2,269)
Rental income	(275)	(278)	(812)	(675)
Miscellaneous	1	74	174	48
Other non-operating income – net	$ (2,617)	$ (1,353)	$ (3,518)	$ (2,896)
“Miscellaneous” includes, among other things, gains and losses on asset disposals.
Note 5 – Earnings Per Share
The following table sets forth the computation of earnings per share and earnings per share - assuming dilution:
	Three Months Ended		Six Months Ended
	August 29,   2008	August 24,   2007	August 29,   2008	August 24,   2007
Numerator (in thousands):
Income from continuing operations	$  2,297	$  8,375	$ 15,630	$ 38,638
Denominator (in thousands):
Weighted average shares outstanding	47,770	55,767	48,285	55,515
Effect of dilutive securities:
Stock options and other	37	413	44	387
Weighted average shares outstanding – assuming dilution	47,807	56,180	48,329	55,902
Income from continuing operations per share	$    0.05	$    0.15	$     0.32	$     0.69
Income from continuing operations per share – assuming dilution	$    0.05	$    0.15	$     0.32	$     0.69

Approximately 6.2 million and 5.9 million stock options outstanding in the three and six month periods ended August 29, 2008, respectively, were excluded from the computation of earnings per share–assuming dilution because the options’ exercise prices were greater than the average market price of the common shares during the respective

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periods (1.2 million and 1.9 million stock options outstanding in the three and six month periods ended August 24, 2007, respectively).

Note 6 – Comprehensive (Loss) Income

The Corporation’s total comprehensive (loss) income is as follows:

	Three Months Ended		Six Months Ended
(In thousands)	August 29,     2008	August 24,     2007	August 29,     2008	August 24,     2007
Net income	$      2,297	$    8,375	$    15,630	$  38,425
Other comprehensive (loss) income:
Foreign currency translation adjustment and other	(30,983)	4,661	(31,256)	11,704
Pension and other postretirement benefit plans, net of tax	19	-	(206)	-
Unrealized gain (loss) on securities, net of tax	507	(1)	507	(1)
Total comprehensive (loss) income	$  (28,160)	$  13,035	$  (15,325)	$  50,128

Note 7 – Trade Accounts Receivable, Net

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

(In thousands)	August 29, 2008	February 29, 2008	August 24, 2007
Allowance for seasonal sales returns	$  28,335	$  59,626	$  32,309
Allowance for outdated products	22,753	21,435	26,610
Allowance for doubtful accounts	4,107	3,778	5,118
Allowance for cooperative advertising and marketing funds	32,176	33,662	30,017
Allowance for rebates	46,469	41,435	35,397
	$133,840	$159,936	$129,451
Note 8 – Inventories
(In thousands)	August 29, 2008	February 29, 2008	August 24, 2007
Raw materials	$  22,559	$  17,701	$  21,038
Work in process	13,404	10,516	16,781
Finished products	279,991	244,379	264,006
	315,954	272,596	301,825
Less LIFO reserve	83,948	82,085	81,332
	232,006	190,511	220,493
Display materials and factory supplies	28,839	26,160	27,683
	$260,845	$216,671	$248,176

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

Inventory held on location for retailers with scan-based trading arrangements totaled approximately $33 million, $32 million and $25 million as of August 29, 2008, February 29, 2008 and August 24, 2007, respectively.

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Note 9 – Deferred Costs

Deferred costs and future payment commitments are included in the following financial statement captions:

(In thousands)	August 29, 2008	February 29, 2008	August 24, 2007
Prepaid expenses and other	$  103,349	$  119,069	$  115,382
Other assets	308,616	338,003	338,932
Deferred cost assets	411,965	457,072	454,314
Other current liabilities	(63,083)	(68,457)	(62,290)
Other liabilities	(27,640)	(50,491)	(29,489)
Deferred cost liabilities	(90,723)	(118,948)	(91,779)
Net deferred costs	$  321,242	$  338,124	$  362,535

Note 10 – Debt

The Corporation is party to an amended and restated $450 million secured credit agreement and to an amended and restated receivables purchase agreement that had available financing of up to $150 million. The credit agreement includes a $350 million revolving credit facility and a $100 million delay draw term loan. The agreements were each amended on March 28, 2008. The amendment to the credit agreement extends the period during which the Corporation may borrow on the term loan until April 3, 2009 and changes the start of the amortization period from April 4, 2008 until April 3, 2009. The amendment to the accounts receivable facility decreases the amount of available financing from $150 million to $90 million. The revolving credit facility will mature on April 4, 2011 and any outstanding term loans will mature on April 4, 2013. The accounts receivable facility expires on October 23, 2009.

Debt due within one year is as follows:

(In thousands)	August 29, 2008	February 29, 2008	August 24, 2007
Revolving credit facility	$  191,200	$   20,100	$            -
Accounts receivable securitization facility	18,445	-	-
6.10% senior notes, due 2028	-	22,690	22,690
	$  209,645	$   42,790	$  22,690

At August 29, 2008, the balances outstanding on both the revolving credit facility and accounts receivable securitization facility bear interest at a rate of approximately 3.0%. In addition to the balances outstanding under the aforementioned agreements, the Corporation has, in the aggregate, $25.7 million outstanding under letters of credit, which reduces the total credit availability thereunder.

The 6.10% senior notes could be put back to the Corporation on August 1, 2008, at the option of the holders, at 100% of the principal amount provided the holders exercised this option between July 1, 2008 and August 1, 2008. During the second quarter of 2009, $22.5 million of these notes were repaid upon exercise of the put option. The balance of the 6.10% senior notes was reclassified to long-term.

Long-term debt and their related calendar year due dates are as follows:

(In thousands)	August 29, 2008	February 29, 2008	August 24, 2007
7.375% senior notes, due 2016	$  200,000	$  200,000	$  200,000
6.10% senior notes, due 2028	181	-	-
Other (due 2010)	508	518	988
	$  200,689	$  200,518	$  200,988

At August 29, 2008, the Corporation was in compliance with the financial covenants under its borrowing agreements.

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Note 11 – Retirement Benefits

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

	Defined Benefit Pension
	Three Months Ended		Six Months Ended
	August 29,	August 24,	August 29,	August 24,
(In thousands)	2008	2007	2008	2007
Service cost	$    239	$     245	$     480	$     489
Interest cost	2,296	2,255	4,600	4,520
Expected return on plan assets	(2,037)	(2,182)	(4,080)	(4,336)
Settlement	-	1,067	-	1,067
Amortization of prior service cost	77	69	154	133
Amortization of actuarial loss	320	406	640	816
	$    895	$  1,860	$  1,794	$  2,689
	Postretirement Benefit
	Three Months Ended		Six Months Ended
	August 29,	August 24,	August 29,	August 24,
(In thousands)	2008	2007	2008	2007
Service cost	$    950	$  1,050	$  1,900	$  2,100
Interest cost	2,200	2,150	4,400	4,300
Expected return on plan assets	(1,250)	(1,250)	(2,500)	(2,500)
Amortization of prior service credit	(1,850)	(1,850)	(3,700)	(3,700)
Amortization of actuarial loss	1,075	1,650	2,150	3,300
	$  1,125	$  1,750	$  2,250	$  3,500

The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. The profit-sharing plan expense for the six months ended August 29, 2008 was $0.5 million, compared to $3.5 million in the prior year period. The profit-sharing plan expense for the six month periods are estimates as actual contributions to the profit-sharing plan are made after fiscal year-end. The Corporation matches a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The expenses recognized for the three and six month periods ended August 29, 2008 were $1.1 million and $2.9 million ($1.0 million and $2.2 million for the three and six month periods ended August 24, 2007), respectively.

At August 29, 2008, February 29, 2008 and August 24, 2007, the liability for postretirement benefits other than pensions was $66.8 million, $63.0 million and $70.3 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position.

Note 12 – Fair Value Measurements

SFAS 157 outlines a valuation framework, which requires use of the market approach, income approach and/or cost approach when measuring fair value and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. SFAS 157 also expands disclosure requirements to include the methods and assumptions used to measure fair value.

The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. The three levels are defined as follows:

• Level 1 – Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – Valuation is based upon unobservable inputs that are significant to the fair value measurement.

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The following table summarizes the financial assets measured at fair value on a recurring basis as of the measurement date, August 29, 2008, and the basis for that measurement, by level within the fair value hierarchy:

(In thousands)	Balance as of     August 29, 2008	Quoted prices in     active markets for     identical assets (Level 1)	Significant other     observable inputs     (Level 2)
Financial assets
Debt securities (1)	$ 44,958	$         -	$ 44,958
Deferred compensation plan assets (2)	6,781	6,781	-
Total	$ 51,739	$ 6,781	$ 44,958

(1) All unrealized gains/losses on the debt securities are recorded as a component of accumulated other comprehensive income/loss. See Note 6.

(2) There is an offsetting liability for the obligation to its employees on the Corporation’s books.

During the second quarter of 2009, the Corporation paid approximately $44 million to acquire, at a substantial discount, debt securities of a company that is currently seeking to restructure its balance sheet. The cash paid for this investment is included in “Other-net” investing activities on the Consolidated Statement of Cash Flows. The Corporation values these debt securities, which are classified as available-for-sale and included in “Other assets” on the Consolidated Statement of Financial Position, using Level 2 inputs, primarily the most recent transaction price.

The fair value of the mutual fund assets was considered a Level 1 valuation as it is based on each fund’s quoted market value per share in an active market. Although the Corporation is under no obligation to fund employees’ nonqualified accounts, the fair value of the related non-qualified deferred compensation liability is based on the fair value of the mutual fund assets.

Note 13 – Income Taxes

The Corporation’s provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against income from continuing operations before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The effective tax rates were 2.9% and 27.6% for the three and six months ended August 29, 2008, respectively, and 33.3% and 42.4% for the three and six months ended August 24, 2007, respectively. Since the second quarter has seasonally low income from continuing operations before income tax expense, discrete items or changes to the tax assets and reserves on the Consolidated Statement of Financial Position have a more significant impact on the Corporation’s quarterly effective tax rate.

As of August 29, 2008, the Corporation had $25.7 million in gross unrecognized tax benefits. During the second quarter of 2009, the Corporation’s unrecognized tax positions decreased approximately $2 million due primarily to settlements and related cash payments associated with certain state examinations.

Included in the balance of unrecognized tax benefits at August 29, 2008, was $21.0 million in unrecognized tax benefits, the recognition of which would have a favorable effect on the effective tax rate. It is reasonably possible that the Corporation’s unrecognized tax positions as of August 29, 2008 could decrease approximately $2 million due to anticipated settlements and resulting cash payments related to open years after 1999, which are currently under audit. As of August 29, 2008, the total amount of gross accrued interest and penalties included in the Consolidated Statement of Financial Position was $6.3 million.

The Corporation is subject to examination by the U.S. Internal Revenue Service and various U.S. state and local jurisdictions for tax years 1996 to the present. The Corporation is also subject to tax examination in various foreign tax jurisdictions, including Canada, the United Kingdom, Australia, France, Italy, Mexico and New Zealand for tax years 2003 to the present.

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Note 14 – Business Segment Information

	Three Months Ended		Six Months Ended
(In thousands)	August 29, 2008	August 24, 2007	August 29, 2008	August 24, 2007
Total Revenue:
North American Social Expression Products	$261,296	$258,141	$563,714	$558,085
Intersegment items	(14,736)	(14,582)	(29,380)	(23,085)
Exchange rate adjustment	262	(279)	775	(2,788)
Net	246,822	243,280	535,109	532,212
International Social Expression Products	63,191	64,071	133,064	128,488
Exchange rate adjustment	133	576	1,220	(92)
Net	63,324	64,647	134,284	128,396
Retail Operations	37,547	39,072	79,040	79,611
Exchange rate adjustment	117	(621)	607	(2,232)
Net	37,664	38,451	79,647	77,379
AG Interactive	20,975	17,155	41,502	37,054
Exchange rate adjustment	(3)	2	31	(1)
Net	20,972	17,157	41,533	37,053
Non-reportable segments	17,053	13,942	23,562	22,327
Unallocated	-	8	-	85
	$385,835	$377,485	$814,135	$797,452
Segment Earnings (Loss):
North American Social Expression Products	$  34,364	$  41,984	$  88,059	$130,846
Intersegment items	(10,750)	(10,955)	(21,993)	(17,477)
Exchange rate adjustment	(14)	101	45	(1,549)
Net	23,600	31,130	66,111	111,820
International Social Expression Products	(2,134)	1,574	728	1,750
Exchange rate adjustment	(24)	19	(81)	30
Net	(2,158)	1,593	647	1,780
Retail Operations	(6,669)	(6,561)	(10,076)	(9,330)
Exchange rate adjustment	(7)	74	(13)	62
Net	(6,676)	(6,487)	(10,089)	(9,268)
AG Interactive	759	3,163	(337)	6,442
Exchange rate adjustment	2	6	37	14
Net	761	3,169	(300)	6,456
Non-reportable segments	2,541	1,772	575	2,335
Unallocated	(15,558)	(18,531)	(35,191)	(45,883)
Exchange rate adjustment	(144)	(82)	(152)	(121)
Net	(15,702)	(18,613)	(35,343)	(46,004)
	$    2,366	$  12,564	$  21,601	$  67,119

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Termination Benefits

Termination benefits are primarily considered part of an ongoing benefit arrangement, accounted for in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” and are recorded when payment of the benefits is probable and can be reasonably estimated.

The balance of the severance accrual was $5.9 million, $9.6 million and $5.7 million at August 29, 2008, February 29, 2008 and August 24, 2007, respectively.

