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Registration No. 333-
As filed with the Securities and Exchange Commission on August 28, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
FORM S-3
REGISTRATION STATEMENT
Under The Securities Act of 1933
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AMERICAN GREETINGS CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0065325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One American Road, Ohio 44144 (216) 252-7300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Jon Groetzinger, Jr.
Senior Vice President, General Counsel and Secretary
American Greetings Corporation
One American Road
Cleveland, Ohio 44144
(216) 252-7300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Stanley E. Everett
Brouse McDowell
500 First National Tower
Akron, Ohio 44114
(330) 535-5711
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.|_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.|X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.|_| ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for he same offering.|_|_______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
Title of Security Amount Proposed Proposed Amount of
To Be Registered To Be Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Unit Offering Price
7.00% Convertible Subordinated $175,000,000 100% $175,000,000 $43,750
Notes due July 15, 2006
Class A Common Shares, par 12,590,655 (1) (2) (2) (2)
value $1 per share
(1) This number represents the number of Class A Common Shares that are
initially issuable upon conversion of the 7.00% Convertible
Subordinated Notes due July 15, 2006 registered hereby. Pursuant to
Rule 416 under the Securities Act, the amount to be registered also
includes an indeterminate number of shares of common stock issuable as
a result of stock splits, stock dividends and antidilution provisions.
(2) No additional consideration will be received for the Class A Common
Shares, and, therefore, pursuant to Rule 457(i) no additional
registration fee is required for the Class A Common Shares.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the company shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the commission, acting pursuant to said section 8(a), shall
determine.
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state in which the offer or sale is not permitted.
PROSPECTUS
$175,000,000
AMERICAN GREETINGS CORPORATION
7.00% CONVERTIBLE SUBORDINATED NOTES DUE JULY 15, 2006
OFFERED BY THE SELLING HOLDERS AND
12,590,655 CLASS A COMMON SHARES ISSUABLE
UPON CONVERSION OF THE NOTES
This prospectus covers resales by selling holders of the 7.00% Convertible
Subordinated Notes Due July 15, 2006 (the "Notes") of American Greetings
Corporation (the "Company") and resales of the Company's Class A Common Shares
(the "Class A Common Shares") into which the Notes are convertible. The Company
will not receive any of the proceeds from the sale of the Notes or the Class A
Common Shares by the selling holders. The Company will pay interest on the Notes
on January 15 and July 15 of each year. The first such payment will be made on
January 15, 2002. The Notes mature on July 15, 2006.
On June 29, 2001, the Company issued and sold $150,000,000 of the Notes in
private placement transactions to qualified institutional buyers (as defined in
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")),
accredited investors (as defined in Rule 501 under the Securities Act) and
non-U.S. persons (as defined in Regulation S under the Securities Act). On July
20, 2001 the Company issued and sold an additional $25,000,000 of Notes in
similar private placement transactions, pursuant to an over-allotment option
granted to the initial purchasers.
Any holder may convert Notes into Class A Common Shares at any time prior to the
close of business of the maturity date of the Notes, unless earlier redeemed or
repurchased. The conversion rate is 71.9466 Class A Common Shares for each
$1,000 principal amount of Notes, subject to adjustment in certain
circumstances. This is equivalent to a conversion price of approximately $13.90
per Class A Common Share.
If the Company experiences a specified change in control, a holder of Notes will
have the right, subject to certain conditions and restrictions, to require the
Company to repurchase, with cash or Class A Common Shares, some or all of the
Notes at a price equal to 100% of the principal amount plus accrued and unpaid
interest to the repurchase date. The repurchase price is payable in cash or, at
the Company's option and subject to the satisfaction of certain conditions, in
Class A Common Shares. If the Company pays the repurchase price in Class A
Common Shares, the Class A Common Shares will be valued at 95% of the average
closing sales prices of the Class A Common Shares for the five trading days
preceding and including the third trading day prior to the repurchase date. .
A selling holder may sell the Notes or the Class A Common Shares at any time at
market prices or at privately negotiated prices. Such sales may be made directly
to purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions.
The Class A Common Shares are traded on the New York Stock Exchange under the
symbol "AM." The last reported sale price for the Class A Common Shares on the
New York Stock Exchange was $_____ per share on ______________, 2001. The Notes
currently are designated for trading in the Private Offerings, Resale and
Trading through Automatic Linkages (PORTAL) Market of the National Association
of Securities Dealers, Inc.
See "Risk Factors" beginning on page 7 to read about factors to consider before
buying the Notes or the Class A Common Shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated _________________, 2001.
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TABLE OF CONTENTS
Incorporation of Certain Documents by Reference..................................................................................2
Where You Can Find More Information..............................................................................................3
Summary..........................................................................................................................4
Risk Factors.....................................................................................................................7
Caution Regarding Forward-looking Statements....................................................................................14
Ratio of Earnings to Fixed Charges..............................................................................................14
Use of Proceeds.................................................................................................................15
Price Range of Class A Common Shares............................................................................................15
Description of Other Indebtedness...............................................................................................15
Description of the Notes........................................................................................................16
Description of Capital Stock....................................................................................................29
Certain United States Federal Income Tax Considerations.........................................................................30
Selling Holders.................................................................................................................33
Plan of Distribution............................................................................................................35
Legal Matters...................................................................................................................36
Experts.........................................................................................................................36
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission (the "Commission") allows the Company to
"incorporate" into this prospectus information that it files with the Commission
in other documents. This means that the Company can disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus. Information contained in this prospectus and information
that the Company files with the Commission in the future and incorporates by
reference in this prospectus automatically updates and supersedes previously
filed information. The Company incorporates by reference the documents listed
below and any future filings it makes with the Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
prior to the sale of all the Notes and the Class A Common Shares covered by this
prospectus: (a) its Annual Report on Form 10-K for the fiscal year ended
February 28, 2001; (b) its Form 10-Q for the fiscal quarter ended May 31, 2001;
(c) the description of its capital contained in its registration statement on
Form 8-A filed with the Commission on February 6, 1998, including any amendments
or reports filed for the purpose of updating that description; and (d) all its
other filings with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this prospectus and prior to the
termination of the offering.
UPON REQUEST. YOU MAY OBTAIN WITHOUT CHARGE COPIES OF ANY OR ALL OF THESE
DOCUMENTS, INCLUDING EXHIBITS. TO ENSURE TIMELY DELIVERY, YOUR REQUEST, WHICH
MAY BE ORAL OR IN WRITING, MUST BE RECEIVED BY THE COMPANY NO LATER THAN
_____________, 2001, THE DATE THAT IS FIVE (5) BUSINESS DAYS BEFORE THE DATE YOU
MUST MAKE YOUR INVESTMENT DECISION. YOUR REQUEST MUST BE MADE TO JON
GROETZINGER, JR., SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, AMERICAN
GREETINGS CORPORATION, ONE AMERICAN ROAD, CLEVELAND, OHIO 44144; TELEPHONE (216)
252- 7300.
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WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and, accordingly, files reports, proxy statements and other information with the
Commission. You may read and copy any document the Company has filed at the
Commission's public reference room at Judiciary Plaza Building, 450 Fifth
Street, N.W., Washington, D.C. 20549. You should call 1-800-SEC-0330 for more
information on the public reference room. The Commission maintains an Internet
site that contains reports, proxy and information statements and other
information about issuers that file electronically with the Commission. The
address of the Commission's Internet site is http://www.sec.gov. This prospectus
is part of a registration statement that the Company filed with the Commission.
The registration statement contains more information than this prospectus
regarding the Company, the Notes and the Company's capital stock, including
certain exhibits and schedules. You can obtain a copy of the registration
statement from the Commission at the address listed above or from the
Commission's Internet site.
The following items referred to in this document are trademarks which are
federally registered, or for which applications for registration are pending, in
the United States pursuant to applicable intellectual property laws and are the
property of the Company or its subsidiaries: Strawberry Shortcake, Holly Hobbie
and the Care Bears.
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SUMMARY
This summary highlights the key information contained in this prospectus.
Because it is a summary, it does not contain all the information you should
consider before making an investment decision. You should read carefully this
entire prospectus. In particular, you should read the section titled "Risk
Factors" and the financial statements and the notes relating to those statements
incorporated into this prospectus. The Company's fiscal year ends on February 28
or 29. References to a particular fiscal year refer to the fiscal year ending in
February of that year. For example, fiscal 2001 refers to the year ended
February 28, 2001. The term "you" refers to a prospective investor. The address
of the Company's principal executive offices is One American Road, Cleveland,
Ohio, 44144-2398, and its telephone number is (216) 252-7300. The Company's
website is located at www.americangreetings.com. Information contained on the
Company's website does not constitute, and shall not be deemed to constitute,
part of this prospectus.
BUSINESS
Founded in 1906, the Company is the second largest greeting card company in the
world with approximately 39% market share of the $7 billion U.S. greeting card
industry. It creates, manufactures and distributes greeting cards, gift wrap,
party goods, calendars, candles, balloons, stationery, non-prescription reading
glasses and educational products. The Company sells its products internationally
in over 70 countries through its wholly owned subsidiaries and licensees. It
offers online greeting cards through its subsidiary AmericanGreetings.com. The
contribution of each major product category as a percentage of fiscal 2001 net
sales was: everyday greeting cards (42%), seasonal greeting cards (20%), gift
wrap and wrap accessories (16%) and other products (22%). For fiscal 2001, the
Company had net sales of $2.5 billion and Adjusted EBITDA of $260.1 million.
"Adjusted EBITDA" represents earnings before non-recurring items, interest
expense, income taxes, other expense (income)-net and depreciation and
amortization. Adjusted EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt. Adjusted
EBITDA does not represent net income or cash flows from operations as those
terms are defined in generally accepted accounting principles, or GAAP, and it
does not necessarily indicate whether cash flows will be sufficient to fund cash
needs. Included in other expense (income)-net and in depreciation and
amortization is goodwill amortization of $8,723,000 for fiscal 2001.
CUSTOMERS
The Company sells to and services more than 100,000 retail stores worldwide, of
which more than 70,000 are located in the United States. It has the number one
position in the mass retail distribution channel in the United States (which
comprises mass merchandisers, chain drug stores and supermarkets), where the
Company has a market share in excess of 50%. The Company has strong
relationships with key retailers including Wal-Mart, Kmart, Target, Toys R Us,
Rite Aid, CVS, Consolidated Stores, Eckerd, Kroger, Albertsons, Winn-Dixie,
Royal Ahold and H.E.B. It has agreements with various retailers for the supply
of greeting cards and related products. Under those agreements, customers
typically grant the Company preferred supplier status and commit to minimum
sales volumes in consideration of allowances, discounts and other terms of
sale. In order to maximize sell-through for our retail partners, the Company
has approximately 21,800 part-time merchandisers in the field to ensure
in-stock position, superior merchandising and product freshness.
PRODUCTION AND DISTRIBUTION
The Company is a fully integrated company in the social expressions industry. It
has one of the largest design studios in the world, with over 300 artists
generating more than 30,000 new design concepts annually. The Company has a
digital library with over 100,000 active designs that consist of well-known
images such as Strawberry Shortcake, Holly Hobbie and the Care Bears. These
designs are manufactured in its state-of-the-art facilities located in North
America, the United Kingdom, Australia, New Zealand, Malaysia and South Africa.
The Company has developed an automated distribution system whereby it is able to
replenish retailers' shelves within days of initiating a re-order in order
amounts as small as two or three cards.
THE INDUSTRY
The social expression industry, which includes greeting cards, gift wrap and
related accessories that are used to express feelings and celebrate special
occasions, is a more than $12 billion industry in the United States. The
industry is highly fragmented, with over 2,000 companies. The Company's
principal competitor is Hallmark Cards, Incorporated, which is privately held.
The major component of the social expression industry is greeting cards, which
is a $7 billion industry in the United States. Greeting cards are low-priced,
necessity-related purchases that are a strong source of cash flow and a vital
component of our retail partners' product mix. Over the last ten years, greeting
card dollar sales have grown at a compound annual growth rate of approximately
2.6%.
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EXECUTIVE OFFICES
The Company's principal executive offices are located at One American Road,
Cleveland, Ohio 44144-2398, and its telephone number is (216) 252-7300.
THE OFFERING
Capitalized terms used in this summary are defined in the "Description of Notes
-- Certain Definitions" section of this prospectus.
INTEREST The Company will pay interest on the
Notes semi-annually on January 15 and
July 15 of each year, commencing January
15, 2002.
MATURITY The Notes mature on July 15, 2006.
CONVERSION The Notes are convertible at the option
of the holder into Class A Common Shares
at any time before the close of business
on July 15, 2006, unless the Company has
repurchased the Notes. The conversion
rate is 71.9466 Class A Common Shares
for each $1,000 principal amount of
Notes. The conversion rate is subject to
adjustment upon the occurrence of
certain events.
