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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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EGREETINGS NETWORK, INC.
(NAME OF SUBJECT COMPANY)
EGREETINGS NETWORK, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
282343102
(CUSIP NUMBER OF CLASS OF SECURITIES)
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EGREETINGS NETWORK, INC.
ANDREW J. MOLEY
149 NEW MONTGOMERY STREET
SAN FRANCISCO, CA 94105
(415) 375-4100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
KENNETH GUERNSEY, ESQ.,
JAMIE CHUNG, ESQ.
COOLEY GODWARD LLP
ONE MARITIME PLAZA
SAN FRANCISCO, CA 94111
(415) 693-2000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION
The name of the subject company is Egreetings Network, Inc., a Delaware
corporation ("Egreetings"). The address of the principal executive offices of
Egreetings is 149 New Montgomery Street, San Francisco, California 94105. The
telephone number of Egreetings' principal executive office is (415) 375-4100 and
its Website is located at www.egreetings.com.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Statement")
relates is the common stock, par value $0.001 per share of Egreetings (the
"Common Stock"). As of January 31, 2001, there were 33,007,900 shares of Common
Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSONS
Egreetings is the filing person, and its name, business address and
business telephone number are set forth in Item 1 above.
This Statement relates to the tender offer by American Pie Acquisition
Corp. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of
AmericanGreetings.com, Inc., a Delaware corporation ("AmericanGreetings.com"),
to purchase all of the outstanding shares of Common Stock (the "Shares"), at a
purchase price of $0.85 per Share, net to the seller in cash, without interest
(the "Per Share Amount"), on the terms and subject to the conditions set forth
in the Purchaser's Offer To Purchase, dated February 12, 2001 (the "Offer To
Purchase") and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer"). As of
the date of the Offer To Purchase, AmericanGreetings.com and the Purchaser may
be deemed to beneficially own the 6,841,074 shares of Egreetings Common Stock
(or approximately 21% of the outstanding Shares) held by an affiliate, Gibson
Greetings, Inc., a Delaware corporation ("Gibson"). The Offer is described in a
Tender Offer Statement on Schedule TO (as amended or supplemented from time to
time, the "Schedule TO"), filed by AmericanGreetings.com and the Purchaser with
the Securities and Exchange Commission (the "Commission") on February 12, 2001.
A copy of the Offer To Purchase has been filed as Exhibit (a)(4) hereto and is
incorporated herein by reference. Copies of the Offer To Purchase and the Letter
of Transmittal are being furnished to Egreetings' stockholders concurrently with
this Statement.
The Offer is being made in accordance with the Agreement and Plan of
Merger, dated as of February 5, 2001, among AmericanGreetings.com, the Purchaser
and Egreetings (the "Merger Agreement"). The Merger Agreement provides, among
other things, for the commencement of the Offer by the Purchaser and further
provides that after the purchase of Shares pursuant to the Offer, subject to the
satisfaction or waiver of certain conditions, the Purchaser will be merged with
and into Egreetings (the "Merger"), with Egreetings surviving the Merger as a
wholly owned subsidiary of AmericanGreetings.com (the "Surviving Corporation").
In the Merger, each Share (excluding Shares owned by stockholders who have
properly exercised their dissenters' rights under Delaware law, Shares held in
the treasury of Egreetings and Shares owned by AmericanGreetings.com and its
subsidiaries) issued and outstanding immediately prior to the effective time of
the Merger (the "Effective Time") will be converted at the Effective Time into
the right to receive the Per Share Amount (or any greater amount paid for Shares
pursuant to the Offer), in cash payable to the holder thereof, without interest,
prorated for fractional Shares and less any required withholding taxes and, in
certain circumstances, stock transfer taxes (the "Merger Consideration").
As set forth in the Schedule TO, the principal offices of the Purchaser and
AmericanGreetings.com are located at Three American Road, Cleveland, Ohio 44144.
All information in this Schedule 14D-9 or incorporated by reference herein
concerning the Purchaser, AmericanGreetings.com or their respective affiliates,
or actions or events with respect of any of them, was provided by the Purchaser
or AmericanGreetings.com, and Egreetings assumes no responsibility therefor.
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ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Certain contracts, agreements, arrangements or understandings between
Egreetings or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Rule 14f-1 (the "Information Statement") under the Securities Exchange Act of
1934, as amended, that is attached as Annex B to this Statement and is
incorporated herein by reference. Except as described in this Statement
(including the Exhibits hereto and in Annex B hereto) or incorporated herein by
reference, to the knowledge of Egreetings, as of the date of this Statement,
there exists no material agreement, arrangement or understanding or any actual
or potential conflict of interest between Egreetings or its affiliates and (1)
Egreetings' executive officers, directors or affiliates or (2)
AmericanGreetings.com, the Purchaser or their respective executive officers,
directors or affiliates.
In considering the recommendation of the Board of Directors set forth in
Item 4 below, Egreetings' stockholders should be aware that certain members of
its management and certain members of its Board of Directors have interests in
the Offer and Merger, which are described herein and in Annex B hereto and which
may present them with certain conflicts of interest. The Board of Directors is
aware of these potential conflicts and considered them along with other factors
described in Item 4 below.
THE MERGER AGREEMENT
The summary of the Merger Agreement and the description of the conditions
of the Offer contained in Sections 11 and 13, respectively, of the Offer To
Purchase are incorporated herein by reference. Such summary and description are
qualified in their entirety by reference to the Merger Agreement, which has been
filed as Exhibit (e)(1) hereto and is incorporated herein by reference. Such
summary may not contain all the information that is important to you.
Accordingly, you should read the Merger Agreement in its entirety for a more
complete description of the material summarized in the Offer To Purchase.
THE TENDER AND VOTING AGREEMENT
The summary of the Tender and Voting Agreement, contained in Section 11 of
the Offer To Purchase is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Tender and Voting Agreement, which
has been filed as Exhibit (e)(3) hereto and is incorporated herein by reference.
Such summary may not contain all the information that is important to you.
Accordingly, you should read the Tender and Voting Agreement in its entirety for
a more complete description of the material summarized in the Offer To Purchase.
AGREEMENTS WITH EXECUTIVE OFFICERS
Egreetings entered into Amended and Restated Executive Severance Benefits
Agreements (the "Severance Agreements") as of November 1, 2001 with 12 employees
at the level of Senior Director and above, with varying levels of benefits for
Senior Director and Vice President, and Senior Vice President and Chief
Executive Officer. Payments under the Severance Agreements are triggered upon
the closing of an acquisition of Egreetings and a loss of employment in
connection therewith (the "Double Trigger"). Upon a "Double Trigger" event in
accordance with the terms of the Severance Agreements, (i) Senior Directors and
Vice Presidents receive acceleration of vesting of stock options and
continuation of employee benefits for three months, from the last date of
employment, and (ii) Senior Vice Presidents and the Chief Executive Officer
receive acceleration of vesting of stock options and continuation of benefits
for six months after the last day of employment. The occurrence of the "Double
Trigger" event also requires the payment of three months of base salary to
Senior Directors and Vice Presidents and six months of base salary to Senior
Vice Presidents and the Chief Executive Officer, if terminated in connection
with an acquisition. In addition, the Severance Agreement provides for the
payment of four and 12 months base salary, respectively, for either Senior
Directors and Vice Presidents, or Senior Vice Presidents and the Chief Executive
Officer, as a retention bonus upon continued employment in good standing on
April 30, 2001 ("Retention Bonus"). If an executive is terminated prior to April
30, 2001, the Severance Agreement provides for the payment of the greater amount
of the appropriate salary payment, as well as all employee benefits as described
above. If terminated after the
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April 30, 2001 retention bonus date, executives would potentially receive both
the Retention Bonus as well as salary and benefits payments upon termination of
employment in accordance with the terms of the Severance Agreement. The
Severance Agreements require the execution of a release of all claims against
Egreetings in order to receive payment thereunder. It is expected that all 12
executives of Egreetings will be terminated in connection with this acquisition.
If all 12 executives are terminated prior to April 30, 2001 as expected, the
resulting payments to those executives will be as detailed in the following
table:
OFFICER PAYMENT
------- -------
Andrew Moley................................................ $250,000
Sarah Anderson.............................................. $200,000
Scott Neamand............................................... $185,000
Nancy Levin................................................. $185,000
Don Chaney.................................................. $ 58,333
Kirsten Mellor.............................................. $ 55,000
Elizabeth Derr.............................................. $ 55,000
Don Button.................................................. $ 45,000
Jenny Martin................................................ $ 46,666
Tim Scheele................................................. $ 46,666
Linda Kunwar................................................ $ 41,666
Deva Berman................................................. $ 27,500
In addition, an average of $250 per month per executive will be paid for
the term of extended benefits coverage.
EFFECTS OF THE OFFER AND THE MERGER UNDER EGREETINGS' STOCK PLANS AND AGREEMENTS
BETWEEN EGREETINGS AND ITS DIRECTORS AND EXECUTIVE OFFICERS
Stock Option Plans, Stock Purchase Plan.
Pursuant to the Merger Agreement, Egreetings has agreed to take all actions
necessary to provide that, immediately prior to the Effective Time each of the
following options or rights shall be exercisable by such option holder or right
holder:
- each vested stock option that is then outstanding under Egreetings' 1996
Stock Option Plan;
- each vested or unvested option that is then outstanding under Egreetings'
1999 Equity Incentive Plan and 1999 Non-Employee Directors' Stock Option
Plan and that is held by an option holder whose continuous service with
Egreetings has not been terminated; and
- each right to purchase Shares that is then outstanding under Egreetings'
1999 Employee Stock Purchase Plan;
and that stock options or rights issued pursuant to the 1996 Stock Option Plan,
1999 Equity Incentive Plan, 1999 Non-Employee Directors' Stock Option Plan and
Employee Stock Purchase Plan that have not been exercised prior to the Effective
Time will be cancelled or will terminate in accordance with their terms.
