As filed with the Securities and Exchange Commission on October 15, 1996
Registration No. 333-
________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________________________
AMSCAN HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 5110 13-3911462
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
80 Grasslands Road
Elmsford, New York 10523
(914) 345-2020
(Address, Including Zip Code and Telephone Number, Including Area Code of
Registrant's Principal Executive Offices)
James M. Harrison
Chief Financial Officer
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
(914) 345-2020
(Name, Address, Including Zip Code and Telephone Number, Including Area Code
of Agent For Service)
Copies of all communications, including communications sent
to the agent for service of process, should be sent to:
Paul G. Hughes, Esq. Robert E. Buckholz, Jr., Esq.
Cummings & Lockwood Sullivan & Cromwell
Four Stamford Plaza, P.O. Box 120 125 Broad Street
Stamford, Connecticut 06904-0120 New York, New York 10004
(203) 327-1700 (212) 558-4000
__________________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after the effective date of this Registration Statement.
__________________________________________
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of Each Proposed
Class of Securities Maximum Aggregate Amount of
to be Registered Offering Price(1) Registration
Fee
Common $75,000,000 $22,727.27
Stock, par value $0.10
per share
(1) Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
Showing Location in Prospectus of Information Required by
Items of Form S-1
REGISTRATION STATEMENT ITEM
NUMBER AND HEADING LOCATION IN PROSPECTUS
1. Forepart of Registration Statement and Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Factors Prospectus Summary; Risk
and Ratio of Earnings to Fixed Factors
Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Description of the Company's
Registered Capital Stock
10. Interest of Named Experts and Validity of Common Stock;
Counsel Experts
11. Information with Respect to the Prospectus Summary; The
Registrant Company; Organization of the
Company; Selected Combined
Financial Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Supplemental Pro Forma
Combined Financial Statements
(unaudited); Business;
Management of the Company;
Principal Stockholders;
Financial Statements
12. Disclosure of Commission Position Not applicable
on Indemnification for Securities
Act Liabilities
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1996
__________ SHARES
AMSCAN HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
___________________
The shares of Common Stock offered hereby are being sold by the Company.
A substantial portion of the net proceeds will be used by the Company to pay
subordinated indebtedness outstanding to the Company's principal stockholder.
See "Use of Proceeds."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $ ____ and $ ____. For factors to be
considered in determining the initial public offering price, see
"Underwriting."
SEE "RISK FACTORS" ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
[Application has been made to have the Common Stock approved for
quotation on The Nasdaq Stock Market, Inc. under the symbol "AMSN."]
___________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________________
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
Per Share $ $ $
Total(3) $ $ $
(1) The Company and its operating subsidiaries have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $ ______ payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to
purchase up to an additional _______ shares at the initial public offering
price per share, less the underwriting discount, solely to cover over-
allotments. If such option is exercised in full, the total initial public
offering price, underwriting discount and proceeds to the Company will be
$____________, $_________ and $__________, respectively. See "Underwriting."
___________________
<PAGE>
The shares offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance
by them and subject to their right to reject any order in whole or in
part. It is expected that certificates for the shares will be ready
for delivery in New York, New York on or about ________, 1996 against
payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. ALEX. BROWN &SONS INCORPORATED
___________________
The date of this Prospectus is ____________, 1996
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
The Company intends to furnish its stockholders with annual
reports containing audited financial statements and quarterly reports
containing unaudited financial statements for each of the first three
quarters of each year.
___________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ STOCK MARKET, INC., IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the combined financial statements (including the notes
thereto) appearing elsewhere in this Prospectus. Unless the context otherwise
requires, references herein to the "Company" refer to Amscan Holdings, Inc.,
a Delaware corporation, and each of its subsidiaries, including those in which
the Company owns less than 100% of the capital stock, after the Organization
(as defined herein). Except as otherwise noted, the information contained in
this Prospectus assumes that the Underwriters' over-allotment option is not
exercised. See "Underwriting." The offering of shares of Common Stock
described herein is referred to as the "Offering." References herein to
fiscal years are to the fiscal years of the Company ended December 31 of
the year specified.
THE COMPANY
The Company, through its principal subsidiary, Amscan Inc. and
affiliated companies, is one of the leading designers, manufacturers and
distributors of seasonal and everyday party goods. With a product line
consisting of approximately 14,000 stock keeping units ("sku's"), the
Company is a complete source of paper and plastic party goods, including
decorative tableware such as plates, cups and napkins, accessories such as
invitations and balloons, and novelties such as games and favors. The
Company's products are sold in more than 20,000 retail outlets. The
Company is a leading supplier to the emerging party goods superstore
distribution channel, where it has been able to position itself as a
responsive and comprehensive supplier of proprietary, well designed and
high quality products. The Company also distributes its products to
discount chains, mass merchandisers and specialty retailers. During 1995,
the Company generated net sales and income from operations of $167.4
million and $24.7 million, respectively. Net sales and income from
operations have grown at a compound annual rate of 21% and 26%,
respectively, from 1991 to 1995.
The Company strives to be an industry leader in the creation and design
of party goods. An in-house design staff of approximately 60 persons develops
and manages the Company's broad line of party goods for all occasions. The
Company currently offers approximately 200 coordinated product ensembles which
enhance the celebration of seasonal holidays, events such as birthdays and
graduations and general social gatherings, including theme-oriented
celebrations such as Hawaiian luaus and '50's parties. The Company's design
staff keeps the Company's product line contemporary and fresh by introducing
new ensembles each year. For example, in 1996 the Company introduced more
than 50 new ensembles.
The Company is a vertically integrated manufacturer, which enables it to
control costs, manage inventory investment and respond quickly to customer
orders. The Company maintains state-of-the-art manufacturing facilities in
New York, Kentucky, Rhode Island and California which produce paper and
plastic plates, napkins and cups. These products account for approximately
50% of the Company's net sales. Over the past five years, the Company has
purchased or leased new plant and equipment having an aggregate value of
approximately $29 million. Products not manufactured directly by the Company
are generally supplied to the Company by independently-owned manufacturers
located primarily in China and elsewhere in the Far East. The Company
believes that it has developed a dependable group of manufacturers capable of
producing products which are consistent with the Company's high standards of
quality.
The Company's sales and distribution capabilities are designed to provide
a high level of customer service. A direct employee sales force of
approximately 62 sales professionals services over 5,000 retail accounts. In
addition to this seasoned sales team, the Company utilizes a select group of
manufacturer representatives to handle specific account situations. The
principal sales and marketing tool of the Company is its three separate annual
catalogues, two for seasonal products and one for everyday products. Products
are distributed from the Company's distribution centers located principally
4
<PAGE>
in New York and California using computer assisted systems that permit the
Company to receive and fill customer orders efficiently and quickly.
THE OFFERING
Common Stock offered by the Company [ _____ ] shares
Common Stock to be outstanding [ _____ ] shares (1)
after the Offering
Use of Proceeds To repay subordinated
indebtedness outstanding
to the principal and other
stockholders of the
Company and to repay
outstanding indebtedness
to unaffiliated lenders
under the Company's
revolving credit
agreement.
Proposed Nasdaq Stock Market Symbol "AMSN"
- -------------------
1 Does not include 400,000 shares of Common Stock reserved for issuance
upon exercise of stock options to be granted immediately prior to the
date hereof.
5
<PAGE>
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
This table presents historical, pro forma and supplemental pro forma
combined financial information of Amscan Inc. and Affiliates. The summary
historical information presented below as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 is unaudited and was derived from the
unaudited interim combined financial statements of Amscan Inc. and Affiliates
as of such dates. The summary historical information presented below for the
years ended December 31, 1991 and 1992 is unaudited and was derived from the
unaudited combined financial statements of Amscan Inc. and Affiliates as of
such dates. The summary historical financial information presented below for
the years ended December 31, 1993, 1994 and 1995 were derived from the
combined financial statements of Amscan Inc. and Affiliates as of such dates.
The summary historical financial information should be read in conjunction
with the "Selected Historical Combined Financial Data" and related notes
included elsewhere in this Prospectus. The pro forma and supplemental pro
forma data present the effect of certain events that have occurred or will
occur in connection with the consummation of the Offering and the formation of
the Company and should be read in conjunction with "Selected Historical
Combined Financial Data," "Capitalization," "Supplemental Pro Forma Combined
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- -----------------------------------
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SUPPLEMENTAL SUPPLEMENTAL
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(3) 1995 1996 1996(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
(unaudited)
INCOME STATEMENT DATA:
Net sales $77,263 $86,944 $108,934 $132,029 $167,403 $167,403 $80,422 $92,972 $92,972
Gross profit 27,086 30,379 36,278 45,281 58,749 58,749 28,519 34,266 34,266
Income from operations(1) 9,639 9,892 11,716 14,516 24,669 27,000 12,842 15,120 17,095
Net income $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 9,617 $11,216
======= ======= ======== ======== ======== ======= =======
Pro forma net income(2) $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 5,933 $ 6,801
======= ======= ======== ======== ======== ======= =======
Supplemental pro forma
net income(3) $ 14,197 $ 9,258
======== =======
Supplemental pro forma
net income per share $ 0.65 $ 0.42
======== =======
Supplemental pro forma
weighted average common
shares outstanding (4) 22,000,000 22,000,000
========== ==========
BALANCE SHEET DATA: AT JUNE 30, 1996
---------------------------
HISTORICAL AS ADJUSTED(6)
---------- -------------
Working capital $ 35,468 $ 67,824
======== ========
Total assets $139,487 $151,321
======== ========
Short-term indebtedness (5) $ 51,891 $ 19,402
Long-term indebtedness (5) 31,090 11,430
-------- --------
Total indebtedness (5) $ 82,981 $ 30,832
======== ========
Stockholders' equity (7) $ 38,208 $ 97,724
======== ========
</TABLE>
6
<PAGE>
(1) In each of the five years ended December 31, 1995 and for the six months
ended June 30, 1995 and 1996, special bonus arrangements totaling $0.1
million, $0.9 million, $1.1 million, $2.2 million, $2.6 million, and $1.4
million and $2.1 million, respectively, existed with certain members of
management. Upon consummation of the Offering, such special profit sharing
arrangements will be substantially modified and replaced by incentives tied to
the value of the Common Stock. See "Management of the Company - Executive
Compensation - Employment Agreements" and " - Stock Option Plan."
(2) Prior to the consummation of the Offering, Amscan Inc. and an affiliate
Am-Source, Inc. elected to be taxed as Subchapter S corporations under the
Internal Revenue Code. The pro forma net income amounts give effect to pro
forma income taxes for each of the periods at statutory rates (40.5%) assuming
Amscan Inc. and Am-Source, Inc. had not elected Subchapter S corporation
status.
(3) Supplemental pro forma net income for 1995 and for the six months ended
June 30, 1996 is higher than the pro forma net income shown for such periods
due to adjustments (i) to reduce compensation paid to certain employees to the
extent such compensation exceeded the compensation payable to such individuals
under compensation agreements described herein under "Management of the
Company - Executive Compensation - Employment Agreements," (ii) to reflect the
reduction of interest expense related to the repayment of bank loans and
subordinated debt due to John A. Svenningsen, the principal stockholder, from
the proceeds of the Offering as if such repayments had occurred at the
beginning of the period presented, (iii) to reflect amortization of goodwill
and elimination of minority interest related to the acquisition of an
additional 50% of Am-Source, Inc. as if it were acquired at the beginning of
the period presented, and (iv) to give effect to the tax effects of these
adjustments at statutory rates (40.5%) assuming Amscan Inc. and Am-Source,
Inc. had not elected Subchapter S corporation status. See "Supplemental Pro
Forma Combined Financial Statements."
(4) Represents shares expected to be issued and outstanding after the
Offering. See "Capitalization."
(5) Short-term indebtedness consists primarily of the Company's borrowings
under bank lines of credit. Long-term indebtedness consists primarily of debt
to third parties and subordinated debt due to Mr. Svenningsen. As of June 30,
1996, subordinated debt due to Mr. Svenningsen and other stockholders amounted
to $16 million.
(6) As Adjusted balance sheet at June 30, 1996 gives effect to (i) net
proceeds from the Offering, (ii) repayment of short-term and long-term
indebtedness from proceeds of the Offering, (iii) dividends and distributions
to be made to Mr. Svenningsen and other stockholders, (iv) accruals for
obligations payable to Mr. Rittenberg and certain other executives in
connection with the termination of prior employment agreements, (v) goodwill
related to the acquisition of an additional 50% of Am-Source, Inc.,
(vi) establishment of the Employee Stock Ownership Plan for the benefit of the
Company's domestic employees and (vii) inclusion of deferred income taxes on
accumulated timing differences of Amscan Inc. and Am-Source, Inc. as if they
had not been treated as Subchapter S corporations for income tax purposes.
See "Supplemental Pro Forma Combined Financial Statements."
(7) Historical stockholders' equity at June 30, 1996 represents accumulated
undistributed earnings of Amscan Inc., as well as the accumulated earnings of
certain of the affiliates and accumulated paid-in capital of such affiliates.
As Adjusted amounts give effect to (i) net proceeds from the Offering,
(ii) dividends and distributions to be made to Mr. Svenningsen,
(iii) compensation paid to Mr. Rittenberg and certain other executives in
connection with the termination of their prior employment agreements,
(iv) issuance of Common Stock to Mr. Rittenberg in connection with the
termination of his prior employment agreement, (v) the acquisition of an
additional 50% of Am-Source, Inc., (vi) establishment of the Employee Stock
Ownership Plan for the benefit of the Company's domestic employees and
(vii) inclusion of deferred income taxes on accumulated timing differences of
Amscan Inc. and Am-Source, Inc. as if they had not been treated as Subchapter
S corporations for income tax purposes. See "Use of Proceeds,"
"Capitalization" and "Supplemental Pro Forma Combined Financial Statements."
7
<PAGE>
THE COMPANY
The Company is one of the leading designers, manufacturers and
distributors of seasonal and everyday party goods. The business of the
Company was founded in 1947 to import and distribute party goods and novelty
items. Through internal growth and selective acquisitions, the Company has
become a fully integrated designer, manufacturer and multi-national
distributor of party goods. The Company is a complete source of paper and
plastic party goods, including decorative tableware such as plates, cups and
napkins, accessories such as invitations and balloons, and novelties such as
games and favors. The Company's products are sold in more than 20,000 retail
outlets. The Company is a leading supplier to the emerging party goods
superstore distribution channel, where it has been able to position itself as
a responsive and comprehensive supplier of proprietary, well designed and high
quality products. The Company also distributes its products to discount
chains, mass merchandisers and specialty retailers.
The Company was incorporated on October 3, 1996 for the purpose of
becoming the holding company for Amscan Inc. and certain affiliated entities.
See "Organization of the Company." The Company's principal executive offices
are located at 80 Grasslands Road, Elmsford, New York 10523, and its
telephone number is (914) 345-2020.
RISK FACTORS
Prospective purchasers of shares of Common Stock of the Company being
offered hereby should consider carefully the following factors, as well as
other information set forth in the Prospectus, prior to making an investment
in the Common Stock.
IMPORTANCE OF CERTAIN CUSTOMERS
In recent years, there have been significant changes in the manner of
selling party goods at retail. An increasing percentage of party goods is
being sold through party goods superstores rather than through discount
chains, mass merchandisers and specialty retailers. The Company believes that
the significant role of party goods superstores in the sale of party goods
will continue to increase. This concentration of sales could adversely affect
sales by the Company to other party goods retailers such as specialty
retailers.
Combined sales to the Company's two largest customers, Party City
Corporation and Party Experience, Inc., accounted in the aggregate for
approximately 7%, 10% and 17% of the Company's net sales in 1993, 1994 and
1995, respectively. At December 31, 1995, these two party superstore
retailers also accounted for 12% of the Company's accounts receivable.
Although the Company believes its relationships with these customers to be
very good, should either of them significantly reduce their volume of
purchases from the Company, the Company's financial condition and results of
operations could be adversely affected.
CONCENTRATION OF CREDIT RISK
The concentration of sales of party goods into the party superstore
channel of distribution has resulted in a significant concentration of
unsecured trade receivables with such customers. These retailers are
generally privately held and in recent years have expanded rapidly. While the
Company believes that adequate provisions for bad debts have been made in its
financial statements, should it be unable to collect these receivables to any
significant extent, the Company's financial condition and results of
operations would be adversely affected.
8
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's initial growth and development were largely attributable to
the vision of its Chairman of the Board and Chief Executive Officer, John A.
Svenningsen, and for the past six years have been dependent upon the services
of Gerald C. Rittenberg, President of the Company, and William S. Wilkey,
Senior Vice President - Sales of the Company. The loss of the services of
Messrs. Svenningsen, Rittenberg or Wilkey could have an adverse effect on the
Company's financial condition or results of operations. See "Management of
the Company."
In the first quarter of 1996, Mr. Svenningsen was diagnosed with
lymphoma. Since that time, Mr. Svenningsen has been undergoing treatment.
Mr. Svenningsen's illness has not impaired his ability to function as the
Company's Chief Executive Officer.
CONTROL BY CERTAIN STOCKHOLDERS
Upon consummation of the Offering, Mr. Svenningsen will be the beneficial
owner of approximately ___ %, (or ___% if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock. Until
such time, if ever, that there is a significant decrease in the percentage of
outstanding shares held by Mr. Svenningsen, Mr. Svenningsen will control the
Company through his ability to determine the outcome of votes of stockholders
regarding, among other things, election of directors and approval of
significant transactions. In addition, executive officers, directors and
senior management of the Company, including Mr. Svenningsen, will own an
aggregate of approximately _______ shares or ___% (or _____ shares, or ___%
if the Underwriters' over-allotment option is exercised in full) of the Common
Stock after the Offering on a fully-diluted basis, giving effect to the
exercise of all options granted to certain officers immediately prior to the
date hereof. See "Management of the Company - Executive Compensation - Stock
Option Plan" and "Principal Stockholders."
DESIGN TRENDS AND CONSUMER PREFERENCES
In manufacturing and distributing party goods, the Company's success
depends in part on its ability to anticipate the tastes and preferences of
party goods retailers and consumers. The Company's strategy has depended to a
significant extent on the regular introduction of new designs which are
attractive and distinctive. The Company's failure to anticipate, identify or
react appropriately to changes in consumer tastes could, among other things,
lead to excess inventories and significant markdowns or to a shortage of
products, either of which could have an adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The party goods industry is highly competitive. The Company competes
with many other companies, including smaller, independent specialty
manufacturers as well as divisions or subsidiaries of larger companies with
greater financial and other resources than those of the Company. Certain of
these competitors control licenses for widely-recognized images such as
cartoon or motion picture characters, which could provide them with a
competitive advantage.
IMPACT OF CHANGING PAPER PRICES
The principal raw material used by the Company in its products is paper,
which accounts for approximately 35% of the cost of the production of the
Company's paper plates, cups and napkins. The price of paper is subject to
change due to numerous factors beyond the control of the Company. Any
significant increase in the cost of paper would adversely affect the Company's
raw material costs. Competitive conditions will determine how much of paper
price increases can be passed on by party goods retailers to the ultimate
consumers of the Company's products. If the Company is unable to pass future
paper price increases to the party goods retailers, the Company's financial
condition and results of operations would be adversely affected.
9
<PAGE>
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial public
offering price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the market
price of the Common Stock after the Offering. See "Underwriting." Subsequent
to the Offering, prices for the Common Stock will be determined by the market
and may be influenced by a number of factors, including the Company's
operating results, the depth and liquidity of the market for the Common Stock,
investor perceptions of the Company, the party goods industry in general and
general economic conditions.
ABSENCE OF DIVIDENDS
The Company does not intend to pay cash dividends on the Common Stock for
the foreseeable future. The Company is a holding company with no business
operations of its own. The Company therefore is dependent upon payments,
dividends and distributions from its subsidiaries for funds to pay its
expenses and to pay future cash dividends or distributions, if any, to holders
of the Common Stock. The Company currently intends to retain any earnings for
working capital, repayment of indebtedness, capital expenditures and general
corporate purposes. The revolving credit agreement to which the Company's
principal subsidiary is a party prohibits the payment by such subsidiary of
any cash dividends.
EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS
The Company's Certificate of Incorporation and By-Laws contain certain
provisions that may have the effect of substantially deterring a future
takeover of the Company. These provisions vest more power in the Company's
Board of Directors with respect to takeovers of the Company than applicable
state anti-takeover laws and are designed to encourage a potential acquiror to
enter into negotiations with the Company's Board of Directors. See
"Description of the Company's Capital Stock - Certain Provisions of Delaware
Law and the Company's Certificate of Incorporation and By-Laws."
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, ______ shares of Common Stock will be
outstanding. Of these shares, the ______ shares sold in the Offering will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. In
addition, ________ shares of the shares of Common Stock outstanding will be
owned by the Company's Employee Stock Ownership Plan (the "ESOP"). See
"Shares Eligible for Future Sale." The remaining _______ outstanding shares
of Common Stock held by existing stockholders, in addition to the shares owned
by the ESOP, will be "restricted securities" as that term is defined in Rule
144, which are eligible for sale in the public market in compliance with Rule
144 (including limits on the number of shares which may be sold within
specified periods). Three months after any such stockholder ceases to be an
"affiliate" of the Company, all of such shares held for more than three years
would then immediately become eligible for public sale without the limitations
of Rule 144. Subject to certain exceptions, the Company and certain
stockholders of the Company (who in the aggregate hold ______ shares of Common
Stock) have agreed with the representatives of the Underwriters that they will
not offer, issue, pledge, sell, transfer or otherwise dispose of any shares of
Common Stock or securities convertible into or exercisable or exchangeable for
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. See "Principal Stockholders" and "Underwriting." The Company
has granted certain stockholders a right to demand registration of the offer
and sale of their Common Stock under the Securities Act. Any such demand may
not be exercised earlier than one year from the date hereof. See "Shares
Eligible for Future Sale."
10
<PAGE>
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for
future sale would have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could have an adverse effect on prevailing market prices for the Common Stock.
DILUTION
Purchasers of Common Stock in the Offering will incur immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price as compared to the increase in
net tangible book value per share that will accrue to existing stockholders.
See "Dilution."
ORGANIZATION OF THE COMPANY
The Company was organized on October 3, 1996 for the purpose of becoming
the holding company for the businesses previously conducted by Amscan Inc. and
certain affiliated companies, representing companies individually owned and
independently controlled by John A. Svenningsen, and Am-Source, Inc., the
Company's supplier of plastic plates, cups and bowls. The organization of the
Company (the "Organization") encompasses consummation of the transactions
contemplated by three agreements to which the Company is a party and which are
summarized below.
The first of these agreements is between the Company and Mr. Svenningsen.
Pursuant to this agreement, Mr. Svenningsen exchanged all of the outstanding
capital stock of certain operating and real estate companies, including Amscan
Inc. (other than the shares owned by Gerald C. Rittenberg pursuant to the
agreement described below) for Common Stock of the Company. In addition,
pursuant to this agreement, Mr. Svenningsen exchanged all of the outstanding
capital stock which he owned in certain other operating companies, including
50% of the capital stock of Am-Source, Inc., for Common Stock of the Company.
In connection with such exchanges, Mr. Svenningsen received an aggregate of
____________ shares of Common Stock of the Company and the Company became the
holding company for each of such companies previously owned by Mr.
Svenningsen. The transactions contemplated by this agreement between the
Company and Mr. Svenningsen were consummated immediately prior to the date
hereof.
The second of these agreements is between the Company and the stockholders
of Am-Source, Inc. other than Mr. Svenningsen pursuant to which such
stockholders exchanged all of the outstanding capital stock of Am-Source, Inc.
which they owned for shares of Common Stock. The number of shares of Common
Stock issued in this exchange was determined by dividing $7.5 million by the
initial public offering price of $[14]* (the mid-point of the range of the
initial public offering prices set forth on the cover page of this Prospectus)
for an aggregate of 535,714 shares of Common Stock. The exchange of shares of
the capital stock of Am-Source, Inc. by such stockholders occurred immediately
prior to the date hereof.
The third agreement is among Amscan Inc., John A. Svenningsen and Gerald
C. Rittenberg. Pursuant to this agreement, Mr. Rittenberg relinquished
certain rights under a previous employment agreement entered into between
Amscan Inc. and Mr. Rittenberg. In partial exchange for the relinquishment of
such rights, Mr. Rittenberg received a cash payment of $3.4 million and a
number of shares of capital stock of Amscan Inc., which shares he exchanged
for 660,000 shares of Common Stock, representing 3% of the shares of Common
Stock to be outstanding upon consummation of the Offering (assuming no
exercise of the Underwriters' over-allotment option). To the extent that the
net proceeds of the Offering (including any net proceeds of the exercise of
the Underwriters' over-allotment option) exceeds $69 million, Mr.
----------------
* This number is an assumed public offering price and has been used to
compute various dollar and share amounts included herein. The midpoint of the
range of estimated public offering prices and the actual public offeirng price
may or may not be equal to $14 per share.
11
<PAGE>
Rittenberg will be entitled to an additional cash payment equal to 5% of such
excess. For a description of the terms of the agreement relating to Mr.
Rittenberg's continued employment by the Company, see "Management of the
Company - Executive Compensation - Employment Agreements."
The shares of Common Stock of the Company acquired by Mr. Svenningsen, the
other shareholders of Am-Source, Inc. and Mr. Rittenberg pursuant to these
agreements constitute all of the issued and outstanding Common Stock of the
Company prior to consummation of the Offering.
Concurrently with the consummation of the transactions contemplated by
the agreements described above, the status of Amscan Inc. and Am-Source, Inc.
as Subchapter S corporations under the Internal Revenue Code was terminated.
Amscan Inc. has been treated for income tax purposes as a Subchapter S
corporation since 1986 and Am-Source, Inc. had been treated for income tax
purposes as a Subchapter S corporation since its incorporation. As a result,
each of such companies' stockholders prior to the Organization were required
to pay taxes based on the earnings of such companies, respectively, whether or
not such amounts had been distributed to such stockholders.
For a number of years and until the consummation of the Organization,
Amscan Inc. and Am-Source, Inc. made periodic distributions to Mr.
Svenningsen, as a stockholder of such companies, in amounts approximately
equal to Mr. Svenningsen's tax liabilities associated with such companies'
earnings, plus, in the case of Amscan Inc., Mr. Svenningsen's living expenses.
The portion of Amscan Inc.'s and Am-Source, Inc.'s earnings owed to but not
distributed to Mr. Svenningsen were, with Mr. Svenningsen's consent, retained
by Amscan Inc. and Am-Source, Inc., respectively, as working capital. Prior
to the date hereof and in connection with the Organization, all of such
accumulated undistributed earnings as well as dividends of accumulated
earnings and capital contributions were converted to subordinated debt owed to
Mr. Svenningsen by the Company. Such subordinated debt (in the amount of
approximately $42 million) will be paid with a portion of the net proceeds of
the Offering in order to permit amounts owed to Mr. Svenningsen to be received
without subjecting such amounts to additional tax. See "Use of Proceeds" and
"Capitalization."
Am-Source, Inc. also made periodic distributions to each of the
stockholders of Am-Source, Inc. other than Mr. Svenningsen until the
consummation of the Organization, in amounts approximately equal to such
stockholder's tax liabilities associated with Am-Source, Inc.'s earnings. The
portion of Am-Source, Inc.'s accumulated earnings owed to but not distributed
to such Am-Source, Inc. stockholders were, with their consent, retained by
Am-Source, Inc. as working capital. Prior to the date hereof and in
connection with the Organization, all of such accumulated undistributed
earnings and undistributed earnings since June 30, 1996 were converted to
subordinated debt owed to such previous stockholders of Am-Source, Inc. by the
Company. The subordinated debt owed to such stockholders other than Mr.
Svenningsen (approximately $1.4 million) will be paid with a portion of the
net proceeds of the Offering in order to permit amounts owed to such
stockholders to be received without subjecting such amounts to additional tax.
See "Use of Proceeds" and "Capitalization."
Upon the termination of the Subchapter S corporation status of Amscan
Inc. and Am-Source, Inc., such companies became subject to federal and state
income taxes. The pro forma net income amounts and the Supplemental Pro Forma
Combined Statements of Operations set forth in this Prospectus have been
adjusted to include pro forma federal income tax provisions as if Amscan Inc.
and Am-Source, Inc. had been Subchapter C corporations under the Internal
Revenue Code during the relevant periods.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
shares offered hereby are estimated to be $69,000,000 ($79,510,000 if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $[14] per share (the mid-point of the range of the initial
public offering prices set forth on the cover page of this
12
<PAGE>
Prospectus) and after deducting estimated underwriting discounts and other
expenses of the Offering payable by the Company.
Approximately $44 million of the net proceeds to the Company
(representing $33.1 million payable as of June 30, 1996 as reflected in the
Supplemental Pro Forma Combined Balance Sheet and $10.9 million of estimated
distributable earnings between June 30, 1996 and the consummation of the
Offering), will be used to repay certain subordinated indebtedness owed by the
Company to Mr. Svenningsen and the other stockholders of Am-Source, Inc.
