<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1998.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMSCAN HOLDINGS, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5110 13-3911462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
(914) 345-2020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
COPIES OF ALL COMMUNICATION TO:
<TABLE>
<S> <C>
JAMES M. HARRISON
PRESIDENT MITCHELL S. PRESSER, ESQ.
AMSCAN HOLDINGS, INC. WACHTELL, LIPTON, ROSEN & KATZ
80 GRASSLANDS ROAD 51 WEST 52ND STREET
ELMSFORD, NEW YORK 10523 NEW YORK, NEW YORK 10019
(914) 345-2020 (212) 403-1000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
PROPOSED
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER NOTE(2) OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Senior Subordinated
Exchange Notes due 2007(1) $110,000,000 100% $110,000,000 $32,450
Guarantees of 9 7/8% Senior
Subordinated Notes due 2007 (3) (3) (3) (4)
==========================================================================================================
</TABLE>
(1) This Registration Statement covers both the Prospectus filed hereby in
connection with the exchange offer for the Exchange Notes and the prospectus
filed hereby in connection with certain market-making activities by
affiliates of the Registrant.
(2) Estimated solely for purposes of calculating registration fee pursuant to
Rule 457.
(3) No separate consideration will be received for the Guarantees.
(4) Pursuant to Rule 457(n) no separate fee is payable for the Guarantees.
------------------------
THE REGISTRANTS HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
* TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STANDARD
INDUSTRY I.R.S EMPLOYER
NAME, ADDRESS AND STATE OR OTHER JURISDICTION OF CLASSIFICATION IDENTIFICATION
TELEPHONE NUMBER INCORPORATION OR ORGANIZATION NUMBER NUMBER
- ---------------------------------- ------------------------------ -------------- ---------------
<S> <C> <C> <C>
Amscan Inc. ...................... New York 5110 13-1771359
Trisar, Inc. ..................... California 5110 95-3420659
Am-Source, Inc. .................. Rhode Island 5110 05-0471630
SSY Realty Corp. ................. New York 6519 13-3500756
JCS Realty Corp. ................. New York 6519 13-3431738
</TABLE>
- ---------------
* The address of these additional registrants is 80 Grasslands Road, Elmsford,
New York 10523. Their telephone number is (914) 345-2020.
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $110,000,000 of 9 7/8% Senior Subordinated Notes due 2007
(the "Exchange Notes") of Amscan Holdings, Inc. ("Amscan" or the "Company"),
which will have been registered under the Securities Act pursuant to a
Registration Statement of which this Prospectus is a part, that may be exchanged
for equal principal amounts of Amscan's outstanding 9 % Senior Subordinated
Notes due 2007 (the "Notes") (the "Exchange Offer"). This Registration Statement
also covers the registration of the Exchange Notes for resale by Goldman, Sachs
& Co. in market-making transactions. The complete Prospectus relating to the
Exchange Offer (the "Exchange Offer Prospectus") follows immediately after this
Explanatory Note. Following the Exchange Offer Prospectus are certain pages of
the Prospectus relating solely to such market-making transactions (the
"Market-Making Prospectus"), including alternate front and back cover pages, a
section entitled "Risk Factors -- Trading Market for the Exchange Notes" to be
used in lieu of the section entitled "Risk Factors -- Lack of Public Market for
the Exchange Notes," a new section entitled "Use of Proceeds" and an alternate
section entitled "Plan of Distribution." In addition, the Market-Making
Prospectus will not include the following captions (or the information set forth
under such captions) in the Exchange Offer Prospectus: "Prospectus
Summary -- The Note Offering" and "-- The Exchange Offer," "Risk
Factors -- Exchange Offer Procedures" and "-- Restrictions on Transfer," "The
Exchange Offer," and "Certain Federal Income Tax Consequences of the Exchange
Offer". All other sections of the Exchange Offer Prospectus will be included in
the Market-Making Prospectus.
<PAGE> 4
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1998
[AMSCAN LOGO]
OFFER TO EXCHANGE
ITS
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
($110,000,000 PRINCIPAL AMOUNT)
FOR ALL OF ITS OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
AMSCAN HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED.
Amscan Holdings, Inc., a Delaware corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to an aggregate principal amount of $110,000,000
of its 9 7/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"), which
will have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this Prospectus
is a part, for an equal principal amount of its outstanding 9 7/8% Senior
Subordinated Notes due 2007 (the "Notes"), in integral multiples of $1,000. The
Exchange Notes will be fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by certain of the Company's
Subsidiaries (the "Guarantors"). The Exchange Notes will be senior subordinated
unsecured obligations of the Company and are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the Notes
for which they may be exchanged pursuant to this offer, except that (i) the
offering and sale of the Exchange Notes will have been registered under the
Securities Act and (ii) holders of Exchange Notes will not be entitled to
certain rights of holders under the Exchange and Registration Rights Agreement
of the Company dated as of December 19, 1997 (the "Registration Rights
Agreement").
The Exchange Notes will be general, unsecured obligations of the Company,
will be subordinated in right of payment to all Senior Debt of the Company, will
rank pari passu with all senior subordinated debt of the Company and will be
senior in right of payment to all existing and future subordinated debt of the
Company, if any. The claims of Holders of the Exchange Notes will be effectively
subordinated to the Senior Debt, which, as of September 30, 1997, on a pro forma
basis giving effect to the Transaction and the Transaction Financings would have
been approximately $128 million, $117 million of which would have been fully
secured borrowings under the Bank Credit Agreement. The claims of Holders will
be effectively subordinated to the indebtedness and other liabilities of the
Company's Non-Guarantor Subsidiaries through which the Company conducts a
portion of its operations, which indebtedness and other liabilities were
approximately $3 million as of September 30, 1997. See "The Transaction" and
"Capitalization".
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is , 1998
(Cover text continued on next page)
<PAGE> 5
The Notes have been, and the Exchange Notes will be, issued under an
Indenture dated as of December 19, 1997 (the "Indenture"), among the Company,
the Guarantors and IBJ Schroder Bank & Trust Company, as trustee (the
"Trustee"). See "Description of Exchange Notes". There will be no proceeds to
the Company from this offering; however, pursuant to the Registration Rights
Agreement, the Company will bear certain offering expenses.
The Company will accept for exchange any and all Notes validly tendered or
prior to 5:00 p.m. New York City time, on , 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable. IBJ Schroder Bank & Trust Company
will act as Exchange Agent with respect to the Notes (in such capacity, the
"Exchange Agent") in connection with the Exchange Offer. The Exchange Offer is
not conditioned upon any minimum principal amount of Notes being tendered for
exchange, but is otherwise subject to certain customary conditions.
The Notes were sold by the Company on December 19, 1997 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. The remainder of the Notes were resold outside the United States
in reliance on Regulation S under the Securities Act. Accordingly, the Notes may
not be reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy certain obligations of the
Company under the Registration Rights Agreement. See "The Exchange Offer".
The Exchange Notes will bear interest from December 19, 1997, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined herein) to which interest on
such Notes has been paid), at a rate equal to 9 7/8% per annum. Interest on the
Exchange Notes will be payable semi-annually on June 15 and December 15 of each
year, commencing June 15, 1998. The Exchange Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after December 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the date of redemption. See "Description of Exchange Notes".