Egreetings has also agreed to use its reasonable best efforts to provide
that, immediately prior to the Effective Time, each then outstanding warrant to
purchase Shares (the "Warrants") shall be acquired by Egreetings for
cancellation for consideration equal to the product of the excess, if any, of
the Per Share Amount over the exercise price and the number of Shares subject to
the Warrants.
Other than Lee Rosenberg, no director or executive officer of Egreetings
will receive any payments as a result of these actions because the exercise
price of Options and Warrants held by such director or executive officer exceeds
the Per Share Amount. Lee Rosenberg, an outside director of Egreetings, has
vested options to purchase a total of 18,000 Shares at an exercise price of
$0.62 per Share.
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If the executive officers and directors of Egreetings tender their Shares
in the Offer, they will be entitled to personally receive, as contemplated in
the Merger Agreement, cash consideration as set forth in the table below:
OWNED DOLLAR AMOUNT OPTIONS TOTAL
NAME SHARES AT OFFER PRICE EXERCISED CASH
---- ------- -------------- --------- --------
Andrew Moley......................... 202,055 $171,747 -- $171,747
Sarah Anderson....................... -- -- -- --
Scott Neamand........................ 20,250 17,212 -- 17,212
Nancy Levin.......................... -- -- -- --
Stewart Alsop........................ -- -- -- --
Brendon Kim.......................... -- -- -- --
Peter Nieh........................... -- -- -- --
Lee Rosenberg........................ 394,378 335,221 18,000 339,361
------- -------- ------- --------
Total...................... 616,683 $524,180 18,000 $528,320
======= ======== ======= ========
Indemnification; Directors' and Officers' Insurance
Pursuant to the Merger Agreement, AmericanGreetings.com has agreed to cause
the Surviving Corporation to indemnify each director, officer, employee,
fiduciary or agent of Egreetings against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement arising out of any matter existing or
occurring at or prior to the Effective Time to the fullest extent permitted by
applicable law. AmericanGreetings.com has also agreed to cause the Surviving
Corporation to maintain policies of directors' and officers' liability insurance
equivalent to the current policies of Egreetings, subject to certain
limitations, for six years after the Effective Time.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, at a meeting held on February 4, 2001, determined
that the terms of the Offer and the Merger are fair to and in the best interests
of the stockholders of Egreetings. All members of the Board were present at this
meeting, at which the Board unanimously approved the Offer and the Merger and
the other transactions contemplated by the Merger Agreement and approved the
Merger Agreement. The Board of Directors recommends that stockholders accept the
Offer, tender their Shares in the Offer and, if required under Delaware law or
Egreetings' Certificate of Incorporate or Bylaws, vote to adopt the Merger
Agreement.
A letter to Egreetings' stockholders communicating the Board of Directors'
recommendation is filed as Exhibit (a)(1) hereto, and is incorporated herein by
reference.
BACKGROUND; REASONS FOR THE BOARD OF DIRECTORS' RECOMMENDATION
Background
As a result of discussions by the Board of Directors and management of
Egreetings with respect to the possible courses of action for Egreetings to
achieve growth in revenue and to maximize stockholder value, in October 1999,
Egreetings engaged Credit Suisse First Boston Corporation ("CSFB") as its
financial advisor.
On November 3, 1999, American Greetings Corporation, an Ohio corporation
and an indirect parent corporation of AmericanGreetings.com, and Gibson publicly
announced that they had entered into an agreement for American Greetings
Corporation to acquire Gibson, which then had a beneficial ownership of
approximately 27.8% of Egreetings. On November 5, 1999, Morry Weiss, a director
of AmericanGreetings.com and Chief Executive Officer of American Greetings
Corporation, contacted Gordon Tucker, then Chief Executive Officer of
Egreetings, to commence discussions regarding a possible combination of the two
companies.
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On November 9, 1999, representatives of Egreetings and
AmericanGreetings.com met at the offices of Egreetings to discuss combination
possibilities. James C. Spira, a director of AmericanGreetings.com, John M.
Klipfell, then Chief Executive Officer of AmericanGreetings.com, and Josef A.
Mandelbaum, then Senior Vice President Sales, Business Development and Strategic
Planning of AmericanGreetings.com, represented AmericanGreetings.com and Mr.
Tucker, Andrew J. Moley, then Chief Financial Officer of Egreetings, and three
directors of Egreetings: Stewart Alsop, Charles A. Holloway and Brendon S. Kim,
represented Egreetings. AmericanGreetings.com and Egreetings entered into a
confidentiality agreement on November 16, 1999.
On November 26, 1999, following further discussions among representatives
of Merrill Lynch, as financial advisor to AmericanGreetings.com, and
representatives of CSFB, Merrill Lynch on behalf of AmericanGreetings.com
proposed a transaction whereby Egreetings stockholders would receive shares of a
class of AmericanGreetings.com common stock in exchange for their then
outstanding Egreetings Common Stock. Thereafter Egreetings and
AmericanGreetings.com had further discussions on the terms of the proposed
transaction, including, among other things, the relative equity interests of the
parties or control of the combined company.
On November 29, 1999, at a telephonic meeting of the Board of Directors of
Egreetings, the Board decided not to proceed with the transaction as proposed by
AmericanGreetings.com and instead to proceed with its initial public offering,
which was completed on December 16, 1999.
On January 12, 2000, Mr. Spira contacted Mr. Alsop to resume discussions
with Egreetings for a potential combination of Egreetings and
AmericanGreetings.com. From January 12, 2000 through March 2000, executives and
the financial advisors of Egreetings and AmericanGreetings.com continued
discussions and conducted due diligence regarding possible transaction
structures, including a proposed transaction with AmericanGreetings.com,
Egreetings and an online media company.
On March 29, 2000, representatives of AmericanGreetings.com, including
Messrs. Weiss, Spira and Mandelbaum, then Chief Executive Officer of
AmericanGreetings.com, and Maureen M. Spooner, Chief Financial Officer of
AmericanGreetings.com, met with representatives of Egreetings, including Mr.
Alsop, Lee Rosenberg, a director of Egreetings, Mr. Tucker and Mr. Moley and a
representative of the online media company at Egreetings' offices in San
Francisco to discuss a potential transaction involving the three companies.
On April 3, 2000, representatives of AmericanGreetings.com, including
Messrs. Weiss and Spira, and representatives of Merrill Lynch, met with
representatives of Egreetings, including Messrs. Alsop and Rosenberg, and
representatives of CSFB in Chicago to continue the discussion regarding a
potential transaction between AmericanGreetings.com and Egreetings.
On April 4, 2000, at a telephonic meeting of the Board of Directors of
Egreetings, the Board reviewed the terms of the proposed transaction with
AmericanGreetings.com and authorized management to continue negotiations with
AmericanGreetings.com.
During the month of April and through May 3, 2000, Egreetings and
AmericanGreetings.com continued discussion of the terms of the proposed
transaction, including the terms of restrictions on American Greetings
Corporation with respect to control of the combined entity and due diligence. On
May 4, 2000, AmericanGreetings.com determined not to continue discussions with
Egreetings on the basis of the terms then under consideration.
On June 2, 2000, Mr. Mandelbaum contacted Mr. Moley to resume discussions
regarding a potential transaction between Egreetings and AmericanGreetings.com
and to discuss potential changes to the transaction structure and the previously
proposed control restrictions on American Greetings Corporation.
On July 17, 2000, Mr. Mandelbaum contacted Mr. Alsop while both were
attending an industry conference in the San Francisco area and reiterated
AmericanGreetings.com interest in a potential transaction with Egreetings.
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In August 2000, Egreetings met with representatives of its financial
advisor and requested that they continue the search for potential strategic
partners for Egreetings. During the period from August 2000 through October
2000, members of senior management of Egreetings held preliminary discussions
and meetings with a number of potential strategic partners.
On October 24, 2000, at a meeting of the Board of Directors of Egreetings,
the Board confirmed its decision to continue to pursue a strategic transaction.
During November 2000 and early December 2000, members of senior management of
Egreetings began discussions with three new potential strategic partners and
received a proposed term sheet from one of the potential acquirors (the
"Potential Acquiror"). In addition, in early November and again in early
December, Messrs. Mandelbaum and Moley held additional discussions regarding a
potential transaction between Egreetings and AmericanGreetings.com, including a
potential cash acquisition by AmericanGreetings.com.
On December 12, 2000, Messrs. Spira and Rosenberg met to discuss a proposed
transaction between Egreetings and AmericanGreetings.com based upon non-cash
terms discussed by Messrs. Mandelbaum and Moley. On December 14, 2000, Mr.
Mandelbaum sent an e-mail to Messrs. Alsop, Kim, Nieh and Rosenberg, all
directors of Egreetings, reiterating AmericanGreetings.com's current non-cash
proposal.
On December 15, 2000, at a meeting of the Board of Directors of Egreetings,
the Board considered four potential transactions, including the most current
proposal from AmericanGreetings.com. The Board authorized the management of
Egreetings to proceed with further negotiations with the Potential Acquiror.
Through early January 2001, Egreetings and the Potential Acquiror held numerous
meetings to discuss the transaction and to conduct due diligence. In early
January 2001, the Potential Acquiror terminated discussions with Egreetings.
In early January 2001, Mr. Alsop had a phone conversation with Mark McNay,
from William Blair & Company, AmericanGreetings.com's financial advisor,
regarding a potential transaction structure that would be acceptable to
Egreetings. On January 22, 2001, Mr. Moley, then Chief Executive Officer and
President of Egreetings, had a further conversation with Mr. McNay during which
they agreed to continue further discussions.
