Document:

exv10w08

 

Exhibit 10.08

January 5, 2005

Dear Jeff:

     On behalf of the Board of Directors of Shutterfly, Inc. (the “Company”), I am pleased to offer
you employment with the Company on the terms set forth in this letter agreement (the “Agreement”).

     1. Position. Commencing on January 17, 2005 (the “Commencement Date”), you will be
employed by the Company full time as its President and Chief Executive Officer (“CEO”). You will be
the highest ranking executive officer of the Company and will report only to the board of directors
of the Company (the “Board”). In this role, you will have overall operating responsibility for the
day-today management of the Company, including the authority to hire and/or fire any officer (after
consultation with the Board) or any employee of the Company. You will also be appointed to the
Board during the term of your employment as CEO. Beginning on the Commencement Date, you will be
expected to devote your full working time and attention to the business of the Company, and you
will not render services to any other business without the prior approval of the Board or, directly
or indirectly, engage or participate in any business that is competitive in any manner with the
business of the Company; provided, however that you may serve in any capacity with a civic,
educational or charitable organization, or as a member of the board of directors or committees
thereof of InQ Incorporated or any other company’s board or committee thereof that does not
interfere with your duties to the Company. You will also be expected to comply with and be bound by
the Company’s operating policies, procedures and practices that are from time to time in effect
during the term of your employment.

     2. Compensation Benefits.

          (a) Salary. Your starting base annual salary will be Two-Hundred Seventy-Five Thousand
Dollars ($275,000), payable in accordance with the Company’s normal payroll practices, with such
payroll deductions and withholdings as are required by law. Your base salary will be reviewed
annually by the Compensation Committee of the Board (the “Committee”).

          (b) Bonus. You will be eligible to receive an annual target bonus equal to up to fifty
percent (50%) of your then annual base salary (the “Target Bonus”), as approved by the Committee,
based upon your achievement of performance milestones and conditions established for you by the
Committee after consultation with you. You will first be eligible to be paid such a bonus at the
end of calendar 2005 for the full year.

          (c) Benefits. You will be eligible for normal vacation, health insurance, 401(k) and
other benefits offered to Company executives.

     3. Stock Option. Upon the commencement of your employment, the Company will grant you
an option under the Company’s 1999 Stock Plan to purchase One Million, Thirty-Eight Thousand, One
Hundred and Forty-Six (1,038,146) shares of the Company’s Common Stock (the “Option”), which
represents five and one half percent (5.5%) (your “Pro-Rata Percentage”)
of the Fully Diluted Capitalization of the Company (as defined below), at an exercise price equal

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to the fair market value of the Company’s Common Stock on the date of the grant, as
determined in good faith by the Board. The “Fully Diluted Capitalization of the Company” shall mean
all outstanding securities of the Company (on an as converted or exercised basis) as of the
Commencement Date, including all outstanding options and warrants and the unallocated reserved pool
under the Company’s equity plans (including any increases thereto related to the Option) and
including the Option. The Option will vest over four (4) years as follows: 25% of the total number
of shares subject to the Option will vest on the twelve (12) month anniversary of the Commencement
Date and thereafter 2.0833% of the total number of shares subject to the Option will vest at the
end of each full month of continuous employment. Vesting will depend on your continued employment
with the Company and will be subject to the terms of Section 6 of this Agreement and the terms and
conditions of the 1999 Stock Plan and related Stock Option Agreement.

     The Option shall be granted as an incentive stock option to the maximum extent permitted under
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and, thereafter, shall be
granted as a non-qualified stock option, and such options shall be issued under separate option
notices and agreements designated as an incentive stock option or non-qualified stock option, as
appropriate.

     In the event you terminate employment with the Company as a result of Involuntary Termination,
Termination without Cause or Termination for Disability, each as defined below, you may exercise
the vested portions of the Option during the twelve (12) month period commencing on the date of
your termination of employment, provided, however, that in no event may the Option be exercised
after its expiration date. In the event you terminate employment with the Company as the result of
your death, the vested portions of the Option may be exercised during the twelve (12) month period
commencing on the date of your death, provided, however, that in no event may the Option be
exercised after its expiration date. In the event you terminate employment with the Company as a
result of Voluntary Termination or Termination for Cause, you may exercise the vested portions of
the Option during the period allowed under the 1999 Stock Plan.

     4. Employment and Termination. Your employment with the Company will be at-will and
may be terminated by you or by the Company at any time for any reason as follows:

          (a) You may terminate your employment upon written notice to the Board for “Good Reason,” as
defined below (an “Involuntary Termination”);

          (b) You may terminate your employment upon written notice to the Board at any time without
Good Reason (“Voluntary Termination”);

          (c) The Company may terminate your employment upon written notice to you at any time following
a determination that there is “Cause,” as defined below, for such termination (“Termination for
Cause”);

          (d) The Company may terminate your employment upon written notice to you at any time without
“Cause,” as defined below, for such termination (“Termination without Cause”);

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          (e) Your employment will automatically terminate upon your death or upon your disability as
determined by the Board (“Termination for Death or Disability”); provided that “disability” shall
mean your complete inability to perform your job responsibilities for a period of one hundred
eighty (180) consecutive days or one hundred eighty (180) days in the aggregate in any twelve (12)
month period.

     5. Definitions. As used in this Agreement, the following terms have the following
meanings:

          (a) “Good Reason” means your resignation within three (3) months following (i) a change in
your title of President and CEO or in your reporting to the Board, or a material reduction in your
duties or responsibilities that is inconsistent with your position, provided, further, that Good
Reason shall also include the circumstance where following a Change of Control, as defined below,
you are not the President and CEO of a successor entity to the Company following a Change in
Control (or otherwise your duties and responsibilities for such successor entity to the Company are
materially reduced from those described in Section 1 herein as would be applied to the successor
entity following a Change of Control); (ii) a requirement by the Company that you relocate your
principal office to a facility more than 60 (sixty) miles from the Company’s current Redwood City,
California headquarters; or (iii) a material reduction in your annual base salary (other than in
connection with a general decrease in the salary of all executives of the Company), in any case,
without your written consent.

          (b) “Cause” means your (i) gross negligence or willful misconduct in the performance of your
duties after a notice is delivered to you which specifically identifies the manner in which the
Company believes you have engaged in gross negligence or willful misconduct and you have been
provided with a reasonable opportunity to cure any alleged gross negligence or willful misconduct
in the performance of your duties; (ii) commission of any act of fraud or material dishonesty with
respect to the Company; (iii) conviction of, or plea of guilty or “no contest” to, a felony or a
crime of moral turpitude or dishonesty which demonstrably materially damages the Company; (iv)
material breach of any proprietary information and inventions agreement with the Company, including
the Invention Assignment and Confidentiality Agreement referred to in Section 7 below, or any other
unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v)
repeated failure to follow the lawful written or oral directions of the Board after receiving
written notification of such failure from the Board and a reasonable opportunity to cure such
failure which shall not be less than 40 days following such notice. No act or. failure
to act by you shall be considered “willful” if done or omitted by you in good faith with reasonable
belief that your action or omission was in the best interests of the Company.