Deferred Revenue

Deferred revenue, included in “Other current liabilities” on the Consolidated Statement of Financial Position, totaled $34.9 million, $37.9 million and $33.3 million at August 29, 2008, February 29, 2008 and August 24, 2007, respectively. The amounts relate primarily to the Corporation’s AG Interactive segment and the licensing activities included in non-reportable segments.

Acquisitions

In March 2008, the Corporation acquired a card publisher and franchised distributor of greeting cards in the United Kingdom (“U.K.”) for approximately $16 million. Cash paid, net of cash acquired was $15.6 million and is reflected in investing activities in the Consolidated Statement of Cash Flows. Although the allocation of the purchase price has not yet been finalized, goodwill of approximately $12 million has been recorded. The purchase agreement provides for a contingent payment of up to 2 million U.K. Pounds Sterling to be paid based on the company’s operating results over a three-year period from the date of acquisition. The financial results of this acquisition are included in the Corporation’s consolidated results from the date of acquisition. Pro forma results of operations have not been presented because the effect of this acquisition was not deemed material.

During 2009, a valuation of the intangible assets of PhotoWorks, Inc., which was acquired in the second half of 2008, was completed and the value of the intangible assets acquired was reduced approximately $5 million with a corresponding increase in goodwill.

Note 15 – Discontinued Operations

Discontinued operations include Learning Horizons, the Corporation’s educational products business. This subsidiary meets the definition of a “component of an entity” and has been accounted for as a discontinued operation under SFAS 144. Accordingly, the Corporation’s consolidated financial statements and related notes have been presented to reflect Learning Horizons as a discontinued operation for all periods presented. Learning Horizons was previously included within the Corporation’s “non-reportable segments.”

In February 2007, the Corporation entered into an agreement to sell Learning Horizons. The sale reflects the Corporation’s strategy to focus its resources on business units closely related to its core social expression business. The sale closed in March 2007 and the Corporation received cash proceeds of $2.3 million, which is included in “Cash receipts related to discontinued operations” in the Consolidated Statement of Cash Flows.

The following summarizes the results of discontinued operations:

(In thousands)	Six Months Ended     August 24, 2007
Total revenue	$  299
Pre-tax loss from operations	$  (47)
Gain on sale	195
	148
Income tax expense	361
Loss from discontinued operations, net of tax	$ (213)

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited consolidated financial statements. This discussion and analysis, and other statements made in this Report, contain forward-looking statements, see “Factors That May Affect Future Results” at the end of this discussion and analysis for a description of the uncertainties, risks and assumptions associated with these statements. Unless otherwise indicated or the context otherwise requires, the “Corporation,” “we,” “our,” “us” and “American Greetings” are used in this Report to refer to the businesses of American Greetings Corporation and its consolidated subsidiaries.

Overview

During the second quarter, we experienced many of the same quarter-over-quarter trends that impacted operating results during the first quarter, but to a lesser extent. Our focus on providing fresh products to retail continues to drive growth in the card business, primarily in the North American Social Expression Products segment. The level of activity, including production, distribution and merchandising needed to drive these sales provided increased costs that continue to put downward pressure on earnings. The growth in the value card line continued in the quarter, driving down the average selling price, particularly in seasonal cards, while overall card unit sales increased compared to the prior year period. The content costs of cards also continued to increase with growth in the sale of technology cards and changes in product design that add creative embellishments to the card line.

We experienced higher consolidated total revenues and lower earnings during the second quarter of 2009, compared to the prior year quarter. The higher revenues were primarily the result of revenue improvement in the North American Social Expression Products segment, driven by card products, and the AG Interactive segment, specifically the result of the photo product lines that were acquired during the second half of the prior year. In the card businesses, growth in card unit sales was partially offset by lower average selling prices caused by a higher mix of value line cards. These sales improvements were partially offset by lower sales from our gift packaging and party goods product lines.

Our lower earnings were driven by several factors within our North American Social Expression Products segment, which experienced increased costs in the current quarter compared to the prior year period. These items included increases in product content costs and increased supply chain, scrap and distribution costs. We experienced increases in product content costs, as also noted in the first quarter and prior year, associated with more technology cards (paper cards that include light and/or sound) and other creative content costs. These costs continue to be higher compared to the prior year second quarter as we add technology and other creative embellishments that enhance our cards. Supply chain, scrap and distribution costs were also higher during the second quarter compared to the prior year period as increases in card shipments outpaced increases of card net sales. In total, these two cost issues impacted pre-tax earnings by approximately $9 million compared to the prior year period.

In addition, lower earnings in our International Social Expression Products segment included the impact of costs associated with a long-term efficiency and cost reduction project to consolidate our brands within the United Kingdom (“U.K.”).

The AG Interactive segment also contributed to the decrease in second quarter earnings, primarily related to the two acquisitions in the online photo sharing space. We are still developing these product lines, which historically are seasonally stronger during the second half of the year, and have improved the selection of existing product categories and added several new product categories to the merchandise offerings during the quarter. Our overall photo strategy is designed to bring together the strength of both operations and then leverage the user across all of our existing websites.

Our effective tax rate was 2.9% for the three months ended August 29, 2008, compared to 33.3% in the prior year period. Since the second quarter has seasonally low income from continuing operations before income tax expense, discrete items or changes to the tax assets and reserves on the Consolidated Statement of Financial Position have a more significant impact on the quarterly effective tax rate.

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Over the past several years, we have been focused on a strategy to enhance our core product lines. In continuing this strategy, during the second quarter, we purchased the majority of the distressed first-lien debt securities of another social expression company for approximately $44 million. This investment provides us, among other things, the ability to participate in discussions with the company and its other lenders as it seeks to restructure its balance sheet.

Results of Operations

Three months ended August 29, 2008 and August 24, 2007

Net income was $2.3 million, or $0.05 per share, in the second quarter compared to $8.4 million, or $0.15 per share, in the prior year second quarter (all per-share amounts assume dilution).

Our results for the three months ended August 29, 2008 and August 24, 2007 are summarized below:

(Dollars in thousands)	2008	% Total Revenue	2007	% Total Revenue
Net sales	$ 372,942	96.7%	$ 365,878	96.9%
Other revenue	12,893	3.3%	11,607	3.1%
Total revenue	385,835	100.0%	377,485	100.0%
Material, labor and other production costs	170,112	44.1%	163,052	43.2%
Selling, distribution and marketing expenses	154,387	40.0%	144,586	38.3%
Administrative and general expenses	57,162	14.8%	56,351	14.9%
Other operating income – net	(111)	(0.0%)	(320)	(0.1%)
Operating income	4,285	1.1%	13,816	3.7%
Interest expense	5,434	1.4%	4,839	1.3%
Interest income	(898)	(0.2%)	(2,234)	(0.6%)
Other non-operating income – net	(2,617)	(0.7%)	(1,353)	(0.3%)
Income from continuing operations before income tax expense	2,366	0.6%	12,564	3.3%
Income tax expense	69	0.0%	4,189	1.1%
Income from continuing operations	2,297	0.6%	8,375	2.2%
Loss from discontinued operations, net of tax	-	0.0%	-	0.0%
Net income	$     2,297	0.6%	$     8,375	2.2%

For the three months ended August 29, 2008, consolidated net sales were $372.9 million, up from $365.9 million in the prior year second quarter. This 1.9%, or approximately $7 million, increase was primarily the result of higher net sales in our North American Social Expression Products segment and our AG Interactive segment.

Net sales of our North American Social Expression Products segment increased approximately $3 million. The majority of the increase is attributable to increased sales of our everyday and seasonal cards. This increase was partially offset by lower sales from our gift packaging and party goods product lines.

The AG Interactive segment increased approximately $4 million during the second quarter. This increase in net sales was solely a result of the digital photography acquisitions we made in the second half of last year.

Other revenue, primarily royalty revenue from our Strawberry Shortcake and Care Bears properties, increased $1.3 million from $11.6 million during the three months ended August 24, 2007 to $12.9 million for the three months ended August 29, 2008. On July 20, 2008, we entered into an agreement to sell the Strawberry Shortcake and Care Bears properties and our rights in the Sushi Pack property to Cookie Jar Entertainment Inc. (“Cookie Jar”) for $195.0 million in cash. The transaction was expected to close by September 30, 2008; however, with the recent disruptions in the financial markets, the transaction has not closed. As a result, under the terms of our agreement, we

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now have the right to solicit offers from third parties to purchase the properties until March 31, 2009. During the period of time between September 30, 2008 and March 31, 2009, Cookie Jar may match any third party offer up to a pre-established threshold.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the three months ended August 29, 2008 and August 24, 2007 are summarized below:

	Increase (Decrease) From the Prior Year
	Everyday Cards		Seasonal Cards		Total Greeting Cards
	2008	2007	2008	2007	2008	2007
Unit volume	(0.2%)	19.5%	29.7%	24.0%	4.0%	20.2%
Selling prices	(0.1%)	(9.6%)	(13.7%)	(12.8%)	(2.4%)	(10.1%)
Overall increase / (decrease)	(0.2%)	8.1%	12.0%	8.2%	1.5%	8.1%

During the second quarter, combined everyday and seasonal greeting card sales less returns improved 1.5% compared to the prior year quarter. This increase was driven by seasonal card sales, as everyday card sales were essentially flat.

Seasonal card unit volume increased 29.7%, driven primarily by summer seasonal programs. The lower selling prices of 13.7% are due to a higher mix of value priced cards across most programs in the North American Social Expression Products segment compared to the prior year period. In addition, because the second quarter has the fewest holidays, the changes in unit volume during the quarter appear large on a percentage basis.

Everyday card sales less returns for the second quarter were basically flat, down 0.2%, compared to the prior year quarter. Improvements within the North American Social Expression Products segment, where continued focus on providing fresh and relevant products to consumers continues to drive unit growth, were offset by the International Social Expression Products segment.

Expense Overview

During the current quarter, we experienced increased costs in our effort to drive profitable sales growth. These higher costs were primarily due to added content to our cards, including music, lights and other embellishments, and increased shipments outpacing increased net sales.

Material, labor and other production costs (“MLOPC”) for the three months ended August 29, 2008 were $170.1 million, an increase from $163.1 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 44.1% in the current period compared to 43.2% for the three months ended August 24, 2007. The increase of $7.0 million is due to unfavorable spending, product mix and volume variances. The unfavorable product mix, which accounted for approximately $3 million of the increase, is primarily attributable to a shift toward lower margin products including products with higher content related costs such as music, lights and other embellishments. Volume variances due to the increased sales volume in the current quarter and increased spending each accounted for approximately $2 million of the overall increase in MLOPC.

Selling, distribution and marketing expenses for the three months ended August 29, 2008 were $154.4 million, increasing from $144.6 million for the comparable period in the prior year. The increase is due to higher spending of approximately $6 million on supply chain costs, specifically freight and distribution costs, due to an increase in products shipped. Costs related to the photo acquisitions in our AG Interactive segment and the brand consolidation costs in our International Social Expression Products segment also contributed to the increase.

Administrative and general expenses were $57.2 million for the three months ended August 29, 2008, an increase from $56.4 million for the three months ended August 24, 2007. The increase of $0.8 million is primarily related to higher information technology-related expenses and higher amortization expense of intangible assets attributable

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to the digital photography acquisitions we completed in the second half of 2008. These increases were partially offset by lower domestic profit-sharing plan expense due to the reduced income in the current year period.

Interest expense for the three months ended August 29, 2008 was $5.4 million, up from $4.8 million for the prior year quarter. The increase of $0.6 million is attributable to increased borrowings on our revolving credit facility and the accounts receivable securitization facility in the current period.

Other non-operating income – net was $2.6 million in the current year second quarter compared to $1.4 million for the three months ended August 24, 2007. The $1.2 million increase in income is due primarily to increased foreign exchange gains in the current period.

The effective tax rate on income from continuing operations was 2.9% and 33.3% for the three months ended August 29, 2008 and August 24, 2007, respectively. The lower effective tax rate in the current quarter is due to the recognition of a tax benefit from a return to provision adjustment. Since the second quarter has seasonally low income from continuing operations before income tax expense, discrete items or changes to the tax assets and reserves on the Consolidated Statement of Financial Position, such as this return to provision adjustment, have a more significant impact on the Corporation’s quarterly effective tax rate.

Results of Operations

Six months ended August 29, 2008 and August 24, 2007

Net income was $15.6 million, or $0.32 per share, in the six months ended August 29, 2008 compared to $38.4 million, or $0.69 per share, in the prior year six months.

Our results for the six months ended August 29, 2008 and August 24, 2007 are summarized below:

(Dollars in thousands)	2008	% Total Revenue	2007	% Total Revenue
Net sales	$ 798,405	98.1%	$ 783,894	98.3%
Other revenue	15,730	1.9%	13,558	1.7%
Total revenue	814,135	100.0%	797,452	100.0%
Material, labor and other production costs	363,454	44.6%	324,180	40.7%
Selling, distribution and marketing expenses	305,262	37.5%	285,280	35.8%
Administrative and general expenses	119,723	14.7%	118,586	14.9%
Other operating income – net	(838)	(0.1%)	(680)	(0.1%)
Operating income	26,534	3.3%	70,086	8.7%
Interest expense	10,339	1.3%	9,596	1.2%
Interest income	(1,888)	(0.2%)	(3,733)	(0.5%)
Other non-operating income – net	(3,518)	(0.4%)	(2,896)	(0.4%)
Income from continuing operations before income tax expense	21,601	2.6%	67,119	8.4%
Income tax expense	5,971	0.7%	28,481	3.6%
Income from continuing operations	15,630	1.9%	38,638	4.8%
Loss from discontinued operations, net of tax	-	0.0%	(213)	(0.0%)
Net income	$   15,630	1.9%	$   38,425	4.8%

For the six months ended August 29, 2008, consolidated net sales were $798.4 million, up from $783.9 million in the prior year six months. This 1.9%, or $14.5 million, increase was primarily the result of higher net sales in our International Social Expression Products segment of approximately $5 million, our AG Interactive segment of approximately $4 million and a favorable foreign currency translation impact of approximately $8 million. These increases were partially offset by lower net sales in our fixtures business of approximately $2 million.

