AMSCAN HOLDINGS INC, 424B1, 1996-12-19

AMSCAN HOLDINGS INC
424B1, 1996-12-19
PAPER & PAPER PRODUCTS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-14107

4,000,000 SHARES

LOGO

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. For factors considered in determining the initial
public offering price, see "Underwriting."

SEE "RISK FACTORS" ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.

The Common Stock has been 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.
------------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
--------------- --------------- ---------------
Per Share............................ $12.00 $0.84 $11.16
Total(3)............................. $48,000,000 $3,360,000 $44,640,000
</TABLE>

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

(1) The Company, certain of its operating subsidiaries and its principal
stockholder have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting estimated expenses of $840,000 payable by the Company.

(3) The Company has granted the Underwriters an option for 30 days to
purchase up to an additional 600,000 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 $55,200,000, $3,864,000 and $51,336,000, respectively. See
"Underwriting."
------------------------

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 December 24, 1996, against payment therefor in immediately
available funds.

GOLDMAN, SACHS & CO. ALEX. BROWN & SONS
INCORPORATED
------------------------

The date of this Prospectus is December 18, 1996.
<PAGE> 2
[GRAPHIC MATERIAL: PHOTOGRAPHS OF THE COMPANY'S FACILITIES IN
LOUISVILLE, KY, HARRIMAN, NY, CHESTER, NY, ELMSFORD, NY,
TEMECULA, CA, CANADA AND EUROPE.]

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.

2
<PAGE> 3

[GRAPHIC MATERIAL: PHOTOGRAPHS OF A SELECTION THE COMPANY'S
PRODUCTS AND THE COMPANY'S LOGO.]

<PAGE> 4

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 is a designer, manufacturer and distributor of seasonal and
everyday party goods. With a product line consisting of approximately 14,000
stock keeping units ("sku's"), the Company, through its principal subsidiary,
Amscan Inc. and affiliated companies, is a complete source of paper and plastic
party goods, including decorative tableware such as plates, cups, napkins and
tablecovers, 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, income from operations, net income and pro forma net income of $167.4
million, $24.7 million, $17.4 million and $10.8 million, respectively. Net
sales, income from operations, net income and pro forma net income have grown at
a compound annual rate of 21%, 26%, 29% and 28%, 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

3
<PAGE> 5

located principally in New York and California using computer assisted systems
that permit the Company to receive and fill customer orders efficiently and
quickly.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 4,000,000 shares
Common Stock to be outstanding after the
Offering................................... 20,698,076 shares(1)
Use of Proceeds.............................. To repay subordinated indebtedness
outstanding to the principal stockholder and
other stockholders of the Company and to
repay outstanding indebtedness to
unaffiliated lenders under the Company's
revolving credit agreement. See "Use of
Proceeds."
Nasdaq Stock Market Symbol................... "AMSN"
</TABLE>

- ---------------
(1) Does not include 2,000,000 shares of Common Stock reserved for issuance upon
exercise of stock options granted or which may be granted under the
Company's stock option plan.

4
<PAGE> 6

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 for the years ended December 31, 1991 and
1992 and for the nine months ended September 30, 1995 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 and for the nine months ended
September 30, 1996 were derived from the audited 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 are unaudited and 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>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- ----------------------------------------
SUPPLEMENTAL SUPPLEMENTAL
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(3) 1995 1996 1996(3)
------- ------- -------- -------- -------- ----------- ----------- ------------- ------------
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $77,263 $86,944 $108,934 $132,029 $167,403 $ 167,403 $ 128,314 $ 147,008 $147,008
Gross profit.......... 27,086 30,379 36,278 45,281 58,749 58,749 46,595 54,147 54,147
Income from
operations(1)....... 9,639 9,892 11,716 14,516 24,669 27,000 21,962 24,372 27,484
Net income............ $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095
======= ======= ======== ======== ======== ======== ========
Pro forma net
income(2)........... $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 10,330 $ 10,974
======= ======= ======== ======== ======== ======== ========
Supplemental pro forma
net income(3)....... $ 13,661 $ 14,299
======== ========
Supplemental pro forma
net income per
share............... $ 0.66 $ 0.69
======== ========
Supplemental pro forma
weighted average
common shares
outstanding(4)...... 20,698,076 20,698,076
----------- ------------
----------- ------------
</TABLE>

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
----------------------------------------
ADJUSTED AS
HISTORICAL HISTORICAL(6) ADJUSTED(6)
----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 2,096 $ 774 $ 44,574
======== ======== ========
Total assets........................................................................... $ 145,753 $ 156,331 $156,331
======== ======== ========
Short-term indebtedness(5)............................................................. $ 86,173 $ 89,573 $ 45,773
Long-term indebtedness(5).............................................................. 12,412 12,412 12,412
-------- -------- --------
Total indebtedness(5).................................................................. $ 98,585 $ 101,985 $ 58,185
======== ======== ========
Stockholders' equity(6)................................................................ $ 24,639 $ 25,227 $ 69,027
======== ======== ========
</TABLE>

5
<PAGE> 7

- ---------------
(1) In each of the five years ended December 31, 1995 and for the nine months
ended September 30, 1995 and 1996, special bonus arrangements totaling $0.1
million, $0.9 million, $1.1 million, $2.2 million, $2.6 million, and $2.4
million and $3.3 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 affiliates
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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., Am-Source, Inc.,
JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S
corporation status.

(3) Supplemental pro forma net income for 1995 and for the nine months ended
September 30, 1996 is higher than the pro forma net income shown for such
periods due to adjustments described in the notes to the Supplemental Pro
Forma Combined Statement of Operations. 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, current installments of long-term debt and
subordinated debt due to Mr. Svenningsen and other stockholders. As of
September 30, 1996, subordinated debt due to Mr. Svenningsen amounted to
$34.2 million. Long-term indebtedness consists primarily of debt to
third-parties.

(6) Adjusted Historical and As Adjusted balance sheet and stockholders' equity
at September 30, 1996 give effect to certain adjustments as described in the
notes to the Supplemental Pro Forma Combined Balance Sheet. See
"Supplemental Pro Forma Combined Financial Statements."

6
<PAGE> 8

THE COMPANY

The Company is a designer, manufacturer and distributor 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 multinational distributor of party goods. The Company is a
complete source of paper and plastic party goods, including decorative tableware
such as plates, cups, napkins and tablecovers, 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 Stores Holdings, 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.

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

7
<PAGE> 9

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." The Company does not maintain key-man life
insurance on any of these officers.

In the first quarter of 1996, Mr. Svenningsen was diagnosed with lymphoma.
Since that time, Mr. Svenningsen has been undergoing treatment.

CONTROL BY CERTAIN STOCKHOLDERS

Upon consummation of the Offering, Mr. Svenningsen will be the beneficial
owner of approximately 73.3% (or 71.2% 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 beneficially own an aggregate of
approximately 15,823,077 shares or 76.4% (or 74.3% if the Underwriters'
over-allotment option is exercised in full) of the Common Stock after the
Offering. See "Principal Stockholders."

IMPORTANCE OF IDENTIFYING 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.

RISKS ASSOCIATED WITH FUTURE EXPANSION THROUGH ACQUISITIONS

The Company has, from time to time, expanded its product line as well as
further vertically integrated its operations, through strategic acquisitions.
The Company may pursue additional acquisitions of complementary businesses which
the Company believes may further these strategic objectives. There can be no
assurance that the Company will be able to locate suitable acquisition

8
<PAGE> 10

candidates, make such acquisitions on acceptable terms or effectively and
profitably integrate such acquisitions with its existing operations. Moreover,
to the extent Common Stock is issued to effect an acquisition, such issuance
could result in dilution to the Company's stockholders, and any additional
indebtedness incurred to pay for acquisition costs could adversely affect the
Company's liquidity and results of operation.

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 was 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.

ANTI-TAKEOVER 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, 20,698,076 shares of Common Stock will
be outstanding. Of these shares, the 4,000,000 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,
approximately 250,000 shares of the shares of Common Stock (based on the initial
public offering price set forth on the cover page of this Prospectus)
outstanding will be owned by the Company's Employee Stock Ownership Plan (the
"ESOP") or issued to domestic employees in connection with stock bonuses. See
"Shares Eligible for Future Sale." The remaining 16,448,076 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

9
<PAGE> 11

exceptions, the Company, John A. Svenningsen (who beneficially owns 15,163,077
shares of Common Stock) and the SSY Trusts (as defined below) have agreed with
the representatives of the Underwriters that they will not offer, sell, contract
to sell or otherwise dispose of any securities of the Company including, but not
limited to any securities that are exercisable or exchangeable for, that
represent the right to receive or that are convertible into or whose exercise or
settlement price is derivable from the price of, the Common Stock or any
substantially similar securities 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." In addition, Mr.
Rittenberg has agreed that he will not sell shares of Common Stock received in
the Organization for a period of 12 months from the date of receipt of such
shares except for transfers to Mr. Svenningsen to repay certain indebtedness and
except for gifts. The Company has granted certain stockholders a one-time 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."

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 of $9.03 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 businesses previously conducted by the Company's
principal subsidiary Amscan Inc. and certain affiliated companies (Amscan Inc.,
together with such affiliated companies, the "Operating and Real Estate
Companies"). In connection with the Company's formation, John A. Svenningsen,
the Company's founder, purchased 1,000 shares of Common Stock from the Company
for $100 thereby becoming its sole stockholder. Mr. Svenningsen's purchase of
such shares was made solely to facilitate the organization of the Company.

The Operating and Real Estate Companies include companies previously owned
and independently controlled by Mr. Svenningsen, including Amscan Inc., Trisar,
Inc., which manufactures and distributes certain of the Company's products,
Amscan Distributors (Canada) Ltd. and Amscan Svenska AB, each of which is
engaged in the distribution of the Company's products, and JCS Realty Corp.
which is a holding company for certain real estate leased to the Company for use
in the operation of its business. The Operating and Real Estate Companies also
include companies in which Mr. Svenningsen owned less than 100% of the capital
stock, including, Am-Source, Inc., the Company's supplier of plastic plates,
cups and bowls, certain companies located in Great Britain, Australia, Germany
and Mexico engaged in the distribution of the Company's products and SSY Realty
Corp., which is a holding company for certain real estate leased to the Company.
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 among the Company, Mr. Svenningsen, Gerald
C. Rittenberg and certain trusts established for the benefit of Mr.
Svenningsen's children (the "SSY Trusts").

10
<PAGE> 12

Pursuant to this agreement, Mr. Svenningsen, Mr. Rittenberg and the SSY Trusts
exchanged all of the outstanding capital stock which they owned in the Operating
and Real Estate Companies including Amscan Inc. for shares of Common Stock of
the Company and, in the case of Mr. Svenningsen, cash in the aggregate amount of
$133,000. For purposes of this exchange, Mr. Svenningsen and the representatives
of the Underwriters determined the value of the Company based on their
preliminary assessment of the factors set forth under "Underwriting." The number
of shares of Common Stock issued to Mr. Svenningsen was determined by him using
such value and the midpoint of the estimated range of the initial public
offering price. The number of shares issued to Mr. Svenningsen took into account
the value of Am-Source, Inc. based on the arm's length negotiations with the
stockholders of Am-Source, Inc. other than Mr. Svenningsen, the shares issued to
Mr. Rittenberg pursuant to the agreement described below, the shares issued to
the SSY Trusts and the shares to be issued to the ESOP or in payment of stock
bonuses.