In addition, at any time prior to December 15, 2000, up to an aggregate of
35% of the principal amount of Exchange Notes will be redeemable at the option
of the Company, on one or more occasions, from the net proceeds of public or
private sales of common stock of, or contributions to the common equity capital
of, the Company at a price of 109.875% of the principal amount of the Exchange
Notes, together with accrued and unpaid interest, if any, to the date of
redemption; provided that at least $65.0 million in aggregate principal amount
of Notes and Exchange Notes remains outstanding immediately after each such
redemption. At any time on or prior to December 15, 2002 the Exchange Notes may
also be redeemed as a whole but not in part at the option of the Company upon
the occurrence of a Change of Control at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium, together with accrued and
unpaid interest, if any, to the date of redemption. If the Company does not
redeem the Exchange Notes upon a Change of Control, the Company will be
obligated to make an offer to purchase the Exchange Notes, in whole or in part,
at a price equal to 101% of the aggregate principal amount of the Exchange
Notes, plus accrued and unpaid interest, if any, to the date of purchase. If a
Change of Control were to occur, the Company may not have the financial
resources to repay all of its obligations under the Bank Credit Agreement, the
Indenture and the other indebtedness that would become payable upon the
occurrence of such Change of Control. See "Risk Factors -- Payment Upon a Change
of Control" and "Description of Exchange Notes".
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the Securities and Exchange Commission
(the "Commission"), which
ii
<PAGE> 6
require each tendering noteholder to represent that it acquired the Notes in the
ordinary course of its business and that such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes. In some cases, certain
broker-dealers may be required to deliver a prospectus in connection with the
resale of Exchange Notes that they receive in the Exchange Offer. See
"Prospectus Summary -- The Note Offering -- The Exchange Offer".
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek admission thereof to trading in any automated
quotation system. Goldman, Sachs & Co. ("Goldman Sachs") has advised the Company
that it intends to make a market in the Exchange Notes; however, it is not
obligated to do so and any market-making may be discontinued at any time. As a
result, the Company cannot determine whether an active public market will
develop for the Exchange Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY
WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT
HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR
OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE".
The Exchange Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Exchange Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depository"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected through, records
maintained by the Depository and its participants. Notwithstanding the
foregoing, Notes held in certificated form will be exchanged solely for Exchange
Notes in certificated form. After the initial issuance of the Global Exchange
Notes, Exchange Notes in certificated form will be issued in exchange for the
Global Exchange Notes only on the terms set forth in the Indenture. See
"Description of Exchange Notes -- Book-Entry, Delivery and Form".
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
iii
<PAGE> 7
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act for
the registration of the Exchange Notes offered hereby (the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company or the Exchange
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits and financial statement schedules thereto. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is presently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Commission.
The Registration Statement, such reports and other information filed by the
Company can be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies
of such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its public reference facilities in New York, New York and Chicago, Illinois
at prescribed rates. The Company makes its filings with the Commission
electronically. The Commission maintains an Internet site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically, which information can be accessed at
,http://www.sec.gov..
As a result of the offering of the Exchange Notes, each of the Guarantors
will become subject to the informational requirements of the Exchange Act. The
Company will fulfill its obligations with respect to such requirements by filing
periodic reports with the Commission on its own behalf or, in the case of the
Guarantors, by including information regarding the Guarantors in the Company's
periodic reports. In addition, the Company will send to each holder of Exchange
Notes copies of annual reports and quarterly reports containing the information
required to be filed under the Exchange Act. So long as the Company is subject
to the periodic reporting requirements of the Exchange Act, it is required to
furnish the information required to be filed with the Commission to the Trustee
and the holders of the Notes and the Exchange Notes. The Company has agreed
that, even if it is not required under the Exchange Act to furnish such
information to the Commission, it will nonetheless continue to furnish
information that would be required to be furnished by the Company by Section 13
of the Exchange Act to the Trustee and the holders of the Notes or Exchange
Notes as if it were subject to such periodic reporting requirements.
iv
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
Amscan Holdings, Inc. ("Amscan" or the "Company") designs, manufactures and
distributes decorative party goods, offering one of the broadest and deepest
product lines in the industry. The Company's products include paper and plastic
tableware (such as plates, napkins, tablecovers, cups and cutlery), accessories
(such as invitations, thank-you cards, table and wall decorations and balloons)
and novelties (such as games and party favors). The Company's products are sold
to party goods superstores, independent card and gift retailers, mass
merchandisers and other distributors which sell Amscan products in more than
20,000 retail outlets throughout the world, including North America, Australia,
the United Kingdom, Germany and Sweden.
The Company currently offers over 250 product ensembles, generally
containing 30 to 150 coordinated items. These ensembles comprise a wide variety
of products to accessorize a party including matching invitations, tableware,
decorations, party favors and thank-you cards. The Company designs, manufactures
and markets party goods for a wide variety of occasions including seasonal
holidays, special events and themed celebrations. The Company's seasonal
ensembles enliven holiday parties throughout the year including New Year's,
Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of July, Halloween,
Thanksgiving, Hanukkah and Christmas. The Company's special event ensembles
include birthdays, christenings, first communions, bar mitzvahs, confirmations,
graduations, baby and bridal showers and anniversaries, while its theme-oriented
ensembles include Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
In addition to its long-standing relationships with independent card and
gift retailers, the Company is a leading supplier to the party superstore
distribution channel. Party goods superstores are growing rapidly by providing
consumers with a one-stop source for all of their party needs, generally at
discounted prices. The retail party goods business has historically been
fragmented among independent stores and drug, discount or department store
chains. However, according to industry analysts, there has been a significant
shift of sales since 1990 to the party goods superstore channel.
Company sales to superstores represented approximately 44% of total sales
in 1996. While the number of party superstores that Amscan supplies has grown at
a compound annual growth rate ("CAGR") in excess of 20% from 1993 to 1996, the
Company's sales to superstores have grown by a 47% CAGR during the same period.
With Amscan products occupying an increasing share of superstore shelf space in
many product categories, Amscan believes it is well positioned to take advantage
of continued growth in the party superstore channel.
Amscan's sales and cash flows have grown substantially over the past five
years. From 1991 to 1996, sales and Adjusted EBITDA (adjusted for non-recurring
items relating to the IPO, other income or expenses, and minority interests)
have grown at compound annual rates of 20% and 28%, respectively. During the
same period, Adjusted EBITDA margins increased from approximately 14% to 20% due
in part to the Company achieving greater economies of scale in manufacturing and
distribution, and significantly reducing selling expenses as a percentage of
sales. Sales and Adjusted EBITDA for the twelve months ended September 30, 1997
were approximately $207 million and $42 million, respectively, representing an
Adjusted EBITDA margin of approximately 20%.
1
<PAGE> 9
PARTY GOODS INDUSTRY OVERVIEW
According to industry analyst reports, the U.S. decorative party goods
industry (including tableware, accessories and novelties) generated
approximately $3.5 billion in retail sales in 1996 and has grown approximately
10% annually over the past several years. The Company believes this growth is
driven by several factors including favorable demographics and consumer spending
patterns, the emergence of the party superstore channel and growth in the number
of party events celebrated and party products available to consumers.
The Company believes that demographic trends favor continued growth in
decorative party goods sales. According to the United States Bureau of the
Census ("The Census Bureau"), between 1997 and 2005, population in the 10-19
year old age bracket is expected to increase by approximately 10%, and
population in the 20-24 year old age bracket is expected to increase by
approximately 15%. This suggests an increase in celebrations revolving around
teenagers and young adults including confirmations, bar mitzvahs, graduations
and bridal and baby showers. In addition, the 45-54 year old age bracket is
expected to increase by over 20% by 2005. According to The Census Bureau and the
United States Bureau of Labor Statistics, this population segment enjoyed the
highest median household income and spent the most money on entertainment in
1995. The Company believes that this population segment is a key buying group of
party goods for children and grandchildren, as well as products for adult
milestone events including birthdays, anniversaries and retirements.
Another factor contributing to growth in the decorative party goods
industry has been the emergence of party goods superstores which, according to
industry analysts, are poised for expansion as national penetration continues.