          (c) “Change in Control” means (i) any person or entity becoming the beneficial owner, directly
or indirectly, of securities of the Company representing fifty (50%) percent of the total voting
power of all its then outstanding voting securities; (ii) a merger or consolidation of the Company
in which its voting securities immediately prior to the merger or
consolidation do not represent, or are not converted into securities that represent, a
majority of the voting power of all voting securities of the surviving entity immediately after the
merger or consolidation; (iii) a sale of substantially all of the assets of the Company; or (iv) a
liquidation or dissolution of the Company.

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     6. Separation Benefits. Upon termination of your employment with the Company for any
reason, you will receive payment for all unpaid salary and vacation accrued as of the date of your
termination of employment, and your benefits will be continued under the Company’s then existing
benefit plans and policies for so long as provided under the terms of such plans and policies and
as required by applicable law. Under certain circumstances, and in all events conditioned upon your
execution of a release and waiver of claims against the Company, its officers and directors and
stockholders in a form acceptable to the Company, the form of which is attached hereto as
Exhibit A, you will be entitled to receive severance benefits as set forth below in
addition to those described above, but you will not be entitled to any other compensation, award or
damages with respect to your employment or termination.

          (a) In the event of your Voluntary Termination, Termination for Cause or Termination for Death
or Disability, you will not be entitled to any cash severance benefits or additional vesting of any
Company equity-based awards, including Company stock options.

          (b) In the event of your Termination without Cause or your Involuntary Termination, you will
be entitled to (i) a lump sum payment equivalent to your then-current base salary for a period of
twelve (12) months and the maximum Target Bonus for the year in which the termination occurred; and
(ii) accelerated vesting of that portion of the Option that would have vested over the next twelve
(12) months immediately following such Involuntary Termination or Termination without Cause.

          (c) In the event of your Involuntary Termination or Termination without Cause within twelve
(12) months following the closing of a Change in Control, in lieu of any payment under Section 6(b)
above, you will be entitled to (i) a lump sum payment equivalent to your then-current base salary
for a period of fifteen (15) months and the maximum Target Bonus for the year in which the
termination occurred plus an additional one fourth (1/4) of the maximum Target Bonus for the year
in which the termination occurred; and (ii) accelerated vesting of: (A) if such Change in Control
closes within twelve (12) months of the Commencement Date, such portion of the Option so that, when
added to your then vested portion of the Option as of the date of such Involuntary Termination or
Termination without Cause, you will be vested in total in that number of shares as would have been
vested as of the date twenty-four (24) months following the Commencement Date absent your
termination; or (B) if such Change in Control closes more than twelve (12) months after the
Commencement Date, any portion of the Option that is not vested immediately prior to such
Involuntary Termination or Termination without Cause,

          (d) No payments due you hereunder shall be subject to mitigation or offset.

          (e) In the event of your Termination without Cause or Involuntary Termination, the Company
will pay the premiums for your COBRA coverage (should you elect to convert your health coverage
under COBRA) until the earlier of the following: (A) the 12-month anniversary of your last day of employment with the Company or (B) you become covered by
another employer’s health plan.

     7. Confidential Information and Invention Assignment Agreement. On or prior to the
Commencement Date, you will sign the Company’s standard form of Invention Assignment

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and Confidentiality Agreement, a form of which is attached hereto as Exhibit B. Nothing in this
Agreement alters the terms and conditions of that Invention Assignment and Confidentiality
Agreement.

     8. Arbitration. The parties agree that any dispute regarding the interpretation or
enforcement of this Agreement shall be decided by confidential, final and binding arbitration
conducted in Santa Clara County by Judicial Arbitration and Mediation Services (“JAMS”) under the
then existing JAMS rules rather than by litigation in court, trial by jury, administrative
proceeding or in any other forum. The prevailing party shall be entitled to receive from the other
party its reasonable attorney’s fees and expenses, and all other actual costs and expenses,
relating to such arbitration, and of enforcement of JAMS’ decision.

     9. Parachute Payments. In the event that the severance and other benefits provided to
you pursuant to this Agreement and any other agreement, benefit, plan, or policy of the Company (i)
constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for
this Section 9, such severance and benefits would be subject to the excise tax imposed by Section
4999 of the Code, then your severance and other benefits under this Agreement and any other
agreement, benefit, plan, or policy of the Company shall be payable either: (a) in full; or (b) as
to such lesser amount which would result in no portion of such severance and other benefits being
subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking
into account the applicable federal, state and local income taxes (applying the then highest
marginal tax rates) and the excise tax imposed by Section 4999, results in the receipt by you on an
after-tax basis, of the greatest mount of severance and other benefits under this Agreement and any
other agreement, benefit, plan, or policy of the Company.

     Unless you and the Company otherwise agree in writing, any determination required under this
Section 9 shall be made in writing by independent public accountants agreed to by you and the
Company (the “Accountants”), whose determination shall be conclusive and binding upon you and the
Company for all purposes. For purposes of making the calculations required by this Section 9, the
Accountants may make reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the applications of Sections 280G and
4999 of the Code. You and the Company shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a determination under this
Section 9. ‘The Company shall bear all costs the Accountants may reasonably incur in connection
with calculations contemplated by this Section 9.

     Notwithstanding the foregoing, in the event that the severance and other benefits provided to
you pursuant to this Agreement and any other agreement, benefit, plan, or policy of the Company
constitute “parachute payments” within the meaning of Section 280G of the Code, and provided the
Company is not then publicly traded, you may request that the Company seek to obtain the
approval of such severance and other benefits by more than 75 percent of the voting
power of all outstanding stock of the Company in accordance with Q&A — 7 of the Treasury
Regulations under Section 280G of the Code. The Company shall bear all costs incurred in connection
with soliciting the requested stockholder approval. If such stockholder approval is obtained then
the reduction provisions of the first paragraph of this Section 9 shall not apply.

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     10. Indemnification Agreement. Upon your commencement of employment with the Company,
the Company will enter into a mutually acceptable standard form of indemnification agreement for
officers and directors, to indemnify you against certain liabilities you may incur as an officer or
director of the Company.