Based on the aggregate value of the Company as determined by Mr.
Svenningsen and the value of the shares of Common Stock issued in exchange
therefor being $12 per share, Mr. Svenningsen received an aggregate of
15,024,616 shares of Common Stock of the Company (which number includes the
1,000 shares of Common Stock issued to Mr. Svenningsen in connection with the
formation of the Company) and $133,000 in cash. An additional 250,000 shares of
Common Stock which otherwise would have been issued to Mr. Svenningsen in the
Organization will be issued to the ESOP or in payment of stock bonuses based on
an aggregate value of $3 million. 138,461 and 660,000 shares of Common Stock
were issued to the SSY Trusts and Mr. Rittenberg, respectively. The transactions
contemplated by this agreement among the Company, Mr. Svenningsen, Mr.
Rittenberg and the SSY Trusts described above 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,
determined in an arm's-length negotiation among the parties to be the aggregate
value of such stockholders' shares of the capital stock of Am-Source, Inc., by
the initial public offering price per share set forth on the cover page of this
Prospectus for an aggregate of 624,999 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, dated November 27, 1991, entered
into between Amscan Inc. and Mr. Rittenberg including, the right to receive (a)
a bonus in an amount equal to 10% of the aggregate net profits of Amscan Inc.
and certain affiliates (as defined in the agreement), (b) 5% of the net selling
price upon the sale of Amscan Inc. or the sale by Mr. Svenningsen of
substantially all of his stock in Amscan Inc. and (c) in the event of an initial
public offering of the stock of Amscan Inc., shares of the stock of Amscan Inc.
equal to 5% of the shares of stock of Amscan Inc. issued and outstanding
immediately following the consummation of such initial public offering. In
exchange for the relinquishment of such rights, Mr. Rittenberg received a cash
payment of $3.4 million and a number of shares of stock of Amscan Inc., which
shares he exchanged for 660,000 shares of Common Stock, representing
approximately 3% of the shares of Common Stock to be outstanding upon
consummation of the Offering (assuming no exercise of the Underwriters'
over-allotment option) valued at $7,920,000 based on the initial public offering
price per share set forth on the cover page of this Prospectus. To the extent
that the net proceeds from the Offering (including any net proceeds of the
exercise of the Underwriters' over-allotment option) exceeds $69 million, Mr.
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."

11
<PAGE> 13

The shares of Common Stock of the Company acquired by Mr. Svenningsen, the
SSY Trusts, the other stockholders 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., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp., 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., JCS
Realty Corp. and SSY Realty Corp. have been treated for income tax purposes as
Subchapter S corporations since 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., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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 the earnings of Amscan Inc., Am-
Source, Inc., JCS Realty Corp. and SSY Realty Corp. owed to but not distributed
to Mr. Svenningsen were, with Mr. Svenningsen's consent, retained by Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., respectively, as
working capital. Prior to the date hereof, 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 due to Mr. Svenningsen, in the amount of approximately $37
million, will be paid with a portion of the net proceeds of the Offering. 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
stockholders' 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, all of such
accumulated undistributed earnings and undistributed earnings since September
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 $2.0 million) will be
paid with a portion of the net proceeds of the Offering. See "Use of Proceeds"
and "Capitalization."

Upon the termination of the Subchapter S corporation status of Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., 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., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had
been Subchapter C corporations under the Internal Revenue Code during the
relevant periods.

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the shares
offered hereby are estimated to be $43,800,000 ($50,496,000 if the Underwriters'
over-allotment option is exercised in full), after deducting estimated
underwriting discounts and other expenses of the Offering payable by the
Company.

Approximately $39 million of the net proceeds to the Company (representing
$35.9 million payable as of September 30, 1996 as reflected in Amscan Inc. and
Affiliates Combined Balance Sheet and $3.1 million of estimated distributable
earnings between September 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.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. to Mr. Svenningsen and by
Am-Source, Inc. to its other stockholders over a number of years while Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. were Subchapter S
corporations. The balance of $4.8 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." An affiliate of one
of the underwriters is a lender under the revolving credit agreement. See
"Underwriting." The Company's subordinated indebtedness to Mr. Svenningsen and
the stockholders of Am-Source, Inc. bears interest at prime (which at September
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 an average rate of 6.8% and matures in September 2000.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth (i) the actual short-term indebtedness and
total capitalization of the Company at September 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
and the application of the proceeds as set forth under "Use of Proceeds."

<TABLE>
<CAPTION>
ADJUSTED AS
HISTORICAL HISTORICAL(1) ADJUSTED(1)
---------- ------------ --------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Short-term and long-term indebtedness:
Loans payable........................................ $ 47,955 $ 51,355 $ 43,455
Long-term indebtedness, including current portion.... 14,730 14,730 14,730
Subordinated and other indebtedness to
stockholders...................................... 35,900 35,900 --
-------- -------- --------
Total indebtedness................................ 98,585 101,985 58,185
-------- -------- --------
Stockholders' equity:
Common stock......................................... 393 1,669 2,069
Additional paid-in capital........................... 1,490 18,547 61,947
Retained earnings.................................... 23,490 5,658 5,658
Cumulative translation adjustment.................... (647) (647) (647)
Treasury stock....................................... (87) -- --
-------- -------- --------
Total stockholders' equity........................ 24,639 25,227 69,027
-------- -------- --------
Total capitalization................................... $ 123,224 $127,212 $127,212
======== ======== ========
</TABLE>

- ---------------
(1) "Adjusted Historical" and "As Adjusted" balance sheet at September 30, 1996
give effect to certain adjustments as described in the notes to the
Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro
Forma Combined Financial Statements."

14
<PAGE> 16

DILUTION

At September 30, 1996, the Company's net tangible book value was
approximately $24.6 million or $1.47 per share ($17.7 million and $1.06,
respectively on an "Adjusted Historical" basis) of Common Stock (based upon
16,698,076 shares representing the shares issued in the Organization). See
"Organization of the Company" and Supplemental Pro Forma Balance Sheet in the
"Supplemental Pro Forma Combined Financial Statements." 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 September 30, 1996 would have been
approximately $61.5 million or $2.97 per share, representing an immediate
increase in net tangible book value of $36.9 million or $1.78 per share and an
immediate dilution of $9.03 per share to new investors. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $12.00
Net tangible book value at September 30, 1996..................... $1.47
Increase attributable to price paid by investors in the
Offering........................................................ 1.50
-----
Adjusted net tangible book value per share after giving effect to
the Offering.................................................... 2.97
------
Dilution in net tangible book value per share to new investors in
the Offering.................................................... $ 9.03
======
</TABLE>

15
<PAGE> 17

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 and as of and for the nine months
ended September 30, 1996, 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 September 30, 1996,
and for each of the years in the three-year period ended December 31, 1995 and
for the nine months ended September 30, 1996, and the reports 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 for the
nine-month period ended September 30, 1995, 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 for such periods. The results of operations for the nine months ended
September 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 are 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.

16
<PAGE> 18

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net sales................... $77,263 $86,944 $108,934 $132,029 $167,403 $128,314 $147,008
Cost of sales............... 50,177 56,565 72,656 86,748 108,654 81,719 92,861
------- ------- -------- -------- -------- -------- --------
Gross profit................ 27,086 30,379 36,278 45,281 58,749 46,595 54,147
Selling expenses............ 6,967 8,770 9,780 11,309 12,241 8,893 8,691
General and administrative
expenses.................. 8,671 9,316 11,080 14,460 15,002 10,395 14,113
Art and development......... 1,709 1,551 2,596 2,796 4,256 2,936 3,671
Special bonuses(1).......... 100 850 1,106 2,200 2,581 2,409 3,300
------- ------- -------- -------- -------- -------- --------
Income from operations...... 9,639 9,892 11,716 14,516 24,669 21,962 24,372
Interest expense, net....... 2,787 2,092 2,304 3,843 5,772 4,386 4,569
Other (income)/expense,
net....................... (141) 16 308 82 (309) (409) (301)
------- ------- -------- -------- -------- -------- --------
Income before income taxes
and minority interests.... 6,993 7,784 9,104 10,591 19,206 17,985 20,104
Income taxes................ 617 297 348 464 731 498 767
Minority interests.......... 73 53 301 160 1,041 722 1,242
------- ------- -------- -------- -------- -------- --------
Net income.................. $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095
======= ======= ======== ======== ======== ======== ========
PRO FORMA ADJUSTMENTS:
Net income, as above...... $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095
Income taxes(2)........... 2,256 2,968 3,218 3,774 6,672 6,435 7,121
------- ------- -------- -------- -------- -------- --------
Pro forma net income(2)... $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 10,330 $ 10,974
======= ======= ======== ======== ======== ======== ========
SUPPLEMENTAL PRO FORMA
DATA(3):
Income from operations.... $ 27,000 $ 27,484
Interest expense, net..... 3,987 3,103
Other (income), net....... (309) (301)
-------- --------
Income before income taxes
and minority
interests............... 23,322 24,682
Income taxes.............. 9,547 10,279
Minority interests........ 114 104
-------- --------
Net income................ $ 13,661 $ 14,299
======== ========
Supplemental pro forma net
income per share(3)....... $ 0.66 $ 0.69
======== ========
Pro forma weighted average
common shares
outstanding(4)............ 20,698,076 20,698,076
-------- --------
-------- --------
</TABLE>

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
AT DECEMBER 31, --------------------------------------
-------------------------------------------------- ADJUSTED AS
1991 1992 1993 1994 1995 HISTORICAL HISTORICAL(6) ADJUSTED(6)
------- ------- -------- -------- -------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..... $ 5,202 $ 7,765 $ 4,730 $ (438) $ 8,383 $ 2,096 $ 774 $ 44,574
======= ======= ======== ======== ======== ======== ========== ==========
Total assets........ $56,978 $60,652 $ 80,090 $ 93,884 $114,601 $ 145,753 $ 156,331 $ 156,331
======= ======= ======== ======== ======== ======== ========== ==========
Short-term
indebtedness(5)... $22,070 $25,993 $ 37,271 $ 50,869 $ 58,541 $ 86,173 $ 89,573 $ 45,773
Long-term
indebtedness(5)... 11,728 11,116 11,852 8,800 12,284 12,412 12,412 12,412
------- ------- -------- -------- -------- ---------- ------------- -----------
Total
indebtedness(5)... $33,798 $37,109 $ 49,123 $ 59,669 $ 70,825 $ 98,585 $ 101,985 $ 58,185
======= ======= ======== ======== ======== ======== ========== ==========
Stockholders'
equity(6)......... $14,467 $15,550 $ 18,496 $ 20,820 $ 27,205 $ 24,639 $ 25,227 $ 69,027
======= ======= ======== ======== ======== ======== ========== ==========
</TABLE>

17
<PAGE> 19

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

(1) In each of the five years ended December 31, 1995 and for the nine months
ended September 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."

(2) Prior to the consummation of the Offering, Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. 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., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation
status.

(3) Supplemental pro forma adjustments result in supplemental pro forma net
income for 1995 and for the nine months ended September 30, 1996 being
higher than the pro forma net income shown for such periods due to
adjustments described in the notes to the Supplemental Pro Forma Combined
Statement of Operations. See "Supplemental Pro Forma Combined Financial
Statements."

(4) Represents shares expected to be issued and outstanding after the Offering.
See "Capitalization."

(6) Adjusted Historical and As Adjusted balance sheet and stockholders' equity
at September 30, 1996 give effect to certain adjustments as described in
the notes to the Supplemental Pro Forma Combined Balance Sheet. See
"Supplemental Pro Forma Combined Financial Statements."

18
<PAGE> 20

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 increased 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 particular,
the Company experienced significant growth with its superstore customers.
Between 1993 and 1995, sales to party superstore customers increased from $27.7
million to $63.4 million, a 51% 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, tablecovers and cutlery) is the
Company's core product category, generating approximately 60% of revenues in
1995. Coordinated accessories (e.g., balloons and banners) 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 certain affiliated companies less than 100% owned by Mr. Svenningsen,
including 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."

19
<PAGE> 21

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 entered into a new employment agreement,
effective upon consummation of the Offering 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 that his existing employment agreement will
terminate upon consummation of the Offering. The agreement which will be
terminated provided for Mr. Rittenberg to receive bonuses equal to approximately
10% of the aggregate net profits of Amscan Inc. and certain affiliates (as
defined in the agreement) 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 approximately 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 $11.3 million,
based on the initial public offering price per share set forth on the cover page
of this Prospectus. In addition, 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. Rittenberg will be entitled to
an amount equal to 5% of such excess. 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 AND PAYMENT OF STOCK BONUSES

In conjunction with the Offering, the Company will be establishing the ESOP
for the benefit of its domestic employees. At the Offering, there will be a
special one-time contribution of 250,000 shares of Common Stock of the Company
to the ESOP, subject to reduction as described in the next sentence, to be
allocated to participant accounts based upon a formula which is weighted based
upon both years of service and compensation. To the extent that application of
this formula would result in a contribution to the ESOP on behalf of a
participant which would exceed the maximum contribution permitted under
applicable law, the contribution to the ESOP for such participant will be
reduced to the maximum permitted and the balance determined under the formula
will be paid to

20
<PAGE> 22

such participant in the form of a stock bonus. 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 CORPORATIONS FROM SUBCHAPTER S TO SUBCHAPTER C CORPORATIONS

Prior to the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and
SSY Realty Corp. 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 statutory income tax rates 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 the income tax provision and the net income of the Company had
it 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.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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
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 September 30, 1996, will be
approximately $39 million.
------------------

The impact of the termination of the prior employment agreements described
above and the establishment of the ESOP (or the payment of stock bonuses) will
result in a one-time charge to compensation expense of approximately $15.3
million. This expense, which will be recognized during the period that Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. are Subchapter S
corporations, will be reflected in the Company's operations in the fiscal
quarter which includes the Offering.