SUBORDINATION The Notes are subordinated to the
Company's senior indebtedness, as that
term is defined in "Description of
Notes--Subordination." The Notes also
are effectively subordinated in right of
payment to all indebtedness and other
liabilities of its subsidiaries. As of
_______________ ____, 2001, the Company
had outstanding senior indebtedness of
approximately $____ million and its
subsidiaries had approximately
$_________ million of indebtedness and
other liabilities outstanding (including
trade payables). The indenture under
which the Notes were issued does not
restrict the incurrence of senior
indebtedness or any other indebtedness,
by the Company or any of its
subsidiaries. See "Description of
Notes-- Subordination" at page 21.
GLOBAL NOTE; BOOK-ENTRY SYSTEM The Notes are issued in book-entry form,
registered in the name of DTC or its
nominee. Purchasers will not receive
individually certificated Notes.
Instead, the Notes are evidenced by a
global note, in fully registered form
and without coupons in minimum
denominations of $1,000, and deposited
with the trustee, as custodian for DTC.
The interest of any holder in the global
note will be shown on, and transfers of
that interest will be effected only
through, records maintained by DTC and
its direct and indirect participants.
See "Description of Notes-- Form,
Denomination, Transfer, Exchange and
Book-Entry System" at page 17.
REPURCHASE If the Company experiences a specified
change in control, a holder of Notes
will have the right, subject to certain
conditions and restrictions, to require
the Company to repurchase, with cash or
stock, some or all of the Notes at a
price equal to 100% of the principal
amount plus accrued and unpaid interest
to the repurchase date. The repurchase
price is payable in cash or, at the
Company's option and subject to the
satisfaction of certain conditions, in
Class A Common Shares. If the Company
pays the repurchase price in Class A
Common Shares, the shares will be valued
at 95% of the average closing sales
prices of the Class A Common Shares for
the five trading days preceding and
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including the third trading day prior to
the repurchase date. See "Description of
Notes -- Repurchase at Option of Holders
Upon a Change of Control" at page 24.
USE OF PROCEEDS The Company will not receive any of the
proceeds from the sale of the Notes or
the Class A Common Shares by the selling
holders.
EVENTS OF DEFAULT Events of default include:
o failure to pay principal of or
premium, if any, on any of the
Notes when due;
o failure to pay interest on any
of the Notes within 30 days after
payment becomes due, whether or not
such payment is prohibited by the
provisions of the indenture;
o failure to perform or comply with
certain covenants in the indenture
with respect to the Notes, and such
failure is not cured within 60 days
after the Company is given written
notice of such failure;
o failure by the Company or any of
its subsidiaries to pay when due
(either at final maturity or upon
acceleration of the due date), more
than $20 million of indebtedness
for money borrowed, and such
indebtedness is not discharged, or
such acceleration is not rescinded
or annulled, within 60 days after
the Company receives written notice
of such failure;
o certain events of bankruptcy,
insolvency or reorganization of the
Company; and
o failure to provide the required
notice of any change in control or
to pay the repurchase price in
connection with a change in
control, whether or not the notice
is prohibited by the subordination
provisions of the indenture.
TRADING The Notes currently are designated for
trading in the Private Offerings, Resale
and Trading through Automatic Linkages
(PORTAL) Market of the National
Association of Securities Dealers, Inc.
The Class A Common Shares trade on the
New York Stock Exchange under the symbol
"AM."
GOVERNING LAW The indenture and the Notes are governed
by the laws of the State of New York.
RISK FACTORS For a description of some of the risks
you should consider before buying the
Notes or the Class A Common Shares, see
"Risk Factors" beginning on page 7 of
this prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
Three Months
Ended May 31, Year Ended February 28 or 29,
2000 2001 1997 1998 1999 2000 2001
4.7x - 6.3x 8.2x 6.9x 3.7x 2.3x
The amount of the deficiency for the first quarter of
fiscal 2002 was $109,958,000. Ratio of earnings to
fixed charges is computed by dividing fixed charges
into earnings plus fixed charges. For purposes of
determining this ratio, earnings have been calculated
by adding income before income taxes and the
cumulative effect of accounting change. Fixed charges
consist of interest expense and the estimated
interest component of rent expense.
RECENT DEVELOPMENTS
For the first quarter of fiscal 2002, the Company had net sales of $505.7
million, down 15.1% from $595.7 million last year. Including one-time pre-tax
charges of $158.1 million, the Company experienced a net loss of $80.1 million
for the quarter. Excluding the effect of scan-based trading implementation,
sales for the first quarter were $562.2 million, a decrease of 5.6% from the
prior year. Net income before special charges for the first quarter of fiscal
2002 was 29 cents per share. This compares to net income of $38.5 million, or 52
cents per share, excluding a one-time 8-cent-per-share gain on the sale of an
asset and before the cumulative effect of an accounting change, during the same
period in fiscal 2001. The $158.1 million in one-time charges consisted of three
components:
- The Company's progress toward the reorganization of its core business
resulted in a pre-tax charge of $89.9 million;
- The conversion to scan-based trading for the majority of stores of two
select retailers resulted in a pre-tax charge of $50.5 million; and
- The completion of contractual changes with an online strategic partner
resulted in a pre-tax charge of $17.7 million.
Adjusted EBITDA for the first quarter of fiscal 2002 was $57.1 million, a
decrease of 25.5% compared to Adjusted EBITDA for the first quarter of fiscal
2001 of $76.6 million.
RISK FACTORS
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Your investment in the Notes involves significant risk. You should carefully
consider the following risk factors and the other information set forth in this
prospectus before deciding to purchase any Notes.
RISKS RELATING TO THE OFFERING
THE COMPANY'S SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT ITS FINANCIAL
CONDITION AND PREVENT IT FROM FULFILLING ITS OBLIGATIONS UNDER THE NOTES.
The Company is highly leveraged. On _______________ ____, 2001, it had total
indebtedness of approximately $_____ million and shareholders' equity of
approximately $____ billion. The Company and its subsidiaries will be permitted
to incur additional indebtedness in the future. See "Description of Notes" at
page 16. In addition, the Company may incur substantial further indebtedness
under any new credit facilities that it may enter into, whether or not on the
terms currently contemplated. Its ability to make scheduled payments of
principal of, or to pay the interest on, or to refinance, its indebtedness
(including the Notes), or to fund planned capital expenditures will depend on
its future operating performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond the Company's control. Based upon the Company's current
level of operations, management believes that cash flow from operations and
available cash, together with available borrowings under credit facilities, will
be adequate to meet currently anticipated funding requirements. Management
cannot assure you that the Company will have adequate liquidity to fund its
ongoing cash needs. It may, however, need to refinance all or a portion of the
principal of the Notes on or prior to maturity. There can be no assurance that
the Company's business will generate sufficient cash flow from operations, or
that future borrowings will be available under existing credit facilities in an
amount sufficient to enable it to service its indebtedness, including the Notes,
or to fund its other liquidity needs. In addition, there can be no assurance
that the Company will be able to effect any such refinancing on commercially
reasonable terms or at all. The degree to which the Company will be leveraged
could have important consequences to holders of the Notes, including, but not
limited to:
o making it more difficult for the Company to satisfy its obligations with
respect to the Notes;
o increasing the Company's vulnerability to general adverse economic and
industry conditions;
o limiting the Company's ability to obtain additional financing to fund
future working capital, capital expenditures and other general corporate
requirements;
o requiring the dedication of a substantial portion of the Company's cash
flow from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures, research and development or other
general corporate purposes; and
o limiting the Company's flexibility in planning for, or reacting to, changes
in our business and the industry.
In addition, the indenture contains financial and other restrictive covenants
that limit the Company's ability to, among other things, borrow additional
funds. Failure by the Company to comply with such covenants could result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company. See "Description of Notes" at page 16.
THE NOTES ARE JUNIOR TO THE COMPANY'S SENIOR DEBT.
The Notes are subordinated in right of payment to all the Company's current and
future senior debt. Upon any distribution to the Company's creditors in a
liquidation or dissolution, the holders of senior debt are entitled to be paid
in full before any payment may be made with respect to the Notes. In addition,
the subordination provisions of the indenture provide that payments with respect
to the Notes are blocked in the event of a payment default on senior debt
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and may be blocked for up to 179 days each year in the event of certain
non-payment defaults on senior debt. In the event of the Company's bankruptcy,
liquidation or reorganization, holders of the Notes will participate ratably
with all holders of subordinated indebtedness that is deemed to be of the same
class as the Notes and potentially with all other general creditors, based upon
the respective amounts owed to each holder or creditor, in the Company's
remaining assets. In any of the foregoing events, there can be no assurance that
there would be sufficient assets to pay amounts due on the Notes. As a result,
holders of Notes may receive less, ratably, than the holders of senior debt.
In addition, under the subordination provisions of the indenture, payments that
would otherwise be made to holders of the Notes will instead be paid to holders
of senior debt under certain circumstances. As a result of these provisions,
other creditors (including trade creditors) that are not holders of senior debt
may recover more, ratably, than the holders of the Notes. In addition, the Notes
will be effectively subordinated to all outstanding obligations of any of the
Company's subsidiaries. As of _______________ ____, 2001, the Company had $_____
million of senior debt outstanding and its subsidiaries had $_____ million of
outstanding debt and other liabilities (including trade payables). In addition,
the Company is able to incur a significant amount of additional senior
indebtedness under its existing credit facilities. The indenture also permits
the incurrence of substantial additional indebtedness, including senior debt, by
the Company and its subsidiaries in the future. See "Description of Other
Indebtedness" at page 15.
THE NOTES ARE EFFECTIVELY SUBORDINATED TO THE DEBT OF THE COMPANY'S
SUBSIDIARIES.
The Company derives much of its revenue from its subsidiaries. The indenture
governing the Notes permits the incurrence of substantial additional
indebtedness by the Company and its subsidiaries, and does not require its
subsidiaries to guarantee the Notes. In the event of a bankruptcy, liquidation
or reorganization of a subsidiary, holders of any of such subsidiary's
indebtedness will have a claim to the assets of the subsidiary that is prior to
its interest in those assets. As of _______________ ____, 2001, the aggregate
amount of indebtedness and other liabilities of the Company's subsidiaries
(including trade payables) was approximately $_____ million. If any subsidiary
indebtedness were to be accelerated, there can be no assurance that the assets
of such subsidiary would be sufficient to repay such indebtedness or that the
Company's assets and the assets of its other subsidiaries would be sufficient to
repay in full its indebtedness, including the Notes. See "Description of Other
Indebtedness" at page 15.
THE PRICE OF THE COMPANY'S CLASS A COMMON SHARES, AND THEREFORE THE PRICE OF ITS
NOTES, MAY BE VOLATILE, WHICH MAY RESULT IN LOSSES FOR INVESTORS.
The market price for the Company's Class A Common Shares has been volatile in
the past, and several factors could cause the price to fluctuate substantially
in the future. These factors include:
o announcements of developments related to the Company's business;
o fluctuations in the Company's results of operations;
o sales of substantial amounts of the Company's securities into the
marketplace;
o general conditions in the Company's industry or the worldwide economy;
o an outbreak of war or hostilities;
o a shortfall in revenues or earnings compared to securities analysts'
expectations;
o changes in analysts' recommendations or projections; and
o announcements of new acquisitions or other projects by the Company.
The market price of Class A Common Shares may fluctuate significantly in the
future, and these fluctuations may be unrelated to its performance. General
market price declines or market volatility in the future could adversely affect
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the price of Class A Common Shares, and the current market price may not be
indicative of future market prices. The trading price of the Notes is, in part,
a function of the market price of Class A Common Shares.
FUTURE SALES OF THE COMPANY'S CAPITAL STOCK MAY DEPRESS PRICES OF ITS CLASS A
COMMON SHARE PRICES AND THE NOTES.
Sales of a substantial amount of the Company's capital stock in the public
market, or the appearance that such amount is available for sale, could
adversely affect the market price for Class A Common Shares. As of
_______________ ____, 2001, the Company had the following equity securities and
options to purchase equity securities outstanding: ___________ Class A Common
Shares; options to purchase ____________ Class A Common Shares; _____________
Class B Common Shares; and options to purchase Class B Common Shares.
In addition, __________ Class A Common Shares and _____________ Class B Common
Shares were reserved for issuance pursuant to options granted or available for
grant under the Company's stock options plans and employee stock purchase plan.
Class B Common Shares may be converted into Class A Common Shares at any time at
the election of the holder.
THE COMPANY'S CHARTER DOCUMENTS AND OHIO LAW MAY INHIBIT A TAKEOVER AND LIMIT
THE COMPANY'S GROWTH OPPORTUNITIES, WHICH COULD CAUSE THE MARKET PRICE OF ITS
CLASS A COMMON SHARES TO DECLINE.