On January 24, 2001, representatives of AmericanGreetings.com, including
Mr. Mandelbaum, Michael Waxman-Lenz, Vice President of Business Development, and
Tammy Martin, General Counsel, met with Mr. Moley and Scott Neamand, Chief
Financial Officer of Egreetings, at the San Francisco office of William Blair &
Company to discuss the potential transaction between AmericanGreetings.com and
Egreetings. Ms. Spooner participated telephonically. Representatives of William
Blair & Company were also present at the meeting. The representatives of
Egreetings provided certain due diligence materials to representatives of
AmericanGreetings.com.
During the next few days, Messrs. Mandelbaum and Moley had telephone
conversations in which they agreed to certain basic terms of a transaction
between Egreetings and AmericanGreetings.com, subject to continuing due
diligence and the negotiation of mutually acceptable definitive agreements.
On January 27, 2001, Jones Day, outside legal counsel to
AmericanGreetings.com, circulated an initial draft of the merger agreement and
tender and voting agreement to Egreetings and Cooley Godward, Egreetings'
outside legal counsel. Between January 27, 2001 and February 5, 2001,
AmericanGreetings.com and its legal counsel, financial advisors and accountants
conducted additional due diligence on Egreetings, and representatives of
Egreetings and AmericanGreetings.com continued to negotiate the terms of the
definitive merger agreement.
On January 30, 2001, at a telephonic special meeting of the Board of
Directors of Egreetings, the Board reviewed the status of the proposed
transaction with AmericanGreetings.com and the proposed deal terms and
authorized the management of Egreetings to continue negotiations.
On February 2, 2001, at a special meeting of the Board of Directors of
Egreetings, the Board reviewed the principal terms of the proposed transaction
with AmericanGreetings.com. At the meeting, representatives of CSFB reviewed
with the Board CSFB's financial analysis of the consideration payable in the
proposed
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transaction, as well as alternatives to the proposed transaction, including
liquidation. Representatives of Cooley Godward discussed with the Board of
Egreetings the legal aspects of the proposed transaction. The Board authorized
senior management of Egreetings to continue negotiating with
AmericanGreetings.com in order to finalize the proposed merger agreement.
On February 2, 2001, at a meeting of the Board of Directors of
AmericanGreetings.com, the Board unanimously approved the Merger Agreement,
contingent upon final negotiation and execution of definitive documentation.
On February 4, 2001, at a special meeting of the Board of Directors of
Egreetings, the Board reviewed the status of negotiations with
AmericanGreetings.com. At this meeting, Cooley Godward updated the Board on the
changes negotiated to the definitive merger agreement since the previous meeting
of the Board of Egreetings. The Board was also advised that American Greetings
Corporation had agreed to extend a $24 million line of credit to
AmericanGreetings.com and that certain stockholders of Egreetings had agreed to
enter into a Tender and Voting Agreements. Also at this meeting, CSFB rendered
to the Board its oral opinion (subsequently confirmed by delivery of a written
opinion dated February 5, 2001) to the effect that, as of the date of such
opinion and based on and subject to certain matters stated in its opinion, the
$0.85 per Share cash consideration to be received in the Offer and the Merger by
the holders of Shares was fair, from a financial point of view, to such holders
(other than AmericanGreetings.com and its affiliates). After a full discussion
of the matters considered by the Board of Egreetings at the meeting, the Board
unanimously approved the Merger Agreement substantially in the form presented to
the Board and determined to recommend to Egreetings' stockholders that they
accept the Offer, tender their Shares in the Offer and, if required by Delaware
law or Egreetings' Certificate of Incorporation or Bylaws, vote to adopt the
Merger Agreement.
After the close of trading on February 5, 2001, Egreetings,
AmericanGreetings.com and the Purchaser executed the Merger Agreement and
Egreetings and AmericanGreetings.com issued a joint press release announcing the
transaction.
On February 12, 2001 the Purchaser commenced the Offer.
Reasons for the Board of Directors' Recommendation
In reaching its recommendations described above in this Item 4, the Board
of Directors of Egreetings considered a number of factors, including the
following:
1. The financial condition, results of operations and cash flows of
Egreetings.
2. The possible alternatives to the Offer and the Merger and the risks
involved in pursuing such alternatives, including, without limitation,
continuing to operate Egreetings as an independent entity and liquidating
Egreetings.
3. The fact that Egreetings had undergone a lengthy process of
soliciting potential acquirors.
4. The financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement.
5. The historical market price, and the recent trading activity in,
the Shares, and particularly the fact that the $0.85 per Share cash price
to be received by the holders of Shares represents a premium of
approximately 70% over the $0.50 closing price of the Shares on the Nasdaq
National Market on February 2, 2001 (the last trading day prior to the
Board meeting at which the Board of Directors approved the Merger
Agreement). The Board also considered the form of consideration to be paid
to holders of Shares in the Offer and Merger, and the certainty of value of
such cash consideration compared to stock or other forms of consideration.
The Board was aware that the consideration received by holders of Shares in
the Offer and Merger would be taxable to such holders for federal income
tax purposes.
6. The opinion to the Board of Directors of CSFB as to the fairness,
from a financial point of view and as of the date of the opinion, of the
consideration to be received in the Offer and the Merger by the
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holders of the Shares (other than AmericanGreetings.com and its
affiliates). The full text of the written opinion of CSFB, dated February
5, 2001, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Annex A and is
incorporated herein by reference. THE OPINION OF CSFB IS ADDRESSED TO THE
BOARD OF DIRECTORS, RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE CONSIDERATION TO BE RECEIVED IN THE OFFER AND THE MERGER BY
THE HOLDERS OF SHARES (OTHER THAN AMERICANGREETINGS.COM AND ITS
AFFILIATES), AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS
TO WHETHER OR NOT SUCH STOCKHOLDER SHOULD TENDER SHARES IN THE OFFER OR AS
TO ANY OTHER MATTERS RELATING TO THE OFFER OR THE MERGER. HOLDERS OF SHARES
ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY.
7. The anticipated timing of consummation of the transactions
contemplated by the Merger Agreement including the structure of the
transaction as a cash tender offer for all of the Shares, which should
allow stockholders to receive the transaction consideration earlier than in
an alternative form of transaction, followed by the Merger in which
stockholders will receive the same consideration as received by
stockholders who tender their Shares in the Offer.
8. The fact that neither the Offer nor the Merger is subject to any
financing condition, that AmericanGreetings.com has represented that it has
available to it, and will make available to Purchaser, sufficient funds to
consummate the Offer and the Merger and that American Greetings Corporation
has extended a $24 million line of credit to AmericanGreetings.com.
9. The fact that the Merger Agreement, which prohibits Egreetings
from, directly or indirectly, soliciting, initiating or knowingly
encouraging any submission of acquisition proposals from any third party or
participating in any negotiations or discussions regarding, or furnishing
information with respect to, or otherwise knowingly cooperating with a
third party who makes an acquisition proposal, under certain circumstances
permits Egreetings in response to an unsolicited acquisition proposal to
inform itself with respect to such proposal and, if such proposal is
superior to the terms of the Offer or Merger, to furnish information to,
and negotiate, explore or otherwise engage in substantive discussions with
or, upon the payment of a termination fee, enter into an acquisition
agreement with a third party with respect to such proposal. In this regard,
the Board recognized that the provisions of the Merger Agreement relating
to non-solicitation of acquisition proposals and termination fees were
insisted upon by AmericanGreetings.com as a condition to entering into the
Merger Agreement.
The foregoing includes the material factors considered by the Board of
Directors. In view of its many considerations, the Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the Board may
have given different weights to the various factors considered. After weighing
all of these considerations, the Board unanimously determined to approve the
Merger Agreement and recommend that holders of Shares tender their Shares in the
Offer.
Intent to Tender
To the best knowledge of Egreetings, each executive officer and director of
Egreetings currently intends to tender all Shares held of record or beneficially
owned by such person to the Purchaser. Stewart Alsop, Brendon Kim, Peter Nieh
and Lee Rosenberg, all directors of Egreetings, and their affiliated investment
funds, Andrew Moley, a director and Chief Executive Officer and President of
Egreetings, and Frederick Campbell and Anthony Levitan, entered into a Tender
and Voting Agreement with AmericanGreetings.com and Purchaser on February 5,
2001, pursuant to which they have contractually committed themselves to tender
their Shares and, if required, vote in favor of adoption of the Merger
Agreement. In addition AmericanGreetings.com and the Purchaser have informed us
that Gibson intends to tender all Shares held of record or beneficially owned by
such entity to the Purchaser.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
Egreetings has retained CSFB to act as its exclusive financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of this
engagement, Egreetings has agreed to pay CSFB for it financial advisory
8
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services customary fees based on the aggregate value of the transaction.
Egreetings also has agreed to reimburse CSFB for reasonable out-of-pocket
expenses incurred by CSFB in performing its services, including reasonable legal
fees and expenses, and to indemnify CSFB and related parties against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement.
CSFB is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. CSFB has in
the past provided financial services to Egreetings unrelated to the proposed
transaction, for which services it received compensation. In the ordinary course
of business, CSFB and its successors and affiliates may actively trade or hold
the securities of Egreetings and affiliates of AmericanGreetings.com for their
own accounts or for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
Neither Egreetings nor any person acting on its behalf currently intends to
employ, retain or compensate any person to make solicitations or recommendations
to stockholders on its behalf concerning the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
No transactions in Shares have been effected during the past 60 days by
Egreetings or, to the knowledge of Egreetings, by any executive officer,
director or affiliate of Egreetings, other than (i) on-going purchases of Shares
under Egreetings' Employee Stock Purchase Plan for the benefit of certain
executive officers who participate in such plan, including on the scheduled
purchase date of December 31, 2000; (ii) effective on or about February 13,
2001, Mr. Neamand received a gift of 4,500 Shares from his father-in-law; and
(iii) in connection with Mr. Moley's promotion to Chief Executive Officer and
President, he was granted 140,000 Shares and Egreetings' repurchased the
remaining unvested portion of an option grant and early exercise that Mr. Moley
effected in 1999.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OF PROPOSALS
Except as set forth in this Statement, Egreetings is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (1) a tender offer for or other acquisition of Egreetings' securities by
Egreetings, any subsidiary of Egreetings or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving Egreetings or any subsidiary of Egreetings; (3) a purchase, sale or
transfer of a material amount of assets of Egreetings or any subsidiary of
Egreetings; or (4) any material change in the present dividend rate or policy,
indebtedness or capitalization of Egreetings.