     11. Nonsolicitation. During the term of your employment with the Company and for one
year after the termination of your employment with the Company, you will not, on behalf of yourself
or any third party, directly or indirectly, solicit or attempt to induce any employee of the
Company to terminate his or her employment with the Company, except (i) that you may on your behalf
(or on behalf of a third party) engage in a general solicitation for employment, provided that
neither you nor such third party, at your direction, have targeted such recruitment efforts at the
Company, (ii) that you may on your behalf (or on behalf of a third party) employ any person who
either responds to such general solicitation or otherwise contacts you or such third party on his
or her own initiative without solicitation or encouragement, directly or indirectly, by you or such
third party, or (iii) following cessation of employment by an employee of the Company, without any
solicitation or encouragement, directly or indirectly, by you or such third party.

     12. Reimbursement of Legal Expenses. The Company agrees to bear all expenses related
to the drafting, negotiation and execution of this Agreement, including the reasonable fees and
expenses of your counsel, Morrison & Foerster LLP, in an amount not to exceed $15,000, such limit
determined on an after-tax basis so that all such fees and expenses plus your taxes associated with
such payment are paid by the Company (applying the then highest marginal tax rates).

     13. D&O Insurance. You acknowledge that the Company currently does not maintain
directors’ and officers’ liability insurance coverage. Within 90 days following the Commencement
Date, it is acknowledged that you will recommend to the Board directors’ and officers’ liability
insurance coverage for all of the Company’s directors and officers with a reputable insurance
company or association in such customary amounts and in such customary form as would reasonably be
expected for the Company and that the Board will in reasonable good faith evaluate such insurance
for adoption by the Company at that time.

     14. Liquidation Bonus Plan. Promptly following the Commencement Date, the Board will
adopt a bonus plan (the “Liquidation Bonus Plan”) and thereupon seek any requisite stockholder
approvals for such plan. The Liquidation Bonus Plan will provide that in the event of a
liquidation, dissolution, or winding up of the Company, including in connection with the events
described in sub-section 2(e)(i) of Article IV of the Company’s restated certificate of
incorporation filed August 27, 2004 (the “Restated Certificate") (any of these events, a
“Liquidation”), you will be entitled to receive as a bonus a portion (the “Bonus Portion’) of the
proceeds of such Liquidation which are available fox distribution to the Company’s stockholders.
The Bonus Portion will equal (i) your Current Vested Percentage (as defined below) multiplied by
the aggregate amount of the proceeds of any such Liquidation which,
before giving effect to the Liquidation Bonus Plan, are available for distribution to the
Company’s stockholders, minus (ii) the sum of (A) the aggregate exercise price under the Option of
the shares which represent the Current Vested Percentage, to the extent you have not already paid
such exercise price to the Company, and (B) any amounts which you receive in connection with the
Liquidation in respect of the shares of Common Stock subject to the Option. For

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purposes of this paragraph your “Current Vested Percentage” shall equal (x) a percentage determined by dividing the
then actual number of your vested shares under the Option (including such number of shares that
have become vested under the Option by virtue of Section 6) by the aggregate number of shares of
the Company’s Common Stock subject to the Option (except that if a Liquidation occurs during the
first twelve (12) months following the Commencement Date, such percentage described in this
sub-section 14(x) shall in no event be less than 25%), multiplied by (y) your Pro-Rata Percentage.
Any Bonus Portion, including as applicable portions thereof, shall be payable to you at such
time(s) and in such form(s) of consideration, including as applicable in proportions thereof, as
the proceeds of the Liquidation are paid to the Company’s stockholders in connection with the
Liquidation. For purposes of calculating any Bonus Portion, the value of any non-cash proceeds of
the Liquidation shall be determined in accordance with sub-section 2(e)(ii) of Article IV the
Restated Certificate. The Liquidation Bonus Plan and any rights under this Section 14 shall
terminate upon the Company’s closing of an initial public offering as defined in sub-section
B.4.(b)(i) of Article IV of the Restated Certificate.

     15. Rights of First Offer. The Company agrees that, subject to obtaining requisite
stockholder consents, you shall have rights of first offer with respect to future sales of Shares
(as defined below) by the Company on substantially the terms and. conditions of the
rights of first offer held by “Major Investors” under Section 2.4 of the Company’s Fourth Amended
and Restated Investor Rights Agreement, dated October 11, 2002 (the “Rights Agreement”) subject to
the following: (i) for purposes of this Section 15, “Shares" will be defined as set
forth in Section 2.4 of the Rights Agreement; (ii) for purposes of calculating under Section 2.4(b)
of the Rights Agreement the portion of the Shares you may elect to purchase, such portion will
equal up to the proportion that the number of shares of Common Stock subject to the Option bears to
the total number of shares of Common Stock of the Company then outstanding (assuming full
conversion of all convertible securities); and (iii) for clarity, in addition to the issuances
carved out from the rights of first offer in Section 2.4(d) (i) through (viii) of the Rights
Agreement, the rights of first offer held by you shall also not be applicable to any options or
other stock grants made from the unallocated reserved pool under the Company’s equity plans, as
such pool may from time-to-time be increased by the Board in its sole discretion. Promptly
following the Commencement Date the Company shall in good faith seek all requisite stockholder
approval to provide you with the rights described in this Section 15.

     16. Miscellaneous.

          (a) Absence of Conflicts. You represent that your performance of your duties under
this Agreement will not breach any other agreement as to which you are a party.

          (b) Entire Agreement. This Agreement, including the attached exhibits, if any,
represents the entire agreement between the parties concerning the subject matter of your
employment by the Company.

          (c) Successors. This Agreement is binding on and may be enforced by the Company and
its successors and assigns and is binding on and may be enforced by you and your heirs and legal
representatives. Any successor to Company or substantially all of its business (whether by
purchase, merger, consolidation or otherwise) will in advance assume in writing and be bound by all
of the Company’s obligations under this Agreement.

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          (d) Notices. Notices hereunder must be in writing and will be deemed to have been
given when personally delivered or two days after mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. Mailed notices to you will be addressed to you at the
home address which you have most recently communicated to Company in writing. Notices to Company
will be addressed to its Chairman of the Board at Company’s corporate headquarters.

          (e) Waiver. No provision of this Agreement will be modified or waived except in
writing signed by you and an officer of Company duly authorized by the Board. No waiver by either
party of any breach of this agreement by the other party will be considered a waiver of any other
breach of this Agreement.

          (f) Governing Law. This Agreement will be governed by the laws of the State of
California without reference to conflict of laws provisions.

     17. Acceptance. This offer will remain open until January 7, 2005 and your start date
will be January 17, 2005. If you decide to accept our offer, and I hope you will, please sign the
enclosed copy of this letter in the space indicated and return it to me. Your signature will
acknowledge that you have read and understood and agreed to the terms and conditions of this
Agreement and the attached documents, if any. Should you have anything else that you wish to
discuss, please do not hesitate to call me.