Certain provisions of Ohio law and the Company's Articles of Incorporation could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Its Articles of Incorporation provide for the Board of Directors to be divided
into three classes of directors serving staggered three-year terms. Such
classification of the Board of Directors expands the time required to change the
composition of a majority of directors and may tend to discourage a proxy
context or other takeover bid for the Company. In addition, its Articles of
Incorporation provide for Class B Common Shares, which have ten votes per share.
Applicable provisions of Ohio law also restrict the Company's ability to engage
in certain business combination transactions with owners of 10% or more of the
outstanding common shares. See "Description of Capital Stock" at page 29.
THE COMPANY MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE ANY
CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon a change of control, the Company will be required to offer to repurchase
all outstanding Notes at 100% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase. However, there can be no assurance
that sufficient funds will be available at the time of any change of control to
make any required repurchases of Notes tendered or that restrictions in its
credit facilities will allow the Company to make such required repurchases.
Notwithstanding these provisions, the Company could enter into certain
transactions, including certain recapitalizations, that would not constitute a
change of control but would increase the amount of debt outstanding at such
time. See "Description of Notes -- Repurchase at Option of Holders Upon a Change
in Control" at page 24.
NO PUBLIC MARKET EXISTS FOR THE NOTES, AND THE PRICE OF THE NOTES MAY BE
VOLATILE.
There is no existing market for the Notes and, although the Notes are eligible
for trading in PORTAL, there can be no assurance as to the liquidity of any
markets that may develop for the Notes, the ability of holders of the Notes to
sell their Notes or the prices at which holders would be able to sell their
Notes. Future trading prices of the Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. In addition, if the
Company or its securities are downgraded by any rating agency, the trading price
of the Notes may decrease. The initial purchasers have advised the Company that
they intend to make a market in the Notes offered hereby. However, they are not
obligated to do so, and any market making may be discontinued at any time
without notice. The Company does not intend to apply for listing of the Notes on
any securities exchange.
FEDERAL AND STATE LAWS PERMIT A COURT TO VOID THE NOTES UNDER CERTAIN
CIRCUMSTANCES.
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Under applicable provisions of federal bankruptcy law or comparable provisions
of state fraudulent transfer law, if, among other things, the Company, at the
time it incurred the indebtedness evidenced by the Notes, (1) (a) was or is
insolvent or rendered insolvent by reason of such occurrence or (b) was or is
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital or (c) intended or intends to
incur, or believed or believes it would incur, debts beyond its ability to pay
such debts as they mature, and (2) the Company received or receives less than
reasonably equivalent value or fair consideration for the incurrence of such
indebtedness, then the Notes could be voided, or claims in respect of the Notes
could be subordinated to all of the Company's other debts. In addition, the
payment of interest and principal by the Company pursuant to the Notes could be
voided and required to be returned to the person making such payment, or to a
fund for the benefit of the Company's creditors. The measures of insolvency for
purposes of the foregoing considerations will vary depending upon the law
applied in any proceeding with respect to the foregoing. Generally, however, the
Company would be considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater than
the saleable value of all of its assets at a fair valuation or if the
present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature; or
o the Company could not pay its debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, management believes the Company will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not incur debts beyond its ability to pay such debts as they mature. There can
be no assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with the Company's conclusions in
this regard.
RISKS RELATING TO THE COMPANY'S BUSINESS
THE COMPANY CANNOT ASSURE YOU THAT IT WILL HAVE ADEQUATE LIQUIDITY TO FUND ITS
ONGOING CASH NEEDS.
Over the next twelve months, the Company will face significant capital
requirements in order to fund its restructuring program, its negotiated contract
with a major mass merchandiser, and its seasonal working capital needs. In
addition, the Company may have additional funding needs during or after that
period that are not currently anticipated. There can be no assurance that
additional financing will be available to the Company or, if available, that it
can be obtained on terms acceptable to management or within limitations that are
contained in the Company's current or future financing arrangements. Failure to
obtain any necessary additional financing could result in the delay or
abandonment of some or all of the Company's restructuring plans, negatively
impact its ability to make capital expenditures and result in its failure to
meet its obligations.
In addition, from 1992 to 1999, the Company took certain tax deductions related
to its corporate-owned life insurance programs (COLI). Recently, a federal tax
decision unfavorable to another corporation for a similar COLI issue was
published. As a result, the Company recorded a non-cash charge of approximately
$143 million in the fourth quarter of 2001, which management estimates to be the
Company's potential tax exposure. Although management believes that in the event
of a proceeding against the Company, it would actively defend itself and
believes it could distinguish certain of its COLI plans from those addressed in
the prior litigation, there can be no assurance that the Company would be
successful, and the Company could be required to pay the amount of its recorded
charge to the Internal Revenue Service. In this event, the Company would require
additional financing to provide the cash for such a payment. There can be no
assurance that additional financing will be available to the Company or, if
available, that it can be obtained on terms acceptable to the Company or within
limitations that are contained in its current or future financing arrangements.
THE COMPANY CANNOT ASSURE YOU THAT IT WILL BE ABLE TO IMPLEMENT ITS PROPOSED
COST SAVINGS INITIATIVES OR THAT THOSE INITIATIVES WILL PRODUCE THE ANTICIPATED
POSITIVE EFFECTS.
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In November 2000, management announced that the Company would undertake a review
of its operations, focusing on process improvements. In March 2001, the Company
devised a restructuring plan for its core greeting card business that is
expected to improve efficiency and reduce costs. The restructuring plan includes
a rationalization process, a product line size reduction program, the
consolidation of its facilities and workforce reduction of approximately 1,500
employees, or approximately 13% of its current full-time workforce. The
reorganization is expected to result in a pre- tax charge of between $200
million and $220 million in fiscal 2002. Although management believes the
implementation of the restructuring is feasible on the schedule currently
contemplated, the Company may encounter unanticipated difficulties in doing so.
There can be no assurance that the anticipated cost savings will be realized as
a result of the implementation of the restructuring plan. In addition, several
large retailers, two of whom together represented approximately 15% of its sales
in fiscal 2001, have encouraged the Company to implement scan-based trading,
which is a form of consignment selling where inventory is held on the Company's
books, instead of the books of its retailers, until an actual sale to a consumer
occurs. The Company is in the process of implementing scan-based trading with
certain retailers, and it expects this implementation to result in a one-time
pre-tax charge of between $80 and $90 million in fiscal 2002, and it anticipates
the effects on the Company to be an ongoing reduction in working capital,
maximization of retail productivity and throughput, reduced costs and enhanced
retailer relationships. However, there can be no assurance that the expected
benefits of scan-based trading will be realized.
THE COMPANY HAS A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
The Company experienced a loss in fiscal 2001 and may incur additional losses in
the future. The Company has and will continue to have a substantial amount of
interest expense in respect of debt incurred and depreciation and amortization
expenses relating to its recent acquisitions as well as its fiscal 2002
restructuring program. Such expenses have contributed to the net losses the
Company experienced. Management expects that the Company will continue to incur
such non-operating expenses at increased levels as a result of its recent
acquisitions, scan-based trading, the restructuring program and its renegotiated
contract with a major mass merchandiser.
THE COMPANY RELIES ON A FEW LARGE CUSTOMERS FOR A SIGNIFICANT PORTION OF ITS
SALES.
A few of the Company's customers are material to its business and operations. In
both fiscal 2000 and fiscal 2001, its largest customer represented approximately
10% of its consolidated net sales. Aggregate consolidated net sales to its five
largest customers represented approximately 29% of its total consolidated net
sales in fiscal 2001. There can be no assurance that these large customers will
continue to purchase its products in historical quantities. The loss of sales to
one of its large customers could materially adversely affect the Company, its
operating results, its financial condition and its prospects.
DIFFICULTIES IN INTEGRATING POTENTIAL ACQUISITIONS COULD ADVERSELY AFFECT THE
COMPANY'S BUSINESS.
The Company regularly evaluates potential acquisition opportunities to support
and strengthen its business. The Company cannot be sure that it will be able to
locate suitable acquisition candidates, acquire candidates on acceptable terms
or integrate acquired businesses successfully. Future acquisitions may require
the Company to incur additional debt and contingent liabilities, which may
materially and adversely affect its business, operating results and financial
condition. Furthermore, the process of integrating acquired businesses
effectively involves the following risks:
o assimilating operations and products may be unexpectedly difficult;
o management's attention may be diverted from other business concerns;
o the Company may enter markets in which it has limited or no direct
experience; and
o the Company may lose key employees of an acquired business.
The Company does not currently have any material agreements relating to proposed
or pending acquisitions or joint ventures.
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THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE ON A SEASONAL BASIS.
The greeting card business is a seasonal business based on holidays, with
results of operations for the first, second and fourth quarters generally being
lower than those of the third quarter. Consequently, the Company's overall
operating results in the future may fluctuate substantially based on seasonal
demand for its products. Such variations in demand could have a material adverse
effect on the timing of its cash flows and therefore its ability to service its
obligations with respect to the Notes.
THE COMPANY OPERATES IN AN EXTREMELY COMPETITIVE MARKET, AND ITS BUSINESS WILL
SUFFER IF IT IS UNABLE TO COMPETE EFFECTIVELY.
The Company operates in a highly competitive industry. The greeting card
business is extremely concentrated and the Company is one of only two main
competitors, which together encompass over 75% of the overall market. The
Company's main competitor may have substantially greater financial, technical or
marketing resources, a greater customer base, stronger name recognition and a
lower cost of funds than the Company does, and it also has longstanding
relationships with certain large customers to which it may offer products not
provided by the Company, which may put the Company at a competitive
disadvantage. As a result, this competitor or others may be able to:
o adapt to changes in customer requirements more quickly;
o take advantage of acquisition and other opportunities more readily; and
o devote greater resources to the marketing and sale of its products and adopt
more aggressive pricing policies than the Company can.
There can be no assurance that the Company will be able to continue to compete
successfully in this market or against such competition. If the Company is
unable to introduce new and innovative products that are attractive to its
customers, or are unable to allocate sufficient resources to effectively market
and advertise its products so that they achieve widespread market acceptance,
the Company may not be able to compete effectively and its operating results and
financial condition will be adversely affected.
THE COMPANY MAY BE ADVERSELY AFFECTED BY RETAIL TRENDS AND VOLATILITY.
The Company's business and that of most of its customers is cyclical and has
historically experienced periodic downturns in direct relation to general
economic downturns. A downturn in the economy may affect consumer purchases of
discretionary items, which could adversely affect the Company's sales. The
Company's success depends on the sustained demand for its products. Many factors
affect the level of consumer spending on its products, including, among others,
general business conditions, interest rates, the availability of consumer
credit, taxation and consumer confidence in future economic conditions. Consumer
purchases of discretionary items, such as the Company's products, tend to
decline during recessionary periods when disposable income is lower. These
downturns have been characterized by diminished product demand and subsequent
accelerated erosion of average selling prices. A general slowdown in the
economies in which the Company sells its products or even an uncertain economic
outlook could adversely affect consumer spending on its products and, in turn,
its sales and results of operations. With the growing trend toward towards
retail trade consolidation, the Company is increasingly dependent upon a reduced
number of key retailers whose bargaining strength is growing. The Company may be
negatively affected by changes in the policies of its retail trade customers,
such as inventory de-stocking, limitations on access to shelf space, scanbased
trading and other conditions. Increased consolidations in the retail industry
could result in price and other competition that could damage the Company's
business.
TWO SIGNIFICANT STOCKHOLDER GROUPS CONTROL A SUBSTANTIAL PORTION OF THE
COMPANY'S OUTSTANDING CAPITAL STOCK.
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As of _______________ ____, 2001, two significant stockholder groups
beneficially owned approximately ____% in the aggregate of the Company's
outstanding Class B Common Shares. Class A Common Shares are entitled to one
vote per share, and Class B Common Shares are entitled to ten votes per share.
Accordingly, holders of Class B Common Shares, as a group, will be able to
significantly influence the outcome of stockholder votes, including votes
concerning the election of directors, the adoption or amendment of provisions in
the Company's Articles of Incorporation or Code of Regulations, and the approval
of mergers and other significant corporate transactions, and their interests may
not be aligned with your interests. Two of the nine members of the Company's
board of directors are members of one of these stockholder groups. The existence
of these levels of ownership concentrated in a few persons makes it less likely
that any other shareholder will be able to affect the Company's management or
strategic direction. These factors may also have the effect of delaying or
preventing a change in the Company's management or voting control or its
acquisition by a third party.
THE LOSS OF KEY MEMBERS OF THE COMPANY'S SENIOR MANAGEMENT TEAM COULD ADVERSELY
AFFECT ITS BUSINESS.
The Company's success depends largely on the efforts and abilities of its
current senior management team. Their experience and industry contacts
significantly benefit the Company. If the Company were to lose the benefit of
their experience and contacts, its business could be adversely affected.
POLITICAL AND ECONOMIC CONDITIONS IN FOREIGN COUNTRIES IN WHICH THE COMPANY
OPERATES COULD ADVERSELY AFFECT THE COMPANY.
A portion of the Company's current operations are conducted and located abroad.