Except as set forth in this Statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle, or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION
State Takeover Laws
A number of states throughout the United States (including Delaware where
Egreetings is incorporated) have enacted takeover statutes that purport, in
varying degrees, to be applicable to attempts to acquire securities of
corporations that are incorporated or have assets, stockholders, executive
offices or places of business in those states. To the extent that certain
provisions of certain of these state takeover statutes purport to apply to the
Offer or the Merger, AmericanGreetings.com and the Purchaser believe that such
laws conflict with federal law and constitute an unconstitutional burden on
interstate commerce.
The Purchaser has not attempted to comply with any state takeover statutes
in connection with the Offer or the Merger because the Purchaser does not
believe that any are applicable to the Offer or the Merger. In particular, the
Purchaser believes that Section 203 of the Delaware General Corporation Law (the
"GCL") does not apply to the Offer and the Merger because American Greetings
Corporation and Gibson owned (as defined in the GCL) their Shares prior to the
authorization for quotation of the Shares on the Nasdaq
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National Market. In the event that it is asserted that one or more state
takeover statutes apply to the Offer or the Merger, and it is not determined by
an appropriate court that such statute or statutes do not apply or are invalid
as applied to the Offer or the Merger, as applicable, AmericanGreetings.com may
be required to file certain documents with, or receive approvals from, the
relevant state authorities, and AmericanGreetings.com might be unable to accept
for payment or purchase Shares tendered pursuant to the Offer or be delayed in
continuing or consummating the Offer. In such case, AmericanGreetings.com may
not be obligated to accept for purchase, or pay for, any Shares tendered.
Antitrust
The acquisition by the Purchaser of the Shares is exempt from the reporting
requirements contained in the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations thereunder. Nevertheless, there can be no
assurance that a challenge to the Offer and the Merger on antitrust grounds will
not be made, or, if such challenge is made, what the result will be. Private
parties may also bring legal action under the antitrust laws under certain
circumstances.
The Purchaser's Designation of Persons to be Elected to the Board of Directors
The Information Statement attached as Annex B to this Statement is being
furnished in connection with the possible designation by AmericanGreetings.com,
pursuant to the terms of the Merger Agreement, of certain persons to be elected
to the Board of Directors other than at a meeting of Egreetings' stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(a)(1) Letter to Stockholders of Egreetings, dated February 12,
2001*
(a)(2) Opinion of Credit Suisse First Boston Corporation, dated
February 5, 2001 (included as Annex A to this Statement)*
(a)(3) Joint Press Release issued by Egreetings and
AmericanGreetings.com on February 5, 2001 (incorporated by
reference to Exhibit 99.2 to Egreetings' Current Report on
Form 8-K filed on February 6, 2001)
(a)(4) Offer To Purchase, dated February 12, 2001 (incorporated by
reference to Exhibit (a)(1) to the Schedule TO of the
Purchaser filed on February 12, 2001)
(e)(1) Agreement and Plan of Merger, dated as of February 5, 2001,
among AmericanGreetings.com, the Purchaser and Egreetings
(incorporated by reference to Exhibit 99.1 to Egreetings'
Current Report on Form 8-K filed on February 6, 2001)
(e)(2) The Information Statement of Egreetings, dated February 12,
2001 (included as Annex B to the Statement)*
(e)(3) Tender and Voting Agreement, dated as of February 5, 2001
(incorporated by reference to Exhibit 99.7 to the Schedule
13D of the Purchaser filed on February 7, 2001)
(e)(4) Form of Amended and Restated Executive Severance Benefits
Agreement
(e)(5) Egreetings' 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.14 of Egreetings' Registration
Statement on Form S-1 (SEC File No. 333-88595))
(e)(6) Egreetings' 1999 Equity Incentive Plan (incorporated by
reference to Exhibit 10.02 of Egreetings' Registration
Statement on Form S-1 (SEC File No. 333-88595))
(e)(7) Egreetings' 1999 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.06 of Egreetings' Registration
Statement on Form S-1 (SEC File No. 333-88595))
(e)(8) Egreetings' 1999 Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.04 of Egreetings'
Registration Statement on Form S-1 (SEC File No. 333-88595))
- ---------------
* Included with the Statement mailed to stockholders
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
EGREETINGS NETWORK, INC.
By: /s/ ANDREW J. MOLEY
------------------------------------
Andrew J. Moley
Chief Executive Officer
and President
Dated: February 12, 2001
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ANNEX A
[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
February 5, 2001
Board of Directors
Egreetings Network, Inc.
149 New Montgomery Street
San Francisco, California 94105
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders
of the common stock of Egreetings Network, Inc. ("Egreetings"), other than
AmericanGreetings.com, Inc. ("American Greetings") and its affiliates, from a
financial point of view, of the Cash Consideration (as defined below) set forth
in the Agreement and Plan of Merger, dated as of February 5, 2001 (the "Merger
Agreement"), among Egreetings, American Greetings, and American Pie Acquisition
Corp., a wholly owned subsidiary of American Greetings ("Merger Sub"). The
Merger Agreement provides for, among other things, (i) a tender offer by
American Greetings or Merger Sub to purchase all outstanding shares of the
common stock, par value $0.001 per share, of Egreetings ("Egreetings Common
Stock") at a purchase price of $0.85 per share, net to the seller in cash (the
"Cash Consideration" and, such tender offer, the "Tender Offer") and (ii)
subsequent to or, under certain circumstances (as more fully set forth in the
Merger Agreement) in lieu of, the Tender Offer, the merger of Merger Sub with
and into Egreetings (the "Merger" and, together with the Tender Offer, the
"Transaction") pursuant to which each outstanding share of Egreetings Common
Stock not acquired in the Tender Offer will be converted into the right to
receive the Cash Consideration.
In arriving at our opinion, we have reviewed the Merger Agreement and
certain related documents, as well as certain publicly available business and
financial information relating to Egreetings. We also have reviewed certain
other information relating to Egreetings, including financial forecasts,
provided to or discussed with us by Egreetings, and have met with the management
of Egreetings to discuss the business and prospects of Egreetings. We also have
considered certain financial and stock market data of Egreetings and, to the
extent publicly available, the financial terms of certain other business
combinations and other transactions which in the past have been effected. We
also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. We have
been advised, and have assumed, that the financial forecasts for Egreetings have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Egreetings as to the future
financial performance of Egreetings and the other matters covered thereby. We
have not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Egreetings,
nor have we been furnished with any such evaluations or appraisals. Our opinion
is necessarily based upon information available to us, and financial, economic,
market and other conditions as they exist and can be evaluated, on the date
hereof. In connection with our engagement, we were requested to solicit
indications of interest from, and held discussions with, third parties regarding
the possible acquisition of all or a part of Egreetings. We have been advised
that if Egreetings does not consummate the Transaction or another similar
transaction, Egreetings will pursue a liquidation of the company. Our opinion
does not address the underlying business decision of Egreetings to proceed with
the Transaction.
We have acted as financial advisor to Egreetings in connection with the
Transaction and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Transaction. We and our
affiliates have in the past provided financial services to Egreetings unrelated
to the proposed Transaction, for which services we have received compensation.
In the ordinary course of business, we and our
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Board of Directors
Egreetings Network, Inc.
February 5, 2001
Page 2
affiliates may actively trade the securities of Egreetings and American
Greetings and their affiliates for our own and such affiliates' accounts and for
the accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of Egreetings in connection with its evaluation of the Transaction and
does not constitute a recommendation to any stockholder as to whether such
stockholder should tender shares of Egreetings Common Stock pursuant to the
Tender Offer or how such stockholder should vote with respect to any matter
relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Cash Consideration to be received in the Transaction by the
holders of Egreetings Common Stock is fair to such holders (other than American
Greetings and its affiliates), from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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ANNEX B
EGREETINGS NETWORK, INC.
FEBRUARY 12, 2001
------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF
THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF EGREETINGS NETWORK, INC.'S
STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS
INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND A
PROXY TO EGREETINGS NETWORK, INC.
------------------------
GENERAL
This Information Statement is being mailed on or about February 12, 2001 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Statement") of Egreetings Network, Inc. ("Egreetings"). You are receiving this
Information Statement in connection with the possible election of persons
designated by American Pie Acquisition Corp. (the "Purchaser"), a Delaware
corporation and a wholly owned subsidiary of AmericanGreetings.com, Inc., a
Delaware corporation ("AmericanGreetings.com"), to a majority of the seats on
the Board of Directors (the "Board of Directors" or the "Board") of Egreetings.
On February 5, 2001, Egreetings entered into an Agreement and Plan of Merger
(the "Merger Agreement") with the Purchaser and AmericanGreetings.com, pursuant
to which the Purchaser is required to commence a tender offer to purchase all
outstanding shares of common stock, par value $0.001 per share (the "Common
Stock"), of Egreetings (the "Shares"), at a purchase price of $0.85 per Share,
net to the seller in cash, without interest (the "Per Share Amount"), on the
terms and conditions set forth in the Purchaser's Offer To Purchase, dated
February 12, 2001, and in the related Letter of Transmittal (which, together
with any amendments and supplements thereto, collectively constitute the
"Offer"). Copies of the Offer To Purchase and the Letter of Transmittal have
been mailed to stockholders of Egreetings and are filed as Exhibits (a)(1) and
(a)(2) respectively, to the Tender Offer Statement on Schedule TO (as amended
from time to time, the "Schedule TO") filed by AmericanGreetings.com and the
Purchaser with the Securities and Exchange Commission (the "Commission") on
February 12, 2001.
