F O R M 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission file number 000-21827
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AMSCAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3911462
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
80 Grasslands Road
Elmsford, New York 10523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 345-2020
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per phare
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 10, 1997: $71,542,751
Number of shares of the registrant's Common Stock, par value $0.10 per share,
outstanding as of March 10, 1997: 21,120,476
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held May 22, 1997, to be filed within 120 days after the end
of the fiscal year of the Registrant covered by this Report, are incorporated
by reference into Part III of this Report.
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
1996 FORM 10-K
Table of Contents
Part I Page
Item 1 Business .................................................. 3
Item 2 Properties ................................................ 7
Item 3 Legal Proceedings ......................................... 8
Item 4 Submission of Matters to a Vote of Security Holders ....... 8
Item 4a Executive Officers of the Registrant ...................... 9
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters ............................ 10
Item 6 Selected Consolidated Financial Data ..................... 11
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 14
Item 8 Financial Statements and Supplementary Data .............. 28
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................... 28
Part III
Item 10 Directors and Executive Officers of the Registrant ....... 29
Item 11 Executive Compensation ................................... 29
Item 12 Security Ownership of Certain Beneficial Owners and
Management ............................................. 29
Item 13 Certain Relationships and Related Transactions ........... 29
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K ............................................ 30
Signatures ............................................... 33
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Amscan Holdings, Inc. was organized on October 3, 1996 to become the
holding company for the businesses previously conducted by the Company's
principal subsidiary, Amscan Inc. and certain affiliated companies. In this
report, Amscan Inc. and these affiliated companies are called the "Operating
and Real Estate Companies." Unless the context otherwise requires, "Company"
refers to Amscan Holdings, Inc. and each of the Operating and Real Estate
Companies.
SUBSIDIARIES
The Operating and Real Estate Companies include 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 distributes the
Company's products, JCS Realty Corp. and SSY Realty Corp., each of which owns
certain real estate leased to the Company, Am-Source, Inc., the Company's
supplier of plastic plates, cups and bowls, and certain companies located in
Great Britain, Australia, Germany and Mexico which distribute the Company's
products.
THE COMPANY'S BUSINESS
The Company is a designer, manufacturer and distributor of seasonal and
everyday party goods. The Company's product line consists of approximately
14,000 stock keeping units ("sku's") consisting 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 offers approximately 200 design
ensembles, each containing 30 to 150 items. The Company's products are sold in
more than 20,000 retail outlets including party goods superstores, discount
chains, mass merchandisers and specialty retailers. The Company operates in a
single industry segment.
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 Year's, Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of
July, Halloween, Thanksgiving, Hanukkah and Christmas.
SUMMARY FINANCIAL INFORMATION ABOUT THE COMPANY
Information about the Company's revenues, operating profits or losses and
assets for the last five years is included in this report in Item 6, "Selected
Consolidated Financial Data." Because more holidays fall in the fourth quarter
of the year than in the other quarters, the Company's business is somewhat
seasonal. Sales for the third quarter are generally the highest for the year
because the Company begins to ship seasonal holiday merchandise in that
quarter.
The Company does business in the United States and in other geographic
areas of the world. Information about the Company's revenues, operating
profits or losses and assets relating to geographic areas outside the United
States is included in Note (14) to the Company's 1996 Consolidated Financial
Statements which are included under Item 14 of this report. This information
is presented for 1996, 1995 and 1994.
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<PAGE>
THE COMPANY'S PRODUCTS
The categories of products which the Company offers are tableware,
accessories and novelties. The percentages of net sales for each product
category for the last three years are set forth in this table:
1994 1995 1996
---- ---- ----
Tableware 58% 60% 59%
Accessories 26% 24% 25%
Novelties 16% 16% 16%
This table sets forth the principal products in each of the three
categories:
TABLEWARE ACCESSORIES NOVELTIES
- --------- ----------- ---------
Solid Color Balloons Buttons
Paper and Plastic Cups Banners Candles
Paper and Plastic 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
THE DESIGN PROCESS
The Company's in-house design staff produces and manages the Company's
party goods. Approximately 60 of the Company's employees design the Company's
products. From the 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.
THE MANUFACTURING PROCESS
Printing, forming, folding and packaging equipment support the Company's
manufacturing operation, which are vertically integrated. Company facilities
in Kentucky, New York, Rhode Island and California produce paper and plastic
plates, napkins, cups and other party and novelty items.
Approximately 50% of the Company's sales in 1996 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 Company can adjust the amount it manufactures for others
over a relatively short period of time. Manufacturing products for others
helps the Company maintain a satisfactory level of equipment utilization. The
Company believes its
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<PAGE>
existing facilities provide sufficient production capacity for its present
needs and for its anticipated needs at least for the next year.
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, paper and plastic are available from a
number of sources. The Company's current suppliers could be replaced by the
Company without adversely affecting its operations in any material respect.
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. 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's business does not depend on any single source
for products manufactured for the Company by others.
THE SELLING PROCESS
Approximately 50 sales professionals who have, on average, been affiliated
with the Company for over 5 years, sell the Company's products in the United
States. International customers are serviced by individuals who are generally
employees of the Company's foreign subsidiaries.
The Company ships its products from distribution warehouses which use
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 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.
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. Competitors include smaller independent specialty
manufacturers and other companies which have financial resources greater than
those of the Company. Certain 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 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.
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<PAGE>
During 1996, sales by the Company to its largest customer, Party City
Corporation, amounted to 14.5% of the Company's consolidated net sales.
Although the Company believes its relationship with Party City Corporation to
be satisfactory, if it lost Party City as a customer, its financial condition
and results of operations could be adversely affected.
COPYRIGHTS, TRADEMARKS AND LICENSES
The Company owns copyrights on the designs it creates and uses. The
Company owns trademarks on the words and designs used on or in connection with
its products. The Company registers 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
Company.
The Company does not depend on licenses to any material degree. As a
result, it does not incur any material licensing expenses.
EMPLOYEES
As of December 31, 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.
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<PAGE>
ITEM 2. PROPERTIES
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
LOCATION PRINCIPAL ACTIVITY SQUARE FEET (WITH 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
napkins and cups date: March 31, 1999)
Providence, Rhode Island Manufacture and 51,000 square feet Leased (expiration
distribution of plastic date: June 30, 2008)
plates, cups and bowls
Louisville, Kentucky Manufacture and 183,000 square feet Leased (expiration
distribution of paper date: March 31, 1999)
plates
Anaheim, California Manufacture of 25,000 square feet Leased (expiration
novelty items date: February 28, 1999)
Temecula, California (2) Distribution of party 212,000 square feet Leased (expiration
products and date: February 28, 2000)
decorations
Goshen, New York Distribution of party 130,000 square feet Leased (expiration
products and date: December 31, 1998)
decorations
Chester, New York (3) Distribution of party 287,000 square feet Owned
products and
decorations
Newburgh, New York Manufacture and 167,000 square feet Leased (expiration
distribution of paper date: November 30, 1999)
napkins and cups
Montreal, Canada (4) Distribution of party 124,000 square feet Owned
products and
decorations
Milton Keynes, England (5) Distribution of party 36,000 square feet Leased (expiration
products and date: July 5, 1997)
decorations
Melbourne, Australia Distribution of party 10,000 square feet Owned
products and
decorations
</TABLE>
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<PAGE>
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(1) Property leased by the Company from a limited liability company which is
79%-owned by a trust established for the benefit of the children of John A.
Svenningsen, the principal stockholder of the Company, 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.
(2) Property leased by the Company from John A. Svenningsen.
(3) Property subject to a ten-year mortgage entered into on September 14, 1994
by the Company securing a loan in the original principal amount of $5,925,000
bearing interest at a rate of 8.51%.
(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. Currently, all properties generally are being used on the
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 will enter into
leases for alternative locations at market terms.
(5) On November 15, 1996, the Company entered into a lease for a 110,000
square foot distribution facility in Milton Keynes, England. The lease
commences on August 1, 1997 and expires on July 30, 2017.
ITEM 3. LEGAL PROCEEDINGS
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, at times when John A. Svenningsen was
the holder of all of the Company's outstanding stock, Mr. Svenningsen took
certain actions by written consent as the sole stockholder. On October 29,
1996, Mr. Svenningsen consented to the election of Christine Svenningsen and
Gerald C. Rittenberg as directors of the Company in addition to himself. On
November 27, 1996, Mr. Svenningsen approved certain actions relating to the
initial public offering by the Company of shares of its Common Stock, par value
$0.10 per share (the "Common Stock") and approved the Company's 1996 Stock
Option Plan for Key Employees.
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<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Company, their ages as of
March 11, 1997 and present positions with the Company. Unless otherwise
indicated, each executive officer has held the position indicated since
October, 1996, the month during which the Company was incorporated. The term
of office of each extends until the organization meeting of the Board of
Directors following the Annual Meeting of Stockholders in 1997 or until earlier
removed by the Board of Directors. None of the named executive officers has
been elected pursuant to any arrangement or understanding with any other
person, and none has any family relationship with any other executive officer.
NAME AGE POSITION
John A. Svenningsen 66 Chairman of the Board of
Directors and Chief Executive
Officer *
Gerald C. Rittenberg 44 President
William S. Wilkey 41 Senior Vice President -
Sales and Marketing
James M. Harrison 45 Chief Financial Officer and
Secretary *
- --------------
* Mr. Svenningsen served as Secretary of the Company and Mr. Harrison served as
Assistant Secretary of the Company from October 1996 to mid-February, 1997.
Mr. Harrison has served as Secretary of the Company since mid-February, 1997.
JOHN A. SVENNINGSEN is the Chairman of the Board of Directors and Chief
Executive Officer of the Company. 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.
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.
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.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
INFORMATION REQUIRED BY ITEM 201 OF REGULATION S-K:
The Company's Common Stock is listed and traded on the NASDAQ National
market under the symbol "AMSN." The high and low sales prices of the Company's
Common Stock for the last quarter of 1996 were $13.50 and $12.00, respectively,
the only quarterly period in the last two fiscal years during which the
Company's Common Stock was publicly traded.
As of the close of business on March 10, 1997, there were approximately 375
holders of record of the Company's Common Stock.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. As a holding
company, the Company's ability to declare and pay dividends on its 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 restricts the payment by such subsidiary of any
cash dividends.
INFORMATION REQUIRED BY ITEM 701 OF REGULATION S-K:
In connection with the formation of the Company, the Company sold 1,000
shares of Common Stock to John A. Svenningsen for $100 in cash. These shares
were sold to Mr. Svenningsen for the purpose of facilitating the Organization
(as defined below) of and the initial public offering of the Common Stock by,
the Company (the "IPO") by establishing a corporate structure including a
stockholder and board of directors necessary for the Company to implement the
IPO. Additional shares of Common Stock were issued prior to the IPO in
connection with effecting the Organization.
The organization of the Company (the "Organization") encompassed
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"). Pursuant to this agreement, Mr.
Svenningsen, Gerald C. 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.
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 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. The SSY Trusts and Mr.
Rittenberg were issued 138,461 and 660,000 shares of Common Stock,
respectively. The transactions contemplated by this agreement were consummated
on December 18, 1996.
The second of these agreements is between the Company and the former
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 an aggregate of 624,999 shares of Common Stock of the
Company. The exchange of shares of the capital stock of Am-Source, Inc.
occurred on December 18, 1996.
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<PAGE>
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. In exchange for the
relinquishment of such rights, Mr. Rittenberg received a cash payment and
shares of stock of Amscan Inc., which he exchanged for 660,000 shares of Common
Stock pursuant to the first agreement described above.
All of the shares of Common Stock issued in connection with the
Organization as described above were issued and sold by the Company in reliance
on the exemption contained in Section 4(2) of the Securities Act of 1933, as
amended, and the rules thereunder.
ITEM 6. SELECTED CONSOLIDATED 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 four-year period ended December 31, 1996, are derived from the consolidated
financial statements of Amscan Holdings, Inc. and Subsidiaries which financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The consolidated financial statements as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996 and the report thereon, are included under Item 14 in this report.
The selected data presented below under the captions "Income Statement Data"
and "Balance Sheet Data" for December 31, 1992, and for the year then ended,
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 period. The
selected consolidated financial data should be read in conjunction with Amscan
Holdings, Inc. and Subsidiaries Consolidated Financial Statements and the
related notes thereto included under "Financial Statements and Supplementary
Data," 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 in connection with the IPO and should be read in conjunction with
"Supplemental Pro Forma Consolidated Statement of Operations" and notes thereto
which are included at the end of Item 7 in this report.
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<PAGE>
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
($ in thousands, except share amounts)
Income Statement Data:
Net sales $192,705 $167,403 $132,029 $108,934 $86,944
Cost of sales 123,913 108,654 86,748 72,656 56,565
-------- -------- -------- -------- -------
Gross profit 68,792 58,749 45,281 36,278 30,379
Selling expenses 11,838 12,241 11,309 9,780 8,770
General and administrative
expenses 19,266 15,002 14,460 11,080 9,316
Art and development expenses 5,173 4,256 2,796 2,596 1,551
Non-recurring compensation
in connection with the
IPO(1) 15,535 - - - -
Special bonuses (2) 4,222 2,581 2,200 1,106 850
-------- -------- -------- -------- -------
Income from operations 12,758 24,669 14,516 11,716 9,892
Interest expense, net 6,691 5,772 3,843 2,304 2,092
Other expense / (income), net 335 (309) 82 308 16
-------- -------- -------- -------- -------
Income before income taxes
and minority interests 5,732 19,206 10,591 9,104 7,784
Income taxes 1,952 731 464 348 297
Minority interests 1,653 1,041 160 301 53
-------- -------- -------- -------- -------
Net income $2,127 $17,434 $9,967 $8,455 $7,434
======== ======== ======== ======== =======
Pro forma data:
Income, before income taxes $4,079 $18,165 $10,431 $8,803 $7,731
Pro forma income taxes (3) 1,827 7,403 4,238 3,566 3,265
-------- -------- -------- -------- -------
Pro forma net income (3) $2,252 $10,762 $6,193 $5,237 $4,466
======== ======== ======== ======== =======
Pro forma net income used
for pro forma net income
per share calculation(4) $12,010
========
Pro forma net income per
share(4) $0.60
========
Pro forma weighted average
common shares outstanding(5) 19,856,731
==========
Supplemental pro forma data(6):
Income from operations $32,265
Interest expense, net 4,463
Other expense, net 335
----------
Income before income taxes
and minority interests 27,467
Income taxes 11,299
Minority interests 250
----------
Supplemental pro forma net
income(6) $15,918
========
Supplemental pro forma net
income per share(6) $0.77
========
Supplemental pro forma weighted
average common shares
outstanding(7) 20,698,076
==========
</TABLE>
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YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
($ in thousands)
Balance Sheet Data:
Working capital $45,405 $8,383 $(438) $4,730 $7,765
======== ======== ======== ======== =======
Total assets $140,274 $114,601 $93,884 $80,090 $60,652
======== ======== ======== ======== =======
Short-term indebtedness(8) $33,262 $58,541 $50,869 $37,271 $25,993
Long-term indebtedness 15,085 12,284 8,800 11,852 11,116
-------- -------- -------- -------- -------
Total indebtedness $48,347 $70,825 $59,669 $49,123 $37,109
======== ======== ======== ======== =======
Stockholders' equity $67,949 $27,205 $20,820 $18,496 $15,550
======== ======== ======== ======== =======
</TABLE>
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(1) In conjunction with the IPO, the Company recorded non-recurring
compensation expense of $15.5 million in 1996 related to stock and cash
payments of $12.5 million to certain executives in connection with the
termination of prior employment agreements and $3.0 million for the
establishment of an Employee Stock Ownership Plan for the benefit of the
Company's domestic employees and the payment of stock bonuses to certain
of such employees.
(2) In each of the five years ended December 31, 1996, special bonus
arrangements existed with certain members of management. In connection
with the IPO, such special profit sharing arrangements were substantially
modified and replaced by incentives tied to the value of the Company's
Common Stock.
(3) Prior to the consummation of the IPO, 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.
(4) Pro forma net income used for pro forma net income per share calculation
for 1996 is higher than the pro forma net income shown for such period
due to adjustments described in Note (16) of the Notes to Consolidated
Financial Statements of Amscan Holdings, Inc. and Subsidiaries included
under Item 14 of this report.
(5) Represents shares issued and outstanding as of December 31, 1996 in
connection with the exchange of shares in the Organization, the IPO
shares and other shares in contemplation of the IPO as described in
Note (16) of the Notes to Consolidated Financial Statements of Amscan
Holdings, Inc. and Subsidiaries included under Item 14 of this report.
(6) Supplemental pro forma adjustments result in supplemental pro forma net
income for 1996 being higher than the pro forma net income shown for such
period due to adjustments described in the notes to the Supplemental Pro
Forma Consolidated Statement of Operations. See "Supplemental Pro Forma
Consolidated Statement of Operations" included under Item 7 of this
report.
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<PAGE>
(7) Represents shares as of December 31, 1996 issued and outstanding after
the IPO described in Note (16) of the Notes to Consolidated Financial
Statements of Amscan Holdings, Inc. and Subsidiaries included under Item
14 of this report.
(8) 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS MF OPERATIONS
GENERAL
The party goods industry has experienced significant changes in both
distribution channels and product offerings 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 $132.0 million in 1994 to
$192.7 million in 1996, a compound annual growth rate of approximately 21%.
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 party superstore customers.
Between 1994 and 1996, sales to party superstore customers increased from $40.1
million to $86.3 million, a 47% compound annual growth rate.
Revenues are generated from 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 59% of revenues in 1996.
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 party 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 1996 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 and pulp related products are the
Company's principal raw materials. The Company has historically been able to
adjust its prices in response to changes in paper prices.
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<PAGE>
FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY
In connection with the IPO and the Organization certain events occurred
which affected 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 was 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 Mr. Svenningsen's ownership in these companies in
exchange for shares of Common Stock of the Company was accounted for in a
manner similar to a pooling of interests and, as such, the historical cost
basis of the accounts were carried over thereby not giving rise to any
goodwill.
ACQUISITION OF AM-SOURCE, INC.
The Company and the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, entered into an agreement pursuant to which such stockholders
transferred their ownership in Am-Source, Inc. in exchange for shares of the
Company's Common Stock. The transaction was accounted for as the purchase of
the 50% ownership of Am-Source, Inc. not owned and gave rise to $7.4 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 entered into a new employment agreement,
effective upon consummation of the IPO for a period of three years at a base
compensation of approximately $220,000 per year to be increased annually by 5%.
Mr. Rittenberg agreed to the termination of his employment agreement upon
consummation of the IPO. The agreement which was 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 received a special
one-time payment of $3.5 million in cash and shares of Common Stock of the
Company equal to approximately 3% of the total shares outstanding (excluding
shares issued upon exercise of the Underwriters' over-allottment option)
immediately following the IPO. The aggregate value paid to Mr. Rittenberg in
cash and stock was $11.5 million.