21
<PAGE> 23

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 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 63.7 63.2
------ ------ ------ ------ ------
Gross profit............................ 33.3 34.3 35.1 36.3 36.8
Operating expenses:
Selling................................. 9.0 8.5 7.4 6.9 6.0
General and administrative.............. 10.1 11.0 9.1 8.1 9.6
Art and development..................... 2.4 2.1 2.5 2.3 2.5
Special bonuses......................... 1.0 1.7 1.5 1.9 2.2
------ ------ ------ ------ ------
Total operating expenses................ 22.5 23.3 20.5 19.2 20.3
------ ------ ------ ------ ------
Income from operations.................. 10.8 11.0 14.6 17.1 16.5
Interest expense, net................... 2.1 2.9 3.4 3.4 3.1
Other expense (income), net............. 0.3 0.1 (0.2) (0.3) (0.2)
------ ------ ------ ------ ------
Income before income taxes and
minority interests.................... 8.4 8.0 11.4 14.0 13.6
Income taxes............................ 0.3 0.4 0.4 0.4 0.5
Minority interests...................... 0.3 0.1 0.6 0.5 0.9
------ ------ ------ ------ ------
Net income.............................. 7.8% 7.5% 10.4% 13.1% 12.2%
====== ====== ====== ====== ======
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

NET SALES

Net sales for the nine months ended September 30, 1996 were $147.0 million,
an increase of 14.6% over the nine months ended September 30, 1995 for which net
sales were $128.3 million. Increased sales to national accounts, principally
superstores, accounted for approximately $15.7 million or 84% 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 13,400 sku's in 1995.
Selling price increases related to core products (paper plates, napkins, cups
and tablecovers) in response to higher paper costs accounted for approximately 6
percentage points of the 14.6% increase in net sales between the periods.
Increased sales to international customers accounted for approximately $2.1
million of the increase in net sales.

GROSS PROFIT

Gross profit increased approximately $7.6 million for the nine months ended
September 30, 1996 compared to the same period in 1995, and improved as a
percentage of net sales from 36.3% to 36.8%. 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. As a
result of new operating leases for added facilities and manufacturing equipment,
rent expense included in cost of sales increased $1.5 million.

SELLING EXPENSES

Selling expenses were lower by approximately $0.2 million for the nine
months ended September 30, 1996 compared to the same period in 1995, and
declined as a percentage of net sales from 6.9% to 6.0%. The primary reason for
the percentage decline was the Company's ability to increase

22
<PAGE> 24

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 $3.7 million
for the nine months ended September 30, 1996 compared to the same period in
1995. As a percentage of net sales, general and administrative expenses
increased from 8.1% to 9.6%. This increase is principally attributable to an
increase in the provision for bad debts of $0.4 million or 0.3% of net sales
related to a significant increase in the Company's accounts receivable and
increased occupancy costs of $0.4 million or 0.3% of net sales related to the
Company's new corporate offices. Also contributing to this increase are
non-recurring costs related to the development of a new business management
computer system of $0.8 million or 0.5% of net sales as well as one-time costs
associated with the move to the new corporate offices of $0.3 million or 0.2% of
net sales and additional personnel costs including relocation and recruitment
costs of $0.3 million or 0.2% of net sales.

ART AND DEVELOPMENT COSTS

Art and development costs increased approximately $0.7 million for the nine
months ended September 30, 1996 compared to the same period in 1995. As a
percentage of net sales, art and development costs increased from 2.3% to 2.5%.
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 $0.9 million for the nine months ended
September 30, 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 11.0% to $24.4 million for the nine months ended September 30,
1996 from $22.0 million in the corresponding period in 1995. As a percentage of
net sales, income from operations decreased from 17.1% for the nine months ended
September 30, 1995 to 16.5% for the same period in 1996.

INTEREST EXPENSE, NET

Interest expense, net increased by $0.2 million to $4.6 million for the
nine months ended September 30, 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.

INCOME TAXES

Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp.
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."

23
<PAGE> 25

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 $23.3 million or 66% of this increase. The number
of retail outlets represented by these accounts increased to 886 in 1995 from
720 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,
tablecovers 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 nonmanufactured 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 partially
offset by decreased provisions for bad debts and write-offs. During 1994, the
Company sustained a larger amount of write-offs due to two large accounts which
filed for bankruptcy. 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.

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.

24
<PAGE> 26

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 receivable) 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., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp.
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 $12.5 million or 54% of this increase. The number
of retail outlets represented by these accounts increased to 720 in 1994 from
591 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 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, cups and tablecovers) 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

25
<PAGE> 27

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. 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. As a percentage of net sales, art and development expenses
decreased from 2.4% in 1993 to 2.1% in 1994.

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%.

INCOME TAXES

Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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

26
<PAGE> 28

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 borrowings under its line of credit.

On September 20, 1995, the Company amended its revolving line of credit
with several banks. This facility provided the Company with a $50.0 million
credit line based upon the eligible 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 September 30, 1996 of $45.8
million at an average interest rate of 6.96%. 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's
revolving line of credit imposes certain restrictions on the ability of the
Company and certain of its subsidiaries, including Amscan Inc., to incur
additional indebtedness, enter into guarantees or other similar agreements, make
loans to or investments in other persons and pay dividends. The Company and its
subsidiaries on a combined basis are also subject to financial covenants which
require them to maintain a certain threshold tangible net worth, limit capital
expenditures and require the Company and its subsidiaries on a combined basis to
maintain certain financial ratios pursuant to the credit agreement relating to
this facility. The Company is not currently in default in respect of any of
these restrictive covenants or financial ratios. The Company may seek to enter
into new arrangements to replace this revolving credit facility which might
include both term debt and revolving credit.

Net cash used in operating activities decreased by approximately $9.6
million to $0.3 million in the September 1996 period from $9.9 million in the
September 1995 period as a result of increases in net earnings before
depreciation and amortization and an increase in accounts payable and accrued
liabilities, partially offset by an increase in deposits paid on purchased
equipment and a decrease in the rate of growth in inventories and other assets.
Net cash used in investing activities of $3.7 million remained nearly level with
spending for the nine months ended September 30, 1995. Net cash provided by
financing activities decreased by $9.1 million, to $5.0 million in the September
1996 period from $14.1 million in the September 1995 period as a result of net
decreases in loans, notes payable and long-term indebtedness.

Net cash provided by operating activities decreased by $1.0 million to $2.9
million in 1995 from $3.9 million in 1994. This decrease was primarily
attributable to increases in accounts receivable, inventories and other assets,
offset by increases in accounts payable and accrued expenses and net income
before depreciation and amortization. Net cash used in investing activities
decreased $3.4 million from $6.1 million to $2.7 million due to reduced capital
expenditures. Net cash provided from financing activities decreased $2.6 million
from $2.7 million to $0.1 million due to an increase in stockholder
distributions partially offset by an increase in loans, notes payable and
long-term indebtedness.

Net cash provided by operating activities decreased $4.8 million from $8.7
million in 1993 to $3.9 million in 1994 due to decreased growth in accounts
payable and accrued expenses and increased inventories and other assets,
partially offset by increased net income before depreciation and amortization
and decreased growth of accounts receivable. Net cash used in investing
activities increased $0.4 million from $5.6 million to $6.0 million in 1994. The
increase was attributable to

27
<PAGE> 29

payments made in 1993 for acquisitions, not made in 1994, offset by increases in
capital expenditures in 1994 over 1993. Net cash from financing activities
increased $4.7 million from $1.9 million used in 1993 to $2.8 million provided
by financing activities in 1994, due to an increase in proceeds from loans,
notes payable and long-term debt, offset by a decrease in stockholder
distributions.

Accounts receivable, net increased $19.5 million to $51.4 million on
September 30, 1996 from $31.9 million at December 31, 1995. This increase is due
principally to the seasonal nature of the business as well as increased sales.
Third quarter sales are generally the highest of the year primarily due to
initial shipments of seasonal holiday merchandise which has dated terms which
result in higher accounts receivable balances relative to year-end levels.

Deposits and other assets increased $7.2 million to $10.1 million on
September 30, 1996 from December 31, 1995. Accrued expenses increased $8.0
million to $17.5 million on September 30, 1996. These increases are due
principally to deposits placed and the related advances received in connection
with various operating leases for manufacturing and warehouse equipment as well
as office equipment and computer software.

Loans payable increased $10.1 million to $47.9 million on September 30,
1996 from December 31, 1995 due to increases on various existing lines of
credit. These increases were used to fund working capital needs which consisted
primarily of increased accounts receivable.

Subordinated debt and other indebtedness to stockholders increased $19.9
million to $35.9 million on September 30, 1996 from December 31, 1995. This
increase is due principally to the declaration of distributions of accumulated
earnings to stockholders.

Additional paid-in capital decreased $7.6 million to $1.5 million on
September 30, 1996 from December 31, 1995 due to the declaration of
distributions of previously provided capital.

The Company generated $8.2 million and $13.1 million from third party
financings for the nine months ended September 30, 1996 and 1995, respectively.
Financings for the nine months ended September 30, 1996 consisted primarily of
borrowings under credit facilities, while financings through September 30, 1995
consisted primarily of long-term loans secured by machinery and equipment and
borrowings under the credit facilities. The Company used $23.0 million of the
cash for the nine months ended September 30, 1996 and $30.4 million of the cash
for the nine months ended September 30, 1995 to fund its working capital needs,
which consisted primarily of increases in accounts receivable and inventory.

The Company generated $10.0 million and $3.9 million from third party
financings and $1.2 million and $6.3 million from financings with Mr.
Svenningsen in 1995 and 1994, respectively. Financings in 1995 consisted
primarily of long-term loans secured by machinery and equipment and borrowings
under revolving credit facilities, while financings in 1994 consisted primarily
of bankers acceptances and borrowings under revolving credit facilities. The
Company used $20.5 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.

In 1995, the Company acquired $2.6 million of machinery and equipment,
which was financed by long-term debt and borrowings under the Company's
revolving credit facility, and entered into operating leases for additional
machinery and equipment worth $7.4 million. In 1994, the Company acquired $6.8
million of machinery and equipment which was financed primarily by borrowings
under the Company's revolving credit facilities and $4.0 million of which was
refinanced through long-term loans early in 1995. 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 acquired
machinery and equipment worth approximately $5.8 million to date in 1996.
Management believes that these additions to plant and equipment provide adequate
capacity to support its operations for at least the balance of the year ending
December 31, 1996 and for the year ending December 31, 1997. As of September 30,
1996 the Company did not have material commitments for capital expenditures
other than for machinery and equipment which will be leased under the
aforementioned $10.4 million of operating leases.

28
<PAGE> 30

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 $6.3 million in 1994
was reinvested in the Company as 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 Company does not believe that the impact of SFAS 121 will have a
significant impact on its 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 Company.

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.

<TABLE>
<CAPTION>
1996 QUARTERS
1995 QUARTERS ----------------------------
---------------------------------------- MARCH
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 31 JUNE 30 SEPT. 30
-------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Net sales................ $ 39,376 $41,046 $ 47,892 $ 39,089 $47,258 $45,714 $ 54,036
Income from operations... $ 6,492 $ 6,350 $ 9,120 $ 2,707(a) $ 7,586 $ 7,564 $ 9,222
</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).

29
<PAGE> 31

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 nine months ended September
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.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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 as of and at December 31, 1995 and the Combined Financial
Statements of Amscan Inc. and Affiliates and the notes thereto as of and at
September 30, 1996 contained elsewhere in this Prospectus.