The Offer is being made in accordance with the Merger Agreement. The Merger
Agreement provides, among other things, for the commencement of the Offer by the
Purchaser and further provides that after the purchase of Shares pursuant to the
Offer, subject to the satisfaction or waiver of certain conditions, the
Purchaser will be merged with and into Egreetings (the "Merger"), with
Egreetings surviving the Merger as a wholly owned subsidiary of
AmericanGreetings.com (the "Surviving Corporation"). In the Merger, each Share
(excluding Shares owned by stockholders who have properly exercised their
dissenters' rights under Delaware law, Shares held in the treasury of Egreetings
and Shares owned by AmericanGreetings.com and its subsidiaries) issued and
outstanding immediately prior to the effective time of the Merger (the
"Effective Time") will be converted at the Effective Time into the right to
receive the Per Share Amount (or any greater amount paid for Shares pursuant to
the Offer), in cash payable to the holder thereof, without interest, prorated
for fractional Shares and less any required withholding taxes and, in certain
circumstances, stock transfer taxes (the "Merger Consideration").
The Offer, the Merger and the Merger Agreement are more fully described in
the Statement to which this Information Statement is attached as Annex B, which
was filed by Egreetings with the Commission on February 12, 2001 and which is
being mailed to stockholders of Egreetings along with the Information Statement.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Rule 14f-1 promulgated thereunder. The
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information set forth herein supplements certain information set forth in the
Statement. Information set forth herein related to AmericanGreetings.com, the
Purchaser or the Purchaser Designees (as defined herein) has been provided by
AmericanGreetings.com and the Purchaser. Egreetings assume no responsibility for
the accuracy or completeness of such information. You are urged to read this
Information Statement carefully. You are not, however, required to take any
action in connection with the matters set forth herein.
VOTING SECURITIES OF EGREETINGS
The Common Stock is the only class of equity securities of Egreetings
outstanding which is entitled to vote at a meeting of the stockholders of
Egreetings. The holders of Common Stock are entitled to one vote for each share
of Common Stock held. As of the close of business on January 31, 2001, there
were 33,007,900 outstanding shares of Common Stock, of which
AmericanGreetings.com and the Purchaser may be deemed to beneficially own
6,841,074 shares as of the date hereof.
DESIGNATION OF DIRECTORS BY PURCHASER
The Merger Agreement provides that promptly upon the purchase by the
Purchaser of any Shares pursuant to the Offer, and from time to time thereafter
as Shares are acquired by the Purchaser, the Purchaser shall be entitled to
designate such number of directors (the "Purchaser Designees"), rounded up to
the next whole number, on the Egreetings Board of Directors that will give the
Purchaser representation on the Board of Directors equal to at least that number
of directors which equals the product of the total number of directors on the
Board of Directors (giving effect to the directors appointed or elected pursuant
to this sentence and including current directors serving as officers of
Egreetings) multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Purchaser or any affiliate of the Purchaser (including
such Shares as are accepted for payment pursuant to the Offer, but excluding
Shares held by Egreetings) bears to the number of Shares outstanding. At such
times, if requested by the Purchaser, Egreetings will also cause each committee
of the Board of Directors to include persons designated by the Purchaser
constituting the same percentage of each such committee as the Purchaser
Designees are of the Board of Directors. Egreetings shall, upon request by the
Purchaser, use its reasonable efforts to increase the size of the Board of
Directors or secure the resignations of such number of directors as is necessary
to enable the Purchaser Designees to be elected to the Board of Directors and
shall cause the Purchaser Designees to be so elected.
Notwithstanding the foregoing, in the event that the Purchaser Designees
are appointed or elected to the Board of Directors, until the effective time of
the Merger, the Board of Directors shall have at least one director who is a
director on the date hereof and who is not a designee, stockholder, affiliate or
associate of the Purchaser.
It is expected that the Purchaser Designees will assume office promptly
following the purchase by Purchaser of any Shares pursuant to the terms of the
Offer, which purchase cannot be earlier than March 13, 2001, and that, upon
assuming office, the Purchaser Designees together with the continuing directors
of Egreetings will thereafter constitute the entire Board.
As of the date of this Information Statement, the Purchaser has not
determined who will be the Purchaser Designees. However, the Purchaser Designees
will be selected from among the persons listed in Schedule I of the Purchasers'
Offer To Purchase as being officers and directors of AmericanGreetings.com or
Purchaser, a copy of which is being mailed to Egreetings stockholders together
with the Statement and this Information Statement. The information in such
Schedule I is incorporated herein by reference. Schedule I also includes certain
information with respect to such persons. The Purchaser has informed Egreetings
that each of the persons listed in Schedule I has consented to serve as a
director of Egreetings if appointed or elected. None of such persons currently
is a director of, or holds any positions with, Egreetings. AmericanGreetings.com
and the Purchaser have advised Egreetings that, to the best of their knowledge,
none of the persons listed on Schedule I or any of their affiliates beneficially
owns any equity securities or rights to acquire any securities of Egreetings nor
has any such person been involved in any transaction with Egreetings or any of
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17
its directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Commission other than with respect
to transactions between AmericanGreetings.com, the Purchaser and Egreetings that
have been described in the Schedule TO or the Statement.
MEMBERS OF THE BOARD OF DIRECTORS OF EGREETINGS
The following table sets for the name, age, position with Egreetings,
principal occupation for the past five years, and other directorships of the
directors of Egreetings as of December 31, 2000:
NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- --- --------------------------------------------
Stewart Alsop........................ 49 Stewart Alsop has served as a director of Egreetings
since March 1999. Mr. Alsop has been a general partner
of New Enterprise Associates, a venture capital
investment firm since 1998 and was a Venture Partner at
New Enterprise Associates from 1996 to 1998. From June
1991 to 1996, Mr. Alsop served as Senior Vice President
and Editor-in-Chief of Infoworld Media Group, Inc.,
which publishes InfoWorld, a weekly newspaper for
information technology professionals. Mr. Alsop also
serves on the board of directors of Be, Inc., an
operating systems software company, TiVo Inc., a
personal television service company and Netcentives,
Inc., an Internet promotions and customer loyalty
vendor. Mr. Alsop holds a B.A. degree from Occidental
College.
Brendon S. Kim....................... 34 Brendon Kim has served as a director of Egreetings since
April 1996. Mr. Kim has been a general partner of Altos
Ventures, a venture capital investment firm, since
January 1996. From September 1994 to June 1996, Mr. Kim
worked at CSC Index, a consulting company, where he was
an associate. Mr. Kim also serves on the board of
directors of several private companies, including
Branders.com, Blue Dot Software and Hearing Science. Mr.
Kim also serves on the board of directors of the Korean
American Society of Entrepreneurs, a not-for-profit
organization to promote entrepreneurship. Mr. Kim holds
an A.B. degree from Princeton University and an M.B.A.
degree from the Stanford University Graduate School of
Business.
Andrew J. Moley...................... 36 Andrew Moley has served as director, Chief Executive
Officer and President of Egreetings since October 2000.
From July 1999 to October 2000 Mr. Moley served as
Egreetings' Senior Vice President and Chief Financial
Officer. From July 1995 to July 1999, Mr. Moley served
as the Chief Financial Officer, Executive Vice President
and a director of CMC Industries, an electronic
manufacturing services company. Mr. Moley holds a B.S.
degree in Economics from the Wharton School of the
University of Pennsylvania and an M.B.A. degree from the
Stanford University Graduate School of Business.
Peter Nieh........................... 35 Peter Nieh has served as a director of Egreetings since
March 1999. Mr. Nieh has been a general partner of
Lightspeed Venture Partners (formerly, Weiss, Peck &
Greer L.P.), a technology-focused venture capital
investment firm since October 1995. Mr. Nieh is a
director of several private companies. Mr. Nieh holds a
B.S. degree in Electrical Engineering and an A.B. degree
in Economics from Stanford University and an M.B.A.
degree from the Stanford University Graduate School of
Business.
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NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- --- --------------------------------------------
Lee Rosenberg........................ 44 Lee Rosenberg has served as a director of Egreetings
since November 1995. Mr. Rosenberg has been a general
partner of Kettle Partners, L.P., an Internet and
technology-focused venture capital investment firm since
March 1998. Over the past 16 years, Mr. Rosenberg has
been president of Rosenberg Capital and general partner
of Rosy Partnership, entities involved in a broad
spectrum of venture capital and real estate investments.
Mr. Rosenberg also currently serves on the board of
directors of several private companies, including Ignite
Sports Media, LLC, and Internet sports media company,
and ActiveUSA, a global registration site for active
sports communities. Mr. Rosenberg is a C.P.A. and holds
a B.B.A. degree from the University of Michigan School
of Business Administration.
Egreetings' Certificate of Incorporation and Bylaws provide that the Board
shall be divided into three classes, each class consisting, as nearly as
possible of one-third of the total number of directors, with each class having a
three-year term. The terms of Messrs. Kim and Nieh expire at the 2001 Annual
Meeting, the terms of Messrs. Moley and Rosenberg expire at the 2002 Annual
Meeting and the term of Mr. Alsop expires at the 2003 Annual Meeting.
EXECUTIVE OFFICERS OF EGREETINGS
The following table sets forth the name, age and position held of each of
Egreetings' current executive officers as of December 31, 2000:
NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- --- --------------------------------------------
Andrew J. Moley...................... 36 Andrew Moley has served as director, Chief Executive
Officer and President of Egreetings since October 2000.
From July 1999 to October 2000, Mr. Moley served as
Egreetings' Senior Vice President and Chief Financial
Officer. From July 1995 to July 1999, Mr. Moley served
as the Chief Financial Officer, Executive Vice President
and a director of CMC Industries, an electronic
manufacturing services company. Mr. Moley holds a B.S.
degree in Economics from the Wharton School of the
University of Pennsylvania and an M.B.A. degree from the
Stanford University Graduate School of Business.