International revenue represented 17.1% of total revenue in fiscal 2001 and
19.5% of total revenue in fiscal 2000. Management expects that international
revenue will continue to represent a significant portion of the Company's total
revenue in the foreseeable future. The success of its sales to, and operations
in, foreign markets depends on numerous factors, many of which are beyond its
control, including economic conditions in the foreign countries in which the
Company sells its products and services. Its international sales and operations
may also expose the Company to risks inherent in doing business outside the
United States, including currency fluctuations, restrictions on the repatriation
of profits and assets, compliance with foreign laws and standards and political
risks. In general, the Company does not execute hedge transactions to reduce its
exposure to foreign currency exchange rate risks. There can be no assurance that
foreign governments will not adopt regulations or take other actions that would
have a direct or indirect adverse impact on the Company's business or market
opportunities within such governments' countries. Furthermore, there can be no
assurance that the political, cultural and economic climate outside the United
States will be favorable to the Company's operations and growth strategy.
THE COMPANY'S BUSINESS COULD BE ADVERSELY AFFECTED IF MANAGEMENT IS UNSUCCESSFUL
IN NEGOTIATING NEW COLLECTIVE BARGAINING AGREEMENTS.
The Company is subject to a limited number of collective bargaining agreements.
At _______________ ____, 2001, the Company had a total of approximately ______
full-time employees and approximately ______ part-time employees. Approximately
_____ of its hourly plant employees are unionized, of which approximately _____
are covered by three collective bargaining agreements. These agreements expire
at various times over the next four years. These agreements generally cover
wages, health care benefits and retirement plans, seniority, job classes and
work rules. The Company can give you no assurance that these collective
bargaining agreements will be renewed upon expiration or that new collective
bargaining agreements on terms acceptable to the Company will be established.
Failure to renew such agreements could adversely impact the Company's financial
condition and results of operations.
VARIOUS GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL RISKS APPLICABLE TO ITS
BUSINESS MAY REQUIRE THE COMPANY TO TAKE ACTIONS WHICH WILL ADVERSELY AFFECT ITS
RESULTS OF OPERATIONS.
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The Company's business is subject to numerous federal, state, provincial, local
and foreign laws and regulations, including regulations with respect to air
emissions, wastewater discharges and the generation, handling, storage,
transportation, treatment and disposal of waste materials. Although management
believes the Company is in substantial compliance with all applicable laws and
regulations, legal requirements are frequently changed and subject to
interpretation, and management is unable to predict the ultimate cost of
compliance with these requirements or their effect on the Company's operations.
The Company may be required to make significant expenditures to comply with
governmental laws and regulations. Management cannot be certain that existing
laws or regulations, as currently interpreted or reinterpreted in the future, or
future laws or regulations, will not have a material adverse effect on the
Company's results of operations and financial condition.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are subject to risks and uncertainties and include statements
regarding position, business strategy and other plans and objectives for future
operations and statements which are not historical facts. Although the Company
believes that such statements are based on reasonable assumptions, these
forward-looking statements are subject to numerous factors, risks and
uncertainties that could cause actual outcomes and results to be materially
different from those projected. These factors, risks and uncertainties include,
among others, retail bankruptcies and consolidations, successful integration of
acquisitions, a weak retail environment, consumer acceptance of products as
priced and marketed, the impact of technology on core product sales and
competitive terms of sale offered to customers. Risks pertaining specifically to
the Company's electronic marketing business include the ability of
AmericanGreetings.com to attract strategic partners as investors, the viability
of online advertising as a revenue generator and the public's acceptance of
online greetings and other social expression products. These factors expressly
qualify all subsequent oral and written forward-looking statements attributable
to the Company or persons acting on our behalf. Except for its ongoing
obligations to disclose material information as required by the federal
securities laws, the Company does not have any intention or obligation to update
forward-looking statements after the distribution of this prospectus. Actual
results may differ materially from those suggested by the forward-looking
statements for various reasons, including those discussed under "Risk Factors"
in this prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of earnings to
fixed charges for the periods shown.
Three Months
Ended May 31, Year Ended February 28 or 29,
2000 2001 1997 1998 1999 2000 2001
4.7x - 6.3x 8.2x 6.9x 3.7x 2.3x
The amount of the deficiency for the first quarter of fiscal 2002 was
$109,958,000. Ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings plus fixed charges. For purposes of determining this
ratio, earnings have been calculated by adding income before income taxes and
the cumulative effect of accounting change. Fixed charges consist of interest
expense and the estimated interest component of rent expense The ratio of
earnings to fixed charges is computed by dividing fixed charges into earnings
plus fixed charges. For purposes of determining this ratio, earnings have been
calculated by adding income before income taxes and the cumulative effect of
accounting change. Fixed charges include interest expense and the estimated
interest component of rent expense.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Notes or
the Class A Common Shares by the selling holders.
PRICE RANGE OF CLASS A COMMON SHARES
The Class A Common Shares are traded on the NYSE under the symbol "AM." Set
forth below are the high and low sales prices of the Class A Common Shares for
the periods indicated as reported on the NYSE Composite Tape.
HIGH LOW
FISCAL QUARTER ENDED MAY 31, 2001........................................................................................
FISCAL YEAR ENDED FEBRUARY 28, 2001
First Quarter.................................................................................19 9/16 15 5/16
Second Quarter................................................................................24 1/16 16 7/8
Third Quarter.................................................................................20.13 8.94
Fourth Quarter................................................................................13.91 8.19
FISCAL YEAR ENDED FEBRUARY 29, 2000
First Quarter.................................................................................28 13/16 22 5/16
Second Quarter................................................................................32 3/8 27 3/16
Third Quarter.................................................................................28 1/2 23 1/16
Fourth Quarter................................................................................25 11/16 17 1/4
FISCAL YEAR ENDED FEBRUARY 28, 1999
First Quarter................................................................................ 49 7/16 44 7/8
Second Quarter................................................................................53 3/4 36 5/8
Third Quarter.................................................................................44 35
Fourth Quarter................................................................................44 5/16 22
On _______________ ____, 2001, the last reported sales price of the Company's
Class A Common Shares on the NYSE was $_____ per share. As of _______________
____, 2001, there were approximately ________ shareholders of record of Class A
Common Shares, and there were __________________ Class A Common Shares issued
and outstanding.
DESCRIPTION OF OTHER INDEBTEDNESS
THE CREDIT AGREEMENT
On August 7, 2001, the Company entered into a Credit Agreement with Keybank
National Association, as Documentation Agent, National City Bank and Goldman
Sachs Credit Partners L.P., as Joint-Lead Arrangers and Co- Syndication Agents,
National City Bank, as Administrative Agent, and certain other lenders. That
Credit Agreement provides for (i) a $105,000,000.00, 364-day revolving facility,
a $120,000,000.00 general revolving facility maturing Jan. 15, 2006, and a
$125,000,000.00 term loan maturing June 15, 2006. The Company has the option to
request a one-year extension of the 364-day revolving facility. Borrowings under
the various facilities can be made on a fixed or variable rate basis, with the
rate dependent upon the Company's credit rating. Loans under the Credit
Agreement are secured by a security interest in all tangible personal property
owned by the Company and a mortgage lien in and to all real property owned by
the Company. The loans are further secured by a pledge of substantially all of
the Company's stock in its domestic subsidiaries. Substantially all of the
Company's domestic subsidiaries have guaranteed payment of the loans to the
Company, and have granted the lenders security interests and mortgage liens in
personal property and real estate owned by such subsidiaries. At ________, 2001,
(i) $____________ was
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outstanding under the 364-day revolving facility; (ii) $________ was outstanding
under the general revolving commitment; and (iii) $____________ was outstanding
under the term loan. A general facility fee, 364-day facility fee and global
agent fees are due on the facilities and can vary with the Company's credit
rating. The Credit Agreement contains various restrictive covenants which
require, among other things, that the Company meet specified periodic financial
ratios, minimum net worth and earnings requirements. The Credit Agreement
restricts the Company's ability to incur additional indebtedness and to engage
in acquisitions of other businesses and entities.
The Second Amended and Restated Credit Agreement, dated April 30, 2001, among
the Company, Bank of America, N.A., as Global Agent, Banc of America Securities
Limited, as UK Facility Agent, National City Bank, as Global Co-Syndication
Agent, Bank One, Michigan, as Global Co-Syndication Agent, and certain other
lenders, was terminated and repaid with the proceeds of borrowings under the
Credit Agreement.
6.10% SENIOR NOTES DUE 2028
The Company has outstanding its 6.10% Senior Notes due August 1, 2028. The
existing Notes are its senior unsecured obligations, rank on parity with all of
its existing and future senior unsecured debt and rank senior to all of its
future subordinated debt. If the Company incurs any secured senior debt in the
future, the Company will be required to secure the existing Notes on an equal
and ratable basis. The Company may not redeem the existing Notes prior to their
maturity. A registered holder of an existing note may elect to have that note,
or a portion that is a multiple of $1,000, repaid on August 1, 2008 at 100% of
the principal amount thereof, together with accrued interest.
11.75% SENIOR SUBORDINATED NOTES DUE 2008
The Company has outstanding $260 million aggregate principal amount of its
11.75% senior subordinated Notes due 2008. These Notes are its general unsecured
obligations, are subordinated in right of payment to all its existing and future
senior debt and are pari passu in right of payment with any of its future senior
subordinated indebtedness. The Company may not redeem these Notes prior to July
15, 2005. After such time, the Company may redeem these Notes at certain prices.
The Notes offered hereby are subordinated to the senior subordinated notes.
DESCRIPTION OF NOTES
The Company issued the Notes on June 29, 2001 under a document called the
"Indenture." The Indenture is a contract between the Company and National City
Bank, as Trustee. The Indenture and the Notes are governed by New York law.
Because this section is a summary, it does not describe every aspect of the
Notes and the Indenture that may be important to you, and the description in
this section is subject to and qualified in its entirety by reference to all the
provisions of the Indenture. In this section, capitalized words are used to
signify defined terms that have been given special meaning in the Indenture.
Only the more important terms are described. You should read the Indenture
itself for a full description of the terms of the Notes. Wherever reference is
made to particular defined terms, those defined terms are incorporated by
reference here. In this section, references to "the Company" or "its" refer
solely to American Greetings Corporation and not its subsidiaries.
GENERAL
The Notes are general, unsecured obligations of the Company. The Notes are
subordinated, which means that they rank behind certain of the Company's
indebtedness, as described below. The aggregate principal amount of the Notes is
$175,000,000. The Company is required to repay the principal amount of the Notes
in full on July 15, 2006. The Notes bear interest at the rate of 7.00% per annum
from June 29, 2001. Interest is computed on the basis of a 360-day year of
twelve thirty-day months. The Company will pay interest on the Notes on January
15 and July 15 of each year, commencing on January 15, 2002.
You may convert the Notes into the Company's Class A Common Shares initially at
the conversion rate of 71.9466
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Class A Common Shares for each $1,000 principal amount of Notes at any time
before the close of business on July 15, 2006, unless the Notes have been
previously redeemed or repurchased. The conversion rate may be adjusted as
described below.
If there is a Change in Control of American Greetings, you may have the right to
require the Company to repurchase your Notes as described below under "--
Repurchase at Option of Holders Upon a Change in Control" at page 24.
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The Notes have been issued only in fully registered form, without interest
coupons and in denominations of $1,000 and greater multiples.
The Notes are evidenced by one or more global notes deposited with the Trustee
as custodian for The Depository Trust Company ("DTC") and registered in the name
of Cede & Co. ("Cede"), as nominee of DTC. The global note and any notes issued
in exchange for the global note will be subject to restrictions on transfer and
will bear the legend regarding those restrictions set forth under "Notice to
Investor." Except as set forth below, record ownership of the global note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
The global note will not be registered in the name of any person, or exchanged
for notes that are registered in the name of any person, other than DTC or its
nominee unless either of the following occurs:
o DTC notifies the Company that it is unwilling, unable or no longer qualified
to continue acting as the depositary for the global note; or
o an Event of Default with respect to the Notes represented by the global note
has occurred and is continuing.
In those circumstances, DTC will determine in whose names any securities issued
in exchange for the global note will be registered.
DTC or its nominee will be considered the sole owner and holder of the global
note for all purposes, and as a result:
o you cannot get Notes registered in your name if they are represented by the
global note;
o you cannot receive certificated (physical) Notes in exchange for your
beneficial interest in the global notes;
o you will not be considered to be the owner or holder of the global note or
any note it represents for any purpose; and
o all payments on the global note will be made to DTC or its nominee.
The laws of some jurisdictions require that certain kinds of purchasers (for
example, certain insurance companies) can only own securities in definitive
(certificated) form. These laws may limit your ability to transfer your
beneficial interests in the global note to these types of purchasers.