Such indebtedness represents dividends and distributions declared but not paid
by Amscan Inc. and Am-Source, Inc. to Mr. Svenningsen and by Am-Source, Inc.
to its other stockholders over a number of years. Such distributions of net
proceeds will be made in order to permit these amounts, including substantial
amounts of income taxed to Mr. Svenningsen and such stockholders while Amscan
Inc. and Am-Source, Inc. were Subchapter S corporations, to be received
without subjecting such amounts to additional tax. The balance of $25 million
of the net proceeds will be used by the Company to repay outstanding
indebtedness to unaffiliated lenders under the Company's revolving credit
agreement, which indebtedness includes amounts borrowed to make a one-time
cash payment in the amount of $3.4 million to Mr. Rittenberg under his
employment agreement. See "Management of the Company - Executive Compensation
- Employment Agreements." The Company's subordinated indebtedness to
Mr. Svenningsen and the stockholders of Am-Source, Inc. bears interest at
prime (which at June 30, 1996 was 8.25%), plus 0.5%, and has no fixed
maturity. The Company's indebtedness to unaffiliated lenders under its
revolving credit agreement bears interest at 6.95% and matures in September
2000.
CAPITALIZATION
The following table sets forth (i) the actual short-term indebtedness and
total capitalization of the Company at June 30, 1996, (ii) the adjustments
giving effect to the transactions described in "Organization of the Company"
as if they had been completed at that date and (iii) the pro forma short-term
indebtedness and total capitalization as adjusted to give effect to the
Offering at an assumed initial public offering price of $[14] per share (the
mid-point of the range of initial public offering prices set forth on the
cover page of this Prospectus) and the application of the proceeds as set
forth under "Use of Proceeds."
13
<PAGE>
<TABLE>
<CAPTION>
Adjustments
Adjustments to give
prior to effect
the to the As
Historical Offering Subtotal Offering Adjusted
<S> <C> <C> <C> <C> <C>
Short-term and long-term indebtedness:
Loans and notes payable $49,750 $3,400 (a) $ 53,150 $(35,889)(f) $ 17,261
Long-term indebtedness, including
current portion 13,571 13,571 13,571
Subordinated indebtedness and other
due to stockholders 19,660 13,451 (b) 33,111 (33,111)(f) -
------- -------- --------
Total indebtedness 82,981 99,832 30,832
------- -------- --------
Stockholders' equity:
Common stock 393 1,271 (c) 1,664 536 (g) 2,200
Additional paid-in capital 9,090 10,814 (d)(h) 19,904 68,464 (g) 88,368
Retained earnings 29,372 (21,656)(e) 7,716 7,716
Cumulative translation adjustment (560) (560) (560)
Treasury stock (87) 87 (h) - -
------- -------- --------
Total stockholders' equity 38,208 28,724 97,724
------- -------- --------
Total capitalization $121,189 $128,556 $128,556
======== ======== ========
</TABLE>
(a) Reflects accrual for obligations payable to Mr. Rittenberg in connection
with the termination of his prior employment agreement. See "Organization of
the Company" and "Management of the Company - Executive Compensation -
Employment Agreements."
(b) Represents distributions of capital of approximately $7.6 million and
accumulated undistributed earnings of $5.9 million to Mr. Svenningsen retained
by the Company in the form of subordinated indebtedness.
(c) Gives effect to the issuance of (i) 15,232,857 shares of Common Stock to
Mr. Svenningsen in exchange for his equity interest in Amscan Inc. and its
affiliates (see "Organization of the Company"), (ii) 660,000 shares of Common
Stock to Mr. Rittenberg in connection with the termination of his prior
employment agreement (see "Organization of the Company" and "Management of the
Company - Executive Compensation - Employment Agreements"), (iii) 535,714
shares of Common Stock for the acquisition of an additional 50% of Am-Source,
Inc. and (iv) 214,286 shares of Common Stock to establish the ESOP for the
benefit of the Company's domestic employees.
(d) Gives effect to the issuance of shares of Common Stock in the approximate
amount of (i) a $1.1 million reduction related to the net impact of the
issuance of shares of Common Stock to Mr. Svenningsen in connection with the
Organization, (ii) $9.2 million to Mr. Rittenberg in connection with the
termination of his prior employment agreement (see "Organization of the
Company" and "Management of the Company - Executive Compensation - Employment
Agreements"), (iii) $7.4 million for the acquisition of an additional 50% of
Am-Source, Inc. and (iv) $3.0 million to establish the ESOP for the benefit of
the Company's domestic employees, partially offset by a distribution of
capital of $7.6 million to Mr. Svenningsen.
(e) Gives effect to (i) $13.6 million of compensation expense to Mr.
Rittenberg and other executives in connection with the termination of prior
employment agreements (see "Organization of the Company" and "Management of
the Company - Executive Compensation - Employment Agreements"), (ii) $5.9
million of distributions of accumulated undistributed earnings from Subchapter
S corporations to Mr. Svenningsen, and (iii) $3.0 million of compensation
expense to establish the ESOP for the benefit of the Company's domestic
employees net of (iv) $0.8 million of net deferred tax asset on accumulated
timing differences of Amscan Inc. and Am-Source, Inc. as if they had not been
treated as Subchapter S corporations for income tax purposes.
(f) Repayment of bank indebtedness and subordinated indebtedness and other
due to stockholders of $35.9 million and $33.1 million, respectively, as of
June 30, 1996 from proceeds of the Offering. Excludes estimated earnings from
June 30, 1996 to the date of the Offering which will be distributed and will
result in an increase in subordinated indebtedness. See "Use of Proceeds."
(g) Net proceeds from the Offering.
(h) Gives effect to the retirement of Treasury Stock in conjunction with the
Offering.
14
<PAGE>
DILUTION
At June 30, 1996, the Company's net tangible book value was
approximately $38.2 million or $2.30 per share of Common Stock (based upon
16,642,857 shares). Net tangible book value per share represents the amount
of total tangible assets of the Company reduced by the amount of total
liabilities, divided by the number of shares of Common Stock.
After giving effect to the Offering and the application of proceeds
therefrom, the net tangible book value at June 30, 1996 would have been
approximately $90.2 million or $4.10 per share, representing an immediate
increase in net tangible book value of $52.0 million or $2.36 per share and
an immediate dilution of $9.90 per share to new investors. The following
table illustrates this per share dilution:
Assumed initial public offering price per share $14.00
Net tangible book value at June 30, 1996 $2.30
Increase attributable to price paid by investors
in the Offering 1.80
----
Adjusted net tangible book value per share after
giving effect to the Offering 4.10
----
Dilution in net tangible book value per share to
new investors in the Offering $9.90
====
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The selected data presented below under the captions "Income Statement
Data" and "Balance Sheet Data" for, and as of the end of, each of the years
in the three-year period ended December 31, 1995, are derived from the
combined financial statements of Amscan Inc. and Affiliates which financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The combined financial statements as of December 31,
1994 and 1995, and for each of the years in the three-year period ended
December 31, 1995, and the report thereon, are included elsewhere in this
Prospectus. The selected data presented below under the captions "Income
Statement Data" and "Balance Sheet Data" for December 31, 1991 and December
31, 1992, and for each of the years then ended, and as of June 30, 1995,
and for each of the six-month periods ended June 30, 1995 and 1996, are
derived from unaudited combined financial statements of Amscan Inc. and
Affiliates and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the combined financial position and results of operations of such
periods. The unaudited combined financial statements of Amscan Inc. and
Affiliates as of June 30, 1996, and for the six-month periods ended June 30,
1995 and 1996 are included elsewhere in this Prospectus. The results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of results to be expected for the year ending December 31, 1996.
The selected combined financial data should be read in conjunction with Amscan
Inc. and Affiliates' Combined Financial Statements and the related notes
thereto included elsewhere in this Prospectus, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The pro
forma and supplemental pro forma data is unaudited and intended to present
the effect of certain events that have occurred or will occur in connection
with the consummation of the Offering and the Organization and should be read
in conjunction with "Supplemental Pro Forma Combined Financial Statements"
and notes thereto contained elsewhere in this Prospectus.
15
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
($ in thousands, except share amounts)
1991 1992 1993 1994 1995 1995 1996
INCOME STATEMENT DATA: (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $77,263 $86,944 $108,934 $132,029 $167,403 $ 80,422 $ 92,972
Cost of sales 50,177 56,565 72,656 86,748 108,654 51,903 58,706
------- ------- -------- -------- -------- -------- --------
Gross profit 27,086 30,379 36,278 45,281 58,749 28,519 34,266
Selling expenses 6,967 8,770 9,780 11,309 12,241 5,772 5,936
General and administrative
expenses 8,671 9,316 11,080 14,460 15,002 6,680 8,916
Art and development 1,709 1,551 2,596 2,796 4,256 1,802 2,194
Special bonuses(1) 100 850 1,106 2,200 2,581 1,423 2,100
------- ------- -------- -------- -------- -------- --------
Income from operations 9,639 9,892 11,716 14,516 24,669 12,842 15,120
Interest expense, net 2,787 2,092 2,304 3,843 5,772 2,979 3,084
Other (income)/expense, net (141) 16 308 82 (309) (304) (446)
------- ------- -------- -------- -------- -------- --------
Income before income taxes
and minority interests 6,993 7,784 9,104 10,591 19,206 10,167 12,482
Income taxes 617 297 348 464 731 203 441
Minority interests 73 53 301 160 1,041 347 825
------- ------- -------- -------- -------- -------- --------
Net income $ 6,303 $ 7,434 $ 8,455 $ 9,967 $17,434 $ 9,617 $11,216
======= ======= ======== ======== ======== ======== ========
Pro forma adjustments:
Net income, as above $ 6,303 $ 7,434 $ 8,455 $ 9,967 $17,434 $ 9,617 $11,216
Income taxes(2) 2,256 2,968 3,218 3,774 6,672 3,684 4,415
------- ------- -------- -------- -------- -------- --------
Pro forma net income(2) $ 4,047 $ 4,466 $ 5,237 $ 6,193 $10,762 $ 5,933 $ 6,801
======= ======= ======== ======== ======== ======== ========
Supplemental pro forma data(3):
Income from operations $27,000 $17,095
Interest expense, net 3,086 1,619
Other income, net (309) (446)
-------- -------
Income before income taxes and
minority interests 24,223 15,922
Income taxes 9,912 6,613
Minority interests 114 51
-------- -------
Net income $14,197 $ 9,258
======== =======
Supplemental pro forma net income
per share(3) $ 0.65 $ 0.42
======== =======
Pro forma weighted average
common shares outstanding (4) 22,000,000 22,000,000
========== ==========
BALANCE SHEET DATA: AT JUNE 30, 1996
----------------
HISTORICAL ADJUSTED(6)
---------- --------
Working capital $11,202 $13,765 $13,080 $13,126 $ 26,313 $ 35,468 $ 67,824
======= ======= ======== ======== ======== ======== ========
Total assets $56,978 $60,652 $80,090 $93,884 $114,601 $139,487 $ 151,321
======= ======= ======== ======== ======== ======== ========
Short-term indebtedness(5) $16,070 $19,993 $28,921 $37,305 $ 40,611 $ 51,891 $ 19,402
Long-term indebtedness(5) $17,728 $17,116 $20,202 $22,364 $ 30,214 $ 31,090 $ 11,430
------- ------- -------- -------- -------- -------- --------
Total indebtedness(5) $33,798 $37,109 $49,123 $59,669 $ 70,825 $ 82,981 $ 30,832
======= ======= ======== ======== ======== ======== ========
Stockholders' equity(7) $14,467 $15,550 $18,496 $20,820 $ 27,205 $ 38,208 $ 97,724
======= ======= ======== ======== ======== ======== ========
</TABLE>
(1) In each of the five years ended December 31, 1995 and the for the six
months ended June 30, 1995 and 1996, special bonus arrangements existed with
certain members of management. Upon consummation of the Offering, such
special profit sharing arrangements will be substantially modified and
replaced by incentives tied to the value of the Common Stock. See "Management
of the Company - Executive Compensation - Employment Agreements" and " -
Stock Option Plan."
16
<PAGE>
(2) Prior to the consummation of the Offering, Amscan Inc. and Am-Source,
Inc. elected to be taxed as Subchapter S corporations under the Internal
Revenue Code. The pro forma net income amounts give effect to pro forma
income tax amounts for each of the periods shown at statutory rates (40.5%)
assuming Amscan Inc. and Am-Source, Inc. had not elected Subchapter S
corporation status.
(3) Supplemental pro forma adjustments result in supplemental pro forma net
income for 1995 and for the six months ended June 30, 1996 being higher than
the pro forma net income shown for such periods due to adjustments (i) to
reduce compensation paid to certain employees to the extent such compensation
exceeded the compensation payable to such individuals under compensation
agreements described herein under "Management of the Company-Executive
Compensation-Employment Agreements," (ii) to reflect the reduction of interest
expense related to the repayment of bank loans and subordinated debt due to
Mr. Svenningsen from the proceeds of the Offering as if such repayments had
occurred at the beginning of the period, (iii) to reflect amortization of
goodwill and elimination of minority interest related to the acquisition of an
additional 50% of Am-Source, Inc. as if it were acquired at the beginning of
the period, and (iv) to give effect to the tax effects of these adjustments at
statutory rates (40.5%) assuming Amscan Inc. and Am-Source, Inc. had not
elected Subchapter S corporation status. See "Supplemental Pro Forma Combined
Financial Statements."
(4) Represents shares expected to be issued and outstanding after the
Offering. See "Capitalization."
(5) Short-term indebtedness consists primarily of the Company's borrowings
under bank lines of credit. Long-term indebtedness consists primarily of debt
to third parties and subordinated debt due to Mr. Svenningsen and other
stockholders. As of June 30, 1996, subordinated debt due to Mr. Svenningsen
amounted to $16 million.
(6) As Adjusted balance sheet at June 30, 1996 gives effect to (i) net
proceeds from the Offering, (ii) repayment of short-term and long-term
indebtedness from proceeds of the Offering, (iii) dividends and distributions
to be made to Mr. Svenningsen and other stockholders, (iv) accruals for
obligations payable to Mr. Rittenberg and certain other executives in
connection with the termination of prior employment agreements, (v) goodwill
related to the acquisition of an additional 50% of Am-Source, Inc.,
(vi) establishment of the ESOP for the benefit of the Company's domestic
employees and (vii) inclusion of deferred income taxes on accumulated timing
differences of Amscan Inc. and Am-Source, Inc. as if they had not been treated
as Subchapter S corporations for income tax purposes. See "Supplemental Pro
Forma Combined Financial Statements."
(7) Stockholders' equity at June 30, 1996 represents accumulated
undistributed earnings of Amscan Inc., as well as the accumulated earnings of
certain of the affiliates and accumulated paid-in capital of such affiliates.
As Adjusted amounts give effect to (i) net proceeds from the Offering,
(ii) dividends and distributions to be made to Mr. Svenningsen,
(iii) compensation paid to Mr. Rittenberg and certain other executives in
connection with the termination of their prior employment agreements,
(iv) issuance of Common Stock to Mr. Rittenberg in connection with the
termination of his prior employment agreement, (v) the acquisition of an
additional 50% of Am-Source, Inc., (vi) establishment of the ESOP for the
benefit of the Company's domestic employees and (vii) inclusion of deferred
income taxes on accumulated timing differences of Amscan Inc. and Am-Source,
Inc. as if they had not been treated as Subchapter S corporations for income
tax purposes. See "Use of Proceeds," "Capitalization" and "Supplemental Pro
Forma Combined Financial Statements."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The party goods industry has experienced significant changes in both
distribution channels and product offering over the last several years. The
retail distribution of party goods has begun to shift from smaller
independent stores and designated departments within drug, discount or
department store chains to superstores dedicated to retailing party goods.
In part due to the success of the superstore channel, party goods
manufacturers broadened their product lines to support the celebration of a
greater number of occasions. The industry's growth has been directly
affected by these changes.
The Company's revenues have grown at a rate greater than that of the
party goods industry as a whole, increasing from approximately $108.9
million in 1993 to $167.4 million in 1995, a compound annual growth rate of
approximately 24%. The Company attributes this growth to its ability to
create a broad range of unique and innovative designs for its products and
to work closely with its customers to market and merchandise its products to
consumers. In
17
<PAGE>
particular, the Company experienced significant growth with its superstore
customers. Between 1993 and 1995, sales to party superstore customers
increased from $31.1 million to $68.5 million, a 48% compound annual growth
rate.
Revenues are generated from the sales of approximately 14,000 sku's
consisting of paper and plastic tableware, accessories and novelties for all
occasions. Tableware (plates, cups, napkins and cutlery) is the Company's
core product category, generating approximately 60% of revenues in 1995.
Coordinated accessories (e.g., balloons, banners, etc.) and novelties (e.g.,
party favors) are offered to complement the Company's tableware products.
To serve its customers better, the Company has made significant additions to
its product line. Through increased spending on internal product
development as well as through acquisitions, the Company has had a net
increase of approximately 6,300 sku's since 1991. Revenue growth primarily
has been the result of increased orders from its superstore customers (new
stores and increased same-store sales), increased international sales and
price increases.
The Company's gross profit is influenced by its product mix and paper
costs. Products manufactured by the Company, primarily tableware,
represented approximately 50% of the Company's 1995 sales. The Company has
made significant additions to its manufacturing capacity which have allowed
it to improve gross margins. The Company believes that its manufacturing
capabilities enable it to lower product cost, ensure product quality and be
more responsive to customer demands. Paper represents approximately 35% of
the cost of the Company's paper tableware. The Company has historically
been able to adjust its prices in response to changes in paper prices.
FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY
In connection with the Offering and the Organization certain events have
occurred or will occur which will affect the financial position and results
of the Company. The following is a discussion of these events and the related
financial impact.
ORGANIZATION OF FOUNDER'S INTERESTS
The Company has been formed for the purpose of becoming the holding
company for the businesses previously conducted by Amscan Inc., certain
affiliated companies individually owned and independently controlled by Mr.
Svenningsen, and Am- Source, Inc., the Company's supplier of plastic plates,
cups and bowls. The transfer of his ownership in these companies in exchange
for shares of Common Stock of the Company will be accounted for in a manner
similar to a pooling of interests and, as such, the historical cost basis of
the accounts will be carried over thereby not giving rise to any goodwill.
See "Organization of the Company."
During the periods presented, a business which was not material to the
combined business of the Company was acquired by Mr. Svenningsen and
subsequently disposed of. The associated balance sheet, statements of
operations and loss on disposition of the business are insignificant and
have been excluded from the accompanying combined financial statements.
ACQUISITION OF AM-SOURCE, INC.
The Company and the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, have entered into an agreement pursuant to which such
stockholders have agreed to transfer their ownership in Am-Source, Inc.
in exchange for shares of Common Stock. The transaction will be accounted
for as the purchase of the 50% ownership of Am-Source, Inc. not currently
owned and will give rise to approximately $7.5 million of goodwill, which
will be amortized over 30 years.
TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS
Pursuant to an agreement between Amscan Inc. and Gerald C. Rittenberg,
the Company's President, Mr. Rittenberg has agreed to enter into a new
employment agreement, for a period of three years at a base compensation
of approximately $220,000 per year to be increased annually by 5%. Mr.
Rittenberg has also agreed to terminate his existing employment agreement
which provided for Mr. Rittenberg to receive bonuses equal to approximately
10% of the
18
<PAGE>
pre-tax profits of Amscan Inc. and certain affiliates in each of the next
three years and an amount equal to 5% of the value of Amscan Inc. in the
event of a change in control or an initial public offering. In exchange for
relinquishing these rights, Mr. Rittenberg will receive a special one-time
payment of approximately $3.4 million in cash and shares of Common Stock of
the Company equal to 3% of the total shares outstanding (excluding any
shares which might be issued upon exercise of the Underwriters' over-
allotment option) immediately following the Offering. The aggregate value
to be paid to Mr. Rittenberg in cash and stock is $12.6 million, assuming an
initial public offering price of $[14] per share (the mid-point of the range
of the initial public offering prices set forth on the cover page of this
Prospectus). See "Management of the Company - Executive Compensation -
Employment Agreements."
During the periods presented, certain other executives also had
employment agreements which entitled them to receive a percentage of the
pre-tax profits. These arrangements for Mr. Rittenberg and such other
executives between 1993 and 1995 ranged from 18% to 20% of pre-tax profits
in the aggregate. In conjunction with the Offering, these agreements have
been substantially modified and these bonus arrangements replaced by a
combination of specific incentive plans and/or cash payments and stock
option grants. The aggregate of the special bonuses to Mr. Rittenberg and
the other executives and senior managers were $1.1 million, $2.2 million and
$2.6 million for the years ended December 31, 1993, 1994 and 1995,
respectively. See "Management of the Company - Executive Compensation -
Employment Agreements."
ESTABLISHMENT OF AN EMPLOYEE STOCK OWNERSHIP PLAN
In conjunction with the Offering, the Company will be establishing the
ESOP for the benefit of its domestic employees. There will be a special
one-time contribution at the Offering of 214,286 shares of Common Stock of
the Company to the ESOP to be allocated to participant accounts based
upon a formula which is weighted based upon both years of service and
compensation. The Company does not contemplate making any additional
contributions to the ESOP until 1998, and any further contributions will
then be dependent upon a number of factors including Company performance.
CHANGE IN CORPORATION FROM A SUBCHAPTER S TO A SUBCHAPTER C CORPORATION
Prior to the Offering, Amscan Inc. and Am-Source, Inc. were operated as
Subchapter S corporations for federal income and, where available, for state
income tax purposes. As a result, these corporations did not record or pay
any federal or state income tax expense. Following the Offering, the
Company will be taxed as a Subchapter C corporation. It is anticipated that
the Company will have an effective income tax rate of approximately 40.5%
following the Offering. The Company has presented pro forma tax provisions
and pro forma net income and per share data. These pro forma amounts
represent what the income tax provision and the net income would have been
if the Company had been a Subchapter C corporation and thus subject to
income tax for all periods. See "Amscan Inc. and Affiliates Combined
Financial Statements" and "Supplemental Pro Forma Combined Financial
Statements."
STOCKHOLDER DISTRIBUTIONS
As Subchapter S corporations, the accumulated profits of Amscan Inc. and
Am-Source, Inc. will be distributed to the stockholders through the effective
date of the Offering. Net profits after the consummation of the Offering
will be added to retained earnings of the Company and used to fund the
capital requirements of the business. Additionally, prior to the Offering,
Amscan Inc. and certain affiliates will declare dividends to Mr. Svenningsen
representing distributions of accumulated profits and a return of capital.
These amounts will be reflected as subordinated debt and will be repaid from
the net proceeds of the Offering. It is estimated that the total of these
amounts, including the pre-existing subordinated debt as of June 30, 1996,
will be approximately $44 million.
--------------------
The impact of the termination of the prior employment agreements
described above and the establishment of the ESOP will result in a one-time
charge to compensation expense of approximately $16.6 million. This
expense, which will
19
<PAGE>
be recognized during the period that Amscan Inc. and Am-Source, Inc. are
Subchapter S corporations, will be reflected in the Company's operations
in the fiscal quarter which includes the Offering.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 66.7 65.7 64.9 64.5 63.1
------ ------ ------ ------ ------
Gross profit 33.3 34.3 35.1 35.5 36.9
------ ------ ------ ------ ------
Operating expenses:
Selling 9.0 8.5 7.4 7.2 6.4
General and administrative 10.1 11.0 9.1 8.3 9.5
Art and development 2.4 2.1 2.5 2.2 2.4
Special bonuses 1.0 1.7 1.5 1.8 2.3
------ ------ ------ ------ ------
Total operating expenses 22.5 23.3 20.5 19.5 20.6
------ ------ ------ ------ ------
Income from operations 10.8 11.0 14.6 16.0 16.3
Interest expense, net 2.1 2.9 3.4 3.7 3.3
Other (income) expense, net 0.3 0.1 (0.2) (0.4) (0.5)
------ ------ ------ ------ ------
Income before income taxes
and minority interests 8.4 8.0 11.4 12.7 13.5
Income taxes 0.3 0.4 0.4 0.3 0.5
Minority interests 0.3 0.1 0.6 0.4 0.9
------ ------ ------ ------ ------
Net income 7.8% 7.5% 10.4% 12.0% 12.1%
====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET SALES
Net sales for the six months ended June 30, 1996 were $93.0 million, an
increase of 15.6% over the six months ended June 30, 1995 for which net
sales were $80.4 million. Increased sales to national accounts, principally
superstores, accounted for approximately $11.0 million of this increase.
Also contributing to this sales increase was the impact of the Company's
marketing strategy of continually offering new products as well as new
designs and themes for existing products. In 1996, the Company's product
line included approximately 14,000 sku's compared with approximately 12,200
sku's in 1995. Selling price increases related to core products (paper
plates, napkins and cups) in response to higher paper costs accounted for
approximately 7 percentage points of the 15.6% increase in net sales between
the periods. Increased sales to international customers accounted for
approximately $1.3 million of the increase in net sales.
GROSS PROFIT
Gross profit increased approximately $5.7 million in the first half of
1996 compared to the same period in 1995, and improved as a percentage of
net sales from 35.5% to 36.9%. Higher selling prices in response to prior
period increases in paper costs as well as lower product costs resulting
from the Company's continued vertical integration of certain manufacturing
operations, offset in part by the cost of added distribution facilities,
were the primary reasons for this improvement in margins.
20
<PAGE>
SELLING EXPENSES
Selling expenses increased by approximately $0.2 million in the first
half of 1996 compared to the same period in 1995, but declined as a percentage
of net sales from 7.2% to 6.4%. The primary reason for the percentage decline
was the Company's ability to increase sales to its party superstore customers
while not significantly increasing its sales costs associated with these
accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased approximately $2.2
million in the first half of 1996 compared to the same period in 1995. As a
percentage of net sales, general and administrative expenses increased from
8.3% to 9.5%. This increase is principally attributable to: increased
occupancy costs related to the Company's new corporate offices as well as
one-time costs associated with the move to these offices; costs related to
the development of a new business management computer system and additional
personnel costs including relocation and recruitment.
ART AND DEVELOPMENT COSTS
Art and development costs increased approximately $0.4 million in the
first half of 1996 compared to the same period in 1995. As a percentage of
net sales, art and development costs increased from 2.2% in the first half
of 1995 to 2.4% in the first half of 1996. The Company significantly
expanded its creative and new product development staff and internal
development capabilities in the middle part of 1995 which resulted in a
substantial increase in art and development costs. The increase in art and
development expenditures reflects the Company's strategy to remain a leader
in product quality and development.
SPECIAL BONUSES
Special bonuses, which were based entirely upon the Company's pre-tax
income, increased by approximately $0.7 million in the first half of 1996
compared to the same period in 1995. In connection with the Offering, the
employment agreements which gave rise to these bonuses have been
substantially modified to eliminate the special bonus payments. See
"Management of the Company - Executive Compensation - Employment
Agreements."
INCOME FROM OPERATIONS
The factors discussed above contributed to the increase in income from
operations of 17.7% to $15.1 million in the first half of 1996 from $12.8
million in the corresponding period in 1995. As a percentage of net sales,
income from operations increased from 16.0% in the first half of 1995 to
16.3% for the same period in 1996.
INTEREST EXPENSE, NET
Interest expense, net increased by $0.1 million to $3.1 million in the
first half of 1996, reflecting slightly higher borrowings associated with
increased working capital (primarily for inventory and accounts receivable)
needed to support the increased volume of sales, offset in part by a lower
effective interest cost associated with the Company's revised revolving
credit agreement which was entered into in September 1995.
21
<PAGE>
INCOME TAXES
Amscan Inc. and Am-Source, Inc. elected to be taxed as Subchapter S
corporations for federal income tax and, where available, for state income
tax purposes. Accordingly, these entities have not been subject to federal
income taxes. In connection with the completion of the Offering, Amscan
Inc. and Am-Source, Inc. will terminate their Subchapter S corporation
status and, accordingly, will be subject to federal and state income taxes.
The amounts shown as income taxes consist principally of foreign taxes. See
"Amscan Inc. and Affiliates Combined Financial Statements."
MINORITY INTERESTS
Minority interests represent the portion of income attributable to
equity ownership not held by Mr. Svenningsen. In addition to the minority
interests of certain foreign entities, these amounts include the minority
interest of Am-Source, Inc. which will be acquired in conjunction with the
Offering. See "Organization of the Company."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES
Net sales for the year ended December 31, 1995 were $167.4 million, an
increase of 26.8% over 1994 when net sales were $132.0 million. Increased
sales to superstores accounted for $23.7 million or 67% of this increase.