     We look forward to the opportunity to welcome you to the Company.

	 	 	 	 	 
	 

	 	 	 	Best regards,
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	/s/ Nancy Schoendorf
	 	 	 	 	 
	 

	 	 	 	Nancy Schoendorf
	 

	 	 	 	Member of Board of Directors
	 

	 	 	 	Shutterfly, Inc.
	 
	 	 	 	 
	Accepted:
	 	 	 	 
	 
	 	 	 	 
	1/5/05

	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	/s/
Jeff Housenbold
	 	 	 	 
	 	 	 	 	 
	Jeff Housenbold
	 	 	 	 

cc: Board of Directors, Shutterfly, Inc.

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EXHIBIT A

GENERAL RELEASE AGREEMENT

     Pursuant to the terms of the parties’ Letter Agreement (the “Agreement”) dated January ___,
2005, Jeff Housenbold (“Employee”) and Shutterfly, Inc. (“Company”) agree to the following General
Release Agreement (“Release”).

     1. Waiver of Claims. In consideration for the Company’s payments and promises set
forth in Section 2 of the Agreement, Employee agrees to hereby release and waive any and all claims
he may have against the Company and its owners, agents, officers, shareholders, employees,
directors, attorneys, subscribers, subsidiaries, affiliates, successors and assigns (collectively
"Releasees”), whether known or not known, including, without limitation, claims under
any employment laws, including, but not limited to, claims of unlawful discharge, breach of
contract, breach of the covenant of good faith and fair dealing, fraud, violation of public policy,
defamation, physical injury, emotional distress, claims for additional compensation or benefits
arising out of his employment or separation of employment, claims under Title VII of the 1964 Civil
Rights Act, as amended, the California Fair Employment and Housing Act and any other laws and/or
regulations relating to employment or employment discrimination, including, without limitation,
claims based on age or under the Age Discrimination in Employment Act or Older Workers Benefit
Protection Act, and/or claims based upon disability or under the Americans with Disabilities Act.
By signing below, Employee expressly waives any benefits of Section 1542 of the Civil Code of the
State of California, which provides as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR”

The Company and Employee agree that the waiver and release set forth in this section shall be and
remain in effect as to the matters released. The waiver and release do not extend to any
obligations of the Company created under the Agreement, nor do they affect in any way Employee’s
rights to be indemnified by the Company pursuant td California Labor Code Section 2802 and
California Corporations Code Section 317 for any acts or omissions by Employee during his
employment with the Company.

     2. Return of Company Property. Employee hereby represents and warrants to the Company
that he has returned all real or intangible property or data of the Company of any type whatsoever
that has been in his possession or control, provided that, Employee may retain the two Company
laptops and the Blackberry hardware device that the Company has previously provided to him,
provided that on or before the Resignation Date Employee deletes all Company data and materials
stored on the laptops and device and electronically transmit same to the Company.

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     3. Proprietary Information and Invention Assignment Agreement. Employee hereby
acknowledges that he is bound by the Proprietary Information and Inventions Agreement signed by him
and that as a result of his employment with the Company he had access to the Company’s Proprietary
Information and will continue to have access to the Company’s Proprietary Information (as defined
in the Proprietary Information and Inventions Assignment Agreement), and that he will continue to
hold all Proprietary Information in strictest confidence and that he will not make use of such
Proprietary Information on behalf of anyone.

     4. Legal and Equitable Remedies, The parties have the right to enforce the Agreement
and/or the Release and any of the provisions by injunction, specific performance or other equitable
relief without prejudice to any other rights or remedies the parties may have at law or in equity
for breach of the Agreement

     5. Confidentiality. The contents, terms and conditions of the Agreement and/or Release
must be kept confidential by Employee and may not be disclosed except to his immediate family,
accountant or attorneys or pursuant to subpoena or court order. Any breach of this confidentiality
provision will be deemed a material breach of the Agreement and the Release.

     6. No Admission of Liability. The Agreement and Release are not and shall not be
construed or contended by Employee to be an admission or evidence of any wrongdoing or liability on
the part of Releasees, their representatives, heirs, executors, attorneys, agents, partners,
officers, shareholders, directors, employees, subsidiaries, affiliates, divisions, successors or
assigns. The Agreement and the Release shall be afforded the maximum protection allowable under
California Evidence Code Section 1152 and/or any other state or Federal provisions of similar
effect.

     7. Entire Agreement. The Agreement and the Release constitute the entire agreement
between Employee and the Releasees with respect to the subject matter hereof and supersede all
prior negotiations and agreements, whether written or oral, relating to such subject matter other
than the Employee Invention Agreement referred to above. Employee acknowledges that neither
Releasees nor their agents or attorneys have made any promise, representation or warranty
whatsoever, either express or implied, written or oral, which is not contained in the Agreement or
the Release for the purpose of inducing him to execute the Release, and Employee acknowledges that
he has executed this Release in reliance only upon such promises, representations and warranties as
are contained herein.

     8. Arbitration. Employee and the Company agree to waive any rights to a trial before a
judge or jury and agree to arbitrate before a neutral arbitrator any and all claims or disputes
arising out of this letter agreement and any and all claims arising from or relating to Employee’s
employment with the Company, including (but not limited to) claims against any current or former
employee, director or agent of the Company claims of wrongful termination, retaliation,
discrimination, harassment, breach of contract, breach of the covenant of good faith and fair
dealing, defamation, invasion of privacy, fraud, misrepresentation, constructive discharge or
failure to provide a leave of absence, claims regarding commission, stock options or bonuses,
infliction of emotional distress or unfair business practices.

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The arbitrator’s decision must be Mitten and must include the findings of fact and law that support
the decision. The arbitrator’s decision will be final and binding on both parties, except to the
extent applicable law allows for judicial review of arbitration awards. The arbitrator may award
any remedies that would otherwise be available to the parties if they were to bring the dispute in
court. The arbitration will be conducted in accordance with the National Rules for the Resolution
of Employment Disputes of the American Arbitration Association; provided, however that the
arbitrator must allow the discovery authorized by the California Arbitration Act or that the
arbitrator deems necessary for Employee and the Company to vindicate their respective claims or
defenses. The arbitration will take place in San Mateo County or, at Employee’s option, the county
in which Employee primarily worked with the Company at the time when the arbitrable dispute or
claim first arose.

Employee and the Company will share the costs of arbitration equally, except that the Company will
bear the cost of the arbitrator’s fee and any other type of expense or costs that Employee would
not be required to bear if he had brought the dispute or claim in court. Both the Company and
Employee will be responsible for their own attorney’s fees, and the arbitrator may not award
attorneys’ fees unless a statute or contract at issue specifically authorizes such an award,

This arbitration provision does not apply to the following: (a) workers’ compensation or
unemployment insurance claims or (b) claims concerning the validity, infringement or enforceability
of any trade secret, patent right, copyright or any other trade secret or intellectual property
held or sought by either Employee or the Company (whether or not arising under the Proprietary
Information and Inventions Assignment Agreement between Employee and the Company).