Only institutions (such as a securities broker or dealer) that have accounts
with DTC or its nominee (called "participants") and persons that may hold
beneficial interests through participants can own a beneficial interest in the
global note. The only place where the ownership of beneficial interests in the
global note will appear and the only way the transfer of those interests can be
made will be on the records kept by DTC (for their participants' interests) and
the records kept by those participants (for interests of persons held by
participants on their behalf).
Secondary trading in bonds and notes of corporate issuers is generally settled
in clearinghouse (that is, next-day)
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funds. In contrast, beneficial interests in a global note usually trade in DTC's
same-day funds settlement system, and settle in immediately available funds.
Management makes no representation as to the effect that settlement in
immediately available funds will have on trading activity in those beneficial
interests.
The Company will make cash payments of interest on and principal of and the
redemption or repurchase price of the global note, in respect of the Notes, to
Cede, the nominee for DTC, as the registered owner of the global note. The
Company will make these payments by wire transfer of immediately available funds
on each payment date.
The Company has been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the Notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in Notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the account of customers registered in "street
name."
The Company will send any redemption notices to Cede. The Company understands
that if less than all the Notes are being redeemed, DTC's practice is to
determine by lot the amount of the holdings of each participant to be redeemed.
The Company also understands that neither DTC nor Cede will consent or vote with
respect to the Notes. The Company has been advised that under its usual
procedures, DTC will mail an "omnibus proxy" to the Company as soon as possible
after the record date. The omnibus proxy assigns Cede's consenting or voting
rights to those participants to whose accounts the Notes are credited on the
record date identified in a listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on behalf of
indirect participants, the ability of a person having a beneficial interest in
the principal amount represented by the global note to pledge the interest to
persons or entities that do not participate in the DTC book-entry system, or
otherwise take actions in respect of that interest, may be affected by the lack
of a physical certificate evidencing its interest.
DTC has advised the Company that it will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange) only at
the direction of one or more participants to whose account with DTC interests in
the global note are credited and only in respect of such portion of the
principal amount of the Notes represented by the global note as to which such
participant or participants has or have given such direction.
DTC has also advised the Company as follows:
o DTC is a limited purpose trust company organized under the laws of the
State of New York,
o a member of the Federal Reserve System,
o a "clearing corporation" within the meaning of the Uniform Commercial Code,
as amended, and
o a "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
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The policies and procedures of DTC, which may change periodically, will apply to
payments, transfers, exchanges and other matters relating to beneficial
interests in the global note. The Company and the Trustee have no responsibility
or liability for any aspect of DTC's or any participants' records relating to
beneficial interests in the global note, including for payments made on the
global note, and the Company and the Trustee are not responsible for
maintaining, supervising or reviewing any of those records.
CONVERSION RIGHTS
You may, at your option, convert any portion of the principal amount of any Note
that is an integral multiple of $1,000 into Class A Common Shares at any time
prior to the close of business on the maturity date, unless the Notes have been
previously repurchased, at a conversion rate of 71.9466 Class A Common Shares
per $1,000 principal amount of Notes. The conversion rate is equivalent to a
conversion price of approximately $13.90. Your right to convert a Note delivered
for repurchase will terminate at the close of business on the repurchase date
for that Note, unless the Company defaults in making the payment due upon
repurchase.
You may convert all or part of any Note by delivering the note at the Corporate
Trust Office of the Trustee in the Borough of Manhattan, the City of New York,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained by the Trustee. The conversion date will be the date on which
the note and the duly signed and completed notice of conversion are so
delivered.
As promptly as practicable on or after the conversion date, the Company will
issue and deliver to the Trustee a certificate or certificates for the number of
full Class A Common Shares issuable upon conversion, together with payment in
lieu of any fraction of a share. The certificate will then be sent by the
Trustee to the conversion agent for delivery to the Holder. Class A Common
Shares issuable upon conversion of the Notes will be fully paid and
nonassessable and will rank equally with other Class A Common Shares.
If you surrender a Note for conversion on a date that is not an Interest Payment
Date, you will not be entitled to receive any interest for the period from the
next preceding Interest Payment Date to the conversion date, except as described
below in this paragraph. Any Note surrendered for conversion during the period
from the close of business on any Regular Record Date to the opening of business
on the next succeeding Interest Payment Date (except Notes (or portions thereof)
to be repurchased on the repurchase date for which the right to convert would
terminate during such period) must be accompanied by payment of an amount equal
to the interest payable on such Interest Payment Date on the principal amount of
Notes being surrendered for conversion. In the case of any Note which has been
converted after any Regular Record Date (as defined below under "-- Payment and
Conversion") but before the next succeeding Interest Payment Date, interest
payable on such Interest Payment Date shall be payable on such Interest Payment
Date notwithstanding such conversion, and such interest shall be paid to the
holder of such Note on such Regular Record Date.
No other payment or adjustment for interest, or for any dividends in respect of
Class A Common Shares, will be made upon conversion. Holders of Class A Common
Shares issued upon conversion will not be entitled to receive any dividends
payable to holders of Class A Common Shares as of any record time or date before
the close of business on the conversion date. The Company will not issue
fractional shares upon conversion. Instead, the Company will pay cash based on
the market price of Class A Common Shares at the close of business on the
conversion date.
You will not be required to pay any taxes or duties relating to the issue or
delivery of Class A Common Shares on conversion but you will be required to pay
any tax or duty relating to any transfer involved in the issue or delivery of
Class A Common Shares in a name other than your name. Certificates representing
Class A Common Shares will not be issued or delivered unless all taxes and
duties, if any, payable by you have been paid.
The conversion rate will be subject to adjustment for, among other things:
o dividends (and other distributions) payable in Class A Common Shares on
shares of its capital stock,
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o the issuance to all holders of Class A Common Shares of rights, options or
warrants entitling them to subscribe for or purchase Class A Common Shares
at less than the then Current Market Price of such Class A Common Shares
(determined as provided in the Indenture) as of the record date for
shareholders entitled to receive such rights, options or warrants;
o subdivisions, combinations and reclassifications of Class A Common Shares,
o distributions to all holders of Class A Common Shares of evidences of
indebtedness of the Company, capital stock, cash or assets (including
securities, but excluding those dividends, rights, options, warrants and
distributions referred to above, dividends and distributions paid
exclusively in cash and distributions upon mergers or consolidations as
discussed below);
o distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in the immediately preceding clause, or cash
distributed upon a merger or consolidation as discussed below) to all
holders of Class A Common Shares in an aggregate amount that, combined
together with (1) other such all-cash distributions made within the
preceding 12 month period in respect of which no adjustment has been made
and (2) any cash and the fair market value of other consideration payable
in connection with any tender offer by the Company or any of its
subsidiaries for Class A Common Shares concluded within the preceding 12
month period in respect of which no adjustment has been made, exceeds 10%
of its market capitalization (being the product of the Current Market Price
per share of the Class A Common Shares on the record date for such
distribution and the number of shares of Class A Common Shares then
outstanding); and
o the successful completion of a tender offer made by the Company or any of
its subsidiaries for Class A Common Shares which involves an aggregate
consideration that, together with any cash and other consideration payable
in a tender offer by the Company or any of its subsidiaries for Class A
Common Shares expiring within the 12 month period preceding the expiration
of such tender offer in respect of which no adjustment has been made,
exceeds 10% of its market capitalization on the expiration of such tender
offer.
The Company reserves the right to effect such increases in the conversion rate
in addition to those required by the foregoing provisions as the Company
considers to be advisable in order that any event treated for United States
federal income tax purposes as a dividend of stock or stock rights will not be
taxable to the recipients. The Company will not be required to make any
adjustment to the conversion rate until the cumulative adjustments amount to
1.0% or more of the conversion rate. The Company will compute all adjustments to
the conversion rate and will give notice by mail to holders of the registered
Notes of any adjustments.
In case of any consolidation or merger of the Company with or into another
entity or any merger of another entity into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of Class A Common Shares), or in case of any sale or transfer of
all or substantially all the Company's assets, each Note then outstanding will
become convertible only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of Class A Common Shares into which the Notes were
convertible immediately prior to the consolidation or merger or sale or
transfer. The Company may increase the conversion rate for any period of at
least 20 days, upon at least 15 days' notice, if its board of directors
determines that the increase would be in its best interest. The board of
directors' determination in this regard will be conclusive. The Company will
give holders of Notes at least 15 days' notice of such an increase in the
conversion rate. Any increase, however, will not be taken into account for
purposes of determining whether the closing price of Class A Common Shares
exceeds the conversion price by 105% in connection with an event which otherwise
would be a Change in Control as defined below.
The Company may also increase the conversion rate for the remaining term of
the Notes or any shorter period in order to avoid or diminish any income tax
to any holders of Class A Common Shares resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax
purposes. If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
United States federal income tax purposes, such as distributions of
evidences of indebtedness or assets of the Company, but generally not stock
dividends on Class A Common Shares or rights to subscribe for Class A Common
Shares, and, pursuant to the adjustment provisions of the Indenture, the
conversion price (as defined in the Indenture) of the Notes is reduced,
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that reduction may be deemed for United States federal income tax purposes
to be the payment of a taxable dividend to holders of Notes. See "Certain
United States Federal Income Tax Considerations -- Dividends on Class A
Common Shares" at page 30.
SUBORDINATION
The Notes are subordinated and, as a result, the payment of the principal, any
premium and interest on the Notes, including amounts payable on any redemption
or repurchase, will be subordinated to the prior payment in full, in cash or
other payment satisfactory to holders of all its Senior Indebtedness. The Notes
are also effectively subordinated to any debt or other liabilities of its
subsidiaries. As of _______________ ____, 2001, the Company had approximately
$_____ million of senior debt outstanding and the aggregate amount of
liabilities of its subsidiaries was approximately $_____ million, including
trade payables.
"Senior Indebtedness" is defined in the Indenture to mean: the principal of (and
premium, if any) and interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the Indenture or thereafter created, incurred or assumed:
o all the Company's indebtedness evidenced by a credit or loan agreement,
note, bond, debenture or other written obligation, including without
limitation, the senior subordinated Notes;
o all the Company's obligations for money borrowed;
o all the Company's obligations evidenced by a note or similar instrument
given in connection with the acquisition of any businesses, properties or
assets of any kind;
o all the Company's obligations (1) as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles and (2) as lessee under other leases for facilities,
capital equipment or related assets, whether or not capitalized, entered
into or leased for financing purposes;
o all the Company's obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts or similar agreements
or arrangements;
o all the Company's obligations with respect to letters of credit, bankers'
acceptances and similar facilities (including reimbursement obligations
with respect to the foregoing);
o all the Company's obligations issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable and
accrued liabilities arising in the ordinary course of business);
o all obligations of the type referred to in the above clauses of another
person and all dividends of another person, the payment of which, in either
case, the Company has assumed or guaranteed, or for which the Company is
responsible or liable, directly or indirectly, jointly or severally, as
obligor, guarantor or otherwise, or which are secured by a lien on its
property; and
o renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange for,
any such indebtedness or obligation described in the above clauses of this
definition.
Senior Indebtedness will not include the Notes or any other indebtedness or
obligation if its terms or the terms of the instrument under which or pursuant
to which it is issued expressly provide that it is not superior in right of
payment to the Notes.
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The Company may not make any payment on account of principal, premium or
interest on the Notes, or redemption or repurchase of the Notes, if either of
the following occurs:
o the Company defaults in its obligations to pay principal, premium, interest
or other amounts on its Senior Indebtedness, including a default under any
redemption or repurchase obligation, and the default continues beyond any
grace period that the Company may have to make those payments; or
o any other default occurs and is continuing on any Designated Senior
Indebtedness (as defined below) and (1) the default permits the holders of
the Designated Senior Indebtedness to accelerate its maturity and (2) the
Trustee has received a notice (a "Payment Blockage Notice") of the default
from the Company, the holder of such debt or such other person permitted to
give such notice under the Indenture.
If payments of the Notes have been blocked by a payment default on Senior
Indebtedness, payments on the Notes may resume when the payment default has been
cured or waived or ceases to exist. If payments on the Notes have been blocked
by a nonpayment default, payments on the Notes may resume on the earlier of (1)
the date the nonpayment default is cured or waived or ceases to exist or (2) 179
days after the Payment Blockage Notice is received if the maturity of the
Designated Senior Indebtedness has not been accelerated.
No nonpayment default that existed on the day a Payment Blockage Notice was
delivered to the Trustee can be used as the basis for any subsequent Payment
Blockage Notice. In addition, once a holder of Designated Senior Indebtedness
has blocked payment on the Notes by giving a Payment Blockage Notice, no new
period of payment blockage can be commenced pursuant to a subsequent Payment
Blockage Notice until both of the following are satisfied:
o 365 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice; and
o all scheduled payments of principal, any premium and interest with respect
to the Notes that have come due have been paid in full in cash.