The number of retail outlets represented by these accounts increased to
1,500 in 1995 from 1,140 in 1994. Also contributing to this net sales
increase was the impact of the Company's marketing strategy of continually
offering new products as well as new designs and themes for existing
products. In 1995, the Company's product line included over 13,400 sku's
compared with approximately 11,000 sku's in 1994. Selling price increases
related to core products (paper plates, napkins and cups) in response to
higher paper costs, accounted for approximately 5 percentage points of the
26.8% of the year-over-year increase in net sales. Increased sales to
international customers accounted for approximately $4.3 million of the
increase in net sales in 1995 compared to 1994.
GROSS PROFIT
Gross profit increased by approximately $13.5 million from 1994 to
1995, and improved as a percentage of net sales from 34.3% to 35.1%. The
gross profit margin improvement resulted primarily from the increased
vertical integration of the Company's tableware manufacturing operations.
During 1995, the Company added several new pieces of equipment including two
printing presses which enabled it to expand its manufacturing capacity. In
addition, gross margin improved as a result of increased leveraging of
existing distribution facilities and improved purchasing of non-manufactured
products.
SELLING EXPENSES
Selling expenses increased by approximately $0.9 million from 1994 to
1995, but declined as a percentage of net sales from 8.5% to 7.4%. The
primary reason for the percentage decline was the Company's ability to
increase sales to its superstore customers, while not significantly
increasing its sales costs associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately $0.5
million from 1994 to 1995, primarily as a result of modest wage increases.
As a percentage of net sales, general and administrative expenses declined
from 11.0% to 9.1%. The Company was able to leverage its administrative
resources while supporting the increased sales.
22
<PAGE>
ART AND DEVELOPMENT COSTS
Art and development costs increased approximately $1.5 million from
1994 to 1995. As a percentage of net sales, art and development costs
increased from 2.1% in 1994 to 2.5% in 1995. The Company significantly
expanded its creative and new product development staff and internal
development capabilities in 1995, which resulted in a substantial increase
in art and development costs. The increase in such expenses reflects the
Company's strategy of remaining a leader in product quality and development.
SPECIAL BONUSES
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1995 over 1994. The special bonus in 1994 included special
one-time bonuses of approximately $0.8 million associated with the partial
acquisition of Am-Source, Inc. In connection with the Offering, the
employment agreements which gave rise to these bonuses have been
substantially modified to eliminate the special bonus payments. See
"Management of the Company - Executive Compensation - Employment
Agreements."
INCOME FROM OPERATIONS
The factors discussed above contributed to the increase in income from
operations of 69.9% to $24.7 million in 1995 from $14.5 million in 1994. As
a percentage of net sales, income from operations increased from 11.0% in
1994 to 14.6% in 1995.
INTEREST EXPENSE, NET
Interest expense, net increased by $1.9 million to $5.8 million from
1994 to 1995, reflecting higher borrowings associated with increased working
capital (primarily for inventory and accounts receivables) needed to support
the increased volume of sales, as well as an increase in the Company's
average effective rate for borrowed money from 7.5% to 8.3%.
INCOME TAXES
Amscan Inc. and Am-Source, Inc. elected to be taxed as Subchapter S
corporations for federal income and, where available, for state income tax
purposes. Accordingly, these entities have not been subject to federal
income taxes. In connection with the consummation of the Offering, Amscan
Inc. and Am-Source, Inc. will terminate their Subchapter S corporation
status and, accordingly, will be subject to federal and state income taxes.
The amounts shown as income taxes consist principally of foreign taxes. See
"Amscan Inc. and Affiliates Combined Financial Statements."
MINORITY INTERESTS
Minority interests represent the portion of income attributable to
equity ownership not held by Mr. Svenningsen. In addition to the minority
interests of certain foreign entities, these amounts include the minority
interest of Am-Source, Inc. which will be acquired in conjunction with the
Offering. See "Organization of the Company."
YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993
NET SALES
Net sales for the year ended December 31, 1994 were $132.0 million, an
increase of 21.2% over 1993 when net sales were $108.9 million. Increased
sales to superstores accounted for $13.7 million or 59% of this increase.
The number of retail outlets represented by these accounts increased to
1,140 in 1994 from 900 in 1993. The number of items offered by the Company,
which increased from 10,000 sku's in 1993 to 11,000 in 1994, also
contributed to the
23
<PAGE>
improvement in net sales. In addition, sales were favorably affected by the
inclusion of a full year of operating results for Am-Source, Inc. and
Trisar, Inc. both of which were acquired by the Company during 1993.
Average selling prices for the Company's core products (paper plates,
napkins and cups) remained relatively flat between 1993 and 1994. Increased
sales to international customers accounted for approximately $3.0 million of
the sales increase.
GROSS PROFIT
Gross profit increased approximately $9.0 million from 1993 to 1994,
and improved as a percentage of net sales from 33.3% to 34.3%. Improved
margins resulted from the Company's manufacturing a greater portion of its
tableware requirements. In addition, gross margin improved as a result of
increased leveraging of existing distribution facilities and improved
purchasing of non-manufactured products.
SELLING EXPENSES
Selling expenses increased approximately $1.5 million between 1993 and
1994, but declined as a percentage of net sales from 9.0% to 8.5%. The
primary reason for the percentage decline was the Company's ability to
increase sales to its superstore customers while not significantly
increasing its sales costs associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expense increased approximately $3.4 million
from 1993 to 1994 as a result of a number of factors including: the full
year impact of acquisitions made in 1993, increases in provisions for bad
debts, increased consulting and professional fees associated with systems
development and wage increases. As a percentage of net sales, general and
administrative expenses increased from 10.1% to 11.0% from 1993 to 1994.
ART AND DEVELOPMENT COSTS
Art and development costs increased approximately $0.2 million between
1993 and 1994. As a percentage of net sales, art and development expenses
decreased from 2.4% in 1993 to 2.1% in 1994 The increase was principally a
result of the additional art and development costs associated with the
acquisition of Trisar, Inc. which was consummated in 1993.
SPECIAL BONUSES
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1994 over 1993. The special bonus in 1994 included special
one-time bonuses of approximately $0.8 million associated with the partial
acquisition of Am-Source, Inc. In connection with the Offering, the
employment agreements which gave rise to these bonuses have been
substantially modified to eliminate the special bonus payments. See
"Management of the Company - Executive Compensation - Employment
Agreements."
INCOME FROM OPERATIONS
Due to the factors discussed above, income from operations increased
23.9% to $14.5 million in 1994 from $11.7 million in 1993. As a percentage
of net sales, income from operations increased from 10.8% to 11.0% from 1993
to 1994.
INTEREST EXPENSE, NET
Interest expense, net in 1994 increased by $1.5 million to $3.8
million, reflecting higher borrowings associated with increased working
capital needed to support the increased volume of sales, as well as an
increase in the Company's average effective interest rate from 6.9% to 7.5%.
24
<PAGE>
INCOME TAXES
Amscan Inc. and Am-Source, Inc. elected to be taxed as Subchapter S
corporations for federal income and, where available, for state tax
purposes. Accordingly, these entities have not been subject to federal
income taxes. In connection with the Offering, Amscan Inc. and Am-Source,
Inc. will terminate their Subchapter S corporation status and, accordingly,
will be subject to federal and state income taxes. The amounts shown as
income taxes consist principally of foreign taxes. See "Amscan Inc. and
Affiliates Combined Financial Statements."
MINORITY INTERESTS
Minority interests represent the portion of income attributable to equity
ownership not held by Mr. Svenningsen. In addition to the minority
interests of certain foreign entities, these amounts include the minority
interest of Am-Source, Inc. which will be acquired in conjunction with the
Offering. See "Organization of the Company."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth over the past three years
principally through cash flow generated from operations, the use of
operating leases, increases in its revolving line of credit borrowings and
increases in long-term debt, including subordinated debt owed to Mr.
Svenningsen. The proceeds from this Offering will be used to reduce
indebtedness under the Company's line of credit and to repay subordinated
debt. Management believes that the Company's working capital requirements
will continue to be met by cash flow from operations and borrowing under its
line of credit.
On September 20, 1995, the Company revised its revolving line of credit
with several banks. This facility provided the Company with a $50.0 million
credit line based upon the assets of the Company. The amount available
under this facility increased to $55.0 million on September 20, 1996, and
will increase to $60.0 million on September 20, 1997. The facility, which
expires September 20, 2000, had an outstanding balance as of June 30, 1996
of $47.3 million at an average interest rate of 6.95%. This rate includes
the impact of interest rate "swap" contracts which the Company has entered
into to fix the interest rate on $25.0 million of its obligation. (See Note
(5) of the Notes to Combined Financial Statements of Amscan Inc. and
Affiliates.) The Company may seek to enter into new arrangements for term
debt to replace a portion of its revolving line of credit.
In 1995, the Company had income before interest, taxes and depreciation
and amortization of $28.3 million compared to $17.9 million in 1994.
Additionally, the Company generated $11.2 million and $10.2 million from
financings in 1995 and 1994, respectively. The Company used $19.5 million
of the cash in 1995 and $12.5 million of the cash in 1994 to fund its
working capital needs, which consisted primarily of increases in accounts
receivable and inventory.
For the six months ended June 30, 1996, the Company had income before
interest, taxes and depreciation and amortization of $17.0 million compared
to $14.9 million for the same period ended June 30, 1995. Additionally, the
Company generated $11.7 million and $10.4 million from financings for the
six months ended June 30, 1996 and 1995, respectively. The Company used
$22.8 million of the cash for the six months ended June 30, 1996 and $19.2
million of the cash for the six months ended June 30, 1995 to fund its
working capital needs, which consisted primarily of increases in accounts
receivable and inventory.
In 1995, the Company acquired $2.6 million of machinery and equipment
and entered into operating leases for additional machinery and equipment
worth $7.4 million, compared to net machinery and equipment purchases in
1994 of $6.1 million. The Company is continuing to add to manufacturing
capacity and has entered into additional operating leases for machinery and
equipment worth approximately $10.4 million and has ordered machinery and
equipment worth approximately $3.1 million to be delivered in 1996.
Management believes that these additions to plant and equipment provide
adequate capacity to support its operations for the foreseeable future.
25
<PAGE>
In 1995, the Company distributed $11.0 million, compared to $7.5
million in 1994, to stockholders, of which $4.0 million in 1995 and $3.6
million in 1994, was reinvested in the Company as subordinated debt payable
to stockholders. The remainder of these distributions was used principally
for the payment of their taxes. See "Organization of the Company." The
increase from 1994 to 1995 was due to increased earnings of those
corporations, taxable to the stockholders.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 123 - Accounting for
Stock-Based Compensation. As allowable by SFAS 123, the Company does not
intend to recognize compensation cost for stock-based employee compensation
arrangements, but rather, starting with fiscal 1996, will disclose the pro-
forma impact on net income and earnings per share as if the fair value
stock-based compensation had been recognized starting with fiscal 1995.
In March, 1995, the FASB issued SFAS 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
When adopted in 1996, the Companies do not believe that the impact of SFAS
121 will have a significant impact on their financial position or results of
operations.
Other pronouncements issued by the FASB or other authoritative
accounting standard groups with future effective dates are either not
applicable or not significant to the financial statements of the Companies.
QUARTERLY RESULTS
As a result of the seasonal nature of certain of the Company's
products, the quarterly results of operations may not be indicative of those
for a full year. Third quarter sales are generally the highest of the year
due to a combination of increased sales to consumers of the Company's
products during summer months as well as initial shipments of seasonal
holiday merchandise as retailers build inventory. Conversely, fourth
quarter sales are generally lower as retailers sell through inventories
purchased during the third quarter. The overall growth rate of the
Company's sales in recent years has offset, in part, this sales variability.
Promotional activities, including special dating and pricing terms,
particularly with respect to Halloween and Christmas products, result in
generally lower margins and profitability in the fourth quarter, as well as
higher accounts receivable balances and associated higher interest costs to
support these balances. The following table sets forth the historical net
sales and income from operations of the Company for 1995 and 1996 by
quarter.
QUARTERLY RESULTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995 QUARTERS 1996 QUARTERS
--------------------------------------- ------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- ------- -------- -------
Net sales $39,376 $41,046 $46,221 $40,760 $47,258 $45,714
======= ======= ======= ======= ======= =======
Income from operations $ 6,492 $ 6,350 $ 8,564 $ 3,263(a) $ 7,565 $ 7,555
======= ======= ======= ======= ======= =======
</TABLE>
(a) In addition to the seasonal variability described above, income from
operations for the fourth quarter of 1995 was adversely affected by the
impact of higher paper costs for which selling price adjustments were
implemented in the first quarter of 1996. Income from operations for this
quarter was also adversely affected by additional bad debt reserves
(approximately $0.5 million) and additional computer system expenses
(approximately $0.5 million).
26
<PAGE>
SUPPLEMENTAL PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following Supplemental Pro Forma Combined Financial Statements for
the year ended December 31, 1995 and as of and for the six months ended
June 30, 1996 reflect the combined results of operations of Amscan Inc. and
Affiliates after giving effect to certain events that have occurred or will
occur in conjunction with the Organization and the Offering including pro
forma adjustments intended to present the historical results as if Amscan
Inc. and Am-Source, Inc. had not elected to be treated as Subchapter S
corporations for tax purposes.
The unaudited Supplemental Pro Forma Combined Financial Statements have
been prepared by management solely to facilitate period to period
comparisons and do not represent the actual financial position or results of
operations for the periods presented. The Supplemental Pro Forma Combined
Balance Sheet and the Supplemental Pro Forma Combined Statements of
Operations do not purport to be indicative of future results.
The Supplemental Pro Forma Combined Financial Statements should be read
in conjunction with the Combined Financial Statements of Amscan Inc. and
Affiliates and the notes thereto and the Unaudited Combined Financial
Statements of Amscan Inc. and Affiliates and the notes thereto contained
elsewhere in this Prospectus.
27
<PAGE>
AMSCAN INC. AND AFFILIATES
SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
($ in thousands, except share amounts)
(unaudited)
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ------------
Net sales $167,403 $167,403
Cost of sales 108,654 108,654
-------- --------
Gross profit 58,749 58,749
Selling 12,241 12,241
General and administrative 15,002 $250 (a) 15,252
Art and development 4,256 4,256
Special bonuses 2,581 (2,581)(b) -
-------- --------
Income from operations 24,669 27,000
Interest expense, net 5,772 (2,686)(c) 3,086
Other income, net (309) (309)
-------- --------
Income before income
taxes and minority
interests 19,206 24,223
Income taxes 731 9,181 (d) 9,912
Minority interests 1,041 (927)(a) 114
-------- --------
Supplemental pro forma
net income $ 17,434 $ 14,197(f)
======== ========
Supplemental pro forma
net income per share $ 0.65
========
Supplemental pro forma
weighted average common
shares outstanding 22,000,000(e)
==========
Notes to Supplemental Pro Forma Combined Statement of Operations for the
year ended December 31, 1995:
(a) To reflect amortization of goodwill of $7.5 million over thirty years
and the elimination of minority interest related to the acquisition of
an additional 50% of Am-Source, Inc. as if it were acquired at the
beginning of the period presented;
(b) To reflect the reduction in compensation paid to certain employees to
the extent such compensation exceeded the compensation payable to such
individuals under compensation agreements described herein under
"Management of the Company - Executive Compensation - Employment
Agreements";
(c) To reflect reduced interest expense assuming a repayment of $20.0
million of bank loans at an average rate of 7% and an average balance of
$13.3 million of loans from Mr. Svenningsen at an average rate of 9.3%;
(d) To provide for income taxes at an effective rate of 40.5% on earnings
as if Amscan Inc. and Am-Source, Inc. had not been treated as Subchapter
S corporations during the period presented ($6.7 million) and to give
effect to the tax effect of these adjustments ($2.5 million);
(e) Supplemental pro forma weighted average common shares outstanding is
calculated as if the shares issued in the Offering as well as those
issued in the Organization had been outstanding from the beginning of
the period presented;
(f) The above pro forma and supplemental pro forma adjustments do not
include anticipated non-recurring expenses of $13.6 million and $3.0
million relating to compensation expense to be incurred at the
consummation of the Offering in connection with cash and stock to be
paid to Mr. Rittenberg and certain other executives in connection
28
<PAGE>
with the termination or modification of prior employment agreements and
the establishment of the ESOP for the benefit of the Company's domestic
employees.
29
<PAGE>
AMSCAN INC. AND AFFILIATES
SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
($ in thousands, except share amounts)
(unaudited)
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ------------
Net sales $92,972 $ 92,972
Cost of sales 58,706 58,706
-------- --------
Gross profit 34,266 34,266
Selling 5,936 5,936
General and administrative 8,916 $125(a) 9,041
Art and development 2,194 2,194
Special bonuses 2,100 (2,100)(b) -
-------- --------
Income from operations 15,120 17,095
Interest expense, net 3,084 (1,465)(c) 1,619
Other income, net (446) (446)
-------- --------
Income before income taxes
and minority interests 12,482 15,922
Income taxes 441 6,172 (d) 6,613
Minority interests 825 (774)(a) 51
-------- --------
Supplemental pro forma net
income $ 11,216 $ 9,258(f)
======= =======
Supplemental pro forma net
income per share $ 0.42
=======
Supplemental pro forma
weighted average common
shares outstanding 22,000,000(e)
==========
Notes to Supplemental Pro Forma Combined Statement of Operations for the six
months ended June 30, 1996:
(a) To reflect amortization of goodwill of $7.5 million over thirty years
and the elimination of minority interest related to the acquisition of
an additional 50% of Am-Source, Inc. as if it were acquired at the
beginning of the period presented;
(b) To reflect the reduction in compensation paid to certain employees to
the extent such compensation exceeded the compensation payable to such
individuals under compensation agreements described herein under
"Management of the Company - Executive Compensation - Employment
Agreement";
(c) To reflect reduced interest expense assuming a repayment of $20.0
million of bank loans at an average rate of 7% and $16.0 million of
loans from Mr. Svenningsen at an average rate of 8.75%;
(d) To provide for income taxes at statutory rates (40.5%) on earnings as
if Amscan Inc. and Am-Source, Inc. had not been treated as Subchapter S
corporations during the period presented ($4.4 million) and to give
effect to the tax effect of these adjustments ($1.8 million);
(e) Supplemental pro forma weighted average common shares outstanding is
calculated as if the shares issued in the Offering as well as those
issued in the Organization had been outstanding from the beginning of
the period presented;
(f) The above pro forma and supplemental pro forma adjustments do not
include anticipated non-recurring expenses of $13.6 million and $3.0
million relating to compensation expense to be incurred at the
consummation of the Offering in connection with cash and stock to be
paid to Mr. Rittenberg and certain other executives in connection
30
<PAGE>
with the termination or modification of prior employment agreements and
the establishment of the ESOP for the benefit of the Company's domestic
employees.
31
<PAGE>
AMSCAN INC. AND AFFILIATES
SUPPLEMENTAL PRO FORMA COMBINED BALANCE SHEET
June 30, 1996
($ in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
SUPPLEMENTAL
PRO FORMA
ADJUSTMENTS
SUPPLEMENTAL TO GIVE
PRO FORMA EFFECT TO SUPPLEMENTAL
HISTORICAL ADJUSTMENTS SUBTOTAL THE OFFERING PRO FORMA
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 3,478 $ 3,478 $ 3,478
Accounts receivable, net 39,740 39,740 39,740
Inventories 49,474 49,474 49,474
Deposits and other 12,326 $4,334(a) 16,660 16,660
------- ------- -------
Total current assets 105,018 109,352 109,352
Property, plant and equipment,
net 27,137 27,137 27,137
Other assets 7,332 7,500(b) 14,832 14,832
------- ------- -------
Total assets $139,487 $151,321 $151,321
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable $49,750 3,400(c) $53,150 $(35,889)(i) $17,261
Accounts payable 7,630 7,630 7,630
Accrued expenses 10,029 4,467(a)(d) 14,496 14,496
Current installments of
long-term indebtedness 2,141 2,141 2,141
------- ------- -------
Total current liabilities 69,550 77,417 41,528
Long-term indebtedness,
excluding current
installments 11,430 11,430 11,430
Subordinated and other
indebtedness due to
stockholders 19,660 13,451(e) 33,111 (33,111)(i) -
Other 639 639 639
------- ------- -------
Total liabilities 101,279 122,597 53,597
------- ------- -------
Stockholders' equity:
Common stock 393 1,271(f) 1,664 536(j) 2,200
Additional
paid-in-capital 9,090 10,814(g)(k) 19,904 68,464(j) 88,368
Retained earnings 29,372 (21,656)(h) 7,716 7,716
Cumulative translation
adjustment (560) (560) (560)
Treasury stock, at cost (87) 87(k) - -
------- ------- -------
Total stockholders'
equity 38,208 28,724 97,724
------- ------- -------
Total liabilities and
stockholders' equity $139,487 $151,321 $151,321
======= ======= =======
</TABLE>
32
<PAGE>
Notes to Supplemental Pro Forma Combined Balance Sheet:
(a) Reflects a deferred income tax asset and liability of $4.3 million and
$3.5 million, respectively, on accumulated timing differences as if
Amscan Inc. and Am-Source, Inc. had not been treated as Subchapter S
corporations for income tax purposes.
(b) Reflects goodwill of $7.5 million related to the acquisition of an
additional 50% of Am-Source, Inc.
(c) Reflects the accrual for obligations payable to Mr. Rittenberg in
connection with the termination of his prior employment agreement. See
"Organization of the Company" and "Management of the Company - Executive
Compensation - Employment Agreements."
(d) Reflects the accrual for obligations payable of $1.0 million to certain
executives in connection with the termination of their prior employment
agreements.
(e) Represents distributions of capital of approximately $7.6 million and
accumulated undistributed earnings of $5.9 million to Mr. Svenningsen
retained by the Company in the form of subordinated indebtedness.
(f) Gives effect to the issuance of (i) 15,232,857 shares of Common Stock
to Mr. Svenningsen in exchange for his equity interest in Amscan Inc.
and its affiliates (see "Organization of the Company"), (ii) 660,000
shares of Common Stock to Mr. Rittenberg in connection with the
termination of his prior employment agreement (see "Organization of
the Company" and "Management of the Company - Executive Compensation -
Employment Agreements"), (iii) 535,714 shares for the acquisition of an
additional 50% of Am-Source, Inc. and (iv) 214,286 shares to establish
the ESOP for the benefit of the Company's domestic employees.
(g) Gives effect to the issuance of shares of Common Stock in the approximate
amount of (i) a $1.1 million reduction related to the net impact of the
issuance of shares to Mr. Svenningsen in connection with the Organization
(see "Organization of the Company"), (ii) $9.2 million to Mr. Rittenberg
in connection with the termination of his prior employment agreement (see
"Organization of the Company" and "Management of the Company - Executive
Compensation - Employment Agreements"), (iii) $7.4 million for the
acquisition of an additional 50% of Am-Source, Inc. and (iv) $3.0
million to establish the ESOP for the benefit of the Company's domestic
employees, partially offset by a distribution of capital of $7.6 million
to Mr. Svenningsen.
(h) Gives effect to (i) $13.6 million of compensation expense to Mr.
Rittenberg and other executives in connection with the termination of
prior employment agreements (See "Organization of the Company" and
Management of the Company - Executive Compensation - Employment
Agreements"), (ii) $5.9 million of distributions of accumulated
undistributed earnings from Subchapter S corporations to Mr.
Svenningsen, and (iii) $3.0 million of compensation expense to establish
the Employee Stock Ownership Plan for the benefit of the Company's
domestic employees net of (iv) $0.8 million of a net deferred tax
asset on accumulated timing differences of Amscan Inc. and Am-Source,
Inc. as if they had not been treated as Subchapter S corporations for
income tax purposes.
(i) Repayment of bank indebtedness and subordinated indebtedness and other
due to stockholders of $35.9 million and $33.1 million, respectively, as
of June 30, 1996 from proceeds of the Offering. Excludes estimated
earnings from June 30, 1996 to the date of the Offering which will be
distributed and will result in an increase in subordinated indebtedness.
See "Use of Proceeds."
(j) Net proceeds from the Offering.
(k) Gives effect to the retirement of Treasury Stock in conjunction with the
Offering.
33
<PAGE>
BUSINESS
The Company is one of the leading designers, manufacturers and
distributors of seasonal and everyday party goods. With a product line
consisting of approximately 14,000 sku's, the Company is a complete source of
paper and plastic party goods, including decorative tableware such as plates,
cups and napkins, accessories such as invitations and balloons, and novelties
such as games and favors. The Company's products are sold in more than 20,000
retail outlets. The Company is a leading supplier to the emerging party goods
superstore distribution channel, where it has been able to position itself as
a responsive and comprehensive supplier of proprietary, well designed and high
quality products. The Company also distributes its products to discount
chains, mass merchandisers and specialty retailers. The Company's in-house
design staff produces and manages the broad spectrum of party goods for all
occasions.
INDUSTRY OVERVIEW
According to Paper and Party Retailer, a trade publication for the party
goods industry, the retail party supplies industry achieved total sales of
approximately $8.8 billion in 1995, which includes items such as cards and
stationery in addition to the products produced by the Company. Over the past
several years, according to the same publication, there has been a significant
shift of sales to party goods superstores.
The Company believes that several current industry trends offer well-
positioned manufacturers opportunities for significant growth including:
o The increasing breadth and availability of party merchandise in the
marketplace. Principal manufacturers such as the Company have broadened their
product offerings to include party goods to celebrate a greater number of
events, holidays and themes. At the same time, manufacturers are expanding
the number and types of products offered for each sort of occasion to
encourage add-on purchases by consumers planning parties.
o The recent emergence of the party goods superstore merchandising
concept. The retail party goods business has historically been fragmented,
with consumers purchasing party goods from independent stores and designated
departments within drug, discount or department store chains. Over the past
several years, the marketplace has begun to accept a move toward the party
goods superstore merchandising concept, similar to earlier merchandising
shifts in such product categories as food, toys, office supplies, home
furnishings and home improvement needs. These superstores provide consumers
with a one-stop source for all of their party needs generally at discounted
prices. By displaying an array of integrated and related merchandise in an
attractive format, they seek to influence consumers to increase the number
of items purchased for each event or occasion.
o Consumers' desire to enhance the quality of their leisure time.
Another important dynamic in this industry is an increase in home
entertaining, as consumers seek to enhance the quality of their leisure
time by including party goods in their celebrations. The Company believes
that this consumer desire to optimize leisure time is an outgrowth, among
other things, of the increase in two wage-earner families. Party goods
offer a convenient and affordable way to make all types of occasions more
festive.
BUSINESS STRATEGY
The Company's goal is to grow sales and market share and enhance
profitability by offering the industry's fullest product line produced using
state-of-the-art design processes and manufacturing technology. The key
elements in executing the Company's strategy include:
34
<PAGE>
Provide the Broadest Product Line.
The Company endeavors to provide party goods retailers with the most
extensive product line in the industry. Differentiating itself from its
competitors, the Company offers approximately 200 design ensembles, each
containing 30 to 150 items appealing to a variety of consumer preferences. In
total, the Company's product line includes approximately 14,000 sku's. The
Company believes that by offering such a full product line, it has created a
competitive advantage by becoming a single source for a large portion of the
retailers' requirements. In addition, the breadth of products gives the
consumer new ideas for making parties festive, colorful and interesting. In
this way, the Company seeks to increase the number of products sold per
consumer for each transaction and generate consumer loyalty and repeat
business.
Maintain Product Design Leadership.
The Company's product development process is design driven. The Company
believes it is a leader in the creation of innovative and unique designs for
its products. The Company looks to create designs which have a level of
complexity and style that is compelling to consumers and difficult for
competitors to replicate. Approximately 60 of the Company's employees are
engaged in the design process. From the large number of designs and concepts
developed by these artists, the Company selects those it believes best to
replace approximately one-third of its designed product ensembles each year.
For example, in 1996 the Company introduced over 50 new ensemble designs.
The Company targets a wide variety of events, holidays and themes in the
creation of its designs and frequently introduces new designs into the
marketplace. The goal of this approach is to heighten consumer awareness of
particular events, holidays and themes and to reinforce the concept that party
planning is appropriate and enjoyable throughout the year. For example, the
Company has introduced on a nationwide scale ensembles for Mardi Gras and
Hawaiian luaus, themes not traditionally part of home entertainment parties.
Almost all of the Company's designs are developed in-house by a creative and
highly skilled design staff using state-of-the-art technology. The Company
does not depend on licenses to any material degree.
Work Closely With Customers.
The Company strives to build strong relationships with its customer base
representing more than 20,000 retail outlets. Key elements of this strategy
are providing superior service and involving retailers in the Company's
product development and marketing process. In particular, the Company
solicits input from retailers on new product concepts and consumer design
preferences in determining the types of events, holidays and themes to target.
The Company also furnishes to party goods retailers customized planograms for
the display of products in their stores with the goal of maximizing sales to
consumers. The Company believes that effective display of its products at
retail, including coordinated accessories, results in add-on purchases by
consumers seeking further to enhance the festive nature of their celebrations.