     9. Modification. It is expressly agreed that this Release may not be altered, amended,
modified, or otherwise changed in any respect except by another written agreement that specifically
refers to this Release, executed by authorized representatives of each of the parties.

     10. Review of Agreement and Effective Date of Release. The Company hereby advises
Employee to consult with his own attorney concerning the terms of this Release. He understands that
he may take up to twenty-one (21) days to consider this Release and, by signing below, affirms that
he was advised to consult with an attorney prior to signing this Release. Employee also understands
he may revoke this Release within seven (7) days of signing this document. This Release will be
effective on the 8th day after Employee signs it.

	 	 	 	 	 
	 	 	Shutterfly
	 
	 	 	 	 
	 

	 	By:	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 

	 	Its:	 	 
	 	 	 	 	 
	 
	 	 	 	 
	Accepted and agreed to by:
	 	 	 	 
	 
	 	 	 	 
	 	 	Date:                                                            
	 	 	 	 	 
	Jeff Housenbold
	 	 	 	 

11

 

EXHIBIT B

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

     The following confines an agreement between me (Jeff Housenbold), and Shutterfly, Inc., a
Delaware corporation (the “Company”), which is a material part of the consideration for my
employment by Company:

     1. I have not entered into, and I agree I will not enter into, any agreement either written or
oral in conflict with this Agreement or my employment with Company. I will not violate any
agreement with or rights of any third party or, except as expressly authorized by Company in
writing hereafter, use or disclose my own or any third party’s confidential information or
intellectual property when acting within the scope of my employment or otherwise on behalf of
Company. Further, I have not retained anything containing any confidential information of a prior
employer or other third party, whether or not created by me.

     2. Company shall own all right, title and interest (including patent rights, copyrights, trade
secret rights, mask work rights, sui generis database rights and all other intellectual and
industrial property rights throughout the world) relating to any and all inventions (whether or not
patentable), works of authorship, mask works, designs, know-how, ideas and information made or
conceived or reduced to practice, in whole or in part, by me during the term of my employment with
Company to and only to the fullest extent allowed by California Labor Code Section 2870 (which is
attached as Appendix A) (collectively “Inventions”) and I will promptly disclose all Inventions to
Company. I will also disclose anything I believe is excluded by Section 2870 so that the Company
can make an independent assessment. I hereby make all assignments necessary to accomplish the
foregoing. I shall further assist Company, at Company’s expense, to further evidence, record and
perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights
specified to be so owned or assigned. I hereby irrevocably designate and appoint Company and its
agents and attorneys-in-fact to act for and in my behalf to execute and file any document and to do
all other lawfully permitted acts to further the purposes of the foregoing with the same legal
force and effect as if executed by me. If anything created by me prior to my employment relates in
any way to Company’s actual or proposed business, I have listed it on Appendix B. If I use or
(except pursuant to this Section 2) disclose my own or any third party’s confidential information
or intellectual property when acting within the scope of my employment or otherwise on behalf of
Company, Company will have and I hereby grant Company a perpetual, irrevocable, worldwide
royalty-free, non-exclusive, sublicensable right and license to exploit and exercise all such
confidential information and intellectual property rights.

     3. To the extent allowed by law, paragraph 2 includes all rights of paternity, integrity,
disclosure and withdrawal and any other rights that may be known as or referred to as “moral
rights,” “artist’s rights,” “droit moral,” or the like (collectively “Moral Rights”). To the extent
I retain any such Moral Rights under applicable law, I hereby ratify and consent to any action that
may be taken with respect to such Moral Rights by or authorized by Company and agree not to assert
any Moral Rights with respect thereto. I will confirm any such ratifications, consents and
agreements from time to time as requested by Company.

12

 

     4. I agree that all Inventions and all other business, technical and financial information
(including, without limitation, the Company’s business plan, proposed products and services,
proposed names, marks and other identifiers, and the identity of and information relating to
customers or employees) I develop, learn or obtain during the term of my employment that relate to
Company or the business or demonstrably anticipated business of Company or that are received by or
for Company in confidence, constitute “Proprietary Information.” I will hold in confidence and not
disclose or, except within the scope of my employment, use any Proprietary Information. However, I
shall not be obligated under this paragraph with respect to information I can document is or
becomes readily publicly available without restriction through no fault of mine. Upon termination
of my employment, I will promptly return to Company all items containing or embodying Proprietary
Information (including all copies), except that I may keep my personal copies of (i) my
compensation records, (ii) materials distributed to shareholders generally and (iii) this
Agreement. I also recognize and agree that I have no expectation of privacy with respect to
Company’s telecommunications, networking or information processing systems (including, without
limitation, stored computer files, email messages and voice messages) and that my activity and any
files or messages on or using any of those systems may be monitored at any time without notice.

     5. I acknowledge and reaffirm my nonsolicitation obligations under Section 11 of the
Agreement.

     6. I agree that during the term of my employment with Company (whether or not during business
hours), I will not engage in any activity that is in any way competitive with the business or
demonstrably anticipated business of Company, and I will not assist any other person or
organization in competing or in preparing to compete with any business or demonstrably anticipated
business of Company.

     7. I agree that this Agreement is not an employment contract for any particular term and that
I have the right to resign and Company has the right to terminate my employment at will, at any
time, for any or no reason, with or without cause. In addition, this Agreement does not purport to
set forth all of the terns and conditions of my employment, and, as an employee of Company, I have
obligations to Company which are not set forth in this Agreement. However, the terms of this
Agreement govern over any inconsistent terms and can only be changed by a subsequent written
agreement signed by the President of Company.

     8. I agree that my obligations under paragraphs 2, 3, 4 and 5 of this Agreement shall continue
in effect after termination of my employment, regardless of the reason or reasons for termination,
and whether such termination is voluntary or involuntary on my part, and that Company is entitled
to communicate my obligations under this Agreement to any future employer or potential employer of
mine. My obligations under paragraphs 2, 3 and 4 also shall be binding upon my heirs, executors,
assigns, and administrators and shall inure to the benefit of Company, it subsidiaries, successors
and assigns.

     9. Any dispute in the meaning, effect or validity of this Agreement shall be resolved in
accordance with the laws of the State of California without regard to the conflict of laws
provisions thereof. I further agree that if one or more provisions of this Agreement are held to be
illegal or unenforceable under applicable California law, such illegal or unenforceable portion(s)

13

 

shall be limited or excluded from this Agreement to the minimum extent required so that this
Agreement shall otherwise remain in full force and effect and enforceable in accordance with its
terms. I also understand that any breach of this Agreement will cause irreparable harm to Company
for which damages would not be an adequate remedy, and, therefore, Company will be entitled to
injunctive relief with respect thereto in addition to any other remedies.