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 1994
and 1996 ranged from 18% to 20% of pre-tax profits in the aggregate. In
conjunction with the IPO, these agreements were 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
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<PAGE>
managers were $4.2 million, $2.6 million and $2.2 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
ESTABLISHMENT OF AN EMPLOYEE STOCK OWNERSHIP PLAN AND PAYMENT OF STOCK BONUSES
In conjunction with the IPO, the Company incurred a compensation expense
of $3.0 million for the establishment of an Employee Stock Ownership Plan
("ESOP") for the benefit of the Company's domestic employees and the payment of
stock bonuses to certain of such employees. At the IPO, there was 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, allocated to
participant accounts based upon a formula which was weighted based upon both
years of service and compensation. To the extent that application of this
formula resulted 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 was 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. Future contributions to the ESOP
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 IPO, 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 except in
states which do not recognize Subchapter S corporation status. Following the
IPO, the Company has been taxed as a Subchapter C corporation. It is
anticipated that the Company will have statutory income tax rates of
approximately 40.5% following the IPO. 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 financial statements included under Item 14 of this report and
"Supplemental Pro Forma Consolidated Statement of Operations" included at the
end of this Item 7.
STOCKHOLDER DISTRIBUTIONS
As Subchapter S corporations, the accumulated profits of Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. were distributed to the
stockholders through December 18, 1996, the effective date of the IPO. Net
profits after the consummation of the IPO will be added to retained earnings of
the Company and used to fund the capital requirements of the business.
Additionally, prior to the IPO, Amscan Inc. and certain affiliates declared
dividends representing distributions of accumulated profits and a return of
capital. These amounts were reflected as subordinated debt and nearly all of
the previous balances of subordinated debt were repaid from the net proceeds of
the IPO.
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<PAGE>
RESULTS OF OPERATIONS
PERCENTAGE OF NET SALES
Years Ended December 31,
------------------------------------
1996 1995 1994
-------- -------- --------
Net sales 100.0% 100.0% 100.0%
Cost of sales 64.3 64.9 65.7
-------- -------- --------
Gross profit 35.7 35.1 34.3
Operating expenses:
Selling 6.1 7.4 8.5
General and administrative 10.0 9.1 11.0
Art and development 2.7 2.5 2.1
Non-recurring compensation
in connection with the IPO 8.1 - -
Special bonuses 2.2 1.5 1.7
-------- -------- --------
Total operating expenses 29.1 20.5 23.3
-------- -------- --------
Income from operations 6.6 14.6 11.0
Interest expense, net 3.4 3.4 2.9
Other expense (income), net 0.2 (0.2) 0.1
-------- -------- --------
Income before income
taxes and minority
interests 3.0 11.4 8.0
Income taxes 1.0 0.4 0.4
Minority interests 0.9 0.6 0.1
-------- -------- --------
Net income 1.1% 10.4% 7.5%
======== ======== ========
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES
Net sales for the year ended December 31, 1996 were $192.7 million, an
increase of 15.1% over the year ended December 31, 1995 for which net sales
were $167.4 million. Increased sales to national accounts, principally party
superstores, accounted for $21.9 million or 87% 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 cost accounted for approximately 6
percentage points of the 15.1% increase in net sales between the periods.
Increased sales to international customers accounted for $3.3 million of the
increase in net sales.
GROSS PROFIT
Gross profit increased $10.0 million for the year ended December 31, 1996
compared to 1995, and improved as a percentage of sales from 35.1% to 35.7%.
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 manufacturing operations, offset in part by the cost of added
distribution facilities, were the primary reasons for this improvement in
margins.
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<PAGE>
SELLING EXPENSES
Selling expenses were lower by $0.4 million for the year ended December
31, 1996 compared to 1995, and declined as a percentage of net sales from 7.4%
to 6.1%. The primary reason for the percentage decline was the Company's
ability to increase sales to its party superstore customers while not
significantly increasing its sales costs associated with those accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $4.3 million for the year
ended December 31, 1996 compared to 1995. As a percentage of net sales,
general and administrative expenses increased from 9.1% to 10.0%. This
increase is principally attributable to an increase in the provision for bad
debts of $1.7 million or 0.9% of net sales related to a significant increase in
the Company's accounts receivable and increased occupancy costs of $0.5 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 $1.2 million or
0.6% 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 $0.9 million for the year ended
December 31, 1996 compared to 1995. As a percentage of net sales, art and
development costs increased from 2.5% to 2.7%. The Company significantly
expanded its creative and new product development staff and internal
development capabilities in the middle of 1995 which resulted in a substantial
increase in art and development costs which were incurred during all of 1996.
The increase in art and development expenditures reflects the Company's
strategy to remain a leader in product quality and development.
NON-RECURRING COMPENSATION
In conjunction with the IPO, the Company has recorded non-recurring
compensation of $15.5 million in 1996 related to stock and cash payments of
$12.5 million to certain executives in connection with the termination or
modification of employment agreements and $3.0 million for the establishment of
an ESOP for the benefit of the Company's domestic employees and the payment of
stock bonuses to certain of such employees.
SPECIAL BONUSES
Special bonuses, which were based entirely upon the Company's pre-tax
income, increased by $1.6 million for the year ended December 31, 1996 compared
to 1995. The employment agreements which gave rise to these bonuses have been
substantially modified to eliminate these special bonus payments in the future.
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<PAGE>
INCOME FROM OPERATIONS
Due to the non-recurring compensation of $15.5 million and the other
factors discussed above, income from operations decreased $11.9 million to
$12.8 million in 1996 from $24.7 million in 1995. As a percentage of net
sales, income from operations decreased from 14.6% in 1995 to 6.6% in 1996.
INTEREST EXPENSE, NET
Interest expense, net increased by $0.9 million to $6.7 million in 1996,
reflecting slightly higher borrowings associated with increased working capital
(primarily 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
Prior to the IPO, Amscan Inc., Am-Source, Inc. JCS Realty Corp. and SSY
Realty Corp. were taxed as Subchapter S corporations for federal income tax
and, where available, for state income tax purposes. Accordingly, these
entities were not subject to federal and state income taxes except in states
which do not recognize Subchapter S corporation status. In connection with the
IPO, the aforementioned companies, became subject to federal and state income
taxes. The amounts shown as income taxes in 1996 consist principally of
foreign taxes and a one-time charge of $0.8 million related to the
establishment of deferred taxes in connection with the change in tax status.
MINORITY INTERESTS
Minority interests represent the portion of income of the Company's
subsidiaries attributable to equity ownership not held by Amscan Holdings, Inc.
In addition to the minority interests of certain foreign entities, these
amounts include the minority interest of Am-Source, Inc. through December 18,
1996, the date the Company acquired the 50% not owned by John A. Svenningsen.
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 party 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 to 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 $4.3 million of the increase in net sales in 1995 compared to
1994.
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<PAGE>
GROSS PROFIT
Gross profit increased by $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 profit improved as a
result of increased leveraging of existing distribution facilities and improved
purchasing of nonmanufactured products.
SELLING EXPENSES
Selling expenses increased by $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 party
superstore customers, while not significantly increasing its sales costs
associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $0.5 million from 1994 to
1995, primarily as a result of modest wage increases partially offset by
decreased provisions for bad debts. 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% in 1994 to 9.1% in 1995. The Company was able to leverage
its administrative resources while supporting the increased sales.
ART AND DEVELOPMENT COSTS
Art and development costs increased $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 in the second half of 1995. The increase in such expenses
reflects the Company's strategy of remaining a leader in product quality and
development.
SPECIAL BONUSES
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1995 over 1994. The special bonus in 1994 included special one-
time bonuses of approximately $0.8 million associated with the partial
acquisition of Am-Source, Inc. In connection with the IPO, the employment
agreements which gave rise to these bonuses have been substantially modified to
eliminate the special bonus payments.
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.
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<PAGE>
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 from 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 were not
subject to federal income taxes prior to the IPO except in states which do not
recognize Subchapter S corporation status. In connection with the IPO, Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. terminated their
Subchapter S corporation status and, accordingly, are subject to federal and
state income taxes. The amounts shown as income taxes consist principally of
foreign taxes.
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. prior to its acquisition by 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 net proceeds
from the IPO have been 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 be met for at least the next 12 months 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 December 31, 1996
of $29.0 million at an interest rate of 6.9%. 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 Consolidated Financial Statements of Amscan Holdings, Inc. and Subsidiaries
included under Item 14 of this report.) 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
consolidated 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 to maintain certain financial
ratios. The Company is not currently in default in respect of any of
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<PAGE>
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 provided by operating activities increased by $7.6 million to
$12.3 million in 1996 from $4.7 million in 1995 as a result of the decreased
rate of growth in inventories and other assets, partially offset by increases
in deposits paid on purchased equipment and a decrease in net income before
depreciation and amortization. Net cash used in investing activities of $7.6
million increased by $3.1 million from 1995 because of increased capital
expenditures. Net cash used in financing activities increased by $6.1 million
to $6.0 million in 1996 due to increases in stockholder distributions,
repayment of bank debt and subordinated debt partially offset by net proceeds
from the IPO.
Net cash provided by operating activities decreased by $0.4 million to
$4.7 million in 1995 from $5.1 million in 1994. This slight decrease was
primarily attributable to increases in accounts receivable and inventories,
offset by increases in accounts payable and accrued expenses and net income
before depreciation and amortization. Net cash used in investing activities
decreased $2.8 million from $7.3 million to $4.5 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.
Accounts receivable, net increased $5.5 million to $37.4 million on
December 31, 1996 from $31.9 million at December 31, 1995. This increase is
due principally to increased sales.
Deposits and other assets increased $8.4 million to $11.4 million on
December 31, 1996 from December 31, 1995. These increases are due principally
to deposits placed, offset by the related advances received, in connection with
various operating leases for manufacturing and warehouse equipment as well as
office equipment and computer software and to the establishment of a deferred
tax asset resulting from the change in tax status.
Property, plant and equipment, net increased $5.5 million to $34.7 million
on December 31, 1996 from $31.9 million at December 31, 1995. This increase is
primarily due to manufacturing and warehouse equipment acquired, partially
offset by depreciation.
Intangible assets, net increased $7.4 million on December 31, 1996 from
December 31, 1995 primarily due to goodwill recorded in connection with the
acquisition of the remaining 50% of Am-Source, Inc.
Loans and notes payable decreased $8.5 million to $29.3 million at
December 31, 1996. Subordinated debt and other due to stockholders decreased
$17.1 million to $1.4 million at December 31, 1996. The decreases resulted
from the repayment of bank debt and subordinated debt funded by net proceeds
from the IPO.
Long-term debt, including current installments, increased $3.1 million
to $17.6 million on December 31, 1996 primarily because of loans used to
acquire machinery and equipment.
Common Stock increased $1.7 million to $2.1 million as of December 31,
1996 due to the exchange of shares issued in 1996. These shares include the
shares issued to Mr. Svenningsen and others in connection with the Organization
of the Company, the shares issued in the IPO as well as the shares issued in
connection with the establishment of the
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<PAGE>
ESOP, the payment of stock bonuses and the acquisition of the remaining 50% of
Am-Source, Inc.
Additional paid-in capital increased $52.4 million to $61.5 million as of
December 31, 1996 primarily due to the net proceeds from the IPO, and other
shares issued in connection with the IPO, partially offset by the return of
previously provided capital and a reduction in additional paid-in capital
resulting from the exchange of shares in the Organization.
In 1996, the Company distributed $23.4 million, compared to $11.0 million
in 1995, to stockholders, of which $1.4 million in 1996 and $4.0 million in
1995 was reinvested in the Company as debt payable to stockholders. The
distributions in 1996 were funded by net proceeds from the IPO and represented
accumulated Subchapter S earnings and the return of previously provided
capital.
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 the
stockholders' taxes. The increase from 1994 to 1995 was due to increased
earnings of those corporations, taxable to the stockholders.
Third party financings for 1996 consisted primarily of borrowings under
credit and long-term loans secured by machinery and equipment. The Company
used net proceeds from the IPO to repay debt owed to the banks and to Mr.
Svenningsen in 1996. The Company used $8.9 million of the cash in 1996 to fund
its working capital needs, which consisted primarily of increases in accounts
receivable and deposits on machinery and equipment.
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 $18.6 million of the cash in 1995 and $11.2 million of the cash in
1994 to fund its working capital needs, which consisted primarily of increases
in accounts receivable and inventory.
In 1996 and 1995 respectively, the Company acquired $11.0 million and $4.5
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 totaling $10.8 million
in 1996, and $7.4 million in 1995. In 1994, the Company acquired $8.0 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. Management believes that these
additions to plant and equipment provide adequate capacity to support its
operations for at least the next 12 months. As of December 31, 1996, the
Company did not have material commitments for capital expenditures other than
for machinery and equipment which will be leased under the aforementioned $10.8
million of operating leases.
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<PAGE>
QUARTERLY RESULTS
As a result of the seasonal nature of certain of the Company's products,
the quarterly results of operations may not be indicative of those for a full
year. Third quarter sales are generally the highest of the year due to a
combination of increased sales to consumers of the Company's products during
summer months as well as initial shipments of seasonal holiday merchandise as
retailers build inventory. Conversely, fourth quarter sales are generally
lower as retailers sell through inventories purchased during the third quarter.
The overall growth rate of the Company's sales in recent years has offset, in
part, this sales variability. Promotional activities, including special dating
and pricing terms, particularly with respect to Halloween and Christmas
products, result in generally lower margins and profitability in the fourth
quarter, as well as higher accounts receivable balances and associated higher
interest costs to support these balances. The following table sets forth the
historical net sales and income from operations of the Company for 1996 and
1995 by quarter.
<TABLE>
<CAPTION>
1996 QUARTERS 1995 QUARTERS
--------------------------------------- ---------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($ in thousands)
Net sales $47,258 $45,714 $54,036 $ 45,697 $39,376 $41,046 $47,892 $39,089
Income (loss)
from
operations $ 7,586 $ 7,564 $ 9,222 $(11,614)(a) $ 6,492 $ 6,350 $ 9,120 $ 2,707(b)
</TABLE>
- -----------------
(a) Included in fourth quarter results in 1996 are non-recurring compensation
expenses of $15.5 million related to stock and cash payments of $12.5
million to certain executives in connection with the termination or
modification of prior employment agreements and $3.0 million for the
establishment of an ESOP for the benefit of the Company's domestic
employees and the payment of stock bonuses to certain of such employees.
(b) 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).
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this report, and in particular in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may be forward looking and are subject to a variety of risks and
uncertainties. Many factors could cause actual results to differ materially
from these statements. These factors include, but are not limited to, (1) the
concentration of sales by the Company to party goods superstores where the
reduction of purchases by a small number of customers could materially reduce
the Company's sales and profitability, (2) the concentration of the Company's
credit risk in the party goods superstores which are generally privately held
and have expanded rapidly in recent years, (3) the failure by the Company to
anticipate tastes and preferences of party goods retailers and consumers, (4)
the introduction of new products by the Company's competitors, (5) the
inability of the
-24-
<PAGE>
Company to increase prices to recover fully future increases in raw material
prices, especially increases in paper prices, (6) the loss of key employees
(including John A. Svenningsen, the Company's Chairman and Chief Executive
Officer, who has been undergoing treatment for lymphoma) and (7) other
factors which might be described from time to time in the Company's filings
with the Securities and Exchange Commission. In addition, the Company is
subject to the effects of changes in general business conditions.
Although the Company believes that it has the product offerings and
resources needed for continuing success, future revenue and margin trends
cannot be reliably predicted. These trends may cause the Company to adjust its
operations in the future. Factors external to the Company can also affect the
price of the Company's Common Stock. Because of the foregoing and other
factors, recent trends should not be considered reliable indicators of future
financial results or stock prices.
-25-
<PAGE>
SUPPLEMENTAL PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
The following Supplemental Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1996 reflects the consolidated results of
operations of Amscan Holdings, Inc. and Subsidiaries after giving effect to
certain events that have occurred in conjunction with the Organization and the
IPO 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 Consolidated Statement of Operations
has been prepared by management solely to facilitate period to period
comparisons and does not represent the actual results of operations for
the period presented. The Supplemental Pro Forma Consolidated Statement of
Operations does not purport to be indicative of future results.
The Supplemental Pro Forma Consolidated Statement of Operations should be
read in conjunction with the Consolidated Financial Statements of Amscan
Holdings, Inc. and Subsidiaries and the notes thereto as of and at December 31,
1996 included under Item 14 of this report.
-26-
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 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 $ 192,705 $ 192,705
Cost of sales 123,913 123,913
---------- ----------
Gross profit 68,792 68,792
Selling 11,838 11,838
General and administrative 19,266 $ 250(a) 19,516
Art and development 5,173 5,173
Non-recurring compensation
in connection with the IPO 15,535 (15,535)(b) -
Special bonuses 4,222 (4,222)(c) -
---------- ----------
Income from operations 12,758 32,265
Interest expense, net 6,691 (2,228)(d) 4,463
Other expense, net 335 335
---------- ----------
Income before income taxes and
minority interests 5,732 27,467
Income taxes 1,952 9,347 (e) 11,299
Minority interests 1,653 (1,403)(a) 250
---------- ----------
Supplemental pro forma net
income $ 2,127 $ 15,918
========== ==========
Supplemental pro forma net
income per share $ 0.77
==========
Supplemental pro forma weighted
average common shares
outstanding 20,698,076(f)
==========
</TABLE>
Notes to Supplemental Pro Forma Consolidated Statement of Operations ($ in
thousands):
(a) To reflect approximately $250 amortization of goodwill of $7,443 over
thirty years and the elimination of $1,403 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 reductions in compensation expense of $15,535 related to stock
and cash of $12,535 for payment to certain executives in connection with
the termination of prior employment agreements and $3,000 for the
establishment of an ESOP for the benefit of the Company's domestic
employees and the payment of stock bonuses to certain of such employees;
(c) To reflect the elimination of special bonuses that will not be recurring
due to the termination of certain employment agreements in connection with
the IPO. No adjustments are reflected or are necessary with respect to
performance-based compensation as the provisions in the new employment
agreements would have resulted
-27-
<PAGE>
in performance-based compensation materially equivalent to that reflected
in the historical accounts under the prior employment agreements;
(d) To reflect the reduction of actual interest expense assuming a repayment
of $8,100 of bank loans at the actual rate in effect and an average
balance of $20,000 of loans from Mr. Svenningsen at the actual rate in
effect;
(e) 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
and to give effect to the tax effect of these adjustments;
(f) Supplemental pro forma weighted average common shares outstanding
represents the shares issued in connection with the Organization, the
IPO shares and other shares issued in contemplation of the IPO as well
as the shares issued in connection with the establishment of the ESOP
and payment of stock bonuses, and the acquisition of the additional 50%
of Am-Source, Inc. as if the transactions occurred at the beginning of
the period presented. See note (16) of the Notes to Consolidated
Financial Statements of Amscan Holdings, Inc. and Subsidiaries included
under Item 14 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and supplementary data listed
in the accompanying Index to Financial Statements and Schedule on page F-1
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-28-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) IDENTIFICATION OF DIRECTORS. The information required by Item 401(a)
of Regulation S-K is incorporated into this Form 10-K by reference to the
Company's definitive proxy statement relating to its 1997 Annual Meeting of
Stockholders (the "Definitive Proxy Statement") which will be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this Form 10-K.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS. The information required by
Item 401(b) of Regulation S-K is included in Item 4A in Part I of this Form 10-
K.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES. The information
required by Item 401(c) of Regulation S-K is not applicable to the Company.