The Company's order taking and fulfillment systems are designed to support its
customers by providing customers with high fill rates and short turn-around
times.
Over the past five years, much of the Company's growth has been
attributable to its ability to establish strong relationships with the
emerging party goods superstore channel of distribution. The Company has been
able to develop these relationships in large part due to its customer service
efforts while maintaining its market position with its traditional customer
base of independent card and party goods retailers.
Use State-of-the-Art Manufacturing and Distribution Technology.
The Company uses state-of-the-art technological processes to design,
manufacture and distribute its products. The Company's highly skilled design
staff employs computer assisted design ("CAD") systems to develop designs
which the Company believes are unmatched in terms of complexity and style.
Its state-of-the-art manufacturing equipment includes highly automated
printing, forming, folding and packaging equipment. This vertically
integrated manufacturing
35
<PAGE>
capability, which covers most of its core products and accounted for
approximately 50% of 1995 sales, enables the Company to control its costs,
manage its inventory investment and respond quickly to customer orders. In
order to expedite the order-entry process, the Company has equipped its sales
force and certain of its customers with hand held computers. Through the use
of standard telephone lines, these devices interface directly with the
Company's automated distribution centers. The Company's distribution centers
employ computer-assisted systems to receive and fill customer orders
efficiently and quickly.
Grow Through Acquisitions.
The Company has from time to time sought to expand its product line and
market share, as well as further vertically integrate its operations, through
strategic acquisitions. The Company intends to pursue additional acquisitions
of complementary businesses which further these strategic objectives. Other
than its agreement described herein under "Organization of the Company"
pursuant to which the Company acquired the remaining 50% of Am-Source, Inc.,
which is the source of the Company's plastic plates, cups and bowls, the
Company does not currently have any agreements with any parties with respect
to acquisitions.
PRODUCTS AND SERVICES
The Company offers products in everyday and seasonal designs. Everyday
events and celebrations include birthdays, showers, weddings, christenings,
graduations, anniversaries, retirements, first communions, bar mitzvahs,
confirmations, summer picnics and barbecues and theme parties (such as
Hawaiian luaus, Mardi Gras and '50's parties). Seasonal celebrations and
events include New Years, Valentine's Day, St. Patrick's Day, Easter,
Passover, Fourth of July, Halloween, Thanksgiving, Hanukkah and Christmas.
The principal categories of products which the Company offers are
tableware, accessories and novelties. The percentages of net sales
represented by each product category for each of the past three calendar years
are set forth in the following table:
1993 1994 1995
---- ---- ----
Tableware 55% 58% 60%
Accessories 27% 26% 24%
Novelties 18% 16% 16%
36
<PAGE>
The following table sets forth the principal products in each of the
three categories:
Tableware Accessories Novelties
--------- ----------- ---------
Solid Color: Balloons Buttons
Paper and Plastic Cups Banners Candles
Paper and Plastic Cascades Cocktail Picks
Plates Confetti Games
Paper and Plastic Table Crepe Mugs
Covers Cutouts Noise Makers
Plastic Cutlery Decorative Tissues Party Favors
Flags Party Hats
Decorated: Gift Bags Pom Poms
Paper Cups Gift Wrap T-shirts
Paper Napkins Guest Towels
Paper Plates Honeycomb Centerpieces
Paper Table Covers Invitations and Notes
Ribbons and Bows
Signs
Tableware
The Company believes that tableware products are the initial focus of a
consumer in the planning of a party since these items are necessary in
connection with the consumption of food and beverages. To distinguish its
tableware from that of its competitors, the Company seeks to create a broad
range of unique designs for its products. In addition, the Company's
tableware products are priced competitively and affordably. The Company's
paper plates, cups, napkins, table covers and plastic cutlery are affordable,
having suggested retail prices (based upon quantity) ranging between $1.70 and
$10.00.
Accessories and Novelty Items
The Company believes that a consumer also will choose the Company's
tableware over that of its competitors due to the breadth and array of
accessory and novelty items available to the consumer in designs coordinated
with the Company's tableware designs. By offering coordinated ensembles, the
Company seeks to appeal to consumers' imagination and tastes and therefore
make the purchase of the Company's ensembles more appealing than purchasing
tableware without accessories. The display of its accessory items in retail
stores, in unified displays which create a striking visual impact, are
designed to encourage the impulse buying of such accessories and novelty items
by offering consumers the opportunity to enhance the festive nature of their
celebration. The Company believes that the appeal of its full product line
thereby increases the number of products sold per customer for each
transaction.
DESIGN AND PRODUCTION
The Company has an active design and new product development program
involving approximately 60 of its employees on a full-time basis. These
individuals perform a variety of functions, including product development,
product management, design layout, art production and catalogue production.
The Company looks to create designs which have a level of complexity and style
which is compelling to consumers and difficult for competitors to replicate.
The design
37
<PAGE>
process often begins more than a year in advance of actual commercial
production and is intended to keep pace with changing consumer preferences in
fashion and design. In addition, senior executives and members of the
Company's product development and design staffs regularly meet with customers
and attend trade shows and related events to ascertain market and design
trends.
Each year, the Company introduces new products as well as new designs and
themes for existing products. New products are introduced not only in its
existing lines but also as entirely new product concepts for the party event.
New products must meet the Company's quality and pricing criteria and be able
to be distributed through the Company's existing marketing and distribution
system.
State-of-the-art printing, forming, folding and packaging equipment
support the Company's manufacturing operations. Company-owned facilities in
Kentucky, New York, Rhode Island and California produce paper and plastic
plates, napkins, cups and other party and novelty items. This vertically
integrated manufacturing capability for many of its key products allows the
Company the opportunity to better control costs and improve product quality,
manage inventory investment and provide efficiency in order fulfillment.
Over the past five years, the Company has purchased or leased new plant
and equipment having an aggregate value of approximately $29 million to expand
the manufacturing capabilities of the Company. As a result, approximately 50%
of the Company's sales in 1995 were of items manufactured by the Company. The
Company generally uses its manufacturing equipment on the basis of at least
two shifts per day in order to lower its production costs per item. In
addition, the Company manufactures products for third parties, the volume of
which can be adjusted by the Company over a relatively short period of time
and helps the Company maintain a satisfactory level of equipment utilization.
The Company sources the remainder of its products from contract
manufacturers, the majority of whom are located in China and elsewhere in the
Far East and with whom the Company has long-standing relationships. The two
largest such suppliers have exclusive supply arrangements with the Company and
represent relationships which have been in place for more than ten years. The
Company believes that the quality of craftsmanship and the ability to satisfy
the Company's pricing criteria provides a significant competitive advantage.
The Company's business, however, is not dependent upon any single source of
supply for products manufactured for the Company by third parties.
SALES AND MARKETING
The Company's practice of including party goods retailers in all facets
of the Company's product development is a key element of the Company's sales
and marketing efforts. The Company targets important consumer preferences by
integrating its own market research with the input of party goods retailers in
the creation of its designs and products. The sales organization assists
customers in the actual set-up and lay out of displays of the Company's
products. From time to time, the Company also provides customers with
promotional displays.
The principal sales and marketing tool of the Company is its three
separate annual catalogues, two for seasonal products and one for everyday
products. In 1995, the Company spent $1.1 million on the production of its
sales catalogues.
The Company's domestic sales force is comprised of 54 seasoned sales
professionals who have, on average, been affiliated with the Company for over
5 years. International customers are serviced by experienced individuals who
are generally employees of the affiliated company. This experience provides
the Company with individuals who possess thorough knowledge of the industry
and the ability to maximize the positioning of the Company's broad product
line with respect to the merchandising needs of the retailers.
38
<PAGE>
DISTRIBUTION AND SYSTEMS
The Company ships its products from distribution warehouses which employ
computer assisted systems. Everyday products are shipped either from
California or New York in order to achieve the most economical freight costs
while providing fast delivery of goods to the party goods retailer. In order
to control inventory investment, seasonal products are shipped out of a
central warehouse located in New York. Products for foreign markets are
shipped from the Company's distribution warehouses in Canada, Mexico, England
and Australia.
Many of the Company's sales orders are generated electronically through
hand held units with which the sales force as well as many customers are
equipped. Specifically, orders are entered into the hand held units and then
transmitted over telephone lines to the Company's mainframe computer where
they are processed for shipment. This electronic order entry expedites the
order processing which in turn improves the Company's ability to fill customer
merchandise needs accurately and quickly.
COMPETITION
The Company competes on the basis of diversity and quality of its product
designs, breadth of product line, product availability, price, reputation and
customer service. The Company has many competitors with respect to one or
more of its products, including smaller independent specialty manufacturers
and other companies, some of which have financial resources which are greater
than those of the Company. Certain of these competitors control licenses for
widely recognized images, such as cartoon or motion picture characters, which
could provide them from time to time with a competitive advantage. The
Company believes, however, that there are few competitors which manufacture
and distribute products with the complexity of design and breadth of product
offerings that the Company does. In addition, the Company knows of no
competitor who utilizes design styles across product categories to provide
consumers with coordinated products in the variety that the Company offers.
Furthermore, the Company believes that its state-of-the-art design and
manufacturing processes create an efficiency in manufacturing that few of its
competitors achieve in the production of numerous coordinated products in
multiple design types.
CUSTOMERS
The Company's customers are principally party goods superstores, large
discount chains, mass merchandisers and independent card and party retailers.
Among this group, the Company's primary customers are party goods superstores.
Based on information provided to the Company by party goods superstores or
gathered by its sales force, the Company supplies on average between 20% and
40% of the merchandise generally stocked in such stores.
During 1995 and the first six months of 1996, sales by the Company to its
largest customer, Party City Corporation, exceeded 10% of the Company's
combined net sales for such periods.
PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES
The Company owns copyrights on the designs created by the Company and
used on its products. The Company owns trademarks in the words and designs
used on or in connection with its products. It is the practice of the Company
to register its copyrights with the United States Copyright Office to the
extent it deems reasonable. The Company does not believe that the loss of
copyrights or trademarks with respect to any particular product or products
would have a material adverse effect on the business of the Company.
The Company does not depend on licenses to any material degree in its
business and, therefore, does not incur any material licensing expenses. In
1995, sales of licensed products were $8.1 million or 4.9% of 1995 total net
sales.
39
<PAGE>
EMPLOYEES
As of August 1, 1996, the Company had approximately 1,100 employees, none
of whom is represented by a labor union. The Company considers its
relationship with its employees to be good.
FACILITIES
The Company maintains its corporate headquarters in Elmsford, New York
and conducts its principal design, manufacturing and distribution operations
at the following facilities:
<TABLE>
<CAPTION>
OWNED OR
LEASED (WITH
LOCATION PRINCIPAL ACTIVITY SQUARE FEET EXPIRATION DATE)
<S> <C> <C> <C>
Elmsford, New York(1) Executive Offices; design and 45,000 square feet Leased (expiration date:
art production of paper party February 28, 2001)
products and decorations
Harriman, New York Manufacture of paper napkins 75,000 square feet Leased (expiration date:
and cups March 31, 1999)
Providence, Rhode Island Manufacture and distribution 51,000 square feet Leased (expiration date:
of plastic plates, cups and bowls June 30, 2008)
Louisville, Kentucky Manufacture and distribution 183,000 square feet Leased (expiration date:
of paper plates March 31, 1997)
Anaheim, California Manufacture of novelty items 25,000 square feet Leased (expiration date:
February 28, 1999)
Temecula, California(2) Distribution of paper party 212,000 square feet Leased (expiration date:
products and decorations February 28, 2000)
Goshen, New York Distribution of paper party 130,000 square feet Leased (expiration date:
products and decorations December 31, 1998)
Chester, New York(3) Distribution of paper party 87,000 square feet Owned
products and decorations
Montreal, Canada(4) Distribution of paper party 124,000 square feet Owned
products and decorations
Milton Keynes, England Distribution of paper party 30,000 square feet Leased (expiration date:
products and decorations March 31, 2016)
throughout United Kingdom
and Europe
40
<PAGE>
Melbourne, Australia Distribution of party 10,000 square feet Owned
products and decorations in
Australia and Asia
</TABLE>
(1) Property leased by the Company from a limited liability company which is
79%-owned by a trust established for the benefit of John A. Svenningsen's
children, 20%-owned by a trust established for the benefit of Mr.
Svenningsen's sister's children and 1%-owned by a corporation owned by Mr.
Svenningsen. See "Certain Related Transactions."
(2) Property leased by the Company from John A. Svenningsen. See "Certain
Related Transactions."
(3) Property subject to a ten-year mortgage made by the Company securing a
loan in the original principal amount of $5,925,000 bearing interest at a rate
of 8.51%. Such mortgage commenced on September 14, 1994.
(4) Property subject to a mortgage made by the Company securing a loan in the
original principal amount of $2,844,000 (Canadian). Such mortgage bears an
interest rate at the lower of Hong Kong Bank of Canada's Cost of Funds plus
1.6% or Canadian Prime plus 0.5%.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. All properties generally are used on a basis
of two shifts per day. The Company also believes that upon the expiration of
its current leases, it either will be able to secure renewal terms or enter
into leases for alternative locations at market terms.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings.
41
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth below.
Each such person holds an identical position with the Company's principal
operating subsidiary, Amscan Inc.:
NAME AGE POSITION
John A. Svenningsen 65 Chairman of the Board of Directors
and Chief Executive Officer
Gerald C. Rittenberg 44 President
William S. Wilkey 40 Senior Vice President - Sales
James M. Harrison 44 Chief Financial Officer
John A. Svenningsen is the Chairman of the Board of Directors and
Chief Executive Officer of Amscan Inc. He has served as Chief Executive
Officer of Amscan Inc. since 1958 and served as President from 1958 to
April 1996.
Gerald C. Rittenberg has served as the President of Amscan Inc. since
April 1996. From 1991 to April 1996, he was Executive Vice President -
Product Development of Amscan Inc. and from 1990 to 1991 he was Vice
President - Product Development of Amscan Inc. From 1988 to 1989, Mr.
Rittenberg was Senior Vice President of Different Looks, a division of
Berwick Industries which manufactures and distributes gift wrap and related
products. Prior thereto, Mr. Rittenberg was the Director of Operations for
the packaging division of Philip Morris Companies Inc.
William S. Wilkey has served as the Senior Vice President - Sales of
Amscan Inc. since 1992 and as Vice President - Marketing and Field Sales from
1990 to 1992. From 1988 to 1990, Mr. Wilkey was employed by Paper Art
(currently called Creative Expressions Group), where he served as National
Sales Manager.
James M. Harrison has served as the Chief Financial Officer of Amscan Inc.
since August 1996. From 1993 to 1995, Mr. Harrison was the Executive Vice
President and Chief Operating Officer, Secretary and Treasurer and a member
of the Board of Directors of The C.R. Gibson Company, a manufacturer and
distributor of paper gift products. From 1988 to 1993, Mr. Harrison was the
Chief Financial Officer of The C.R. Gibson Company.
[Five year business history to be included for all directors, once elected,
or persons identified as persons to become directors. Identification of all
committees of the Board on which such directors serve.]
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established a Compensation Committee, an Audit Committee
and a Stock Option Committee. The Compensation Committee is composed of at
least two directors, at least a majority of whom may not be officers or
employees of the Company. It approves and recommends to the Board of
Directors the compensation arrangements for key management personnel of the
Company and its subsidiaries and is responsible for making recommendations to
the Board of Directors regarding the adoption of compensation plans for the
benefit of directors, officers and other key employees of the Company and its
subsidiaries. Upon completion of the Offering, it is anticipated that the
Compensation Committee will initially be composed of Messrs. __________ and
_____________.
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The Audit Committee is composed of at least two directors who are not
officers or employees of the Company and is responsible for recommending to
the Board of Directors the selection of independent auditors, consulting with
the auditors on the plan of audit, reviewing with the auditors the proposed
audited financial statements of the Company and reviewing and consulting on
the adequacy of the Company's internal controls. Upon consummation of the
Offering, it is anticipated that the Audit Committee will initially be
composed of Messrs. _________________ and _____________________.
The Stock Option Committee is responsible for administering the Company's
1996 Stock Option Plan for Key Employees (the "Stock Option Plan") as more
fully described under "- Stock Option Plan - Description of Plan." Upon
consummation of the Offering, it is anticipated that the Stock Option
Committee will initially be composed of Messrs. ________________ and
________________.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned for the year ended December 31, 1995 for the Chief Executive Officer
and each of the other executive officers of the Company as of December 31,
1995, whose aggregate salary and bonus exceeded $100,000. The amounts shown
include compensation for services in all capacities that were provided to the
Company or its subsidiaries. The amounts set forth in the table include
payments under arrangements which will terminate prior to the Offering. Mr.
Harrison is not listed, since his employment agreement commenced August 1,
1996. In addition, the executive officers of the Company will participate
in the ESOP and the special one-time contribution to the ESOP. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Financial Impact of Organization of the Company -
Establishment of an Employee Stock Ownership Plan."
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SUMMARY COMPENSATION TABLE
ALL OTHER
ANNUAL COMPENSATION Compensation
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1)
--------------------------- ---- ---------- --------- ------------
John A. Svenningsen 1995 289,399 10,000,000(2) 10,614
Chief Executive Officer
Gerald C. Rittenberg 1995 200,269 1,682,000(3) 4,317
Executive Vice President
William S. Wilkey 1995 172,500 757,000(4) 4,317
Senior Vice President - Sales
(1) Represents contributions by the Company in respect of the named officer
under the Profit Sharing and Savings Plan maintained by the Company's
principal subsidiary, Amscan Inc., as well as insurance premiums paid by the
Company with respect to term life insurance for the benefit of the named
executive officer.
(2) Prior to the Offering, certain entities which are now subsidiaries of the
Company elected to be taxed as Subchapter S corporations under the Internal
Revenue Code. This amount represents a distribution to Mr. Svenningsen to
enable him to pay personal income taxes on the earnings of those entities and
amounts lent back to the Company as subordinated indebtedness.
(3) Represents bonuses paid to Mr. Rittenberg pursuant to his prior
employment agreement with Amscan Inc. which was terminated immediately prior
to the Offering. See "- Employment Agreements."
(4) Represents bonuses paid to Mr. Wilkey pursuant to an employment agreement
with Amscan Inc. which will expire on December 31, 1996.
Employment Agreements
Set forth below are descriptions of the Company's employment agreements
with John A. Svenningsen, Gerald C. Rittenberg, William S. Wilkey and James M.
Harrison.
John A. Svenningsen. In conjunction with the Offering, Mr. Svenningsen
has entered into an employment agreement with the Company for a term of three
years commencing upon consummation of the Offering. Pursuant to the terms of
this Agreement, Mr. Svenningsen will serve as Chief Executive Officer and
Chairman of the Board of Directors of the Company. The agreement provides
for a base annual salary of $300,000, which will be increased by 5% each
successive year during the term of the agreement. The Company may terminate
Mr. Svenningsen's employment upon Mr. Svenningsen's death or for "cause."
Upon termination of employment, Mr. Svenningsen may not, for a period of
three years, be employed by or associated in any manner with any other
business which is competitive with the Company.
Gerald C. Rittenberg. Mr. Rittenberg has entered into a new employment
agreement with the Company in connection with the Offering, for a term of
three years commencing upon consummation of the Offering. Under the terms
of this agreement Mr. Rittenberg is employed as President of the Company at
a base annual salary of $220,000. Mr.
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Rittenberg's salary shall be increased by 5% each successive year during the
term of the agreement. This agreement may be terminated by the Company upon
the death of Mr. Rittenberg or for "cause." The agreement also provides that
upon termination of employment, Mr. Rittenberg may not be employed by or be
associated in any manner with any other business which is competitive with the
Company for a period of three years.
This agreement was made in conjunction with an agreement among Amscan
Inc., Mr. Svenningsen and Mr. Rittenberg whereby Mr. Rittenberg agreed to
terminate his prior employment agreement which provided for Mr. Rittenberg to
receive an amount equal to 10% of the aggregate net profits (as defined) and,
in the event of an initial public offering by the Company, a number of shares
of Common Stock equal to 5% of the stock then outstanding. Pursuant to the
new agreement, Mr. Rittenberg will receive an amount equal to 5% of the net
proceeds of the Offering as well as Common Stock in an amount equal to 3% of
the Common Stock to be issued and outstanding after the Offering (assuming the
Underwriters' over-allotment option is not exercised). The Company has
granted Mr. Rittenberg certain rights to require the Company to register the
offer and sale of Mr. Rittenberg's Common Stock under the Securities Act. See
"Shares Eligible for Future Sale." It is estimated that Mr. Rittenberg's
salary and bonus for 1996 under his prior employment agreement will be
$211,000 and $2,800,000, respectively.
William S. Wilkey. Mr. Wilkey has entered into an employment agreement
dated October 3, 1996, which will commence on January 1, 1997. Under the
terms of this agreement Mr. Wilkey will be employed as Senior Vice President
- Sales and Marketing of the Company for a period of five years. Mr. Wilkey
will receive an initial base salary of $200,000 for 1997, which will be
increased by 5% each successive year during the term of the agreement. In
addition, Mr. Wilkey is entitled to receive an annual bonus which will be
determined by a formula which takes into account the amount by which sales
and profits are increased on a year to year basis. Mr. Wilkey also will
receive in conjunction with the Offering an initial grant of stock options
in respect of 100,000 shares of Common Stock under the Stock Option Plan.
See "- Stock Option Plan." Mr. Wilkey's agreement also provides that upon
termination of employment he may not for a period of three years be employed
by or associated in any manner with any business which is competitive with
the Company. This agreement may be terminated by the Company upon the death
or permanent disability of Mr. Wilkey or for "cause." Mr. Wilkey's current
agreement, which expires on December 31, 1996, provides that in addition to
a base salary, he is entitled to receive an amount equal to 5% of the
aggregate net profits (as defined). It is estimated that Mr. Wilkey's
salary and bonus for 1996 under the agreement which will expire December
31, 1996 will be $181,000 and $1,400,000, respectively.
James M. Harrison. Mr. Harrison has entered into an agreement with
Amscan Inc. whereby he is employed as the Chief Financial Officer of Amscan
Inc. The agreement, which commenced August 1, 1996, provides for a base
salary of $150,000 and a guaranteed bonus for the first year of $50,000.
The agreement has a term of one year to be automatically renewed for
successive one year periods in the absence of the termination of the
agreement by either of the parties thereto in accordance with its terms.
The agreement, which may be terminated by Amscan Inc. at any time upon
the payment of one year's salary, provides for termination without any
additional compensation upon the death or permanent disability of Mr.
Harrison or for "cause." Under the terms of the agreement, upon termination
of employment, Mr. Harrison may not, for a period of one year, be employed
by or associated in any manner with any business which is competitive with
Amscan Inc. Prior to consummation of the Offering, Mr. Harrison will be
granted an option to purchase 50,000 shares of Common Stock under the Stock
Option Plan. See "- Stock Option Plan."
Compensation of Directors
Employee directors receive no additional compensation for serving on the
Board of Directors or its committees. [Insert description of compensation
arrangements for directors who are not employees.] All directors are
reimbursed for expenses incurred in attending Board of Directors and committee
meetings.
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Stock Option Plan
Description of Plan
The Stock Option Plan is administered by the Stock Option Committee (the
"Stock Option Committee") of the Board of Directors of the Company, a
committee which, following consummation of the Offering, will be composed of
at least two members appointed by the Board of Directors from among those
directors who are Non-Employee Directors (as defined). Prior to consummation
of the Offering, the Stock Option Committee was composed of a single director,
John A. Svenningsen. None of the members of the Stock Option Committee
receives any additional compensation for the administration of the Stock
Option Plan.
The Stock Option Committee has plenary authority in its discretion, but
subject to the express provisions of the Stock Option Plan, to determine the
employees to whom, and the time or times at which, stock options are granted,
as well as the terms and provisions governing each such option. The Stock
Option Committee has further plenary authority at its discretion to interpret
the Stock Option Plan, and to prescribe, amend and rescind rules and
regulations relating to it. Additionally, the Stock Option Committee is
generally responsible for the administration of the Stock Option Plan. The
Stock Option Committee's determinations as to the foregoing matters are
conclusive.
Two million shares of the authorized but unissued Common Stock have been
reserved for issuance under the Stock Option Plan. In lieu of such unissued
shares, the Company may, in its discretion, transfer to an optionee, upon the
exercise of options, reacquired shares or shares bought in the market for the
purposes of the Stock Option Plan, provided that (subject to adjustments upon
changes in capitalization) the total number of options which may be granted
and the number of shares which may be sold pursuant to options granted under
the Stock Option Plan shall not exceed 2,000,000. If any options granted
under the Stock Option Plan terminate or expire for any reason without having
been exercised or vested in full, the Common Stock not delivered under such
options will be available again for purposes of the Stock Option Plan. Based
on the initial public offering price set forth on the cover page of this
Prospectus, the fair market value of 2,000,000 shares of Common Stock was
$________. No stock options may be granted under the Stock Option Plan after
_________ __, 2006.
Under the Stock Option Plan, stock options may be granted only to
regular, salaried employees (including officers and directors) of the Company
or its subsidiaries whom the Stock Option Committee considers key employees.
In determining the employees to whom such options are to be granted, as well
as their terms and conditions, the Stock Option Committee takes into account
the duties of the respective employees, their present and potential
contributions to the success of the Company, and such other factors as the
Stock Option Committee deems relevant in connection with accomplishing the
purpose of the Stock Option Plan. An existing optionee may be granted and
hold an additional option or options if the Stock Option Committee shall so
determine. All of the foregoing determinations are within the discretion of
the Stock Option Committee.
Under the Stock Option Plan, both incentive stock options and non-
qualified options may be granted to employees of the Company. The Stock
Option Plan requires that the purchase price of the Common Stock covered by
stock options granted thereunder be not less than 100% (or pursuant to Section
422 of the Internal Revenue Code, 110% in the case of an incentive stock
option granted to a 10% shareholder) of the fair market value of the Common
Stock on the date of the grant.
The term of each option is for such period as the Stock Option Committee
determines but, notwithstanding the foregoing, the term of no option may be
more than ten years from the date of grant thereof (or 5 years from the date
of grant of the option in the case of an incentive stock option granted to a
10% shareholder).
Unless otherwise determined by the Stock Option Committee, one-quarter
(25%) of the total number of shares of Common Stock covered by an option
granted to an employee of the Company or its subsidiaries becomes exercisable
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upon such employee's completion of one year of continuous service with the
Company or its subsidiary after the grant of the option; thereafter, an
additional one-quarter (25%) of the total number of shares of Common Stock
covered by the option becomes exercisable upon such employee's completion of
two, three and four years of continuous service with the Company or its
subsidiaries, respectively. Once an option or part thereof becomes
exercisable, it will remain exercisable until expiration of the option, unless
otherwise specified by the Stock Option Committee. An option may be exercised
during the lifetime of an optionee only by such optionee, and an option
granted under the Stock Option Plan is not transferable other than by will or
pursuant to the laws of descent and distribution or pursuant to a qualified
domestic relations order. No option may be exercised at any time except by an
optionee who is then a regular employee of the Company, except as provided in
the Stock Option Plan. The holder of an option has none of the rights of a
stockholder with respect to the shares subject to option until such shares are
registered upon the exercise of the option on the transfer books of the
Company in the name of the holder.
Unless otherwise provided in an option agreement, a holder of an option
may purchase all, or from time to time any part of, the shares which the
optionee has become entitled to purchase. An option may not, however, be
exercised as to fewer than 50 shares, or the remaining shares covered by the
option if fewer than 50, at any one time. The purchase price of the shares as
to which an option is exercised must be paid in full at the time of exercise
at the election of the holder of an option (a) in cash or currency of the
United States of America, (b) by tendering to the Company shares of the
Company's Common Stock then owned by the holder, having a fair market value
equal to the cash exercise price applicable to the purchase price of the
shares as to which the option is being exercised or (c) partly in cash and
partly in shares of the Company's Common Stock valued at fair market value.
Fractional shares of Common Stock will not be issued. Notwithstanding the
foregoing, the Stock Option Committee has the right to modify, amend or cancel
the right to pay the option price other than in full in cash by giving prior
notice to each holder of an option. Neither the Company, any company with
which it is affiliated, nor any of its subsidiaries may directly or indirectly
lend money to any person for the purpose of assisting said person to acquire
or carry shares of Common Stock issued by the exercise of options.
Any outstanding option granted under the Stock Option Plan becomes fully
and immediately exercisable upon the occurrence of a tender offer or exchange
offer made by any "person" within the meaning of Section 14(d) of the
Securities Exchange Act of 1934 or a "change in control" (as such term is
defined in the Stock Option Plan); provided, however, that if in the opinion
of counsel to the Company the immediate exercisability of an option, when
taken into consideration with all other "parachute payments," as defined in
Section 280G(b) of the Internal Revenue Code, would result in "excess
parachute payments," as defined in such Section, an option will not become
immediately exercisable, except as and to the extent the Stock Option
Committee in its discretion otherwise determines. The Stock Option Committee
may provide for the acceleration of vesting of options under such other
circumstances as the Stock Option Committee may determine in its sole
discretion. The Stock Option Committee may adopt such procedures as to notice
and exercise as may be necessary to effectuate the acceleration of the
exercisability of options as described above.