     I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS WHICH IT
IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO ME TO INDUCE
ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE
UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY COMPANY AND THE OTHER COUNTERPART WILL BE
RETAINED BY ME.

	 	 	 	 	 
	 

	, 2005
	 	Employee
	 	 	 	 	 
	 
	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Signature
	 
	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Jeff Housenbold

Accepted and agreed to:

SHUTTERFLY.COM, INC.

	 	 	 
	 

	 	 
	 	 	 
	Signature
	 	 
	 

	 	 
	 	 	 
	Name (Printed)
	 	 
	 

	 	 
	 	 	 
	Title
	 	 

14

 

APPENDIX A

     California Labor Code Section 2870. Application of provision providing that employee shall
assign or offer to assign rights in invention to employer.

     (a) Any provision in an employment agreement which provides that an employee shall assign, or
offer to assign, any of his or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without using the
employer’s equipment, supplies, facilities, or trade secret information except for those inventions
that either:

     (1) Relate at the time of conception or reduction to practice of the invention to the
employer’s business, or actual or demonstrably anticipated research or development of the
employer; or

     (2) Result from any work performed by the employee for his employer.

     (b) To the extent a provision in an employment agreement purports to require an employee to
assign an invention otherwise excluded from being required to be assigned under subdivision (a),
the provision is against the public policy of this state and is unenforceable.

A-1

 

APPENDIX B

PRIOR MATTER

N/Aexv10w1

 

Exhibit 10.1

Execution Version

AMENDMENT

TO

CREDIT AND GUARANTY AGREEMENT

          This AMENDMENT, dated as of August 17, 2006 (this “First Amendment") is entered into by and
among AMERICAN ACHIEVEMENT CORPORATION, a Delaware corporation (“Company”) and AAC HOLDING CORP., a
Delaware corporation (“Holdings”) and the parties signatory hereto.

          WHEREAS, Holdings and the Company have entered into that certain CREDIT AND GUARANTY AGREEMENT
(as it may be amended, restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”), dated as of March 25, 2004, by and among Company, Holdings, CERTAIN SUBSIDIARIES OF
COMPANY, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS
L.P., as Joint Lead Arranger, Joint Book Runner, Administrative Agent (together with its permitted
successors in such capacity, “Administrative Agent”) and as Collateral Agent (together with its
permitted successors in such capacity, “Collateral Agent”), DEUTSCHE BANK SECURITIES INC., as a
Joint Lead Arranger and Joint Bookrunner and DEUTSCHE BANK AG CAYMAN ISLANDS BRANCH, as Syndication
Agent and CIT LENDING SERVICES CORPORATION, as a Co-Documentation Agent, GENERAL ELECTRIC CAPITAL
CORPORATION, as a Co-Documentation Agent and MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., as a Co-Documentation Agent.

          WHEREAS, the terms used herein, including in the preamble and recitals hereto, not otherwise
defined herein or otherwise amended hereby shall have the meanings ascribed thereto in the Credit
Agreement;

          WHEREAS, the Company desires to make certain amendments to increase its capacity to consummate
certain transactions under the Credit Agreement;

          NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants
herein contained, Holdings, the Company, the Requisite Lenders and the Administrative Agent agree
as follows:

ARTICLE ONE: AMENDMENTS

     1. As of the First Amendment Effective Date (as defined in Article Two hereof), the Credit
Agreement shall be amended as set forth in this Article One.

“Holdco” means AAC Group Holding Corp., the parent company of
Holdings.

“Holdco Discount Notes Indenture” means the Indenture, dated as of
November 16, 2004, in respect of the 10.25% senior discount notes
due October 1, 2012 of Holdco.

"Parent” means American Achievement Group Holding Corp., the parent
company of Holdco.

1

 

     2. The definition of “Consolidated Excess Cash Flow” in Section 1.1 of the Credit Agreement is
hereby amended by deleting clause (f) thereof and replacing it with the following:

“(f) distributions to Holdings made pursuant to Sections 6.5(c) and 6.5(l)”

     3. Section 2.14(e) of the Credit Agreement (Mandatory Prepayments/Commitment Reductions;
Consolidated Excess Cash Flow) is hereby amended by deleting the period at the end thereof and
replacing it with the following:

“; provided further, during any period in which the
Leverage Ratio (determined for any such period by reference to the
most recent Compliance Certificate delivered pursuant to Section
5.1(d) calculating the Leverage Ratio) shall be 3.00:1.00 or less, the
Company shall not be required to make any prepayments and/or
reductions otherwise required hereby.”

     4. Section 2.24 of the Credit Agreement (Incremental Facilities) is hereby amended by deleting
the existing reference to “$25,000,000” in its entirety and replacing it with “$75,000,000”.

     5. Section 6.5 of the Credit Agreement (Restricted Junior Payments) is hereby amended by
deleting it in its entirety and replacing it with the following:

“6.5. Restricted Junior Payments. No Credit Party shall, nor shall
it permit any of its Subsidiaries or Affiliates through any manner or
means or through any other Person to, directly or indirectly, declare,
order, pay, make or set apart, or agree to declare, order, pay, make
or set apart, any sum for any Restricted Junior Payment except that
(a) the Company may make regularly scheduled payments of interest in
respect of Senior Subordinated Notes or Refinancing Notes in
accordance with the terms of, and only to the extent required by, and
subject to the subordination provisions contained in, the indenture or
other agreement pursuant to which such Subordinated Indebtedness was
issued; (b) the Company may prepay or redeem the Senior Subordinated
Notes in full with the proceeds of the Refinancing Notes; (c) so long
as no Default or Event of Default shall have occurred and be
continuing or shall be caused thereby, the Company may make Restricted
Junior Payments to Holdings in an aggregate amount not to exceed
$250,000 in any Fiscal Year, to the extent necessary to permit
Holdings to pay general administrative costs and expenses; (d) so long
as no Default or Event of Default shall have occurred and be
continuing or shall be caused thereby, the Company may make Restricted
Junior Payments to Holdings, Holdings may in turn make Restricted
Junior Payments to Holdco, and Holdco may, in turn, make payments to
Parent to the extent necessary to permit Holdings and/or Parent to
discharge the consolidated tax liabilities of Holdings and its
Subsidiaries, in each case so long as Holdings and/or Parent applies
the amount of any such Restricted Junior Payment for such purpose; (e)
the Company may on the Closing Date pay a transaction fee to the
Sponsor pursuant to and as expressly required by the Management Agreement and reimburse the Sponsor for
reasonable out of pocket fees, costs and expenses incurred in
connection with the Transactions; (f) so long as no Default or Event
of Default pursuant to Sections 8.1(a), 8.1(f) or 8.1(g)