Scott Neamand........................ 37 Scott Neamand has served as Egreetings' Senior Vice
President and Chief Financial Officer since October
2000. Mr. Neamand previously served as Vice President of
Finance and Controller from February 2000 to October
2000. Mr. Neamand joined Egreetings in June 1999 as its
Director of Finance and Controller. From October 1994 to
June 1999, Mr. Neamand served in a variety of positions
at Universal Studios, Inc., an entertainment company,
most recently as the Vice President,
Finance -- Universal Studios Japan Project. Prior to
that, Mr. Neamand worked in several positions at KPMG
Peat Marwick, an accounting firm, from September 1985 to
October 1994, most recently as Senior Manager. Mr.
Neamand holds a B.A. degree from University of
California, Santa Barbara and is a Certified Public
Accountant.
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NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- --- --------------------------------------------
Sarah S. Anderson.................... 34 Sarah Anderson has served as Egreetings' Senior Vice
President and Chief Operating Officer since October
2000. Ms. Anderson joined Egreetings in June 1999 and
served as its Vice President of Marketing until October
2000. From February 1997 to June 1999, Ms. Anderson was
the Vice President and General Manager of SegaSoft Inc.,
an interactive game software company. From January 1996
to January 1997, Ms. Anderson was the Director of
Strategic Planning of RDA International, a multimedia
group and advertising agency. From January 1993 to
December 1995, Ms. Anderson was the Brand Manager of
Sega of America, an interactive digital entertainment
media company. Ms. Anderson holds an M.B.A. degree in
Marketing from the McLaren School of Business of the
University of San Francisco and a B.F.A. degree in
Graphic Design from Paier College of Art.
Nancy Levin.......................... 42 Nancy Levin has served as Egreetings' Senior Vice
President and President of Entertainment Division since
October 2000. Ms. Levin served as Egreetings' Vice
President, Business Development, Entertainment from
April 2000 to October 2000. Ms. Levin previously served
as a consultant to Egreetings from December 1999 to
April 2000. From March 1999 to December 1999, Ms. Levin
served as a consultant to various entertainment
companies. From August 1997 to March 1999, Ms. Levin
served as Senior Vice President at MCA Records, an
entertainment company. From August 1996 to August 1997,
Ms. Levin was Senior Vice President at Red Ant
Entertainment, an entertainment company. From July 1994
to August 1996, Ms. Levin was Senior Vice
President/Promotion for Priority Records/EMI. Ms. Levin
holds a B.A. degree with honors from Tulane University.
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COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2000, the Board of Directors held
eight meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with Egreetings' independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy and
staff and management performance and procedures in connection with audit and
financial controls. In 2000, the Audit Committee consisted of two non-employee
directors: Messrs. Nieh and Kim. It met one time during such fiscal year. All
members of the Audit Committee are independent (as independence is defined in
Rule 4200(a)(15) of the National Association of Securities Dealers, Inc. listing
standards). The Board of Directors has adopted a written Audit Committee Charter
that is attached hereto as Appendix I.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
Egreetings' equity incentive plans, employee stock purchase plans, and otherwise
determines compensation levels and performs such other functions regarding
compensation as the Board may delegate. In 2000, the Compensation Committee
consisted of two non-employee directors: Messrs. Kim and Rosenberg. The
Compensation Committee met five times during 2000.
The Board did not have a standing Nominating Committee during 2000.
During 2000, each Board member attended 100% of the aggregate of the
meetings of the Board and of the committees on which he served, held during the
period for which he was a director or committee member, respectively.
DIRECTOR COMPENSATION
Egreetings' directors receive no cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending Board
meetings.
In September 1999, the Board adopted, and in December 1999, the
stockholders approved, the 1999 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to directors of Egreetings who are not employees of or
consultants to Egreetings or of any affiliate of Egreetings (a "Non-Employee
Director") to be effective upon the initial public offering of Egreetings'
Common Stock. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a Committee comprised of members of the Board.
The aggregate number of shares of Common Stock that may be issued pursuant
to options granted under the Directors' Plan is 500,000 shares. Pursuant to the
terms of the Directors' Plan each person who is elected or appointed for the
first time to be a Non-Employee Director automatically shall, upon the date of
his or her initial election or appointment to be a Non-Employee Director by the
Board or stockholders of Egreetings, be granted an option to purchase 24,000
shares of Common Stock. In addition, on the day following each Annual Meeting of
Stockholders of Egreetings ("Annual Meeting"), each person who is then serving
as a Non-Employee Director automatically shall be granted an option to purchase
8,000 shares of Common Stock, which amount shall be prorated for any
Non-Employee Director who has not continuously served as a Non-Employee Director
for the 12-month period prior to the date of such Annual Meeting.
The exercise price of the options granted under the Directors' Plan will be
equal to the closing sale price of Egreetings' Common Stock on the Nasdaq
National Market on the date of grant. No option granted under the Directors'
Plan may be exercised after the expiration of 10 years from the date it was
granted. Options granted under the Directors' Plan vest and become exercisable
as to 1/36 of the shares on the last day of each month following the date of
grant. Options granted under the Directors' Plan generally are non-transferable
except by will or the laws of descent. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship with Egreetings or any affiliate (whether as
a Non-Employee Director of Egreetings or subsequently as an employee, director,
or consultant of either Egreetings or an affiliate) ceases for any reason may
exercise vested options for the term provided in
B-6
21
the option agreement (three months generally, 12 months in the event of
disability and 18 months in the event of death).
In the event of certain changes in control of Egreetings, all outstanding
awards under the Directors' Plan either will be assumed or substituted for by
any surviving entity. If the surviving entity determines not to assume or
substitute for such awards, the vesting and time during which such options may
be exercised shall be accelerated prior to such event and the options will
terminate if not exercised after such acceleration and at or prior to such
event. Unless terminated sooner by the Board, the Directors' Plan will terminate
in September 2009.
Pursuant to the Directors' Plan, on July 27, 2000, Messrs. Alsop, Kim, Nieh
and Rosenberg, were each granted options to purchase 8,000 shares of Common
Stock at an exercise price of $1.6875. As of January 31, 2001, no options had
been exercised under the Directors' Plan.
B-7
22
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Egreetings' Common Stock as of December 31, 2000 by: (i) each director and
nominee for director; (ii) each of the Named Executive Officers; (iii) all
executive officers and directors of Egreetings as a group; and (iv) all those
known by Egreetings to be beneficial owners of more than five percent of its
Common Stock.
BENEFICIAL OWNERSHIP(1)
-----------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
---------------- ---------------- ----------------
American Greetings Corp.(2)................................. 6,841,074 20.8%
One American Road
Cleveland, OH 44114
NBC-EGRT Holding, Inc....................................... 2,475,247 7.5
30 Rockefeller Plaza
New York, NY 10112
Entities Affiliated with Weiss, Peck & Greer Venture
Partners(3)............................................... 2,335,024 7.1
555 California St., Suite 3130
San Francisco, CA 94194
Entities Affiliated with Altos Ventures(4).................. 2,164,099 6.6
2882 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Entities Affiliated with New Enterprise Associates(5)....... 1,665,581 5.1
2490 Sand Hill Road
Menlo Park, CA 94025
Peter Nieh(3)............................................... 2,335,024 7.1
Brendon Kim(4).............................................. 2,164,099 6.6
Stewart Alsop(5)............................................ 1,665,581 5.1
Lee Rosenberg(6)............................................ 674,145 2.1
Andrew Moley(7)............................................. 298,976 *
Gordon M. Tucker(8)......................................... 10,000 *
Paul Lipman(9).............................................. 147,118 *
Behrouz Arbab, Ph.D(10)..................................... 112,500 *
Kenneth W. Wallace(11)...................................... 3,750 *
Nancy Levin(12)............................................. 37,406 *
All directors and executive officers as a group (8
persons)(13).............................................. 7,248,238 21.9
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Commission.
Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options or warrants exercisable within 60 days of December 31,
2000 are deemed outstanding. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable,
Egreetings believes that each of the stockholders named in this table has
sole voting and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on 35,937,444 shares
outstanding on December 31, 2000, adjusted as required by rules promulgated
by the Commission.
(2) Includes warrants to purchase 67,854 shares that are currently exercisable.
(3) Consists of 500,296 shares held by WPG Enterprise Fund III, L.L.C., 572,167
shares held by Weiss, Peck & Greer Venture Associates IV, L.L.C., 22,167
shares held by WPG Information Sciences Entrepreneur Fund, L.P., 72,124
shares held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P.,
1,134,603 shares held by Weiss, Peck & Greer Venture Associates V, L.L.C.,
1,266 shares held by WPG Venture Associates V-A, L.L.C. and 30,846 shares
held by WPG Venture Associates V, Cayman L.P. Mr. Nieh, a director of
Egreetings, is a Managing Member of WPG VC Fund Adviser, L.L.C., the Fund
Investment Advisory Member of WPG Enterprise Fund III, L.L.C., and Weiss,
Peck & Greer
B-8
23
Venture Associates IV, L.L.C., and the General Partner of WPG Information
Sciences Entrepreneur Fund, L.P. In addition, Mr. Nieh is a Managing Member
of WPG VC Fund Adviser II, L.L.C., the Fund Investment Advisory Member of
Weiss, Peck & Greer. Venture Associates V, L.L.C., Weiss Peck & Greer
Venture Associates V-A, L.L.C., and the Fund Investment Advisory Partner of
Weiss, Peck & Greer Venture Associates V Cayman, L.P. In such capacities,
Mr. Nieh, a director of Egreetings may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by the Weiss Peck & Greer funds. Also includes 1,555 shares issuable
to Mr. Nieh upon exercise of options exercisable within 60 days of December
31, 2000. Mr. Nieh disclaims beneficial ownership of the shares held by the
Weiss Peck & Greer funds within the meaning of Rule l3d-3 under the
Exchange Act.