The Company believes that superstores are popular among consumers because of the
large variety of merchandise and substantial discounts they offer. Industry
analysts report that, over the past several years, the marketplace has begun to
accept a move toward the party goods superstore merchandising concept, similar
to earlier merchandising shifts in such product categories as toys, office
supplies, home furnishings and home improvements.
The Company believes that party goods sales volumes have also increased, in
part, as a result of:
- the creation of new product ensembles both in response to consumer
demand and as a means of stimulating customer purchases;
- the broadening of product lines through the addition of new items and
new accessories within ensembles;
- larger retail environments allowing retailers to employ marketing
techniques which result in increased average sales per customer; and
- the celebration of an increased number of party themes and events, such
as Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
The Company believes that by introducing products for new types of
celebrations, offering multiple product ensembles for individual celebrations
(such as multiple Halloween or birthday ensembles) and increasing the number of
"add-on" accessories, party goods suppliers have increased the frequency and
volume of consumer purchases of decorative party goods.
COMPETITIVE STRENGTHS
Leading Supplier to the High Growth and High Volume Party Goods Superstore
Channel. In addition to its long-standing base of business with independent
card and party retailers, the Company believes that its products account for an
increasing portion of the retail sales by major superstore chains, including
Party City Corporation ("Party City"), Party Stores Holdings, Inc. ("Party
Stores Holdings"), Big Party Corporation, The Paper Factory, The Half-Off Card
Shop,
2
<PAGE> 10
Paper Warehouse Inc., and Factory Card Outlet Corp. Approximately 44% of the
Company's sales were generated from superstores last year, and based on
indications from these chains that they intend to continue to expand nationwide,
the Company expects that sales to this segment will continue to grow
significantly.
Single Source Supplier of Decorative Party Goods. The Company provides one
of the most extensive product lines of decorative party goods in the industry,
serving a wide variety of occasions. Amscan produces over 250 different
ensembles, generally containing 30 to 150 coordinated SKUs within each ensemble.
With 14,000 stock keeping units ("SKUs"), the Company is a one-stop shopping,
single-source supplier to retailers of decorative party goods. The Company
believes this breadth of product line provides enough variety that competing
retailers can each purchase Amscan products and still differentiate themselves
by the product they market to the end consumer.
Strong Customer Relationships. The Company has built strong relationships
with its customer base which operates more than 20,000 retail outlets. The
Company strives to provide superior service and, by involving retailers in
product development and marketing, seeks to become a strategic partner to its
customers.
Product Design Leadership. The Company believes one of its strengths is
its leadership in creating innovative designs and party items. The Company
believes its product designs have a level of color, complexity and style that
are attractive to consumers and difficult to replicate. The Company offers
coordinated accessories and novelties which, the Company believes, complement
its tableware designs, enhancing the appeal of its tableware products and
encouraging "add on" impulse purchases.
Strong and Committed Management Team. The Company's management team has
built the business into an industry leader with integrated design,
manufacturing, and distribution capabilities. Current management has been
instrumental in building the Company's strong industry position and in the
Company achieving a 28% CAGR in Adjusted EBITDA since 1991. The management team
and other key employees committed $6.4 million (including restricted stock
grants) to the Transaction.
OPERATIONAL REVIEW
- Design. Amscan's design staff of approximately 70 people develops and
manages the Company's broad line of party goods and keeps the product
line contemporary and fresh by introducing new ensembles each year. For
example, the Company introduced approximately 50 new ensembles for 1997.
- Manufactured Products. The Company is a vertically integrated
manufacturer enabling it to better control costs, monitor quality, manage
inventory and respond quickly to customer needs. The Company's
state-of-the-art facilities in New York, Kentucky, Rhode Island and
California manufacture paper and plastic plates, napkins, cups and other
products. These products constitute approximately 50% of the Company's
net sales. Over the past five years, the Company has purchased or leased
new plant and equipment having an aggregate value of approximately $47
million to support expansion and provide for future growth. Consequently,
the Company believes it is able to expand production by utilizing its
current facilities and equipment.
- Purchased Products. The Company sources approximately 50% of its
products from independently-owned manufacturers, many of whom are located
in the Far East and with whom the Company has long-standing
relationships. The two largest such suppliers operate as exclusive
suppliers to the Company and represent relationships which have been in
place for more than ten years. The Company believes that the quality and
prices of the products manufactured by these suppliers provide a
significant competitive advantage.
3
<PAGE> 11
The Company's business, however, is not dependent upon any single source
of supply for products manufactured for the Company by third parties.
- Sales and Distribution. Amscan's sales and distribution capabilities
are designed to provide a high level of customer service. A domestic
direct employee sales force of approximately 60 professionals services
over 5,000 retail accounts. In addition to this seasoned sales team, the
Company utilizes a select group of manufacturers' representatives to
handle specific account situations. International customers are generally
serviced by employees of the Company's foreign subsidiaries. To support
its marketing effort, the Company produces three catalogues annually, two
for seasonal products and one for everyday products. Products are shipped
from the Company's distribution centers using computer assisted systems
that permit the Company to receive and fill customer orders efficiently
and quickly.
COMPANY STRATEGY
Amscan seeks to become the primary source for consumers' party goods
requirements. The key elements of the Company's strategy are as follows:
- Strengthen Position as a Leading Provider to Party Superstores. The
Company offers convenient "one-stop shopping" for large superstore buyers
and seeks to increase its proportionate share of sales volume and shelf
space in the superstores.
- Offer the Broadest and Deepest Product Line in the Industry. The
Company strives to offer the broadest and deepest product line in the
industry. Amscan helps retailers boost average purchase volume per
consumer through coordinated ensembles that promote "add on" purchases.
- Diversify Distribution Channels, Product Offering and Geographic
Presence. Amscan will seek, through internal growth and acquisitions, to
expand its distribution capabilities internationally, increase its
presence in additional retail channels and further broaden and deepen its
product line.
- Provide Superior Customer Service. The Company strives to achieve high
average fill rates in excess of 95% and ensure short turnaround times.
- Maintain Product Design Leadership. Amscan will continue investing in
art and design to support a steady supply of fresh ideas and create
complex, unique ensembles that appeal to consumers and are difficult to
replicate.
- Maintain State-of-the-Art Manufacturing and Distribution
Technology. Amscan intends to maintain technologically advanced
production and distribution systems in order to enhance product quality,
manufacturing efficiency, cost control and customer satisfaction.
- Pursue Attractive Acquisitions. The Company believes that opportunities
exist to make acquisitions of complementary businesses to leverage the
Company's existing marketing, distribution and production capabilities,
expand its presence in the various retail channels, further broaden and
deepen its product line and penetrate international markets. The Company
receives inquiries from time to time with respect to the possible
acquisition by the Company of other entities and the Company intends to
pursue acquisition opportunities aggressively.
GS CAPITAL PARTNERS II, L.P.
GS Capital Partners II, L.P. ("GSCP II") and its affiliated investment
funds (together with GSCP II, "GSCP") are the primary vehicles of The Goldman
Sachs Group, L.P. ("The Goldman Sachs Group"), for making privately negotiated
equity and equity-related investments in non-real estate transactions. GSCP II
was formed in May 1995 with total committed capital of $1.75 billion,
4
<PAGE> 12
$300 million of which was committed by The Goldman Sachs Group, with the
remainder committed by institutional and individual investors.
Since 1982, The Goldman Sachs Group, directly or through investment
partnerships that it manages, has invested more than $3.7 billion in a
diversified portfolio of over 175 long-term principal investments.
GSCP has invested approximately $61.9 million in the Transaction,
representing approximately 82.5% of the total equity investment.