30
<PAGE> 32

AMSCAN INC. AND AFFILIATES

SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ------------
<S> <C> <C> <C>
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 (1,785)(c) 3,987
Other income, net................................. (309) (309)
-------- --------
Income before income taxes and minority
interests.................................... 19,206 23,322
Income taxes...................................... 731 8,816(d) 9,547
Minority interests................................ 1,041 (927)(a) 114
-------- --------
Supplemental pro forma net income............... $ 17,434 $ 13,661(e)
======== ========
Supplemental pro forma net income per share..... $ 0.66
========
Supplemental pro forma weighted average common
shares outstanding........................... 20,698,076(f)
========
</TABLE>

Notes to Supplemental Pro Forma Combined Statement of Operations for the year
ended December 31, 1995 ($ in thousands):

(a) To reflect $250 amortization of goodwill of $7,500 over thirty years and
the elimination of $927 for 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 elimination of special bonuses that will not be recurring
due to the termination of certain employment agreements in connection with
the Offering. No adjustments are reflected or are necessary with respect to
performance-based compensation as the provisions in the new employment
agreements would have resulted in performance-based compensation materially
equivalent to that reflected in the historical accounts under the prior
employment agreements;

(c) To reflect the reduction of actual interest expense assuming a repayment of
$7,900 of bank loans at the actual rate in effect and an average balance of
$13,300 of loans from Mr. Svenningsen at the actual rate in effect;

(d) To provide for income taxes at statutory rates of 40.5% on earnings as if
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not
been treated as Subchapter S corporations during the period presented
($6,672) and to give effect to the tax effect of these adjustments
($2,144);

(e) The above pro forma and supplemental pro forma adjustments do not include
anticipated non-recurring expenses of $15,320 relating to compensation
expense to be incurred at the consummation of the Offering in connection
with cash and stock of $11,320 to be paid to Mr. Rittenberg and $1,000 to
be paid to certain other executives in connection with the termination or
modification of prior employment agreements and $3,000 for the
establishment of the ESOP for the benefit of the Company's domestic
employees and the payment of stock bonuses to certain of such employees;

(f) 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.

31
<PAGE> 33

AMSCAN INC. AND AFFILIATES

SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ------------
<S> <C> <C> <C>
Net sales.......................................... $ 147,008 $ 147,008
Cost of sales...................................... 92,861 92,861
-------- --------
Gross profit..................................... 54,147 54,147
Selling.......................................... 8,691 8,691
General and administrative....................... 14,113 $ 188(a) 14,301
Art and development.............................. 3,671 3,671
Special bonuses.................................. 3,300 (3,300)(b) --
-------- --------
Income from operations........................... 24,372 27,484
Interest expense, net.............................. 4,569 (1,466)(c) 3,103
Other income, net.................................. (301) (301)
-------- --------
Income before income taxes and minority
interests..................................... 20,104 24,682
Income taxes....................................... 767 9,512(d) 10,279
Minority interests................................. 1,242 (1,138)(a) 104
-------- --------
Supplemental pro forma net income................ $ 18,095 $ 14,299(e)
======== ========
Supplemental pro forma net income per share...... $ 0.69
========
Supplemental pro forma weighted average common
shares outstanding............................ 20,698,076(f)
========
</TABLE>

Notes to Supplemental Pro Forma Combined Statement of Operations for the nine
months ended September 30, 1996 ($ in thousands):

(a) To reflect $188 for amortization of goodwill of $7,500 over thirty years
and the elimination of $1,138 for 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;

(c) To reflect the reduction of actual interest expense assuming a repayment of
$7,900 of bank loans at the actual rate in effect and $16,000 of loans from
Mr. Svenningsen at the actual rate in effect;

(d) To provide for income taxes at statutory rates (40.5%) on earnings as if
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not
been treated as Subchapter S corporations during the period presented
($7,121) and to give effect to the tax effect of these adjustments
($2,391);

32
<PAGE> 34

AMSCAN INC. AND AFFILIATES

SUPPLEMENTAL PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SUPPLEMENTAL
PRO FORMA
SUPPLEMENTAL ADJUSTMENTS
PRO FORMA ADJUSTED TO GIVE EFFECT TO SUPPLEMENTAL
HISTORICAL ADJUSTMENTS HISTORICAL THE OFFERING PRO FORMA
---------- ------------ -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 3,530 $ 3,530 $ 3,530
Accounts receivable, net.......... 51,359 51,359 51,359
Inventories....................... 45,074 45,074 45,074
Deposits and other................ 10,146 $ 3,078(a) 13,224 13,224
-------- -------- --------
Total current assets........... 110,109 113,187 113,187
Property, plant and equipment,
net............................ 30,409 30,409 30,409
Other............................. 5,235 7,500(b) 12,735 12,735
-------- -------- --------
Total assets................. $ 145,753 $156,331 $156,331
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable..................... $ 47,955 3,400(c) $ 51,355 $ (7,900)(g) $ 43,455
Subordinated and other
indebtedness to stockholders... 35,900 35,900 (35,900)(g) --
Accounts payable.................. 4,326 4,326 4,326
Accrued expenses.................. 17,514 1,000(d) 18,514 18,514
Current installments of long-term
indebtedness................... 2,318 2,318 2,318
-------- -------- --------
Total current liabilities.... 108,013 112,413 68,613
Long-term indebtedness, excluding
current installments........... 12,412 12,412 12,412
Other............................. 689 5,590(a) 6,279 6,279
-------- -------- --------
Total liabilities............ 121,114 131,104 87,304
-------- -------- --------
Stockholders' equity:
Preferred stock ($0.10 par value;
5,000,000 shares authorized;
none issued and outstanding)
Common stock ($0.10 par value;
50,000,000 shares authorized;
20,698,076 shares issued and
outstanding, as adjusted)...... 393 (393)(e) 1,669 400(h) 2,069
1,516(e)
66(c)
62(b)
25(f)
Additional paid-in capital........ 1,490 (1,210)(e) 18,547 43,400(h) 61,947
7,854(c)
7,438(b)
2,975(f)
Retained earnings................. 23,490 (11,320)(c) 5,658 5,658
(1,000)(d)
(2,512)(a)
(3,000)(f)
Cumulative translation
adjustment..................... (647) (647) (647)
Treasury stock.................... (87) 87(e) -- --
-------- -------- --------
Total stockholders' equity..... 24,639 25,227 69,027
-------- -------- --------
Total liabilities and
stockholders' equity.... $ 145,753 $156,331 $156,331
======== ======== ========
</TABLE>

33
<PAGE> 35

Notes to Supplemental Pro Forma Balance Sheet ($ in thousands, except share
amounts):

(a) Reflects a deferred income tax asset and liability of $3,078 and $5,590,
respectively, (net reduction of $2,512 to Retained Earnings) resulting from
accumulated timing differences as if Amscan Inc., Am-Source, Inc., JCS
Realty Corp., and SSY Realty Corp. had not been treated as Subchapter S
corporations for income tax purposes.

(b) Reflects goodwill of $7,500 related to the acquisition of an additional 50%
of Am-Source, Inc. In connection with the Organization, the Company entered
into an agreement with the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, pursuant to which such stockholders exchanged all of their
outstanding capital stock of Am-Source, Inc. for shares of Common Stock.
The number of shares of Common Stock issued in this exchange was determined
by dividing the $7,500 purchase price by the initial public offering price
per share set forth on the cover page of this Prospectus for an aggregate
of 624,999 shares of Common Stock ($62 and $7,438, credited to Common Stock
and additional paid-in capital, respectively).

(c) Reflects the accrual for obligations of $3,400 to Mr. Rittenberg as partial
payment in connection with the termination of his prior agreement. In
connection with the Organization, Amscan Inc., Mr. Svenningsen and Mr.
Rittenberg entered into an agreement, whereby Mr. Rittenberg relinquished
certain rights under a previous employment agreement entered into between
Amscan Inc. and Mr. Rittenberg. In exchange for the relinquishment of such
rights, Mr. Rittenberg received a cash payment of $3,400 and a number of
shares of capital stock of Amscan Inc., which shares he exchanged for
660,000 shares of Common Stock. The 660,000 shares issued to Mr. Rittenberg
have a fair market value of $7,920 ($66 and $7,854, credited to Common
Stock and additional paid-in capital, respectively). Such amount has been
reflected as compensation expense thereby reducing retained earnings by
$11,320. See "Organization of the Company" and "Management of the
Company -- Executive Compensation -- Employment Agreements."

(d) Reflects the accrual for obligations payable of $1,000 to certain
executives other than Mr. Rittenberg in connection with the termination of
their prior employment agreements. Such amount has been reflected as
compensation expense thereby reducing retained earnings by $1,000.

(e) Gives effect to the issuance of 15,024,616 shares of Common Stock to Mr.
Svenningsen and 138,461 shares of Common Stock to the SSY Trusts in
connection with the Organization ($1,516 credited to Common Stock).
Pursuant to an agreement between the Company and Mr. Svenningsen, Mr.
Svenningsen exchanged all of the outstanding capital stock of Amscan Inc.
and Affiliates (other than the shares owned by Mr. Rittenberg pursuant to
the agreement described in (c) above) for shares of Common Stock of the
Company. The exchange resulted in the elimination of $393 in common stock,
a reduction of $1,210 in additional paid-in capital, and the retirement of
treasury stock of $87. See "Organization of the Company."

(f) Gives effect to the issuance of 250,000 shares of Common Stock ($25 and
$2,975 credited to Common Stock and additional paid-in capital,
respectively) to establish the ESOP for the benefit of the Company's
domestic employees and the payments of stock bonuses to certain of such
employees. The shares issued are reflected as compensation expense measured
at the initial public offering price per share set forth on the cover page
of this Prospectus, aggregating to a $3,000 reduction in retained earnings.

(g) Repayment of bank indebtedness and subordinated indebtedness to
stockholders of $7,900 and $35,900, respectively, as of September 30, 1996
from net proceeds of the Offering. Excludes estimated earnings from
September 30, 1996 to the date of the Offering which will be distributed
and will result in an increase in subordinated indebtedness.

(h) Net proceeds from the Offering, calculated assuming 4,000,000 shares are
issued at the initial public offering price per share set forth on the
cover page of this Prospectus, aggregating to a total of $43,800 ($400 and
$43,400 credited to Common Stock and additional paid-in capital,
respectively).

34
<PAGE> 36

BUSINESS

The Company is a designer, manufacturer and distributor 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, napkins, cups and tablecovers,
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.

Over the past five years, the businesses which the Company has acquired
continued to grow sales and market share and has increased profitability by
offering a broad product line, creating innovative and unique designs, enhancing
its customer relationships (particularly in the superstore channel) and using
state-of-the-art manufacturing and distribution technology. Further vertical
integration of the operations was sought through strategic acquisitions
including the acquisition in 1993 of a 50% interest in Am-Source Inc., a
manufacturer of plastic plates, cups and bowls, and the acquisition in 1993 of
Trisar, Inc., a manufacturer of gift products. In addition, in 1993 a 48%
interest in Amscan de Mexico, S.A. de C.V., a distributor of the Company's
products in Mexico was acquired. All of such entities became subsidiaries of the
Company upon consummation of the Organization. See "Organization of the
Company."

INDUSTRY OVERVIEW

According to PARTY AND PAPER 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:

- 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.

- 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.

- 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

35
<PAGE> 37

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:

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.

36
<PAGE> 38

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 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 may pursue additional acquisitions of
complementary businesses which the Company believes may further these strategic
objectives. The form of consideration which the Company might use in any
particular acquisition could be cash, securities or some combination and would
depend on the particular circumstances. 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:

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Tableware........................................... 55% 58% 60%
Accessories......................................... 27% 26% 24%
Novelties........................................... 18% 16% 16%
</TABLE>

37
<PAGE> 39

The following table sets forth the principal products in each of the three
categories:

<TABLE>
<CAPTION>
TABLEWARE ACCESSORIES NOVELTIES
- --------------------------------- ----------------------- ---------------
<S> <C> <C>
Solid Color: Balloons Buttons
Paper and Plastic Cups Banners Candles
Paper and Plastic Plates Cascades Cocktail Picks
Paper and Plastic Tablecovers Confetti Games
Plastic Cutlery Crepe Mugs
Cutouts Noise Makers
Decorated: Decorative Tissues Party Favors
Paper Cups Flags Party Hats
Paper Napkins Gift Bags Pom Poms
Paper Plates Gift Wrap T-shirts
Paper Tablecovers Guest Towels
Honeycomb Centerpieces
Invitations and Notes
Ribbons and Bows
Signs
</TABLE>

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, tablecovers 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 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.