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The increase in our International Social Expression Products segment’s net sales was driven by our U.K. operations where the majority of the increase was due to the acquisition completed in the first quarter of 2009.

Net sales of our AG Interactive segment increased approximately $4 million. The current year period includes approximately $7 million of revenue from the digital photography acquisitions completed during the second half of 2008. These revenues were partially offset by lower advertising revenues in our online product group.

Other revenue, primarily royalty revenue, increased $2.2 million from $13.5 million during the six months ended August 24, 2007 to $15.7 million for the six months ended August 29, 2008.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the six months ended August 29, 2008 and August 24, 2007 are summarized below:

	Increase (Decrease) From the Prior Year
		Everyday Cards		Seasonal Cards		Total Greeting Cards
		2008	2007	2008	2007	2008	2007
Unit volume		5.3%	13.8%	12.3%	5.3%	7.2%	11.4%
Selling prices		(2.6%)	(7.2%)	(7.9%)	(3.6%)	(4.0%)	(6.2%)
Overall increase / (decrease)		2.6%	5.6%	3.4%	1.6%	2.8%	4.4%

During the six month period, combined everyday and seasonal greeting card sales less returns improved 2.8%, compared to the prior year quarter, with increases coming from both everyday and seasonal cards.

Everyday card sales less returns were up 2.6%, compared to the prior year six months. This improvement was in the North American Social Expression Products segment where continued focus on providing fresh and relevant products to consumers continues to drive unit growth. Overall, unit volume was up 5.3% and selling prices were down 2.6%. The lower selling prices were the result of a higher mix of value line cards compared to the prior year.

Seasonal card unit volume increased 12.3%, driven by graduation, Mother’s Day and summer seasonal programs. Lower selling prices of 7.9% related to a higher mix of value priced cards across most programs in the North American Social Expression Products segment compared to the prior year period.

Expense Overview

During the current year period, we experienced increased costs in our effort to drive profitable sales growth. These higher costs were due to the rollout of the new single priced card line in Canada, added content to our cards, including music, lights and other embellishments, and increased shipments outpacing increased net sales.

MLOPC for the six months ended August 29, 2008 were $363.5 million, an increase from $324.2 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 44.6% in the current period compared to 40.7% for the six months ended August 24, 2007. The increase of $39.3 million is due to unfavorable spending and product mix of approximately $22 million and $13 million, respectively. Volume variances due to the increased sales volume in the current year period and foreign currency translation impacts increased MLOPC approximately $4 million. The increased spending is primarily attributable to higher scrap and creative content costs as well as costs associated with the conversion to our new Canadian line of cards. The unfavorable product mix is attributable to a shift toward cards with more content, including music, lights and other embellishments.

Selling, distribution and marketing expenses for the six months ended August 29, 2008 were $305.3 million, increasing from $285.3 million for the comparable period in the prior year. The increase of $20.0 million is due to unfavorable foreign currency translation of approximately $4 million and higher spending of approximately $16 million. The additional spending is attributable to increases in supply chain costs, specifically freight and

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distribution costs, due to an increase in products shipped. Merchandiser expense increased approximately $7 million and freight and distribution costs each increased approximately $3 million.

Administrative and general expenses were $119.7 million for the six months ended August 29, 2008, an increase from $118.6 million for the six months ended August 24, 2007. The majority of the increase of $1.1 million is due to unfavorable foreign currency translation.

Interest expense for the six months ended August 29, 2008 was $10.3 million, up from $9.6 million for the prior year period. The increase of $0.7 million is attributable to increased borrowings on the revolving credit facility and the accounts receivable securitization facility in the current period.

Other non-operating income – net was $3.5 million in the current year six months compared to $2.9 million for the six months ended August 24, 2007. The $0.6 million increase in income is due primarily to increased foreign exchange gains in the current period.

The effective tax rate on income from continuing operations was 27.6% and 42.4% for the six months ended August 29, 2008 and August 24, 2007, respectively. The higher effective tax rate in the prior six months related to several discrete events during that period, primarily agreements reached with the Internal Revenue Service as it closed its audit cycle.

Segment Information

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. Our North American Social Expression Products and our International Social Expression Products segments primarily design, manufacture and sell greeting cards and other related products through various channels of distribution, with mass retailers as the primary channel. As permitted under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” certain operating divisions have been aggregated into both the North American Social Expression Products and International Social Expression Products segments. The aggregated operating divisions have similar economic characteristics, products, production processes, types of customers and distribution methods. At August 29, 2008, we owned and operated 412 card and gift retail stores in the United States and Canada through our Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the North American Social Expression Products segment as well as products purchased from other vendors. AG Interactive distributes social expression products, including electronic greetings, personalized printable greeting cards and a broad range of graphics and digital services and products, through a variety of electronic channels, including Web sites, Internet portals, instant messaging services and electronic mobile devices. AG Interactive also offers online photo sharing space and a platform to provide consumers the ability to use their own photos to create unique, high quality physical products, including greeting cards, calendars, photo albums and photo books.

We review segment results using consistent exchange rates between periods to eliminate the impact of foreign currency fluctuations.

North American Social Expression Products Segment

(Dollars in thousands)	Three Months Ended August		%   Change	Six Months Ended August		%   Change
	29, 2008	24, 2007		29, 2008	24, 2007
Total revenue	$246,560	$243,559	1.2%	$534,334	$535,000	(0.1%)
Segment earnings	23,614	31,029	(23.9%)	66,066	113,369	(41.7%)

Total revenue of our North American Social Expression Products segment for the quarter ended August 29, 2008, excluding the impact of foreign exchange and intersegment items, increased $3.0 million, or 1.2%, from the prior year period. The majority of the increase was driven by card products as growth in unit sales was only partially offset by lower average selling prices caused by a higher mix of value line cards. This increase was partially offset by lower sales

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from our gift packaging and party goods product lines. Total revenue of our North American Social Expression Products segment for the six months ended August 29, 2008, excluding the impact of foreign exchange and intersegment items, decreased $0.7 million compared to the prior year period. The revenue reduction due to the rollout of the new Canadian card line and lower sales of our gift packaging products and party goods was substantially offset by higher sales of both everyday and seasonal cards.

Segment earnings, excluding the impact of foreign exchange and intersegment items, decreased $7.4 million in the current three months compared to the three months ended August 24, 2007. Contributing to the decrease are increased product content costs and increased supply chain costs. Increased product content costs are a result of increased cards with technology (paper cards that include light and/or sound) and other creative embellishments. Increased supply chain costs were driven by increases in card shipments, which outpaced increases of card net sales. In total, these costs along with the increased card product content costs decreased segment earnings by approximately $9 million compared to the prior year period. Segment earnings, excluding the impact of foreign exchange and intersegment items, decreased $47.3 million during the six months ended August 29, 2008 compared to the prior year period. The conversion to the new Canadian card line reduced earnings by approximately $8 million in the current six months. Also contributing to the decrease for the six-month period are the increased product content and supply chain costs as described above which impacted segment earnings by approximately $33 million compared to the prior year period.

International Social Expression Products Segment

(Dollars in thousands)	Three Months Ended August		%     Change	Six Months Ended August		%     Change
	29, 2008	24, 2007		29, 2008	24, 2007
Total revenue	$63,191	$64,071	(1.4%)	$133,064	$128,488	3.6%
Segment (loss) earnings	(2,134)	1,574	(235.6%)	728	1,750	(58.4%)

Total revenue of our International Social Expression Products segment, excluding the impact of foreign exchange, decreased $0.9 million, or 1.4%, compared to the prior year quarter. Total revenue of our International Social Expression Products segment, excluding the impact of foreign exchange, increased $4.6 million, or 3.6%, compared to the prior year six months. The majority of the revenue improvement in the six-month period is attributable to the acquisition completed in the current year.

Segment earnings, excluding the impact of foreign exchange, decreased from earnings of $1.6 million in the prior year quarter to a loss of $2.1 million in the current quarter. Segment earnings, excluding the impact of foreign exchange, decreased $1.0 million in the six months ended August 29, 2008 compared to the prior year six months. The decrease in both the three and six month periods is primarily the result of costs associated with a long-term efficiency and cost reduction project to consolidate our brands within the U.K.

Retail Operations Segment

(Dollars in thousands)	Three Months Ended August		%     Change	Six Months Ended August		%     Change
	29, 2008	24, 2007		29, 2008	24, 2007
Total revenue	$37,547	$39,072	(3.9%)	$79,040	$79,611	(0.7%)
Segment loss	(6,669)	(6,561)	(1.6%)	(10,076)	(9,330)	(8.0%)

Total revenue, excluding the impact of foreign exchange, in our Retail Operations segment decreased $1.5 million, or 3.9%, for the three months ended August 29, 2008, compared to the prior year period due to unfavorable same-store sales of approximately $1 million, or 2.4%, and the reduction in store doors. For the six months ended August 29, 2008, total revenue decreased $0.6 million compared to the prior year period, as same-store sales decreased 0.7%, or approximately $0.5 million. The average number of stores was approximately 4% less than in the prior year period, which accounted for the remainder of the decrease.

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Segment earnings, excluding the impact of foreign exchange, was a loss of $6.7 million in the three months ended August 29, 2008, compared to a loss of $6.6 million during the three months ended August 24, 2007. Segment earnings were unfavorably impacted by the lower sales level and lower gross margins, which decreased by approximately 0.8 percentage points. For the six months ended August 29, 2008, segment earnings was a loss of $10.1 million compared to a loss of $9.3 million in the prior year period. Earnings in the current year six months were unfavorably impacted by a weakening of gross margins as a result of more promotional pricing. Gross margins decreased by approximately 1.3 percentage points. Both the three and six month periods ended August 29, 2008 were favorably impacted by lower store expenses as a result of the reduction in store doors.

AG Interactive Segment

(Dollars in thousands)	Three Months Ended August		%     Change	Six Months Ended August		%     Change
	29, 2008	24, 2007		29, 2008	24, 2007
Total revenue	$20,975	$17,155	22.3%	$41,502	$37,054	12.0%
Segment earnings (loss)	759	3,163	(76.0%)	(337)	6,442	(105.2%)

Total revenue of AG Interactive for the three months ended August 29, 2008, excluding the impact of foreign exchange, was $21.0 million compared to $17.2 million in the prior year second quarter. The increased revenue is due solely to the digital photography acquisitions completed during the second half of 2008. Total revenue of AG Interactive for the six months ended August 29, 2008, excluding the impact of foreign exchange, was $41.5 million compared to $37.1 million in the prior year six months. The current year six months include approximately $7 million of revenue from the digital photography acquisitions. These revenues were partially offset by lower advertising revenues in our online product group. At the end of the second quarter of 2009, AG Interactive had approximately 3.9 million online paid subscriptions versus 3.6 million at the prior year quarter end.

Segment earnings, excluding the impact of foreign exchange, decreased from $3.2 million during the quarter ended August 24, 2007 to $0.8 million for the quarter ended August 29, 2008. Segment earnings, excluding the impact of foreign exchange, decreased from earnings of $6.4 million in the six months ended August 24, 2007 to a loss of $0.3 million in the current year six months. The decrease in both the three and six month periods ended August 29, 2008 compared to the prior year periods is primarily attributable to expenses incurred associated with the digital photo product line, including marketing, intangible asset amortization and technology costs.

Liquidity and Capital Resources

The seasonal nature of our business precludes a useful comparison of the current period and the fiscal year-end financial statements; therefore, a Consolidated Statement of Financial Position as of August 24, 2007, has been included.

Operating Activities

Operating activities used $53.7 million of cash during the six months ended August 29, 2008, compared to providing $57.4 million of cash in the prior year period.

Accounts receivable was a use of cash of $0.6 million during the six months ended August 29, 2008, compared to a source of cash of $33.4 million in the prior year six months. The year-over-year change in cash flow for the six month period was caused by the historically low accounts receivable balance at February 29, 2008. So while the accounts receivable balance at August 29, 2008 and August 24, 2007 are essentially the same, the six month cash flow is considerably less in the current period. The level of accounts receivable at February 29, 2008 was driven by lower sales during the period and more customers moving to the scan-based trading (“SBT”) business model. In general, customers on the SBT business model tend to have shorter payment terms than non-SBT customers.

Inventory was a use of $47.6 million from February 29, 2008, compared to a use of $62.0 million in the prior year period. Historically, the first half is a period of inventory build, and thus a use of cash, in preparation for the fall and

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winter seasonal holidays. Over the past several years, this use of cash during the first half of the year has gradually declined through improved inventory management. In addition, the lower year-over-year usage of cash in the current period was impacted by the higher inventory levels at February 29, 2008. The higher inventory levels at February 29, 2008 were driven by the build of the Canadian card line and technology cards during the three months ended February 29, 2008. The sale of these inventories during the current period was a source of cash, partially offsetting the usage of cash related to the seasonal inventory build.

Deferred costs - net generally represents payments under agreements with retailers net of the related amortization of those payments. During the six months ended August 29, 2008, amortization exceeded payments by $14.7 million; in the six months ended August 24, 2007, amortization exceeded payments by $28.5 million. See Note 9 to the consolidated financial statements for further detail of deferred costs related to customer agreements.