If an optionee's employment is terminated (other than by retirement,
disability or death), options held by the optionee are, subject to certain
conditions contained in the Stock Option Plan, exercisable (to the extent that
the optionee would be entitled to do so at the termination of his employment)
for 30 days after such termination (or for such other period as may be
specified by the Committee), but not later than the expiration of the term of
the option. Notwithstanding the foregoing, in the event an optionee is
discharged for cause (as such term is defined in the Stock Option Plan), the
unexercised portion of an option terminates immediately, except as otherwise
provided by the Committee. If the optionee has exercised all or part of an
option within 15 days of notice of discharge for cause and the Company has not
yet delivered Common Stock pursuant to such exercise, such exercise will be
deemed invalid and any purchase price tendered by the optionee for Common
Stock will be refused or, if previously paid, will be returned to the
optionee.
If an employee to whom an option has been granted under the Stock Option
Plan retires from the Company or its subsidiaries at normal retirement date
pursuant to any pension plan provided by the Company or its subsidiaries, or
retires earlier than the employee's normal retirement date with the prior
consent of the Company, such option may be fully exercised without regard to
the period of continuous employment after the option was granted, at any time
within 90 days
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after such retirement (or for such other period as may be specified by the
Committee), but in no event after the expiration of the term of the option.
If the employment of anyone to whom an option has been granted under the
Stock Option Plan terminates by reason of that employee's disability (within
the meaning of Section 22(e)(3) of the Internal Revenue Code) and while such
employee is entitled to exercise such option as herein provided, such employee
shall have the right to exercise such option at any time within 90 days after
the date of such termination (or for such other period as may be specified by
the Committee) but in no event after the expiration of the term of the option.
If an employee to whom an option has been granted under the Stock Option
Plan dies while he is employed by the Company or its subsidiaries, or during
either the 90-day period following normal retirement or the 90-day period
following disability retirement, such option may be exercised to the extent
the optionee was entitled to do so at the date of death, by his executor or
administrator or other person at the time entitled by law to the employee's
rights under the option, at any time within such period (not exceeding one
year after death or for such other period as may be specified by the
Committee) as is prescribed in the option agreement, but in no event after the
expiration of the term of the option.
In the event of any change in the outstanding shares of Common Stock
through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, split-off, spin-off, combination or exchange of shares,
or other like change in the capital structure of the Company, an adjustment
shall be made to each outstanding option such that each such option shall
thereafter be exercisable in respect of the shares of Common Stock subject to
such option had such option been exercised in full immediately prior to such
change. The Stock Option Committee shall also, in the event of such change,
make any further appropriate adjustments to the maximum number of shares of
Common Stock which may be acquired under the Plan pursuant to the exercise of
Options and the number of shares of Common Stock and price per share subject
to outstanding options as shall be equitable to prevent dilution or
enlargement of rights under such options.
In connection with any stock option, the Stock Option Committee may, in
its discretion, permit an employee to satisfy any withholding tax obligation
which may arise in connection with an option by electing to have the Company
withhold Common Stock having a fair market value (calculated as of the date
the amount of withholding tax is determined) equal to the amount of the
withholding tax.
Stock options are not affected by changes of duties or position so long
as the optionee continues to be an employee of the Company or one of its
subsidiaries. Nothing in the Stock Option Plan or in any option agreement
confers upon any employee any right to continue in the employ of the Company
or one of its subsidiaries or interferes in any way with any right the Company
or its subsidiaries may have to terminate his employment at any time.
The Stock Option Plan provides that the Board of Directors may amend or
terminate the Stock Option Plan in any respect; provided, however, that except
with respect to adjustments upon changes in capitalization, without further
approval of the holders of Common Stock, the Board of Directors may not
increase the maximum number of shares for which stock options may be granted
under the Stock Option Plan, change the manner of determining the minimum
option prices, extend the period during which an option may be granted or an
option may be exercised, or amend the provisions of the Stock Option Plan as
to the class of employees eligible to receive options. No termination,
modification or amendment of the Stock Option Plan may, without the consent of
the optionee, adversely affect the rights of such optionee.
Pursuant to the Stock Option Plan, options have been granted to Mr.
Wilkey and Mr. Harrison for 100,000 and 50,000 shares of Common Stock,
respectively. Such options have an exercise price per share equal to the
public offering price set forth on the cover page of this Prospectus and a
term of 10 years from the date of grant. Options to purchase an additional
250,000 shares of Common Stock have been granted to employees of the Company
or its subsidiaries who are not executive officers of the Company. Such
additional options also have an exercise price per
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share equal to the public offering price set forth on the cover page of this
Prospectus and a term of 10 years from the date of grant. (Such options will
in no event become exercisable until after consummation of the Offering.) To
the extent permitted under the Internal Revenue Code, such options are
incentive stock options, and the balance are non-qualified stock options. No
other options have been granted pursuant to the Stock Option Plan.
Federal Tax Consequences of Plan
Counsel for the Company has advised that the federal income tax
consequences of stock options granted under the Stock Option Plan are as
follows:
Incentive Stock Options
Neither the grant nor exercise of an incentive stock option will
generally have any federal income tax consequences for an optionee. The
amount by which the fair market value of the shares acquired upon the exercise
of any incentive stock option exceeds the option price as of the date of
exercise, however, is an item of "tax preference" for purposes of computing
the alternative minimum tax on individuals.
If an optionee has held the shares acquired on the exercise of an
incentive stock option for at least two years from the date of the grant of
the option and at least one year from the date of exercise, the optionee will
recognize taxable long-term capital gain or loss upon a subsequent disposition
of the shares. In such circumstances, no deduction would be allowed to the
Company for federal income tax purposes in connection with the grant or
exercise of the option or the transfer of shares acquired upon such exercise.
If, however, the employee disposes of his shares within the holding
periods described above, which would include the use of such shares to
exercise a second stock option, (i) the employee will recognize ordinary
income in an amount equal to the difference between the fair market value of
such shares on the date of exercise (or such later time as the shares become
nontransferable or not subject to a substantial risk of forfeiture) and the
option price, provided that, if the disposition is a sale or exchange with
respect to which a loss (if sustained) would be recognized by the employee and
the amount realized from such sale or exchange is less than the fair market
value on the exercise date, then the ordinary income will be limited to the
excess of the amount realized upon the sale or exchange of the shares over the
option price; (ii) the Company will be entitled to a deduction for such year
in the amount of the ordinary income so recognized; (iii) the employee will
recognize capital gain or loss, short-term or long-term, as the case may be,
in an amount equal to the difference between the amount realized upon such
sale or exchange of the shares and the sum of the option price plus the amount
of ordinary income, if any, recognized upon such disposition. Any such
capital gain or loss will be long-term gain or loss if the shares with respect
to which such gain or loss is recognized have been held for more than one
year.
Non-Qualified Stock Options
The grant of a non-qualified stock option would have no federal income
tax consequences to the Company or to the employee. An optionee would
recognize taxable ordinary income at the time of exercise of the option (or at
such later time as the shares become nontransferable or not subject to a
substantial risk of forfeiture) in an amount equal to the excess of the fair
market value of the shares acquired at the time of exercise (or such later
time) over the option price, and the Company would be entitled to a deduction
in such amount, provided that such compensation is reasonable and the Company
withholds any applicable federal income tax. The optionee may be required
upon the exercise of a non-qualified option to deposit with the Company an
amount equal to the federal income tax required to be withheld.
Alternatively, the Company may elect to withhold a number of shares otherwise
transferable upon exercise of the option having a fair market value equal to
the amount required to be withheld. Any amounts so deposited will be remitted
by the Company to the Internal Revenue Service.
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The holder of shares acquired upon exercise of a non-qualified option
will upon a subsequent disposition of such shares generally recognize a short-
term or long-term capital gain or loss, depending upon the holding period of
the shares, equal to the difference between the amount realized on the sale
and the basis in such shares (the sum of the option price and the amount taxed
as ordinary income at the time of exercise).
All Options
A number of special rules apply to the use of previously acquired stock
to exercise incentive or non-qualified stock options or to satisfy any
attendant federal income tax withholding obligation.
It should be noted that, under the Internal Revenue Code, to the extent
that option exercise is accelerated on account of a change in control of the
Company, the value of the acceleration of vesting would be treated as a
"parachute payment," which may subject the employee to an excise tax and be
nondeductible by the employer. Such consequences would only follow, however,
if the total "parachute payments" (including the value of the acceleration)
were of sufficient magnitude to constitute "excess parachute payments" under
the Internal Revenue Code. Furthermore, amounts constituting "reasonable
compensation" are not subject to the rules relating to "excess parachute
payments," and the Committee Report to the Tax Reform Act of 1984 indicates
that the benefit of acceleration of exercise of stock options issued as part
of a normal compensation package granted more than one year before the change
in control presumptively constitutes reasonable compensation.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock as of __________, 1996 by (i) each director and
named executive officer and (ii) all directors and executive officers as a
group. Unless otherwise indicated, each person or entity has sole voting
power and investment power with respect to the shares attributed to such
person or entity. No person other than Mr. Svenningsen owns more than 5% of
the outstanding shares of Common Stock.
Shares Beneficially Owned Percent of
Name Owned Class(1)
John A. Svenningsen
Gerald C. Rittenberg (2)
William S. Wilkey 0 -
[director]
[director]
All directors and executive
officers as a group
(1) The percentages are calculated on the basis of the number of shares of
Common Stock issued in the Organization and the shares offered hereby
(assuming no exercise of the Underwriters' over-allotment option). Prior to
consummation of the Offering, the percentage of Common Stock owned by Mr.
Svenningsen, Mr. Rittenberg and all directors and executive officers as a
group were __%, __% and __%, respectively.
(2) Mr. Svenningsen and Mr. Rittenberg have entered into an agreement
pursuant to which Mr. Svenningsen has agreed to lend Mr. Rittenberg up to $4
million to enable Mr. Rittenberg to pay taxes on the shares of Common Stock
received by Mr. Rittenberg in the Organization. Such loan, if made, would
have a term of 30 months and bear interest at the LIBOR rate plus 0.5%. Mr.
Rittenberg would have the right to pay all or any portion of the loan by
delivering shares of Common Stock to Mr. Svenningsen based on the fair market
value of the Common Stock on the date of repayment. If Mr. Rittenberg were to
borrow the money from Mr. Svenningsen and repay it by delivering shares of
Common Stock, the
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number of shares of Common Stock beneficially owned by Mr. Rittenberg would be
reduced and the number owned by Mr. Svenningsen would be correspondingly
increased. Mr. Svenningsen and Mr. Rittenberg have also entered into an
agreement pursuant to which Mr. Rittenberg would be entitled to receive 5% of
the net proceeds from any sale of Common Stock by Mr. Svenningsen, his wife,
his children or his estate, which occurs at any time within the six-year
period commencing upon the consummation of the Offering.
CERTAIN RELATED TRANSACTIONS
The Company leases certain of its facilities from Mr. Svenningsen or from
entities that Mr. Svenningsen either owns directly or in which he has a direct
or indirect beneficial interest. The Company pays rent and expenses for those
facilities on terms which it believes are at least as favorable to the Company
as the terms which would have been available for leases negotiated with
unaffiliated persons at the inception of each lease. Mr. Svenningsen has
indicated that he will recuse himself from any decision of the Board of
Directors of the Company relating to the terms and conditions of any such
leases, or any renewals thereof.
In March, 1996, the Company began leasing approximately 45,000 square
feet for the Company's administrative headquarters in an office building of
approximately 90,000 square feet in Elmsford, New York. The building is owned
by a limited liability company which is 79%-owned by a trust established for
the benefit of Mr. Svenningsen's children, 20%-owned by a trust established
for the benefit of Mr. Svenningsen's sister's children and 1%-owned by a
corporation owned by Mr. Svenningsen. Rent expense relating to this lease was
$251,000 for the period ended June 30, 1996. This lease, as amended, provides
for annual rent of $1,003,000 and has a term which expires on February 28,
2000. In addition, the Company has options to renew for three five-year
periods at market rental. Prior to this, the Company's headquarters had been
in a facility owned by Mr. Svenningsen. Rent expense related to that facility
was $411,000, $432,000, $453,000 and $196,000 for the years ended December 31,
1993, 1994, 1995, and the six months ended June 30, 1996, respectively.
The Company leases a 212,000 square foot warehouse in Temecula,
California from Mr. Svenningsen. Rent expense related to this warehouse was
$439,000, $462,000 $483,000 and $592,000 for the years ended December 31,
1993, 1994, 1995, and the six months ended June 30, 1996, respectively. The
expiration date of this lease, as amended, is February 28, 2000; however, the
Company has options to renew at market rental for two additional five-year
periods.
Upon the closing of the Offering, the Company and Mr. Svenningsen will
enter into an agreement pursuant to which Mr. Svenningsen may seek
reimbursement from the Company for any income tax obligation attributable to
any period prior to the Organization, but only to the extent that such tax is
attributable to income that was not distributed to Mr. Svenningsen.
Alternatively, in the event that the status of Amscan Inc. or Am-Source, Inc.
as a Subchapter S corporation is not respected, the Company may seek
reimbursement from Mr. Svenningsen, but only to the extent that Mr.
Svenningsen is entitled to a tax refund attributable to amounts he previously
included in income in his capacity as a shareholder of such corporations.
Ya Otta Pinata, a California corporation which is 50% owned by Mr.
Svenningsen ("Ya Otta"), manufactures pinatas which historically have been
sold by the Company's sales force with no commissions charged to Ya Otta. Mr.
Svenningsen will retain his ownership in Ya Otta and Ya Otta will not be part
of the Organization. After the Organization, the Company's sales force will
continue to sell pinatas manufactured by Ya Otta. On any sales after the
Organization, the Company will receive a sales commission in the range of 7%
to 10%. For the year ended December 31, 1995, sales by Ya Otta were
approximately $2.8 million.
The Company has agreed to indemnify each director pursuant to an
Indemnification Agreement with such director from and against any and all
expenses, losses, claims, damages and liabilities incurred by such director
for or as a result of actions taken or not taken while such director was
acting in his or her capacity as a director of the Company.
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See also, "Organization of the Company" and "Management of the Company -
Executive Compensation - Employment Agreements."
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 5,000,000 shares of
Preferred Stock, $0.10 par value, of which no shares are issued and
outstanding, and 50,000,000 shares of Common Stock, $0.10 par value, of which
_________ shares will be issued and outstanding upon completion of the
Offering (or _____ shares if the Underwriters' over-allotment option is
exercised in full). The following description of the Preferred Stock and
Common Stock is qualified in its entirety by reference to the Company's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company's
Board of Directors may, without further action by the Company's stockholders,
from time to time issue shares of Preferred Stock and determine the rights,
preferences and limitations of such stock, and may issue such Preferred Stock
in series having differing rights, preferences and limitations. The rights,
preferences and limitations of any Preferred Stock which might be issued could
materially reduce the Company's ability to pay dividends on its shares of
Common Stock, the assets available to common stockholders upon any dissolution
and liquidation of the Company and the voting power of holders of the Common
Stock.
Shares of Preferred Stock or rights to purchase such shares could be
issued to create voting impediments or otherwise frustrate persons seeking to
effect a takeover of the Company. Thus, the potential to issue the Preferred
Stock could discourage an attempt by a person to acquire control of the
Company by tender offer or other means and could, therefore, deprive
stockholders of benefits that could result from such an attempt, such as the
realization of a premium over the market price of the shares in a tender offer
or the temporary increase in market price that such an attempt could cause.
The issuance of shares of voting Preferred Stock to persons friendly to the
Board of Directors could make it more difficult to remove incumbent management
and directors from office, even if such removal would be beneficial to
stockholders generally.
The Board of Directors believes that the financial flexibility offered by
authorized but unissued Preferred Stock outweighs any of its potential
disadvantages. To the extent it may have anti-takeover effects, the existence
of the Preferred Stock may encourage persons seeking to acquire the Company to
negotiate directly with the Board of Directors, enabling the Board of
Directors to consider the proposed transaction in a non-disruptive atmosphere,
and to discharge effectively its obligation to act on a proposed transaction
in a manner that best serves the stockholders' interests.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the
election of directors and on all other matters on which stockholders are
entitled or permitted to vote. Holders of Common Stock are not entitled to
vote cumulatively for the election of directors. Holders of Common Stock have
no redemption, preference, exchange, conversion, preemptive or other
subscription rights. There are no sinking fund provisions relating to the
Common Stock. In the event of the liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all
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<PAGE>
of the assets of the Company, if any, remaining after satisfaction of the
debts and liabilities of the Company and the preferential amounts payable to
the holders of the Company's Preferred Stock, if any. The outstanding shares
of Common Stock are, and the shares of Common Stock offered hereby will be,
upon payment therefor as contemplated herein, validly issued, fully paid and
nonassessable.
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of the Company out of funds legally
available therefor, subject to the rights of the holders of the Company's
Preferred Stock, if any. The Company does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. As a holding
company, the Company's ability to declare and pay cash dividends on the Common
Stock will be substantially dependent on the receipt by the Company of cash
dividends from its subsidiaries. The revolving credit agreement to which the
Company's principal subsidiary is a party prohibits the payment by such
subsidiary of any cash dividends.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "DGCL"), which restricts certain transactions and "business
combinations" (as defined below) between a Delaware corporation and an
"interested stockholder" (as defined below). Subject to certain limitations,
such section restricts a Delaware corporation from engaging in various
Business Combination transactions with any Interested Stockholder for a period
of three years after the date of the transaction in which the person became an
Interested Stockholder, unless (i) the transaction is approved by the Board of
Directors prior to the date the Interested Stockholder obtained such status,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding for the purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer), or (iii) on or
subsequent to such date the Business Combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding voting stock
which is not owned by the Interested Stockholder. A Business Combination
includes mergers, asset dispositions, stock transfers and other transactions
resulting in financial benefit to a stockholder. An Interested Stockholder is
a person who (a) owns 15 percent or more of a corporation's voting stock, or
(b) is an affiliate or associate of a corporation, as defined in the statute,
and owned 15 percent or more of a corporation's voting stock within the
preceding three years. Section 203 could prohibit or delay mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
The Company's Certificate of Incorporation and By-Laws contain certain
provisions which may be deemed to have an anti-takeover effect that could
delay or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares of Common Stock held by
stockholders. These provisions are intended by the Board of Directors to help
assure fair and equitable treatment of the Company's stockholders if a person
or group should seek to gain control of the Company in the future.
Classified Board of Directors. The Certificate of Incorporation
provides for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms at such time as there are three
or more directors. As a result, approximately one-third of the Board of
Directors will be elected each year. Moreover, under the DGCL, in the case
of a corporation having a classified board, stockholders may remove a
director only for cause. This provision, when coupled with the provision
of the By-Laws authorizing only the Board of Directors to fill vacant
directorships, will preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors
by filling the vacancies created by such removal with its own nominees, and
will make more difficult, and therefore may discourage, a proxy contest to
change control of the Company.
53
<PAGE>
Special Meetings of Stockholders. The By-Laws provide that special
meetings of stockholders of the Company may be called only by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer. This
provision will make it more difficult for stockholders to take actions
opposed by the Board of Directors.
Stockholder Action by Written Consent. The Certificate of
Incorporation provides that no action required or permitted to be taken at
any annual or special meeting of the stockholders of the Company may be
taken without a meeting, and the power of stockholders of the Company to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
Advance Notice Requirement for Stockholder Proposals and Director
Nominations. The By-Laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or special meeting of stockholders, must
provide timely notice thereof, as set forth in the By-Laws, in writing.
These notice provisions are in addition to any other notice requirements
provided by applicable law or regulation. These provisions may preclude
some stockholders from bringing matters before the stockholders at an annual
or special meeting or from making nominations for directors at an annual or
special meeting.
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The
Certificate of Incorporation provides that, to the fullest extent permitted by
the DGCL, no director of the Company will be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The By-Laws provide that, subject to applicable law, the Company shall (i)
indemnify each person who is or was involved in any legal proceeding because
such person is or was a director, officer, employee or agent of the Company
(or is or was serving at the request of the Company as a director, officer,
employee or agent of another entity) against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection therewith, and (ii) pay the expenses
incurred in defending such proceeding in advance of its final disposition upon
receipt of an undertaking by such person to repay such expenses in the event
it shall be determined that such person is not entitled to indemnification by
the Company. In addition, The By-Laws provide that (i) the rights to
indemnification and payment of expenses so provided are not exclusive of any
other similar right that any person may have or acquire under any statute or
otherwise and (ii) the Company may maintain insurance to protect itself or its
directors, officers, employees or agents against any liability, whether or not
it would have the power to indemnify such person against such liability
pursuant to Delaware law. See also, "Certain Related Transactions."
In addition to the potential anti-takeover effect, Section 203 and the
provisions of the Company's Certificate of Incorporation and By-Laws described
above could have the effect of inhibiting attempts to change the membership of
the Board of Directors of the Company. In addition, the limitation of
liability provisions in the Certificate of Incorporation and the
indemnification provisions in the Certificate of Incorporation and By-Laws may
discourage stockholders from bringing a lawsuit against directors for breach
of their fiduciary duty (including breaches resulting from grossly negligent
conduct) and may have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
Furthermore, a stockholder's investment in the Company may be adversely
affected to the extent the Company pays the costs of settlement and damage
awards against directors and officers of the Company pursuant to the
indemnification provisions in the Company's By-Laws. The limitation of
liability provisions in the Certificate of Incorporation will not limit the
liability of directors under federal securities laws.
SHARES RESERVED FOR ISSUANCE
The Company has 2,000,000 shares of Common Stock reserved for issuance
upon the exercise of options granted or to be granted under the Stock Option
Plan.
54
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TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
LISTING
Application has been made to have the Common Stock approved for quotation
on The Nasdaq Stock Market, Inc. the symbol "AMSN."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding a
total of ________ shares of Common Stock, including the _________ shares
offered in the Offering (or ________ shares if the Underwriters' over-
allotment option is exercised in full). The Common Stock sold in the Offering
will be transferable without restriction or further registration under the
Securities Act, except for any shares acquired by an "affiliate" of the
Company that will be subject to the resale limitations of Rule 144 promulgated
under the Securities Act. Of the remaining shares of Common Stock
outstanding, ____ shares will be owned by the ESOP, which the Company intends
to establish for the benefit of its domestic employees in connection with the
consummation of the Offering. Upon such consummation, the Company will make a
special one-time contribution to the ESOP of _______ shares of Common Stock to
be allocated to participants' accounts in accordance with a formula based on
compensation and years of service. No additional contributions to the ESOP
will be made until 1998 and will then be dependent upon a number of factors
including Company performance. See "Capitalization" and "Dilution." All of
the remaining shares outstanding and not issued in the Offering or owned by
the ESOP will be owned respectively by Mr. Svenningsen, Mr. Rittenberg and the
other three stockholders of Am-Source, Inc. Such shares, in addition to the
shares owned by the ESOP, will be "restricted" securities within the meaning
of Rule 144 and may not be sold in the absence of registration other than
through Rule 144 described below or another exemption from registration under
the Securities Act.
In general, under Rule 144, as currently in effect, a stockholder who
(together with predecessor holders who were not affiliates of the Company (as
such term is defined in Rule 144 under the Securities Act, "Affiliates")) has
beneficially owned Common Stock which is treated as "restricted securities"
(as defined in Rule 144) for at least two years from the date such restricted
securities were acquired from the Company or an Affiliate, is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the Common Stock then outstanding or the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the date on which notice of such sale was filed under Rule 144. Sales under
Rule 144 are also subject to certain provisions relating to the manner and
notice of sale and availability of current public information about the
Company. In addition, Affiliates of the Company must comply with the
restrictions and requirements of Rule 144 (other than the two-year holding
period requirements) in order to sell Common Stock that are not restricted
securities. Furthermore, if a period of at least three years has elapsed from
the date restricted securities were acquired from the Company or an Affiliate,
a holder of such restricted securities who is not an Affiliate at the time of
the sale and has not been an Affiliate for at least three months prior to such
sale would be entitled to sell the shares immediately without regard to the
volume limitations and other conditions described above.
All of the shares of Common Stock held by Mr. Svenningsen may be eligible
(subject to the 180-day lock-up arrangement described below) for sale after
the Offering in the public market pursuant to, and in accordance with the
volume, manner of sale and other conditions of, Rule 144 described above.
Mr. Svenningsen has agreed that, during the period beginning from the
date of this Prospectus and ending 180 days after the date of this Prospectus,
he will not offer, sell, contract to sell or otherwise dispose of any shares
of
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<PAGE>
Common Stock or any security convertible into or exchangeable or exercisable
for shares of Common Stock without the prior written consent of Goldman, Sachs
& Co. See "Underwriting."
The Company has entered into agreements with two of the three individuals
who had held 50% of the capital stock of Am-Source, Inc. (see "Organization of
the Company") and with Gerald C. Rittenberg. Pursuant to these agreements,
such persons have each been granted a one-time right to demand registration of
the offer and sale of Common Stock under the Securities Act and the Company
has agreed to keep any such registration statement effective for a period as
is reasonably necessary to permit the sale of such Common Stock. The Company
must pay registration expenses in connection with the demand registration and
in no event is the Company responsible for the payment of underwriting
discounts and commissions. No such demand may be exercised earlier than one
year from consummation of the Offering.
The Company intends to file a registration statement on Form S-8 covering
the 2,000,000 shares of Common Stock reserved under the Stock Option Plan.
Any shares which become outstanding upon exercise of options under the Stock
Option Plan, other than shares delivered to Affiliates, will be eligible for
sale in the public market beginning on the date of delivery thereof.
Prior to consummation of the Offering, there has been no public market
for the Common Stock, and no prediction can be made as to the effect, if any,
that future sales of shares of Common Stock under Rule 144 or following the
exercise of registration rights, or the availability of such shares for future
sale, will have on the market price of the Common Stock prevailing from time
to time. Nevertheless, sales of a substantial amount of such shares in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market prices for the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom Goldman, Sachs & Co. and Alex. Brown & Sons
Incorporated are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below:
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
Goldman, Sachs & Co.
Alex. Brown & Sons Incorporated
------------
Total ============
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $_____ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess
56
<PAGE>
of $_____ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
____________ additional shares of Common Stock to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
___________ shares of Common Stock offered.
The Company and John A. Svenningsen have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing on the date of this
Prospectus) which are substantially similar to the shares of Common Stock or
which are convertible into or exchangeable for securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered
in connection with the Offering.
The representatives of the Underwriters have informed the Company that
they do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to this Offering, there has been no public market for the shares.
The initial public offering price will be negotiated among the Company and
the representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment
of the Company's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
The Common Stock will be quoted on The Nasdaq Stock Market, Inc. under
the symbol "AMSN."
The Company and its operating subsidiaries have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the Company by
Cummings & Lockwood, Stamford, Connecticut, counsel for the Company, and for
the Underwriters by Sullivan & Cromwell, New York, New York, counsel for the
Underwriters.
EXPERTS
The special purpose combined financial statements and schedule of Amscan
Inc. and Affiliates as of December 31, 1994 and 1995, and for each of the
years in the three-year period ended December 31, 1995, have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and in the registration statement, and upon the authority of
said firm as experts in accounting and auditing.
57
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OTHER INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement under the Securities Act with
respect to the Common Stock offered by this Prospectus. This Prospectus does
not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock, reference is made to the Registration
Statement and to the exhibits and schedules filed therewith. The Registration
Statement and the exhibits and schedules forming a part thereof may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices in New York (7 World Trade Center, 13th Floor,
New York, New York 10048) and Chicago (Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661) and copies of such
materials can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at the following address:
http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
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AMSCAN INC. AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
Combined Financial Statements as of December 31, 1994 and 1995
and for each of the years in the three-year period ended
December 31, 1995:
Independent Auditor's Report.............................F-2
Combined Balance Sheets..................................F-3
Combined Statements of Operations........................F-4
Combined Statements of Stockholders' Equity..............F-5
Combined Statements of Cash Flows........................F-6
Notes to Combined Financial Statements...................F-7
Combined Financial Statements (unaudited) as of June 30, 1996
and for each of the six month periods ended June 30, 1995 and
1996:
Combined Balance Sheet and Adjusted
Combined Balance Sheet................................F-20
Combined Statements of Operations.......................F-21
Combined Statements of Stockholders' Equity.............F-22
Combined Statements of Cash Flows.......................F-23
Notes to Combined Financial Statements..................F-24
F - 1
<PAGE>
Independent Auditors' Report
To the Stockholders of Amscan Inc.
and Affiliates:
We have audited the accompanying special purpose combined balance sheets of
Amscan Inc. and Affiliates as of December 31, 1994 and 1995 and the related
special purpose combined statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1995. These special purpose combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these special purpose combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying special purpose combined financial statements include the
accounts of Amscan Inc. and Affiliates, as defined in note 1. These financial
statements present the combined accounts of entities owned by the Principal
Stockholder engaged in the design, manufacture, contract for manufacture or
distribution of party and novelty goods. These special purpose combined
financial statements do not include the personal assets of the Principal
Stockholder or certain real estate entities owned or controlled by the
Principal Stockholder.