38
<PAGE> 40

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 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.

In connection with its manufacturing operations, the principal raw
materials used by the Company in its products are paper and plastic. While the
Company currently purchases such raw materials from a relatively small number of
sources, such raw materials are available generally from a number of sources,
and the Company's current suppliers could be replaced by the Company without
adversely affecting the Company's operations in any material respect.

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 Company's foreign subsidiaries. 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.

39
<PAGE> 41

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.

During 1995 and the first nine months of 1996, sales by the Company to its
largest customer, Party City Corporation, were 11% and 14% respectively, of the
Company's combined net sales for such periods. Although the Company believes its
relationship with Party City Corporation to be good, should such relationship be
terminated, the Company's financial condition and results of operations could be
adversely affected.

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.

40
<PAGE> 42

EMPLOYEES

As of September 30, 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; 45,000 square feet Leased (expiration date:
design and art February 28, 2001)
production of paper
party products and
decorations
Harriman, New York Manufacture of paper 75,000 square feet Leased (expiration date:
napkins and cups March 31, 1999)
Providence, Rhode Island Manufacture and 51,000 square feet Leased (expiration date:
distribution of June 30, 2008)
plastic plates, cups
and bowls
Louisville, Kentucky Manufacture and 183,000 square feet Leased (expiration date:
distribution of paper March 31, 1997)
plates
Anaheim, California Manufacture of 25,000 square feet Leased (expiration date:
novelty items February 28, 1999)
Temecula, California(2) Distribution of party 212,000 square feet Leased (expiration date:
products and February 28, 2000)
decorations
Goshen, New York Distribution of party 130,000 square feet Leased (expiration date:
products and December 31, 1998)
decorations
Chester, New York(3) Distribution of party 287,000 square feet Owned
products and
decorations
Montreal, Canada(4) Distribution of party 124,000 square feet Owned
products and
decorations
Milton Keynes, England Distribution of party 30,000 square feet Leased (expiration date:
products and March 31, 2016)
decorations
throughout United
Kingdom and Europe
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."

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<PAGE> 43

(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 $2,088,000. 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. To the extent such capacity is not needed for
the manufacture of the Company's products, the Company generally uses such
capacity for the manufacture of products for others pursuant to terminable
contracts. Currently, all properties generally are being used on a basis of two
shifts out of a maximum potential capacity of three 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.

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<PAGE> 44

MANAGEMENT OF THE COMPANY

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their respective
ages and principal positions with the Company are set forth below. Each director
and executive officer has held such positions with the Company set forth below
since October, 1996, the month during which the Company was incorporated.

<TABLE>
<CAPTION>
YEAR OF EXPIRATION
NAME AGE POSITION OF TERM AS DIRECTOR
- ------------------------- --- ------------------------------------ -------------------
<S> <C> <C> <C>
John A. Svenningsen...... 65 Chairman of the Board of Directors, 1999
Chief Executive Officer and
Secretary
Gerald C. Rittenberg..... 44 Director and President 1998
Christine Svenningsen.... 39 Director 1997
William S. Wilkey........ 40 Senior Vice President -- Sales and --
Marketing
James M. Harrison........ 44 Chief Financial Officer and --
Assistant Secretary
</TABLE>

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.

CHRISTINE SVENNINGSEN served as product manager in charge of product
development of Amscan Inc. from July 1980 to February 1991. It is expected that
Mrs. Svenningsen will resign her position as a director of the Company prior to
the consummation of the Offering. Mrs. Svenningsen is the wife of John A.
Svenningsen.

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, a
manufacturer and distributor of party goods (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.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company intends to establish a Compensation Committee and an Audit
Committee and has established a Stock Option Committee. The Compensation
Committee will be composed of at least two directors, at least a majority of
whom will not be officers or employees of the Company. It will approve and
recommend to the Board of Directors the compensation arrangements for key
management personnel of the Company and its subsidiaries and will be 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.

The Audit Committee will be composed of at least two directors who are not
officers or employees of the Company and will be responsible for recommending to
the Board of Directors the

43
<PAGE> 45

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.

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." The Stock Option
Committee currently consists of Mr. Svenningsen, but, after consummation of the
Offering, its membership will be comprised of non-employee directors.

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
and Payment of Stock Bonuses."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
------------------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1)
- -------------------------------------------- ---- ---------- ---------- ------------
<S> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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 will terminate upon consummation of 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.

44
<PAGE> 46

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. 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 (a)
a bonus in an amount equal to 10% of the aggregate net profits of Amscan Inc.
and certain affiliates (as defined in the agreement), (b) 5% of the net selling
price upon the sale of Amscan Inc. or the sale by Mr. Svenningsen of
substantially all of his stock in Amscan Inc. and (c) in the event of an initial
public offering of the stock of Amscan Inc., shares of the stock of Amscan Inc.
equal to 5% of the shares of stock of Amscan Inc. issued and outstanding
immediately following the consummation of the initial public offering. In
exchange for the relinquishment of such rights, Mr. Rittenberg received a cash
payment of $3.4 million and a number of shares of stock of Amscan Inc., which
shares he exchanged for 660,000 shares of Common Stock representing
approximately 3% of the Common Stock to be outstanding upon consummation of the
Offering (assuming the Underwriters' over-allotment option is not exercised). To
the extent that the net proceeds from the Offering (including any net proceeds
of the exercise of the Underwriters' over-allotment option) exceeds $69 million,
Mr. Rittenberg will be entitled to an additional cash payment equal to 5% of
such excess. 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 of Amscan Inc. and certain affiliates. It is estimated
that Mr. Wilkey's salary

45
<PAGE> 47

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. The Company anticipates that it will
compensate directors who are not employees of the Company pursuant to
arrangements established once such directors are elected. All directors will be
reimbursed for expenses incurred in attending Board of Directors and committee
meetings.

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 per share set forth on the cover page of this
Prospectus, the fair market value of 2,000,000 shares of Common Stock is
$24,000,000. No stock options may be granted under the Stock Option Plan after
November 27, 2006.

46
<PAGE> 48

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 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

47
<PAGE> 49

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
unless otherwise determined by the Committee) 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 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 unless otherwise determined
by the Committee at the time such option was granted, 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

48
<PAGE> 50

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 will be granted in conjunction
with the Offering to Mr. Wilkey and Mr. Harrison for 100,000 and 50,000 shares
of Common Stock, respectively. Such options will have an exercise price per
share equal to the initial 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 will be granted in
conjunction with the Offering to employees of the Company or its subsidiaries
who are not executive officers of the Company. Such additional options will also
have an exercise price per share equal to the initial 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 prior to one year
after the grant thereof.) To the extent permitted under the Internal Revenue
Code, such options will be incentive stock options, and the balance, if any,
will be non-qualified stock options. There is no other current agreement to
grant additional options 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.

49
<PAGE> 51

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.

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.

50
<PAGE> 52

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of Common Stock as of the date hereof and after the consummation of
the Offering, respectively, 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.

<TABLE>
<CAPTION>
ON THE DATE HEREOF AFTER THE OFFERING
-------------------------------- --------------------------------
SHARES BENEFICIALLY PERCENT OF SHARES BENEFICIALLY PERCENT OF
NAME OWNED CLASS OWNED CLASS(4)
------------------------- ------------------- ---------- ------------------- ----------
<S> <C> <C> <C> <C>
John A. Svenningsen...... 15,163,077(1) 92.2% 15,163,077(1) 73.3%
Gerald C. Rittenberg..... 660,000(2) 4.0% 660,000(2) 3.1%
William S. Wilkey........ 0 -- 0 --
James M. Harrison........ 0 -- 0 --
Christine Svenningsen.... 0(3) -- 0(3) --
All directors and
executive officers
as a group............. 15,823,077 96.2% 15,823,077 76.4%
</TABLE>

- ---------------
(1) Includes 138,461 shares owned in the aggregate by the SSY Trusts for which
Mr. Svenningsen is a co-trustee.

(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 90-day LIBOR rate plus 0.125%. 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 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 issue or his estate, which
occurs at any time during a period not exceeding six years commencing upon
the consummation of the Offering.

(3) Christine Svenningsen is the wife of John A. Svenningsen. As the wife of Mr.
Svenningsen, Christine Svenningsen may be deemed to own the shares of Common
Stock beneficially owned by Mr. Svenningsen.

(4) 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) and
assuming issuance of shares in connection with the ESOP and the employee
stock bonuses.

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<PAGE> 53

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 $502,000 for
the nine months ended September 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 nine months ended September 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 $889,000 for the years ended December 31, 1993, 1994,
1995, and the nine months ended September 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.

The Company and Mr. Svenningsen have entered 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 (including any
gross-up for additional taxes), 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., Am-Source, Inc., JCS
Realty Corp. or SSY Realty Corp. 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
$2.2 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.

See also, "Organization of the Company" and "Management of the
Company -- Executive Compensation -- Employment Agreements."

52
<PAGE> 54

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 20,698,076
shares will be issued and outstanding upon completion of the Offering (or
21,298,076 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 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

53
<PAGE> 55

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 time 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 time 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) at or subsequent to
such time the Business Combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, 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.

54
<PAGE> 56

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.

55
<PAGE> 57

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.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.

LISTING

The Common Stock has been approved for quotation on The Nasdaq Stock
Market, Inc. under the symbol "AMSN."

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have outstanding a
total of 20,698,076 shares of Common Stock, including the 4,000,000 shares
offered in the Offering (or 21,298,076 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,
250,000 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, or issued to certain of such employees in connection with stock
bonuses. Upon such consummation, the Company will make a special one-time
contribution to the ESOP of 250,000 shares of Common Stock, subject to reduction
as described in the next sentence, to be allocated to participants' accounts in
accordance with a formula based on compensation and years of service. To the
extent that application of this formula would result in a contribution to the
ESOP on behalf of a participant which would exceed the maximum contribution
permitted under applicable law, the contribution to the ESOP for such
participant will be reduced to the maximum permitted and the balance determined
under the formula will be paid to such participant in the form of a stock bonus.
No additional contributions to the ESOP will be made until 1998 and will then be
dependent upon a number of factors including the Company's performance. See
"Capitalization" and "Dilution." All of the remaining shares outstanding and not
issued in the Offering or owned by the ESOP or certain employees upon payment of
stock bonuses will be owned respectively by Mr. Svenningsen, the SSY Trusts, 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 shares of Common Stock which are 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 shares of 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 shares of Common Stock that are not
restricted securities. Furthermore, if a period of at least three years has
elapsed from the date restricted securities were

56
<PAGE> 58

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.

The 15,024,616 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.

The Company, Mr. Svenningsen and the SSY Trusts have agreed that for 180
days from the date of this Prospectus they will not offer, sell, contract to
sell or otherwise dispose of any securities of the Company including, but not
limited to, any securities that are exercisable or exchangeable for, that
represent the right to receive or that are convertible into or whose exercise or
settlement price is derivable from the price of Common Stock or other
substantially similar securities without the prior written consent of the
representatives of the Underwriters. See "Underwriting." As part of the
agreement pursuant to which Mr. Rittenberg exchanged his shares of Amscan Inc.
for shares of Common Stock, Mr. Rittenberg agreed not to resell any of such
shares of Common Stock for a period of 12 months from the date of such exchange,
except for transfers to Mr. Svenningsen to repay indebtedness which Mr.
Rittenberg might incur to enable him to pay taxes on the shares of Common Stock
received by him in the Organization pursuant to the agreement described in note
(2) under "Principal Stockholders" and except for gifts of such shares of Common
Stock.

The Company has entered into agreements with two of the three individuals
who 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 but 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.

57
<PAGE> 59

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 as of September 30,
1996, and for each of the years in the three-year period ended December 31,
1995, and for the nine-month period ended September 30, 1996, and the balance
sheet of Amscan Holdings, Inc. as of December 13, 1996, 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.