Accounts payable and other liabilities used $69.5 million of cash during the six months ended August 29, 2008, compared to $23.4 million in the prior year period. The increase in cash usage in the current year six months compared to the prior year period was attributable primarily to differences in the timing of cash payments related to normal course of business accounts payable, accrued liabilities, income taxes and compensation. For example, the timing of the year-end or quarterly period in relation to payroll periods can substantially impact the amount of accrued payroll on a year-over-year basis and thus the related cash outflow in the subsequent period. In addition, incentive-based and profit-sharing accruals at February 29, 2008 were higher than at February 28, 2007 due to our improved financial results in fiscal 2008 compared to fiscal 2007, thus the cash outflow in the first half of the current period was higher than the prior year period.

Investing Activities

Investing activities used $88.0 million of cash during the six months ended August 29, 2008, compared to $15.1 million in the prior year period. The use of cash in the current period is related to cash payments for marketable securities and business acquisitions as well as capital expenditures of $28.5 million. During 2009, we purchased a card publisher and franchised distributor of greeting cards in the U.K. for $15.6 million and we acquired, at a substantial discount, a majority of the distressed first-lien debt securities of another social expressions company that is currently seeking to restructure its balance sheet. We paid $44.2 million for this investment. We were able to purchase these debt securities at a substantial discount because this company has failed to make interest payments on certain of its other borrowings. It is possible that because of the financial difficulties that this company is experiencing, it may be unable to repay its obligations to us and we may lose some or all of our investment.

The use of cash in the prior six months is related to capital expenditures of $13.6 million as well as cash payments for business acquisitions as the final payment of $6.1 million for the online greeting card business purchased in the second quarter of fiscal 2007 was made during the first quarter of fiscal 2008. These cash outflows were partially offset by the receipt of $3.4 million upon the sale of our educational products subsidiary.

Financing Activities

Financing activities provided $109.7 million of cash during the six months ended August 29, 2008, compared to $1.3 million during the six months ended August 24, 2007. The current year source of cash relates primarily to short-term debt borrowings of $189.5 million partially offset by share repurchases and long-term debt repayments. Our receipt of the exercise price on stock options provided $24.3 million in the prior year period, but was partially offset by dividend payments and share repurchases. During the six months ended August 29, 2008, $46.1 million was paid to repurchase approximately 3.1 million shares under our repurchase program compared to $10.4 million used in the six months ended August 24, 2007 to repurchase approximately 0.4 million shares. During the second quarter of 2009, $22.5 million was paid upon exercise of the put option on our 6.10% senior notes. During the six months ended August 29, 2008 and August 24, 2007, we paid quarterly dividends of $0.12 and $0.10 per common share, respectively, which totaled $11.7 million and $11.1 million, respectively.

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Credit Sources

Substantial credit sources are available to us. In total, we had available sources of approximately $540 million at August 29, 2008. This included our $450 million senior secured credit facility and our $90 million accounts receivable securitization facility. Borrowings under the accounts receivable securitization facility are limited based on our eligible receivables outstanding. We had $191.2 million outstanding under the revolving credit facility and $18.4 million outstanding under the accounts receivable securitization agreement at August 29, 2008. In addition to these borrowings, we have, in the aggregate, $25.7 million outstanding under letters of credit, which reduces the total credit availability thereunder.

Please refer to the discussion of our borrowing arrangements as disclosed in the “Credit Sources” section of our Annual Report on Form 10-K for the year ended February 29, 2008 for further information.

Our future operating cash flow and borrowing availability under our credit agreement and our accounts receivable securitization facility are expected to meet currently anticipated funding requirements. The seasonal nature of the business results in peak working capital requirements that may be financed through short-term borrowings.

Critical Accounting Policies

Please refer to the discussion of our Critical Accounting Policies as disclosed in our Annual Report on Form 10-K for the year ended February 29, 2008.

Factors That May Affect Future Results

Certain statements in this report may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning our operations and business environment, which are difficult to predict and may be beyond our control. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect our future financial performance, include, but are not limited to, the following:

• a weak retail environment;

• retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;

• competitive terms of sale offered to customers;

• the timing and impact of investments in new retail or product strategies as well as new product introductions and achieving the desired benefits from those investments;

• consumer acceptance of products as priced and marketed;

• the impact of technology on core product sales;

• the timing and impact of converting customers to a scan-based trading model;

• the escalation in the cost of providing employee health care;

• the ability to successfully integrate acquisitions;

• the ability to identify, complete, or achieve the desired benefits associated with productivity improvement projects;

• whether we will be repaid our recent investment in the first-lien distressed debt securities of another social expressions company;

• our ability to successfully implement, or achieve the desired benefits associated with, any information systems refresh that we may implement;

• the ability to execute share repurchase programs or the ability to achieve the desired accretive effect from such repurchases;

• the ability to comply with our debt covenants;

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• our ability to successfully complete, or achieve the desired benefits associated with, dispositions, including the sale of the Strawberry Shortcake and Care Bears properties;

• fluctuations in the value of currencies in major areas where we operate, including the U.S. Dollar, Euro, U.K. Pound Sterling and Canadian Dollar; and

• the outcome of any legal claims known or unknown.

Risks pertaining specifically to AG Interactive include the viability of online advertising, subscriptions as revenue generators and the public’s acceptance of online greetings and other social expression products, and the ability to gain a leadership position in the digital photo sharing space.

The risks and uncertainties identified above are not the only risks we face. Additional risks and uncertainties not presently known to us or that we believe to be immaterial also may adversely affect us. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on our business, financial condition and results of operations. For further information concerning the risks we face and issues that could materially affect our financial performance related to forward-looking statements, refer to our periodic filings with the Securities and Exchange Commission (“SEC”), including the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended February 29, 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For further information, refer to our Annual Report on Form 10-K for the year ended February 29, 2008. There were no material changes in market risk, specifically interest rate and foreign currency exposure, for us from February 29, 2008, the end of our preceding fiscal year, to August 29, 2008, the end of our most recent fiscal quarter.

Item 4. Controls and Procedures

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

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

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

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in certain legal proceedings arising in the ordinary course of business. We, however, do not believe that any of the litigation in which we are currently engaged, either individually or in the aggregate, will have a material adverse effect on our business, consolidated financial position or results of operations.

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

(a)   Not applicable.

(b)   Not applicable.

(c)   The following table provides information with respect to our purchases of our common shares during the three months ended

  August 29, 2008.

Period	Total Number of Shares Repurchased	Average Price   Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans
June 2008	Class A –                 -             Class B –          1,000  (1)	-                    $18.30	-               -	$50,935,815
July 2008	Class A –   1,641,445              Class B –          1,744  (1)	$13.52    (2)      $12.34	1,641,445    (3)      -	$28,741,524
August 2008	Class A –   1,500,000             Class B –               60  (1)	$15.85    (2)      $12.90	1,500,000    (3)      -	$4,959,240
Total	Class A –   3,141,445              Class B –          2,804  (1)		3,141,445    (3)      -

(1) There is no public market for the Class B common shares of the Corporation. Pursuant to our 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. All of the shares were repurchased by American Greetings for cash pursuant to this right of first refusal.

(2) Excludes commissions paid, if any, related to the share repurchase transactions.

(3) On January 8, 2008, American Greetings announced that its Board of Directors authorized a program to repurchase up to $100 million of its Class A common shares. There is no set expiration date for this repurchase program and these repurchases are made through a 10b5-1 program in open market or privately negotiated transactions which are intended to be in compliance with the SEC’s Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.

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

Our Annual Meeting of Shareholders was held on June 27, 2008, at which the following proposals were put to a vote of shareholders of record as of May 1, 2008:

Proposal One – Election of Directors

The following were elected to Class I of our Board of Directors with a term expiring in 2011: Jeffrey D. Dunn, Michael J. Merriman, Jr., and Morry Weiss.

Nominee	Votes For	Votes Withheld
Jeffrey D. Dunn	72,594,713	1,720,320
Michael J. Merriman, Jr.	52,793,615	21,521,418
Morry Weiss	54,001,608	20,313,425

The following individuals were continuing Class II directors with a term expiring 2009: Joseph S. Hardin, Jr., Jerry Sue Thornton, and Jeffrey Weiss.

The following individuals were continuing Class III directors with a term expiring in 2010: Scott S. Cowen, William E. MacDonald, III, Charles A. Ratner, and Zev Weiss.

Proposal Two – Approval of Amendments to the Articles of Incorporation

Subproposal 1 and Subproposal 3 of Proposal Two to amend our Articles of Incorporation were approved and Subproposal 2 to amend our Articles of Incorporation was not approved, in each case as follows:

Subproposal 1:   The proposal to opt out of the Ohio Merger Moratorium Statute was approved by the shareholders as follows:

Votes For	Votes Against	Abstain	Broker Non-Votes
71,395,790	511,861	258,814	2,129,658

Subproposal 2:   The proposal to eliminate cumulative voting in the election of directors was not approved by the shareholders as follows:

Votes For	Votes Against	Abstain	Broker Non-Votes
48,063,851	23,857,522	245,091	2,129,659

Subproposal 3:   The proposal to modernize our Articles of Incorporation was approved by the shareholders as follows:

Votes For	Votes Against	Abstain
73,910,447	150,458	254,130

Proposal Three – Approval of Amendments to the Code of Regulations

Subproposals 1, 2, 3, 4 and 5 of Proposal Three to amend our Code of Regulations were approved as follows:

Subproposal 1:   The proposal to modernize our Code of Regulations was approved by the shareholders as follows:

Votes For	Votes Against	Abstain
73,558,922	503,004	253,109

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Subproposal 2:   The proposal to amend the provisions regarding notice of shareholder business and director nominations was approved by the shareholders as follows:

Votes For	Votes Against	Abstain
71,180,884	2,667,138	467,010

Subproposal 3:   The proposal to provide the Board authority to fix the number of directors on the Board of Directors was approved by the shareholders as follows:

Votes For	Votes Against	Abstain
69,815,451	4,188,705	310,876

Subproposal 4:   The proposal to opt out of the Control Share Acquisition Act was approved by the shareholders as follows:

Votes For	Votes Against	Abstain	Broker Non-Votes
71,062,064	797,540	306,859	2,129,660

Subproposal 5:   The proposal governing the authority for future amendments to the Code of Regulations was approved by the shareholders as follows:

Votes For	Votes Against	Abstain	Broker Non-Votes
43,529,321	28,220,507	416,635	2,129,660

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K

Exhibit   Number	Description
10.1		Letter Agreement and General Release between Randy Mason and American Greetings Corporation dated July 11, 2008
10.2		Amendment No. 5 to Credit Agreement, dated April 4, 2006, among American Greetings Corporation, as Borrower, certain foreign subsidiaries of the Borrower, various lending institutions party thereto, National City Bank, as the Global Agent, joint lead arranger, joint bookrunner, Swing Line Lender and LC Issuer, UBS Securities LLC, as joint lead arranger, joint bookrunner and syndication agent, and KeyBank National Association, JPMorgan Chase Bank, N.A., and LaSalle Bank National Association, as co-documentation agents
10.3		Binding Letter Agreement dated July 20, 2008, by and between American Greetings Corporation and Cookie Jar Entertainment Inc. (confidential treatment requested as to certain portions which are omitted and filed separately with the SEC)
(31) a		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31) b		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN GREETINGS CORPORATION
By:	/s/ Joseph B. Cipollone
	-------------------------------------
	Joseph B. Cipollone     Vice President, Corporate Controller,     and Chief Accounting Officer *

October 8, 2008

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

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EX-10.1

EXHIBIT 10.1

July 15, 2008

Randy Mason

Dear Randy:

This Letter Agreement, together with Exhibit A (“General Release”) (attached) (collectively, the “Agreement”), reflects our mutual agreement regarding the terms of your employment with American Greetings Corporation (together with its subsidiaries and affiliates referred to as “American Greetings”), as well as the terms of the separation of your employment from American Greetings.

1.        Separation on February 28, 2009. You shall continue full-time employment with American Greetings through February 28, 2009 (the “Separation Date”), upon which date you shall voluntarily resign your employment. Until the Separation Date, you will continue to receive: (i) salary payments at the annual base salary rate you are receiving as of the “Effective Date” of this Agreement (as defined in Section 18 below) (less applicable withholdings and deductions), paid in accordance with American Greetings’ payroll practices in the ordinary course; and (ii) benefits at the level and of the type you are receiving as of the Effective Date. You will be eligible to participate in the American Greetings Key Management Incentive Plan for American Greetings’ fiscal year ending on February 28, 2009, at the Senior Vice President level, at no less than a “Meets Expectations” rating with a 100% payout for purposes of the individual performance component of such Plan, with any incentive earned paid in accordance with the terms and conditions of the Plan.

2.        Separation Prior to the Separation Date. At its sole discretion, American Greetings may terminate your employment for any reason, with or without cause, at any time prior to the Separation Date. If you are terminated prior to the Separation Date for any reason other than for a breach of this Agreement as set forth in Sections 6 and 14 below, you will receive until the Separation Date: (i) salary payments at the annual base salary rate you are receiving as of the Effective Date (less applicable withholdings and deductions), paid in accordance with American Greetings’ payroll practices in the ordinary course; and (ii) benefits at the level and of the type you are receiving as of the Effective Date. You will also remain eligible to participate in the American Greetings Key Management Incentive Plan for American Greetings’ fiscal year ending on February 28, 2009, at the Senior Vice President level, at no less than a “Meets Expectations” rating with a 100% payout for purposes of the individual performance component of such Plan, with

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Page 2 of 11

any incentive earned paid on a pro-rated basis based on: (i) the time you actually worked at American Greetings during the fiscal year ending on February 28, 2009; and (ii) the amount of base salary actually paid to you during the fiscal year ending on February 28, 2009. In addition, you will be entitled to receive all other compensation and benefits described in this Agreement. If you voluntarily resign your employment for any reason, with or without cause, at any time prior to the Separation Date, you will forfeit all remaining compensation and benefits described in this Agreement.