In our opinion, the special purpose combined financial statements referred to
above present fairly, in all material respects, the combined financial
position of Amscan Inc. and Affiliates as of December 31, 1994 and 1995, and
the combined results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Stamford, Connecticut KPMG Peat Marwick LLP
April 5, 1996, except as to
Note 16, which is as of
July 31, 1996
F - 2
<PAGE>
AMSCAN INC. AND AFFILIATES
Combined Balance Sheets
($ in thousands)
December 31,
------------------
Assets 1994 1995
------- --------
Current assets:
Cash and cash equivalents $ 2,229 $ 2,492
Accounts receivable, net of allowances
of $1,925 and $2,505, respectively 23,847 31,880
Inventories 34,465 45,013
Deposits and other 2,457 2,920
------- --------
Total current assets 62,998 82,305
Property, plant and equipment, net 26,925 26,848
Other assets 3,961 5,448
------- --------
Total assets $93,884 $114,601
======= ========
Liabilities and Stockholders' Equity
Current liabilities:
Loans and notes payable $28,665 $ 37,849
Accounts payable 4,849 10,116
Accrued expenses 7,718 5,265
Loans and notes payable to Principal Stockholder 3,731 523
Current installments of long-term indebtedness 4,909 2,239
------- --------
Total current liabilities 49,872 55,992
Long-term indebtedness, excluding current installments 8,800 12,284
Subordinated debt due to Principal Stockholder 12,000 16,000
Loans and notes payable to Principal Stockholder 1,564 1,930
Other 828 1,190
------- --------
Total liabilities 73,064 87,396
------- --------
Stockholders' equity:
Common stock 393 393
Additional paid-in capital 9,090 9,090
Retained earnings 12,037 18,462
Cumulative translation adjustment (613) (653)
Treasury stock, at cost (87) (87)
------- --------
Total stockholders' equity 20,820 27,205
------- --------
Total liabilities and stockholders' equity $93,884 $114,601
======= ========
See accompanying notes to combined financial statements.
F - 3
<PAGE>
AMSCAN INC. AND AFFILIATES
Combined Statements Of Operations
($ in thousands, except share amounts)
For the Years Ended December 31,
--------------------------------
1993 1994 1995
-------- -------- -----------
Net sales $108,934 $132,029 $ 167,403
Cost of sales 72,656 86,748 108,654
-------- -------- -----------
Gross profit 36,278 45,281 58,749
-------- -------- -----------
Operating expenses:
Selling 9,780 11,309 12,241
General and administrative 11,080 14,460 15,002
Art and development 2,596 2,796 4,256
Special bonuses 1,106 2,200 2,581
-------- -------- -----------
Total operating expenses 24,562 30,765 34,080
-------- -------- -----------
Income from operations 11,716 14,516 24,669
Interest expense, net 2,304 3,843 5,772
Other expense (income), net 308 82 (309)
-------- -------- -----------
Income before income taxes and minority
interests 9,104 10,591 19,206
Income taxes 348 464 731
Minority interests 301 160 1,041
-------- -------- -----------
Net income $ 8,455 $ 9,967 $ 17,434
======== ======== ===========
Pro forma data (unaudited) (note (15)):
Net income before pro forma taxes $ 8,455 $ 9,967 $ 17,434
Pro forma additional income tax expense 3,218 3,774 6,672
-------- -------- -----------
Pro forma net income $ 5,237 $ 6,193 $ 10,762
======== ======== ===========
Supplemental pro forma data (unaudited) (note (15)):
Supplemental pro forma net income $ 14,197
===========
Supplemental pro forma net income per share $ 0.65
===========
Supplemental pro forma weighted average shares
outstanding 22,000,000
==========
See accompanying notes to combined financial statements.
F - 4
<PAGE>
<TABLE>
AMSCAN INC. AND AFFILIATES
Combined Statements of Stockholders' Equity
For the Years Ended December 31, 1993, 1994 and 1995
($ in thousands)
<CAPTION>
Additional Cumulative
Common Paid-in Retained Translation Treasury
Stock Capital Earnings Adjustment Stock Total
----- ---------- -------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $192 $5,758 $ 9,584 $ 103 $ (87) $15,550
Capital related to acquisitions 201 1,482 - - - 1,683
Net income - - 8,455 - - 8,455
Subchapter S and other distributions - - (8,519) - - (8,519)
Capital contributions - 1,850 - - - 1,850
Net change in cumulative translation adjustment - - - (523) - (523)
---- ------ ------ ---- ---- ------
Balance, December 31, 1993 393 9,090 9,520 (420) (87) 18,496
Net income - - 9,967 - - 9,967
Subchapter S and other distributions - - (7,450) - - (7,450)
Net change in cumulative translation adjustment - - - (193) - (193)
---- ------ ------ ---- ---- ------
Balance, December 31, 1994 393 9,090 12,037 (613) (87) 20,820
Net income - - 17,434 - - 17,434
Subchapter S and other distributions - - (11,009) - - (11,009)
Net change in cumulative translation adjustment - - - (40) - (40)
---- ------ ------ ---- ---- ------
Balance, December 31, 1995 $393 $9,090 $18,462 $ (653) $ (87) $27,205
==== ====== ====== ==== ==== ======
</TABLE>
See accompanying notes to combined financial statements.
F - 5
<PAGE>
<TABLE>
AMSCAN INC. AND AFFILIATES
Combined Statements of Cash Flows
($ in thousands)
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,455 $ 9,967 $17,434
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,628 3,672 4,332
Loss (gain) on disposal of property and equipment 405 35 (5)
Provision for doubtful accounts 2,339 2,676 1,581
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (7,439) (5,041) (9,614)
Inventories (3,450) (5,682) (10,548)
Deposits and other 1,530 (444) (463)
Other assets (1,413) (2,497) (3,032)
Accounts payable and accrued expenses 5,294 912 2,814
Other 351 289 362
------- ------- -------
Net cash provided by operating activities 8,700 3,887 2,861
------- ------- -------
Cash flows from investing activities:
Cash paid for acquisitions (2,139) - -
Capital expenditures (3,511) (6,160) (2,662)
Proceeds from disposal of property and equipment 14 98 9
------- ------- -------
Net cash used in investing activities (5,636) (6,062) (2,653)
------- ------- -------
Cash flows from financing activities:
Proceeds from loans, notes payable and long- 44,921 12,640 46,311
term indebtedness
Repayment of loans, notes payable and long- (38,291) (2,434) (35,155)
term indebtedness
Subchapter S and other distributions (8,519) (7,450) (11,009)
------- ------- -------
Net cash (used in) provided by financing activities (1,889) 2,756 147
------- ------- -------
Effect of exchange rate changes on cash (279) 270 (92)
------- ------- -------
Net increase in cash and cash equivalents 896 851 263
Cash and cash equivalents at beginning of year 482 1,378 2,229
------- ------- -------
Cash and cash equivalents at end of year $ 1,378 $ 2,229 $ 2,492
======= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,168 $4,025 $ 4,486
Taxes $ 152 $ 112 $ 601
Supplemental information on noncash investing activities:
Capital lease obligations of $648 were incurred in 1994. There were no capital lease obligations in 1993 or 1995.
</TABLE>
See accompanying notes to combined financial statements.
F - 6
<PAGE>
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) Description of Business
-----------------------
The accompanying special purpose combined financial statements
include the accounts of Amscan Inc. and certain of its affiliates
(the "Companies"). The Companies design, manufacture, contract for
manufacture and distribute party and novelty goods to retailers and
wholesale distributors principally in the United States, Canada and
Europe.
Basis of Combination
--------------------
These combined financial statements present the Companies on a
combined basis because of their common ownership by Mr. John A.
Svenningsen (the "Principal Stockholder"). The name, the Principal
Stockholder's ownership and a brief description of each of the
combined entity's principal business activity is presented below.
Principal
Stockholder's
Entity Ownership Principal Activity
------ ------------- ------------------
Amscan Inc. 100% Manufacturer - paper tableware;
and distributor - worldwide
Am-Source, Inc. 50% Manufacturer - plastic products
Trisar, Inc. 100% Manufacturer - gift products
Amscan Distributors
(Canada) Ltd. 100% Distributor - Canada
Amscan Holdings Limited 75% Distributor - United Kingdom
Amscan (Asia Pacific)
Pty. Ltd. 85% Distributor - Australia and Asia
Amscan Partyartikel GmbH 95% Distributor - Germany
Amscan Svenska AB 100% Distributor - Sweden
Amscan de Mexico,
S.A. de C.V. 50% Distributor - Mexico
JCS Realty Corp. 100% Real estate - Canada
SSY Realty Corp. 100% Real estate - United States
The 50% owned entities are combined in the accompanying financial
statements because the Companies or the Principal Stockholder
effectively control their day-to-day operations. All material
intercompany balances and transactions have been eliminated in
combination.
Acquisitions And Dispositions
-----------------------------
On May 24, 1993, the Principal Stockholder acquired 50% of the stock
of Am-Source, Inc. Simultaneously, Am-Source, Inc. acquired for
$456,000 all of the assets and assumed certain liabilities of Multi-
Source, Inc. Both transactions were accounted for as a purchase and
the fair value of the assets acquired approximated the fair value of
the liabilities assumed.
On November 13, 1993, the Principal Stockholder acquired 100% of the
stock of Trisar, Inc. for approximately $1,500,000 in cash and
notes. The acquisition has been accounted for as a purchase and the
excess purchase price over the fair value of the net assets acquired
of $1,057,000 is being amortized on a straight-line basis over three
years.
On September 3, 1993, the Principal Stockholder acquired 50% of the
stock of Amscan de Mexico, S.A. de C.V. for $201,000 in cash, which
approximated 50% of the fair value of its net assets.
F - 7
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
The results of operations for each of the above entities are included
in the accompanying combined financial statements from their
respective dates of acquisition. The individual and collective
results of operations of the entities for the year ended December 31,
1993 had each of the acquisitions occurred at the beginning of 1993,
are not significant.
During the periods presented, a business, which was not material to
the combined business of the Companies, was acquired by the Principal
Stockholder and subsequently disposed of. The associated balance
sheet, statements of operation and loss on disposition of the
business are insignificant and have been excluded from the
accompanying combined financial statements.
(2) Summary of Significant Accounting Policies
Cash Equivalents
----------------
Highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
Inventories
-----------
Substantially all inventories of the Companies are valued at the
lower of cost or market (principally on the first-in, first-out
method).
Property, Plant, and Equipment
------------------------------
Property, plant and equipment are stated at cost. Machinery and
equipment under capital leases are stated at the present value of
the minimum lease payments at the inception of the lease.
Depreciation is calculated principally on the straight-line method
over the estimated useful lives of the assets. Machinery and
equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or
estimated useful life of the asset.
Other Assets
------------
Included in other assets are capitalized costs associated with
designs including printing plate and film charges, which are
amortized over their estimated useful lives of three years. The
amortization of such costs was $862,000, $953,000 and $1,195,000,
respectively, for the three years ended December 31, 1993, 1994 and
1995.
Income Taxes
------------
Certain of the affiliates have elected Subchapter S corporation
status for U.S. federal and state income tax purposes. Income
taxes, therefore, are principally the responsibility of the
stockholders. Income taxes for all other entities, including
foreign distributors, are computed in accordance with the tax laws
in the jurisdictions in which the entities operate.
F - 8
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
Foreign Currency Transactions and Translation
----------------------------------------------
Realized foreign currency exchange gains or losses, which result from
the settlement of receivables or payables in currencies other than
U.S. dollars, are credited or charged to operations. Unrealized
gains or losses on foreign currency exchanges are insignificant.
The balance sheets of foreign affiliates are translated into U.S.
dollars at the exchange rates in effect on the balance sheet date.
The results of operations of foreign affiliates are translated into
U.S. dollars at the average exchange rates effective for the periods
presented. The differences from historical exchange rates are
reflected as a separate component of stockholders' equity.
Concentration of Credit Risk
----------------------------
While the Companies' customers are geographically disbursed
throughout North America, South America, Europe, Asia and Australia,
there is a concentration of sales made to and accounts receivable
from the stores which operate in the party superstore channel of
distribution. At December 31, 1994 and 1995, the Companies' two
largest customers, with approximately 185 stores, accounted for 8%
and 12%, respectively, of combined accounts receivable. For the
years ended December 31, 1993, 1994 and 1995, sales to the
Companies' two largest customers represented 7%, 10%, and 17%,
respectively, of combined net sales. No other group or combination
of customers subjected the Companies to a concentration of credit
risk.
Use of Estimates
----------------
Management has made estimates and assumptions relating to the
reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Recently Issued Accounting Standards
------------------------------------
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement on Financial Accounting Standards (SFAS) No. 123 -
Accounting for Stock-Based Compensation. As allowable by SFAS 123,
the Companies do not intend to recognize compensation cost for
stock-based employee compensation arrangements, but rather, starting
with fiscal 1996, will disclose the pro-forma impact on net income
and earnings per share as if the fair value stock-based compensation
had been recognized starting with fiscal 1995.
In March 1995, the FASB issued SFAS 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. When adopted in 1996, the Companies do not believe
that the impact of SFAS 121 will have a significant impact on their
financial position or results of operations.
Other pronouncements issued by the FASB or other authoritative
accounting standard groups with future effective dates are either
not applicable or not significant to the financial statements of the
Companies.
F - 9
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
(3) Inventories
-----------
Inventories at December 31, 1994 and 1995 consisted of the following
($ in thousands):
1994 1995
------- -------
Finished goods $31,984 $42,125
Raw materials 2,957 2,277
Work-in-process 358 1,839
------- -------
35,299 46,241
Less: Reserve for slow moving and obsolete
inventory (834) (1,228)
------- -------
$34,465 $45,013
======= =======
(4) Property, Plant and Equipment
-----------------------------
Major classifications of property, plant and equipment at December
31, 1994 and 1995 consisted of the following ($ in thousands):
1994 1995
------- -------
Machinery and equipment $15,849 $18,879
Data processing equipment 5,536 6,123
Leasehold improvements 4,581 4,784
Furniture and fixtures 3,929 2,370
Buildings 9,162 9,524
Land 1,881 1,917
------- -------
40,938 43,597
Less: accumulated depreciation and
amortization (14,013) (16,749)
------- -------
$26,925 $26,848
======= =======
Depreciation and amortization expense was $1,766,000, $2,367,000 and
$2,785,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
(5) Loans and Notes Payable
-----------------------
During 1995, certain of the Companies, entered into a revolving
credit agreement with several banks which expires on September 20,
2000. Amounts available for borrowing under this agreement, subject
to asset availability and other restrictions, are as follows:
F - 10
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
September 20, 1995 - September 19, 1996 $ 50,000,000
September 20, 1996 - September 19, 1997 $ 55,000,000
September 20, 1997 - September 20, 2000 $ 60,000,000
Such revolving credit agreement is collateralized by a first lien on
certain of the assets of the Companies. The revolving credit
agreement provides for interest on the borrowings to be based on
either a prime borrowing rate or LIBOR plus 0.875%, whichever is
lower. Additionally, the revolving credit agreement requires the
Companies to comply with certain covenants including the maintenance
of financial ratios, as defined. At December 31, 1995, the
Companies were in compliance with all such covenants.
Loans and notes payable outstanding at December 31, 1994 and 1995
consisted of the following ($ in thousands):
1994 1995
---- ----
Revolving credit line with interest at LIBOR plus $ - $35,000
0.875% (6.41% at December 31, 1995)
Revolving credit line with interest at the prime 16,165 2,060
rate (8.5% at December 31, 1995) and the prime
rate plus 0.25% (8.75% at December 31, 1994)
Bankers acceptances payable at various 12,500 -
dates through June 26, 1995 with interest at
rates ranging from 6.43% to 8.10%
Revolving credit line with interest at the U.K.
Base rate plus 2% (8.5% at December 31, 1995) - 789
------- --------
$28,665 $37,849
======= =======
The weighted average interest rates on loans and notes payable
outstanding at December 31, 1994 and 1995 were 8.08% and 6.57%,
respectively.
The Companies are currently involved in three interest rate swap
transactions covering $25,000,000 of its outstanding obligation
under the revolving credit agreement. The transactions fix the
interest rates as indicated below and entitle the Companies to
settle with the counterparty on a quarterly basis, the product of
the notional amount times the amount, if any, by which the ninety
day LIBOR exceeds the fixed rate. Net payments to the counterparty
under the swap agreements for the years ended December 31, 1994 and
1995, which have been recorded as additional interest expense, have
been computed as follows ($ in thousands):
F - 11
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
Additional Interest
Expense
-------------------
Notional
Date Of Contract Amount Term Fixed Rate 1994 1995
---------------- -------- ---- ---------- ---- ----
September 28, 1994 $ 5,000 10 years 7.945% $ 34 $94
May 12, 1995 $10,000 5 years 6.590% - 42
July 20, 1995 $10,000 10 years 6.750% - 38
---- ----
$ 34 $174
==== ====
(6) Long-Term Indebtedness
----------------------
Long-term indebtedness at December 31, 1994 and 1995
consisted of the following ($ in thousands):
1994 1995
---- ----
Mortgage obligations (a) $ 7,815 $ 6,956
Term loans (b) 3,189 5,152
Capital lease obligations (c) 2,705 2,415
------- -----
Total long-term indebtedness 13,709 14,523
Less: current installments (4,909) (2,239)
------ ------
Long-term indebtedness,
excluding current installments $ 8,800 $ 12,284
======== ========
(a) Certain of the Companies have mortgage
obligations payable to financial institutions
relating to distribution facilities due through
September 13, 2004. The mortgages are collateralized
by specific real estate assets of the Companies and
carry interest rates ranging from the Canadian prime
rate plus 0.5% (8.5% and 8.0% as of December 31, 1994
and 1995, respectively) to 8.51%.
(b) Certain of the Companies have various term loans
payable to financial institutions due through
April 1, 2002. The loans are collateralized by
specific assets of the Companies and carry interest
rates which range from 8.01% to 9.5%.
(c) Certain of the Companies have entered into
various capital leases for machinery and equipment
with implicit interest rates ranging from 6.5% to
23.0% and extend to 2001.
At December 31, 1995, principal maturities of long-term
indebtedness consisted of the following ($ in thousands):
F - 12
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
Capital
Indebtedness Lease Obligations Total
------------ ----------------- ------
1996 $ 1,951 $ 472 $ 2,423
1997 1,583 466 2,049
1998 1,290 464 1,754
1999 1,264 448 1,712
2000 1,194 442 1,636
Thereafter 4,826 806 5,632
------ ----- ------
12,108 3,098 15,206
Amount representing interest - (683) (683)
------ ----- ------
Long-term indebtedness $12,108 $ 2,415 $14,523
====== ===== ======
(7) Due to Principal Stockholder
----------------------------
Certain of the Companies owe $12,000,000 and $16,000,000
to the Principal Stockholder as of December 31, 1994 and
1995, respectively, under a subordinated note with
interest payable monthly. This note is subject to a
subordination agreement among the Principal Stockholder,
Amscan Inc., and the lenders involved with the revolving
credit agreement as discussed in note (5). Under the
terms of the subordination agreement, the payment of any
principal evidenced by the subordinated note is
prohibited, until all obligations owed the lenders have
been paid in full. As a result, the Principal
Stockholder has indicated to the Companies his intent
not to demand payment until at least January 1, 1997
and, accordingly, the subordinated notes have been
classified as a non-current liability in the
accompanying combined balance sheets. Interest is at
the prime rate plus 0.5% (9.0% at both December 31, 1994
and 1995).
Further, certain of the Companies have unsecured current
and noncurrent loans payable to the Principal
Stockholder aggregating $3,731,000 and $1,564,000,
respectively, at December 31, 1994 and $523,000 and
$1,930,000, respectively, at December 31, 1995, at
interest rates ranging from 7% to 12%. The loans have
different forms of collateral but are generally
subordinated to the credit facility discussed in note
(5) and are due at various dates through 2003.
During 1993, $1,200,000 of notes payable to the
Principal Stockholder were converted to subordinated
indebtedness and additional paid-in-capital in the
amounts of $1,000,000 and $200,000, respectively. In
addition, $3,000,000 of accrued expenses due to the
Principal Stockholder were converted to subordinated
indebtedness and additional paid-in-capital in the
amount of $1,350,000 and $1,650,000, respectively.
During 1994 and 1995, $3,650,000 and $4,000,000 of notes
payable to the Principal Stockholder were converted to
subordinated indebtedness, respectively.
(8) Employee Benefit Plans
----------------------
Certain of the Companies maintain a profit-sharing plan for
all eligible employees providing for annual discretionary
contributions to a trust. As of January 1, 1995, the plan
required the Companies to match 25% of the first 6% of an
employee's contribution to the plan. Benefit
F - 13
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
expense for the years ended December 31, 1993, 1994 and
1995 totaled $590,000, $548,000 and $558,000,
respectively.
(9) Special Bonus Arrangements
--------------------------
During the periods presented, Amscan Inc. had
employment agreements with certain key executives and
senior managers which provided for these individuals to
receive annual bonuses based upon the pre-tax income of
Amscan Inc. and certain of its affiliates. These bonuses
which amounted to approximately 18% to 20% of pre-tax
income are reflected in the Combined Statements of
Operations in the caption "Special Bonuses". At December
31, 1994 and 1995, respectively, $1,805,000 and
$2,581,000 were accrued for such bonuses and included in
accrued expenses.
(10) Income Taxes
------------
The principal operating entities, Amscan Inc. and Am-
Source, Inc. have elected Subchapter S corporation
status. Accordingly, these entities are generally not
subject to federal and state income taxes, to the extent
that states recognize Subchapter S corporation status.
Current income tax expense and deferred taxes generally
arise from taxes on income generated by foreign
affiliates at the effective rate in effect in each of
the taxing jurisdictions. Deferred taxes arising from
timing differences are not significant.
A summary of the operations subject to tax, their
reported tax expense and effective tax rates for the
years ended December 31, 1993, 1994 and 1995 are as
follows ($ in thousands):
1993 1994 1995
--------------- --------------- ----------------
Effec- Effec- Effec-
Tax tive Tax tive Tax tive
expense rate expense rate expense rate
--------------- --------------- ----------------
Amscan Distributors
(Canada) Ltd. $150 38% $190 39% $283 39%
Amscan Holdings Limited 96 53% 118 34% 263 39%
Amscan (Asia Pacific)
Pty. Ltd. 67 34% 83 32% 103 32%
Other 35 4% 73 6% 82 8%
---- ---- ----
$348 $464 $731
==== ==== ====
(11) Common Stock
------------
Common Stock for each of the combined entities is as follows:
Amscan Inc.:
No par value; 1,000 shares authorized, 990 shares issued and
outstanding (including 330 shares of treasury stock).
Am-Source, Inc.:
No par value; 1,000 shares authorized, 120
shares issued and outstanding.
Trisar, Inc.
No par value; 10,000 shares authorized, 267 shares issued and
outstanding.
F - 14
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
Amscan Distributors (Canada) Ltd.:
$1 (Canadian) par value; 10,000 shares authorized, 3,000 shares
issued and outstanding.
Amscan Holdings Limited:
One pound par value; 60,000 shares authorized, issued and
outstanding.
Amscan (Asia Pacific) Pty. Ltd.:
Aus. $1 par value; 10,000 shares authorized, 800 shares issued and
outstanding.
Amscan Partyartikel GmbH:
No par value; 50,000 shares authorized, issued and outstanding.
Amscan Svenska AB:
No par value; 1,500 shares authorized, issued and outstanding.
Amscan de Mexico, S.A. de C.V.:
Class B Shares:
No stated value, minimum capital; 6,060 shares authorized,
issued and outstanding.
Class B-1 Shares:
No stated value, variable capital; 1,200 shares authorized,
issued and outstanding.
JCS Realty Corp.:
No par value; 200 shares authorized, one share issued and
outstanding.
SSY Realty Corp.:
No par value; 200 shares authorized issued and outstanding.
(12) Commitments and Contingencies
-----------------------------
Leases
The Companies are obligated under various capital
leases for certain machinery and equipment which
expire on various dates through June 1, 2001 (see
also note (6)). At December 31, 1994 and 1995, the
amount of machinery and equipment and related
accumulated amortization recorded under capital
leases is included with property, plant and equipment
and consisted of the following ($ in thousands):
1994 1995
---- ----
Machinery and equipment $3,122 $3,174
Less: accumulated amortization (244) (564)
------ ------
$2,878 $2,610
====== ======
Amortization of assets held under capitalized leases
is included with depreciation expense.
The Companies have several noncancelable operating
leases with unaffiliated third parties, primarily for
office and manufacturing space, showrooms, and
warehouse equipment that expire over the next eight
years. These leases generally contain renewal
options and require the Companies to pay real estate
taxes, utilities and related insurance.
At December 31, 1995, certain of the Companies also had
noncancelable operating leases with the Principal
Stockholder and real estate entities owned either
directly or indirectly by
F - 15
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
the Principal Stockholder ("Uncombined Affiliates")
for warehouse and office space that expire over the
next sixteen years. Rent due to Uncombined Affiliates
represents future commitments associated with property
leased by the Companies from the Principal Stockholder
or such entities owned directly or indirectly by the
Principal Stockholder. Subsequent to December 31,
1995, the terms of the leases have been amended (see
note (16)).
At December 31, 1995 future minimum lease payments
under all operating leases consisted of the following
($ in thousands):
Uncombined
Third Parties Affiliates Total
------------- ---------- -----
1996 $ 3,132 $ 2,132 $ 5,264
1997 2,538 2,246 4,784
1998 1,989 2,309 4,298
1999 1,274 2,374 3,648
2000 1,043 2,442 3,485
Thereafter 3,209 29,862 33,071
------ ------ ------
$13,185 $41,365 $54,550
======= ======= =======
Rent expense for the years ended December 31, 1993,
1994 and 1995 was $853,000, $4,300,000 and
$4,705,000, respectively, of which $557,000,
$3,021,000 and $3,171,000, respectively, related to
leases with Uncombined Affiliates.
(13) Segment Information
-------------------
Industry Segments
The Companies operate in primarily one industry
segment which involves the design, manufacture,
contract for manufacture and distribution of party and
novelty goods to retailers and wholesale distributors.
Geographic Segments
The Companies' export sales, other than those
intercompany sales reported below as sales between
geographic areas, are not material. Sales between
geographic areas primarily consist of sales of
finished goods for distribution in the foreign
markets.
The Companies' geographic area data for each of the
three fiscal years ended December 31, 1993, 1994 and 1995
are as follows ($ in thousands):
F - 16
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
Domestic Foreign Eliminations Combined
-------- ------- ------------ --------
1993
----
Sales to unaffiliated customers $ 95,021 $ 13,913 $108,934
Sales between geographic areas 4,753 19 $ (4,772) -
-------- ------- -------- --------
Net sales $ 99,774 $ 13,932 $ (4,772) $108,934
======== ======== ======== ========
Income from operations $ 11,562 $ 154 $ 11,716
======== ========
Interest expense, net 2,304
Other expense, net 308
---------
Income before income taxes and minority interests $ 9,104
=========
Identifiable assets $ 68,390 $ 11,700 $ 80,090
======== ======== =========
Domestic Foreign Eliminations Combined
-------- ------- ------------ --------
1994
----
Sales to unaffiliated customers $115,196 $ 16,833 $132,029
Sales between geographic areas 5,645 89 $ (5,734) -
-------- ------- -------- --------
Net sales $120,841 $ 16,922 $ (5,734) $132,029
======== ======== ======== ========
Income from operations $ 13,468 $ 1,048 $ 14,516
======== ========
Interest expense, net 3,843
Other expense, net 82
---------
Income before income taxes and minority interests $ 10,591
=========
Identifiable assets $ 80,117 $ 13,767 $ 93,884
======== ======== =========
Domestic Foreign Eliminations Combined
-------- ------- ------------ --------
1995
----
Sales to unaffiliated customers $146,198 $ 21,205 $167,403
Sales between geographic areas 8,508 60 $ (8,568) -
-------- ------- -------- --------
Net sales $154,706 $ 21,265 $ (8,568) $167,403
======== ======== ======== ========
Income from operations $ 22,782 $ 1,887 $ 24,669
======== ========
Interest expense, net 5,772
Other income, net (309)
---------
Income before income taxes and minority interests $ 19,206
=========
Identifiable assets $ 99,123 $ 15,478 $114,601
======== ======== =========
(14) Fair Value of Financial Instruments
-----------------------------------
The carrying amounts for cash and cash equivalents, accounts
receivables, deposits and other current assets, loans and notes
payable, accounts payable, accrued expenses (non
F - 17
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
derivatives) and other current liabilities approximates
fair value at December 31, 1995 because of the short
term maturity of those instruments or their variable
rate of interest.