(d) FAMILY RELATIONSHIPS. The information required by Item 401(d) of
Regulation S-K is not applicable to the Company.
(e) BUSINESS EXPERIENCE. The information required by Item 401(e) of
Regulation S-K is incorporated into this Form 10-K by reference to the
Definitive Proxy Statement or is included in Item 4A in Part I of its Form 10-
K.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. The information required
by Item 401(f) of Regulation S-K is not applicable to the Company.
(g) PROMOTERS AND CONTROL PERSONS. The information required by Item
401(g) of Regulation S-K is not applicable to the Company.
(h) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The
information required by Item 405 of Regulation S-K is incorporated by reference
to the Definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated
into this Form 10- K by reference to the Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is incorporated
into this Form 10- K by reference to the Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is incorporated
into this Form 10-K by reference to the Definitive Proxy Statement.
-29-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. and 2. Financial Statements and Schedule.
See Index to Financial Statements and Schedule which appears on page
F-1 herein.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
2(a) Share Exchange Agreement dated as of December 18,
1996, among the Registrant, John A. Svenningsen, Gerald C.
Rittenberg and the following trusts each created by agreement
dated as of October 29, 1996: Christina Svenningsen Trust, Jon
Svenningsen Trust, Elisabeth Svenningsen Trust, Melissa
Svenningsen Trust, Emily Svenningsen Trust and Sara Svenningsen
Trust
2(b) Capital Contribution Agreement by and between the
Company and Messrs. Allan J. Kaufman, Arthur J. Kaufman and
Michael F. Hodges, dated October 9, 1996, as supplemented
(incorporated by reference to Exhibit 2(b) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
3(a) Certificate of Incorporation, dated October 3, 1996,
(incorporated by reference to Exhibit 3(a) to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14107))
3(b) By-Laws (incorporated by reference to Exhibit 3(b) to
the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
4(a) Credit Agreement among Amscan Inc., Kookaburra USA
Ltd., Deco Paper Products, Inc., Trisar, Inc., the banks
signatory thereto and The Chase Manhattan Bank N.A., dated as
of September 20, 1995 (incorporated by reference to Exhibit
4(a) to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-14107))
-30-
<PAGE>
4(b) Amendment No. 1 to Credit Agreement among Amscan
Holdings, Inc., Amscan Inc., Trisar Inc., the banks signatory
thereto and The Chase Manhattan Bank, dated as of November 14,
1996 (incorporated by reference to Exhibit 4(b) to Amendment
No. 2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
4(c) Amendment No. 2 to Credit Agreement among Amscan
Holdings, Inc., Amscan Inc., Trisar Inc., the banks signatory
thereto and The Chase Manhattan Bank, dated as of December 11,
1996 (incorporated by reference to Exhibit 4(c) to Amendment
No. 2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
10(a) Employment Agreement by and between Amscan Holdings,
Inc. and John A. Svenningsen, dated November 1, 1996
(incorporated by reference to Amendment No. 1 to Exhibit 10(a)
to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
10(b) Employment Agreement by and between the Company and
Gerald C. Rittenberg, dated October 9, 1996 (incorporated by
reference to Exhibit 10(b) to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14107))
10(c) Stock Agreement among Gerald C. Rittenberg, John A.
Svenningsen and Amscan Inc., dated October 9, 1996
(incorporated by reference to Exhibit 10(c) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
10(d) Employment Agreement by and between Amscan Inc. or
the Company and William Wilkey, dated as of October 4, 1996
(incorporated by reference to Exhibit 10(e) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
10(e) Employment Agreement between Amscan Holdings, Inc.
and James M. Harrison, dated as of February 1, 1997
10(f) 1996 Stock Option Plan for Key Employees
(incorporated by reference to Exhibit 10(h) to Amendment No. 2
to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
-31-
<PAGE>
10(g) Lease between ACP East LLC and Amscan Inc. dated as
of December 1, 1995, as amended (incorporated by reference to
Exhibit 10(i) to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-
14107))
10(h) Lease between John Anders Svenningsen and Amscan
Inc., dated March 1, 1995, as modified and amended
(incorporated by reference to Exhibit 10(j) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107))
10(i) Lease between John Anders Svenningsen and Amscan
Inc., dated November 9, 1995, as amended (incorporated by
reference to Exhibit 10(k) to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14107))
10(j) Tax Indemnification Agreement between Amscan Holdings
Inc. and John A. Svenningsen, dated as of December 18, 1996
10(k) The MetLife Capital Corporation Master Lease Purchase
Agreement between MetLife Capital Corporation and Amscan Inc.,
Deco Paper Products, Inc., Kookaburra USA Ltd., and Trisar,
Inc., dated November 21, 1991, as amended (incorporated by
reference to Exhibit 10(n) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14107))
10(l) Form of Indemnification Agreement between the Company
and each of the directors of the Company (incorporated by
reference to Exhibit 10(o) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-14107))
21 Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-
14107))
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed with the Securities and Exchange
Commission during the last quarter of the period covered by this Form 10-K.
-32-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AMSCAN HOLDINGS, INC.
By:/s/ JOHN A. SVENNINGSEN
-----------------------------
John A. Svenningsen, Chairman
of the Board of Directors and
Date: March 24, 1977 Chief Executive Officer
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Chairman of the Board of
/s/ JOHN A. SVENNINGSEN Directors and Chief Executive
- ----------------------- Officer March 24, 1997
John A. Svenningsen (principal executive officer)
/s/ GERALD C. RITTENBERG
- ----------------------- President and Director March 24, 1997
Gerald C. Rittenberg
- ----------------------- Director March 24, 1997
Allyn H. Powell
/s/ JOHN TUGWELL
- ----------------------- Director March 24, 1997
John Tugwell
/s/ FRANK A. ROSENBERRY
- ----------------------- Director March 24, 1997
Frank A. Rosenberry
Chief Financial Officer
/s/ JAMES M. HARRISON (principal financial and
- ----------------------- accounting officer) March 24, 1997
James M. Harrison
-33-
<PAGE>
FORM 10-K
ITEM 8, ITEM 14(A) 1 AND 2
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Year Ended December 31, 1996
Consolidated Financial Statements as of December 31, 1996 and 1995 and for
each of the years in the three-year period ended December 31, 1996:
PAGE
Independent Auditors' Report ...................................... F-2
Consolidated Balance Sheets ...................,................... F-3
Consolidated Statements of Operations ............................. F-4
Consolidated Statements of Stockholders' Equity ................... F-5
Consolidated Statements of Cash Flows ............................. F-6
Notes to Consolidated Financial Statements ........................ F-8
Financial Statement Schedule for the three years ended December 31 1996:
Schedule 2 - Valuation and Qualifying Accounts .................... F-25
F-1
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Amscan Holdings, Inc.:
We have audited the accompanying consolidated financial statements of
Amscan Holdings, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amscan
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
February 14, 1997
Stamford, Connecticut
F-2
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
DECEMBER 31,
------------
1996 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 1,589 $ 2,492
Accounts receivable, net of allowances of
$4,138 and $2,505, respectively ............... 37,378 31,880
Inventories ..................................... 45,693 45,013
Deposits and other .............................. 11,360 2,920
-------- --------
Total current assets .......................... 96,020 82,305
Property, plant and equipment, net ................. 34,663 29,173
Intangible assets, net ............................. 7,443 350
Other assets ....................................... 2,148 2,773
-------- --------
Total assets .................................. $140,274 $114,601
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable .......................... $ 29,328 $ 37,849
Subordinated debt and other to stockholders ...... 1,393 18,453
Accounts payable ................................. 7,128 5,855
Accrued expenses ................................. 10,225 9,526
Current installments of long-term indebtedness ... 2,541 2,239
-------- --------
Total current liabilities ...................... 50,615 73,922
Long-term indebtedness, excluding current
installments ..................................... 15,085 12,284
Deferred tax liabilities ............................ 5,662 -
Other ............................................... 963 1,190
-------- --------
Total liabilities .............................. 72,325 87,396
-------- --------
Stockholders' equity:
Preferred stock .................................. - -
Common stock ..................................... 2,070 393
Additional paid-in capital ....................... 61,503 9,090
Retained earnings ................................ 4,748 18,462
Cumulative translation adjustment ................ (372) (653)
Treasury stock, at cost .......................... - (87)
-------- --------
Total stockholders' equity ..................... 67,949 27,205
-------- --------
Total liabilities and stockholders' equity ..... $140,274 $114,601
======== ========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share amounts)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
Net sales .............................. $ 192,705 $ 167,403 $ 132,029
Cost of sales .......................... 123,913 108,654 86,748
----------- ----------- -----------
Gross profit ...................... 68,792 58,749 45,281
----------- ----------- -----------
Operating expenses:
Selling ............................. 11,838 12,241 11,309
General and administrative .......... 19,266 15,002 14,460
Art and development ................. 5,173 4,256 2,796
Non-recurring compensation in
connection with the IPO ............ 15,535 - -
Special bonuses ..................... 4,222 2,581 2,200
----------- ----------- -----------
Total operating expenses .......... 56,034 34,080 30,765
----------- ----------- -----------
Income from operations ............ 12,758 24,669 14,516
Interest expense, net .................. 6,691 5,772 3,843
Other expense (income), net ............ 335 (309) 82
----------- ----------- -----------
Income before income taxes and
minority interests .................. 5,732 19,206 10,591
Income taxes ........................... 1,952 731 464
Minority interests ..................... 1,653 1,041 160
----------- ----------- -----------
Net income ........................ $ 2,127 $ 17,434 $ 9,967
=========== =========== ===========
Pro forma data (unaudited)(note (16)):
Income before income taxes ......... $ 4,079 $ 18,165 $ 10,431
Pro forma income tax expense ...... 1,827 7,403 4,238
----------- ----------- -----------
Pro forma net income ............ $ 2,252 $ 10,762 $ 6,193
=========== =========== ===========
Pro forma net income used
for pro forma net income
per share calculation ......... $ 12,010
===========
Pro forma net income per
share ......................... $ 0.60
===========
Pro forma weighted average
common shares outstanding .... 19,856,731
===========
Supplemental pro forma data
(unaudited) (note (16)):
Supplemental pro forma
net income ...................... $ 15,918
===========
Supplemental pro forma net
income per share ................ $ 0.77
===========
Supplemental pro forma weighted
average common shares
outstanding .................... 20,698,076
===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
($ in thousands)
<TABLE>
<CAPTION>
Cumulative
Common Additional Retained Translation Treasury
STOCK PAID-IN CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ --------------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 393 $ 9,090 $ 9,520 $ (420) $ (87) $18,496
Net income - - 9,967 - - 9,967
Subchapter S and other - - (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 - - (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
Net income - - 2,127 - - 2,127
Net adjustment for exchange
of shares issued in the
Organization 1,123 (1,210) - - 87 -
Subchapter S and other - (7,583) (15,841) - - (23,424)
Net proceeds from IPO 400 42,940 - - - 43,340
Shares issued to officer 66 7,854 - - - 7,920
Shares issued for acquisition 63 7,437 - - - 7,500
Contribution to ESOP and
stock bonuses 25 2,975 - - - 3,000
Net change in cumulative
translation adjustment - - - 281 - 281
------ ------- ------- ------ ------- -------
Balance, December 31, 1996 $ 2,070 $ 61,503 $ 4,748 $ (372) $ - $ 67,949
====== ======= ======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income ........................... $ 2,127 $ 17,434 $ 9,967
Adjustments to reconcile net
income to net cash provided
by operating activities:
Stock compensation expenses in
connection with the IPO ......... 10,920 - -
Depreciation and amortization ..... 5,137 4,332 3,672
Loss (gain) on disposal of
property and equipment .......... 660 (5) 35
Provision for doubtful accounts ... 2,350 1,581 2,676
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable ............ (7,848) (9,614) (5,041)
Inventories ..................... (680) (10,548) (5,682)
Deposits and other, net ......... (3,048) (101) (155)
Other assets .................... 683 (1,172) (1,265)
Accounts payable and accrued
expenses ...................... 1,972 2,814 912
------- ------- ------
Net cash provided by
operating activities ....... 12,273 4,721 5,119
------- ------- ------
Cash flows from investing activities:
Capital expenditures .................. (7,613) (4,522) (7,392)
Proceeds from disposal of
property and equipment .............. - 9 98
------- ------- ------
Net cash used in investing
activities ................. (7,613) (4,513) (7,294)
------- ------- ------
Cash flows from financing activities:
Net proceeds from IPO ................. 43,340 - -
Proceeds from loans, notes payable
and long-term indebtedness .......... 3,273 42,311 6,324
Repayment of loans, notes payable
and long-term indebtedness .......... (11,968) (32,313) (2,434)
Proceeds from loans, notes payable
and subordinated indebtedness
to Principal Stockholder ........... - 4,000 6,316
Repayment of loans, notes payable
and subordinated indebtedness
to Principal Stockholder ........... (17,179) (2,842) -
Subchapter S distributions and other . (23,424) (11,009) (7,450)
------- ------- ------
Net cash (used in) provided
by financing activities ... (5,958) 147 2,756
------- ------- ------
Effect of exchange rate changes
on cash ............................ 395 (92) 270
------- ------- ------
Net increase (decrease)
in cash and cash
equivalents ............... (903) 263 851
Cash and cash equivalents at
beginning of year ..................... 2,492 2,229 1,378
------- ------- ------
Cash and cash equivalents at
end of year ........................... $ 1,589 $ 2,492 $ 2,229
======= ======= ======
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest ............................ $ 7,826 $ 4,486 $ 4,025
Taxes ............................... $ 1,085 $ 601 $ 112
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
($ in thousands)
Supplemental information on noncash activities ($ in thousands):
Capital lease obligations of $3,395 and $648 were incurred in 1996 and 1994
respectively. There were no capital lease obligations incurred in 1995.
In conjunction with the IPO, the Principal Stockholder and certain affiliates
of the Principal Stockholder exchanged shares in Amscan Inc. and certain
affiliated entities for 15,024,616 and 138,461 shares, respectively, in the
Company.
In conjunction with the IPO, the Company entered into an agreement to
purchase an additional 50% of Am-Source, Inc. The Am-Source, Inc.
stockholders exchanged all of their outstanding capital stock for 624,999
shares of the Company's stock valued at $7.5 million.
In conjunction with the IPO, the Company incurred stock compensation expense
of $7,920 for the issuance of stock to an officer 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.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Amscan Holdings, Inc. ("Amscan Holdings") was incorporated on October 3,
1996 for the purpose of becoming the holding company for Amscan Inc. and
certain affiliated entities in connection with an initial public offering of
common stock ("IPO") involving the sale of 4,000,000 shares of its common
stock at $12.00 per share. The IPO was completed on December 18, 1996
pursuant to which the principal stockholder (the "Principal Stockholder") and
certain affiliates of the Principal Stockholder exchanged shares in Amscan
Inc. and certain affiliates for 15,024,616 and 138,461 shares, respectively,
in Amscan Holdings (the "Organization") and in the case of the Principal
Stockholder, $133,000 in cash. Prior to the IPO, certain subsidiaries of
Amscan Holdings were operated as Subchapter S corporations for federal and,
where available, for state income tax purposes. In connection with the IPO,
such subsidiaries declared a dividend representing distributions of
accumulated Subchapter S corporation profits and a return of capital. These
amounts were reflected as subordinated debt and repaid from the net proceeds
of the IPO.
Amscan Holdings and its subsidiaries (collectively the "Company")
design, manufacture, contract for manufacture and distribute party and
novelty goods principally in the United States, Canada and Europe.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries (or with respect to less than
majority-owned subsidiaries, on the equity basis). In connection with the
IPO, there was a transfer of ownership between the former stockholders of
Amscan Inc. and certain of its affiliates and Amscan Holdings whereby Amscan
Holdings became the holding company for the business conducted by Amscan
Inc. and certain of its affiliates. Such transfer of ownership was accounted
for in a manner similar to a pooling of interests and resulted 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. All material intercompany balances and transactions have
been eliminated in consolidation. For periods prior to December 18, 1996,
financial statements are presented on a combined basis. The name, Amscan
Holdings' ownership and a brief description of the principal business
activity of each consolidated subsidiary is presented below.
F-8
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
SUBSIDIARY OWNERSHIP PRINCIPAL ACTIVITY
- ---------- --------- ------------------
Amscan Inc. ................ 100% Manufacturer - paper tableware;
and distributor - worldwide
Am-Source, Inc. ............ 100% Manufacturer - plastic products
Trisar, Inc. ............... 100% Manufacturer - gift products
Amscan Distributors
(Canada) Ltd. ............ 100% Distributor - Canada
Amscan Holdings Limited .... 75% Distributor - United Kingdom
Amscan (Asia-Pacific)
Pty. Ltd. ................ 85% Distributor - Australia and Asia
Amscan Partyartikel GmbH ... 95% Distributor - Germany
Amscan Svenska AB .......... 100% Distributor - Sweden
Amscan de Mexico,
S.A. de C.V. ............. 50% Distributor - Mexico
JCS Realty Corp. ........... 100% Real estate - Canada
SSY Realty Corp. ........... 100% Real estate - United States
ACQUISITIONS
In conjunction with the IPO, the Company entered into an agreement to
acquire an additional 50% of Am-Source, Inc. The stockholders of Am-Source,
Inc. exchanged all of their outstanding capital stock for 624,999 shares of
the Company's stock valued at $7,500,000. The acquisition has been accounted
for as a purchase and the excess purchase price over the fair value of the
net assets acquired of $7,443,000 is being amortized on a straight-line
basis over thirty years.
The results of operations for the acquisition of the 50% balance of Am-
Source, Inc. are included in the accompanying financial statements from the
date of acquisition. The results of operations for this acquisition for the
years ended December 31, 1996, 1995 and 1994 had the acquisition occurred at
the beginning of 1994, are not significant.
(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 equivalents.
INVENTORIES
Substantially all inventories of the Company are valued at the lower
cost or market (principally on the first-in, first-out method.)
F-9
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
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.
INTANGIBLE ASSETS
Intangible assets are comprised of $7,443,000 and $350,000 at December
31, 1996 and 1995 respectively, of goodwill, net of amortization, which
represents the excess of the purchase price of acquired companies over the
estimated fair value of the net assets acquired. Goodwill is being amortized
on a straight-line basis over periods ranging from three years to thirty
years. Accumulated amortization was $1,050,000 and $ 700,000 as of December
31, 1996 and 1995, respectively.