3.        Acknowledgment of Separation. You acknowledge and agree that as of the Separation Date, or upon the date you are separated from employment if earlier than the Separation Date, you will cease to be an employee of American Greetings and that the only benefits you will receive from American Greetings are those described in this Agreement; provided, however, that this Agreement does not waive any benefits you may be eligible to receive under American Greetings’ Supplemental Executive Retirement Plan, any stock option plan or agreement, deferred compensation plan or agreement, or the Retirement Profit Sharing and Savings Plan. You acknowledge and agree that the benefits you will receive under this Agreement are intended by you and American Greetings to supersede all benefits payable to you upon termination of employment described in your Employment Agreement dated March 1, 2001, or any other written or oral agreement, and that as of the Separation Date, your March 1, 2001 Employment Agreement and any other written or oral agreement will no longer have any force and effect. You understand and acknowledge that as of the Separation Date, or upon the close of business on the date you are separated from employment if earlier than the Separation Date, you shall have no authority or permission to hold yourself out as being in any way connected with or interested in the business of American Greetings or any of its subsidiaries and you will have no authority to take any action on behalf of or otherwise bind American Greetings.

4.        Separation Benefits. Subject to the provisions of Sections 6 and 14 of this Agreement, if you sign the General Release in the form attached as Exhibit A, and it becomes effective as explained in Section 19 below, you will receive the following payments and benefits in the manner and time frames described in this Section 4. You acknowledge and agree that certain of the payments and benefits differ from and/or are greater than benefits you would otherwise be eligible to receive upon resignation, absent this Agreement.

a.   Separation Pay. From the Separation Date through February 29, 2012, you will receive salary payments at the annual base salary rate you are receiving as of the Effective Date (less applicable withholdings and deductions), paid in accordance with American Greetings’ payroll practices in the ordinary course. However, because you are considered a specified employee pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (“Code Section 409A”), the payments under this Section 4(a) are required to be delayed for a period of six months following your termination of employment (“six-month period”). Therefore, the payment of any amounts due under this Section 4(a) during the first six months following your termination date will be accumulated, held and

R. Mason Separation Agreement

Page 3 of 11

distributed to you on the first day following the end of such six-month period. If you die during the six-month period, Section 7 below will apply.

b.   Health Care. From the Separation Date through March 31, 2012, you (and your spouse and covered dependents if any) will continue to receive medical and prescription drug coverage, concurrently with COBRA, in the plan in which you are enrolled at the Separation Date, at the Senior Vice President active employee payroll deduction rate, as it may be changed from time-to-time. From the end of the COBRA continuation coverage period through March 31, 2012, any reimbursements provided under this Section 4(b) will occur no later than the end of the taxable year following the taxable year in which such expense was incurred. In addition, the amounts eligible for reimbursement or the in-kind benefits provided during any one taxable year under this Section 4(b) may not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year under this Section 4(b).

c.   American Greetings’ Car. You will have continued use of your current American Greetings’ car from the Separation Date through February 29, 2012, at which time you will return the car to American Greetings. American Greetings will continue to make the lease payments and insure the car. If the car lease on your current American Greetings’ car expires prior to February 29, 2012, you will receive monthly payments equal to the amount of the lease payment American Greetings currently pays per month for your American Greetings’ car.

d.   Life Insurance. You will continue your ownership interest in the executive life insurance policy provided by American Greetings in accordance with the terms and conditions of the policy.

e.   Stock Options. Stock options granted to you prior to the Separation Date will continue to both vest and be exercisable through February 29, 2012, as if you were actively employed. All stock options not exercised as of February 29, 2012 will be forfeited. All other terms, conditions and/or restrictions of American Greetings’ stock option plan(s) or agreement are unaffected by this Section 4(e).

5.        Consulting Services. Following the Separation Date, American Greetings may, but has no obligation to, engage you from time to time, at its discretion, to perform consulting services on dates that are mutually agreed upon. American Greetings will pay you $2,000 per day plus expenses for such consulting.

6.        Reasonable Cooperation. You acknowledge and agree that your agreement to fully cooperate with American Greetings with respect to the provisions of this Section 6 in its entirety is a material term of this Agreement. The failure by you to cooperate fully with American Greetings in accordance with the provisions of this Section 6 is a material breach of the terms of this Agreement that will result in the forfeiture of the compensation and benefits described in this Agreement as set forth in Section 14 below.

R. Mason Separation Agreement

Page 4 of 11

a.   Transfer of job responsibilities. As directed by the senior management of American Greetings or its subsidiaries, you shall fully cooperate in transferring to designated American Greetings employees all of your responsibilities and duties with regard to American Greetings’ business operations. You specifically acknowledge and agree that you will use your best efforts before your termination of employment to accomplish the successful transition of all Wal-Mart activities to a new Wal-Mart Team leader who is selected at the sole discretion of American Greetings.

b.   Fiduciary Obligations. You acknowledge and agree that at all times until and through the Separation Date, you will carry out your duties in a manner consistent with and in compliance with all present and future requirements of: (i) applicable federal and state laws and regulations; (ii) American Greetings’ policies and procedures; and (iii) the directives and instructions of American Greetings’ Chief Executive Officer, President and/or American Greetings’ Board of Directors. You acknowledge and fully understand that you have a fiduciary relationship with American Greetings and, as a fiduciary, you are under an obligation to use due care and act in the best interest of American Greetings at all times.

c.   Legal matters. You agree to cooperate with American Greetings and its attorneys as may be reasonably required concerning any past, present or future legal matters that relate to or arise out of your employment with American Greetings, with the understanding that any meetings you are required to attend are scheduled during normal business hours at mutually agreeable times. You acknowledge that you have advised American Greetings’ General Counsel of all facts of which you are aware that constitute or might constitute violations of the American Greetings’ Code of Business Conduct, ethical standards or legal obligations. During your lifetime, American Greetings agrees to reimburse you for any and all reasonable costs and expenses (including but not limited to reasonable attorneys’ fees) you may incur in connection with such cooperation, with such reimbursement to occur no later than the end of the taxable year following the taxable year in which such expense was incurred. In addition, the amounts eligible for reimbursement during any one taxable year under this Section 6(c) may not affect the expenses eligible for reimbursement in any other taxable year under this Section 6(c).

d.   Indemnification. You shall be indemnified for acts and omissions occurring on or prior to the Separation Date to the fullest extent permitted under applicable law. You shall be covered under American Greetings’ directors’ and officers’ liability insurance policies in effect from time to time on the same basis that other former directors and officers are covered for acts and omissions occurring prior to separation.

7.        Death. Notwithstanding anything to the contrary in this Agreement, in the event of your death, American Greetings will pay to your beneficiary all remaining

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compensation and benefits described in this Agreement subject to the terms and conditions set forth herein. Your beneficiary shall be deemed to be the person or persons in the first of the following classes in which there are any survivors of you: (a) your spouse at the time of his death; (b) your issue per stirpes; (c) your parents; and (d) the executor or administrator of your estate.

8.        Confidentiality of this Agreement. You agree to keep confidential all terms of this Agreement that are not in the public domain at the time of your disclosure. You may, however, disclose the terms of this Agreement to your attorneys, accountants, tax advisors, and immediate family members (who must be informed of and agree to be bound by the terms of this paragraph), and any governmental taxing authority. American Greetings reserves the right to disclose the terms of this Agreement to comply with any governmental or regulatory disclosure obligation.

9.        Confidentiality & Non-Disclosure. You acknowledge that you have an obligation of confidence and non-disclosure with respect to any and all confidential information and trade secrets that you acquired during the course of employment with American Greetings. This obligation of confidence and non-disclosure extends to both American Greetings’ information and third-party information held by American Greetings in confidence, and this obligation continues after the Separation Date. You are prohibited from using or disclosing such information. You agree that you will not accept or become employed or retained in any capacity whatsoever by any person or entity where such employment or other capacity requires you to disclose or use confidential information, or where such employment or other capacity will, or may cause or reasonably lead to, the inevitable, necessary or effective disclosure or use of confidential information whether through express, implicit, indirect, intentional or unintentional means. You also agree that you will return to American Greetings any and all American Greetings’ property and information that came into your possession, or which you prepared or helped prepare, in connection with or during your employment. You will not retain any copies of such property or information.

10.        Non-Competition & Non-Solicitation. You acknowledge and agree that from the Separation Date through February 29, 2012, you will not enter into the employment or solicit any American Greetings’ employee to 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, Canada or Mexico, which designs, manufactures or sells products that are substantially similar in nature to the social expression products designed, manufactured or sold by American Greetings or any of its affiliated entities or subsidiaries; provided, however, that the period referred to above shall lapse on the ninetieth (90^th) day after the date that you give written notice to American Greetings that a payment due to you under this Agreement is unpaid and remains unpaid on such ninetieth (90^th) day. You agree that you have carefully considered the nature and extent of the restrictions upon you and acknowledge and agree that the same are reasonable in time and geographic limitation, are designed to eliminate competition which would otherwise be unfair to American Greetings, do not stifle your inherent skill and experience, would not operate as a bar to

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your sole means of support, are fully required to protect the legitimate interests of American Greetings and do not confer a benefit upon American Greetings disproportionate to the detriment to you. You also acknowledge and agree that the remedy at law available to American Greetings for breach by you of any of your obligations under Sections 9 and/or 10 of this Agreement would be inadequate and that damages flowing from such a breach would not readily be susceptible to being measured in monetary terms. Accordingly, you acknowledge, consent and agree that, in addition to any other rights or remedies which American Greetings may have at law, in equity or under this Agreement, upon adequate proof of your violation of any provision of Sections 9 and/or 10 of this Agreement, American Greetings will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage.

11.        Non-Disparagement. You agree not to disparage or denigrate American Greetings or its directors or executive officers orally or in writing. American Greetings agrees not to disparage or denigrate you orally or in writing, and agrees to use its reasonable best efforts to cause its directors and executive officers not to disparage or denigrate you. Notwithstanding this mutual, non-disparagement provision, it shall not be a violation of this Section 11 for any person to make truthful statements when required by order of a court or other body having jurisdiction, or as otherwise may be required by law.

12.        No Admission of Liability. This Agreement is not intended to constitute and should not be construed as constituting an admission of fault, wrongdoing or liability by either party, but rather reflects the parties’ desire to fairly and amicably separate your employment, as well as to resolve fairly and amicably any disputes or claims.

13.        Representations & Warranties. You represent and warrant that you have no interest or obligation that is inconsistent with or in conflict with this Agreement or that would prevent, limit or impair your performance of any part of this Agreement. You represent that as of the date you have signed this Agreement, you have not filed, directly or indirectly, nor caused to be filed, any Claims (as defined in the General Release) against American Greetings or the Releasees (as defined in the General Release) in any forum, including federal, state or local court or in arbitration, any administrative proceeding with any federal, state or local administrative agency, or American Greetings’ dispute resolution procedure (“Solutions”). You agree that should any administrative or third party pursue any claims on your behalf, you waive your right to any monetary or recovery of any kind.

14.        Breach of Agreement. You agree that in the event you breach any of the terms of this Agreement, you will forfeit the benefits described in this Agreement, plus you will pay any expenses or damages incurred by American Greetings and/or its agents, officers, directors, employees, subsidiaries, divisions, affiliates, successors and assigns as a result of the breach, including reasonable attorneys’ fees.

15        Dispute Resolution. All disputes, claims, or controversies arising out of or in connection with this Agreement, your employment or its termination, including but not limited to those concerning workplace discrimination and all other statutory claims, shall

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exclusively be submitted to and determined by final and binding arbitration before a single arbitrator (“Arbitrator”) of the American Arbitration Association (“AAA”) in accordance with the association’s then current rules for the resolution of employment disputes (“the Rules”). The Arbitrator shall be selected in accordance with the Rules. The parties consent to the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses (including legal fees) to the prevailing party in the arbitration. The following claims are not covered by the parties’ agreement to arbitrate claims under this provision: (i) Claims you may have for workers’ compensation and unemployment compensation benefits; and (ii) claims by either party for injunctive and/or other equitable relief, including without limitation the enforcement of Sections 9 and/or 10, as to which the parties understand and agree that either party may seek and obtain relief from a court of competent jurisdiction. You understand that the benefits set forth in this Agreement and your employment with American Greetings through the Separation Date are consideration for your acceptance of this arbitration provision. In addition, the promises by American Greetings and by you to arbitrate claims, rather than litigate them before courts or other bodies, provide consideration for each other.

16.        Entire Agreement.

a.   This Agreement constitutes the entire understanding between you and American Greetings relating to the subject matter contained herein and this Agreement supersedes any previous agreement(s) that may have been made in connection with your employment with American Greetings. This Agreement may not be changed, modified, or altered without the express written consent of you and a senior officer of American Greetings.

b.   American Greetings failure to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of, or deprive American Greetings of its right thereafter to insist upon strict adherence to that term or any other term of this Agreement. To be effective, any waiver must be in writing and signed by a senior officer of American Greetings.

17.        Governing Law. This Agreement shall be construed in accordance with the laws of the State of Ohio. If any part or section of this Agreement is found to be contrary to law or unenforceable, the remainder shall remain in force and effect. Furthermore, it is expressly understood and agreed that if a final determination is made by a court of law that the time or any other restriction contained in Section 10 above is an unenforceable restriction against you, then the provisions of Section 10 above shall not be rendered void but shall be deemed amended to apply as to such maximum time and to such other maximum extent as such court may determine or indicate to be enforceable. Alternatively, if any such court finds that any restriction contained in Section 10 above is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any other provision of this Agreement.