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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<PAGE> 60

AMSCAN HOLDINGS, INC.

INDEX TO FINANCIAL STATEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report......................................................... F-2
Balance Sheet at December 13, 1996................................................... F-3
</TABLE>
AMSCAN INC. AND AFFILIATES

INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
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 Auditors' Report....................................................... F-4
Combined Balance Sheets............................................................ F-5
Combined Statements of Operations.................................................. F-6
Combined Statements of Stockholders' Equity........................................ F-7
Combined Statements of Cash Flows.................................................. F-8
Notes to Combined Financial Statements............................................. F-9
Combined Financial Statements as of September 30, 1996 and for the nine month periods
ended September 30, 1995 (unaudited) and 1996:
Independent Auditors' Report....................................................... F-22
Combined Balance Sheet............................................................. F-23
Combined Statements of Operations.................................................. F-24
Combined Statements of Stockholders' Equity........................................ F-25
Combined Statements of Cash Flows.................................................. F-26
Notes to Combined Financial Statements............................................. F-27
</TABLE>

F-1
<PAGE> 61

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Amscan Holdings, Inc.:

We have audited the accompanying balance sheet of Amscan Holdings, Inc. as of
December 13, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Amscan Holdings, Inc. as of
December 13, 1996, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Stamford, Connecticut
December 13, 1996

F-2
<PAGE> 62

AMSCAN HOLDINGS, INC.

BALANCE SHEET
DECEMBER 13, 1996

<TABLE>
<S> <C>
Cash......................................................................... $ 100
=====
Preferred stock ($0.10 par value; 5,000,000 shares authorized; none issued
and outstanding)........................................................... $ --
Common stock ($0.10 par value; 50,000,000 shares authorized; 1,000 shares
issued and outstanding).................................................... 100
-----
Total equity............................................................ $ 100
=====
</TABLE>

NOTE TO BALANCE SHEET

Amscan Holdings, Inc. was organized on October 3, 1996 for the purpose of
becoming the holding company for the businesses conducted by Amscan Inc. and
certain affiliated companies. The only transaction to-date has been the initial
capitalization of $100.

F-3
<PAGE> 63

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.

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.

KPMG Peat Marwick LLP

Stamford, Connecticut
April 5, 1996, except as to note (16),
which is as of July 31, 1996, and note (7)
which is as of September 30, 1996

F-4
<PAGE> 64

AMSCAN INC. AND AFFILIATES

COMBINED BALANCE SHEETS
($ IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,229 $ 2,492
Accounts receivable, net of allowances of $1,925 and $2,505, 23,847
respectively....................................................... 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
Subordinated debt to Principal Stockholder............................ 12,000 16,000
Accounts payable...................................................... 4,849 5,855
Accrued expenses...................................................... 7,718 9,526
Loans and notes payable to Principal Stockholder...................... 5,295 2,453
Current installments of long-term indebtedness........................ 4,909 2,239
------- --------
Total current liabilities.......................................... 63,436 73,922
Long-term indebtedness, excluding current installments.................. 8,800 12,284
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
======= ========
</TABLE>

See accompanying notes to combined financial statements.

F-5
<PAGE> 65

AMSCAN INC. AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
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................... $ 13,661
============
Supplemental pro forma net income per share......... $ 0.66
============
Supplemental pro forma weighted average shares
outstanding....................................... 20,698,076
============
</TABLE>

See accompanying notes to combined financial statements.

F-6
<PAGE> 66

AMSCAN INC. AND AFFILIATES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
($ IN THOUSANDS)

<TABLE>
<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-7
<PAGE> 67

AMSCAN INC. AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)

<TABLE>
<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-term
indebtedness............................................ 39,942 6,324 42,311
Repayment of loans, notes payable and long-term
indebtedness............................................ (38,291) (2,434) (32,313)
Proceeds from loans, notes payable and subordinated
indebtedness to Principal Stockholder................... 4,979 6,316 4,000
Repayment of loans, notes payable and subordinated
indebtedness to Principal Stockholder................... -- -- (2,842)
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:
</TABLE>

Capital lease obligations of $648 were incurred in 1994. There were no capital
lease obligations incurred in 1993 or 1995.

See accompanying notes to combined financial statements.

F-8
<PAGE> 68

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 (or, with respect to less than majority-owned entities, on the equity
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.

<TABLE>
<CAPTION>
PRINCIPAL
STOCKHOLDER'S
ENTITY OWNERSHIP PRINCIPAL ACTIVITY
----------------------------------- ------------- -----------------------------------
<S> <C> <C>
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...... 48% Distributor -- Mexico
JCS Realty Corp.................... 100% Real estate -- Canada
SSY Realty Corp.................... 100% Real estate -- United States
</TABLE>

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 48% of the stock
of Amscan de Mexico, S.A. de C.V. for $201,000 in cash, which approximated 48%
of the fair value of its net assets.

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

F-9
<PAGE> 69

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

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 printing plates purchased from third-party
vendors used in the Companies' manufacturing process. These assets are amortized
on a straight-line basis over their estimated useful lives of three years. The
amortization of such costs is included in cost of sales and was $862,000,
$953,000 and $1,195,000, respectively, for the three years ended December 31,
1993, 1994 and 1995. The unamortized balance at December 31, 1994 and 1995, was
$1,660,000 and $2,325,000, respectively.

REVENUE RECOGNITION

The Companies recognize revenue from product sales when the goods are
shipped to the customers. Product returns and warranty costs are immaterial.

CATALOGUE COSTS

The Companies expense costs associated with the production of annual
catalogues when incurred.

ART AND DEVELOPMENT COSTS

Art and development costs are primarily internal costs that are not easily
associated with specific designs which may reach commercial production.
Accordingly, the Companies expense these costs as incurred.

F-10
<PAGE> 70

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 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.

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. Of such amount, sales to the Companies' largest customer represented 5%,
8% and 11%, respectively. 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.

F-11
<PAGE> 71

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

(3) INVENTORIES

Inventories at December 31, 1994 and 1995 consisted of the following ($ in
thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>

(4) PROPERTY, PLANT AND EQUIPMENT

Major classifications of property, plant and equipment at December 31, 1994
and 1995 consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
ESTIMATED
1994 1995 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
Machinery and equipment........................ $ 15,849 $ 18,879 5-15
Data processing equipment...................... 5,536 6,123 5
Leasehold improvements......................... 4,581 4,784 25
Furniture and fixtures......................... 3,929 2,370 10
Buildings...................................... 9,162 9,524 31-40
Land........................................... 1,881 1,917 --
--------- ---------
40,938 43,597
Less: accumulated depreciation and
amortization................................. (14,013) (16,749)
--------- ---------
$ 26,925 $ 26,848
========= =========
</TABLE>

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:

<TABLE>
<S> <C>
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
</TABLE>

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
mainte-

F-12
<PAGE> 72

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

nance 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):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Revolving credit line with interest at LIBOR plus 0.875% (6.41%
at December 31, 1995).......................................... $ -- $35,000
Revolving credit line with interest at the prime rate (8.5% at
December 31, 1995) and the prime rate plus 0.25% (8.75% at
December 31, 1994)............................................. 16,165 2,060
Bankers acceptances payable at various dates through June 26,
1995 with interest at rates ranging from 6.43% to 8.10%........ 12,500 --
Revolving credit line denominated in British Pounds Sterling with
interest at the U.K. Base rate plus 2% (8.5% at December 31,
1995).......................................................... -- 789
------- -------
$28,665 $37,849
======= =======
</TABLE>

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):

<TABLE>
<CAPTION>
ADDITIONAL
INTEREST
EXPENSE
NOTIONAL -------------
DATE OF CONTRACT AMOUNT TERM FIXED RATE 1994 1995
---------------------------------- ------- -------- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
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
=== ====
</TABLE>

F-13
<PAGE> 73

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

(6) LONG-TERM INDEBTEDNESS

Long-term indebtedness at December 31, 1994 and 1995 consisted of the
following ($ in thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>

- ---------------
(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%. At December 31, 1994 and 1995, $2,000,000 and $1,800,000 of mortgage
obligations, respectively, are denominated in Canadian dollars.

(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 which extend to 2001.

At December 31, 1995, principal maturities of long-term indebtedness
consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
CAPITAL
INDEBTEDNESS LEASE OBLIGATIONS TOTAL
------------ ----------------- -------
<S> <C> <C> <C>
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
======= ====== =======
</TABLE>

(7) DUE TO PRINCIPAL STOCKHOLDER

Certain of the Companies owed $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

F-14
<PAGE> 74

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

subordinated note is generally prohibited. Interest is at the prime rate plus
0.5% (9.0% at both December 31, 1994 and 1995).

Further, certain of the Companies had unsecured current loans payable to
the Principal Stockholder aggregating $5,295,000 and $2,453,000, respectively,
at December 31, 1994 and 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.

In September 1996, certain of the Companies declared the distribution of
$7,600,000 of previously provided capital and $13,067,000 of undistributed
earnings. It is contemplated that such payment will be made in connection with
the Offering (see note (15)).

(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 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 entities Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty
Corp. 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 domestic and foreign pre-tax income (loss) for the years
ended December 31, 1993, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Domestic................................. $9,368,000 $10,009,000 $17,750,000
Foreign.................................. $ (264,000) $ 582,000 $ 1,456,000
</TABLE>

F-15
<PAGE> 75

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

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):

<TABLE>
<CAPTION>
1993 1994 1995
------------------- ------------------- -------------------
TAX EFFECTIVE TAX EFFECTIVE TAX EFFECTIVE
EXPENSE RATE EXPENSE RATE EXPENSE RATE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
==== ==== ====
</TABLE>

(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, 266.66 shares issued
and outstanding.
Amscan Distributors (Canada) Ltd.:
$1 (Canadian) par value; 10,000 shares authorized, 3,000
shares issued and outstanding.
Amscan Holdings Limited:
Ordinary Shares:
20p par value; 1,250,000 shares authorized, 287,500 issued
and outstanding.
Preference Shares:
One British Pound Sterling par value; 5,000 shares
authorized, issued and outstanding.
Amscan (Asia Pacific) Pty. Ltd.:
Aus. $1 par value; 10,000 shares authorized, 886 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 A Shares:
No stated value, fixed capital; 31 shares authorized,
issued and outstanding.
Class A-1 shares:
No stated value, variable capital; 620 shares authorized,
issued and outstanding.

F-16
<PAGE> 76

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

Class B Shares:
No stated value, fixed capital; 29 shares authorized,
issued and outstanding.
Class B-1 Shares:
No stated value, variable capital; 580 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):

<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Machinery and equipment.......................................... $3,122 $3,174
Less: accumulated amortization................................... (244) (564)
------
$2,878 $2,610
======= =======
</TABLE>

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 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)).

F-17
<PAGE> 77

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

At December 31, 1995 future minimum lease payments under all operating
leases consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
UNCOMBINED
THIRD PARTIES AFFILIATES TOTAL
------------- ---------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>

Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$3,414,000, $4,300,000 and $4,705,000, respectively, of which $2,242,000,
$2,468,000 and $2,526,000, 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):

<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
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
======== ======= ========
</TABLE>

F-18
<PAGE> 78

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
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
========= ======== =========
</TABLE>

<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
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
========= ======== =========
</TABLE>

(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 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 certain of the Companies to pay the Bank $1,857,000.

F-19
<PAGE> 79

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

(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., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. 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., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. 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 ($1,785,000) 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., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. had not elected Subchapter S corporation status ($8,816,000).

The supplemental pro forma weighted average shares outstanding represent
the contemplated number of shares expected to be outstanding immediately after
the Offering.

(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.