The Company adopted Financial Accounting Standards No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS No. 121"). Such adoption had no impact on the Company's financial
statements. In accordance with SFAS No. 121, the Company systematically
reviews the recoverability of its intangible and other long-lived assets by
comparing their unamortized carrying value to their related anticipated
undiscounted future cash flows. Any impairment related to long-lived assets
is measured by reference to the assets' fair market value, and any impairment
related to goodwill is measured against discounted cash flows. Impairments
are charged to expense when such determination is made.
REVENUE RECOGNITION
The Company recognizes revenue from product sales when the goods are
shipped to the customers. Product returns and warranty costs are immaterial.
CATALOGUE COSTS
The Company expenses 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 not reach commercial
production. Accordingly, the Company expenses these costs as incurred.
INCOME TAXES
Prior to the IPO, 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 taxes except
in states which do not recognize Subchapter S corporation status.
F-10
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
Since December 18, 1996, the Company has been taxed as a Subchapter C
corporation, and as a result, the Company accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes ("SFAS 109"). Under the asset and
liability method of SFAS 109, certain income and expense items are reported
differently for financial reporting and income tax purposes. Deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities and operating
loss and tax credit carryforwards applying enacted statutory tax rates in
effect for the year in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, in the
judgment of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
NON-RECURRING COMPENSATION EXPENSES
In conjunction with the IPO, the Company has recorded non-recurring
compensation expenses of $15,535,000 in 1996 related to stock and cash
payments of $12,535,000 to certain executives in connection with the
termination of prior employment agreements and $3,000,000 for the
establishment of an ESOP for the benefit of the Company's domestic employees
and the payment of stock bonuses to certain of such employees.
STOCK-BASED COMPENSATION
The Company has accounted for the distribution of stock and for the
issuance of stock options under its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations ("APB 25"). As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS No.
123") which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No. 123 (see note
(10)).
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 subsidiaries are translated into U.S.
dollars at the exchange rates in effect on the balance sheet date. The
results of operations of foreign subsidiaries 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.
F-11
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
CONCENTRATION OF CREDIT RISK
While the Company's 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,
1996 and 1995, the Company's two largest customers, with approximately 185
stores, accounted for 21.7% and 12%, respectively, of consolidated accounts
receivable. For the years ended December 31, 1996, 1995 and 1994, sales to
the Company's two largest customers represented 21.5%, 17% and 10%,
respectively, of consolidated net sales. Of such amount, sales to the
Company's largest customer represented 14.5%, 11% and 8%, respectively. No
other group or combination of customers subjected the Company to a
concentration of credit risk.
RECLASSIFICATIONS
In connection with the preparation of the accompanying financial
statements, the Company has classified printing plates purchased from third
party vendors as property, plant and equipment. Previously, the Company
classified such printing plates that are used in the Company's manufacturing
process as other assets. Prior balances of property, plant and equipment and
other assets have been reclassified accordingly.
Certain other amounts in prior financial statements have been
reclassified to conform to the current year presentation.
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.
(3) INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following
($ in thousands):
1996 1995
------- -------
Finished goods ............................. $42,127 $42,125
Raw materials .............................. 3,863 2,277
Work-in process ............................ 1,388 1,839
------- -------
47,378 46,241
Less: reserve for slow moving
and obsolete inventory ................... (1,685) (1,228)
------- -------
$45,693 $45,013
======= =======
F-12
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
(4) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at December 31,
1996 and 1995 consisted of the following ($ in thousands):
ESTIMATED
1996 1995 USEFUL LIVES
---- ---- ------------
Machinery and equipment ........... $ 31,621 $ 25,530 3-15
Buildings ......................... 10,153 9,524 31-40
Data processing equipment ......... 9,259 6,123 5
Leasehold improvements ............ 3,449 4,784 25
Furniture and fixtures ............ 3,071 2,370 10
Land .............................. 1,917 1,917 -
------- -------
59,470 50,248
Less: accumulated depreciation
and amortization ................ (24,807) (21,075)
------- -------
$ 34,663 $ 29,173
======= =======
Depreciation and amortization expense was $4,787,000, $3,982,000 and
$3,322,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(5) LOANS AND NOTES PAYABLE
The Company has entered into a revolving credit agreement with several
banks which expires on September 20, 2000. Amounts available for borrowing
under this agreement, subject to asset availability and other restrictions,
are as follows ($ in thousands):
September 20, 1996 - September 19, 1997 .................. $55,000
September 20, 1997 - September 20, 2000 .................. $60,000
Such revolving credit agreement is collateralized by a first lien on
certain of the assets of the Company. The revolving credit agreement
provides for interest on the borrowings to be based on either a prime
borrowing rate or LIBOR plus 0.875%, whichever is lower. Additionally, the
revolving credit agreement requires the Company to comply with certain
covenants including the maintenance of financial ratios, as defined. At
December 31, 1996, the Company was in compliance with all such covenants.
F-13
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
Loans and notes payable outstanding at December 31, 1996 and 1995
consisted of the following ($ in thousands):
1996 1995
---- ----
Revolving credit line with interest at
LIBOR plus 0.875% (6.75% and 6.41%,
at December 31, 1996 and 1995,
respectively) ................................ $ 5,000 $35,000
Revolving credit line with interest at
the prime rate (8.25% and 8.5%, at
December 31, 1996 and 1995, respectively) ..... 23,950 2,060
Revolving credit line denominated in
Canadian Dollars with interest at
the Canadian prime rate (4.75% at
December 31, 1996) ............................ 378 -
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
------- -------
$29,328 $37,849
======= =======
The weighted average interest rates on loans and notes payable
outstanding at December 31, 1996 and 1995 were 7.95% and 6.57%, respectively.
The Company is currently involved in three interest rate swap
transactions covering $25,000,000 of its outstanding obligation under the
revolving credit agreement. The transactions fix the interest rates as
indicated below and entitles the Company to settle with the counterparty on a
quarterly basis, the product of the notional amount times the amount, if any,
by which the ninety day LIBOR exceeds the fixed rate. Net payments to the
counterparty under the swap agreements for the years ended December 31, 1996,
1995 and 1994, which have been recorded as additional interest expense, were
as follows ($ in thousands):
ADDITIONAL INTEREST
EXPENSE
NOTIONAL ------------------
DATE OF CONTRACT AMOUNT TERM FIXED RATE 1996 1995 1994
- ---------------- -------- ---- ---------- ---- ---- ----
September 28, 1994 ...... $ 5,000 10 years 7.945% $122 $ 94 $ 34
May 12, 1995 ............ $10,000 5 years 6.590% 105 42 -
July 20, 1995 ........... $10,000 10 years 6.750% 122 38 -
---- ---- ----
$349 $174 $ 34
==== ==== ====
F-14
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
(6) LONG-TERM INDEBTEDNESS
Long-term indebtedness at December 31, 1996 and 1995 consisted of the
following ($ in thousands):
1996 1995
---- ----
Mortgage obligations(a) ................... $ 6,654 $ 6,956
Term loans(b) ............................. 5,778 5,152
Capital lease obligations(c) .............. 5,194 2,415
------ ------
Total long-term indebtedness ........ 17,626 14,523
Less: current installments ............... (2,541) (2,239)
------ ------
Long-term indebtedness, excluding
current installments ................... $ 15,085 $ 12,284
====== ======
(a) The Company has mortgage obligations payable to financial institutions
relating to certain distribution facilities due through September 13,
2004. The mortgages are collateralized by specific real estate assets of
the Company and carry interest rates ranging from the Canadian prime rate
plus 0.5% (5.25% and 8.0% as of December 31, 1996 and 1995, respectively)
to 8.51%. At December 31, 1996 and 1995, $2,100,000 and $1,800,000 of
mortgage obligations, respectively, are denominated in Canadian dollars.
(b) The Company has various term loans payable to financial institutions due
through April 1, 2002. The loans are collateralized by specific assets of
the Company and carry interest rates which range from 8.01% to 9.5%.
(c) The Company has entered into various capital leases for machinery and
equipment with implicit interest rates ranging from 4.71% to prime rate
plus 1.0% (9.25% at December 31, 1996) which extend to 2003.
At December 31, 1996, principal maturities of long-term indebtedness
consisted of the following ($ in thousands):
CAPITAL
MORTGAGES LEASE
AND LOANS OBLIGATIONS TOTAL
--------- ----------- -----
1997 ............................. $ 1,682 $1,139 $ 2,821
1998 ............................. 1,741 1,243 2,984
1999 ............................. 1,718 1,176 2,894
2000 ............................. 1,682 1,136 2,818
2001 ............................. 1,682 1,281 2,963
Thereafter ....................... 3,927 147 4,074
------ ----- ------
12,432 6,122 18,554
Amount representing interest ..... - (928) (928)
------ ----- ------
Long-term indebtedness ........... $12,432 $5,194 $17,626
====== ===== ======
F-15
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
(7) DUE TO PRINCIPAL STOCKHOLDER
At December 31, 1996 and 1995, the Company owed the Principal
Stockholder $1,274,000 and $16,000,000, 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).
Interest is the prime rate plus 0.5% (8.75% and 9% at December 31, 1996 and
1995, respectively).
Prior to the IPO, certain subsidiaries of the Company declared a
dividend representing distributions of accumulated Subchapter S profits of
$15,841,000 and a return of capital of $7,583,000. These amounts and nearly
all of the previous balances of subordinated debt were repaid from the net
proceeds of the IPO. A waiver was obtained from the banks for the repayment
of these amounts due to the Principal Stockholder.
Further, the Company had unsecured current loans payable to the
Principal Stockholder aggregating $2,453,000 at December 31, 1995 at interest
rates ranging from 7% to 12%. The loans had different forms of collateral
but were generally subordinated to the credit facility discussed in note (5).
During 1996, these amounts were converted to subordinated debt.
(8) EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company 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 subsidiaries to match
25% to 50% of the first 6% of an employee's annual salary contributed to the
plan. Benefit expense for the years ended December 31, 1996, 1995 and 1994
totaled $731,000, $558,000 and $548,000, respectively.
In connection with the IPO, the Company established the Employee Stock
Ownership Plan (the "ESOP") for the benefit of its domestic employees and
authorized the payments of stock bonuses to certain of such employees. There
was a special one-time issuance of 250,000 shares of common stock of the
Company, valued at $1,898,000 for the establishment of the ESOP and
$1,102,000 for payment of stock bonuses.
(9) SPECIAL BONUSES
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 Consolidated
Statements of Operations in the caption "Special Bonuses." These individuals
will not receive such special bonuses after 1996. At December 31, 1996 and
1995, respectively, $1,584,000 and $2,581,000 were accrued for such bonuses
and included in accrued expenses.
F-16
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
(10) STOCK OPTION PLAN
In 1996, the Company adopted a stock option plan (the "Plan") pursuant to
which a committee of the Company's Board of Directors may grant stock options
to officers and key employees. The Plan authorizes grants of options to
purchase up to 2,000,000 shares of authorized but unissued common stock.
Stock options are granted with an exercise price no less than the stock's
fair market value at the date of grant. An option may not be exercised
within one year of grant and no option will be exercisable after ten years
from the date granted. Participants may exercise approximately 25% of the
total number of shares granted in each year subsequent to the year of the
grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized in connection with the
issuance of options under the stock option plan. Had the Company's stock
option plan been determined based on the fair value of the options granted at
the grant date, the compensation cost for 1996 would not have been material.
Options were issued in connection with the IPO totaling 425,000 shares of
common stock at the initial offering price. It has been assumed that the
estimated fair value of the options is amortized on a straight line basis to
compensation expense over the vesting period of the grant, which is
approximately four years. The estimated fair value of each option on the date
of grant is $5.22, using the Black-Scholes option-pricing model with the
following assumptions: dividend yield of 0%; expected volatility of 25%;
risk-free interest rate of 6.43%; and expected lives of 7 years. All options
issued were outstanding and none was exercisable as of December 31, 1996.
(11) INCOME TAXES
Prior to the consummation of the IPO, 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. Accordingly, these companies
were not subject to federal and state income taxes, to the extent that states
recognize Subchapter S corporation status. Upon the termination of the
Subchapter S corporation status in connection with the IPO, the
aforementioned companies became subject to federal and state income taxes.
The cumulative effect of such tax status change relating to the recording of
deferred taxes as of December 18, 1996 was $786,000 and has been included in
the income tax expense for the year ended December 31, 1996.
A summary of the domestic and foreign pre-tax income for the years ended
December 31, 1996, 1995 and 1994 were as follows ($ in thousands):
1996 1995 1994
---- ---- ----
Domestic $3,137 $17,750 $10,009
====== ======= =======
Foreign $2,595 $ 1,456 $ 582
====== ======= =======
F-17
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
The provision for income taxes consisted of the following ($ in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---- ---- ----
Current:
Foreign $ 992 $ 731 $ 464
State 212 - -
------ ------- ------
Total current provision 1,204 731 464
------ ------- ------
Deferred:
Change in tax status 786 - -
Foreign 100 - -
Federal (113) - -
State (25) - -
------ ------- ------
Total deferred provision 748 - -
------ ------- ------
Income tax expense $1,952 731 464
====== ======= ======
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1996,
the deferred assets and liabilities consisted of the following ($ in
thousands):
Current deferred tax assets:
Provision for doubtful accounts $1,692
Accrued liabilities 1,568
Inventories 1,438
Other 175
------
Current deferred tax assets $4,873
======
Non-current deferred tax liabilities:
Property, plant and equipment $4,484
Future taxable income resulting from
a change in accounting method
for tax purposes 823
Other 355
------
Non-current deferred tax liabilities $5,662
======
F-18
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences.
The difference between the Company's effective tax rate and the federal
statutory rate of 35% is reconciled below:
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Provision at federal statutory rate 35% 35% 35%
Effect of Subchapter S income not
subject to federal income taxes (19.1) (32.3) (33.1)
Change in tax status 13.7 - -
Other 4.5 1.1 2.5
------ ------ ------
Effective tax rate 34.1% 3.8% 4.4%
====== ====== ======
(12) STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On December 18, 1996, the Company completed the IPO in which it sold
4,000,000 shares of its common stock for $12.00 per share. The proceeds, net
of underwriter's discount, fees and expenses, of $ 43,340,000 were used to
repay subordinated debt outstanding to stockholders and loans payable to banks.
At December 31, 1996, the Company's authorized capital stock consisted of
5,000,000 shares of preferred stock, $0.10 par value, of which no shares were
issued or outstanding, and 50,000,000 shares of common stock, $0.10 par value,
of which 20,698,076 shares were issued and outstanding.
F-19
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
(13) LEASES
The Company is obligated under various capital leases for certain machinery
and equipment which expire on various dates through October 1, 2001 (see also
note (6)). At December 31, 1996 and 1995, the amount of machinery and
equipment and related accumulated amortization recorded under capital leases
and included with property, plant and equipment consisted of the following ($
in thousands):
1996 1995
---- ----
Machinery and equipment ...................... $6,452 $3,174
Less: accumulated amortization .............. (1,042) (564)
------- -------
$5,410 $2,610
======= =======
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Company has several noncancelable operating leases with unaffiliated
third parties, primarily for office and manufacturing space, showrooms, and
warehouse equipment that expire over the next eight years. These leases
generally contain renewal options and require the Company to pay real estate
taxes, utilities and related insurance.
At December 31, 1996, the Company also had noncancelable operating leases
with the Principal Stockholder and real estate entities owned either directly
or indirectly by the Principal Stockholder ("Unconsolidated Affiliates") for
warehouse and office space that expire over the next five years. Rent due to
Unconsolidated Affiliates represents future commitments associated with
property leased by the Company from the Principal Stockholder or such entities
owned directly or indirectly by the Principal Stockholder.
F-20
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
At December 31, 1996 future minimum lease payments under all operating
leases consisted of the following ($ in thousands):
THIRD UNCONSOLIDATED
PARTIES AFFILIATES TOTAL
------- -------------- ------
1997 ........................ $ 3,831 $ 2,246 $ 6,077
1998 ........................ 3,883 2,309 6,192
1999 ........................ 2,713 2,374 5,087
2000 ........................ 1,908 1,239 3,147
2001 ........................ 1,908 167 2,075
2002 - 2006 ................. 6,184 - 6,184
2007 - 2011 ................. 4,631 - 4,631
2012 - 2016 ................. 4,325 - 4,325
Thereafter .................. 505 505
-------- ------- -------
$ 29,888 $ 8,335 $38,223
======== ======= =======
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$5,300,000, $2,547,000 and $2,245,000, respectively, of which $2,134,000,
$936,000 and $893,000, respectively, related to leases with Unconsolidated
Affiliates.
On April 5, 1996, the Company entered into an operating lease agreement
with a third party whereby the Company may lease up to $11,000,000 of machinery
and equipment. The agreement provides for equal monthly payments over 12
years, including renewal options. In connection with this agreement, the
Company has entered into commitments for equipment with a fair value of
approximately $10,800,000 as of December 31, 1996. Assuming the entire lease
facility is utilized, future minimum lease payments will be increased as
follows ($ in thousands):
1997 $ 1,305
1998 1,305
1999 1,305
2000 1,305
2001 1,305
Thereafter 9,135
-------
$15,660
=======
(14) SEGMENT INFORMATION
INDUSTRY SEGMENTS
The Company operates in one industry segment which involves the design,
manufacture, contract for manufacture and distribution of party and novelty
goods.
F-21
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
GEOGRAPHIC SEGMENTS
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in the foreign markets.
The Company's geographic area data for each of the three fiscal years ended
December 31, 1996, 1995 and 1994 were as follows ($ in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
1996
Sales to unaffiliated customers ........ $168,165 $24,540 $192,705
Sales between geographic areas ......... 8,643 116 $ (8,759) -
-------- ------- --------- --------
Net sales .............................. $176,808 $24,656 $ (8,759) $192,705
======== ======= ========= ========
Income from operations ................. $ 10,643 $ 2,115 $ 12,758
======== =======
Interest expense, net .................. 6,691
Other expense, net ..................... 335
--------
Income before income taxes and
minority interests ................... $ 5,732
========
Identifiable assets .................... $120,029 $12,802 $132,831
======== =======
Goodwill ............................... 7,443
--------
Total assets ........................... $140,274
========
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
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 income, 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>
F-22
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
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>
(15) 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, 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 December
31, 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.
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,
1996 would require the Company to pay the bank $719,500.
(16) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED)
Pro forma net income for the years ended December 31, 1996, 1995 and 1994
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.
F-23
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996
For purposes of the pro forma net income per share of $0.60 for the year
ended December 31, 1996, net income has been adjusted to give effect to (i) the
reduction in compensation expenses ($14,173,000) paid to an officer assuming
the officer was a stockholder as of the beginning of the period presented, (ii)
the reduction in interest expense related to bank debt and subordinated
indebtedness due to the Principal Stockholder assuming such debt was repaid
from the net proceeds of the IPO as of the beginning of the period presented
($2,228,000), and (iii) additional pro forma income taxes calculated at 40.5%
assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp.
had not elected Subchapter S corporation status ($6,518,000).