THE TRANSACTION
Pursuant to an Agreement and Plan of Merger (the "Transaction Agreement"),
dated as of August 10, 1997, by and between the Company and Confetti
Acquisition, Inc. ("MergerCo"), a Delaware corporation affiliated with GSCP, on
December 19, 1997 (the "Effective Time"), MergerCo was merged with and into the
Company (the "Transaction"), with the Company as the surviving corporation. At
the Effective Time, each share of the Common Stock, par value $0.10 per share,
of the Company (the "Company Common Stock"), issued and outstanding immediately
prior to the Effective Time (other than shares of Company Common Stock owned,
directly or indirectly, by the Company or by MergerCo) were converted, at the
election of each of the Company's stockholders, into the right to receive from
the Company either (A) $16.50 in cash (the "Cash Consideration") or (B) $9.33 in
cash plus a retained interest in the Company equal to one share of Company
Common Stock for every 150,000 shares held by such stockholder (the "Mixed
Consideration"), with fractional shares of Company Common Stock paid in cash.
(Together, the Cash Consideration and the Mixed Consideration comprised the
"Transaction Consideration".) The Estate of John A. Svenningsen (the "Estate"),
which owned approximately 72% of the outstanding Company Common Stock
immediately prior to the Effective Time, elected to retain almost 10% of the
outstanding shares of Company Common Stock. No stockholder other than the Estate
elected to retain shares. Also pursuant to the Transaction Agreement, at the
Effective Time each outstanding share of Common Stock, par value $0.10 per
share, of MergerCo ("MergerCo Common Stock"), was converted into an equal number
of shares of Company Common Stock as surviving corporation in the Transaction.
Pursuant to certain employment arrangements, certain employees of the Company
purchased an aggregate of 10 shares of Company Common Stock following the
Effective Time. Accordingly, in the Transaction the 825 shares of MergerCo
Common Stock owned by GSCP immediately prior to the Effective Time were
converted into 825 shares of Company Common Stock, representing approximately
81.7% of the 1,010 issued and outstanding shares of the Company immediately
following the Effective Time.
5
<PAGE> 13
The following table sets forth the sources and uses of cash related to the
Transaction:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES OF CASH
Term Loan............................................................. $117,000
Senior Subordinated Notes............................................. 110,000
--------
Total debt....................................................... 227,000
GSCP equity contribution(a)........................................... 61,875
--------
Total....................................................... $288,875
========
USES OF CASH
Purchase equity in the Transaction.................................... $235,916
Redeem Company Stock Options.......................................... 1,901
Repay certain existing debt(b)........................................ 23,908
Debt retirement costs................................................. 1,010
Transaction costs..................................................... 17,152
Cash for working capital purposes..................................... 8,988
--------
Total....................................................... $288,875
========
</TABLE>
- ---------------
(a) In addition to the GSCP equity contribution, certain employees have made an
equity investment in the Company totaling $6.4 million (including
restricted stock grants and $0.8 million contributed by certain employees
immediately following consummation of the Transaction) and the Estate has
retained an interest in the Company of $7.5 million, together constituting
$13.9 million valued at the price per share paid by GSCP.
(b) Excludes existing mortgages on real property owned by Subsidiaries of the
Company in the amount of approximately $5.9 million, capital lease
obligations of approximately $4.6 million, and borrowings under a revolving
credit agreement of a Non-Guarantor Subsidiary of approximately $0.6
million each as of December 19, 1997. All other outstanding debt of the
Company was extinguished at or prior to the completion of the Transaction.
The senior debt portion of the financing for the Transaction was provided
pursuant to a credit agreement (the "Bank Credit Agreement") with Goldman Sachs
Credit Partners L.P. ("GS Credit Partners") and certain other lenders. In
connection with such financing, Goldman Sachs acted as Syndication Agent,
Documentation Agent and Arranger, and Fleet National Bank ("Fleet") is acting as
Administrative Agent. See "Description of Senior Debt" and "Certain
Transactions". The senior debt financing and the financing provided by the Note
Offering is referred to as the "Transaction Financings".
6
<PAGE> 14
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of September 30, 1997, and on a pro forma basis to give effect
to the Transaction, including the Transaction Financings and the application of
the proceeds therefrom, as if they had occurred on September 30, 1997. See "Use
of Proceeds". The information set forth below should be read in conjunction with
the Company's Transaction Pro Forma Consolidated Financial Data, the Company's
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------
TRANSACTION
HISTORICAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 684 $ 3,975
Total debt (including current portion)
Revolving Credit Facility(1)..................................... $ -- $ --
Term Loan........................................................ -- 117,000
Existing revolving credit facility............................... 9,550 --
Senior Subordinated Notes........................................ -- 110,000
Mortgages........................................................ 6,072 6,072
Capital leases and other......................................... 24,782 4,727
--------- ---------
Total debt.................................................... 40,404 237,799
Stockholders' equity (deficit)(2).................................. 89,002 (95,288)
--------- ---------
Total capitalization............................................. $ 129,406 $ 142,511
========= =========
</TABLE>
- ---------------
(1) The Company has the ability to borrow up to $50 million pursuant to its
Revolving Credit Facility. The Revolving Credit Facility is available to
the Company for working capital purposes and acquisitions, subject to
certain limitations and restrictions. See "Description of Senior Debt".
(2) Upon completion of the Transaction, the Company had a negative net worth for
accounting purposes. In the Transaction, GSCP paid $61.9 million for
approximately 82.5% of the Company Common Stock. In addition, certain
employees of the Company acquired and the Estate retained approximately
7.5% and almost 10%, respectively, of the Company Common Stock which, based
upon the price per share paid by GSCP, has an aggregate value of
approximately $13.1 million. Combined with GSCP's payment of $61.9 million,
these holdings have an aggregate value of approximately $75.0 million.
7
<PAGE> 15
THE NOTE OFFERING
THE NOTES.................. The Notes were sold by the Company on December 19,
1997, and were subsequently resold to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act and to certain persons in
transactions outside the United States in reliance
on Regulation S under the Securities Act (the "Note
Offering").
REGISTRATION RIGHTS
AGREEMENT................ In connection with the Note Offering, the Company
entered into the Registration Rights Agreement,
which grants holders ("Holders") of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $110,000,000 aggregate principal amount of 9 7/8%
Senior Subordinated Notes due December 15, 2007.
THE EXCHANGE OFFER......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of Notes.
As of the date hereof, $110,000,000 principal
amount of Notes are outstanding. The Company will
issue the Exchange Notes to holders on or promptly
after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any Holder
thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that for a period of 195 days after the
Registration Statement is declared effective,
8
<PAGE> 16
it will make this Prospectus available to any
broker-dealer for use in connection with any such
resale.
Any Holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989),
Morgan Stanley & Co., Inc. (available June 5, 1991)
or similar no-action letters and, in the absence of
an exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
of the Exchange Notes. Failure to comply with such
requirements in such instance may result in such
Holder incurring liability under the Securities Act
for which the Holder is not indemnified by the
Company.
In any state where the Exchange Offer does not fall
under a statutory exemption to the blue sky rules,
the Company has filed the appropriate registrations
and notices, and has made the appropriate requests,
to permit the Exchange Offer to be made in such
state.
EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE EXCHANGE
NOTES AND THE NOTES...... The Exchange Notes will bear interest from December
19, 1997, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined
below in the Summary of Terms of Exchange Notes) to
which interest on such Notes has been paid).