2

 

shall have occurred and be continuing or shall be caused thereby, the Company may
pay the Management Fees (plus reasonable expenses in connection with
the Management Agreement and unpaid amounts accrued for prior
periods); (g) so long as no Default or Event of Default shall have
occurred and be continuing or shall be caused thereby, the Company may
repurchase the AA Notes which were not tendered in connection with the
Debt Tender; (h) so long as no Default or Event of Default shall have
occurred and be continuing or shall be caused thereby, Holdings may
purchase or redeem, or may make Restricted Junior Payments to Holdco,
which in turn may make payments to Parent so that either Holdco or
Parent may purchase or redeem (and the Company may declare and pay
dividends or make other distributions to Holdings the proceeds of
which are to be used by Holdings to so purchase or redeem or to make
Restricted Junior Payments to Holdco for such purpose) Capital Stock
of Holdings (including related stock appreciation rights or similar
securities) held by then present or former officers or employees of
Holdings, Company or any of their Subsidiaries or by any Pension Plan
upon such person’s death, disability, retirement or termination of
employment or under the terms of any such Pension Plan or any other
agreement under which such shares of stock or related rights were
issued; provided that the aggregate amount of such Cash
purchases or redemptions under this paragraph (h) when added to the
aggregate amount of principal, interest and any other Cash amounts, if
any, paid in respect of the Subordinated Management Notes, shall not
exceed in any Fiscal Year $500,000; (i) so long as no Default or Event
of Default shall have occurred and be continuing or shall be caused
thereby, Holdings may issue Subordinated Management Notes in lieu of
the Cash purchases and redemptions under paragraph (h) hereof; (j)
Holdings may make on the Closing Date the payments required by the
Merger Agreement; (k) the Company may make Restricted Junior Payments
to Holdings and Holdings may, in turn, make Restricted Junior Payments
to Holdco to the extent necessary to permit Holdco to make regularly
scheduled payments of interest required under the Holdco Discount
Notes Indenture, beginning October 1, 2008, at the rate of 10.25% per
annum payable in cash semi-annually in arrears on April 1 and October
1 of each year (or the next succeeding Business Day), so long as at
the time of such Restricted Junior Payment and after giving effect
thereto, (i) no Default or Event of Default shall have occurred and be
continuing or shall be caused thereby, and (ii) the Leverage Ratio
(determined for any such period by reference to the most recent
Compliance Certificate delivered pursuant to Section 5.1(d)
calculating the Leverage Ratio) shall be 3.00:1.00 or less; and (l)
the Company may make Restricted Junior Payments to Holdings, Holdings
may, in turn, make Restricted Junior Payments to Holdco, and Holdco
may, in turn, make payments to Parent, in an aggregate amount not to
exceed $200,000 in any Fiscal Year, to the extent necessary to permit
Holdco and Parent to pay general administrative costs and expenses, so
long as at the time of such Restricted Junior Payment and after giving
effect thereto, (i) no Default or Event of Default shall have occurred
and be continuing or shall be caused thereby, and (ii) so long as Holdings,
Holdco and Parent apply the amount of any such Restricted Junior
Payment for such purpose.”

3

 

     6. Section 6.7 of the Credit Agreement (Investments) is hereby amended by deleting clause (i)
in its entirety and replacing it with the following:

“(i) other Investments (excluding Investments in Foreign
Subsidiaries) in an aggregate amount not to exceed at any time
$7,500,000;”

     7. Section 6.8(c) of the Credit Agreement (Maximum Consolidated Capital Expenditures) is
hereby amended by deleting the existing reference to “$11,000,000” in its entirety and replacing it
with “$16,000,000”.

     8. Section 6.8(d) of the Credit Agreement (Certain Calculations) is hereby amended by adding
after the words “Section 6.8” and before the comma following such words in the third line thereof
the following:

“and for purposes of calculating the Leverage Ratio as such ratio is
otherwise applicable under this Agreement”

     9. Section 6.9 of the Credit Agreement (Fundamental Changes; Disposition of Assets;
Acquisitions) is hereby amended by deleting clause (e) in its entirety and replacing it with the
following:

“(e) Permitted Acquisitions, the consideration for which constitutes
less than $15,000,000 in the aggregate from the Closing Date to the
date of determination; provided that so long as the Leverage
Ratio is less than 4.0:1.0, the Company may make Permitted
Acquisitions the consideration for which constitutes less than
$50,000,000 when aggregated with the proceeds of all other Permitted
Acquisitions made within the same Fiscal Year and $100,000,000 in the
aggregate from the Closing Date to the date of determination; and”

ARTICLE TWO: CONDITIONS PRECEDENT TO EFFECTIVENESS

          The provisions set forth in Article One hereof shall be effective as of the date (the “First
Amendment Effective Date”) on which each of the following conditions shall have been satisfied (or
waived in accordance with Section 10.5 of the Credit Agreement):

     1. The Credit Parties, the Administrative Agent and the Requisite Lenders shall have indicated
their consent by the execution and delivery of the signature pages to the Administrative Agent.

     2. The Company shall have paid all fees, costs and expenses owing to the Administrative Agent
and its counsel invoiced to the Company on or before the date hereof and reimbursable by the
Company under the terms of the Credit Agreement.

     3. The Company shall have paid to each Lender executing this First Amendment on or prior to
First Amendment Effective Date, an amendment fee equal to 0.10% of the aggregate amount of such
Lender’s outstanding Loans on the First Amendment Effective Date.

ARTICLE THREE: REPRESENTATIONS AND WARRANTIES

     In order to induce the Agents and Lenders to enter into this First Amendment, each Credit Party represents and warrants to each Agent and each Lender, that:

4

 

     1. Representations and Warranties. As of the First Amendment Effective Date, each of
the representations and warranties contained in each of the Credit Documents is true, correct and
complete in all material respects to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true, correct and complete in all material
respects on and as of such earlier date.

     2. Corporate Power and Authority. As of the First Amendment Effective Date, each and
every Credit Party has all requisite power to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into this First Amendment, and
to carry out the transactions contemplated hereby. The execution, delivery and performance of this
First Amendment has been duly authorized by all necessary action on the part of each Credit Party
that is a party to this First Amendment.