(4) Includes 11,428 shares held by Altos Partners 1, 1,686,874 shares held by
Altos Ventures I, L.P. and 412,540 shares held by Altos Ventures II, L.P.
Also includes warrants to purchase 51,702 shares that are currently
exercisable. Also includes 1,555 shares issuable to Mr. Kim upon exercise
of options exercisable within 60 days of December 31, 2000. Mr. Kim, a
director of Egreetings, is a general partner of Altos Partners and, as
such, may be deemed to have an indirect pecuniary interest in an
indeterminate portion of the shares beneficially owned by the Altos funds.
Mr. Kim disclaims beneficial ownership of these shares within the meaning
of Rule l3d-3 under the Exchange Act.
(5) Includes 17,142 shares held by NEA Presidents Fund, L.P., 1,428 shares held
by NEA Ventures 1999, L.P., and 1,645,456 shares held by New Enterprise
Associates VIII, L.P. Also includes 1,555 shares issuable to Mr. Alsop upon
exercise of options exercisable within 60 days of December 31, 2000. Mr.
Alsop, a director of Egreetings, is a general partner of New Enterprise
Associates and, as such, may be deemed to have an indirect pecuniary
interest in an indeterminate portion of the shares beneficially owned by
the NEA funds. Mr. Alsop disclaims beneficial ownership of these shares
within the meaning of Rule l3d-3 under the Exchange Act.
(6) Consists of 394,378 shares held by Mr. Rosenberg personally, 19,555 shares
issuable upon exercise of options to Mr. Rosenberg exercisable within 60
days of December 31, 2000, 225,366 shares held by Kettle Partners L.P. and
warrants to purchase 34,846 shares that are currently exercisable held by
Kettle Partners L.P. Mr. Rosenberg, a director of Egreetings, is a
principal of Kettle Partners L.P. and, as such, may be deemed to have an
indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by Kettle Partners L.P. Mr. Rosenberg disclaims
beneficial ownership of these shares within the meaning of Rule l3d-3 under
the Exchange Act.
(7) Consists of 202,055 shares held by Mr. Moley personally and 55,348 shares
held by the Richard M. Moley Annuity Trust U/A dated May 12, 1998 and
41,573 shares issuable upon exercise of options exercisable within 60 days
of December 31, 2000. Mr. Moley's father, Richard M. Moley, is the sole
trustee of this trust and Mr. Moley is one of the beneficiaries. Mr. Moley
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Exchange Act.
(8) Mr. Tucker is the former Chief Executive Officer and President, and a
former director, of Egreetings, who terminated employment with the Company
on October 24, 2000.
(9) Includes 141,618 shares issuable upon exercise of options exercisable
within 60 days of December 31, 2000. Mr. Lipman terminated employment with
Egreetings in November 2000.
(10) Includes 105,833 shares issuable upon exercise of options exercisable
within 60 days of December 31, 2000. Mr. Arbab terminated employment with
Egreetings in November 2000.
(11) Mr. Wallace terminated employment with Egreetings in October 2000.
(12) Consists of 37,406 shares issuable upon exercise of options exercisable
within 60 days of December 31, 2000.
(13) See footnotes 3 through 12 above, as applicable. Includes 34,018 shares
issuable to Mr. Neamand upon exercise of options exercisable within 60 days
of December 31, 2000, and 64,582 shares issuable to Ms. Anderson upon
exercise of options exercisable within 60 days of December 31, 2000. Also
includes 12,250 shares held by Mr. Neamand and 4,250 shares held by Ms.
Anderson.
B-9
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Egreetings' directors and
executive officers, and persons who own more than ten percent of a registered
class of Egreetings' equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of Egreetings. Officers, directors and greater than ten
percent stockholders are required by Commission regulation to furnish Egreetings
with copies of all Section 16 (a) forms they file.
To Egreetings' knowledge, based solely on a review of the copies of such
reports furnished to Egreetings and written representations that no other
reports were required, during the fiscal year ended December 31, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
B-10
25
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table shows for the fiscal year ended December 31, 2000,
compensation awarded or paid to, or earned by (i) Egreetings' Chief Executive
Officer, (ii) Egreetings' former Chief Executive Officer and (iii) the four most
highly compensated current executive officers whose aggregate salary and bonus
earned exceeded $100,000 in the fiscal year ended December 31, 2000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
--------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS LONG-TERM COMPENSATION
------------------------------------------------- ----------------------------------------
OTHER ANNUAL RESTRICTED STOCK SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($) AWARDS($) OPTIONS/SARS(#)
- --------------------------- ---- --------- ----------- --------------- ---------------- ---------------------
Andrew J. Moley............ 1999 $ 65,634 $ 17,500 -- $ -- --
Current Chief Executive 2000 197,391 234,134(4) 213,531(4) 35,000(5) --
Officer and President(3)
Gordon M. Tucker........... 1999 198,605 74,302 75,000(7) -- --
Former Chief Executive 2000 208,333 1,705,873(8) 2,532,994(8) -- --
Officer and President(6)
Paul Lipman................ 1999 146,500 37,500 -- -- --
Former Senior Vice 2000 199,503 -- -- -- --
President, Business
Development
Behrouz Arbab.............. 1999 96,137 25,000 -- -- --
Former Chief Technology 2000 260,541 -- -- -- --
Office and Senior Vice
President
Kenneth Wallace............ 1999 98,730 42,849 -- -- --
Former Senior Vice 2000 158,462 82,849 -- -- --
President of Sales
Nancy Levin................ 1999 -- -- 29,170(10) -- --
Senior Vice President and 2000 133,525 -- 43,755(11) -- --
President of
Entertainment Division(9)
- ---------------
(1) As permitted by the rules promulgated by the Commission, no amounts are
shown for 1998.
(2) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(3) Mr. Moley became Chief Executive Officer and President in October 2000.
Prior to that he served as Egreetings' Chief Financial Officer and Senior
Vice President, Finance.
(4) Consists of tax payments and loan forgiveness in connection with the
repurchase of shares previously owned by Mr. Moley.
(5) Represents the dollar value of 140,000 shares awarded to Mr. Moley in
connection with his promotion to Chief Executive Officer and President,
calculated by multiplying the market value on the date of grant ($0.25) by
the number of shares. At the end of fiscal 2000, the dollar value of such
shares, based upon the fair market value of Egreetings' Common Stock on
December 31, 2000 of $0.2812, was $39,368.
(6) Mr. Tucker terminated employment with Egreetings in October 2000.
(7) Consists of reimbursement for relocation and moving expenses.
(8) Consists of (i) tax payments made on Mr. Tucker's behalf in connection with
the repurchase of shares previously owned by Mr. Tucker, (ii) forgiveness
on Mr. Tucker's loan debt to Egreetings, and (iii) severance payments to
Mr. Tucker in connection with his termination.
(9) Ms. Levin was employed as a consultant with Egreetings in November 1999.
She became Vice President, Entertainment and a full time employee in April
2000. She was promoted to Senior Vice President and President of the
Entertainment Division in October 2000.
B-11
26
(10) Consists of consulting fees paid to Ms. Levin from November through
December of 1999 prior to her full time employment as an executive of
Egreetings.
(11) Consists of consulting fees paid to Ms. Levin from January through April of
2000 prior to her full time employment as an executive of Egreetings.
STOCK OPTION GRANTS AND EXERCISES
Egreetings granted options to its executive officers under its 1996 Stock
Option Plan (the "1996 Plan") and currently grants options to its executive
officers under its 1999 Equity Incentive Plan (the "1999 Plan"). As of January
31, 2001, options to purchase a total of 2,817,720 shares were outstanding under
the 1996 Plan and the 1999 Plan, 4,586,830 shares remained available for grant
under the 1996 Plan and 1999 Plans.
The following tables show for the fiscal year ended December 31, 2000,
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(4)
OPTION TO EMPLOYEES IN BASE PRICE ------------------------
GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) EXPIRATION DATE 5%($) 10%($)
------------- --------------- ----------- --------------- ---------- ----------
Andrew J. Moley(5)..... 50,000 2% $8.19 1/27/10 $257,532 $652,638
150,000 5 2.09 6/2/10 197,158 499,638
Gordon M. Tucker(6).... 350,000 12 5.31 2/23/10 -- --
Paul Lipman............ 10,000 -- 8.19 1/27/10 51,506 130,528
100,000 3 2.09 6/2/10 131,434 333,092
Behrouz Arbab.......... 150,000 5 2.09 6/2/10 197,158 499,638
Kenneth Wallace........ 116,667 4 2.09 6/2/10 153,346 388,609
Nancy Levin(5)......... 122,223 4 4.88 4/3/10 375,103 950,585
5,000 -- 2.09 6/2/10 6,572 16,655
- ---------------
(1) Options generally vest at a rate 1/8th on the date six months from the
vesting commencement date and 1/48 each month thereafter. The term of each
option granted is generally the earlier of (i) ten years or (ii) 90 days
after termination of the optionee's services to Egreetings. Options are
immediately exercisable; however, the unvested shares purchasable under such
options are subject to repurchase by Egreetings at the original exercise
price paid per share upon the optionee's cessation of service prior to the
vesting of such shares.
(2) Based on an aggregate of 2,985,607 options granted to employees, consultants
and directors of Egreetings, including the Named Executive Officers, during
the fiscal year ended December 31, 2000.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant.
(4) The potential realizable value is calculated based on the terms of the
option at its time of grant (ten years). It is calculated assuming that the
fair market value of Egreetings' Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option is exercised and sold on the last day of its term for the
appreciated stock price. There can be no assurance that the amounts
reflected in the table will be achieved.
(5) In the event of certain change of control events and a termination in
connection with such change of control, the Board has implemented a policy
whereby certain executives, including Mr. Moley and Ms. Levin, shall have
the remaining unvested options accelerate vesting by eighteen months.
(6) Mr. Tucker early exercised the options he was granted on February 23, 2000.