The supplemental pro forma net income per share of $0.77 for the year ended
December 31, 1996 gives effect to (i) reductions in compensation expense
($16,757,000) related to certain terminated employment agreements and
compensation payments associated with the termination of such agreements, (ii)
the reduction in compensation expense ($3,000,000) related to the establishment
of the ESOP and payment of stock bonuses, (iii) the amortization of goodwill
($250,000) and elimination of minority interest related to the 50% acquisition
of Am-Source, Inc. ($1,403,000) as if it were acquired at the beginning of the
period presented, (iv) the reduction of interest expense ($2,228,000) related
to the repayment of bank indebtedness and subordinated indebtedness due to the
Principal Stockholder from net proceeds of the IPO, as if it occurred at the
beginning of the period presented, and (v) 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
($9,347,000).
PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
In accordance with the provisions of SAB 83, the pro forma weighted
average common shares outstanding represents the historical weighted average
common shares outstanding adjusted for the shares issued in connection with the
exchange of shares in the Organization, the IPO shares and other shares issued
in contemplation of the IPO to have been outstanding as if the transactions
occurred at the beginning of the period presented.
SUPPLEMENTAL PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Supplemental pro forma weighted average common shares outstanding
represents the pro forma weighted average common shares outstanding adjusted
for the shares issued in connection with the establishment of the ESOP, payment
of stock bonuses, and acquisition of the additional 50% of Am-Source, Inc. as
if the transactions occurred at the beginning of the period presented.
(17) SUBSEQUENT EVENT
On January 8, 1997, an additional 422,400 shares of common stock were sold
at $12.00 per share to cover the over-allotments as provided for in the
underwriting agreements between the Company and the underwriters associated
with the IPO. The proceeds, net of underwriter's discount, fees and expenses,
of $4,588,984 were used to repay borrowings outstanding to banks.
F-24
<PAGE>
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995, and 1994
($ in thousands)
Beginning Ending
Balance Write-offs Additions Balance
--------- ---------- --------- -------
Allowance for Doubtful
Accounts:
For the year ended:
December 31, 1994 .......... $1,104 $1,855 $2,676 $1,925
December 31, 1995 .......... 1,925 1,001 1,581 2,505
December 31, 1996 .......... 2,505 717 2,350 4,138
Beginning Ending
Balance Write-offs Additions Balance
--------- ---------- --------- -------
Inventory Reserves
For the year ended:
December 31, 1994 .......... $ 609 $ 375 $ 600 $ 834
December 31, 1995 .......... 834 406 800 1,228
December 31, 1996 .......... 1,228 731 1,188 1,685
F-25
<PAGE>
SHARE EXCHANGE AGREEMENT
Share Exchange Agreement (this "AGREEMENT") dated as of
December 18, 1996, among Amscan Holdings, Inc., a Delaware corporation
(the "COMPANY"), and John A. Svenningsen, an individual residing in the
State of New York ("SVENNINGSEN"), Gerald C. Rittenberg, an individual
residing in the State of New York ("RITTENBERG") and the following trusts
each created by agreement dated as of October 29, 1996: Christina
Svenningsen Trust, Jon Svenningsen Trust, Elisabeth Svenningsen Trust,
Melissa Svenningsen Trust, Emily Svenningsen Trust, and Sara Svenningsen
Trust (such six trusts being collectively, the "SVENNINGSEN TRUSTS" and
individually, a "SVENNINGSEN TRUST").
W I T N E S S E T H :
WHEREAS, Svenningsen is the owner of the shares (the
"SVENNINGSEN EXCHANGE SHARES") of capital stock of the companies (the
"OPERATING COMPANIES") listed on Schedules A and B hereto in the number
and percentage listed opposite each such company; and
WHEREAS, each of the Svenningsen Trusts is the owner of 13-1/3
shares (such 13-1/3 shares owned by a Svenningsen Trust being with
respect to such Svenningsen Trust the "TRUST EXCHANGE SHARES") of the
common stock, no par value of SSY Realty Corp., a New York corporation
and one of the Operating Companies ("SSY"); and
Whereas, Rittenberg is the owner of 32.84 shares (the
"RITTENBERG EXCHANGE SHARES") of the common stock, no par value of Amscan
Inc., a New York corporation and one of the Operating Companies
("AMSCAN"); and
WHEREAS, 1,000 shares of the Company's common stock, par value
$0.10 per share ("COMPANY COMMON STOCK") were issued previously to
Svenningsen in connection with the organization of the Company; and
WHEREAS, in connection with the organization of the Company and
the initial public offering of Company Common Stock (the "TRANSACTION"),
the Company and Svenningsen wish to provide for (i) the shares of capital
stock of each of the Operating Companies identified in Schedule A hereto
which constitute a portion of the Svenningsen Exchange Shares to be
exchanged by Svenningsen for a certain number of shares of Company Common
Stock determined by the Company and Svenningsen to represent the fair
market value of such one of the Operating Companies and (ii) the shares
of capital stock of each of the Operating Companies identified in
Schedule B hereto which constitute a portion of the Svenningsen Exchange
Shares to be exchanged by Svenningsen for a combination of a certain
number of shares of Company Common Stock and cash in the
<PAGE>
2
amount set forth opposite the name of such one of the Operating Companies
in Schedule B hereto determined by the Company and Svenningsen to
represent in the aggregate the fair market value of such one of the
Operating Companies, which shares of Company Common Stock to be delivered
to Svenningsen in respect of the Operating Companies total 15,023,616
additional shares of Company Common Stock (such aggregate number of
shares being the "SVENNINGSEN ACQUISITION SHARES"), and which cash
payments aggregate $133,000 (such aggregate cash amount being the
"SVENNINGSEN CASH PAYMENT," and together with the Svenningsen Acquisition
Shares, the "SVENNINGSEN CONSIDERATION"); and
WHEREAS, in connection with the Transaction, the Company and
each of the Svenningsen Trusts wish to provide for the exchange by each
of such Svenningsen Trusts of the Trust Exchange Shares for the number of
shares of Company Common Stock listed opposite such Svenningsen Trust's
name on Schedule C hereto (such shares of Company Common Stock
transferred to a Svenningsen Trust being with respect to such Svenningsen
Trust the "TRUST ACQUISITION SHARES"); and
WHEREAS, in connection with the Transaction, the Company and
Rittenberg wish to provide for the exchange by Rittenberg of the
Rittenberg Exchange Shares for 660,000 shares of Company Common Stock
(the "RITTENBERG ACQUISITION SHARES"); and
WHEREAS, Rittenberg and the Company wish to confirm certain of
Rittenberg's agreements regarding restrictions on the transfer of the
Rittenberg Acquisition Shares.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. EXCHANGE OF SHARES
(a) Effective as of the date hereof Svenningsen transfers all
right, title and interest to the Svenningsen Exchange Shares to the
Company, in exchange for the Svenningsen Consideration, and the Company
issues and delivers the Svenningsen Acquisition Shares and pays the
Svenningsen Cash Payment to Svenningsen in exchange for the Svenningsen
Exchange Shares.
(b) Effective as of the date hereof each Svenningsen Trust
transfers all right, title and interest to the Trust Exchange Shares to
the Company, in exchange for the Trust Acquisition Shares, and the
Company issues and delivers the Trust Acquisition Shares in exchange for
the Trust Exchange Shares.
(c) Effective as of the date hereof Rittenberg transfers all
right, title and interest to the Rittenberg Exchange Shares to the
Company, in exchange for the Rittenberg
<PAGE>
3
Acquisition Shares, and the Company issues and delivers the Rittenberg
Acquisition Shares in exchange for the Rittenberg Exchange Shares.
2. DELIVERY OF SHARES AND CASH PAYMENT TO SVENNINGSEN
(a) Promptly upon the execution and delivery of this
Agreement, (i) Svenningsen shall deliver to the Company certificates
evidencing the Svenningsen Exchange Shares, duly endorsed in blank or
accompanied by appropriate instruments of transfer in form reasonably
satisfactory to the Company, (ii) the Company shall deliver to
Svenningsen certificates evidencing the Svenningsen Acquisition Shares,
and shall record the issuance of such shares to Svenningsen on the stock
records of the Company, and (iii) the Company shall pay the Svenningsen
Cash Payment to Svenningsen by Company check, by wire transfer or as
otherwise agreed to by the parties.
(b) Promptly upon the execution and delivery of this
Agreement, (i) each Svenningsen Trust shall deliver to the Company
certificates evidencing the Trust Exchange Shares, duly endorsed in blank
or accompanied by appropriate instruments of transfer in form reasonably
satisfactory to the Company, and (ii) the Company shall deliver to each
Svenningsen Trust certificates evidencing the Svenningsen Acquisition
Shares and shall record the issuance of such shares to each Svenningsen
Trust on the stock records of the Company.
(c) Promptly upon the execution and delivery of this
Agreement, (i) Rittenberg shall deliver to the Company certificates
evidencing the Rittenberg Exchange Shares, duly endorsed in blank or
accompanied by appropriate instruments of transfer in form reasonably
satisfactory to the Company, and (ii) the Company shall deliver to
Rittenberg certificates evidencing the Rittenberg Acquisition Shares, and
shall record the issuance of such shares to Rittenberg on the stock
records of the Company.
3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(a) The Company hereby represents and warrants to Svenningsen,
Rittenberg and the Svenningsen Trusts as follows:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has full corporate power and authority to conduct its business as it is
now being conducted. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction
where such qualification is necessary, except where a failure to be so
<PAGE>
4
qualified could not reasonably be expected to have a material adverse
effect upon the business, properties or operations of the Company.
(ii) The authorized capital stock of the Company consists
of 50,000,000 shares of Company Common Stock, of which, without giving
effect to the shares of Company Common Stock issued pursuant hereto,
1,000 shares are issued and outstanding, and are owned of record by
Svenningsen, and 5,000,000 shares of preferred stock, par value $0.10 per
share, of which no shares are issued and outstanding.
(iii) No consent, approval or authorization of, or
declaration, filing or registration with, any third party, including any
governmental or regulatory authority, on the part of the Company, is
required in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby other than
the filing of a Form D pursuant to regulations under the Securities Act
of 1933, as amended (such Act and the rules and regulations thereunder,
collectively, the "1933 ACT") and other than any consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or blue sky laws in connection with the exchange
contemplated hereby.
(iv) The Company has full corporate power and authority to
execute, deliver and perform this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not conflict with, or result in a violation of,
or constitute a material default under, any provision of the Certificate
of Incorporation or By-laws of the Company, or any material agreement,
mortgage, indenture, license, permit, lease or other instrument or any
judgment, decree, ruling or order to which the Company is a party or by
which the Company or its properties are bound.
(v) This Agreement has been duly authorized by all
necessary corporate action, has been duly executed and delivered by or on
behalf of the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its
terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws presently or hereafter in
effect affecting the enforcement of creditors' rights generally or by
general rules of equity.
(b) The Company hereby represents and warrants to Svenningsen
that the Svenningsen Acquisition Shares, when issued to Svenningsen in
accordance with the terms hereof, will have been duly authorized, validly
issued, and will be fully paid and non-assessable. The issuance of the
Svenningsen Acquisition Shares to Svenningsen in accordance with the
terms hereof will transfer to Svenningsen full legal and valid title
thereto, free and clear of any liens, security interests, charges,
pledges or encumbrances.
<PAGE>
5
(c) The Company hereby represents and warrants to each of the
Svenningsen Trusts that the Trust Acquisition Shares, when issued to such
Svenningsen Trust in accordance with the terms hereof, will have been
duly authorized, validly issued and will be fully paid and non-assessable.
The issuance of the Trust Acquisition Shares to such Svenningsen Trust in
accordance with the terms hereof will transfer to such Svenningsen Trust
full legal and valid title thereto, free and clear of any liens, security
interests, charges, pledges or encumbrances.
(d) The Company hereby represents and warrants to Rittenberg
that the Rittenberg Acquisition Shares, when issued to Rittenberg in
accordance with the terms hereof, will have been duly authorized, validly
issued, and will be fully paid and non-assessable. The issuance of the
Rittenberg Acquisition Shares to Rittenberg in accordance with the terms
hereof will transfer to Rittenberg full legal and valid title thereto,
free and clear of any liens, security interests, charges, pledges or
encumbrances.
4. REPRESENTATIONS AND WARRANTIES OF SVENNINGSEN
Svenningsen hereby represents and warrants to the Company as
follows:
(a) The Svenningsen Exchange Shares are owned beneficially and
of record by Svenningsen, free and clear of any liens, security
interests, charges, pledges or encumbrances. The Svenningsen Exchange
Shares, the Rittenberg Exchange Shares and the Trust Exchange Shares have
been duly authorized, and are validly issued, fully paid and non-
assessable, and the Svenningsen Exchange Shares represent the percentage
of issued and outstanding capital stock of the Operating Companies as set
forth on Schedules A and B hereto. The transfer of the Svenningsen
Exchange Shares to the Company in accordance with the terms hereof will
transfer to the Company full legal and valid title thereto, free and
clear of any liens, security interests, charges, pledges or encumbrances.
(b) No consent, approval or authorization of, or declaration,
filing or registration with, any third party, including any governmental
or regulatory authority, on the part of Svenningsen or any of the
Operating Companies, is required in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby other than consents which have heretofore been
obtained.
(c) Svenningsen has full power and authority to execute,
deliver and perform this Agreement, and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
will not conflict with, or result in a violation of, or constitute a
default under, any provision of the Certificate or Articles of
Incorporation or By-laws of any of the Operating Companies, or any
material agreement, mortgage, indenture, license, permit, lease or other
instrument or any judgment, decree, ruling or
<PAGE>
6
order to which any of Svenningsen or the Operating Companies is a party or
by which any of Svenningsen or the Operating Companies or his or their
respective properties are bound.
(d) This Agreement constitutes the legal, valid and binding
obligation of Svenningsen, enforceable against him in accordance with its
terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws presently or hereafter in
effect affecting the enforcement of creditors' rights generally or by
general rules of equity.
(e) Svenningsen will acquire the Svenningsen Acquisition
Shares for his own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof except in
compliance with 1933 Act, and he will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of any of such Svenningsen
Acquisition Shares (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of any of such Svenningsen Acquisition Shares)
except in compliance with the 1933 Act. Svenningsen acknowledges that
the Svenningsen Acquisition Shares shall constitute "restricted
securities" as defined in Rule 144 under the 1933 Act.
(f) Svenningsen is an "accredited investor" as defined in
Regulation D under the 1933 Act.
5. REPRESENTATIONS AND WARRANTIES OF THE SVENNINGSEN TRUSTS
Each of the Svenningsen Trusts hereby represents and warrants
to the Company solely as to itself as follows:
(a) The Trust Exchange Shares are owned by it beneficially and
of record, free and clear of any liens, security interests, charges,
pledges or encumbrances. The Trust Exchange Shares represent 6-2/3
percent of the issued and outstanding capital stock of SSY. The transfer
of the Trust Exchange Shares to the Company in accordance with the terms
hereof will transfer to the Company full legal and valid title thereto,
free and clear of any liens, security interests, charges, pledges or
encumbrances.
(b) No consent, approval or authorization of, or declaration,
filing or registration with, any third party, including any governmental
or regulatory authority, on the part of the Svenningsen Trust, is
required in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
(c) The Svenningsen Trust has full power and authority to
execute, deliver and perform this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not conflict with, or result in a
<PAGE>
7
violation of, or constitute a default under, any material agreement,
mortgage, indenture, license, permit, lease or other instrument or any
judgment, decree, ruling or order to which the Svenningsen Trust is a
party or by which the Svenningsen Trust or its properties are bound.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Svenningsen Trust, enforceable against it in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws presently or hereafter in
effect affecting the enforcement of creditors' rights generally or by
general rules of equity.
(e) The Svenningsen Trust will acquire the Trust Acquisition
Shares for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof except in
compliance with the 1933 Act, and the Svenningsen Trust will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of any of such Trust Acquisition Shares (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of any of such Trust
Acquisition Shares) except in compliance with the 1933 Act. The
Svenningsen Trust acknowledges that the Trust Acquisition Shares shall
constitute "restricted securities" as defined in Rule 144 under the 1933
Act.
(f) The Svenningsen Trust has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of the prospective investment in the Trust Acquisition
Shares and the Svenningsen Trust has received a copy of the Company's
Preliminary Prospectus dated December 2, 1996 relating to the proposed
initial public offering of Company Common Stock by the Company.
6. REPRESENTATIONS AND WARRANTIES OF RITTENBERG
Rittenberg hereby represents and warrants to the Company as
follows:
(a) The Rittenberg Exchange Shares are owned by Rittenberg
beneficially and of record, free and clear of any liens, security
interests, charges, pledges or encumbrances. The transfer of the
Rittenberg Exchange Shares to the Company in accordance with the terms
hereof will transfer to the Company full legal and valid title thereto,
free and clear of any liens, security interests, charges, pledges or
encumbrances.
(b) No consent, approval or authorization of, or declaration,
filing or registration with, any third party, including any governmental
or regulatory authority, on the part of Rittenberg, is required in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
<PAGE>
8
(c) Rittenberg has full power and authority to execute,
deliver and perform this Agreement, and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
will not conflict with, or result in a violation of, or constitute a
default under, any material agreement, mortgage, indenture, license, permit,
lease or other instrument or any judgment, decree, ruling or order to which
Rittenberg is a party or by which Rittenberg or his respective properties are
bound.
(d) This Agreement constitutes the legal, valid and binding
obligation of Rittenberg, enforceable against him in accordance with its
terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws presently or hereafter in
effect affecting the enforcement of creditors' rights generally or by
general rules of equity.
(e) Rittenberg will acquire the Rittenberg Acquisition Shares
for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof except in compliance
with the 1933 Act, and he will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of any of such Rittenberg
Acquisition Shares (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of any of such Rittenberg Acquisition Shares)
except in compliance with the 1933 Act. Rittenberg acknowledges that the
Rittenberg Acquisition Shares shall constitute "restricted securities" as
defined in Rule 144 under the 1933 Act.
(f) Rittenberg is an "accredited investor" as defined in
Regulation D under the 1933 Act.
7. CONFIRMATION OF RITTENBERG'S AGREEMENTS
Subject to and in accordance with the terms of the Stock
Agreement among Rittenberg, Svenningsen and Amscan Inc., dated October 9,
1996 (the "STOCK AGREEMENT") and the Loan Agreement between Svenningsen,
Rittenberg and Kurzman & Eisenberg, LLP, as escrow agent, dated October
9, 1996 (the "LOAN AGREEMENT"), Rittenberg hereby confirms his agreement
that he will not sell any Rittenberg Acquisition Shares received by
Rittenberg hereunder for a period of twelve (12) consecutive months from
the date hereof, except that during such twelve month period, Rittenberg
may (i) transfer any of such shares to Svenningsen to repay indebtedness
which Rittenberg might incur pursuant to the Loan Agreement, and/or (ii)
make gifts of the Rittenberg Acquisition Shares; provided, however that
Rittenberg personally agrees and agrees on behalf of the donees of
Rittenberg Acquisition Shares in connection with such gifts that none of
the donees of his gifts will sell Rittenberg Acquisition Shares prior to
the third anniversary of the transfer of the Rittenberg Acquisition
Shares to Rittenberg.