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18.        Voluntary Agreement.

a.   You acknowledge and agree that (i) you have read and understand each of the provisions of this Letter Agreement; ii) you have consulted with an attorney prior to signing this Letter Agreement; and iii) you have at least 21 calendar days from the date of this Letter Agreement to review and consider your decision to sign it.

b.   Once you sign this Agreement, you have 7 calendar days to revoke it. You may do so by delivering to American Greetings’ Senior Vice President of Human Resources written notice of your revocation within the 7-day revocation period. This Agreement will become effective, valid and binding upon you on the 8^th day after you sign it (the “Effective Date”), provided you have not revoked it during the 7-day revocation period.

19.        Voluntary General Release.

a.   You acknowledge and agree that i) you will not sign the General Release attached as Exhibit A to this Letter Agreement until on or after the Separation Date; ii) you are hereby advised to consult with an attorney prior to signing the General Release; and iii) you have at least 21 calendar days from the date of this Letter Agreement to review and consider your decision to sign the General Release.

b.   Once you sign the General Release, you will have 7 calendar days to revoke it. You may do so by delivering to American Greetings’ Senior Vice President of Human Resources written notice of your revocation within the 7-day revocation period. The General Release will become effective on the 8^th day after you sign it; provided you have not revoked it during the 7-day revocation period.

20.        Notices. All notices, requests and other communications under this Agreement and the General Release will be in writing (including facsimile or similar writing) to the applicable address (or to such other address as to which notice is give in accordance with this Section 20). Any such notice, request or other communication will be effective only when received by the receiving party.

If to you:	Randy Mason
If to American Greetings:	American Greetings Corporation
	ATTN: Senior Vice President of Human Resources
	One American Road
	Cleveland, OH 44144

21.        Transferability. This Agreement shall be binding upon any successor to

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American Greetings, whether by merger, consolidation, purchase of assets or otherwise. No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liability hereunder upon any person or entity, other than the parties hereto and their respective successors and assigns, which in your case will include your heirs and/or your estate.

22.        Counterparts. This Agreement may be executed in counterparts.

23.        Code Section 409A Compliance. It is the intention and purpose of American Greetings and me that this Agreement and all payments and benefits hereunder shall be, at all relevant times, in compliance with (or exempt from) Code Section 409A and all other applicable laws, and this Agreement shall be so interpreted and administered. In addition to the general amendment rights of American Greetings and me with respect to this Agreement, American Greetings shall give good faith consideration to any reasonable request, prospectively or retroactively, I make to amend to this Agreement or any related document as I deem necessary or desirable to more fully address issues in connection with compliance with (or exemption from) Code Section 409A and such other laws. All references to “termination of employment” in this Agreement shall refer to events which constitute a “separation from service” as defined under Code Section 409A.

Signed and Agreed to on behalf of American Greetings Corporation,

/s/Zev Weiss

Zev Weiss, Chief Executive Officer

Attachment: Exhibit A (“General Release”)

cc: Jeffrey Weiss, President and Chief Operating Officer

Catherine M. Kilbane, Senior Vice President, General Counsel and Secretary

Brian T. McGrath, Senior Vice President, Human Resources

I ACKNOWLEDGE AND AGREE THAT I HAVE BEEN ADVISED THAT THIS AGREEMENT IS A LEGAL DOCUMENT, AND HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY CONCERNING THIS AGREEMENT. I ACKNOWLEDGE AND AGREE THAT I HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AGREEMENT, AND AM VOLUNTARILY AND KNOWINGLY SIGNING THE AGREEMENT.

By:	/s/Randy Mason	Date:	7-15-08
	Randy Mason

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EXHIBIT A - GENERAL RELEASE

In exchange for the benefits set forth in the Letter Agreement between American Greetings Corporation (the “Company”) and me dated July     , 2008 (the “Letter Agreement”) and to be provided to me following the Effective Date (as defined below) of this General Release and my execution (without revocation) and delivery of this General Release, I hereby acknowledge, understand and agree as follows:

1.        On behalf of myself, my agents, assignees, attorneys, heirs, executors, and administrators, I hereby release American Greetings Corporation, and its predecessors, successors and assigns, its and their current and former parents, affiliates, subsidiaries, divisions and joint ventures; and all of their current and former officers, directors, employees, and agents, in their capacity as American Greetings Corporation representatives (individually and collectively, the “Releasees”) from any and all controversies, claims, demands, promises, actions, suits, grievances, proceedings, complaints, charges, liabilities, damages, debts, taxes, allowances, and remedies of any type, including but not limited to those arising out of my employment with the Company (individually and collectively, “Claims”) that I may have by reason of any matter, cause, act or omission. This release applies to Claims that I know about and those I may not know about occurring at any time on or before the date of execution of this General Release.

2.        This General Release includes a release of all rights and Claims under, as amended, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the Civil Rights Acts of 1866 and 1991, the American with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, the Equal Pay Act of 1963, the Family and Medical Leave Act of 1993, the Fair Labor Standards Act of 1938, the Older Workers Benefit Protection Act of 1990, the Occupational Safety and Health Act of 1970, the Worker Adjustment and Retraining Notification Act of 1989, the Sarbanes-Oxley Act of 2002, as well as any other federal, state, or local statute, regulation or common law regarding employment discrimination, termination, retaliation, equal opportunity, or wage and hour. I specifically understand that I am releasing Claims based on age, race, color, sex, sexual orientation or preference, marital status, religion, national original, citizenship, veteran status, disability and other legally protected categories.

3.        This General Release also includes a release of any Claims for breach of contract, any tortious act or other civil wrong, attorneys’ fees, and all compensation and benefits claims including without limitation Claims concerning salary, bonus, and any award(s) grant(s), or purchase(s) under any equity and incentive compensation plan or program, and separation pay under the Company’s severance policy.

4.        In addition, I am waiving my right to pursue any Claims against the Company and Releasees under any applicable dispute resolution procedure including any arbitration policy.

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5.        I acknowledge that this General Release is intended to include, without limitation, all Claims known or unknown that I have or may have against the Company and Releasees through the Effective Date of this General Release. Notwithstanding anything herein, I expressly reserve and do not release pursuant to this General Release (and the definition of “Claims” will not include): (i) my rights with respect to the enforcement of the Letter Agreement, including the right to receive the benefits and indemnifications specified in the Letter Agreement; (ii) my rights to the vested benefits (included to reimbursement of expenses) I may have, if any, under any American Greetings’ employee benefit plans and programs; (iii) any claim arising after the Effective Date of this General Release; and (iv) any right to indemnification pursuant to paragraph 6(d) of the Letter Agreement to the same extent provided to other senior executives of the Company.

6.        I acknowledge that I have had at least 21 calendar days from the date of delivery of the Letter Agreement to consider the terms of the Letter Agreement and this General Release, that I have been advised to consult with an attorney regarding the terms of this General Release prior to executing it, that I fully understand all of the terms and conditions of this General Release, that I understand that nothing contained herein contains a waiver of claims arising after the date of execution of this General Release, and I am entering into this General Release knowingly, voluntarily and of my own free will. I further understand that my failure to sign this General Release and return such signed General Release to the Senior Vice President of Human Resources, American Greetings Corporation, One American Road, Cleveland, Ohio 44144 by 5:00 p.m. on the 22^nd day after the Separation Date will render me ineligible for the benefits described herein in the Agreement.

7.        I understand that once I sign and return this General Release to the Senior Vice President of Human Resources of American Greetings Corporation, I have 7 calendar days to revoke it. I may do so by delivering to the Senior Vice President of Human Resources, American Greetings Corporation, One American Road, Cleveland, Ohio 44144, written notice of my revocation within the 7-day revocation period (the “Revocation Period”). The General Release will become effective on the 8^th day after I sign and return it to the Senior Vice President of Human Resources of American Greetings Corporation (“Effective Date”); provided that I have not revoked it during the Revocation Period.

I ACKNOWLEDGE AND AGREE THAT I HAVE BEEN ADVISED THAT THE AGREEMENT IS A LEGAL DOCUMENT, AND HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY CONCERNING THE AGREEMENT. I ACKNOWLEDGE AND AGREE THAT I HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AGREEMENT, AND AM VOLUNTARILY AND KNOWINGLY SIGNING THE AGREEMENT.

By:		Date:
	Randy Mason

EX-10.2

EXHIBIT 10.2

AMENDMENT NO. 5 TO CREDIT AGREEMENT

This AMENDMENT NO. 5 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of September 23, 2008, by and among the following: (i) AMERICAN GREETINGS CORPORATION, an Ohio corporation (the “Company”); (ii) the Lenders, as defined in the Credit Agreement, signatory hereto; and (iii) NATIONAL CITY BANK, as Global Agent, as defined in the Credit Agreement.

RECITALS:

A.    The Company has entered into the Credit Agreement, dated as of April 4, 2006 (as amended and as the same may from time to time be further amended, restated, supplemented or otherwise modified, the “Credit Agreement”), with the Foreign Subsidiary Borrowers (as defined therein) from time to time party thereto, the Lenders from time to time party thereto, National City Bank, as the Global Agent, joint lead arranger, joint bookrunner, Swing Line Lender and LC Issuer, UBS Securities LLC, as joint lead arranger, joint bookrunner and Syndication Agent, and KeyBank National Association, JPMorgan Chase Bank, N.A., and LaSalle Bank National Association, as Co-Documentation Agents.

B.    The Company has requested the Global Agent and the Lenders to agree to amend certain provisions of the Credit Agreement and consent to certain transactions, as set forth herein.

C.    The Global Agent and the Lenders signatory hereto are willing to give such consents and agree to such amendments pursuant to the terms and subject to the conditions set forth herein.

AGREEMENT:

In consideration of the premises and mutual covenants herein and for other valuable consideration, the parties hereto agree as follows:

Section 1. Definitions.    Unless otherwise defined herein, each capitalized term used in this Amendment and not defined herein shall have such meaning ascribed to it in the Credit Agreement.

Section 2. Consents.

2.1    Consent to Sale. The Company has advised the Global Agent and the Lenders that the Company would like to sell its Strawberry Shortcake, Care Bears and Sushi Pack properties (the “Properties”). In connection therewith, on July 20, 2008, the Company entered into an agreement (the “Cookie Jar Agreement”) with Cookie Jar Entertainment Inc. (“Cookie Jar”) pursuant to which the Company agreed to sell the Properties to Cookie Jar. The terms of the Cookie Jar Purchase Agreement provide that under certain circumstances the Company may solicit offers from third parties to purchase the Properties. The consummation of the sale of the Properties, whether consummated with Cookie Jar or such other third party (the “Sale Transaction”), is prohibited by certain provisions of the Credit Agreement, including, without limitation, Section 7.02 of the Credit Agreement, and the Company has requested that the Global Agent and the Lenders consent to the Sale Transaction, whether pursuant to the Cookie Jar Purchase Agreement or otherwise. The Global Agent and the Lenders hereby (i) consent to the Sale Transaction, whether pursuant to the Cookie Jar Purchase Agreement or a sale of the Properties to another Person, and (ii) waive any provision in the Credit Agreement and the other Loan Documents that prohibits the consummation of the Sale Transaction, in each case subject to, and based upon, the following terms and conditions:

(a)    the final and definitive agreement governing the Sale Transaction (the “Purchase and Sale Agreement”), and all material documents related thereto, shall have been provided to the Global Agent at least five days (or such shorter time agreed to by the Global Agent) prior to the consummation of the Sale Transaction and such documents shall be in form and substance reasonably satisfactory to the Global Agent;

(b)    the consummation of the Sale Transaction pursuant to the Purchase and Sale Agreement shall have been approved by the Board of Directors of the Company;

(c)    the consideration for the Sale Transaction represents fair value for the Properties and at least 80% of such consideration consists of cash;

(d)    no Default or Event of Default shall exist prior to or immediately after giving effect to the Sale Transaction and the terms of this Amendment;

(e)    after giving effect to the Sale Transaction, the Company shall be in compliance, on a pro forma basis, with the financial covenants contained in Section 7.07 of the Credit Agreement;

(f)    the Company shall have delivered on the date the Sale Transaction is consummated an officer’s certificate executed on behalf of the Company, which certificate shall contain a certification (i) confirming satisfaction of the conditions set forth in each of paragraphs (c), (d) and (e) of this Section 2.1 and (ii) that attached thereto are true, correct and complete copies of the Purchase and Sale Agreement and all material documents related thereto; and

(g)    the Company shall use the Net Cash Proceeds received from the Sale Transaction in accordance with Section 2.16(c)(vi) of the Credit Agreement.

2.2    Consent to Amendment to Receivables Facility Documents. The Company has advised the Global Agent and the Lenders that the parties to the Receivables Facility Documents, including the Receivables Subsidiary, may amend the Receivables Facility Documents (the “Receivables Facility Amendment”) to permit the Receivables Subsidiary to sell or transfer certain Account Receivables (as defined in the definition of Receivables Related Assets in Section 1.01 of the Credit Agreement) to third parties in connection with receivables put options, credit default swaps, credit insurance arrangements or other transactions pursuant to which the Receivables Subsidiary hedges credit risk related to account debtors under certain Account Receivables. The Receivables Facility Amendment is prohibited by Section 7.09 of the Credit Agreement without the prior written consent of the Required Lenders or the Global Agent, as applicable, and the Company has requested that the Lenders and the Global Agent consent to the Receivables Facility Amendment. The Global Agent and the Lenders hereby consent to the Receivables Facility Amendment subject to, and based upon, the following terms and conditions:

(a)    the Receivables Facility Amendment and all material documents related thereto shall be in form and substance reasonably satisfactory to the Global Agent; and

(b)    the Company shall have delivered on the date the Receivables Facility Amendment is executed an officer’s certificate on behalf of the Company, which certificate shall contain a certification that attached thereto are true, correct and complete copies of the Receivables Facility Amendment and all material documents related thereto.

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Section 3. Amendments.