F-20
<PAGE> 80

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995

Assuming the entire lease facility is utilized, future minimum lease
payments under the lease will be as follows ($ in thousands):

<TABLE>
<S> <C>
1997.............................................................. $ 1,305
1998.............................................................. 1,305
1999.............................................................. 1,305
2000.............................................................. 1,305
2001.............................................................. 1,305
Thereafter........................................................ 9,135
-------
$15,660
=======
</TABLE>

(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):

<TABLE>
<S> <C>
1996.............................................................. $ 2,132
1997.............................................................. 2,246
1998.............................................................. 2,309
1999.............................................................. 2,374
2000.............................................................. 1,239
Thereafter........................................................ 167
-------
$10,467
=======
</TABLE>

F-21
<PAGE> 81

INDEPENDENT AUDITORS' REPORT

To the Stockholders of Amscan Inc.
and Affiliates:

We have audited the accompanying special purpose combined balance sheet of
Amscan Inc. and Affiliates as of September 30, 1996 and the related special
purpose combined statements of operations, stockholders' equity and cash flows
for the nine month period ended September 30, 1996. These special purpose
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these special purpose
financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

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 September 30, 1996, and the
combined results of their operations and their cash flows for the nine month
period ended September 30, 1996, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Stamford, Connecticut
November 22, 1996

F-22
<PAGE> 82

AMSCAN INC. AND AFFILIATES

COMBINED BALANCE SHEET
($ IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 3,530
Accounts receivable, net of allowance of $3,161.............................. 51,359
Inventories.................................................................. 45,074
Deposits and other........................................................... 10,146
--------
Total current assets................................................. 110,109
Property, plant and equipment, net............................................. 30,409
Other assets................................................................... 5,235
--------
Total assets......................................................... $ 145,753
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable................................................................ $ 47,955
Subordinated and other indebtedness to stockholders.......................... 35,900
Accounts payable............................................................. 4,326
Accrued expenses............................................................. 17,514
Current installments of long-term indebtedness............................... 2,318
--------
Total current liabilities............................................ 108,013
Long-term indebtedness, less current installments.............................. 12,412
Other.......................................................................... 689
--------
Total liabilities.................................................... 121,114
--------
Stockholders' equity:
Common stock................................................................. 393
Additional paid-in capital................................................... 1,490
Retained earnings............................................................ 23,490
Cumulative translation adjustment............................................ (647)
Treasury stock, at cost...................................................... (87)
--------
Total stockholders' equity........................................... 24,639
--------
Total liabilities and stockholders' equity........................... $ 145,753
========
</TABLE>

See accompanying notes to combined financial statements.

F-23
<PAGE> 83

AMSCAN INC. AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
1996
1995 -----------
--------
(UNAUDITED)
<S> <C> <C>
Net sales......................................................... $128,314 $ 147,008
Cost of sales..................................................... 81,719 92,861
-------- -----------
Gross profit.................................................... 46,595 54,147
-------- -----------
Operating Expenses:
Selling......................................................... 8,893 8,691
General and administrative...................................... 10,395 14,113
Art and development............................................. 2,936 3,671
Special bonuses................................................. 2,409 3,300
-------- -----------
Total operating expenses..................................... 24,633 29,775
-------- -----------
Income from operations....................................... 21,962 24,372
Interest expense, net............................................. 4,386 4,569
Other income, net................................................. (409) (301)
-------- -----------
Income before income taxes and minority interests................. 17,985 20,104
Income taxes...................................................... 498 767
Minority interests................................................ 722 1,242
-------- -----------
Net income................................................... $ 16,765 $ 18,095
======== ===========
Pro forma data (note (15)):
Net income before pro forma income taxes..................... $ 16,765 $ 18,095
Pro forma additional income tax expense...................... 6,435 7,121
-------- -----------
Pro forma net income......................................... $ 10,330 $ 10,974
======== ===========
Supplemental pro forma data (unaudited) (note (15)):
Supplemental pro forma net income............................ $ 14,299
===========
Supplemental pro forma net income per share.................. $ 0.69
===========
Supplemental pro forma weighted average shares outstanding... 20,698,076
===========
</TABLE>

See accompanying notes to combined financial statements.

F-24
<PAGE> 84

AMSCAN INC. AND AFFILIATES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
($ IN THOUSANDS)

<TABLE>
<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 nine months ended
September 30, 1995 (unaudited)........ -- -- 16,765 -- -- 16,765
Subchapter S and other distributions
(unaudited)........................... -- -- (377) -- -- (377)
Net change in cumulative translation
adjustment (unaudited)................ -- -- -- (134) -- (134)
---- ------ ------- ----- ---- -------
Balance, September 30, 1995
(unaudited)........................... $393 $ 9,090 $ 28,425 $ (747) $(87) $ 37,074
==== ====== ======= ===== ==== =======
Balance, December 31, 1995.............. $393 $ 9,090 $ 18,462 $ (653) $(87) $ 27,205
Net income for the nine months ended
September 30, 1996.................... -- -- 18,095 -- -- 18,095
Subchapter S and other distributions.... -- (7,600) (13,067) -- -- (20,667)
Net change in cumulative translation
adjustment............................ -- -- -- 6 -- 6
---- ------ ------- ----- ---- -------
Balance, September 30, 1996............. $393 $ 1,490 $ 23,490 $ (647) $(87) $ 24,639
==== ====== ======= ===== ==== =======
</TABLE>

See accompanying notes to combined financial statements.

F-25
<PAGE> 85

AMSCAN INC. AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996
1995 --------
-------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $16,765 $ 18,095
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization.................................... 3,156 3,579
Provision for doubtful accounts.................................. 585 963
Changes in operating assets and liabilities:
Accounts receivable............................................ (20,098) (20,442)
Inventories.................................................... (5,858) (61)
Deposits and other............................................. (2,990) (7,226)
Other assets................................................... (2,776) (1,177)
Accounts payable and accrued expenses.......................... 672 6,459
Other.......................................................... 631 (511)
-------- --------
Net cash used in operating activities.......................... (9,913) (321)
-------- --------
Cash flows from investing activities:
Capital expenditures................................................ (3,773) (3,691)
-------- --------
Net cash used in investing activities............................ (3,773) (3,691)
-------- --------
Cash flows from financing activities:
Proceeds from loans payable and long term indebtedness........... 15,382 10,242
Repayment of loans payable and long term indebtedness............ (2,289) (2,003)
Proceeds from loans, notes payable and subordinated indebtedness
from Principal Stockholder...................................... 1,408 --
Repayment of loans and notes payable to Principal Stockholder.... -- (3,220)
Subchapter S and other distributions............................. (377) --
-------- --------
Net cash provided by financing activities...................... 14,124 5,019
-------- --------
Effect of exchange rate changes on cash.......................... (151) 31
-------- --------
Net increase in cash and cash equivalents...................... 287 1,038
Cash and cash equivalents at beginning of period...................... 2,229 2,492
-------- --------
Cash and cash equivalents at end of period............................ $ 2,516 $ 3,530
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................................... $ 3,214 $ 4,970
Taxes.......................................................... $ 402 $ 546
</TABLE>

Supplemental information on non-cash investing and financing activities:

Capital lease obligations of $2,074 were incurred for the nine months ended
September 30, 1996. There were no capital lease obligations incurred for the
nine months ended September 30, 1995.

During September 1996, certain of the Companies declared the distribution of
$7,600 of previously provided capital and $13,067 of previously undistributed
earnings. Such amounts are included in subordinated and other indebtedness to
stockholders.

See accompanying notes to combined financial statements.

F-26
<PAGE> 86

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996

(1) DESCRIPTION OF BUSINESS

BASIS OF COMBINATION

<TABLE>
<CAPTION>
PRINCIPAL
STOCKHOLDER'S
ENTITY OWNERSHIP PRINCIPAL ACTIVITY
------------------------------------ ------------- --------------------------------
<S> <C> <C>
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....... 48% Distributor -- Mexico
JCS Realty Corp..................... 100% Real estate -- Canada
SSY Realty Corp..................... 100% Real estate -- United States
</TABLE>

All material intercompany balances and transactions have been eliminated in
combination.

(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.

F-27
<PAGE> 87

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

OTHER ASSETS

Included in other assets are printing plates purchased from third-party
vendors used in the Companies' manufacturing process. These assets are amortized
on a straight-line basis over their estimated useful lives of three years. The
amortization of such costs is included in cost of sales and was $864,000
(unaudited) and $1,127,000, respectively, for the nine months ended September
30, 1995 and 1996. The unamortized balance at September 30, 1996 was $3,081,000.

REVENUE RECOGNITION

The Companies recognize revenue from product sales when the goods are
shipped to the customer. Product returns and warranty costs are immaterial.

CATALOGUE COSTS

The Companies expense costs associated with the production of annual
catalogues when incurred.

ART AND DEVELOPMENT COSTS

INCOME TAXES

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION

CONCENTRATION OF CREDIT RISK

F-28
<PAGE> 88

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

accounted for 14% of combined accounts receivable. For the nine months ended
September 30, 1995 and 1996, sales to the Companies' two largest customers
represented 16% (unaudited), and 21%, respectively, of combined net sales. Of
such amount, sales to the Companies' largest customer represented 11%
(unaudited) and 14%, respectively. No other group or combination of customers
subjected the Companies to a concentration of credit risk.

USE OF 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. SFAS 121 did not
have a significant impact on the financial position or results of operations of
the Companies.

(3) INVENTORIES

Inventories at September 30, 1996 consisted of the following ($ in
thousands):

<TABLE>
<S> <C>
Finished goods............................................................ $41,210
Raw materials............................................................. 2,977
Work-in-process........................................................... 2,116
-------
46,303
Less: Reserve for slow moving and obsolete inventory...................... (1,229)
-------
$45,074
=======
</TABLE>

F-29
<PAGE> 89

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

(4) PROPERTY, PLANT AND EQUIPMENT

Major classifications of property, plant and equipment at September 30,
1996 consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Machinery and equipment...................................... $ 21,557 5-15
Data processing equipment.................................... 7,762 5
Leasehold improvements....................................... 5,000 25
Furniture and fixtures....................................... 2,756 10
Buildings.................................................... 10,268 31-40
Land......................................................... 1,920 --
-------
49,263
Less: accumulated depreciation and amortization.............. (18,854)
-------
$ 30,409
=======
</TABLE>

Depreciation and amortization expense was $2,029,000 (unaudited) and
$2,189,000 for the nine months ended September 30, 1995 and 1996, respectively.

(5) LOANS PAYABLE

In 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:

<TABLE>
<S> <C>
September 20, 1996 -- September 19, 1997.............................. $55,000,000
September 20, 1997 -- September 20, 2000.............................. $60,000,000
</TABLE>

Loans payable outstanding at September 30, 1996 consisted of the following
($ in thousands):

<TABLE>
<S> <C>
Revolving credit line with interest at LIBOR plus 0.875% (6.59% at
September 30, 1996)..................................................... $40,000
Revolving credit line with interest at the prime rate (8.25% at September
30, 1996)............................................................... 5,830
Revolving credit line denominated in Canadian dollars with interest at the
Canadian prime rate (5.75% at September 30, 1996)....................... 1,455
Revolving credit line denominated in British Pounds Sterling with interest
at the U.K. Base rate plus 2% (7.75% at September 30, 1996)............. 670
-------
$47,955
=======
</TABLE>

The weighted average interest rate on loans payable outstanding at
September 30, 1996 was 6.78%.

F-30
<PAGE> 90

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

The Companies are currently involved in three interest rate swap
transactions covering $25,000,000 of the outstanding obligation under the
revolving credit agreement. The transactions fix the interest rates as indicated
below and entitle the Companies to settle with the counterparty on a quarterly
basis, the product of the notional amount times the amount, if any, by which the
ninety day LIBOR exceeds the fixed rate. Net payments to the counterparty under
the swap agreements for the nine months ended September 30, 1995 and 1996, which
have been recorded as additional interest expense, consisted of the following ($
in thousands):

<TABLE>
<CAPTION>
ADDITIONAL INTEREST
EXPENSE
NOTIONAL --------------------
DATE OF CONTRACT AMOUNT TERM FIXED RATE 1995 1996
----------------------------- -------- -------- ---------- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
September 28, 1994........... $ 5,000 10 years 7.945% $ 68 $ 92
May 12, 1995................. $ 10,000 5 years 6.590% 24 79
July 20, 1995................ $ 10,000 10 years 6.750% 16 91
---- ----
$ 108 $262
==== ====
</TABLE>

(6) LONG-TERM INDEBTEDNESS

Long-term indebtedness at September 30, 1996 consisted of the following ($
in thousands):

<TABLE>
<S> <C>
Mortgage obligations(a)................................................... $ 6,422
Term loans(b)............................................................. 4,174
Capital lease obligations(c).............................................. 4,134
-------
Total long-term indebtedness............................................ 14,730
Less: current installments................................................ (2,318)
-------
Long-term indebtedness, excluding current installments.................... $12,412
=======
</TABLE>

- ---------------
(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% (6.25% as of September 30, 1996) to 8.51%. At September 30, 1996,
$1,700,000 of mortgage obligations are denominated in Canadian dollars.