<PAGE>
9
8. MISCELLANEOUS
(a) From time to time on and after the date hereof, each of
the parties hereto shall deliver or cause to be delivered such further
documents and instruments and shall do and cause to be done such further
acts and things as shall be necessary or desirable to carry out the
intent of the parties hereto and accomplish the purposes set forth
herein.
(b) This Agreement may not be modified or amended except by an
instrument or instruments in writing signed by the party against whom
enforcement of any such modifications or amendment is sought. Any party
hereto may, by an instrument in writing, waive compliance by another
party hereto with any term or provision of this Agreement included for
the benefit of such waiving party. The waiver by any party hereto of a
breach of any terms or provisions of this Agreement shall not be
construed as a waiver of any other terms or provisions or of any further
breach.
(c) This Agreement, together with the related schedules
hereto, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter
herein or thereof.
(d) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors. This
Agreement may not be assigned by any party hereto.
(e) Any notice or other communication given pursuant to this
Agreement shall be in writing and shall be given to the parties at the
following addresses or at such other addresses as the parties may
hereafter specify in writing:
If to the Company:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Attn.: Mr. James M. Harrison
with a copy to:
Cummings & Lockwood
Four Stamford Plaza
P.O. Box 120
Stamford, Connecticut 06904
Attn.: Paul G. Hughes, Esq.
<PAGE>
10
If to Svenningsen or any of the Svenningsen Trusts:
Mr. John A. Svenningsen
c/o Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
with a copy to:
Kurzman & Eisenberg, LLP
One North Broadway
White Plains, New York 10601
Attn: Joel Lever, Esq.
If to Rittenberg:
Mr. Gerald C. Rittenberg
18 Carey Drive
Bedford, New York 10506
with a copy to:
Orloff, Lowenbach, Stifelman & Siegel, P.A.
101 Eisenhower Parkway
Roseland, New Jersey 07068
Attn: Susan M. Holzman, Esq.
Any such notice or communication shall be hand delivered,
mailed by registered or certified mail, return receipt requested, postage
prepaid, sent by a recognized overnight delivery service or sent by
telecopier with receipt confirmed by telephone by the recipient of such
notice or other communication. If hand delivered, notice shall be
effective upon delivery; if mailed, notice shall be effective upon the
fourth day following the postmark date; if sent by a recognized overnight
delivery service, notice shall be effective upon the second business day
after deposit with such delivery service; if telecopied, notice shall be
effective upon confirmation of receipt.
(f) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect
to principles of conflict of laws. All claims, disputes or causes of
action relating to or arising out of this Agreement shall be
<PAGE>
11
brought, heard and resolved solely and exclusively by and in a federal or
state court situated in New York.
(g) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Descriptive headings are for convenience only and will not
control or affect the meaning or construction of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
Amscan Holdings, Inc.
/s/ James M. Harrison
--------------------------------------
Name: James M. Harrison
Title: Chief Financial Officer and
Secretary
/s/ John A. Svenningsen
--------------------------------------
John A. Svenningsen
/s/ Gerald C. Rittenberg
--------------------------------------
Gerald C. Rittenberg
<PAGE>
12
Christina Svenningsen Trust
/s/ John A. Svenningsen
By------------------------------------
John A Svenningsen, Trustee
JON SVENNINGSEN TRUST
/s/ John A. Svenningsen
By------------------------------------
John A Svenningsen, Trustee
ELISABETH SVENNINGSEN TRUST
/s/ John A. Svenningsen
By------------------------------------
John A Svenningsen, Trustee
MELISSA SVENNINGSEN TRUST
/s/ John A. Svenningsen
By------------------------------------
John A Svenningsen, Trustee
EMILY SVENNINGSEN TRUST
/s/ John A. Svenningsen
By------------------------------------
John A Svenningsen, Trustee
SARA SVENNINGSEN TRUST
/s/ John A. Svenningsen
By------------------------------------
John A Svenningsen, Trustee
<PAGE>
SCHEDULE A
Number of Shares and Percentage of Issued and
Outstanding Shares Owned and To Be Exchanged by
Name of Entity John A. Svenningsen
Amscan Inc. 660 shares of common stock, no par value/100%
Am-Source, Inc. 60 shares of common stock, no par value/50%
Trisar, Inc. 266.66 shares of common stock, no par value/100%
JCS Realty Corp. 1 share of common stock, no par value/100%
SSY Realty Corp. 120 shares of common stock, no par value/60%
<PAGE>
SCHEDULE B
Number of Shares and
Percentage of Issued and
Outstanding Shares Owned Cash Portion of
and To Be Exchanged by Svenningsen
Name of Entity John A. Svenningsen Consideration
Amscan Distributors 3,000 shares of common stock, par
(Canada) Ltd. value $1 (Canadian) per share/100% $75,000
Amscan Svenska AB 1,500 shares of common stock,
no par value/100% $2,000
Amscan Holdings Limited 215,625 shares of common
stock, par value 20p per
share/75% $20,000
5,000 shares of preference stock,
par value 1 British Pound Sterling
per share/100%
Amscan (Asia Pacific) 760 shares of common stock, par
Pty. Ltd. value Aus. $1 per share/85% $20,000
Amscan Partyartikel GmbH 47,500 shares/95% $14,000
Amscan de Mexico, S.A. 30 shares of Class B common stock,
de C.V. no par value and 1,730 shares of
Class B-1 common stock, no par
value/50% of all outstanding
shares of capital stock $2,000
<PAGE>
SCHEDULE C
Name of Trust Number of Shares of
Company Common Stock
Christina Svenningsen Trust 23,076
Jon Svenningsen Trust 23,077
Elisabeth Svenningsen Trust 23,077
Melissa Svenningsen Trust 23,077
Emily Svenningsen Trust 23,077
Sara Svenningsen Trust 23,077
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("AGREEMENT") dated as of the 1st day of
February, 1997, effective as of the 1st day of June, 1997 between AMSCAN
HOLDINGS, INC., a Delaware corporation, with offices at 80 Grasslands Road,
Elmsford, New York 10523 (the "COMPANY"), and JAMES M. HARRISON residing at
16 High Street, East Williston, New York, (the "EMPLOYEE");
WITNESSETH,
THAT, WHEREAS,
A. The Company is engaged in the business of designing,
manufacturing and distributing seasonal and everyday party goods;
B. The Employee is employed by the Company as the Chief Financial
Officer of the Company and desires to continue to be employed by
the Company in the same capacity;
C. The Company desires to have the Employee continue to serve as its
Chief Financial Officer;
D. The Company and the Employee recognize the possibility that the
Company may, at some point in the future, be subject to a Change
in Control (as hereinafter defined) and that the possibility of
such a Change in Control causes some uncertainty as to the future
employment of the Employee by the Company or a successor
corporation;
E. The Company recognizes that such uncertainty may result in the
departure or distraction of management personnel to the detriment
of the Company and its stockholders; and
F. The Company has determined to take appropriate steps to reinforce
and encourage the continued attention and dedication of members
of the Company's management, including the Employee, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a
Change in Control of the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. SCOPE OF EMPLOYMENT.
(a) TERM. The Company agrees to employ the Employee during the
period commencing on June 1, 1997 and ending on May 31, 2001 (the "INITIAL
TERM") as the Chief Financial Officer of the Company, and the Employee
agrees to be employed by the Company in such capacity, subject to the
termination provisions set forth in Paragraph 7.
(b) EXTENSION OF INITIAL TERM. The Initial Term of this Agreement
will be automatically extended after May 31, 2001 for additional successive
periods of (1) year each with the first such extension period beginning on
June 1, 2001 (an "ADDITIONAL TERM") (the Initial Term and any Additional
Term thereof pursuant to this Paragraph 1 being hereinafter referred to as
the "PERIOD OF EMPLOYMENT"), unless either the Company gives the Employee
or the Employee gives the Company not less than twelve (12) months written
notice prior to the end of the Initial Term or any such Additional Term of
such party's intention not to extend the Period of Employment.
(c) DUTIES. The Company hereby employs the Employee, and the
Employee accepts such employment, to serve as the Chief Financial Officer
of the Company during the Period of Employment, and, in such capacity, to
perform any and all duties normally performed by a Chief Financial Officer
to the best of the Employee's abilities. The Company's board of directors
("BOARD"), the Chairman, Chief Executive Officer or President of the
Company shall have the power to determine the specific duties to be
performed by Employee, to supervise the duties to be performed, the manner
of performing such duties, and the terms for performance thereof.
Notwithstanding the foregoing, Employee shall not be required to work in
any location outside a fifty (50) mile radius of the current location of
the Company's principal executive offices.
(d) OTHER SERVICES. During the Period of Employment, Employee shall
perform such other services for the Company as shall be prescribed from
time to time by the Board; except as provided in Paragraph 2, no
additional compensation shall be payable to the Employee for any services
performed by him as an officer, director or in any other capacity for the
Company. As used in this Agreement, the term "COMPANY" shall include the
subsidiaries of the Company.
(e) BEST EFFORTS. During the Period of Employment, the Employee
agrees to devote his full business time, attention and best efforts to the
faithful discharge of the duties described in Paragraph 1(c) and to use his
best efforts to promote the interests and welfare of the Company. During
the Period of Employment, the Employee shall not engage in any other
significant business activity, regardless of whether or not it is pursued
for gain or profit. The parties hereto understand and agree that Employee
may participate in charitable and similar activities which may, from time
to time, require portions of his time, but which Employee agrees shall not
interfere with the performance of his duties hereunder, nor adversely
reflect upon the Company or its operations. The Company agrees that the
Employee shall not be in violation of this provision as a result of his
ownership of not more than 5% of the issued and outstanding stock of any
publicly traded company.
- 2 -
<PAGE>
2. BASE SALARY.
(a) For his services hereunder, the Company shall pay the Employee a
base salary ("BASE SALARY") equal to $215,000.00 per annum for the twelve
(12) month period commencing June 1, 1997 through May 31, 1998.
(b) Commencing June 1, 1998, and for each succeeding twelve (12)
month period commencing on each June 1st thereafter during the Period of
Employment, the Base Salary shall be increased by five percent (5%) per
annum over the Base Salary in the preceding twelve (12) month period.
(c) The Base Salary shall be payable to the Employee in regular
intervals in accordance with the Company's usual payroll practices.
(d) All compensation shall be subject to such withholding of any
federal, state or local taxes as may be required by law with respect to
such payments.
3. BONUS COMPENSATION.
(a) ANNUAL BONUS. In addition to the Base Salary set forth in
Paragraph 2 hereof, Employee shall be entitled to receive an annual bonus
for each calendar year of employment hereunder (the "BONUS"). The Bonus
shall be nondiscretionary and shall be awarded if earned, based on a
calculation in accordance with the formula set forth on SCHEDULE "A"
hereto.
(b) Notwithstanding the commencement of this Agreement on June 1,
1997, the Employee shall be entitled to a Bonus for the entire 1997
calendar year which shall be calculated based upon the $215,000 Base Salary
initially payable hereunder.
(c) All bonuses payable hereunder shall be computed by the Company's
accountants and such determination shall be final and binding on the
parties hereto. Employee, upon request, will be entitled to review the
documents, reports and statements necessary to confirm the computations
made in connection with the Bonus.
(d) All Bonuses shall be paid no later than the March 15th following
the end of the calendar year in which such Bonus was earned.
4. FRINGE BENEFITS.
As additional consideration for the services of the Employee under
this Agreement, the Company shall provide to the Employee all fringe
benefits provided by the Company to other key senior management personnel,
including the following:
(a) VACATION AND SICK LEAVE. Employee shall be entitled to paid
vacation, holiday and sick leave, in the same manner and to the
same extent such vacation, holiday and sick leave time shall be
available to other key senior management personnel.
- 3 -
<PAGE>
(b) GROUP INSURANCE. The same coverage of group health and group
life insurance that the Company may maintain in effect from time
to time for the benefit of other key senior management personnel
provided, that the Company reserves the right to amend, modify
and/or cease maintaining any or all such insurance plans that are
in effect at any time during the Period of Employment, and to
require that employees pay all or a portion of the costs of such
policies.
(c) DEFERRED COMPENSATION PLANS. Participation in any retirement
plan, 401(k) plan, profit sharing and/or pension plan that may be
enacted by the Company, in the same manner and to the same extent
as such plan participation is available to the Company's other
key senior management personnel, and subject to the provisions
and requirements of such plans.
Notwithstanding the foregoing, the Company reserves the right to
amend, modify and/or cease maintaining any or all such
retirement, 401(k), profit-sharing and/or pension plans that are
in effect at any time during the Period of Employment, and to
require that employees pay all or a portion of the costs of such
plans.
(d) STOCK OPTIONS. Employee will be entitled to participate on the
same basis and at the same time as other key senior management
personnel in any options awarded under the Stock Option Plan to
such personnel as a group.
5. BUSINESS EXPENSES.
The Employee may incur, for the benefit of the Company and in
furtherance of the Company's business, various reasonable expenses in
accordance with the budget and policies of the Company, as determined by
its Board from time to time, for the purpose of promoting the business of
the Company. In furtherance of the foregoing, and not in limitation
thereof, the Company agrees, upon presentation by the Employee from time to
time of itemized accountings therefor, to pay or to reimburse the Employee
for, all reasonably necessary expenses of travel, promotion and
entertainment undertaken by the Employee for the benefit of the Company.
Employee shall support any claim for reimbursement for expenses by adequate
proof of such expenditures in the form of cancelled checks, vouchers,
bills, or in other form satisfactory to the Company.
6. RESTRICTIVE COVENANT.
In consideration of his special and unique services and his position,
which by its nature exposes Employee to trade secrets, proprietary
information and other confidential material and assets of the Company, the
Employee covenants and agrees as follows with the Company:
(a) For the purposes of this Agreement, the term "CONFIDENTIAL
INFORMATION" shall mean any data, proprietary information, financial
information, trade secrets, and other materials and information, including,
without limitation, contracts, customer lists, supplier lists, pricing
information, information relating to costs, marketing, selling, servicing,
technology, know-how, machinery or equipment, plans, processes, techniques,
inventions, discoveries, formulae,
- 4 -
<PAGE>
designs, patterns or devices in any way concerning the operation of the
Company's business. The term Confidential Information does not include any
information which (i) at the time of disclosure is generally available to
the public (other than as a result of a disclosure directly or indirectly
by Employee), or (ii) has been independently acquired or developed by a
third party not obligated to keep such information confidential.
(b) Employee hereby agrees that during the term of his employment by
the Company and at all times thereafter that he: (i) will keep confidential
and protect all Confidential Information (as hereinabove defined) known to
him or in his possession, (ii) will not disclose any Confidential
Information to any person or entity, except as may be required in the
performance by him of his duties as an Employee of the Company, and (iii)
will not use any Confidential Information except for the exclusive benefit
of the Company.
(c) As used in this Agreement, the term "COVENANT PERIOD" shall mean
the period commencing on the date of this Agreement and ending on the date
that is three (3) years after the last day on which Employee is employed by
the Company if this Agreement is terminated for any reason (whether at the
end of the Initial Term or any Additional Term or otherwise). During the
Covenant Period, Employee shall not:
(i) directly or indirectly (whether as owner, principal, agent,
partner, officer, employee, independent contractor,
consultant, stockholder, or otherwise), engage or
participate or have any financial interest in or perform
services for, any entity which offers any service in
competition with the Company or engages in any business or
activity which is substantially the same as any business or
activity engaged in by the Company in any location where
such activity would be in competition with the business of
the Company as conducted at the time of termination of
Employee's employment with the Company. The Employee
acknowledges that the Company now carries on its business in
many trading areas throughout the world and in particular in
the United States and Canada. Notwithstanding the
foregoing, Employee shall be permitted to own not more than
5% of the issued and outstanding stock of any publicly
traded company.
(ii) for himself or with or as an agent for any other person,
firm, corporation or entity, directly or indirectly,
solicit, interfere with, endeavor to entice away from,
divert or attempt to divert or otherwise interfere with, or
disrupt the business relationship of the Company with, (i)
any person or entity who is a client, customer or business
contact of the Company during the term of Employee's
employment by the Company, or (ii) any potential clients,
customers or business contacts with whom the Company is
actively negotiating at the time of termination of
Employee's employment with the Company.
- 5 -
<PAGE>
(iii) directly or indirectly, for his own benefit or for the
benefit of any other person, firm, corporation or entity,
divert, or attempt to divert, solicit, recruit, entice or
hire away any employees of the Company, whether or not any
such employee is a full-time, part-time or temporary
employee and whether or not such person's employment is for
a determined period or at will.
(d) In addition to a right to accounting by the Company and/or
damages and/or any other relief to which the Company may be entitled as a
result of the Employee's breach of the provisions of this Paragraph 6, the
Company will be entitled to injunctive relief restraining any such breach
or threatened breach, or the continuation of such breach, by the Employee,
provided, however that, if a court of competent jurisdiction shall
determine that this covenant shall be enforceable only if limited to a
shorter period of time or to a smaller geographical area than is herein
expressly provided, or otherwise limited, then and in such event, this
covenant shall be deemed to be limited to the extent so determined to be
enforceable, in the same manner and to the same extent as if such limits
were expressly provided herein.
(e) The Company may assign its rights and remedies against the
Employee to any person or entity, and such rights and remedies may be
enforced by any successors or assigns of the Company.
7. TERMINATION OF EMPLOYMENT.
(a) This Paragraph 7 shall apply only to termination of the Period of
Employment prior to the occurrence of a Change of Control or Potential
Change of Control (as hereinafter defined). Termination of the Period of
Employment following the occurrence of a Change of Control shall be
governed by Paragraph 9 hereof and termination following the occurrence of
a Potential Change of Control shall be governed by Paragraph 10 hereof.
(b) Notwithstanding the foregoing, the employment of the Employee
under this Agreement, and the Period of Employment, shall terminate:
(i) on the death of the Employee;
(ii) for Normal Disability (as hereinafter defined) of the
Employee;
(iii) upon the voluntary resignation of the Employee pursuant to
twelve (12) months prior written notice to the Company;
(iv) upon written notice by the Company and payment of the amount
set forth in Paragraph 7(e);
(v) upon the mutual agreement of the parties; or
- 6 -
<PAGE>
(vi) upon the discharge of the Employee by the Company for Normal
Cause (as hereinafter defined).
(c) For the purposes of this Agreement, "NORMAL CAUSE" shall mean any
one of the following: (i) the conviction of the Employee by a court of
competent jurisdiction of the commission of a felony; (ii) any act of gross
negligence or willful misconduct on the part of the Employee with respect
to his duties under this Agreement; or (iii) any act of wilful disobedience
on the part of the Employee in violation of specific and reasonable
directions of the Company. In the case of clauses (ii) and (iii) herein,
termination for Normal Cause shall not occur until such gross negligence,
willful misconduct or willful disobedience shall continue uncured for a
period of thirty (30) days after written demand for substantial performance
is delivered to Employee by the Board, which demand specifically identifies
the manner in which the Board believes the Employee has not substantially
performed his duties.