Accordingly, Holders of Notes that are accepted for
exchange will not receive interest on the Notes
that is accrued but unpaid at the time of tender,
but such interest will be payable on the first
Interest Payment Date after the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER.................... Notwithstanding any other term of the Exchange
Offer, the Company shall not be required to accept
for exchange, or to exchange Exchange Notes for,
any Notes, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of
such Notes, if: (a) any law, statute, rule,
regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which,
in the reasonable judgment of the Company, might
materially impair the ability of the Company to
proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange
Offer to the Company; or (b) any governmental
approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem
necessary for the consummation of the Exchange
Offer as contemplated hereby. See "The Exchange
Offer -- Conditions".
9
<PAGE> 17
PROCEDURES FOR TENDERING
NOTES.................... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Notes and any other required documentation
to the Exchange Agent at the address set forth in
the Letter of Transmittal. By executing the Letter
of Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such Exchange Notes, whether or
not such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the Holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes. In lieu of physical delivery
of the certificates representing Notes, tendering
Holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering".
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes in
such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures".
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders".
ACCEPTANCE OF NOTES
AND DELIVERY OF
EXCHANGE NOTES........... The Company will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly
10
<PAGE> 18
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer".
FEDERAL INCOME TAX
CONSEQUENCES............. The issuance of the Exchange Notes to Holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the Exchange Notes. See "Certain
Federal Income Tax Consequences of the Exchange
Offer".
EFFECT ON HOLDERS OF
NOTES...................... As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and Holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such Holders will continue
to hold the untendered Notes and will be entitled
to all the rights and will be subject to all the
limitations applicable thereto under the Indenture,
except to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Notes will continue to be subject to
certain restrictions on transfer. Accordingly, if
any Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Notes
could be adversely affected.
EXCHANGE AGENT............. IBJ Schroder Bank & Trust Company.
11
<PAGE> 19
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and, therefore, will not bear legends restricting the transfer thereof and (ii)
the Holders of Exchange Notes generally will not be entitled to further
registration rights under the Registration Rights Agreement, which rights
generally will be satisfied when the Exchange Offer is consummated. The Exchange
Notes will evidence the same debt as the Notes and will be entitled to the
benefits of the Indenture. See "Description of Exchange Notes".
ISSUER..................... Amscan Holdings, Inc.
SECURITIES OFFERED......... $110.0 million principal amount of 9 7/8% Senior
Subordinated Notes due December 15, 2007 (the
"Exchange Notes").
MATURITY DATE.............. December 15, 2007
GUARANTEES................. The Company's payment obligations under the
Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis (the
"Senior Subordinated Guarantees") by the current
domestic Subsidiaries of the Company and by each
other Subsidiary of the Company that acts as a
guarantor under the Bank Credit Agreement
(collectively, the "Guarantors"). The Senior
Subordinated Guarantees will be subordinated to the
guarantees of Senior Debt (as defined herein)
issued by the Guarantors under the Bank Credit
Agreement. See "Description of Notes -- Senior
Subordinated Guarantees".
INTEREST PAYMENT DATES..... Interest accrues from December 19, 1997 at an
annual rate of 9 7/8% and will be payable in cash
semi-annually in arrears on June 15 and December 15
of each year, commencing June 15, 1998.
OPTIONAL REDEMPTION........ Except as described below, the Exchange Notes are
not redeemable at the Company's option prior to
December 15, 2002. From and after December 15,
2002, the Exchange Notes will be subject to
redemption at the option of the Company, in whole
or in part, from time to time, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption.
In addition, at any time prior to December 15,
2000, up to an aggregate of 35% of the principal
amount of Notes and Exchange Notes will be
redeemable at the option of the Company, on one or
more occasions, from the net proceeds of public or
private sales of common stock of, or contributions
to the common equity capital of, the Company, at a
price of 109.875% of the principal amount of the
Notes and Exchange Notes, together with accrued and
unpaid interest, if any, to the date of redemption;
provided that at least $65.0 million in aggregate
principal amount of Notes and Exchange Notes
remains outstanding immediately after each such
redemption.
CHANGE OF CONTROL.......... At any time on or prior to December 15, 2002, the
Exchange Notes may also be redeemed as a whole but
not in part at the option of the Company upon the
occurrence of a Change of Control at a redemption
price equal to 100% of the principal amount thereof
12
<PAGE> 20
plus the Applicable Premium, together with accrued
and unpaid interest, if any, to the date of
redemption.
If the Company does not redeem the Exchange Notes
upon a Change of Control, the Company will be
obligated to make an offer to purchase the Exchange
Notes, in whole or in part, at a price equal to
101% of the aggregate principal amount of the
Exchange Notes, plus accrued and unpaid interest,
if any, to the date of purchase. If a Change of
Control were to occur, the Company may not have the
financial resources to repay all of its obligations
under the Bank Credit Agreement, the Indenture and
the other indebtedness that would become payable
upon the occurrence of such Change of Control. See
"Risk Factors -- Payment Upon a Change Control" and
"Description of Exchange Notes".
RANKING.................... The Exchange Notes will be general, unsecured
obligations of the Company, will be subordinated in
right of payment to all Senior Debt of the Company,
will rank pari passu with all senior subordinated
debt of the Company and will be senior in right of
payment to all existing and future subordinated
debt of the Company. The claims of Holders of the
Exchange Notes will be subordinated to the Senior
Debt, which, as of September 30, 1997, on a pro
forma basis giving effect to the Transaction and
the Transaction Financings, would have been
approximately $128 million, $117 million of which
would have been fully secured borrowings under the
Bank Credit Agreement. The claims of Holders will
be effectively subordinated to indebtedness and
other liabilities of the Company's Non-Guarantor
Subsidiaries (as defined herein) through which the
Company conducts a portion of its operations which
indebtedness and other liabilities were
approximately $3 million as of September 30, 1997.
See "The Transaction", "Capitalization" and
"Description of Exchange Notes Subordination".
CERTAIN COVENANTS.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to incur additional indebtedness and issue
Disqualified Stock (as defined herein), pay
dividends or distributions or make investments or
make certain other Restricted Payments (as defined
herein), enter into certain transactions with
affiliates, dispose of assets (including
limitations on the form of consideration to be
received and the use of proceeds therefrom), incur
liens securing pari passu and subordinated
indebtedness of the Company and engage in mergers
and consolidations. See "Description of Exchange
Notes".
EXCHANGE OFFER;
REGISTRATION RIGHTS........ If any Holder of Transfer Restricted Securities (as
defined in the Registration Rights Agreement)
notifies the Company on or prior to the 20th
Business Day following consummation of the Exchange
Offer that it alone or together with Holders who
hold in the aggregate at least $1.0 million in
principal amount of Notes (A) is prohibited by law
or Commission policy from participating in the
Exchange Offer or (B) may not resell the Exchange
Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the
prospectus contained in the Exchange
13
<PAGE> 21
Offer Registration Statement is not appropriate or
available for such resales or (C) is a
broker-dealer and owns Notes acquired directly from
the Company or an affiliate of the Company, the
Company and the Guarantors will use their best
efforts to file with the Commission a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the Notes by the
Holders thereof who satisfy certain conditions
relating to the provision of information in
connection with the Shelf Registration Statement.
Notwithstanding the foregoing, at any time after
Consummation (as defined in the Registration Rights
Agreement) of the Exchange Offer, the Company and
the Guarantors may allow the Shelf Registration
Statement to cease to be effective and usable if
(i) the Board of Directors of the Company
determines in good faith that such action is in the
best interests of the Company, and the Company
notifies the Holders within a certain period of
time after the Board of Directors makes such
determination or (ii) the prospectus contained in
the Shelf Registration Statement or the Shelf
Registration Statement contains an untrue statement
of a material fact required to be stated therein or
omits to state a material fact necessary in order
to make the statements therein, in light of the
circumstances under which they were made, not
misleading; provided that the period referred to in
the Registration Rights Agreement during which the
Shelf Registration Statement is required to be
effective and usable will be extended by the number
of days during which such registration statement
was not effective or usable pursuant to the
foregoing provisions.