(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 which extend to 2001.

F-31
<PAGE> 91

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

At September 30, 1996, principal maturities of long-term indebtedness
consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
CAPITAL
AT SEPTEMBER 30, INDEBTEDNESS LEASE OBLIGATIONS TOTAL
------------------------------------- ------------ ----------------- -------
<S> <C> <C> <C>
1997................................. $ 1,649 $ 907 $ 2,556
1998................................. 1,339 942 2,281
1999................................. 1,263 902 2,165
2000................................. 1,216 834 2,050
2001................................. 1,173 1,235 2,408
Thereafter........................... 3,955 150 4,105
------- ------ -------
10,595 4,970 15,565
Amount representing interest......... -- (835) (835)
------- ------ -------
Long-term indebtedness............... $ 10,595 $ 4,135 $14,730
======= ====== =======
</TABLE>

(7) DUE TO PRINCIPAL STOCKHOLDER

Certain of the Companies owe $34,150,000 to the Principal Stockholder as of
September 30, 1996 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.
Interest is at the prime rate plus 0.5% (8.75% at September 30, 1996).

(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 expense for the nine months
ended September 30, 1995 and 1996 totaled $459,000 (unaudited) and $466,000,
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 September 30, 1996, $3,300,000 was accrued for
such bonuses and included in accrued expenses.

(10) INCOME TAXES

Domestic and foreign pre-tax income is $16,358,000 (unaudited) and
$1,627,000 (unaudited), and $18,485,000 and $1,619,000, in each of the nine
months ended September 30, 1995 and 1996, respectively.

F-32
<PAGE> 92

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

A summary of the operations subject to tax, their reported tax expense and
effective tax rates for the nine months ended September 30, 1995 and 1996,
consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996
--------------------- ---------------------
TAX EFFECTIVE TAX EFFECTIVE
EXPENSE RATE EXPENSE RATE
------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Amscan Distributors (Canada) Ltd........... $ 294 36% $ 204 38%
Amscan Holdings Limited.................... 174 33% 194 34%
Amscan (Asia Pacific) Pty. Ltd............. 30 33% 101 34%
Other...................................... -- --% 268 1%
--- ---
$ 498 $ 767
=== ===
</TABLE>

(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, 266.66 shares issued and
outstanding.
Amscan Distributors (Canada) Ltd.:
$1 (Canadian) par value; 10,000 shares authorized, 3,000 shares issued
and outstanding.
Amscan Holdings Limited:
Ordinary Shares:
20p par value; 1,250,000 shares authorized, 287,500 issued and
outstanding.
Preference Shares:
One British Pound Sterling par value; 5,000 shares authorized, issued
and outstanding.
Amscan (Asia Pacific) Pty. Ltd.:
Aus. $1 par value; 10,000 shares authorized, 886 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 A Shares:
No stated value, fixed capital; 31 shares authorized, issued and
outstanding.
Class A-1 Shares:
No stated value, variable capital; 620 shares authorized, issued
and outstanding.
Class B Shares:
No stated value, fixed capital; 29 shares authorized, issued and
outstanding.
Class B-1 Shares:
No stated value, variable capital; 580 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.

F-33
<PAGE> 93

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

(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 September 30, 1996, 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):

<TABLE>
<S> <C>
Machinery and equipment..................................................... $5,146
Less: accumulated amortization.............................................. (767)
------
$4,379
======
</TABLE>

Amortization of assets held under capitalized leases is included with
depreciation expense.

At September 30, 1996, certain of the Companies also had noncancelable
operating leases with the Principal Stockholder and real estate entities owned
either directly or indirectly by the Principal Stockholder ("Uncombined
Affiliates") for warehouse and office space that expire over the next five
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.

At September 30, 1996 future minimum lease payments under all operating
leases consisted of the following ($ in thousands):

<TABLE>
<CAPTION>
FOR THE TWELVE
MONTHS ENDED UNCOMBINED
SEPTEMBER 30, THIRD PARTIES AFFILIATES TOTAL
------------------------------- ------------- ---------- -------
<S> <C> <C> <C>
1997........................... $ 3,068 $2,231 $ 5,299
1998........................... 2,653 2,293 4,946
1999........................... 1,709 2,357 4,066
2000........................... 1,061 1,585 2,646
2001........................... 1,043 418 1,461
Thereafter..................... 2,426 -- 2,426
------- ------ -------
$11,960 $8,884 $20,844
======= ====== =======
</TABLE>

Rent expense for the nine months ended September 30, 1995 and 1996 was
$1,781,000 (unaudited) and $3,878,000, respectively, of which $698,000
(unaudited) and $1,586,000, respectively, related to leases with Uncombined
Affiliates.

(13) SEGMENT INFORMATION

INDUSTRY SEGMENTS

F-34
<PAGE> 94

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

GEOGRAPHIC SEGMENTS

The Companies' geographic area data for the nine months ended September 30,
1995 and 1996 consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
Sales to unaffiliated customers............. $113,102 $15,212 $128,314
Sales between geographic areas.............. 5,629 -- $ (5,629) --
-------- ------- ------- --------
Net sales................................... $118,731 $15,212 $ (5,629) $128,314
======== ======= ======= ========
Income from operations...................... $ 20,569 $ 1,393 $ 21,962
======== =======
Interest expense, net....................... 4,386
Other income, net........................... (409)
--------
Income before income taxes and minority
interests................................. $ 17,985
========
Identifiable assets......................... $111,328 $14,613 $125,941
======== ======= ========

<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------- --------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Sales to unaffiliated customers............. $129,810 $17,198 $147,008
Sales between geographic areas.............. 7,006 72 $(7,078) --
-------- ------- ------- --------
Net sales................................... $136,816 $17,270 $(7,078) $147,008
======== ======= ======= ========
Income from operations...................... $23,083 $1,289 $24,372
======== =======
Interest expense, net....................... 4,569
Other income, net........................... (301)
--------
Income before income taxes and minority
interests................................. $20,104
========
Identifiable assets......................... $132,834 $12,919 $145,753
======== ======= ========
</TABLE>

(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 derivatives) and other current liabilities approximates
fair value at September 30, 1996 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
September 30, 1996. 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.

F-35
<PAGE> 95

AMSCAN INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996

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 September 30,
1996 would require certain of the Companies to pay the Bank $358,000.

(15) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED)

Pro forma net income for the nine months ended September 30, 1995
(unaudited) and 1996 give effect to pro forma income tax provisions at statutory
rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. 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 nine months ended September 30,
1996 which causes such amount to be higher than the pro forma net income amount.

The supplemental pro forma net income for the nine months ended September
30, 1996 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 ($3,300,000), (ii)
to reflect amortization of goodwill ($188,000) 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 ($1,138,000), (iii) to reflect
the reduction of interest expense ($1,466,000) 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., Am-Source, Inc.,
JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation
status ($9,512,000).

The above pro forma and supplemental pro forma adjustments do not include
anticipated non-recurring expenses of $12,320,000 and $3,000,000 relating to
compensation expense to be incurred at the consummation of the Offering in
connection with cash and stock to be paid to certain executives and employees,
and the establishment of an ESOP and bonuses payable in shares of Common Stock
for the benefit of the Company's domestic employees.

The supplemental pro forma weighted average shares outstanding represent
the contemplated number of shares expected to be outstanding immediately after
the Offering.

F-36
<PAGE> 96

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:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
---------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co. ................................................. 1,550,000
Alex. Brown & Sons Incorporated....................................... 1,550,000
Advest, Inc. ......................................................... 60,000
William Blair & Company, L.L.C. ...................................... 60,000
J.C. Bradford & Co. .................................................. 60,000
Chase Securities Inc. ................................................ 120,000
Dain Bosworth Incorporated............................................ 60,000
Fahnestock & Co. Inc. ................................................ 60,000
Furman Selz LLC....................................................... 60,000
Gruntal & Co., Incorporated........................................... 60,000
Edward D. Jones & Co., L.P. .......................................... 60,000
Morgan Keegan & Company, Inc. ........................................ 60,000
Morgan Stanley & Co. Incorporated..................................... 120,000
Principal Financial Securities, Inc. ................................. 60,000
Tucker Anthony Incorporated........................................... 60,000
-------
Total............................................................ 4,000,000
=======
</TABLE>

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 $0.46 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 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. It is expected that up to 375,000 shares of
Common Stock will be sold by certain Underwriters to employees and certain
customers of the Company at the initial public offering price set forth on the
cover page of this Prospectus. Employees of the Company have been invited to
purchase shares from such Underwriters in such amounts (of not less than 100
shares per employee) as they may request, subject to a limit that would depend
on the level of overall employee interest. There is no assurance that such
Underwriters will be able to fill all orders from employees or customers of the
Company.

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 600,000
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 4,000,000 shares of Common
Stock offered.

The Company, John A. Svenningsen and the SSY Trusts 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 including, but not limited to any securities that are exercisable or
exchangeable for, that represent the right to receive or that are convertible
into or whose exercise or settlement price is derivable from the price of the
Common Stock or any substantially similar securities without the prior written
consent of the representatives of the Underwriters, except for

U-1
<PAGE> 97

(i) the issuance of 250,000 shares to the ESOP and issuance of Common Stock to
employees therefrom or in the form of stock bonuses to certain domestic
employees and (ii) options under the Stock Option Plan.

An affiliate of Chase Securities, Inc. from time to time engages in general
financing and banking transactions with the Company and its affiliates in the
normal course of business and is a lender under the Company's revolving credit
agreement. An amount that may exceed 10% of the net proceeds from the sale of
Common Stock will be used to repay indebtedness under the revolving credit
agreement to such affiliate of Chase Securities, Inc. See "Use of Proceeds."
Accordingly, this offering is being conducted in conformity with Rules 2710(8)
and 2720(c)(3) of the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD"), which provide that, among other things, when an NASD
member participates in an underwriting where more than 10% of the net offering
proceeds, not including underwriting compensation, are intended to be paid to
such member or its affiliate, the initial public offering price can be no higher
than that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Goldman, Sachs & Co. has served
in such role and has recommended a price in compliance with the requirements of
Rule 2720(c)(3). Goldman, Sachs & Co. will receive compensation from the Company
in the amount of $10,000 for serving in such role. In connection with the
offering, Goldman, Sachs & Co. in its role as qualified independent underwriter
has performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part.

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 has been approved for quotation on The Nasdaq Stock
Market, Inc. under the symbol "AMSN."

The Company, certain of its operating subsidiaries and John A. Svenningsen
have agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.

U-2
<PAGE> 98

[GRAPHIC MATERIAL PHOTOGRAPHS OF CERTAIN OF THE COMPANY'S
MANUFACTURING EQUIPMENT]

<PAGE> 99

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

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 NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES 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.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR 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 ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
The Company................................ 7
Risk Factors............................... 7
Organization of the Company................ 10
Use of Proceeds............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Historical Combined
Financial Data........................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Supplemental Pro Forma Combined Financial
Statements (unaudited)................... 30
Business................................... 35
Management of the Company.................. 43
Principal Stockholders..................... 51
Certain Related Transactions............... 52
Description of the Company's Capital
Stock.................................... 53
Shares Eligible for Future Sale............ 56
Validity of Common Stock................... 58
Experts.................................... 58
Other Information.......................... 58
Index to Financial Statement............... F-1
Index to Combined Financial Statements..... F-1
Underwriting............................... U-1
</TABLE>

THROUGH AND INCLUDING JANUARY 12, 1997 (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.

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

4,000,000 SHARES

AMSCAN HOLDINGS, INC.

COMMON STOCK
(PAR VALUE $0.10 PER SHARE)

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LOGO
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GOLDMAN, SACHS & CO.

ALEX. BROWN & SONS
INCORPORATED

REPRESENTATIVES OF THE UNDERWRITERS

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