     3. No Conflict; Governmental Consents. The execution, delivery and performance by
each of the Credit Parties to this First Amendment and the consummation of the transactions
contemplated by this First Amendment do not and will not (a) violate any provision of any law or
any governmental rule or regulation applicable to any of the Credit Parties, any Governmental
Authorization, any of the Organizational Documents of Company or any of its Subsidiaries, or any
order, judgment or decree of any court or other agency of government binding on any of the Credit
Parties, (b) conflict with, result in a breach of or constitute (with due notice or lapse of time
or both) a default under any Contractual Obligation of any Credit Party, (c) result in or require
the creation or imposition of any Lien upon any of the material properties or assets of any Credit
Party or any of its Subsidiaries (other than any Liens created under this First Amendment or any of
the other Credit Documents in favor of Collateral Agent on behalf of the Secured Parties) or (d)
require any registration with, consent or approval of, or notice to, or other action to, with or
by, any Governmental Authority or any Person under any Contractual Obligation; except for such
registration, consent or approval obtained by the First Amendment Effective Date and disclosed in
writing to Lenders.

     4. Binding Obligation. This First Amendment has been duly executed and delivered by
each Credit Party and is the legally valid and binding obligation of such Credit Party, enforceable
against such Credit Party in accordance with its respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to enforceability.

     5. Absence of Default. No event has occurred and is continuing or will result from
the consummation of the transactions contemplated by this Amendment that would constitute a Default
or an Event of Default.

ARTICLE FOUR: AGREEMENT, ACKNOWLEDGMENT AND CONSENT

     1. Each of the Company and the Guarantors hereby acknowledges that it has reviewed the terms
and provisions of the Credit Agreement and this First Amendment and consents to the modifications
effected pursuant to this First Amendment. Each of the Company and the Guarantors hereby: (i)
confirms that each Credit Document to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guarantee or secure, as the case may be, to the fullest extent
possible in accordance with the Credit Documents, the payment and performance of all Guaranteed
Obligations under the Credit Agreement and Secured Obligations (as such term is defined in the
Second Lien Pledge and Security Agreement) under the Second Lien Pledge and Security Agreement now
or hereafter existing under or in respect of the Credit Agreement, and confirms its grants to the
Collateral Agent of a continuing lien on and security interest in and to all Collateral as
collateral security for the prompt

5

 

payment and performance in full when due of the Guaranteed Obligations under the Credit Agreement and the Secured Obligations (as such term is defined in the
Second Lien Pledge and Security Agreement) under the Second Lien Pledge and Security Agreement
(whether at stated maturity, by acceleration or otherwise) and (ii) acknowledges and agrees that
any of the Credit Documents to which it is a party or otherwise bound shall continue in full force
and effect and that all of its obligations thereunder shall be valid and enforceable (subject to
the qualifications set forth in Section 4.6 of the Credit Agreement) and shall not be impaired or
limited by the execution or effectiveness of this Amendment. Each Credit Party hereby agrees and
admits that it has no defenses to or offsets against any of its obligations to any Agent or any
Lender under the Credit Documents.

     2. Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to
effectiveness set forth in this First Amendment, such Guarantor is not required by the terms of the
Credit Agreement or any other Credit Document to consent to the amendments effected pursuant to
this First Amendment, and (ii) nothing in the Credit Agreement, this First Amendment or any other
Credit Document shall be deemed to require the consent of such Guarantor to any future waivers or
amendments to the Credit Agreement.

ARTICLE FIVE: MISCELLANEOUS

     1. This Amendment shall be binding upon the parties hereto and their respective successors and
assigns and shall inure to the benefit of the parties hereto and the successors and assigns of
Lenders. No Credit Party’s rights or obligations hereunder or any interest therein may be assigned
or delegated by any Credit Party without the prior written consent of all Lenders.

     2. Except as expressly amended hereby, the Credit Agreement and all other documents,
agreements and instruments relating thereto are and shall remain unmodified and in full force and
effect. On and after the First Amendment Effective Date, each reference in the Credit Agreement to
“this Agreement”, “hereunder”, “hereof”, “herein” or words of like import, and each reference in
the Notes to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended
hereby, and this First Amendment and the Credit Agreement shall be read together and construed as a
single instrument.

     3. In case any provision in or obligation hereunder shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

     4. Except as specifically waived by this Amendment, the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and confirmed.

     5. The execution, delivery and performance of this Amendment shall not, except as expressly
provided herein, constitute a waiver of any provision of, or operate as a waiver of any right,
power or remedy of any Agent or Lender under, the Credit Agreement or any of the other Credit
Documents.

     6. Section headings herein are included herein for convenience of reference only and shall not
constitute a part hereof for any other purpose or be given any substantive effect.

     7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW
AND RULE 327(b) OF THE NEW YORK CIVIL PRACTICE LAW AND RULES.

6

 

     8. This Amendment may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. As set forth herein, this Amendment shall become
effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by
the Company and Agents of written or telephonic notification of such execution and authorization of
delivery thereof.

[The remainder of this page is intentionally left blank.]

7

 

	 	 	 	 	 
	 	AAC HOLDING CORP.

 	 
	 	By:  	/s/ Sherice Bench
 	 
	 	 	Name:  	Sherice Bench 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

	 	 	 	 	 
	 	AMERICAN ACHIEVEMENT CORPORATION

 	 
	 	By:  	/s/ Sherice Bench
 	 
	 	 	Name:  	Sherice Bench 	 
	 	 	Title:  	Chief Financial Officer 	 
	 
	 	EDUCATIONAL COMMUNICATIONS, INC.

COMMEMORATIVE BRANDS, INC.

TAYLOR SENIOR HOLDING CORP.

TP HOLDING CORP.

TAYLOR PUBLISHING COMPANY

CBI NORTH AMERICA, INC.

 	 
	 	By:  	/s/ Sherice Bench
 	 
	 	 	Name:  	Sherice Bench 	 
	 	 	Title:  	Chief Financial Officer 	 
	 
	 	TAYLOR PUBLISHING MANUFACTURING, L.P.

 	 
	 	By:  	Taylor Publishing Company
 	 
	 	 	its General Partner 	 
	 	 	 
	 	By:  	                       /s/ Sherice Bench
 	 
	 	 	Name:  	Sherice Bench 	 
	 	 	Title:  	Chief Financial Officer 	 
	 
	 	TAYLOR MANUFACTURING HOLDINGS, LLC

 	 
	 	By:  	Taylor Publishing Company
 	 
	 	 	its Sole Member 	 
	 	 	 
	 	By:  	                             /s/ Sherice Bench
 	 
	 	 	Name:  	Sherice Bench 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

 

 

	 	 	 	 	 
	 	GOLDMAN SACHS CREDIT PARTNERS L.P.,

as Joint Lead Arranger, Joint Bookrunner,

Administrative Agent, Collateral Agent and a Lender

 	 
	 	By:  	
/s/ Elizabeth Fischer
 	 
	 	 	     Authorized Signatory

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