If (a) the Company and the Guarantors fail to file
either of the Registration Statements required by
the Registration Rights Agreement on or before the
date specified for such filing, (b) either of such
Registration Statements is not declared effective
by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target
Date"), (c) the Company and the Guarantors fail to
consummate the Exchange Offer within 45 days of the
Effectiveness Target Date with respect to the
Exchange Offer Registration Statement, or (d) the
Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but
thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted
Securities during the periods specified in the
Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a
"Registration Default"), then, subject to the last
sentence of the preceding paragraph, the Company
will pay Liquidated Damages to each Holder of
Transfer Restricted Securities, with respect to the
first 90-day period immediately following the
occurrence of such Registration Default in an
amount equal to $0.05 per week per $1,000 in
principal amount of Notes constituting Transfer
Restricted Securities held by such Holder. The
amount of the Liquidated Damages will increase by
an additional $0.05 per week per $1,000 in
principal amount of Notes constituting Transfer
Restricted Securities with respect to each
subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of
Liquidated
14
<PAGE> 22
Damages of $0.50 per week per $1,000 in principal
amount of Notes constituting Transfer Restricted
Securities. All accrued Liquidated Damages will be
paid by the Company in cash on each Damages Payment
Date (as defined in the Registration Rights
Agreement) to the Global Note Holder (and any
Holder of Certificated Securities who has given
wire transfer instructions to the Company at least
10 Business Days prior to the Damages Payment Date)
by wire transfer of immediately available funds and
to all other Holders of Certificated Securities by
mailing checks to their registered addresses.
Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
RISK FACTORS
See "Risk Factors" beginning on page 20 for a discussion of certain factors
that should be considered in evaluating an investment in the Exchange Notes.
15
<PAGE> 23
SELECTED HISTORICAL AND TRANSACTION PRO FORMA
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and Transaction pro
forma consolidated and combined financial and other data for the Company. The
historical consolidated and combined financial statements for the Company's four
most recent fiscal years have been audited. The selected historical income
statement data for the three years ended December 31, 1996 and balance sheet
data as of December 31, 1996 and 1995 have been derived from, and should be read
in conjunction with, the audited consolidated and combined financial statements
of the Company and the related notes thereto appearing elsewhere in this
Prospectus. The selected historical data presented below as of December 31,
1992, and for the year then ended, are derived from unaudited combined financial
statements of Amscan Inc. and certain affiliated companies. The selected
historical financial data for the nine month periods ended September 30, 1997
(unaudited) and 1996 (previously audited) have been derived from, and should be
read in conjunction with, the consolidated and combined financial statements of
the Company and the related notes thereto appearing elsewhere in this
Prospectus. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included in the unaudited consolidated and combined financial statements of
the Company. Results for the nine months ended September 30, 1997 are not
necessarily indicative of results that can be expected for the entire 1997
fiscal year. See "Index to Financial Statements".
The selected Transaction pro forma data is unaudited and intended to
present the effect of certain transactions that have occurred in connection with
the consummation of the Transaction. The selected Transaction pro forma
consolidated statement of income data for the periods presented give effect to
the Transaction as if it were consummated as of January 1, 1996. The selected
Transaction pro forma consolidated statement of income data for the year ended
December 31, 1996 and the twelve months ended September 30, 1997 also include
supplemental pro forma adjustments to give effect to certain events that
occurred in conjunction with the organization of the Company and its
subsidiaries (the "Organization") and the Company's initial public offering in
December 1996 (the "IPO") as if they had occurred as of January 1, 1996. The
selected Transaction pro forma consolidated balance sheet data gives effect to
the Transaction as though it had occurred on September 30, 1997. The historical
and the Transaction pro forma consolidated and combined data should be read in
conjunction with "Capitalization", "Unaudited Transaction Pro Forma Consolidated
Financial Data" and the notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
contained elsewhere in this Prospectus.
16
<PAGE> 24
SELECTED HISTORICAL AND TRANSACTION PRO FORMA
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------- ------------------------------ -------------
TRANSACTION TRANSACTION TRANSACTION
PRO FORMA PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1997 1997
----- ------ ------ ------ ------- ----------- ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IN COME STATEMENT
DATA:
Net sales............. $86.9 $108.9 $132.0 $167.4 $ 192.7 $ 192.7 $147.0 $ 161.3 $ 161.3 $ 207.0
Cost of sales......... 56.5 72.6 86.7 108.7 123.9 123.9 92.9 103.5 103.5 134.5
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Gross profit.......... 30.4 36.3 45.3 58.7 68.8 68.8 54.1 57.8 57.8 72.5
Selling expenses...... 8.8 9.8 11.3 12.2 11.8 11.8 8.7 9.6 9.6 12.7
General and
administrative
costs................ 9.3 11.1 14.5 15.0 19.3 20.0 14.1 13.2 13.3 18.7
Art and development
costs................ 1.6 2.6 2.8 4.3 5.2 5.2 3.6 3.9 3.9 5.4
Nonrecurring
compensation in
connection with the
IPO(a)............... 15.5
Special bonuses(b).... 0.8 1.1 2.2 2.5 4.2 3.3
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Income from
operations........... 9.9 11.7 14.5 24.7 12.8 31.8 24.4 31.1 31.0 35.7
Interest expense,
net.................. 2.1 2.3 3.8 5.8 6.7 23.0 4.6 2.7 16.9 23.1
Other (income)
expense, net......... 0.0 0.3 0.1 (0.3) 0.4 0.4 (0.3) (0.2) (0.2) 0.4
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Income before income
taxes and minority
interests............ 7.8 9.1 10.6 19.2 5.7 8.4 20.1 28.6 14.3 12.2
Income taxes.......... 0.3 0.3 0.4 0.7 2.0 3.6 0.8 11.6 5.8 4.9
Minority interests.... 0.0 0.3 0.2 1.1 1.6 0.2 1.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Net income............ $ 7.5 $ 8.5 $ 10.0 $ 17.4 $ 2.1 $ 4.6 $ 18.1 $ 16.9 $ 8.4 $ 7.1
===== ===== ===== ===== ===== ========== ===== ===== ========== ==========
Pro forma net income
per share............ $ 4,556 $16,734 $ 8,284 $ 6,984
Pro forma weighted
average common shares
outstanding(e)....... 1,010 1,010 1,010 1,010
PRO FORMA DATA
(RELATING TO CHANGE
IN TAX STATUS PRIOR
TO ORGANIZATION AND
IPO:
Income before income
taxes................ $ 7.7 $ 8.8 $ 10.4 $ 18.2 $ 4.1 $ 18.9
Pro forma income
taxes(c)............. 3.2 3.6 4.2 7.4 1.8 7.9
----- ----- ----- ----- ----- -----
Pro forma net
income(c)............ $ 4.5 $ 5.2 $ 6.2 $ 10.8 $ 2.3 $ 11.0
===== ===== ===== ===== ===== =====
Pro forma net income
used for pro forma
net income per share
calculation(d)....... $12,010
Pro forma net income
per share............ $11,891
Pro forma weighted