(d) Upon termination of Employee's employment hereunder for any
reason except pursuant to Paragraph 7(b)(iv), Employee shall be entitled to
receive only his accrued and unpaid Base Salary through the last day of his
employment hereunder. Notwithstanding the foregoing, in the event that (i)
the Period of Employment is terminated by the Company (other than for
Normal Cause, Normal Disability or death), by failure to renew this
Agreement at the end of the Initial Term or any Additional Term or by the
Company pursuant to Paragraph 7(b)(iv) and (ii) a Change of Control occurs
within twelve (12) months thereafter, then, in such event, Employee shall
be entitled to receive the termination payments set forth in Paragraph
11(c).
(e) Upon termination of Employee's employment hereunder pursuant to
Paragraph 7(b)(iv), Employee shall be entitled to receive, as severance
compensation (i) the full amount of the Base Salary which Employee would
otherwise be entitled to receive for the remaining Initial Term or any
Additional Term under this Agreement, as the case may be, but in no event
less than twelve (12) months Base Salary; and (ii) an amount equal to the
Bonus which Employee would otherwise have been entitled to receive for the
year in which the Employee's employment hereunder is terminated, prorated
through the date of termination of the Period of Employment. For purposes
of this Paragraph 7(e), the Bonus shall be calculated in accordance with
Paragraph 3 at the end of the calendar year in which such Bonus would
otherwise be payable and shall be paid to Employee no later than March 15th
following the end of the calendar year in which such Bonus was earned.
(f) Upon termination of the Employee's employment hereunder, whether
at the end of the term hereof or in the event of earlier termination, the
Employee shall have no further rights under this Agreement, except as
expressly herein set forth. Nothing contained herein shall be deemed to
preclude the Company from enforcing any remedies available to it at law or
equity in consequence of a breach by the Employee of his obligations to the
Company or available to the Company under the provisions of this Agreement,
including without limitation the enforcement of any restrictive covenants
hereunder to the extent herein provided.
- 7 -
<PAGE>
(g) For the purposes of this Agreement, the term "NORMAL DISABILITY"
shall mean, that the Employee is, as a result of illness or accident,
physically or mentally disabled from performing his duties hereunder to a
material extent for a period of one hundred eighty (180) days. The
determination of the existence of a disability shall be determined in good
faith by the Board.
(h) NOTICE OF TERMINATION. Any termination of the Period of
Employment by the Company pursuant to this Paragraph 7 shall be
communicated by written notice to the Employee. "Notice of Termination"
for purposes of this Paragraph 7 shall mean a notice which indicates that
the Period of Employment is to be terminated and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Period of Employment.
(i) DATE OF TERMINATION, ETC. For the purposes hereof, "Date of
Termination" shall mean (a) if the Period of Employment is terminated for
Normal Disability, thirty (30) days after Notice of Termination is given
(provided that the Employee shall not have returned to the full-time
performance of his duties during such thirty (30) day period); (b) if the
Period of Employment is terminated for Normal Cause, the date specified in
the Notice of Termination is given or (c) if the Period of Employment is
terminated upon payment to the Employee pursuant to Paragraph 7(b)(iv)
hereof, the date of the delivery of the "Notice of Termination" to the
Employee.
8. CHANGE IN CONTROL.
(a) EVENTS CONSTITUTING A CHANGE IN CONTROL. For purposes hereof, a
"Change in Control" shall have occurred if:
(i) Any "person" other than any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company (which trustee or fiduciary holds such securities
solely in their capacity as the trustee or fiduciary of such
benefit plan) within the meaning of Section 14(d) of the
Securities Exchange Act of 1934 (the "Act") becomes the
"beneficial owner" as defined in Rule 13d-3 thereunder,
directly or indirectly, of more than 35% of the Company's
Common Stock;
(ii) any "person" other than any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company acquires by proxy or otherwise the right to vote
more than 35% of the Company's Common Stock for the election
of directors, other than solicitation of proxies by the
Incumbent Board (as hereinafter defined), for any merger or
consolidation of the Company or for any other matter or
question;
(iii) during any two-year period, individuals who constitute the
Board of Directors of the Company (the "Incumbent Board") as
of the beginning of the period cease for any reason to
constitute at least a majority thereof, provided that any
person becoming a director during such period whose
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<PAGE>
election or nomination for election by the Company's
stockholders was approved by a vote of at least
three-quarters of the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director without
objection to such nomination) shall be, for purposes of this
clause (c), considered as though such person were a member
of the Incumbent Board; or
(iv) the Company's stockholders have approved the sale of all or
substantially all of the assets of the Company.
Notwithstanding anything set forth herein to the contrary, the
transfer of 35% or more of the Company's Common Stock by John Svenningsen
to members of his immediate family or trusts for their benefit, shall not
constitute a Change of Control or Potential Change of Control as that term
is used in this Agreement; provided, however, than any subsequent transfer
by such family members or trusts for their benefit, as the case may be,
shall constitute a Change of Control or Potential Change of Control, as the
case may be, if such transfer otherwise meets the definition of Change of
Control or Potential Change of Control as set forth herein.
(b) POTENTIAL CHANGE IN CONTROL. For purposes of this Agreement, a
"Potential Change in Control" of the Company shall be deemed to have
occurred if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control
of the Company;
(ii) any person (including the Company) publicly announces an
intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the
Company;
(iii) any person, other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan
of the Company (which trustee or fiduciary holds such
securities solely in their capacity as the trustee or
fiduciary of such benefit plan), or any corporation owned,
directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of
shares of the Company, becomes the beneficial owner,
directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of
the Company's then outstanding securities, or who thereafter
increases his beneficial ownership of such securities by 5%
or more; or
(iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of
the Company has occurred.
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<PAGE>
(c) BOARD ACTION. In the event the Board adopts any plan or takes
any action which, if consummated, would result in a Change in Control of
the Company, or determines by resolution that a Potential Change in Control
of the Company has occurred, the Company shall take any action determined
by the Board to be necessary or appropriate to ensure the prompt payment
when due of any amounts which may thereafter become payable hereunder upon
a termination by the Company of the Period of Employment, including but not
limited to the placement of sufficient funds to pay all such amounts in an
escrow account with a bank or other fiduciary institution.
9. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) APPLICABILITY. Following a Change in Control of the Company, the
provisions of this Paragraph 9 shall apply exclusively with respect to the
termination of the Period of Employment, and the provisions of Paragraph 11
hereof shall apply with respect to amounts payable upon such termination.
(b) GENERAL. If a Change in Control of the Company shall have
occurred, the Employee shall be entitled to the benefits provided in
Paragraph 11(c) upon the subsequent termination of the Period of
Employment, unless the termination is (a) because of the Employee's death,
(b) by the Company because of the Employee's Special Disability (as
hereinafter defined), (c) by the Company for Special Cause (as hereinafter
defined), or (d) by the Employee other than for Good Reason (as hereinafter
defined).
(c) SPECIAL DISABILITY. For the purposes hereof, a "Special
Disability" shall mean the mental or physical illness or disability of the
Employee, which continues for one hundred eighty (180) or more consecutive
days which prevents him from performing his obligations hereunder;
PROVIDED, HOWEVER, that if the Employee so requests, such disability shall
be confirmed by a licensed medical doctor reasonably chosen by the Employee
and a licensed medical doctor reasonably chosen by the Company; PROVIDED,
FURTHER, that a Special Disability shall not be deemed to have occurred
until the date of the confirmation provided for in the preceding clause, if
such clause becomes applicable.
(d) SPECIAL CAUSE. For the purposes hereof, "Special Cause" shall
mean:
(i) the willful and continued failure by the Employee to perform
substantially his duties hereunder (other than (i) any such
failure resulting from the Employee's incapacity due to
physical or mental illness (whether or not constituting
Special Disability) or (ii) any such actual or anticipated
failure after the delivery by the Employee of a Notice of
Termination for Good Reason (pursuant to Paragraph 9(f)
hereof) for a period of thirty (30) days after a written
demand for substantial performance is delivered to the
Employee by the Board, which demand specifically identifies
the manner in which the Board believes that the Employee has
not substantially performed his duties; or
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(ii) the conviction of the Employee by a court of competent
jurisdiction of commission of a felony.
For purposes of this subsection, no act, or failure to act,
on the Employee's part shall be deemed "willful" unless
done, or omitted to be done, by the Employee not in good
faith and without reasonable belief that the Employee's
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for Special Cause unless and
until there shall have been delivered to the Employee a copy
of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of
the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's
counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Employee was guilty of
conduct set forth above in this subsection and specifying
the particulars thereof in detail.
(e) GOOD REASON. The Employee shall be entitled to terminate the
Period of Employment for Good Reason. For purposes hereof, "Good Reason"
shall mean the occurrence or continuation, without consent of the Employee,
after a Change in Control of the Company of any of the following events
unless, in the case of subparagraphs (i), (v), or (vi), such circumstances
are fully corrected prior to the Date of Termination specified in a Notice
of Termination delivered by the Employee pursuant to Paragraph 9(f) hereof:
(i) the assignment to the Employee of any duties materially
inconsistent with the position with the Company that the
Employee held immediately prior to the Change in Control of
the Company, or an adverse change in the status, position or
conditions of the Employee's employment or the nature of the
Employee's responsibilities in effect immediately prior to
such Change in Control or any Potential Change in Control
which shall exist immediately prior to such Change in
Control;
(ii) a reduction by the Company in the Employee's annual Base
Salary as in effect immediately prior to such Change in
Control or any Potential Change in Control which shall exist
immediately prior to such Change in Control;
(iii) the relocation of the Company's principal office to a
location outside a fifty (50) mile radius from the Company's
principal office immediately prior to such Change in Control
or any Potential Change in Control which shall exist
immediately prior to such Change in Control, except for
required travel on the Company's business to an extent
substantially consistent with the Employee's business travel
obligations immediately
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<PAGE>
prior to such Change in Control or any Potential Change in
Control which shall exist immediately prior to such Change
in Control;
(iv) the failure by the Company to pay to the Employee any
portion of the Employee's Base Salary within seven (7) days
of the date such salary is due;
(v) the failure by the Company to continue in effect or to amend
any benefit or compensation plan in which the Employee
participates immediately prior to the Change in Control or
any Potential Change in Control which shall exist
immediately prior to such Change in Control which is
material to the Employee's total compensation, including but
not limited to the stock option, bonus, insurance,
disability and vacation plans which the Company currently
has or any substitute or additional plans adopted prior to
the Change in Control or any Potential Change in Control
which shall exist immediately prior to such Change in
Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan or plans) has been
made with respect to such plan, or the failure by the
Company to continue the Employee's participation therein (or
in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
benefits provided and the level of the Employee's
participation relative to other participants, as in
existence immediately prior to such Change in Control or any
Potential Change in Control which shall exist immediately
prior to such Change in Control; or
(vi) the failure of the Company to obtain an agreement from any
successor (as defined in Paragraph 14 hereinafter) to assume
and agree to perform this Agreement, as contemplated in
Paragraph 14 hereof.
The Employee's right to terminate the Period of Employment pursuant to
this Paragraph 9(e) shall not be affected by the Employee's incapacity due
to physical or mental illness. The Employee's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder. In the event of any
dispute between the Employee and the Company as to whether any event
constituting Good Reason shall have occurred, the burden of proving by
clear and convincing evidence that such event does not constitute Good
Reason shall rest on the Company.
(f) NOTICE OF TERMINATION. Any termination of the Period of
Employment by the Company or by the Employee pursuant to this Paragraph 9
shall be communicated by written Notice of Termination to the other party
hereto. "Notice of Termination" shall mean a notice which indicates that
the Period of Employment is to be terminated and, if the Company claims
that payments are not due to the Employee pursuant to Paragraph 11(c)
because of termination by the Company for Special Disability or Special
Cause or if the Employee claims that payments are due pursuant to Paragraph
11(c) because of termination by the Employee for Good Reason,
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<PAGE>
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Period of Employment under the
provision so indicated.
(g) DATE OF TERMINATION, ETC. For the purposes hereof, "Date of
Termination" shall mean (a) if the Period of Employment is terminated for
Special Disability, thirty (30) days after Notice of Termination is given
(provided that the Employee shall not have returned to the full-time
performance of his duties during such thirty (30) day period) or (b) if the
Period of Employment is terminated for any other reason other than death,
the date specified in the Notice of Termination (which, in the case of a
termination by the Company for Special Cause shall not be less than thirty
(30) days, and in the case of a Termination by the Employee for Good Reason
shall not be less than fifteen (15) days, respectively, from the date such
Notice of Termination is given).
10. TERMINATION FOLLOWING POTENTIAL CHANGE OF CONTROL.
(a) APPLICABILITY. So long as (i) any Potential Change in Control
described in clauses (i), (ii), or (iv) of Paragraph 8(b) hereof shall have
occurred and be continuing or (ii) for six months after any Potential
Change in Control described in clause (iii) of Paragraph 8(b) hereof shall
have occurred but no Change in Control has occurred, the provisions of this
Paragraph 10 shall apply exclusively with respect to the termination of the
Period of Employment, and the provisions of Paragraph 11 hereof shall apply
with respect to amounts payable upon such termination.
(b) GENERAL. If a Potential Change of Control of the Company has
occurred but no Change of Control has occurred, the Employee shall be
entitled to the benefits provided in Paragraph 11(c) upon the subsequent
termination of the Period of Employment, unless such termination is (a)
because of the Employee's Death, (b) by the Company because of the
Employee's Special Disability, (c) by the Company for Special Cause or (d)
by the Employee.
(c) NOTICE OF TERMINATION. Any termination of the Period of
Employment pursuant to this Paragraph 10 shall be communicated by written
Notice of Termination to the other party hereto. "Notice of Termination"
for purposes of this Paragraph 10 shall mean a notice which indicates that
the Period of Employment is to be terminated and, if the Company claims
that payments are not due to the Employee pursuant to Paragraph 11(c)
hereof because of termination by the Company for Special Disability or
Special Cause, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Period of
Employment under the provision so indicated.
(d) DATE OF TERMINATION, ETC. "Date of Termination" for purposes of
this Paragraph 10 shall be determined in the same manner as provided in
Paragraph 9(g) hereof.
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11. PAYMENTS UPON TERMINATION FOLLOWING CHANGE
OF CONTROL OR POTENTIAL CHANGE OF CONTROL.
Following a Change in Control or a Potential Change of Control, the
Employee shall be entitled to the following benefits upon termination of
the Period of Employment, as the case may be, provided that such
termination occurs prior to the expiration of the Period of Employment as
in effect on the date of such Change in Control or Potential Change of
Control.
(a) DEATH OR SPECIAL DISABILITY. Following a termination of the
Period of Employment because of the Employee's death or by the Company
because of Special Disability, the Employee's benefits shall be limited to
those provided under any retirement, insurance and other benefit programs
of the Company then in effect determined in accordance with the terms
thereof.
(b) SPECIAL CAUSE. If the Period of Employment shall be terminated
by the Company for Special Cause or by the Employee other than for Good
Reason, the Company shall pay to the Employee the Employee's Base Salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which the Employee is
entitled under any compensation or benefit plan of the Company, and the
Company shall have no further obligations to the Employee under this
Agreement. Any amounts payable to the Employee pursuant to this Paragraph
11(b) shall be payable by the Company within five business days of the Date
of Termination.
(c) OTHER. If the Period of Employment shall be terminated by the
Employee for Good Reason or by the Company other than for death, Special
Cause or Special Disability, the Employee shall be entitled to the amounts
provided below:
(i) the Company shall pay to the Employee his Base Salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts
to which the Employee is entitled under any compensation or
benefit plan of the Company; and
(ii) a lump-sum severance payment (the "Severance Payment") equal
to three (3) times the sum of (A) the Employee's Base Salary
as of the Date of Termination and (B) the aggregate bonus
received by the Employee in respect of the three full years
prior to the Date of Termination divided by three (or the
number of years in respect of which Employee received a
bonus if less than three).
(d) LEGAL EXPENSES. In addition to any other amounts payable
hereunder, the Company also shall reimburse the Employee for all legal fees
and expenses reasonably incurred by the Employee as a result of any
termination of the Period of Employment (including all such fees and
expenses, if any, incurred in contesting or disputing any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the
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<PAGE>
application of Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") to any payment or benefit provided hereunder).
(e) TIMING OF PAYMENTS. The payments provided for in subparagraphs
(i), (ii) and (iii) of Paragraph 11(c) shall be made not later than the
fifth business day following the Date of Termination; PROVIDED, HOWEVER,
that if the amounts of such payments cannot be finally determined on or
before such day, the Company shall pay to the Employee on such day an
estimate, as determined in good faith by the Company, of the minimum amount
of such payments which have been finally determined and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) promptly after the amount thereof is
finally determined. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Employee, payable after the
amount due to the Employee has been finally determined on the fifth
business day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code). Any amounts payable
by the Company under Paragraph 11(d) hereof shall be paid within five
business days after receipt by the Company of reasonable evidence as to the
amount and nature thereof.
12. PAYMENT IN THE EVENT OF A SALE OF THE COMPANY.
(a) Upon a Change of Control of the Company resulting from the
occurrence of an event pursuant to Paragraphs 8(a)(i), (ii) or (iv) (a
"SALE EVENT"), the Company shall pay the Employee a sale bonus (the "SALE
BONUS") on the date of the closing of such Sale Event equal to the product
of (i) 500,000 shares of the Company's Common Stock and (ii) the excess of
the per share price for the Company's Common Stock actually paid in
connection with the Sale Event (calculated as set forth in Paragraph 12(b)
hereinafter) over the average closing price of the Company's Common Stock
as reported on The NASDAQ Stock Market ("NASDAQ") for the ninety (90)
business days on which NASDAQ was open for trading (the "TRADING PRICE")
immediately preceding the earlier to occur of (i) public announcement of
the Change of Control resulting in a Sale Event, or (ii) the occurrence of
a Potential Change of Control which subsequently results in a Sale Event.
By way of illustration, if a Sale Event occurs at a time when the Trading
Price is $15.00 per share and the sale price per share is $20.00 per share,
Employee shall be entitled to a Sale Bonus of $2,500,000 [($20.00-$15.00) x
500,000].
(b) Upon the occurrence of a Sale Event described in Paragraph 12(a)
hereinabove in which the Company's Common Stock is purchased for cash, the
per share price actually paid shall be determined by dividing the purchase
price by the number of shares of the Company's Common Stock sold. Upon the
occurrence of a Sale Event described in Paragraph 12(a) hereinabove, in
which the Change of Control results from other than a purchase of the
Company's Common Stock for cash, then, in such event, the per share
purchase price for the Company's Common Stock actually paid in connection
with such Sale Event shall be calculated as follows:
(i) If the Sale Event is as a result of the sale of all or
substantially all of the assets of the Company pursuant to
Paragraph 8(a)(iv), the per share price shall be calculated
based upon the total purchase price for the assets after
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<PAGE>
payment of or reservation for, all of the Company's
outstanding liabilities divided by the total number of
shares of the Company then outstanding.