"Designated Senior Indebtedness" means the Company's obligations under any
particular Senior Indebtedness in which the instrument creating or evidencing
the same or the assumption or guarantee thereof (or related agreements or
documents to which the Company are a party), whether or not executed
contemporaneously with the incurrence of such Senior Indebtedness, expressly
provides that such indebtedness shall be "Designated Senior Indebtedness" for
purposes of the Indenture. The instrument, agreement or other document
evidencing any Designated Senior Indebtedness may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness.
In addition, upon any acceleration of the principal due on the Notes as a result
of an Event of Default or upon any payment or distribution of its assets to
creditors upon any dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, marshaling of assets, assignment for the
benefit of creditors, or in bankruptcy, insolvency, receivership or other
similar proceedings, all principal, premium, if any, interest and other amounts
due on all Senior Indebtedness must be paid in full before you are entitled to
receive any payment. By reason of such subordination, in the event of
insolvency, the Company's creditors who are holders of Senior Indebtedness are
likely to recover more, ratably, than you are, and you will be likely to
experience a reduction or elimination of payments on the Notes.
Further, the Notes will be "structurally subordinated" to all indebtedness and
other liabilities, including trade payables and lease obligations, of the
Company's subsidiaries. This occurs because the Company's right to receive any
assets of its subsidiaries upon their liquidation or reorganization, and the
right of the holders of the Notes to participate in those assets, will be
effectively subordinated to the claims of that subsidiary's creditors, including
trade creditors, except to the extent that the Company is recognized as a
creditor of such subsidiary, in which case its claims would still be subordinate
to any security interest in the assets of the subsidiary and any indebtedness of
the subsidiary senior to that held by the Company.
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The Indenture does not limit the Company's ability to incur Senior Indebtedness
or its ability or the ability of its subsidiaries to incur any other
indebtedness.
REDEMPTION
The Company may not optionally redeem the Notes at any time.
No sinking fund is provided for the Notes.
The Company may, to the extent permitted by applicable law, at any time purchase
Notes in the open market, by tender at any price or by private agreement. Any
note that the Company purchases may, to the extent permitted by applicable law
and subject to restrictions contained in the purchase agreement with the initial
purchasers, be re-issued or resold or may, at its option, be surrendered to the
Trustee for cancellation. Any Notes surrendered for cancellation may not be
re-issued or resold and will be canceled promptly.
PAYMENT AND CONVERSION
The Company will make all payments of principal and interest on registered Notes
by U.S. dollar check drawn on an account maintained at a bank in The City of New
York. If you hold registered Notes with a face value greater than $2,000,000, at
your request the Company will make payments of principal or interest to you by
wire transfer to an account maintained by you at a bank in The City of New York.
Payment of any interest on the Notes will be made to the person in whose name
the note, or any predecessor note, is registered at the close of business on the
January 1 or the July 1 (whether or not a business day) immediately preceding
the relevant Interest Payment Date (a "Regular Record Date"). If you hold
registered Notes with a face value in excess of $2,000,000 and you would like to
receive payments by wire transfer, you will be required to provide the Trustee
with wire transfer instructions at least 15 days prior to the relevant payment
date.
Payments on any global note registered in the name of DTC or its nominee will be
payable by the Trustee to DTC or its nominee in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee will treat the persons in whose names the Notes, including any
global note, are registered as the owners for the purpose of receiving payments
and for all other purposes. Consequently, neither the Company, the Trustee nor
any of its agents or the Trustee's agents has or will have any responsibility or
liability for (1) any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interests in the global note, or for maintaining, supervising or
reviewing any of DTC's records or any participant's or indirect participant's
records relating to the beneficial ownership interests in the global note, or
(2) any other matter relating to the actions and practices of DTC or any of its
participants or indirect participants.
The Company will not be required to make any payment on the Notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.
Notes may be surrendered for conversion at the Corporate Trust Office of the
Trustee in the Borough of Manhattan, The City of New York. Notes surrendered for
conversion must be accompanied by appropriate notices and any payments in
respect of interest or taxes, as applicable, as described above under "--
Conversion Rights".
The Company has initially appointed the Trustee as paying agent and conversion
agent. The Company may terminate the appointment of any paying agent or
conversion agent and appoint additional or other paying agents and conversion
agents. However, until the Notes have been delivered to the Trustee for
cancellation, or moneys sufficient to pay the principal of, premium, if any, and
interest on the Notes have been made available for payment and either paid or
returned to the Company as provided in the Indenture, the Trustee will maintain
an office or agency in the Borough of Manhattan, The City of New York for
surrender of Notes for conversion. Notice of any termination or appointment and
of any change in the office through which any paying agent or conversion agent
will act will be given in accordance with "-- Notices" below.
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All moneys deposited with the Trustee or any paying agent, or then held by the
Company, in trust for the payment of principal of, premium, if any, or interest
on any Notes which remain unclaimed at the end of two years after the payment
has become due and payable will be repaid to the Company, and you will then look
only to the Company for payment.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control as defined below occurs, you will have the right, at your
option, to require the Company to repurchase all of your Notes not previously
called for redemption, or any portion of the principal amount thereof, that is
equal to $1,000 or an integral multiple of $1,000. The price the Company is
required to pay is 100% of the principal amount of the Notes to be repurchased
plus interest and liquidated damages, if any, accrued to the repurchase date.
At its option, instead of paying the repurchase price in cash, the Company may
pay the repurchase price in Class A Common Shares valued at 95% of the average
of the closing prices of Class A Common Shares for the five trading days
immediately preceding and including the third trading day prior to the
repurchase date. The Company may only pay the repurchase price in its common
stock if the Company satisfies conditions provided in the Indenture.
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to give to you notice of the Change in Control and of the repurchase
right arising as a result of the Change in Control and to make a public
announcement thereof by release made to Reuters Economic Services and Bloomberg
Business News. The Company must also deliver a copy of this notice to the
Trustee. To exercise the repurchase right, you must deliver on or before the
30th day after the date of its notice irrevocable written notice to the Trustee
of your exercise of your repurchase right, together with the Notes with respect
to which the right is being exercised. The Company is required to repurchase the
Notes on the date that is 45 days after the date of its notice.
A Change in Control will be deemed to have occurred at the time after the Notes
are originally issued that any of the following occurs:
(1) any person, including any syndicate or group deemed to be a "person" under
Section 13(d)(3) of the Exchange Act, acquires beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of the Company's capital
stock entitling the person to exercise 50% or more of the total voting
power of all shares of such capital stock that is entitled to vote
generally in elections of directors, other than (i) an acquisition by the
Company, any of its subsidiaries or any of its employee benefit plans or
(ii) any such acquisition by Morry Weiss, Judith A. Weiss, Harry H. Stone,
Gary Weiss, Jeffrey Weiss, Zev Weiss, Elie Weiss and the Irving I. Stone
Limited Liability Co. (collectively, the "Principals") or any person
controlled by any of the Principals, so long as any such acquisition does
not result, directly or indirectly, in a "going private transaction"
within the meaning of the Exchange Act; or
(2) the Company merges or consolidates with or into any other person, any
merger of another person into the Company, or the Company conveys, sells,
transfers or leases all or substantially all of its assets to another
person, other than any such transaction:
o that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of the Company's capital stock, and
pursuant to which the holders of Class A Common Shares immediately
prior to such transaction are entitled to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of
capital stock entitled to vote generally in the election of directors
of the continuing or surviving corporation immediately after such
transaction, or
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o which is effected solely to change the Company's jurisdiction of
incorporation and results in a reclassification, conversion or exchange
of its outstanding Class A Common Shares solely into common shares of
the surviving entity.
However, a Change in Control will not be deemed to have occurred if either (A)
the closing price per share of Class A Common Shares for any five trading days
within the period of 10 consecutive trading days ending immediately after the
later of the Change in Control or the public announcement of the Change in
Control, in the case of a Change in Control relating to an acquisition of
capital stock, or the period of 10 consecutive trading days ending immediately
before the Change in Control, in the case of Change in Control relating to a
merger, consolidation or asset sale, equals or exceeds 105% of the conversion
price of the Notes in effect on each of those trading days or (B) all of the
consideration (excluding cash payments for fractional shares and cash payments
made pursuant to dissenters' appraisal rights) in a merger or consolidation
otherwise constituting a Change in Control under clause (1) and/or clause (2)
above consists of shares of common stock traded on a national securities
exchange or quoted on The Nasdaq National Market (or will be so traded or quoted
immediately following such merger or consolidation) and as a result of such
merger or consolidation the Notes become convertible into such Class A Common
Shares.
For purposes of these provisions:
o the conversion price is equal to $1,000 divided by the conversion rate;
o whether a person is a "beneficial owner" will be determined in accordance
with Rule 13d-3 under the Exchange Act; and
o "person" includes any syndicate or group that would be deemed to be a
"person" under Section 13 (d)(3) of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of prescribed
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to you. The
Company will comply with this rule to the extent it applies at that time.
The definition of Change in Control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of its assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, your ability to require
the Company to repurchase your Notes as a result of conveyance, transfer, sale,
lease or other disposition of less than all of its assets may be uncertain.
The foregoing provisions would not necessarily provide you with protection if
the Company is involved in a highly leveraged or other transaction that may
adversely affect you.
Its ability to repurchase Notes upon the occurrence of a Change in Control is
subject to important limitations. Some of the events constituting a Change in
Control could result in or cause an event of default under, or be prohibited or
limited by, the terms of its Senior Indebtedness. As a result, unless the
Company were to obtain a waiver, a repurchase of the Notes could be prohibited
under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. Although the Company has the right to repurchase
the Notes with Class A Common Shares, subject to certain conditions, the Company
cannot assure you that the Company would have the financial resources, or would
be able to arrange financing, to pay the repurchase price in cash for all the
Notes that might be delivered by holders of Notes seeking to exercise the
repurchase right. If the Company were to fail to repurchase the
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Notes when required following a Change in Control, an Event of Default under the
Indenture would occur, whether or not such repurchase were permitted by the
subordination provisions of the Indenture. Any such default may, in turn, cause
a default under the Company's Senior Indebtedness. See "-- Subordination" at
page 21.
MERGERS AND SALES OF ASSETS
The Company may not consolidate with or merge into any other person or convey,
transfer, sell or lease its properties and assets substantially as an entirety
to any person unless:
o the person formed by such consolidation or into or with which the Company
is merged or the person to which its properties and assets are so conveyed,
transferred, sold or leased, shall be a corporation, limited liability
company, partnership or trust organized and existing under the laws of the
United States, any State within the United States or the District of
Columbia and, if the Company is not the surviving person, the surviving
person assumes the payment of the principal of, premium, if any, and
interest on the Notes and the performance of its other covenants under the
Indenture; and
o immediately after giving effect to the transaction, no Event of Default,
and no event that, after notice or lapse of time or both, would become an
Event of Default, will have occurred and be continuing.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
o the Company fails to pay principal of or premium, if any, on any Note when
due, whether or not prohibited by the subordination provisions of the
Indenture;
o the Company fails to pay any interest on any Note when due, which failure
continues for 30 days, whether or not prohibited by the subordination
provisions of the Indenture;
o the Company fails to provide notice of a Change in Control, whether or not
such notice is prohibited by the subordination provisions of the Indenture;
o the Company fails to perform any other covenant in the Indenture, which
failure continues for 60 days after written notice as provided in the
Indenture;
o any indebtedness under any bonds, debentures, notes or other evidences of
indebtedness for money borrowed (or any guarantee thereof) by the Company
in an aggregate principal amount in excess of $20,000,000 is not paid when
due either at its stated maturity or upon acceleration thereof, and such
indebtedness is not discharged, or such acceleration is not rescinded or
annulled, within a period of 60 days after notice as provided in the
Indenture; and
o certain events of bankruptcy, insolvency or reorganization involving the
Company.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any holder, unless the holder shall have offered
reasonable indemnity to the Trustee. Subject to providing indemnification of the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
If an Event of Default other than an Event of Default arising from events of
insolvency, bankruptcy or reorganization with respect to the Company occurs and
is continuing, either the Trustee or the holders of at least 25% in principal
amount of the outstanding Notes may, subject to the subordination provisions of
the Indenture, accelerate the maturity
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of all Notes. However, after such acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
of outstanding Notes may, under certain circumstances, rescind and annul the
acceleration if all Events of Default, other than the non-payment of principal
of the Notes which have become due solely by such declaration of acceleration,
have been cured or waived as provided in the Indenture. If an Event of Default
arising from events of insolvency, bankruptcy or reorganization with respect to
the Company occurs, then the principal of, and accrued interest on, all the
Notes will automatically become immediately due and payable without any
declaration or other act on the part of the holders of the Notes or the Trustee.
For information as to waiver of defaults, see "-- Meetings, Modification and
Waiver" at page 27.