average common shares
outstanding(e)....... 1,010
NON-GAAP FINANCIAL
DATA:
Adjusted EBITDA(f).... $12.6 $ 15.5 $ 20.4 $ 31.6 $ 37.7 $ 37.2 $ 31.3 $ 35.6 $ 35.5 $ 41.8
Adjusted EBITDA
margin............... 14.5% 14.2% 15.4% 18.9% 19.5% 19.3% 21.3% 22.1% 22.0% 20.2%
Adjusted EBITDA to
cash interest
expense.............. 1.9x
Adjusted EBITDA minus
cash capital
expenditures to cash
interest expense..... 1.5
Total debt to Adjusted
EBITDA(g)............ 5.7
OTHER FINANCIAL DATA:
Gross margin.......... 34.9% 33.3% 34.3% 35.1% 35.7% 35.7% 36.8% 35.9% 35.9% 35.0%
Depreciation and
amortization......... $ 1.8 $ 2.6 $ 3.7 $ 4.3 $ 5.1 $ 5.4 $ 3.6 $ 4.5 $ 4.5 $ 6.1
Cash capital
expenditures......... 3.1 4.7 7.4 4.5 7.6 7.6 5.6 6.9 6.9 8.9
Earnings to fixed
charges(h)........... 4.0x 3.7x 3.2x 3.8x 1.7x 1.3x 4.3x 7.7x 1.8x 1.5x
CASH FLOW STATEMENT
DATA:
Cash flow from
operations........... $ 5.3 $ 9.9 $ 5.1 $ 4.7 $ 12.3 $ 1.6 $ 8.5
Cash flows from
investing............ (3.1) (6.9) (7.3) (4.5) (7.6) (5.6) (6.8)
Cash flows from
financing............ (3.2) (1.9) 2.8 0.1 (6.0) 5.0 (2.5)
BALANCE SHEET DATA:
Working capital....... $ 7.8 $ 4.7 $ (0.4) $ 8.4 $ 45.4 $ 2.1 $ 74.9 $ 96.3
Total assets.......... 60.7 80.1 93.9 114.6 140.3 138.3 162.8 171.5
Total debt............ 37.1 49.1 59.7 70.8 48.3 98.6 40.4 237.8
Stockholders' equity
(deficit)............ 15.6 18.5 20.8 27.2 67.9 24.6 89.0 (95.3)
</TABLE>
17
<PAGE> 25
NOTES TO SELECTED HISTORICAL AND TRANSACTION PRO FORMA CONSOLIDATED
AND COMBINED FINANCIAL AND OTHER DATA
(DOLLARS IN MILLIONS)
(a) In conjunction with the IPO, the Company recorded non-recurring compensation
expense of $15.5 in 1996, including stock and cash payments of $12.5 to
certain executives in connection with the termination of prior employment
agreements and $3.0 for the establishment of an Employee Stock Ownership
Plan for the benefit of the employees of Amscan Holdings, Inc. and the
payment of stock bonuses to certain of such employees.
(b) In each of the five years ended December 31, 1996 and for the nine months
ended September 30, 1996, special bonus arrangements existed with certain
members of management. In connection with the IPO, such special bonus
arrangements were substantially modified and generally replaced by
incentives tied to the value of Company Common Stock.
(c) Prior to the consummation of the IPO, Amscan Inc., Am-Source, Inc. and
certain other subsidiaries of the Company elected to be taxed as S
corporations under the Internal Revenue Code of 1986, as amended. 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 these
subsidiaries had not elected S corporation status.
(d) Pro forma net income used for the pro forma net income per share calculation
for the year ended December 31, 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. See "Notes to Consolidated
Financial Statements -- December 31, 1996."
(e) Represents the number of common shares outstanding after the Effective Time
as described in Note (16) of the Notes to Consolidated Financial
Statements. See "Notes to Consolidated Financial Statements -- December 31,
1996."
(f) "EBITDA" represents earnings before interest, income taxes, depreciation and
amortization. "Adjusted EBITDA" represents EBITDA adjusted for certain
items reflected in the following table. Neither EBITDA nor Adjusted EBITDA
is intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. EBITDA and Adjusted
EBITDA are presented because they are widely accepted financial indicators
of a leveraged company's ability to service and/or incur indebtedness and
because management believes EBITDA and Adjusted EBITDA are relevant
measures of the Company's ability to generate cash without regard to the
Company's capital structure or working capital needs. EBITDA and Adjusted
EBITDA as presented may not be comparable to similarly titled measures used
by other companies, depending upon the non-cash charges included. When
evaluating EBITDA and Adjusted EBITDA, investors should consider that
EBITDA and Adjusted EBITDA (i) should not be considered in isolation but
together with other factors which may influence operating and investing
activities such as changes in operating assets and liabilities and
purchases of property and equipment, (ii) are not a measure of performance
calculated in accordance with generally accepted accounting principles,
(iii) should not be construed as an alternative or substitute for income
from operations, net income or cash flows from operating activities in
analyzing the Company's operating performance, financial position or cash
flows and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity.
18
<PAGE> 26
<TABLE>
<CAPTION>
TWELVE MONTHS
NINE MONTHS ENDED ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------- ----------------------------- -------------
TRANSACTION TRANSACTION TRANSACTION
PRO FORMA PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1997 1997
----- ------ ------ ------ ------ ----------- ------ ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................. $11.8 $ 13.8 $ 17.9 $ 28.3 $ 15.9 $ 36.6 $ 27.1 $ 35.7 $ 35.6 $ 41.2
Adjustments-increase
(decrease):
Special bonuses and
non-recurring
compensation......... 0.8 1.1 2.2 2.5 19.8 3.3
Other (income) expense,
net.................. 0.3 0.1 (0.3) 0.4 0.4 (0.3) (0.2) (0.2) 0.4
Minority interests..... 0.3 0.2 1.1 1.6 0.2 1.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ---------- ----- ----- ------- --- ------- ---
Adjusted EBITDA......... $12.6 $ 15.5 $ 20.4 $ 31.6 $ 37.7 $ 37.2 $ 31.3 $ 35.6 $ 35.5 $ 41.8
===== ===== ===== ===== ===== ========== ===== ===== ========== ==========
</TABLE>
(g) For purposes of determining the ratio of total debt to Adjusted EBITDA for
the twelve months ended September 30, 1997, total debt on a pro forma basis
reflects $10.8 of aggregate principal indebtedness under existing mortgage
notes on real property owned by subsidiaries of the Company and capital
lease obligations, $117.0 in aggregate principal amount of indebtedness
under the Term Loan, and $110.0 in aggregate principal amount of the
Exchange Notes offered hereby.
(h) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of the
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
19
<PAGE> 27
RISK FACTORS
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred in connection with the Transaction.
As of September 30, 1997, after giving pro forma effect to the Transaction and
the Transaction Financings and the application of the net proceeds therefrom,
the Company (i) would have had approximately $238 million of consolidated
indebtedness and (ii) because the distribution to stockholders and all of the
expenses relating to the Transaction will be charged to earnings and
stockholders' equity, would have had a deficit of approximately $95 million of
consolidated stockholders' equity. Of the total of approximately $289 million
used to consummate the Transaction, approximately $227 million (79%) was funded
with debt, and approximately $62 million (21%) was funded by new equity, with
current stockholders of the Company retaining almost 10% of the Company. After
giving pro forma effect to such transactions, the Company's ratio of earnings to
fixed charges would have been 1.5x for the twelve months ended September 30,
1997. Pro forma interest expense for the twelve months ended September 30, 1997
would have been approximately $23 million. The Company may incur additional
indebtedness in the future, subject to limitations imposed by the Indenture and
the Bank Credit Agreement. See "Capitalization" and "Transaction Pro Forma
Consolidated Financial Data".