3.1    Additional Definition. Section 1.01 of the Credit Agreement is hereby amended by inserting the following definition in appropriate alphabetical order:

“Fifth Amendment” means that certain Amendment No. 5 to Credit Agreement dated as of September 23, 2008, among the Company, the Subsidiary Guarantors, the Lenders party thereto and the Global Agent.

3.2    Amendment to Permitted Acquisition Definition. The definition of “Permitted Acquisition” set forth in Section 1.01 of the Credit Agreement is hereby amended by replacing the words “the Closing Date” in clause (ii) thereof with “September 23, 2008”.

3.3    Amendment to Aggregate Permitted Acquisition Amount and Permitted Acquisition Amount Definitions. The definition of “Aggregate Permitted Acquisition Amount” set forth in Section 1.01 of the Credit Agreement is hereby amended by replacing “$200,000,000” with “$325,000,000”. The definition of “Permitted Acquisition Amount” set forth in Section 1.01 of the Credit Agreement is hereby amended by replacing “$200,000,000” with “$325,000,000”.

3.4    Amendment to Negative Covenant on Asset Sales. Section 7.02 of the Credit Agreement is hereby amended by (i) deleting the word “and” at the end of clause (e) thereof, (ii) replacing the period at the end of clause (f) thereof with “; and” and (iii) inserting the following clause (g) after clause (f) thereof:

(g)    the Receivables Subsidiary may sell or transfer Account Receivables to any Person (other than the Company or any of the Company’s Subsidiaries or Affiliates) in connection with any receivables put option, credit default swap, credit insurance arrangement or other transaction pursuant to which the Receivables Subsidiary hedges credit risk related to account debtors under certain Account Receivables, provided that (i) no obligation of the Receivables Subsidiary in connection with such transaction shall be guaranteed by the Company or any Subsidiary of the Company, and (ii) there shall be no recourse to or obligation of the Company or any Subsidiary of the Company (other than the Receivables Subsidiary) whatsoever in connection with such transaction other than pursuant to customary representations, warranties, covenants and indemnities entered into in connection with such put option, credit default swap, credit insurance arrangement or other transaction.

3.5    Amendment to Negative Covenant on Liens. Section 7.03 of the Credit Agreement is hereby amended by (i) deleting the word “or” at the end of clause (f) thereof, (ii) replacing the period at the end of clause (g) thereof with “; or” and (iii) inserting the following clause (h) after clause (g) thereof:

(h)    Liens in favor of a Person (other than the Company or any of the Company’s Subsidiaries or Affiliates) on intellectual property and other tangible or intangible video digital or entertainment assets of the Company or any of its Subsidiaries produced, manufactured, developed, marketed or otherwise distributed by such Person, provided that (i) such Liens do not secure Indebtedness and (ii) in any twelve month period, the Company or any of the Company’s Subsidiaries may grant such Liens, provided that the aggregate book value of the assets subject to such Liens granted in such twelve month period shall not exceed $20,000,000, and provided further, that in connection with any such Lien, the Collateral Agent may enter into agreements on behalf of the Collateral Agent and the Secured Creditors (which agreements shall be in form and

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substance satisfactory to the Collateral Agent) regarding the relative priority of such Lien and the Liens created under the Loan Documents and/or the subordination or impairment of any rights and remedies of the Collateral Agent and the Secured Creditors in respect of the assets subject to such Lien (including without limitation, subordinating the Liens in favor of the Global Agent for the benefit of the Secured Creditors with respect to such assets in favor of such Person).

3.6    Amendment to Negative Covenant on Investments. Section 7.05 of the Credit Agreement is hereby amended by (i) deleting the word “and” at the end of clause (q) thereof, (ii) replacing the period at the end of clause (q) thereof with “; and” and (iii) inserting the following clause (r) after clause (q) thereof:

(r)    the non-cash portion of consideration received in connection with the Sale Transaction (as defined in the Fifth Amendment) or transactions permitted pursuant to Section 7.02(f).

Section 4. Effectiveness. This Amendment shall become effective as of the date hereof, if on or before the date hereof, the following conditions precedent have been satisfied:

(a)    this Amendment shall have been executed by the Company, the Subsidiary Guarantors, the Required Lenders and the Global Agent, and counterparts hereof as so executed shall have been delivered to the Global Agent; and

(b)    the Company shall have executed and delivered to the Global Agent such other agreements, instruments and other documents as the Global Agent may reasonably request.

Upon the satisfaction of the foregoing conditions precedent, this Amendment shall be binding upon and inure to the benefit of the Company, each Lender and the Global Agent and their respective permitted successors and assigns. After this Amendment becomes effective, the Global Agent shall furnish a copy of this Amendment to each Lender and the Company.

Section 5. Miscellaneous.

5.1    Representations and Warranties.

(a)    Each Credit Party, by signing below, hereby represents and warrants to the Global Agent and the Lenders that:

(i)    such Credit Party has the legal power and authority to execute and deliver this Amendment;

(ii)    the officers executing this Amendment on behalf of such Credit Party have been duly authorized to execute and deliver the same and bind such Credit Party with respect to the provisions hereof;

(iii)    the execution and delivery hereof by such Credit Party and the performance and observance by such Credit Party of the provisions hereof do not violate or conflict with the Organizational Documents of such Credit Party or any law applicable to such Credit Party or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against such Credit Party;

4

(iv)    no Default or Event of Default exists under the Credit Agreement, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; and

(v)    upon the execution and delivery of this Amendment by such Credit Party, this Amendment shall constitute a valid and binding obligation of such Credit Party in every respect, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.

(b)    The Company, by signing below, hereby represents and warrants to the Global Agent and the Lenders that each of the representations and warranties set forth in Article V of the Credit Agreement is true and correct in all material respects as of the date hereof, except to the extent that any thereof expressly relate to an earlier date.

5.2    Waiver of Claims. Each Credit Party hereby waives and releases the Global Agent, the Collateral Agent, and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which any Credit Party is aware arising out of or relating to the Credit Agreement and/or the other Loan Documents, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

5.3    Expenses. As provided in the Credit Agreement, but without limiting any terms or provisions thereof, the Company agrees to pay on demand all reasonable costs and expenses incurred by the Global Agent in connection with the preparation, negotiation, and execution of this Amendment, including without limitation the reasonable costs and fees of the Global Agent’s special legal counsel, regardless of whether this Amendment becomes effective in accordance with the terms hereof, and all costs and expenses incurred by the Global Agent, the Collateral Agent or any Lender in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby.

5.4    Agreements Unaffected. Each reference to the Credit Agreement herein or in any other Loan Document shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as herein otherwise specifically provided, all provisions of the Credit Agreement shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

5.5    Entire Agreement. This Amendment, together with the Credit Agreement and the other Loan Documents, integrates all the terms and conditions mentioned herein or incidental hereto and supersedes all oral representations and negotiations and prior writings with respect to the subject matter hereof.

5.6    Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts and may be delivered by facsimile or electronic transmission, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

5.7    Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH CREDIT PARTY HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO

5

ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK GOVERNS THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

5.8    JURY TRIAL WAIVER. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS RELATING TO ANY OF THE FOREGOING), OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

[Signature pages follow.]

6

IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written.

AMERICAN GREETINGS CORPORATION
By:	/s/ Gregory M. Steinberg
	Name:	Gregory M. Steinberg
	Title:	Treasurer

NATIONAL CITY BANK,
as the Global Agent, the Collateral Agent, the Swing Line Lender, a LC Issuer, and a Lender
By:	/s/ Robert S. Coleman
	Name:	Robert S. Coleman
	Title:	Senior Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	National City Bank
	By:	/s/ Robert S. Coleman
		Name:	Robert S. Coleman
		Title:	Senior Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	The Governor and Company of the Bank of Ireland
	By:	/s/ Elaine Crowley
		Name:	Elaine Crowley
		Title:	Authorised Signatory
	By:	/s/ Emer Dalton
		Name:	Emer Dalton
		Title:	Authorised Signatory

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	The Bank of New York Mellon
	By:	/s/ Mark F. Johnston
		Name:	Mark F. Johnston
		Title:	Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as a Lender
	By:	/s/ Victor Pierzchalski
		Name:	Victor Pierzchalski
		Title:	Authorized Signatory

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	Barclays Bank PLC
	By:	/s/ Vincent Muldoon
		Name:	Vincent Muldoon
		Title:	Director MCT – North America

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	FIFTH THIRD BANK
	By:	/s/ Roy C. Lanctot
		Name:	Roy C. Lanctot
		Title:	Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	HSBC Bank USA, National Association
	By:	/s/ Robert J. McArdle
		Name:	Robert J. McArdle
		Title:	First Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	JP Morgan Chase Bank, N.A.
	By:	/s/ Gregory T. Martin
		Name:	Gregory T. Martin
		Title:	Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	KeyBank National Association
	By:	/s/ Marianne T. Meil
		Name:	Marianne T. Meil
		Title:	Senior Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	LASALLE BANK NATIONAL ASSOCIATION, as a Lender
	By:	/s/ Beth A. Henry
		Name:	Beth A. Henry
		Title:	AVP

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	The Northern Trust Company
	By:	/s/ Jeffrey P. Sullivan
		Name:	Jeffrey P. Sullivan
		Title:	Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	PNC Bank, N.A.
	By:	/s/ Patrick Flaherty
		Name:	Patrick Flaherty
		Title:	Assistant Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	RBS CITIZENS, N.A.
	By:	/s/ Brian H. Gallagher
		Name:	Brian H. Gallagher
		Title:	Vice President

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	UBS Loan Finance LLC
	By:	/s/ David B. Julie
		Name:	David B. Julie
		Title:	Associate Director
			Banking Products
			Services, US
	By:	/s/ Irja R. Otsa
		Name:	Irja R. Otsa
		Title:	Associate Director
			Banking Products
			Services, US

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	Scotiabanc Inc.
	By:	/s/ J.F. Todd
		Name:	J.F. Todd
		Title:	Managing Director

Signature Page

to

Amendment No. 5 to Credit Agreement

by and among American Greetings Corporation, the Subsidiary Guarantors,

National City Bank, as the Global Agent, and

the Lenders party thereto

Name of Institution:	The Bank of Nova Scotia
	By:	/s/ Paula Czach
		Name:	Paula Czach
		Title:	Director

GUARANTOR ACKNOWLEDGMENT AND AGREEMENT

Each of the undersigned consents and agrees to and acknowledges the terms of the foregoing Amendment No. 5 to Credit Agreement, dated as of September 23, 2008 (the “Amendment”). Each of the undersigned further agrees that the obligations of each of the undersigned pursuant to the Subsidiary Guaranty executed by each of the undersigned shall remain in full force and effect and be unaffected hereby. Unless otherwise defined herein, each capitalized term used in the Amendment and not defined herein shall have such meaning ascribed to it in the Credit Agreement (as defined in the Amendment).

Each of the undersigned, by signing below, hereby waives and releases the Global Agent, the Collateral Agent, and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which any of the undersigned is aware arising out of or relating to the Subsidiary Guaranty and the other Loan Documents, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

EACH OF THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE AMENDMENT, THIS GUARANTOR ACKNOWLEDGMENT AND AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS RELATING TO ANY OF THE FOREGOING), OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

[Signature page follows.]

IN WITNESS WHEREOF, each of the undersigned has executed this Guarantor Acknowledgment and Agreement as of September 23, 2008.

AGC, LLC A.G. INDUSTRIES, INC. AG INTERACTIVE, INC. AGP KIDS, INC. CARLTON CARDS RETAIL, INC. CLOUDCO, INC. CREATACARD, INC. CREATACARD INTERNATIONAL                 LEASING, INC. CUSTOM HOLDINGS, INC. JOHN SANDS (AUSTRALIA) LTD. JOHN SANDS (N.Z.) LTD. JOHN SANDS HOLDING CORP. LAKESHORE HOLDING COMPANY LAKESHORE TRADING COMPANY PLUS MARK, INC. QUALITY GREETING CARD                 DISTRIBUTING COMPANY, INC. THOSE CHARACTERS FROM                 CLEVELAND, INC.
By:	/s/ Gregory M. Steinberg
	Name:	Gregory M. Steinberg
	Title:	Treasurer of each of the foregoing
AGCM, INC. AG.COM, INC. EGREETINGS NETWORK, INC. MIDIRINGTONES, LLC PHOTOWORKS, INC.
By:	/s/ Gregory M. Steinberg
	Name:	Gregory M. Steinberg
	Title:	Assistant Treasurer of each of the foregoing
A.G.C. INVESTMENTS, INC. A.G. EUROPE, INC. A.G. (UK), INC. AGC HOLDINGS, LLC MEMPHIS PROPERTY CORPORATION
By:	/s/ Gregory M. Steinberg
	Name:	Gregory M. Steinberg
	Title:	Vice President and Treasurer of each of the foregoing

EX-10.3

EXHIBIT 10.3

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED ON A

REQUEST FOR CONFIDENTIAL TREATMENT

OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH

THE SECURITIES AND EXCHANGE COMMISSION

July 20, 2008

Confidential

Cookie Jar Entertainment Inc.

266 King Street West, 2nd floor

Toronto, Ontario CANADA

M5V 1H8

Attention:         Greg Gilhooly

                         General Counsel

Re:    Binding Letter Agreement between Cookie Jar Entertainment Inc. (“COOKIE JAR”) and American Greetings Corporation (“AG”)

Dear Michael:

COOKIE JAR and AG are entering into this binding letter agreement setting forth the terms of the acquisition by COOKIE JAR of the Strawberry Shortcake (“SSC”) and Care Bears (“CB”) properties (collectively, the “Properties”) owned by AG and its affiliates.