In connection with the termination of his employment in October 2000,
Egreetings repurchased the shares he held as the result of this early
exercise, so that none remain outstanding.
B-12
27
AGGREGATE OPTION EXERCISES IN 2000 AND YEAR-END VALUES AT DECEMBER 31, 2000
The following table sets forth the number of shares of Common Stock
acquired and the value realized upon exercise of stock options during 2000 and
the number of shares of Common Stock subject to exercisable and unexercisable
stock options held as of December 31, 2000 by each of the Named Executive
Officers.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
NUMBER OF OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 2000(#) DECEMBER 31, 2000($)(2)
ACQUIRED ON VALUE REALIZED --------------------------- -----------------------------
NAME EXERCISE(#) $(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ------------ --------------
Andrew J. Moley........ -- -- 33,355 166,645 -- --
Gordon M. Tucker(3).... 350,000 -- -- -- -- --
Paul Lipman............ -- -- 40,583 89,500 -- --
Behrouz Arbab.......... -- -- 18,750 131,250 -- --
Kenneth Wallace........ -- -- -- -- -- --
Nancy Levin............ -- -- 28,946 98,277 -- --
- ---------------
(1) The value realized is based on the fair market value of Egreetings' Common
Stock on the date of exercise minus the exercise price.
(2) Value of unexercised in-the-money options are based on the fair market value
of Egreetings' Common Stock on December 31, 2000 of $0.2812 per share, minus
the per share exercise price of the options.
(3) Mr. Tucker early exercised the options he was granted on February 23, 2000.
In connection with the termination of his employment in October 2000,
Egreetings repurchased the shares he held as the result of this early
exercise.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION((1))
The Compensation Committee of the Board of Directors ("Committee") consists
of Messrs. Kim and Rosenberg, neither of whom are currently officers or
employees of Egreetings. The Committee is responsible for establishing
Egreetings' compensation programs for all employees, including executives. For
executive officers, the Committee evaluates performance and determines
compensation policies and levels.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable Egreetings to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of Egreetings and to motivate them to enhance long-term
stockholder value. Key elements of this philosophy are:
- Egreetings pays competitively compared to leading technology companies
with which Egreetings competes for talent. To ensure that pay is
competitive, Egreetings regularly compares its pay practices with these
companies and establishes its pay parameters based on this review.
- Egreetings maintains annual incentive opportunities sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.
- Egreetings provides significant equity-based incentives for executives
and other key employees to ensure that they are motivated over the
long-term to respond to Egreetings' business challenges and opportunities
as owners and not just as employees.
- ---------------
(1)The material in this report is not "soliciting material," is not deemed
"filed" with the Commission, and is not to be incorporated by reference into
any filing of Egreetings under the Securities Act of 1933, as amended, or the
Exchange Act, whether made before or after the late hereof and irrespective of
any general incorporation language contained in such filing.
B-13
28
Philosophy Regarding Section 162(m) of the Internal Revenue Code. Section
162(m) of the Internal Revenue Code (the "Code") limits Egreetings to a
deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code.
The Compensation Committee has determined that stock options granted under
Egreetings' 1999 Equity Incentive Plan with an exercise price at least equal to
the fair market value of Egreetings' Common Stock on the date of grant shall be
treated as "performance-based compensation."
Base Salary. The Committee annually reviews each executive officer's base
salary. When reviewing-base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices.
Long-Term Incentives. Egreetings' long-term incentive program consists of
the 2000 Equity Incentive Plan. The option program utilizes vesting periods
(generally four years) to encourage key employees to continue in the employ of
Egreetings. Through option grants, executives receive significant equity
incentives to build long-term stockholder value. Grants are made at 100% of fair
market value on the date of grant. Executives receive value from these grants
only if the value of Egreetings' Common Stock appreciates over the long-term.
The size of option grants is determined based on competitive practices at
leading companies in the technology industry and Egreetings' philosophy of
significantly linking executive compensation with stockholder interests. In
2000, the Committee granted to executives stock options that will vest over a
four-year period. These grants were intended to provide incentive to maximize
stockholder value over the next several years. The Committee believes this
approach creates an appropriate focus on longer term objectives and promotes
executive retention.
The Compensation Committee
Lee Rosenberg
Brendon Kim
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Kim and Rosenberg, neither
of whom has ever been an officer or employee of Egreetings.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
Egreetings entered into Amended and Restated Executive Severance Benefits
Agreements (the "Severance Agreements") as of November 1, 2001 with 12 employees
at the level of Senior Director and above, with varying levels of benefits for
Senior Director and Vice President, and Senior Vice President and Chief
Executive Officer. Payments under the Severance Agreements are triggered upon
the closing of an acquisition of Egreetings and a loss of employment in
connection therewith (the "Double Trigger"). Upon a "Double Trigger" event in
accordance with the terms of the Severance Agreements, (i) Senior Directors and
Vice Presidents receive acceleration of vesting of stock options and
continuation of employee benefits for three months, from the last date of
employment, and (ii) Senior Vice Presidents and the Chief Executive Officer
receive acceleration of vesting of stock options and continuation of benefits
for six months after the last day of employment. The occurrence of the "Double
Trigger" event also requires the payment of three months of base salary to
Senior Directors and Vice Presidents and six months of base salary to Senior
Vice Presidents and the Chief Executive Officer, if terminated in connection
with an acquisition. In addition, the Severance Agreement provides for the
payment of four and 12 months base salary, respectively, for either Senior
Directors and Vice Presidents, or Senior Vice Presidents and the Chief Executive
Officer, as a retention bonus upon continued employment in good standing on
April 30, 2001 ("Retention Bonus"). If an executive is terminated prior to April
30, 2001, the Severance Agreement provides for the payment of the greater amount
B-14
29
of the appropriate salary payment, as well as all employee benefits as described
above. If terminated after the April 30, 2001 retention bonus date, executives
would potentially receive both the Retention Bonus as well as salary and
benefits payments upon termination of employment in accordance with the terms of
the Severance Agreement. The Severance Agreements require the execution of a
release of all claims against Egreetings in order to receive payment thereunder.
It is expected that all 12 executives of Egreetings will be terminated in
connection with this acquisition.
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
Egreetings has entered into indemnity agreements with each of its directors
and executive officers. The agreements require Egreetings to indemnify such
individuals to the fullest extent permitted by Delaware law for certain
liabilities to which them may become subject as a result of their affiliation
with Egreetings.
Egreetings believes that the foregoing transactions were in its best
interest and were made on terms no less favorable to Egreetings than could have
been obtained from unaffiliated third parities. All future transactions between
Egreetings and any of its officers, directors or principal stockholders will be
approved by a majority of the disinterested members of the Board, will be on
terms no less favorable to Egreetings than could be obtained from unaffiliated
third parties and will be in connection with a bona fide business purpose.
B-15
30
PERFORMANCE GRAPH
The following graph shows the total stockholder return of an investment of
$100 in cash on December 16, 1999 for Egreetings' Common Stock and an investment
of $100 in cash on December 16, 1999 for (i) the Standards & Poor's 500 Stock
Index (the "S&P 500 Stock Index") and (ii) the Chicago Board Options Exchange
Internet Index (the "CBOE Internet Index"). All values assume reinvestment of
the full amount of all dividends and are calculated as of last day of each
month:
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT((1))
[PERFORMANCE GRAPH]
- ----------------------------------------------------------------------------------------------------------------------------
12/16/99 12/31/99 1/31/00 2/29/00 3/31/00 4/28/00 5/31/00 6/30/00
- ----------------------------------------------------------------------------------------------------------------------------
Egreetings Network 100.00 101.25 73.75 56.56 56.88 38.75 21.88 13.75
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S&P 500 Stock Index 100.00 103.56 98.29 96.31 105.62 102.37 100.13 102.52
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CBOE Internet Index 100.00 95.63 93.79 100.27 109.70 85.40 71.01 73.43
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7/31/00 8/31/00 9/29/00 10/31/00 11/30/00 12/29/00
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Egreetings Network 15.63 11.88 10.63 3.13 2.81 2.81
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S&P 500 Stock Index 100.85 106.97 101.25 100.75 92.68 93.06
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CBOE Internet Index 66.88 77.10 65.21 46.23 32.49 25.89
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(1)The material in this report is not "soliciting material," is not deemed
"filed" with the Commission, and is not to be incorporated by reference into
any filing of Egreetings under the Securities Act of 1933, as amended, or the
Exchange Act, whether made before or after the late hereof and irrespective of
any general incorporation language contained in such filing.
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APPENDIX I
AUDIT COMMITTEE CHARTER
EGREETINGS NETWORK, INC.
ORGANIZATION
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the approval
of the board of directors. The committee shall be appointed by the board of
directors and shall comprise at least two directors (increased to three
directors prior to June 14, 2001); each of whom are independent of management
and the Company. Members of the committee shall be considered independent if
they have no relationship that may interfere with the exercise of their
independence from management and the Company. All committee members shall be
financially literate, or shall become financially literate within a reasonable
period of time after appointment to the committee, and at least one member shall
have accounting or related financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In so
doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal auditors
and management of the Company. In discharging its oversight rule, the committee
is empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and personnel of the Company and the power to
retain outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
committee should take the appropriate actions to set the overall "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
- The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's shareholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate,
recommend the replacement of the independent auditors. The committee
shall discuss with the auditors their independence from management and
the Company and the matters included in the written disclosures required
by the Independence Standards Board. Annually, the committee shall review
and recommend to the board the selection of the Company's independent
auditors, subject to shareholders' approval.
- The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent auditors the
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adequacy and effectiveness of the accounting and financial controls,
including the Company's system to monitor and manage business risk, and
legal and ethical compliance programs. Further, the committee shall meet
separately with the internal auditors and the independent auditors, with
and without management present, to discuss the results of their
examinations.
- The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
- The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee shall discuss the results of
the annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
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