The carrying amounts for long term debt approximates
fair value at December 31, 1995. Fair value has been
estimated by discounting the future cash flow of each
instrument at rates currently offered for similar debt
instruments of comparable maturity.
Fair value amounts for loans and notes payable to
Principal Stockholder are not presented due to the
related party nature of the indebtedness and the
ability of the Principal Stockholder to amend the
features of the debt instruments.
The fair value of interest rate swaps is the
estimated amount that the Bank would receive or pay to
terminate the swap agreements at the reporting date,
taking into account current interest rates and the
current creditworthiness of the swap counterparties.
Termination of the swap agreements at December 31,
1995 would require the Company to pay the Bank
$1,857,000.
(15) Pro Forma Data and Supplemental Pro Forma Data
(Unaudited)
In connection with a proposed initial public
offering of its common stock (the "Offering") Amscan
Holdings, Inc. was formed on October 3, 1996 for the
purpose of becoming the holding company for the
business conducted by the Companies. Such transfer of
ownership will be accounted for in a manner similar to
a pooling of interests and will result in Amscan Inc.
and Am-Source, Inc. being taxed as Subchapter C
corporations under federal and certain state income
tax requirements.
Pro forma net income for the years ended December
31, 1993, 1994 and 1995 give effect to pro forma
income tax provisions at statutory rates (40.5%)
assuming Amscan, Inc. and Am-Source, Inc. had not
elected Subchapter S corporation status for those
periods.
In addition to the pro forma additional income tax
expense, there are other events contemplated in
connection with the Offering that have been reflected
in the supplemental pro forma net income for the year
ended December 31, 1995 which causes such amount to be
higher than the pro forma net income amount.
The supplemental pro forma net income for the year
ended December 31, 1995 gives effect to (i) reduction
in compensation paid to certain employees to the
extent such compensation exceeded the compensation
payable to such individuals under certain prospective
compensation agreements ($2,581,000), (ii) to reflect
amortization of goodwill ($250,000) and elimination of
minority interest related to the 50% acquisition of
Am-Source, Inc. as if it were acquired at the
beginning of the period presented ($927,000), (iii) to
reflect the reduction of interest expense ($2,686,000)
related to the repayment of bank indebtedness and
subordinated indebtedness due to the Principal
Stockholder from proceeds of the proposed Offering, as
if it occurred at the beginning of the period
presented, and (iv) to give effect to the tax effects
of these adjustments at statutory rates (40.5%)
assuming Amscan Inc. and Am-Source, Inc. had not
elected Subchapter S corporation status ($9,181,000).
The supplemental pro forma weighted average shares
outstanding represent the contemplated number of
shares expected to be outstanding immediately after
the Offering.
F - 18
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1995
(16) Subsequent Events
(a) On April 5, 1996, certain of the Companies
entered into an operating lease agreement with a
third party whereby the Companies may lease up to
$11,000,000 of machinery and equipment. The
agreement provides for equal monthly payments over
12 years, including renewal options. The
agreement will be classified as an operating lease
for financial statement purposes, and accordingly,
the related assets and liabilities will not be
reflected in the Companies' financial statements.
In connection with this agreement, certain of the
Companies have entered into commitments for
equipment with a fair value of approximately
$10,400,000.
Assuming the entire lease facility is utilized,
future minimum lease payments under the lease will
be as follows ($ in thousands):
1997 $1,305
1998 1,305
1999 1,305
2000 1,305
2001 1,305
Thereafter 9,135
------
$15,660
======
(b) In July 1996, certain operating leases with
Uncombined Affiliates which previously had
remaining terms of up to sixteen years have been
amended to terms of up to six years. As a result
of these reduced lease terms, future minimum lease
payments under all operating leases with
Uncombined Affiliates, at December 31, 1995
consisted of the following ($ in thousands):
1996 $ 2,132
1997 2,246
1998 2,309
1999 2,374
2000 1,239
Thereafter 167
-------
$10,467
======
F - 19
<PAGE>
AMSCAN INC. AND AFFILIATES
Combined Balance Sheets
($ in thousands)
(unaudited)
Adjusted
June 30, 1996
June 30, 1996 (note 5)
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 3,478 $ 3,478
Accounts receivable, net 39,740 39,740
Inventories 49,474 49,474
Deposits and other 12,326 12,326
------- -------
Total current assets 105,018 105,018
Property, plant and equipment, net 27,137 27,137
Other assets 7,332 7,332
------- -------
Total assets $139,487 $139,487
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Loans and notes payable $ 49,750 $ 49,750
Accounts payable 7,630 7,630
Accrued expenses 10,029 10,029
Current installments of long-term
indebtedness 2,141 2,141
------ ------
Total current liabilities 69,550 69,550
Long-term indebtedness, less current
installments 11,430 11,430
Subordinated and other indebtedness to
stockholders 19,660 33,111
Other 639 639
------- -------
Total liabilities 101,279 114,730
------- -------
Stockholders' equity:
Common stock 393 393
Additional paid-in capital 9,090 1,522
Retained earnings 29,372 23,489
Cumulative translation adjustment (560) (560)
Treasury stock, at cost (87) (87)
------ ------
Total stockholders' equity 38,208 24,757
------ ------
Total liabilities and stockholders'
equity $139,487 $139,487
======== ========
See accompanying notes to combined financial statements.
F - 20
<PAGE>
AMSCAN INC. AND AFFILIATES
Combined Statements of Operations
($ in thousands, except share amounts)
(unaudited)
For the Six Months Ended
June 30,
-------------------------
1995 1996
-------- ----------
Net sales $ 80,422 $ 92,972
Cost of sales 51,903 58,706
-------- ----------
Gross profit 28,519 34,266
-------- ----------
Operating Expenses:
Selling 5,772 5,936
General and administrative 6,680 8,916
Art and development 1,802 2,194
Special bonuses 1,423 2,100
-------- ----------
Total operating expenses 15,677 19,146
-------- ----------
Income from operations 12,842 15,120
Interest expense, net 2,979 3,084
Other income, net (304) (446)
-------- ----------
Income before income taxes
and minority interests 10,167 12,482
Income taxes 203 441
Minority interests 347 825
-------- ----------
Net income $ 9,617 $ 11,216
======== ==========
Pro forma data (note (6)):
Net income before pro forma
income taxes $ 9,617 $ 11,216
Pro forma additional
income tax expense 3,684 4,415
-------- ----------
Pro forma net income $ 5,933 $ 6,801
======== ==========
Supplemental pro forma data
(unaudited) (note (6)):
Supplemental pro forma net income $ 9,258
==========
Supplemental pro forma net income per share $ 0.42
==========
Supplemental pro forma weighted average
shares outstanding 22,000,000
==========
See accompanying notes to combined financial statements.
F - 21
<PAGE>
<TABLE>
AMSCAN INC. AND AFFILIATES
Combined Statements of Stockholders' Equity
For the Six Months Ended June 30, 1995 and 1996
($ in thousands)
(unaudited)
<CAPTION>
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustment Stock Total
----- ---------- -------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 393 $ 9,090 $12,037 $ (613) $(87) $20,820
Net income for the six
months ended June 30, 1995 - - 9,617 - - 9,617
Subchapter S and other distributions - - (248) - - (248)
Net change in cumulative
translation adjustment - - - (190) - (190)
------ ------ ------- ----- ---- --------
Balance, June 30, 1995 $ 393 $9,090 $21,406 $(803) $(87) $29,999
====== ====== ======= ====== ===== =======
Balance, December 31, 1995 $ 393 $9,090 $18,462 $(653) $(87) $27,205
Net income for the six months
ended June 30, 1996 - - 11,216 - - 11,216
Subchapter S and other distributions - - (306) - - (306)
Net change in cumulative
translation adjustment - - - 93 - 93
------ ------ ------- ----- ---- --------
Balance, June 30, 1996 $ 393 $9,090 $29,372 $(560) $(87) $38,208
====== ====== ======= ====== ===== =======
</TABLE>
See accompanying notes to combined financial statements.
F - 22
<PAGE>
AMSCAN INC. AND AFFILIATES
Combined Statements of Cash Flows
($ in thousands)
(unaudited)
For the Six Months Ended
June 30,
------------------------
1995 1996
---- ----
Cash flows from operating activities:
Net income $ 9,617 $11,216
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 2,129 2,271
Provision for doubtful accounts 30 70
Changes in operating assets and
liabilities:
Accounts receivable (9,703) (7,928)
Inventories (4,709) (4,461)
Deposits and other (2,739) (9,406)
Other assets (1,814) (2,741)
Accounts payable and accrued
expenses (479) 2,278
Other 255 (561)
------ ------
Net cash used in operating
activities (7,413) (9,262)
------ ------
Cash flows from investing activities:
Capital expenditures (1,853) (1,309)
------ ------
Net cash used in investing activities (1,853) (1,309)
------ ------
Cash flows from financing activities:
Proceeds from loans, notes payable and
long term indebtedness 14,827 13,821
Repayment of loans, notes payable and
long term indebtedness (4,431) (2,094)
Subchapter S and other distributions (248) (306)
------ ------
Net cash provided by financing activities 10,148 11,421
------ ------
Effect of exchange rate changes on cash (257) 136
------ ------
Net increase in cash and cash equivalents 625 986
Cash and cash equivalents at beginning of period 2,229 2,492
------ ------
Cash and cash equivalents at end of period $ 2,854 $ 3,478
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,971 $ 2,569
Taxes $ 329 $ 427
Supplemental information on non-cash investing
activities:
Capital lease obligations of $429 were incurred for the six months ended
June 30, 1996. There were no capital lease obligations incurred for the
six months ended June 30, 1995.
See accompanying notes to combined financial statements.
F - 23
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
June 30, 1996
(1) Description of Business
-----------------------
The accompanying combined special purpose financial statements
include the accounts of Amscan Inc., and certain of its affiliates
(the "Companies"). The Companies design, manufacture, contract
for manufacture and distribute party and novelty goods to retailers
and wholesale distributors principally in the United States, Canada
and Europe.
Basis of Combination
These combined financial statements present the Companies on a
combined basis because of their common ownership by Mr. John A.
Svenningsen (the "Principal Stockholder"). The name, the Principal
Stockholder's ownership and a brief description of each entity's
principal business activity is presented below.
Principal
Stockholder's
Entity Ownership Principal Activity
------ ------------- ------------------
Amscan Inc. 100% Manufacturer - paper tableware;
and distributor - worldwide
Am-Source, Inc. 50% Manufacturer - plastic products
Trisar, Inc. 100% Manufacturer - gift products
Amscan Distributors (Canada) Ltd. 100% Distributor - Canada
Amscan Holdings Limited 75% Distributor - United Kingdom
Amscan (Asia Pacific) Pty. Ltd, 85% Distributor - Australia and Asia
Amscan Partyartikel GmbH 95% Distributor - Germany
Amscan Svenska AB 100% Distributor - Sweden
Amscan de Mexico, S.A. de C.V. 50% Distributor - Mexico
JCS Realty Corp. 100% Real estate - Canada
SSY Realty Corp. 100% Real estate - United States
The 50% owned entities are combined in the accompanying financial
statements because Amscan Inc. or the Principal Stockholder
effectively controls their day-to-day operations.
All material intercompany balances and transactions have been eliminated
in combination.
(2) Use of Estimates
----------------
Management has made estimates and assumptions relating to the reporting
of assets and liabilities to prepare these combined financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from these estimates. The results of operations
for the six months ended June 30, 1996 are not indicative of results to
be expected for the year ended December 31, 1996.
F - 24
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
June 30, 1996
(3) Inventories
-----------
Inventories at June 30, 1996 consisted of the following ($ in thousands):
Finished goods $45,427
Raw Materials 3,269
Work-in-process 2,074
------
50,770
Less: Reserve for slow moving and
obsolete inventory (1,296)
------
$49,474
=======
(4) Operating Leases
----------------
On April 5, 1996, certain of the Companies entered into an operating
lease agreement with a third party whereby the Companies may lease up
to $11,000,000 of machinery and equipment. The agreement provides for
equal monthly payments over 12 years, including renewal options. The
agreement will be classified as an operating lease for financial
statement purposes, and accordingly, the related assets and liabilities
are not reflected in the Companies' financial statements. Under the
terms of the agreement, the Companies may use this facility to provide
for progress payments on such equipment. The Companies are obligated
to make interest payments on amounts advanced. Scheduled lease payments
commence when all equipment is delivered.
In connection with this agreement, certain of the Companies have entered
into commitments for equipment with a fair value of approximately
$10,400,000. At June 30, 1996, progress payments of approximately
$4,800,000 related to this equipment have been financed by the Companies
from existing working capital resources. Under the terms of the lease,
the Companies will be reimbursed for these advances.
Assuming the entire lease facility is utilized, future minimum lease
payments under the lease will be as follows ($ in thousands):
1997 $ 1,305
1998 1,305
1999 1,305
2000 1,305
2001 1,305
Thereafter 9,135
------
$15,660
=======
F - 25
<PAGE>
AMSCAN INC. AND AFFILIATES
Notes to Combined Financial Statements
June 30, 1996
In July 1996, certain operating leases with Uncombined Affiliates which
previously had remaining terms of up to sixteen years have been amended
to terms of up to six years. As a result of these reduced lease terms,
future minimum lease payments under all operating leases with Uncombined
Affiliates, at December 31, 1995 consisted of the following ($ in
thousands):
1996 $ 2,132
1997 2,246
1998 2,309
1999 2,374
2000 1,239
Thereafter 167
-------
$10,467
=======
(5) Adjusted Pro Forma Balance Sheet
--------------------------------
Pursuant to Staff Accounting Bulletin 55, the Adjusted June 30, 1996
Balance Sheet only gives effect to the declaration of distributions
and dividends to be made to Subchapter S stockholders subsequent to
June 30, 1996.
(6) Pro Forma and Supplemental Pro Forma Net Income
-----------------------------------------------
Pro forma net income for the periods ended June 30, 1995 and 1996,
respectively, give effect to pro forma income tax provisions at
statutory rates (40.5%) assuming Amscan Inc. and Am-Source, Inc.
had not elected Subchapter S corporation status.
Supplemental pro forma net income for the period ended June 30, 1996
is higher than the pro forma net income shown for the same period due
to adjustments (i) to reduce compensation paid to certain employees to
the extent such compensation exceeded the compensation payable to such
individuals under their revised compensation agreements as if the
revised agreements were in effect as of the beginning of the period,
(ii) to reflect amortization of goodwill and elimination of minority
interest related to the acquisition of the remaining 50% of Am-Source,
Inc. as if it were acquired at the beginning of the period presented,
(iii) to reflect the reduction of interest expense related to the
repayment of bank indebtedness and subordinated indebtedness due to the
Principal Stockholder from proceeds of the proposed Offering, as if it
occurred at the beginning of the period presented and (iv) to give
effect to the tax effects of these adjustments at statutory rates
(40.5%) assuming Amscan Inc. and Am-Source, Inc. had not elected
Subchapter S corporation status.
F - 26
<PAGE>
No person has been authorized to give
any information or to make any representations
other than those contained in this Prospectus,
and, if given or made, such information or
representations must not be relied upon as
having been authorized. this Prospectus does ---------- Shares
not constitute an offer to sell or the
solicitation of an offer to buy any securities
other than the securities to which it relates Amscan Holding, Inc.
or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances
in which such offer or solicitation is unlawful. Common Stock
Neither the delivery of this prospectus nor (par value $0.10 per share)
any sale made hereunder shall, under any
circumstances, create any implication that
there has been no change in the affairs of ----------
the company since the date hereof or that the
information contained herein is correct as of [ L O G O]
any time subsequent to its date. ____________
----------
-----------------
TABLE OF CONTENTS
-----------------
PAGE
-----
Prospectus Summary.....................
The Company............................
Risk Factors...........................
Organization of the Company............
Use of Proceeds........................
Capitalization.........................
Dilution...............................
Selected Financial Data................ Goldman, Sachs & Co.
Management's Discussion and Analysis
of Financial......................... Alex. Brown & Sons
Condition and Results of Operations....
Supplemental Pro Forma Combined........ Incorporated
Financial Statements (Unaudited).......
Business............................... Representatives
Management of the Company.............. of the Underwriters
Principal Stockholders.................
Certain Related Transactions...........
Description of the Company's Capital
Stock................................
Shares Eligible for Future Sale........
Underwriting...........................
Validity of Common Stock...............
Experts................................
Other Information......................
Index to Combined Financial Statements.
Through and including ______, 1996 (the
25th day after the date of this Prospectus),
all dealers effecting transactions in the
common stock, whether or not participating
in this distribution, may be required to
deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a
prospectus when acting as underwriters and
with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
The following table sets forth an itemization of all
estimated expenses in connection with the issuance and distribution
of the securities being registered:
Registration Statement Filing Fee $ 22,727.27
NASD Filing Fee __________
Legal Fees and Expenses __________
Accounting Fees and Expenses __________
Printing Costs __________
Fees and Expenses (including legal fees) for __________
qualifications under State Securities laws
Transfer Agent's Fees and Expenses __________
Miscellaneous __________
Total $ _________
Item 14. Indemnification Of Directors And Officers
-----------------------------------------
The Registrant's By-Laws provide for indemnification by the
Registrant of its directors and officers to the full extent permitted by
the Delaware General Corporation Law (the "DGCL"). The Registrant is
empowered by Section 145 of the DGCL, subject to the procedures and
limitations stated therein, to indemnify any person against expenses
(including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with
any threatened, pending or completed action, suit or proceeding in which
such person was or is made a party by reason of his being or having been
a director, officer, employee or agent of the Registrant, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Registrant, and, with respect to any criminal
action or proceeding, if he had no reasonable cause to believe his conduct
was unlawful. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which
a person may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors, or otherwise. The Registrant
has also agreed to indemnify each director pursuant to an
Indemnification Agreement with such director from and against any
and all expenses, losses, claims, damages and liabilities incurred by
such director for or as a result of action taken or not taken while
such director was acting in his capacity as a director, officer,
employee or agent of the Registrant.
[The Registrant maintains a liability and indemnification insurance
policy in the amount of $ ___________ for a period extending from
__________ through __________ issued by ___________ covering all
officers and directors of the Registrant, at an annual expense of
approximately $ __________.]
[Reference is made to Section ___ of the Underwriting Agreement filed
as Exhibit ___ hereto for provisions relating to indemnification of
officers and directors of the Company by the Underwriters.]
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
----------------------------------------
In connection with the formation of the Registrant, the
Registrant sold _________ shares of Common Stock to John A. Svenningsen
for $___________ in cash. Such shares were sold to Mr. Svenningsen for
the purpose of facilitating the Organization and the Offering (as
those terms are defined in the Prospectus constituting a part of this
Registration Statement (the "Prospectus"). Additional shares of Common
Stock will be issued prior to completion of the Offering in connection
with effecting the Organization. See "Organization of the Company" in
the Prospectus. All of such shares were or will be issued and sold by
the Registrant in reliance on the exemption contained in Section 4(2) of
the Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
** Exhibit 1 - Form of Underwriting Agreement
** Exhibit 2(a) - [Share Exchange Agreement between the
Company and John A. Svenningsen, dated
________, 1996]
** Exhibit 2(b) - Capital Contribution Agreement between the
Company and Messrs. Allan J. Kaufman, Arthur J.
Kaufman and Michael F. Hodges, dated as of
October 9, 1996, as supplemented
* Exhibit 3(a) - Certificate of Incorporation of the
Registrant, dated October 3, 1996
* Exhibit 3(b) - By-Laws of the Registrant
** Exhibit 5 - Opinion of Cummings & Lockwood
** Exhibit 10(a) - Employment Agreement by and between Amscan
Inc. and John A. Svenningsen, dated November 1,
1996
** Exhibit 10(b) - Employment Agreement by and between the
Company and Gerald C. Rittenberg, dated October
9, 1996
** Exhibit 10(c) - Stock Agreement among Gerald C.
Rittenberg, John Svenningsen and Amscan Inc.,
dated October 9, 1996
** Exhibit 10(d) Employment Agreement between Amscan Inc.
and Gerald C. Rittenberg, dated November 27,
1991
** Exhibit 10(e) - Employment Agreement by and between Amscan
Inc. or the Company and William Wilkey, dated
as of October 4, 1996
** Exhibit 10(f) Employment Agreement between Amscan Inc.
and William Wilkey, dated as of January 1, 1992
II-2
<PAGE>
** Exhibit 10(g) - Employment Agreement between
Amscan Inc. and James M. Harrison,
dated as of _________, 1996
** Exhibit 10(h) - 1996 Stock Option Plan for Key
Employees
** Exhibit 10(i) - Lease between ACP East LLC and
Amscan Inc. dated as of December 1,
1995, as amended
** Exhibit 10(j) - Lease between John Anders
Svenningsen and Amscan Inc., dated
March 1, 1995, as modified and amended
** Exhibit 10(k) - Lease between John Anders
Svenningsen and Amscan Inc., dated
November 9, 1995, as amended
** Exhibit 21 - Subsidiaries of the Registrant
* Exhibit 24(a) - Consent of KPMG Peat Marwick LLP
** Exhibit 24(b) - Consent of Cummings & Lockwood,
(to be included as part of Exhibit 5)
* Exhibit 27 - Financial Data Schedule
* filed herewith
** to be filed by amendment
(b) Financial Statement Schedule.
Schedule 2 - Valuation and Qualifying Accounts
Item 17. Undertakings.
------------
(f) The undersigned Registrant hereby undertakes to
provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of
1933 and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy
as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability
under the Securities Act of 1933, the information omitted
from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities
offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized, in the Town of
Elmsford, State of New York, on October 15, 1996.
AMSCAN HOLDINGS, INC.
/s/ John A. Svenningsen
By-------------------------------------
John A. Svenningsen
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/s/ John A. Svenningsen
-----------------------------------------
John A. Svenningsen
Director, Chairman of the Board and Chief
Executive Officer
Date: October 15, 1996
/s/ James M. Harrison
-----------------------------------------
James M. Harrison
Chief Financial Officer and Principal
Accounting Officer
Date: October 15, 1996
II-5
<PAGE>
Schedule 2
Amscan Inc. and Affiliates
Valuation and Qualifying Accounts
($ in thousands)
Beginning Ending
For the year ended Balance Write-offs Additions Balance
--------- ---------- --------- -------
December 31, 1993 $ 258 $1,493 $2,339 $1,104
December 31, 1994 1,104 1,855 2,676 1,925
December 31, 1995 1,925 1,001 1,581 2,505
<PAGE>
EXHIBIT INDEX
** Exhibit 1 - Form of Underwriting Agreement
** Exhibit 2(a) - [Share Exchange Agreement between the
Company and John A. Svenningsen, dated
________, 1996]
** Exhibit 2(b) - Capital Contribution Agreement between the
Company and Messrs. Allan J. Kaufman, Arthur J.
Kaufman and Michael F. Hodges, dated as of
October 9, 1996, as supplemented
* Exhibit 3(a) - Certificate of Incorporation of the
Registrant, dated October 3, 1996
* Exhibit 3(b) - By-Laws of the Registrant
** Exhibit 5 - Opinion of Cummings & Lockwood
** Exhibit 10(a) - Employment Agreement by and between Amscan
Inc. and John A. Svenningsen, dated November 1,
1996
** Exhibit 10(b) - Employment Agreement by and between the
Company and Gerald C. Rittenberg, dated October
9, 1996
** Exhibit 10(c) - Stock Agreement among Gerald C.
Rittenberg, John Svenningsen and Amscan Inc.,
dated October 9, 1996
** Exhibit 10(d) Employment Agreement between Amscan Inc.
and Gerald C. Rittenberg, dated November 27,
1991
** Exhibit 10(e) - Employment Agreement by and between Amscan
Inc. or the Company and William Wilkey, dated
as of October 4, 1996
** Exhibit 10(f) Employment Agreement between Amscan Inc.
and William Wilkey, dated as of January 1, 1992
** Exhibit 10(g) - Employment Agreement between
Amscan Inc. and James M. Harrison,
dated as of _________, 1996
** Exhibit 10(h) - 1996 Stock Option Plan for Key
Employees
** Exhibit 10(i) - Lease between ACP East LLC and
Amscan Inc. dated as of December 1,
1995, as amended
** Exhibit 10(j) - Lease between John Anders
Svenningsen and Amscan Inc., dated
March 1, 1995, as modified and amended
** Exhibit 10(k) - Lease between John Anders
Svenningsen and Amscan Inc., dated
November 9, 1995, as amended
** Exhibit 21 - Subsidiaries of the Registrant
* Exhibit 24(a) - Consent of KPMG Peat Marwick LLP
** Exhibit 24(b) - Consent of Cummings & Lockwood,
(to be included as part of Exhibit 5)
* Exhibit 27 - Financial Data Schedule
* filed herewith
** to be filed by amendment
CERTIFICATE OF INCORPORATION
OF
AMSCAN HOLDINGS, INC.
FIRST: The name of the corporation (the "Corporation") is AMSCAN
HOLDINGS, INC.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
Corporation Service Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of
Delaware, as is now in effect or as it may hereafter be amended or
superseded (the "Delaware Law"); and in general, to possess and exercise
all the powers and privileges granted by the Delaware Law or by this
Certificate of Incorporation, together with any powers incidental thereto,
so far as such powers and privileges are necessary or convenient to the
conduct, promotion or attainment of the business or purposes of the
Corporation.
FOURTH: A. Designation Of Classes. The Corporation is authorized
to issue a total of fifty-five million (55,000,000) shares of stock in two
classes designated respectively "Preferred Stock" and "Common Stock." The
total number of shares of Preferred Stock which the Corporation shall have
authority to issue is five million (5,000,000), par value $0.10 per share,
and the total number of shares of Common Stock which the Corporation shall
have authority to issue is fifty million (50,000,000), par value $0.10 per
share.
B. Rights And Preferences Of Each Class. The designations and the
powers, preferences and rights, and the qualifications, limitations or
restrictions of the Preferred Stock and the Common Stock are as follows:
1. Preferred Stock. The Preferred Stock may be issued from
time to time in one or more classes or series. Subject to the limitations
set forth herein and any limitations prescribed by law, the Board of
Directors of the Corporation is expressly authorized prior to the issuance
of any class or series of the Preferred Stock, to fix and determine by
resolution or resolutions providing for the issue of any such class or
series of Preferred Stock, the number of shares included in such class or
series and the designation, relative powers, preferences and rights, and
the qualifications, limitations or restrictions of such class or series.
Pursuant to the foregoing general authority, but not in limitation of the
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powers conferred on the Board of Directors thereby and by the Delaware
Law, the Board of Directors is expressly authorized to determine with
respect to each class or series of Preferred Stock the following:
(a) the distinctive designation of any class or series and
the number of shares constituting such class or series, which number may
be increased by the Board of Directors (except as may otherwise be
provided in connection with the creation of such class or series), or
decreased by the Board of Directors (but not below the number of shares of
such class or series then outstanding);
(b) the rate or amount and times at which, and the
preferences and conditions under which, dividends shall be payable on the
shares of such class or series, including whether such dividends shall be
cumulative or noncumulative;
(c) the times, terms and conditions, if any, upon which
shares of such class or series shall be subject to redemption, including
the amount, terms, conditions and manner of operation of any purchase,
retirement or sinking fund to be provided for the shares of such class or
series;
(d) the rights and preferences, if any, of the holders of
shares of such class or series upon the liquidation, dissolution or
winding up of the affairs of, or upon any distribution of the assets of,
the Corporation;
(e) the terms and conditions, if any, upon which the
holders of shares of such class or series may convert such shares into, or
exchange such shares for, shares of any other class or classes or of any
other series of the same class;
(f) the full or limited voting rights, if any, to be
provided for such class or series, in addition to the voting rights
provided by law; and
(g) any other relative rights, preferences, optional or
special rights, and the qualifications, restrictions and limitations
thereof, of shares of such class or series.
2. Common Stock. Except as otherwise provided by the Delaware
Law, by this Certificate of Incorporation or by any resolution adopted by
the Board of Directors of the Corporation pursuant to the authority
conferred by Section B.1. of this Article FOURTH, the entire voting power
of the shares of the Corporation for the election of directors and for all
other purposes, as well as all other rights pertaining to shares of the
Corporation, shall be vested exclusively in the Common Stock. The holders
of Common Stock shall be entitled to vote on each matter on which the
stockholders of the Corporation shall be entitled to vote, and each holder
of shares of Common Stock shall have one vote for each share of Common
Stock registered in such holder's name. The holders of Common Stock shall
be entitled to participate ratably in all dividends payable on the
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<PAGE>
Common Stock and, subject to the rights and preferences of the Preferred
Stock, in all assets of the Corporation in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, or upon any distribution of the assets of the Corporation.