You will not have any right to institute any proceeding with respect to the
Indenture, or for any remedy under the Indenture, unless you give the Trustee
written notice of a continuing Event of Default and the holders of at least 25%
in aggregate principal amount of the outstanding Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute
proceedings, and the Trustee has not received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with the written request and shall have failed to institute such proceeding
within 60 days. However, these limitations do not apply to a suit instituted by
you for the enforcement of payment of the principal of, premium, if any, or
interest on your Note on or after the respective due dates expressed in your
Note or your right to convert your Note in accordance with the Indenture.
The Company will be required to furnish to the Trustee annually a statement as
to its performance of certain of its obligations under the Indenture and as to
any default in such performance.
MEETINGS, MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the holders of Notes
to consider matters affecting their interests.
Certain limited modifications of the Indenture may be made without the necessity
of obtaining the consent of the holders of the Notes. Other modifications and
amendments of the Indenture may be made, and certain past defaults by the
Company may be waived, either (i) with the written consent of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding or (ii) by the adoption of a resolution, at a meeting of holders of
the Notes at which a quorum is present, by the holders of at least 66 2/3% in
aggregate principal amount of the Notes represented at such meeting. The quorum
at any meeting called to adopt a resolution will be persons holding or
representing a majority in aggregate principal amount of the Notes at the time
outstanding and, at any reconvened meeting adjourned for lack of a quorum, 25%
of such aggregate principal amount.
However, a modification or amendment requires the consent of the holder of each
outstanding Note affected if it would:
o change the stated maturity of the principal or interest of a Note;
o reduce the principal amount of, or any premium or interest on, any Note;
o reduce the amount payable upon a redemption or mandatory repurchase;
o modify the provisions with respect to the repurchase rights of holders of
Notes in a manner adverse to the holders;
o change the place or currency of payment on a Note;
o impair the right to institute suit for the enforcement of any payment on
any Note;
o modify the obligation to maintain an office or agency in New York City;
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o modify the subordination provisions in a manner that is adverse to the
holders of the Notes;
o adversely affect the right to convert the Notes;
o modify the Company's obligation to deliver information required under Rule
144A to permit resales of the Notes and Class A Common Shares issued upon
conversion of the Notes if the Company cease to be subject to the reporting
requirements under the Exchange Act;
o reduce the above-stated percentage of the principal amount of the holders
whose consent is needed to modify or amend the Indenture;
o reduce the percentage of the principal amount of the holders whose consent
is needed to waive compliance with certain provisions of the Indenture or
to waive certain defaults; or
o reduce the percentage required for the adoption of a resolution or the
quorum required at any meeting of holders of Notes at which a resolution is
adopted.
The holders either through written consent of a majority in aggregate principal
amount of the outstanding Notes or by the adoption of a resolution, at a meeting
of holders of the outstanding Notes at which a quorum is present, by the holders
of at least 66 2/3% in aggregate principal amount of Notes represented at such
meeting may waive any past default under the Indenture, except a default in the
payment of principal, premium, if any, or interest which has not been cured or
in respect of a provision which cannot be modified or amended without the
consent of all the holders affected.
NOTICE TO INVESTOR
Notice to holders of the registered Notes will be given by mail to the addresses
as they appear in the security register. Such notices will be deemed to have
been given on the date of such mailing. Notice of a redemption of Notes will be
given not less than 30 nor more than 60 days prior to the redemption date and
will specify the redemption date. A notice of redemption of the Notes will be
irrevocable.
REPLACEMENT OF NOTES
The Company will replace any Note that becomes mutilated, destroyed, stolen or
lost at the expense of the holder upon delivery to the Trustee of the mutilated
Notes or evidence of the loss, theft or destruction satisfactory to the Company
and the Trustee. In the case of a lost, stolen or destroyed Note, indemnity
satisfactory to the Trustee and the Company may be required at the expense of
the holder of the note before a replacement note will be issued.
PAYMENT OF STAMP AND OTHER TAXES
The Company will pay all stamp and other duties, if any, which may be imposed by
the United States or any political subdivision thereof or taxing authority
thereof or therein with respect to the issuance of the Notes. The Company will
not be required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority thereof or therein.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with the
laws of the State of New York, United States of America.
THE TRUSTEE
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If an Event of Default occurs and is continuing, the Trustee will be required to
use the degree of care of a prudent person in the conduct of his own affairs in
the exercise of its powers. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of Notes, unless they shall have offered to
the Trustee reasonable security or indemnity.
DESCRIPTION OF CAPITAL STOCK
The Company, an Ohio corporation, has authorized capital stock consisting of
203,432,968 common shares, classified as 187,600,000 Class A Common Shares, par
value $1.00 per share, and 15,832,968 Class B common shares, par value $1.00 per
share. As of _______________ ____, 2001, __________ Class A Common Shares were
issued and outstanding and held by approximately ______ holders of record and
individual participants in security position listings. These shares are
currently listed on the New York Stock Exchange under the ticker symbol "AM."
Each Class A Common Share is entitled to one vote on all matters presented to
shareholders. Holders of Class A Common Shares have no pre-emptive rights to
purchase or have offered to them for purchase any stock of any class of the
Company, and the Class A Common Shares are neither redeemable nor convertible
into any other securities.
At _______________ ____, 2001, ___________ Class B Common Shares were issued and
outstanding and held by approximately ____ holders of record and individual
participants in security position listings. There is no public trading market
for the Class B Common Shares, which are held by members of the founder's
extended family, officers and directors of the Company and their extended family
members, family trusts, institutional investors and certain other persons. Each
Class B Common Share is entitled to ten votes on all matters presented to
shareholders and is convertible at the option of the holder to one Class A
Common Share; provided, however, that the holder must first tender the share to
the Company pursuant to its right to repurchase the share at the then-market
value for the Class A Common Shares. Class B Common Shares may only be
transferred by the holder to the company or certain permitted transferees, a
group which generally includes members of the holder's extended family, family
trusts and certain charities. Certain Class B Common Shares are subject to a
Shareholders' Agreement, dated November 19, 1984, which provides that
shareholders who are parties thereto will offer Class B Common Shares to the
other signatory shareholders and then to the Company before transferring Class B
Common Shares outside of a group consisting of certain family members, family
trusts, charities and the Company. The Shareholders' Agreement terminates on
December 31, 2014, unless extended. Subject to the restrictions below, the
Company may issue or transfer Class B Common Shares to any person, including
pursuant to its employee and dividend reinvestment plans. The Company may not
issue additional Class B Common Shares, unless at the same time it also issues
Class A Common Shares in an amount sufficient to prevent any reduction in the
then existing relative voting power of the holders of Class A Common Shares and
reserves a sufficient number of additional authorized but unissued Class A
Common Shares for issuance on conversion of the newly issued Class B Common
Shares. This limitation does not apply to issuances of Class B Common Shares
held in treasury. Each holder of Class B Common Shares has a pre- emptive right
to purchase any Class B Common Shares (other than treasury shares) offered by
the company for cash, in proportion to his respective holdings of all Class B
Common Shares.
Any proposal to amend the Company's Articles of Incorporation to increase the
authorized number of Class A Common Shares or Class B Common Shares requires the
approval of at least two-thirds of the then outstanding shares of each class,
voting separately as a class.
Generally, in all other respects Class A Common Shares and Class B Common Shares
are identical and have similar rights, privileges, qualifications, limitations
and restrictions. Management may not declare a share dividend, split or
combination with respect to either class of its capital stock, unless a
corresponding action is taken with respect to the other class. Holders of each
class are entitled to receive ratably such dividends as may be declared by the
Company's board of directors out of funds legally available therefor. Upon
liquidation, dissolution or winding up of the Company, a holder of shares of
either class of its capital stock is entitled to share ratably in the entire net
assets of the Company, after payment in full of all liabilities of the Company.
All outstanding shares are fully paid and nonassessable.
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The Ohio Control Share Acquisition Act and the Ohio Merger Moratorium Act, which
are applicable to the Company as an Ohio corporation, may have the effect of
delaying, deferring or preventing any takeover attempt or change in control.
The board of directors is classified into three classes consisting of not less
than three directors each, with one class being elected each year. These
provisions regarding directors may be amended only by holders entitled to vote
at least two-thirds of the voting power of the Company on such matter. Under
certain circumstances, including adequate notice to the Company in advance of a
shareholders' meeting to vote for the election of directors, a holder of either
class of the Company's capital stock may cause cumulative voting in such
election of directors to be invoked. These provisions may also have the effect
of delaying, deferring or preventing a takeover attempt or change in control.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes certain material U.S. federal income tax considerations
relating to the purchase, ownership and disposition of the Notes and the Class A
Common Shares into which the Notes may be converted. This summary is based on
existing legal authorities, including the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury Regulations and judicial
decisions and administrative interpretations, as of the date hereof, all of
which are subject to change, possibly with retroactive effect. There can be no
assurance that the Internal Revenue Service (the "IRS") will not challenge one
or more of the tax results described herein, and the Company has not obtained,
nor does the Company intend to obtain, a ruling from the IRS with respect to the
U.S. federal tax consequences described below. This summary generally applies
only to holders that purchase or hold Notes (and the Class A Common Shares into
which the Notes may be converted) as "capital assets" (generally, property held
for investment). Furthermore, this summary generally applies only to holders who
are beneficial owners of Notes or Class A Common Shares acquired by conversion
of the Notes and are (i) citizens or residents of the United States, (ii)
corporations (or any other entity treated as a corporation for U.S. federal
income tax purposes) organized under the laws of the United States or any state,
(iii) estates, the income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a trust, if its administration is subject to
the primary supervision of a U.S. court and one or more U.S. persons have the
authority to control all substantial decisions of the trust. Income earned
through a foreign or domestic partnership is subject to special rules that are
generally not discussed here. This discussion does not purport to address all
tax considerations that may be important to a particular holder in light of the
holder's circumstances, such as the alternative minimum tax provisions of the
Code, or to certain categories of investors that may be subject to special
rules, such as certain financial institutions, tax-exempt organizations, banks,
dealers in securities, persons who hold Notes or Class A Common Shares as part
of a hedge, conversion or constructive sale transaction, straddle or other risk
reduction transaction or persons who have ceased to be U.S. citizens or taxed as
resident aliens. Finally, this summary does not describe any tax considerations
arising under the laws of any applicable foreign, state or local jurisdiction.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FEDERAL ESTATE OR GIFT TAX LAWS,
FOREIGN, STATE OR LOCAL LAWS AND TAX TREATIES.
HOLDERS
INTEREST ON NOTES
A holder will be required to recognize as ordinary income any interest paid or
accrued on the Notes, in accordance with the holder's regular method of
accounting for U.S. federal income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF NOTES
A holder will generally recognize capital gain or loss if the holder disposes of
a Note in a sale, redemption or exchange other than a conversion of the Note
into Class A Common Shares. The holder's gain or loss will equal the difference
between the proceeds received by the holder, excluding any proceeds that are
attributable to accrued interest which will be recognized as ordinary interest
income to the extent that the holder has not previously included the
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accrued interest in income, and the holder's adjusted tax basis in the Note. The
proceeds received by the holder will include the amount of any cash and the fair
market value of any other property received for the Note. The holder's tax basis
in the Note will generally equal the amount the holder paid for the Note. The
gain or loss will be long-term capital gain or loss if the holder held the
convertible Note for more than one year. Long-term capital gains of individuals,
estates and trusts are generally taxed at a maximum rate of 20%. The
deductibility of capital losses may be subject to limitation.
ADJUSTMENT OF CONVERSION RATE
The terms of the Notes allow for changes in the conversion rate of the Notes in
certain circumstances. A change in conversion rate that allows holders to
receive more Class A Common Shares on conversion may result in a taxable
dividend to holders, although they would not actually receive any cash or other
property. A taxable dividend may result, for example, if the conversion rate is
adjusted to compensate holders for distributions of cash or other property to
its stockholders. However, not all changes in the conversion rate that allow
holders to receive more stock on conversion will result in a taxable dividend to
holders. For instance, a change in the conversion rate may occur in order to
prevent the dilution of the holders' interests upon a stock split or other
change in capital structure. Changes of this type, if made by a bona fide,
reasonable adjustment formula, are not treated as taxable dividends.
CONVERSION OF NOTES
A holder generally will not recognize any income, gain or loss on converting a
Note into Class A Common Shares. If a holder receives cash in lieu of a
fractional share of stock, however, the holder will be treated as if the holder
received the fractional share and then had the fractional share redeemed for the
cash. The holder would recognize gain or loss equal to the difference between
the cash received and that portion of the holder's basis in the stock
attributable to the fractional share. The holder's aggregate basis in the Class
A Common Shares will equal the holder's adjusted basis in the corresponding Note
(increased by any cash paid by such holder at the time of such conversion, which
will generally be paid as interest), less any portion allocable to any
fractional share. The holder's holding period for the stock will include the
holding period for the corresponding Note.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL USING CLASS A COMMON SHARES
If a holder exercises its right to require the Company to repurchase a Note upon
a change of control, the Company may, in lieu of paying the repurchase price in
cash, use Class A Common Shares to repurchase the Note if certain conditions are
met. In the event the Company elects to use stock (rather than cash) to
repurchase the Note, the U.S. federal income tax treatment of the receipt of the
stock to the holder will depend upon whether the Notes are "securities" within
the meaning of the Code provisions relating to tax-free reorganizations. If the
Notes are "securities," the repurchase of the Note with stock should qualify as
a tax-free recapitalization. If, on the other hand, the Notes are not
"securities" within the meaning of such provisions, the repurchase of the Note
with the stock will be a fully taxable transaction. The test as to whether a
debt instrument is a "security" is based on a number of facts and circumstances
that involves an overall evaluation of the nature of the debt instrument, with
the term of the debt instrument usually regarded as one of the most significant
factors. Debt instruments with a term of five years or less generally have not
qualified as "securities" whereas debt instruments with a term of ten years or
more generally have qualified as "securities."