Purchase Price:	The purchase price for the Properties is US $195,000,000.00 (the “Purchase Price”) and is not subject to further adjustments based on COOKIE JAR’s diligence review or, except as set forth below, other factors. COOKIE JAR shall assume all ordinary course contracts and all related, ordinary course obligations attendant to the Properties arising after the Closing Date, including the CBS agreement.
Settlement:	The transaction is an all-cash deal. The Properties shall be debt free and free of all liens, claims and security interests at the closing, except for the interests owned by Hasbro and held by existing licensees in the normal course.
Form of Purchase:	Asset purchase.

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

Closing Date:

The closing date (the “Closing Date”) for the transaction is no later than September 30, 2008. All revenues earned and due, but not paid, up to the Closing Date shall be collected by COOKIE JAR on AG’s behalf.

Conditions:

This obligations of COOKIE JAR and AG under this binding letter agreement are conditioned solely upon satisfaction or waiver of the following conditions: (i) regulatory approval relating to all applicable competition filings and expiration or early termination of any applicable waiting periods; (ii) receipt of all material necessary third party consents and approvals, (iii) no material adverse change occurring with respect to the Properties; for purposes of this condition, a “material adverse change” shall mean an occurrence that will result in a 20% or greater decline in the net income attributable the normal course licensing of the Properties as against AG’s business plan for the second quarter of fiscal year 2009 with respect to the Properties as made available by AG to COOKIE JAR; provided, however, material adverse change shall not include any information specifically disclosed as potentially constituting an “adverse change” to the Properties in the electronic data room relating to the Properties to which COOKIE JAR had access and which was actually accessed; provided, further, within five business days of discovering any occurrence that COOKIE JAR believes constitutes a material adverse change, COOKIE JAR shall inform AG; provided, further, developments that are not specifically related to the Properties, such as developments in the business and financial markets generally and which do not disproportionately impact AG or the Properties shall not constitute a material adverse change; (iv)*; (v) receipt of financing (debt and equity) on terms and conditions that are commercially reasonable in the circumstances and consistent in all material respects with similar transactions, and (vi) evidence in the form of a

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

	certificate from a duly authorized AG officer confirming that the Properties have been operated in the ordinary course and in a manner consistent with all legal and contractual requirements save an except with respect to AG’s recent actions in connection with its dispute with DIC. COOKIE JAR will use its commercially reasonable efforts to obtain the financing and to satisfy all conditions on a timely basis to obtaining the financing. COOKIE JAR is not aware of any reason that it will not be able to obtain financing for the transactions contemplated hereby. AG and COOKIE JAR shall cooperate with each other and AG shall permit access to any and all books, records and personnel of AG and its affiliates (to the extent relating to the Properties) as may be reasonably necessary to permit the purchase and sale of the Properties to proceed, and shall cooperate with COOKIE JAR’s lenders and other financing sources as may be necessary at no cost to AG to permit the transaction to be financed in a manner and under a structure that is reasonably acceptable to the parties.
Exclusivity:	AG shall deal exclusively with COOKIE JAR in respect of the Properties (save and except with respect to licensing in the normal course) from the date hereof up to and including September 30. During this period, neither AG nor any of its affiliates, representatives, advisors, agents, etc. shall, directly or indirectly, shop, market, solicit, pursue, or deal with any third party in any way with respect to any transaction involving a transfer, sale, partnership, hypothecation, merger, or other transaction involving the ownership or control of the Properties or of any entity that owns or controls the Properties, or which would otherwise be inconsistent with, or delay the consummation of, the transactions contemplated by this letter.
AG Reserved Licensing:	AG and COOKIE JAR hereby agree to a ten year exclusive inbound licensing agreements for the Properties from COOKIE JAR to AG on certain categories reserved for AG. These exclusive license agreements shall provide for a 10% royalty to COOKIE JAR, with right of first refusal and “last match” provisions in favor of AG (which right shall run with the Properties in the event of any sale of the

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

properties by COOKIE JAR or its affiliates) upon any license relating to the Products that is similar to the product categories set forth below. The license will convey to AG exclusive rights to use the Properties in the following product categories (the “Products”):
•	Greeting cards (everyday and seasonal, boxed and unboxed, gift card holders and cellos, with or without music/audio)
•	Party goods including, but not limited to, paper and electronic invitations and thank you notes, accessories, favors and decorations
•	Everyday plastic tableware and serving-ware (whether placed in the party goods or housewares aisles of retail locations)
•	Gift packaging (everyday, seasonal and seasonal promotional) including gift wrap, gift bags, gift boxes, tissue, gift enclosures, package decorations
•	Calendars
•	Stickers
•	Christmas ornaments in plastic or resin, with or without electronic and or musical/audio features
•	Juvenile boxed Valentine cards
•	Stationery
•	Electronic greetings in any form or media
•	Digital photo IP product use
•	Retailer-specific non-card products
Upon the expiration or termination of any inbound licensing agreement with COOKIE JAR or DIC for other COOKIE JAR and DIC brands, including any current licensing agreements with Hallmark, COOKIE JAR shall offer AG a five year exclusive inbound licensing agreement for the Products on the same economic terms as the expired or terminated license.
AG and COOKIE JAR will also consider partnership opportunities for other AG properties, and will discuss other potential arrangements as part of this transaction.

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

Transition Services:	AG and COOKIE JAR, at COOKIE JAR’s request, will develop a mutually agreed upon transition services agreement as part of the transaction to avoid disruption in the creative and logistical support required to operate the Properties on a “cost plus” basis to COOKIE JAR.
Employees and Severance:	AG will make such AG employees currently associated with the Properties available to COOKIE JAR for employment as mutually agreed by AG and COOKIE JAR. COOKIE JAR will then have the discretion to either hire or absorb the severance costs of those employees, such severance costs not to exceed US $1,000,000.00 less the amount of severance avoided through COOKIE JAR’s employment or retention of any such individual on a dollar for dollar basis.
Non-Solicitation:	AG and COOKIE JAR agree that for a period of one year from the Closing Date, COOKIE JAR will not solicit for employment any AG employee, and AG will not solicit for employment any COOKIE JAR employee, except as noted in the preceding provision above.
*
JLG Buyout:	AG shall be responsible for terminating the contract between Those Characters From Cleveland Inc. and the Joster Loria Group Inc. dated August 1, 2001, as amended to date, AG shall be responsible for the costs and liabilities associated with such termination.
“Sushi Pack”	Included in the purchase and sale of the Properties, COOKIE JAR shall also acquire all of AG’s rights in and

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

	to the “Sushi Pack” property. AG shall retain, for a period of ten years from the Closing Date, an ongoing fifty-fifty revenue split on any licensing or entertainment revenue resulting from Sushi Pack on customary terms and conditions.
Shop Period	If for any reason the purchase and sale of the Properties described above does not occur on or prior to September 30, 2008 (other than due to AG’s material uncured breach of this letter or the parties’ definitive agreements), AG shall have the right to solicit offers from third parties in which AG does not have any ownership interest for a period of six (6) months commencing September 30, 2008 and ending March 31, 2009 (the “Shop Period”) for 100% of the Properties, including rights held by COOKIE JAR and all of its affiliates (including DIC), with any such potential offer to be conditional only upon not more than those conditions set out above with respect to this transaction, and evidenced by a binding term sheet fully executed and delivered during that period (a “Binding Term Sheet”). AG shall include COOKIE JAR in that process as a potential purchaser, and shall keep COOKIE JAR reasonably informed of the status, terms and conditions of any other offers received during such period. During the Shop Period AG shall be relieved of its confidentiality obligations under the agreement between Those Characters From Cleveland, Inc. and DIC Entertainment Corporation dated as of October 1, 2001, as amended to date, to the extent necessary to provide prospective purchasers with information related to the Properties, provided that the recipient of any such information executes a non-disclosure agreement customary for transactions of this type.
Tag Along/Drag Along	If the transactions contemplated hereby do not close by September 30, 2008 (other than due to AG’s material uncured breach of this letter or the parties’ definitive agreements), and if, during the Shop Period, AG receives a Binding Term Sheet from a non-affiliate and subsequently closes such transaction within 75 days following receipt of the Binding Term Sheet, AG shall have the option to cause COOKIE JAR to consummate the transactions set forth the

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

Binding Term Sheet during such 75-day period (a “drag along”), which right shall run with the Properties in the event of any sale of the Properties by COOKIE JAR of its affiliates). COOKIE JAR shall also have the right and option (in its discretion) to tag along to participate in any such transactions; provided, that if COOKIE JAR fails or refuses to “tag along” (regardless of the reason therefor), then such sale transaction shall not be consummated unless AG elects to drag along COOKIE JAR. In the case of any drag along or tag along, COOKIE JAR shall provide reasonable cooperation and shall participate without any representation, warranty or other agreement, covenant or restriction (other than limited, customary representations regarding power, authority and enforceability and a representation as to the rights being transferred), and without any requirement to participate in or be subject to any restrictive covenants, escrows, indemnities or holdbacks. If AG or COOKIE JAR exercises any of such drag along or tag along rights, COOKIE JAR shall receive 20% (excluding unaffiliated third party fees in respect of the transaction) of the gross proceeds or other consideration paid or payable (directly or indirectly) on account of the Properties. All payments to COOKIE JAR and its affiliates must be in cash and paid in full at the closing, with such consideration valued as the parties may mutually agree, and in no event less than the amount at or basis on which any non-cash consideration is valued by buyer in the Binding Term Sheet.

Matching Right

During the Shop Period, COOKIE JAR shall have a right to match (with COOKIE JAR to give notice to AG within five (5) business days) any third party offer for the Properties only if such offer is for an amount which would yield AG (with the entitlement to 80% of such amount), not more than US $214,500,000.00 (being US $195,000,000.00 plus ten percent). COOKIE JAR shall have the option to exercise such matching right in cash, or in such mix of cash and non-cash consideration as indicated in the third party offer.

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

Press Release	The parties shall agree to a mutually acceptable joint press release with respect to this matter. Until such release is issued, no public announcement of this transaction shall be made. Notwithstanding the foregoing, AG shall have the right to make any disclosure or filing that AG is advised by counsel are required by NYSE listing standards or under federal securities laws. COOKIE JAR acknowledges that AG will file this letter agreement with the United States Securities and Exchange Commission following execution hereof, but that in connection with such filing, AG will request confidential treatment of this letter and shall take all steps legally permissible or appropriate to cause this letter and its contents, terms and conditions (and all exhibits hereto) to be accorded confidential treatment under SEC rules and regulations and under the Freedom of Information Act to the maximum extent possible.
Long Form Agreement	The parties may agree the terms of a long-form agreement and other related documentation customary for transactions of this kind containing (among other things) customary representations, warranties and indemnities. The parties will use commercially reasonable efforts to negotiate and execute such long-form agreement and other documentation by August 29, 2008. However, until such time as this letter agreement is replaced by any such further documentation, this letter agreement remains binding on the parties.
Expenses	AG shall bear all of its own expenses with respect to the transactions contemplated hereby. COOKIE JAR shall bear all of its expenses, including all applicable governmental filing fees with respect to the transactions contemplated hereby.
Governing Law; Enforcement	This letter agreement shall be governed by the laws of the State of Ohio. Any dispute or controversy arising under or related in any way to this letter agreement shall be adjudicated by a court of competent jurisdiction located in the State of New York. Each party recognizes that the rights contained herein and the benefits arising therefrom are unique and damages cannot provide an adequate

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

remedy in the event of a breach of this letter agreement. Therefore, if (i) all of the conditions to the obligations of AG and COOKIE JAR set forth above are either satisfied or waived, and either party fails or refuses to consummate the sale and purchase of the Properties contemplated hereby, the other party shall be entitled to specific performance of the sale and purchase of the Properties or (ii) either party fails to perform any of its other material obligations hereunder, the other party shall be entitled to specific performance thereof.

*  *  *  *  *

AMERICAN GREETINGS CORPORATION HAS CLAIMED

CONFIDENTIAL TREATMENT OF PORTIONS OF THIS AGREEMENT IN ACCORDANCE WITH

RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934

If the terms set forth in this letter are acceptable, please sign below. Please feel free to call me to discuss any aspect of this letter or the proposed transaction.

Sincerely,

/s/ Josef Mandelbaum

Josef Mandelbaum, Senior Vice President

American Greetings Corporation

Agreed:

/s/ Greg Gilhooly

Greg Gilhooly

General Counsel

COOKIE JAR ENTERTAINMENT, INC.

EX-31.A

EXHIBIT (31) A

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Zev Weiss, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Greetings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of American Greetings Corporation as of, and for, the periods presented in this report;

4. American Greetings Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for American Greetings Corporation and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to American Greetings Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of American Greetings Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in American Greetings Corporation’s internal control over financial reporting that occurred during American Greetings Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, American Greetings Corporation’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect American Greetings Corporation’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in American Greetings Corporation’s internal control over financial reporting.

October 8, 2008	/s/ Zev Weiss
	-------------------------------
	Zev Weiss     Chief Executive Officer     (principal executive officer)

EX-31.B

EXHIBIT (31) B

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen J. Smith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Greetings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of American Greetings Corporation as of, and for, the periods presented in this report;

4. American Greetings Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for American Greetings Corporation and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to American Greetings Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of American Greetings Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in American Greetings Corporation’s internal control over financial reporting that occurred during American Greetings Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, American Greetings Corporation’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect American Greetings Corporation’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in American Greetings Corporation’s internal control over financial reporting.

October 8, 2008	/s/ Stephen J. Smith
	--------------------------------------------------
	Stephen J. Smith
	Senior Vice President and
	Chief Financial Officer (principal financial officer)

EX-32

EXHIBIT (32)

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

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

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of American Greetings Corporation.

October 8, 2008

/s/ Zev Weiss

---------------------------------------

Zev Weiss

Chief Executive Officer (principal executive officer)

/s/ Stephen J. Smith

---------------------------------------

Stephen J. Smith

Senior Vice President and

Chief Financial Officer (principal financial officer)