(ii) If the Sale Event is as a result of a merger or other
consolidation of the Company in which all or a portion of
the purchase price is payable in stock of another
corporation, then, (A) if the stock of such entity is
publicly traded, then such stock shall be valued at the
closing price of such stock on the market or exchange on
which such stock is traded on day of the closing of the Sale
Event or (B) if the stock of such entity is not publicly
traded, then such stock shall be valued after an appraisal
of such entity as a going concern conducted by an appraiser
chosen in good faith by the Board.
(c) Notwithstanding the foregoing, upon the occurrence of any Sale
Event, Employee shall be entitled to a minimum Sale Bonus of at least $
1,500,000. However, if and to the extent that the per share price for the
Company's Common Stock actually paid in connection with the Sale Event over
the Trading Price exceeds two (2) times the Trading Price, then, in such
event, the calculation of the Sale Bonus shall be limited to an amount per
share equal to the Trading Price. By way of illustration, if a Sale Event
occurs at a time when the Trading Price is $10.00 per share and the sale
price is $25.00 per share, Employee shall be entitled to a Sale Bonus of
$5,000,000 [($10.00 x 500,000].
(d) In the further event that a Sale Event also results in a
termination of the Period of Employment resulting in Employee being
entitled to receive both a Sale Bonus pursuant to this Paragraph 12 and a
Severance Payment pursuant to Paragraph 11(c), Employee shall be entitled
to receive an aggregate amount from the Sale Bonus and the Severance
Payment of at least $ 1,500,000., but if the combined payment of the Sale
Bonus and the Severance Payment would exceed $1,500,000. in no event shall
Employee receive more than the greater of the Sale Bonus or the Severance
Payment hereunder.
13. MITIGATION.
The Employee shall not be required to mitigate the amount of any
payment provided for hereunder by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in Paragraphs 7
and 11 be reduced by any compensation earned by the Employee as the result
of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Company, or
otherwise.
14. ASSUMPTION OF AGREEMENT BY SUCCESSOR CORPORATION.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the
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<PAGE>
Employee to payments from the Company in the same amount and on the terms
to which the Employee would be entitled hereunder if the Employee had
terminated the Period of Employment for Good Reason following a Change in
Control of the Company, except that for purpose of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall
mean the Company and a successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
15. COMPANY'S REPRESENTATIONS.
The Company hereby represents and warrants to the Employee that: (a)
it has full power and corporate authority to execute and deliver this
Agreement and to perform its obligations hereunder, (b) such execution,
delivery and performance will not (with the giving of notice or the lapse
of time or both) result in the breach of any agreements or other
obligations to which it is a party or is otherwise bound, (c) the execution
and delivery of this Agreement by the Company is not in violation of the
Company's certificate of incorporation or by-laws, and (d) this Agreement
is the legal, valid and binding obligation of the Company which is
enforceable against the Company in accordance with its terms.
16. REPRESENTATIONS BY EMPLOYEE.
(a) Employee warrants and represents to the Company that each of the
following is true, correct and complete on the date of this Agreement:
(i) The execution, delivery and performance of this Agreement by
the Employee, and the consummation of the transactions
contemplated hereunder, do not and will not conflict with,
violate or result in the breach of any of the terms or
conditions of, or constitute a default under, (1) any
contract, agreement, commitment or other instrument or
obligation to which the Employee is a party, or (2) any
common law duty that may be owed by the Employee to any
former employer or other person or entity or to any of their
respective current or former affiliates, shareholders,
officers, or directors, or (3) any law, regulation,
ordinance or decree to which the Employee is subject.
(ii) Employee has the power, authority and capacity to enter into
this Agreement and to perform all of his obligations
hereunder.
(iii) No permit, consent, approval, or authorization of, or
designation, declaration or filing with, any person or
entity is required by Employee in connection with the
execution or delivery by him of this Agreement or the
consummation of the transactions contemplated hereunder.
(b) Employee shall indemnify the Company, and each of the Company's
shareholders, officers, directors, employees and agents, from and against
any and all claims, demands, damages, fines, penalties, losses,
liabilities, interests, costs and expenses (including, without
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limitation, reasonable attorney fees and expenses, and expert fees and
expenses) arising from or related to any breach by Employee of any of the
representations or warranties made by Employee in this Paragraph 16.
17. SCOPE OF RESTRICTIONS.
If any severable provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to
such provision and shall not in any manner affect or render invalid or
unenforceable any other provision of this Agreement, and this Agreement
shall be carried out as if any such invalid or unenforceable provision were
not contained herein; provided, however, that if any of the restrictions
contained in Paragraph 6 hereof shall be deemed to be unenforceable by
reason of the extent, duration or geographical scope thereof, or otherwise,
then such restriction shall be deemed reduced to such extent, duration,
geographical scope or in such other manner as otherwise required to make it
enforceable, and, in such reduced form, Paragraph 6 hereof shall then be
enforceable in the manner contemplated hereby.
18. NOTICES.
Any notice hereunder shall be sufficient if sent either (a) by hand,
or (b) by certified mail, return receipt requested, or (c) by commercial
overnight delivery service, in any event with postage, fees and delivery
charges prepaid. Such notice shall be deemed to have been given on
receipt, if delivered by hand or by overnight carrier, or three business
days after the date of deposit in an official depository of the United
States mail, if mailed. All notices shall be mailed or delivered, as
aforesaid, addressed to the party to be notified at such party's address
set forth below or at such other address as the party to be notified may
have otherwise designated, by notice in writing, with copies to their
respective attorneys as set forth below:
To the Company, at: AMSCAN HOLDINGS, INC.
80 Grasslands Road
Elmsford, New York 10523
Attention: Gerald C. Rittenberg
with a copy to: KURZMAN & EISENBERG, LLP
One North Broadway, 10th Floor
White Plains, NY 10601
Attention: Joel Lever, Esq.
To Employee, at: JAMES M. HARRISON
16 High Street
East Williston, New York
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<PAGE>
19. MISCELLANEOUS.
(a) The parties severally acknowledge that they have not relied upon
any representations, warranties, negotiations, understandings,
arrangements, or other inducements not expressly set forth herein in
entering into this Agreement.
(b) This Agreement may not be modified except by written modification
signed by all parties hereto, and its terms and conditions may not be
deemed waived except by written waiver signed by the party to be charged
with such waiver.
(c) This Agreement contains the entire agreement and understanding by
and between the Company and the Employee with respect to the Employee's
employment by the Company, and supersedes all oral and written prior
understandings and agreements between the Company and the Employee relating
to the subject matter of this Agreement and the Employee's relationship to
the Company.
(d) This Agreement may be executed in counterparts, each of which
will be deemed an original of this Agreement but all of which together will
constitute one Agreement.
(e) This Agreement has been made in, and its validity and
interpretation will be determined under the internal laws of, the State of
New York applicable to contracts made and to be wholly performed therein.
Any suit, action or other proceeding in connection with this Agreement
shall be brought by any party hereto in a court of record in the State of
New York, County of Westchester or in the United States District Court for
the Southern District of New York, each of the parties hereto consenting to
the jurisdiction of such courts for such purpose.
(f) This Agreement is binding upon and inures to the benefit of the
parties and their personal representatives, successors and assigns.
(g) The paragraph headings used in this Agreement are included solely
for convenience and shall not affect or be used in connection with the
interpretation of this Agreement. Schedules annexed hereto are a part of
this Agreement as if set forth herein at length.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMSCAN HOLDINGS, INC.
a Delaware corporation
By:/s/ John A. Svenningsen
---------------------------
John A. Svenningsen
/s/ JAMES M. HARRISON
------------------------------
JAMES M. HARRISON
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<PAGE>
SCHEDULE A
BONUS COMPENSATION FORMULA
As set forth in Paragraph 3(a) of this Agreement, Employee shall be
entitled to receive a nondiscretionary annual bonus based upon Employee's
Base Salary calculated in accordance with the formula set forth herein.
The bonus shall be payable for each calendar year of Employee's employment
hereunder in an amount equal to the percentage of Employee's Base Salary in
such calendar year equal to three times the annual increase in the
Company's Net Income (as hereinafter defined) in each year of Employee's
employment hereunder over the Company's Net Income for the immediately
preceding calendar year. For purposes of this Agreement, the increase in
Net Income for the first employment year of this Agreement shall be
determined by comparison to the Net Income in the Base Year (as hereinafter
defined).
"NET INCOME" as used herein, shall mean the consolidated net income of
the Company as set forth on the Company's annual audited financial
statements for the calendar year then ended.
"BASE YEAR" as used herein, shall mean the pro forma consolidated net
income of the Company as set forth on the Company's Statement of Operations
for the twelve month period ended December 31, 1996 to be set forth in the
Company's Annual Report on Form 10-K.
By way of illustration, the bonus payable for each percentage increase
in Net Income over the prior year's Net Income shall be calculated as
follows:
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A B C
Percentage of Base Dollar Value of
Increase in Net Salary Payable as Bonus (Based on 1997
Income Over Prior Bonus (3x Percentage Base Salary of
Year's Net Income in Column A) $215,000)
1% 3% $ 6,450.00
5% 15% $ 32,250.00
10% 30% $ 64,500.00
15% 45% $ 96,750.00
20% 60% $129,000.00
25% 75% $161,250.00
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TAX INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into as of
December 18, 1996 between Amscan Holdings, Inc., a Delaware corporation
("AMSCAN"), and John A. Svenningsen ("SVENNINGSEN").
WHEREAS, as of the date hereof, Amscan has acquired all of the
business operations of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and
SSY Realty Corp. (individually, a "SUBCHAPTER S COMPANY" and,
collectively, the "SUBCHAPTER S COMPANIES");
WHEREAS, the Subchapter S Companies elected under Section 1362
of the Internal Revenue Code of 1986, as amended (the "CODE"), to be
treated and operated as Subchapter S corporations;
WHEREAS, Svenningsen was for a number of years the sole
shareholder of Amscan Inc., JCS Realty Corp. and SSY Realty Corp. and
since 1993 owned a 50% interest in Am-Source, Inc.;
NOW, THEREFORE, in consideration of the premises and mutual
provisions hereinafter set forth, the parties hereto hereby agree as
follows:
Article 1. AMSCAN INDEMNITY. Amscan will indemnify Svenningsen
for any United States Federal income tax liability, to the extent such
liability is attributable to a claim by the Internal Revenue Service that
Svenningsen's income with respect to his ownership of stock in any of the
Subchapter S Companies for any taxable year exceeds the income reported
to Svenningsen by a Subchapter S Company on its Internal Revenue Service
Form K-1 for such taxable year and for any United States Federal income
tax liability of Svenningsen in respect of payments to Svenningsen
pursuant to this Article 1; PROVIDED, HOWEVER, that Amscan's obligation
to indemnify Svenningsen shall be limited to taxes on income which create
a tax benefit to any of the Subchapter S Companies (whether by reason of
deduction, amortization, credit or otherwise) for a taxable year(s) which
end(s) after closing.
Article 2. SVENNINGSEN INDEMNITY. Svenningsen will indemnify
Amscan for Amscan's United States Federal income tax liability resulting
from a claim by any taxing authority that a Subchapter S Company was not
properly treated as a Subchapter S corporation for any period in which
such Subchapter S Company filed a tax return on which it claimed that it
was properly treated as a Subchapter S corporation; PROVIDED, HOWEVER,
that Svenningsen's obligation to indemnify Amscan shall be limited to the
amount that Svenningsen would be entitled to receive as a refund of
United States
<PAGE>
2
Federal income taxes previously paid with respect to his share of income
generated by a Subchapter S Company.
Article 3. PROCEDURES RELATING TO INDEMNIFICATION. If notice
of a pending or threatened audit is not given to the indemnifying party
promptly after receipt of correspondence from any taxing authority, or in
reasonable detail to apprise the indemnifying party of the nature of the
proposed adjustments, such failure to provide notice promptly shall not
relieve the indemnifying party of its obligations under this agreement,
except to the extent that the failure to notify timely actually
prejudices the indemnifying party's ability to contest such matter. With
respect to any audit, the indemnifying party shall control all
proceedings taken solely in connection with such audit (including,
without limitation, selection of and payment for counsel reasonably
acceptable to indemnitee) and, without limiting the foregoing, may in its
sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with
respect thereto, and may, in its sole discretion, either pay the tax
claimed and sue for a refund where applicable law permits such refund
suits or contest the audit adjustments in any permissible manner;
PROVIDED, HOWEVER, that if (i) the results of such proceedings, suit,
contest, claim, hearing, compromise or proposed settlement could
reasonably be expected to have a material adverse effect on the assets,
business, operations or financial condition of Amscan or Svenningsen, or
their ability to treat any income or losses in a particular manner for
tax calculation purposes for taxable periods ending after the closing of
the exchange of certain shares of capital stock owned by Svenningsen for
shares of Common Stock of Amscan or (ii) any such proceeding, suit,
contest, claim, hearing, compromise or proposed settlement or procedure
involves taxes other than taxes subject to indemnification, the parties
hereto shall consult and mutually agree on a reasonable good faith basis
upon all aspects of the conduct of such matters. The indemnitee and the
indemnifying party shall cooperate in contesting any audit, which
cooperation shall include, without limitation, the retention and
provision to the indemnifying party of records and information which are
reasonably relevant to such audit and making employees available on a
mutually convenient basis to provide additional information or
explanation of any material provided hereunder or to testify at
proceedings relating to such audit.
Article 4. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York,
without giving effect to principles of conflicts of laws.
Article 5. NOTICES. All notices or other communications
provided for under this Agreement shall be given in writing and shall be
delivered personally or sent by post, telex or facsimile transmission to
the other party at the following address or to such other address as to
which a party has given notice as provided herein.
<PAGE>
3
If to Amscan:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
If to Svenningsen:
John A. Svenningsen
c/o Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Article 6. ASSIGNMENT. Except as otherwise specifically
provided herein, this Agreement and any rights and obligations hereunder
may not be assigned by either party without the prior written approval of
the other party, and any attempted assignment not in compliance with this
Article shall be void and of no effect.
Article 7. COSTS. In any proceeding to enforce any rights
under this Agreement by legal proceedings or otherwise, the prevailing
party shall be reimbursed by the defaulting party for all of the costs
and expenses of the prevailing party in pursuing such proceeding,
including, without limitation, reasonable attorneys' or solicitors' fees.
Article 8. PARTIES NOT PARTNERS. Nothing contained in this
Agreement shall constitute a partnership or other agency agreement
between the parties hereto or their respective subsidiaries or any of
them, nor shall anything contained in this Agreement give any of the
parties hereto or any of the respective subsidiaries the right to bind,
or pledge the credit of, any of the other parties hereto or any of their
respective subsidiaries.
Article 9. ANNUAL REVIEW. This Agreement may be amended by
mutual consultation between the parties, evidenced in a writing signed by
both parties, and the parties agree to engage in mutual consultation in
good faith during each annual period from the date hereof at the request
of any party to maintain in this Agreement the principles of fairness and
equity, and to amend this Agreement accordingly.
Article 10. SEVERABILITY. If any provision in this Agreement
is found by any court or administrative body of competent jurisdiction to
be invalid or unenforceable, the invalidity or unenforceability of such
provision shall not affect the other provisions of this Agreement and all
provisions not affected by such invalidity or unenforceability shall
remain in full force and effect unless the severance of the invalid or
unenforceable provision would unreasonably frustrate the commercial
purposes of this Agreement. The parties hereby agree to attempt to
substitute for any invalid or unenforceable provision a
<PAGE>
4
valid or enforceable provision which achieves to the greatest extent
possible the economic objectives of the invalid or unenforceable
provision.
Article 11. WAIVER. The waiver by either party of a breach or
default of any of the provisions of this Agreement by the other party
shall not be construed as a waiver of any succeeding breach of the same
or other provisions nor shall any delay or omission on the part of either
party to exercise or avail itself of any right, power or privilege that
it has or may have hereunder operate as a waiver of any breach or default
by the other party.
Article 12. ENTIRE AGREEMENT. This Agreement constitutes the
entire and only Agreement between the parties hereto relating to the
subject matter hereof and overrides and supersedes any prior arrangements
or oral discussions and shall not be modified except in writing by
agreement between the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above written.
AMSCAN HOLDINGS, INC.
/s/ James M. Harrison
By:------------------------------------
Name: James M. Harrison
Title: Chief Financial Officer
/s/ John A. Svenningsen
----------------------------------------
John A. Svenningsen
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF AMSCAN HOLDINGS, INC. AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 2,492 1,589
<SECURITIES> 0 0
<RECEIVABLES> 34,385 41,516
<ALLOWANCES> 2,505 4,138
<INVENTORY> 45,013 45,693
<CURRENT-ASSETS> 82,305 96,020
<PP&E> 50,248<F1> 59,470
<DEPRECIATION> 21,075<F1> 24,807
<TOTAL-ASSETS> 114,601 140,274
<CURRENT-LIABILITIES> 73,922 50,615
<BONDS> 12,284 15,085
0 0
0 0
<COMMON> 393 2,070
<OTHER-SE> 26,812 65,879
<TOTAL-LIABILITY-AND-EQUITY> 114,601 140,274
<SALES> 167,403 192,705
<TOTAL-REVENUES> 167,403 192,705
<CGS> 108,654 123,913
<TOTAL-COSTS> 108,654 123,913
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,581 2,350
<INTEREST-EXPENSE> 5,772 6,691
<INCOME-PRETAX> 19,206 5,732
<INCOME-TAX> 731 1,952
<INCOME-CONTINUING> 17,434 2,127
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,434 2,127
<EPS-PRIMARY> 0<F2> 0<F3>
<EPS-DILUTED> 0<F2> 0<F3>
<FN>
<F1>1995 BALANCES HAVE BEEN RESTATED TO REFLECT A RECLASSIFICATION MADE TO THE
FINANCIAL STATEMENTS.
<F2>AMSCAN HOLDINGS, INC. IS A CORPORATION WHICH WAS FORMED IN OCTOBER 1996 FOR
THE PURPOSE OF BECOMING A HOLDING COMPANY FOR CERTAIN OPERATING AND OTHER
CORPORATIONS. AMSCAN HOLDINGS, INC., THEREFORE, HAD NO SHARES OUTSTANDING AT
THE END OF 1995.
<F3>AMSCAN HOLDINGS, INC. IS A CORPORATION WHICH WAS FORMED IN OCTOBER 1996 FOR
THE PURPOSE OF BECOMING A HOLDING COMPANY FOR CERTAIN OPERATING AND OTHER
CORPORATIONS. A SIGNIFICANT DISTRIBUTION WAS MADE TO THE PRINCIPAL STOCKHOLDER
IN CONJUNCTION WITH THE IPO. THEREFORE, HISTORICAL EARNINGS PER SHARE HAS NOT
BEEN PRESENTED AS IT WOULD BE MISLEADING.
</FN>
</TABLE>