Based on the foregoing, although not free from doubt, in the event the Company
uses stock to repurchase the Note of a holder, the Company believes that the
transaction would not qualify as a tax-free recapitalization and, accordingly,
the holder should recognize gain or loss on the repurchase of Notes using Class
A Common Shares in an amount equal to the fair market value of the Class A
Common Shares and any cash received in the repurchase minus such holder's
adjusted tax basis in the surrendered Notes. Any such gain or loss generally
will be capital gain or loss, and will be long-term capital gain or loss if the
Notes have been held for more than one year. The deductibility of capital losses
is subject to limitations. Holders must recognize ordinary interest income to
the extent any Class A Common Shares or cash received is attributable to any
interest accrued on Notes repurchased, to the
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extent such interest has not been included in the income of the holder. A
holder's initial tax basis in the Class A Common Shares received would be equal
to its fair market value on the exchange date, and the holding period for the
Class A Common Shares would begin on the day immediately after the exchange
date.
If, on the other hand, the repurchase of the Note with the Class A Common Shares
qualifies as a tax-free recapitalization, a holder will not recognize any gain
or loss, except to the extent the Class A Common Shares is attributable to
accrued interest on the Notes, which will be recognized as ordinary interest
income to the extent the holder has not previously included the accrued interest
in income. A holder's tax basis in shares of Class A Common Shares attributable
to accrued interest generally will equal the amount of such accrued interest
included in income and the holding period of such Class A Common Shares will
begin on the day following the exchange date.
BECAUSE THE DETERMINATION OF WHETHER THE NOTES CONSTITUTE SECURITIES UNDER THE
CODE PROVISIONS REGARDING TAX- FREE REORGANIZATIONS IS UNCLEAR, HOLDERS SHOULD
CONSULT THEIR TAX ADVISERS CONCERNING THE APPROPRIATE TAX TREATMENT OF A
REPURCHASE OF NOTES USING CLASS A COMMON SHARES PURSUANT TO A CHANGE IN CONTROL.
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DIVIDENDS ON CLASS A COMMON SHARES
If, after a holder converts a Note into Class A Common Shares, the Company makes
a distribution of cash or other property (other than a pro rata distribution of
its common stock) in respect of that stock, the distribution will be treated as
a dividend, taxable to the holder as ordinary income, to the extent it is paid
from its current or accumulated earnings and profits. If the distribution
exceeds the Company's current and accumulated earnings and profits, the excess
will be treated first as a tax- free return of the holder's investment, up to
the holder's basis in Class A Common Shares. Any remaining excess will be
treated as capital gain. If the holder is a corporation, it may be able to claim
a deduction for a portion of any distribution received that is considered a
dividend.
SALE OR EXCHANGE OF COMMON SHARES
A holder will generally recognize capital gain or loss on a sale or exchange of
Class A Common Shares. The holder's gain or loss will equal the difference
between the proceeds received by the holder and the holder's adjusted tax basis
in the stock. The proceeds received by the holder will include the amount of any
cash and the fair market value of any other property received for the stock. The
gain or loss will be long-term capital gain or loss if the holder's holding
period for the stock (taking into account the holder's holding period for the
corresponding Note) is more than one year. Long-term capital gains of
individuals, estates and trusts are generally taxed at a maximum rate of 20%.
The deductibility of capital losses may be subject to limitation.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting and backup withholding may apply to payments of principal
and interest on a Note, dividends on Class A Common Shares or the proceeds from
the sale or other disposition of a Note or Class A Common Shares with respect to
certain noncorporate holders. Such holders generally will be subject to backup
withholding unless the holder provides to the payor a correct taxpayer
identification number and certain other information, certified under penalties
of perjury, or otherwise establishes an exemption. Any amount withheld under the
backup withholding rules may be credited against the holder's federal income tax
liability and any excess may be refundable if the proper information is provided
to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF ITS
NOTES OR CLASS A COMMON SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED
CHANGE IN APPLICABLE LAWS.
SELLING HOLDERS
The Company initially issued the Notes to Goldman, Sachs & Co., NatCity
Investments, Inc. and McDonald Investments Inc., the initial purchasers, who
then sold the Notes in transactions exempt from the registration requirements of
the Securities Act to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act), to institutional "accredited investors" (as defined
in Rule 501 under the Securities Act) in compliance with Regulation D under the
Securities Act and to non-U.S. persons outside the U.S. in compliance with
Regulation S. The selling holders (which term includes their transferees,
pledgees, donees or their successors) may from time to time offer and sell
pursuant to this prospectus or a prospectus supplement any or all of the Notes
and Class A Common Shares issuable upon conversion of the Notes.
No offer or sale under this prospectus may be made by a holder of the securities
unless that holder is listed in the table in this prospectus or until that
holder has notified the Company and a supplement to this prospectus has been
filed or an amendment to the registration statement of which this prospectus is
a part has become effective. The Company will supplement or amend this
prospectus to include additional selling holders upon request and upon provision
of all required information to the Company. Information concerning the selling
holders may change from time to time and any changed information will be set
forth in supplements to this prospectus if and when necessary.
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The following table sets forth information, as of _______________ __, 2001,
about each selling holder, including the name, the number and percentage of the
Notes beneficially owned and being offered by the selling holder and the number
and percentage of Class A Common Shares beneficially owned and being offered by
the selling holder. This information is based on information provided by or on
behalf of the selling holders. The selling holders may offer all, some or none
of the Notes or Class A Common Shares into which the Notes are convertible.
Because the selling holders may offer all or some portion of the Notes or Class
A Common Shares, the Company cannot estimate the amount of the Notes or Class A
Common Shares that will be held by the selling holders upon termination of any
sales. In addition, the selling holders identified below may have sold,
transferred or otherwise disposed of all or a portion of their Notes since the
date on which they provided the information regarding their Notes, in
transactions exempt from the registration requirements of the Securities Act.
Unless otherwise indicated below, none of the selling holders nor any of their
affiliates, officers, directors or principal entity holders has held any
position or office or has had any material relationship with the Company within
the past three years.
[INSERT TABLE]
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PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees, pledgees
or donees or their successors, may sell Notes and Class A Common Shares into
which the Notes are convertible directly to purchasers or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions from the selling holders or the purchasers. These
discounts, concessions or commissions as to any particular underwriter,
broker-dealer or agent may be in excess of those customary in the types of
transactions involved. The Notes and Class A Common Shares may be sold in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market prices, at varying prices
determined at the time of sale or at negotiated prices. These sales may be
effected in transactions, which may involve crosses or block transactions:
o on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the Notes or its common
stock may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
o through the writing of options, whether the options are listed on an
options exchange or otherwise; or
o through the settlement of short sales.
In connection with the sale of Notes and Class A Common Shares, the selling
holders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the Notes or
Shares in the course of hedging the positions they assume. The selling holders
may also sell the Notes or Class A Common Shares short and deliver these
securities to close out their short positions, or loan or pledge the Notes or
Class A Common Shares to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the Notes or
Class A Common Shares offered by them will be the purchase price of the Notes or
Class A Common Shares less discounts and commissions, if any. Each of the
selling holders reserves the right to accept and, together with their agents
from time to time, to reject, in whole or in part, any proposed purchase of
Notes or Class A Common Shares to be made directly or through agents. The
Company will not receive any of the proceeds of this offering. The Class A
Common Shares are quoted on the New York Stock Exchange under the trading symbol
"AM." The Notes are currently designated for trading on the PORTAL Market of the
NASD. In order to comply with the securities laws of some states, if applicable,
Notes and Class A Common Shares may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states Notes and
Class A Common Shares may not be sold unless they have been registered or
qualified for sale or an exemption from registration or qualification
requirements is available and is complied with. The selling holders and any
underwriters, broker-dealers or agents that participate in the sale of the Notes
and Class A Common Shares may be "underwriters" within the meaning of Section
2(11) of the Securities Act. Any discounts, commissions, concessions or profit
they earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling holders who are "underwriters"
within the meaning of Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M.
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LEGAL MATTERS
The legality of the Notes and the Class A Common Shares has been passed on for
the Company by Brouse McDowell, Akron, Ohio.
EXPERTS
The consolidated financial statements and schedule of American Greetings
Corporation, appearing in American Greetings Corporation's Annual Report (Form
10-K) for the fiscal year ended February 28, 2001, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon, included
therein and incorporated herein by reference. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
36
39
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses payable by the registrant
in connection with the issuance and distribution of the Notes and the Class A
Common Shares, and do not include fees and expenses incurred in connection with
the initial issuance of the Notes in the private sale on June 29, 2001. All the
amounts shown are estimates, except for the Commission registration fee which is
the actual amount paid in connection with the registration of the $175,000,000
principal amount of Notes being registered under this Registration Statement.
Securities and Exchange Commission registration fee $ 43,750
Accounting fees and expenses ..................................... *
Printing fees and expenses ........................................ *
Legal fees and expenses ........................................... *
Miscellaneous...................................................... *
Total.................................................... $ *
===========
To be completed by amendment
Item 15. Indemnification of Directors And Officers.
Section 1701.13(E) of the Ohio Revised Code authorizes the indemnification of
officers and directors in defense of any civil, criminal, administrative or
investigative proceeding. Article IV of the Regulations of the company provides
for indemnification in terms consistent with the statutory authority, and the
company maintains insurance covering certain liabilities of the directors and
the elected and appointed officers of the company and its subsidiaries,
including liabilities under the Securities Act.
Item 16. Exhibits.
See the Exhibit Index at page E-1 of this Registration
Statement.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement; notwithstanding the foregoing, any
increase or decrease in volume of securities
offered (if the total dollar value of
securities offered would not exceed that
which was registered) and any deviation from
the low or high end of the estimated maximum
offering range May be reflected in the form
of prospectus filed with the Commission
pursuant to 424(b) if, in the aggregate, the
changes in volume and price represent no more
than 20 percent change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in
the effective Registration Statement.
II-1
40
(iii) to include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Security Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 May be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of the registrant in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act of 1939 in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
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41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Cleveland and State of Ohio, as of the 28th day of
August, 2001.
AMERICAN GREETINGS CORPORATION
By: ____________________________
Jon Groetzinger, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on August 28, 2001.
SIGNATURE TITLE
/s/Morry Weiss Chairman of the Board; Chief Executive Officer;
-------------- Director (principal executive officer)
Morry Weiss
/s/James C. Spira President; Chief Operating Officer; Director
-----------------
James C. Spira
/s/Scott B. Cowen Director
-----------------
Scott S. Cowen
/s/Stephen R. Hardis Director
--------------------
Stephen R. Hardis
/s/Jack Kahl Director
------------
Jack Kahl
/s/Harriet Mouchly-Weiss Director
------------------------
Harriet Mouchly-Weiss
/s/Charles A. Ratner Director
--------------------
Charles A. Ratner
/S/Harry H. Stone Director
-----------------
Harry H. Stone
/s/Jerry Sue Thornton Director
---------------------
Jerry Sue Thornton
/s/William S. Meyer Senior Vice President; Chief Financial Officer
-------------------- (principal financial officer)
William S. Meyer
/s/Joseph B. Cipollone Vice President; Corporate Controller (principal
---------------------- accounting officer)
Joseph B. Cipollone
42
AMERICAN GREETINGS CORPORATION
EXHIBIT INDEX
EXHIBIT DOCUMENT NAME
NUMBER
4.1 Indenture dated as of June 29, 2001 between the registrant, as issuer, and National City Bank,
as Trustee, with respect to the registrant's 7.00% Convertible Subordinated Notes due July 15,
2006
4.2 Form of the registrant's 7.00% Convertible Subordinated Notes due July 15, 2006 (included in
Exhibit 4.1)
4.3 Form of Class A Common Shares certificate, incorporated by reference to Exhibit 4(c) to the
Company's registration statement No. 33-39726 on Form S-3, filed with the Commission on May
6, 1991
5 Opinion of Brouse McDowell, A Legal Professional Association, as to the validity of the Notes
and the Class A Common Shares
12 Statement re Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Independent Auditors
23.2 Consent of Brouse McDowell (included in Exhibit 5.1)
24 Power of Attorney
25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
E-1