In accordance with Section 242(b)(2) of the Delaware Law,
the number of authorized shares of the Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then
outstanding) by the affirmative vote of the holders of at least a majority
of the shares of capital stock of the Corporation then entitled to vote,
voting together as a single class, and no separate vote of the holders of
any class or series of stock shall be required, unless expressly required
by this Certificate of Incorporation.
FIFTH: The name and mailing address of the incorporator is Joel S.
Lever, Esq., One North Broadway, White Plains, New York 10601.
SIXTH: No action required to, or which may, be taken at any annual
or special meeting of the stockholders of the Corporation, may be taken
without a meeting of the stockholders, and the power of the stockholders
of the Corporation to consent in writing pursuant to Section 228 of the
Delaware Law (as said Section may be amended or superseded from time to
time) or otherwise, without a meeting, to the taking of any action is
expressly denied.
SEVENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for the Corporation under the
provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditor or class of creditors, and/or of the stockholders or class
of stockholders, of the Corporation, as the case may be, to be summoned in
such a manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of the
Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of the Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application is made, be binding upon all of the creditors, and/or on all
the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
EIGHTH: A. Subject to applicable law, the business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors consisting of
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such number of directors as may be determined from time to time
exclusively by resolution adopted by the affirmative vote of a majority of
the entire Board of Directors. At such times as the number of directors
comprising the Board of Directors is fixed at three or more directors, the
Board of Directors shall be divided into three classes, as nearly equal in
number as the then total number of members constituting the entire Board
of Directors permits, with the term of office of one class expiring each
year. The Board of Directors shall determine which directors shall be
included in each class from time to time. The term of office of those
directors included in the first class shall expire at the annual meeting
of stockholders next succeeding the effective date of the filing of this
Certificate of Incorporation (the "Effective Date"); the term of office of
those directors included in the second class shall expire at the second
annual meeting of stockholders next succeeding the Effective Date; and the
term of those directors included in the third class shall expire at the
third annual meeting next succeeding the Effective Date. Thereafter, the
directors of each class shall serve for a term of three years and until
their respective successors are duly elected and qualified, or until their
earlier death, resignation or removal.
B. Elections of directors need not be by written ballot unless the
Bylaws of the Corporation so provide.
NINTH: In furtherance and not in limitation of the powers conferred
by the Delaware Law, the Board of Directors of the Corporation is
expressly authorized to adopt, amend or repeal the By-Laws of the
Corporation in any manner not inconsistent with law or this Certificate of
Incorporation; provided, however, that in the event of any conflict
between any provision of this Certificate of Incorporation and any
provision of the By-Laws, the provisions of this Certificate of
Incorporation shall govern and such provision of the By-Laws shall be null
and void.
TENTH: The books and records of the Corporation may be kept, subject
to any provision of the laws of the State of Delaware, outside the State
of Delaware at such place or places as may be designated from time to time
by the Board of Directors of the Corporation or in the Bylaws of the
Corporation.
ELEVENTH: The personal liability of a director to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty
by such director as a director shall be limited to the fullest extent
permitted by the Delaware Law. Neither the amendment nor repeal of this
Article ELEVENTH, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article ELEVENTH shall eliminate or
reduce the effect of this Article ELEVENTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this
Article ELEVENTH, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
TWELFTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation or
any amendment hereof
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<PAGE>
in the manner now or hereafter prescribed by law, and all rights conferred
on the stockholders and directors are subject to this reservation.
THE UNDERSIGNED, being the sole incorporator named above, for the
purpose of forming a corporation pursuant to the Delaware Law, makes this
Certificate of Incorporation, hereby declaring and certifying that this is
such incorporator's act and deed and the facts herein stated are true, and
accordingly, has signed this Certificate of Incorporation this 3 day
of October, 1996.
/s/ Joel S. Lever
------------------------------------------
Joel S. Lever
Sole Incorporator
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BY-LAWS
OF
AMSCAN HOLDINGS, INC.
ARTICLE I - IDENTIFICATION
SECTION 1. Identification. The name of the Corporation is Amscan
Holdings, Inc.
SECTION 2. Corporate Seal. Upon the seal of the Corporation shall
appear the name of the Corporation and the state and year of incorporation
and the words "Corporate Seal."
SECTION 3. Offices. The registered office of the Corporation shall
be located in Wilmington, Delaware. The Corporation may also have offices
at such other places, within and without the State of Delaware, as the
Board of Directors of the Corporation ("Board") may determine from time to
time or the business of the Corporation may require.
ARTICLE II - MEETING OF STOCKHOLDERS
SECTION 1. Place Of Meeting. All meetings of the stockholders of
the Corporation shall be held at such place, within or without the State
of Delaware, as shall be designated by the Board or the Chairman of the
Board, if any, or the President and stated in the notice of the meeting.
SECTION 2. Annual Meeting. An annual meeting of the stockholders
shall be held each year on such date in the first six months of the
Corporation's fiscal year as shall be
<PAGE>
designated by the Board, the Chairman of the Board, if any, or the
President, or in the absence of such designation, on the first Tuesday of
the seventh month of the fiscal year, if not a legal holiday, and if a
legal holiday, then on the next succeeding business day, or on such other
date following the first six months of the fiscal year as shall be fixed
by the Board, the Chairman of the Board, or the President of the
Corporation and stated in the notice of the meeting. At such meeting the
stockholders shall elect by plurality vote directors to fill the
directorships whose terms expire at such meeting and shall transact such
other business as may properly be brought before the meeting.
SECTION 3. Special Meetings. Unless otherwise prescribed by law or
by the Certificate of Incorporation, special meetings of the stockholders
for any purpose or purposes may be called only by the Board, the Chairman
of the Board, if any, or the President.
SECTION 4. Notice Of Meetings. Except as may otherwise be required
by law, written notice of each meeting of stockholders, stating the place,
date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given, not
less than 10 nor more than 60 days before the date of each meeting, to
each stockholder entitled to vote at such meeting by leaving such notice
with such stockholder personally or by transmitting such notice with
confirmed delivery (including by telegram, telefax or other form of
recorded communication, provided that delivery of such notice in written
form is confirmed), or by depositing such notice in the mails in a postage
prepaid envelope addressed, to such stockholder at such stockholder's
address as it appears on the corporate records.
SECTION 5. Quorum; Adjournment. Except as may otherwise be required
by these By-Laws, by the Certificate of Incorporation or by law, the
holders of a majority of the
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<PAGE>
outstanding shares of capital stock of the Corporation entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at a meeting of the stockholders.
If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote at the
meeting, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than
30 days, or if, after the adjournment, a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 6. Required Vote. At a meeting of stockholders duly held
and at which a quorum is present, the affirmative vote of the holders of
at least a majority of the shares represented at such meeting which are
entitled to vote on the subject matter shall be the act of the
stockholders, except as is otherwise provided by these By-Laws, by the
Certificate of Incorporation or by law. Notwithstanding the foregoing,
directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at a meeting at which a quorum
is present and entitled to vote on the election of directors.
SECTION 7. Voting. Each stockholder shall, unless otherwise
provided by law or by the Certificate of Incorporation, be entitled to one
vote in person or by proxy for each share of capital stock registered to
such stockholder.
SECTION 8. Proxies. Each stockholder entitled to vote at a meeting
of
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<PAGE>
stockholders may authorize another person or persons to act for such
stockholder as proxy, such authorization to be in such form as may now or
hereafter be permitted by law. However, a proxy shall not be valid after
three years from its date of execution, unless otherwise provided in the
proxy. Every proxy shall be revocable by the stockholder authorizing it,
except in those cases where an irrevocable proxy is permitted by law and
the proxy shall state that it is irrevocable.
SECTION 9. Action Without A Meeting. No action required to be
taken, or which may be taken, at a meeting of stockholders, may be taken
without a meeting and without a vote, and the power of the stockholders of
the Corporation to consent in writing without a meeting and a vote to the
taking of any action is expressly denied.
SECTION 10. List Of Stockholders. The officer or transfer agent who
has charge of the stock ledger of the Corporation shall prepare and make,
or cause to be prepared or made, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present.
SECTION 11. Stockholder Proposals. Any stockholder desiring to
submit a proposal for consideration before a meeting of stockholders,
including a proposal to nominate
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<PAGE>
one or more candidates for election as directors of the Corporation, shall
be required to submit such proposal, together with all other information
and material required by applicable law (including without limitation,
Section 14 of the Securities Exchange Act of 1934 and the regulations
promulgated thereunder relating to proxy solicitations (the "Proxy
Rules")), to the Corporation's principal executive office such that it is
received at such office not less than 60 nor more than 90 days prior to
the proxy solicitation applicable to such meeting, or where such
solicitation is not being made, not less than 70 nor more than 90 days
prior to the date of the meeting. Notwithstanding the foregoing, to the
extent that the Proxy Rules or other applicable law provide for longer
advance submission requirements with respect to such a stockholder
proposal, such advance submission requirements shall control and supersede
the provisions of this Section 11.
SECTION 12. Inspectors Of Election. At such times as may be
required by applicable law, the Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who
fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or
more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according
to the best of his ability.
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<PAGE>
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided by law or
the Certificate of Incorporation, the business and affairs of the
Corporation shall be managed by or under the direction of the Board.
SECTION 2. Number, Election And Term Of Office. The Board shall
consist of such number of directors to be determined from time to time by
resolution adopted by the affirmative vote of a majority of the entire
Board. At such times as the number of directors comprising the Board of
Directors is fixed at three or more directors, the Board shall be divided
into three classes, as nearly equal in number as the then total number of
members constituting the entire Board of Directors permits, with the term
of office of one class expiring each year. The Board of Directors shall
determine which of the Corporation's directors will be included in each of
the three classes from time to time. The term of office of the directors
in each of the first, second and third classes shall initially expire,
respectively, at the first, second and third annual meetings next
succeeding the filing of the Certificate of Incorporation of the
Corporation. Thereafter, each director shall serve, except in the event
of death, resignation or removal, for a term of three years and until such
director's successor is duly elected and qualified.
SECTION 3. Resignation; Removal. Any director may resign at any
time upon written notice to the Corporation. The holders of a majority of
the shares then entitled to vote for the election of directors may remove
with cause at any time any director or the entire Board of Directors. No
such removal may be effected by such holders without cause.
SECTION 4. Vacancies. (a) Unless otherwise provided in the
Certificate of Incorporation, any vacancy occurring on the Board,
including a vacancy resulting from an
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increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. Any director so
chosen by the remaining director or directors to fill a vacancy, shall
hold office until the next election of the class for which such director
shall have been chosen and until such director's successor shall have been
duly elected and qualified.
(b) If at any time, by reason of death or resignation or other
cause, the Corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee or
guardian of a stockholder, or other fiduciary entrusted with like
responsibility for a stockholder, may call a special meeting of
stockholders, or may apply to the Court of Chancery for a decree summarily
ordering an election of directors as provided by law.
SECTION 5. Compensation Of Directors. The directors may be
reimbursed for any expenses of attendance at any meeting of the Board and
may receive such other compensation as may be fixed by the Board. No such
reimbursement or payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be similarly reimbursed or
compensated for attending committee meetings.
ARTICLE IV - MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. Place. The Board may hold meetings, both regular and
special, either within or without the State of Delaware.
SECTION 2. Regular Meetings. An annual regular meeting of the Board
shall be held at such time and place as shall be announced at the annual
meeting of stockholders or at
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<PAGE>
the last regular meeting of the Board preceding the annual meeting of the
stockholders, and no further notice of such meeting to the directors shall
be necessary in order to hold the meeting. In the event of the failure to
so announce the time and place of such meeting, or in the event that such
meeting is not held at the time and place so announced, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board, or as shall be
specified in a duly executed waiver of notice thereof. Other regular
meetings of the Board may be held without notice at such times and places
as the Board or the Chairman or the President of the Corporation shall
from time to time determine.
SECTION 3. Special Meetings. Special meetings of the Board may be
called by the Chairman, if any, the President , the Secretary or a
majority of the members of the Board on at least two days' notice to each
director, given either by mail, by facsimile transmission, telegram or
other form of recorded communication or orally, in person or by telephone.
SECTION 4. Quorum; Required Vote. At all meetings of the Board, a
majority of the authorized number of directors shall constitute a quorum
for the transaction of business and the vote of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board, except as may otherwise be provided by law, by the
Certificate of Incorporation or by these By-Laws. If a quorum shall not
be present at any meeting of the Board, the directors present at the
meeting may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. Notice
of any such adjournment shall be given to any directors who were not
present.
SECTION 5. Written Consents. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board or of any committee
thereof may be taken without a meeting, if all members of the
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<PAGE>
Board or of such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of
proceedings of the Board or such committee.
SECTION 6. Participation In Meetings By Electronic Means. Members
of the Board or any committee of the Board may participate in any meeting
of the Board or of such committee by means of conference telephone or
similar communications equipment provided such equipment enables all
persons participating in the meeting to hear one another, and
participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.
ARTICLE V - COMMITTEES OF THE BOARD
SECTION 1. Designation. The Board of Directors shall have such
standing committees as are provided for in these By-Laws and may, by
resolution passed by a majority of the entire Board, constitute one or
more standing or special committees of the Board, each such committee
to have one or more members. The Board may designate one or more
directors as alternate members of any such committee, who may replace
any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of
any such absent or disqualified member, provided that the Board member
so appointed shall meet any requirements for committee membership set forth
in these By-Laws or in the resolution of the Board constituting the
committee. Any such committee shall have and may exercise the powers and
authority of the Board in the management of the business and affairs of the
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Corporation to the extent provided in these By-Laws or in the resolution
of the Board, as in effect from time to time, constituting the committee
or dealing with the scope of its powers, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
Notwithstanding the foregoing, no such committee shall have any power or
authority not permitted by law from time to time, which as of the date of
incorporation of the Corporation includes authority to (a) amend these By-
Laws or the Certificate of Incorporation, (b) adopt an agreement of merger
or consolidation, or (c) recommend to the stockholders the sale, lease or
exchange of substantially all of the Corporation's assets or property or a
dissolution of the Corporation.
SECTION 2. Minutes; Removal. Each committee shall keep records of
its acts and proceedings and report the same to the Board as and when
required. Any member may be removed from a committee, with or without
cause, by the affirmative vote of a majority of the Board.
SECTION 3. Committee Meetings. Meetings of the committees of the
Board may be called by the respective chairpersons thereof or by any
member of the committee on at least two days' notice, given either by
mail, by facsimile transmission, telegram or other form of recorded
communication or orally, in person or by telephone. At all meetings of
the committee, a majority of the members of the committee shall constitute
a quorum for the transaction of business, and the act of a majority of the
members present at any meeting thereof at which a quorum is present shall
be the act of the committee, except as may otherwise be set forth in these
By-Laws or provided by resolution of the Board.
SECTION 4. Standing Committees. If and so long as the Corporation
has a class of equity security registered pursuant to Section 12 of the
Securities Exchange Act of 1934, the
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<PAGE>
Corporation shall have the following standing committees:
Compensation Committee. The Compensation Committee shall be composed
of at least two directors, at least a majority of whom shall not be
officers or employees of the Corporation. The Compensation Committee
shall be responsible for approving and recommending as necessary to the
Board of Directors the compensation arrangements for key management
personnel of the Corporation and the Corporation's subsidiaries and
affiliates. The Compensation Committee shall also be responsible for
making recommendations to the Board of Directors with respect to the
adoption of any incentive compensation, retirement or other similar plans
benefiting the directors, officers and other key employees of the
Corporation and the Corporation's subsidiaries and affiliates.
Audit Committee. The Audit Committee shall be composed of two or
more directors who are not officers or employees of the Corporation. The
Audit Committee shall be responsible for (i) recommending to the Board the
firm to be appointed by the Corporation as its independent auditors; (ii)
consulting with the Corporation's auditors on the plan of audit; (ii)
reviewing with the Corporation's auditors the proposed audited financial
statements of the Corporation and its consolidated subsidiaries, and
accompanying management letter, if any, and reporting on same to the
Board; and (iv) reviewing with the Corporation's auditors periodically the
adequacy of the Corporation's internal controls and where necessary,
consulting with the Corporation's Chief Financial Officer and other
financial personnel regarding same.
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<PAGE>
ARTICLE VI - EXCEPTIONS TO NOTICE REQUIREMENTS
SECTION 1. Exception. Whenever notice is required to be given by
law, by the Certificate of Incorporation or by these By-Laws to any
stockholder to whom (a) notice of two consecutive annual meetings and all
notices of meetings during the period between such two consecutive annual
meetings, or (b) all, and at least two, payments (if sent by first class
mail) of dividends or interest on securities during a twelve month period,
have been mailed addressed to such person at the address as shown on the
records of the Corporation and have been returned undeliverable, the
giving of such notice to such person shall not be required. Any action or
meeting which shall be taken or held without notice to such person shall
have the same force and effect as if such notice had been duly given. If
any such person shall deliver or cause to be delivered to the Corporation
a written notice setting forth such person's then current address, the
requirement that notice be given to such person shall be reinstated.
SECTION 2. Waiver Of Notice. Whenever any notice is required to be
given by law, by the Certificate of Incorporation, or by these By-Laws, a
written waiver of notice, signed by any person entitled to such notice,
whether before or after the time stated in the notice, shall be deemed the
equivalent of notice to such person. Attendance of a stockholder at a
meeting of stockholders or a director at a meeting of the Board or a
committee thereof shall constitute a waiver of notice of such meeting,
except when the person attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors or members of a committee
of directors need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these By-Laws.
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<PAGE>
ARTICLE VII - OFFICERS
SECTION 1. Designation; Election. A President, a Secretary and when
deemed necessary by the Board, a chairman of the board, one or more vice
presidents, a treasurer and such other officers and assistant officers
shall be elected by the Board to hold office until their respective
successors are duly elected and qualified or until their earlier
resignation or removal. Any number of offices may be held by the same
person.
SECTION 2. Resignation; Removal. Unless otherwise provided in any
contract with the Corporation, any officer may resign or be removed at any
time. An officer who intends to resign shall give written notice to the
Board in care of the Chairman, if any, or the President. Any officer
elected by the Board may be removed with or without cause at any time by
the Board.
SECTION 3. Vacancies. A vacancy occurring in any office may be
filled for the unexpired portion of the term of office by action of the
Board.
SECTION 4. Chairman Of The Board. The Chairman of the Board, when
elected, shall preside at all meetings of the stockholders and Board,
discharging the duties incumbent upon a presiding officer. The Chairman
shall have and perform such other duties as may from time to time be
assigned by the Board.
SECTION 5. President. Unless otherwise provided by the Board, the
President shall be the chief executive officer of the Corporation and in
such capacity shall have the general powers and duties of supervision and
management of the Corporation. In the absence or non-election of a
Chairman, the President shall preside at all meetings of the stockholders
and Board. The President shall also have the direction of all other
officers, employees and
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<PAGE>
agents of the Corporation and shall see that all orders and resolutions of
the Board are carried into effect. The President shall perform such other
duties and exercise such other powers as these By-Laws may provide or the
Board may assign from time to time.
SECTION 6. Vice Presidents. Vice Presidents, when elected, shall
have the powers and perform the duties as the Board or the President may
from time to time assign and shall perform such other duties as may be
prescribed by these By-Laws. At the request of the President, or in case
of his absence or inability to act, the Vice President designated by the
Board or the President, shall perform the duties of the President and,
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the President.
SECTION 7. Secretary. The Secretary shall attend all meetings of
the stockholders, the Board and any committee of the Board and shall keep
true and complete records of the proceedings of such meetings, and shall
also file any written consents of the Board and any committees. The
Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and the Board. The Secretary shall also perform such other
duties as these By-Laws may provide or the Board or the President may
assign from time to time.
SECTION 8. Assistant Secretary. When elected, the Assistant
Secretary shall have such powers and perform such duties as the President,
Secretary or the Board may from time to time assign and shall perform such
other duties as may be prescribed by these By-Laws. At the request of the
Secretary, or in case of the Secretary's absence or inability to act, the
Assistant Secretary shall perform the duties of the Secretary and when so
acting, shall have all the powers of, and be subject to all the
restrictions upon, the Secretary.
SECTION 9. Treasurer. The Treasurer shall keep correct and complete
records of account showing accurately at all times the financial condition
of the Corporation. The
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<PAGE>
Treasurer shall also act as legal custodian of the corporate funds, and
other valuables, including securities, that may come from time to time
into possession of the Corporation, and shall promptly deposit all such
funds in the name and to the credit of the Corporation in such
depositories as may be designated by the Board. Whenever requested by the
Board or any committee of the Board, the Treasurer shall furnish a
statement of the financial condition of the Corporation and shall perform
such other duties as these By-Laws may provide or the Board or the
President may assign.
SECTION 10. Assistant Treasurer. When elected, the Assistant
Treasurer shall have such powers and perform such duties as the President,
Treasurer or the Board may from time to time assign and shall perform such
other duties as may be prescribed by these By-Laws. At the request of the
Treasurer, or in case of the Treasurer's absence or inability to act, the
Assistant Treasurer shall perform the duties of the Treasurer and when so
acting, shall have all the powers of, and be subject to all the
restrictions upon, the Treasurer.
SECTION 11. Other Officers. Such other officers as are appointed
shall exercise such duties and have such powers as the Board may assign.
SECTION 12. Transfer Of Authority. In case of the absence of any
officer of the Corporation or for any other reason that the Board may deem
sufficient, the Board may transfer the powers or duties of that officer to
any other officer or to any director or employee of the Corporation,
provided that a majority of the entire Board approves.
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<PAGE>
ARTICLE VIII - CAPITAL STOCK
SECTION 1. Consideration And Payment. The capital stock may be
issued for such consideration as may be fixed from time to time by the
Board, provided, however, that the consideration may not be less than the
par value of any of such stock having a par value. Payment of such
consideration may be made, in whole or in part, (a) in cash, securities or
other property of any description, or any interest therein, (b) in labor
or services rendered to or for the benefit of the Corporation, or (c) by
the payment of that portion of the consideration determined to be capital
in the manner specified in either clause (a) or (b) and the balance by
delivery of a binding obligation.
SECTION 2. Certificates Representing Shares. The shares of the
Corporation shall be represented by certificates, provided that the Board
may provide by resolution or resolutions that some or all of any or all
classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the Corporation. Notwithstanding the
adoption of such a resolution by the Board, every holder of stock
represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by,
or in the name of the Corporation by the Chairman of the Board, if any, or
the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation
representing the number of shares registered in certificate form. Any or
all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were
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<PAGE>
such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board may direct a new share
certificate or uncertificated share to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or uncertificated share, the
Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate,
or his legal representative, to give the Corporation a bond in such sum as
it may direct to indemnify it against any claim that may be made against
it with respect to the certificate alleged to have been lost, stolen or
destroyed or the new certificate or uncertificated share issued in
replacement thereof.
SECTION 4. Transfer Of Securities. The Corporation or its transfer
agent shall register a transfer of a certificated security upon
presentation for transfer of the security in registered form or an
uncertificated security upon presentation of an appropriate instruction to
register the transfer, if the terms of the security permit registration in
the transferee's name, the endorsement or instruction is made by an
appropriate person, reasonable assurance is given that the endorsement is
genuine, any applicable law relating to the collection of taxes has been
complied with, and after the Corporation or its agent has discharged any
duty to inquire into any adverse claims of which the Corporation or agent
has notice. Notwithstanding the foregoing, no such transfer shall be
effected by the Corporation or its transfer agent if such transfer is
prohibited by law, by the Certificate of Incorporation or a by-law of the
Corporation or by any contract or agreement to which the Corporation is a
party.
SECTION 5. Record Date. For the purpose of determining stockholders
entitled
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<PAGE>
to notice of, or to vote at, any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which date shall not
precede the date upon which the resolution fixing the record date is
adopted, and which date shall not be more than 60 nor less than 10 days
before the date of the meeting. If a record date is not fixed, the record
date for the determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall be the close of business on the
day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on
which the meeting is held.
For the purpose of determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the
day on which the Board adopts the resolution relating thereto.
ARTICLE IX - GENERAL PROVISIONS
SECTION 1. Dividends. To the extent permitted by law and subject to
any limitations or conditions contained in the Certificate of
Incorporation, dividends may be declared by resolution duly adopted by the
Board and may be paid in cash, property or in shares of the capital stock
of the Corporation.
SECTION 2. Reserves. Before payment of any dividend, the Board may
set aside
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<PAGE>
out of any funds of the Corporation available for dividends such sum or
sums as the Board, in its absolute discretion, may determine as a reserve
or reserves to meet contingencies, to equalize dividends, to repair or
maintain any property of the Corporation or to serve other purposes
conducive to the interests of the Corporation. The Board may modify or
abolish any such reserve in the manner in which it was created.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board.
ARTICLE X - AMENDMENT OF BY-LAWS
The stockholders or Board may amend or repeal these By-Laws or adopt
new By-Laws, provided, however, that any by-law adopted by the Board may
be altered or repealed by the stockholders.
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<PAGE>
ARTICLE XI - INDEMNIFICATION
SECTION 1. Indemnity. The Corporation shall indemnify, to the
maximum extent permitted by applicable law, any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including any action by or in the right
of the Corporation to procure a judgment in its favor, by reason of the
fact that such person is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation,
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.
SECTION 2. Expenses. Expenses incurred by an officer or director in
defending an action, suit or proceeding shall be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer
seeking indemnification to repay such amount in the event that it shall be
ultimately determined that such director or officer is not entitled to be
indemnified by the Corporation by law or pursuant to these By-Laws. Such
expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate. The term
"expenses," as used in this Article XI, shall include, without limitation,
costs of and expenses incurred in connection with or in preparation for
litigation, attorneys' fees, judgments, fines, penalties, amounts paid in
settlement, excise taxes in respect of any employee benefit plan of the
Corporation, and interest on any of the foregoing.
SECTION 3. Insurance. The Corporation may purchase and maintain
insurance
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<PAGE>
on behalf of any such person so serving the Corporation or at the request
of the Corporation against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability pursuant to law.
SECTION 4. Legal Representatives. The indemnification and
advancement of expenses provided by this Article XI shall to the fullest
extent permitted by Delaware law as in effect from time to time continue
as to a person who has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators of such person.
SECTION 5. Nonexclusivity. The indemnification and advancement of
expenses provided by this Article XI shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
SECTION 6. Consolidation Or Merger. For the purposes of this
Article XI, references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a
director or officer of such a constituent corporation or is or was serving
at the request of such constituent corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
shall stand in the same position under the provisions of this Article XI
with respect to the resulting or surviving corporation as such person
would if such person had served the resulting or surviving corporation in
the same capacity.
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<PAGE>
INDEPENDENT AUDITORS' CONSENT
To the Stockholders of Amscan Inc.
and Affiliates:
The audits referred to in our report dated April 5, 1996, except as to Note
16, which is as of July 31, 1996, included the related special purpose
combined financial statement schedule as of December 31, 1994 and 1995,
and for each of the years in the three-year period ended December 31, 1995,
included in the registration statement. This special purpose combined
financial statement schedule is the responsibility of the Companies'
management. Our responsibility is to express an opinion on this special
purpose combined financial statement schedule based on our audits. In
our opinion, such special purpose combined financial statement schedule,
when considered in relation to the basic special purpose combined
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
Stamford, Connecticut KPMG Peat Marwick LLP
October 15, 1996
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1994 DEC-31-1995 JUN-30-1996
<CASH> 2,229 2,492 3,478
<SECURITIES> 0 0 0
<RECEIVABLES> 25,772 34,385 42,303
<ALLOWANCES> 1,925 2,505 2,563
<INVENTORY> 34,465 45,013 49,474
<CURRENT-ASSETS> 62,998 82,305 105,018
<PP&E> 40,938 43,597 44,959
<DEPRECIATION> 14,013 16,749 17,822
<TOTAL-ASSETS> 93,884 114,601 139,487
<CURRENT-LIABILITIES> 49,872 55,992 69,550
<BONDS> 8,800 12,284 11,430
0 0 0
0 0 0
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<OTHER-SE> 20,427 26,812 37,815
<TOTAL-LIABILITY-AND-EQUITY> 93,884 114,601 139,487
<SALES> 132,029 167,403 92,972
<TOTAL-REVENUES> 132,029 167,403 92,972
<CGS> 86,748 108,654 58,706
<TOTAL-COSTS> 86,748 108,654 58,706
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 2,676 1,581 70
<INTEREST-EXPENSE> 3,843 5,772 3,084
<INCOME-PRETAX> 10,591 19,206 12,482
<INCOME-TAX> 464 731 441
<INCOME-CONTINUING> 9,967 17,434 11,216
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,967 17,434 11,216
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<FN>
<F1>Amscan Holdings, Inc. is a corporation which was formed in October 1996
for the purpose of becoming a holding company for certain operating and other
corporations. Amscan Holdings, Inc., therefore, had no shares outstanding as
of the end of any of the periods presented.
</FN>
</TABLE>