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Exchange Notes) and
to satisfy its other obligations will depend upon its future performance, which,
to a certain extent, will be subject to general economic, financial,
competitive, business and other factors beyond its control. Based upon the
current level of operations and anticipated growth, the Company believes that
available cash flow, together with available borrowings under the Bank Credit
Agreement, will be adequate to meet its anticipated future requirements for
working capital and operating expenses, to finance potential acquisitions and to
service its debt requirements as they become due. However, a portion of the
principal payments at maturity on the Exchange Notes may require refinancing.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, including
the Exchange Notes, or make necessary or desirable capital expenditures or
acquisitions, or that any refinancing would be available on commercially
reasonable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
The degree to which the Company is now leveraged could have important
consequences to the Company, including the following: (a) the Company's ability
to obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes may be impaired and any such financing, if
available, may not be on terms favorable to the Company; (b) any interest
expense or other debt service may reduce the funds that would otherwise be
available to the Company for its operations and future business opportunities;
(c) certain of the Company's borrowings are at variable rates of interest, which
could result in higher interest expense in the event of increases in interest
rates; (d) a substantial decrease in cash flows from operations or an increase
in expenses of the Company could make it difficult for the Company to meet its
debt service requirements or force it to modify its operations; and (e) high
leverage may place the Company at a competitive disadvantage and may make it
vulnerable to a downturn in its business or the economy generally.
In addition, the Bank Credit Agreement and the Indenture contain financial
and other restrictive covenants that limit the ability of the Company to, among
other things, borrow additional funds and dispose of assets, and require the
Company to maintain certain financial ratios. Failure by the Company to comply
with these covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. In addition, the
degree to which the Company is leveraged could prevent it from repurchasing all
of the Exchange Notes tendered to it
20
<PAGE> 28
upon the occurrence of a Change of Control. See "Description of Senior Debt" and
"Description of Exchange Notes".
SUBORDINATION; ASSET ENCUMBRANCES
The Exchange Notes will be subordinated in right of payment to all existing
and future Senior Debt, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable in connection with Senior
Debt. At September 30, 1997, on a pro forma basis after giving effect to the
Transaction and the Transaction Financings, there would have been outstanding
approximately $128 million of Senior Debt, $117 million of which would have been
fully secured borrowings under the Bank Credit Agreement. In addition, the
Exchange Notes will be effectively subordinated to indebtedness and other
liabilities of the Company's Non-Guarantor Subsidiaries through which the
Company conducts a portion of its operations, which indebtedness and other
liabilities were approximately $3 million as of September 30, 1998. By reason of
such subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment with
respect to, or the acceleration of, any Senior Debt, the holders of such
accelerated Senior Debt and any other creditors who are holders of Senior Debt
and creditors of Non-Guarantor Subsidiaries must be paid in full before Holders
of the Exchange Notes may be paid. In addition, no payments may be made with
respect to the principal of (and premium, if any) or interest on the Exchange
Notes if a payment default exists with respect to Senior Debt and, under certain
circumstances, no payments may be made with respect to the principal of (and
premium, if any) or interest on the Exchange Notes for a period of up to 179
days if a non-payment default exists with respect to Senior Debt. In addition,
the Indenture permits Subsidiaries of the Company to incur debt under certain
circumstances. Any debt incurred by a Non-Guarantor Subsidiary of the Company
will be structurally senior to the Exchange Notes. See "Description of Exchange
Notes".
The Company has granted to the lenders under the Bank Credit Agreement
security interests in substantially all of the current and future assets of the
Company, including a pledge of all of the issued and outstanding shares of
capital stock of certain of the Company's Subsidiaries. In addition, the
Guarantors have granted to such lenders security interests in substantially all
of the current and future assets of the Guarantors. In the event of a default on
secured indebtedness, including the Senior Subordinated Guarantees (whether as a
result of the failure to comply with a payment or other covenant, a
cross-default, or otherwise), the parties granted security interests will have a
prior secured claim on the assets of the Company and the Guarantors. If these
parties should attempt to foreclose on their collateral, the Company's financial
condition and the value of the Exchange Notes will be materially adversely
affected. See "Description of Senior Debt".
HOLDING COMPANY STRUCTURE
The Company conducts all of its business through Subsidiaries and has no
operations of its own. The Company is dependent on the cash flow of its
Subsidiaries and distributions thereof from its Subsidiaries to the Company in
order to meet its debt service obligations. It is not expected that the Company
will have any assets other than the common stock of its Subsidiaries.
As of September 30, 1997, on a pro forma basis after giving effect to the
Transaction and the Transaction Financings, the aggregate amount of indebtedness
and other obligations of the Non-Guarantor Subsidiaries would have been
approximately $3 million. As a result of the holding company structure of the
Company, Holders of the Exchange Notes will be structurally junior to all
creditors of the Non-Guarantor Subsidiaries, except to the extent that the
Company or a Guarantor is itself recognized as a creditor of such Non-Guarantor
Subsidiary, in which case the claims of the Company or such Guarantor would
still be subordinate to any security in the assets of such Non-Guarantor
Subsidiary and any indebtedness of such Non-Guarantor Subsidiary senior to that
held by the Company or a Guarantor. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Non-Guarantor
Subsidiaries, the Company will not receive
21
<PAGE> 29
funds available to pay to Holders of the Exchange Notes in respect of the
Exchange Notes until after the payment in full of the claims of the creditors of
the Non-Guarantor Subsidiaries.
DEPENDENCE ON KEY PERSONNEL
The Company's success will continue to depend to a significant extent on
its executives, managers and other key personnel. Although the Company has
entered into employment agreements with certain employees, pursuant to which
such employees acquired an equity interest in the Company, there can be no
assurance that the Company will be able to retain these executives or other
managers and key personnel or to attract additional qualified management in the
future. The loss of the services of Gerald C. Rittenberg, Chief Executive
Officer, William S. Wilkey, Senior Vice President -- Sales and Marketing of the
Company or James M. Harrison, President, Chief Financial Officer and Treasurer
of the Company, could have an adverse effect on the Company's financial
condition or results of operations. The Company does not maintain key-man life
insurance on any of these executives.
CONTROL BY GSCP; CERTAIN PAYMENTS TO GOLDMAN, SACHS & CO.
Goldman Sachs and its affiliates have certain interests in the Transaction
and in the Company. Terence M. O'Toole and Sanjeev K. Mehra are Managing
Directors of Goldman Sachs, and Joseph P. DiSabato is an Associate of Goldman
Sachs, and each is a director of the Company. The general and managing partners
of each of the GSCP funds (the "GS Fund Partners"), which are affiliates of
Goldman Sachs and The Goldman Sachs Group, will each be deemed to be an
"affiliate" of GSCP, and therefore of the Company. See "Ownership of Capital
Stock". Goldman Sachs received an underwriting discount of approximately $3.3
million in connection with its purchase and resale of the Notes. Goldman Sachs
also served as financial advisor to MergerCo in connection with the Transaction
and received certain fees and had expenses reimbursed in connection therewith as
described herein. Moreover, GS Credit Partners acted as Syndication Agent,
Documentation Agent and Arranger in connection with the Bank Credit Agreement
and received certain fees and had expenses reimbursed in connection therewith.
Goldman Sachs received certain fees for other services rendered to the Company.
See "Certain Transactions".
In excess of 80% of the outstanding shares of Company Common Stock is held
by GSCP. As a result of such ownership, GSCP controls the Company and has the
ability to elect all of its directors, appoint new management and approve any
action requiring the approval of the holders of Company Common Stock, including
adopting amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets, in each
case subject to whatever contractual restrictions, including pursuant to the
Indenture and the Bank Credit Agreement, apply to the Company. There can be no
assurance that the interests of GSCP will not conflict with the interests of
Holders of the Exchange Notes. See "Management", "Ownership of Capital Stock"
and "Certain Transactions".
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the principal amount of the Exchange Notes, together with
accrued and unpaid interest, if any, to the date of repurchase. If a Change of
Control were to occur, the Company may not have the financial resources to repay
all of its obligations under the Bank Credit Agreement, the Indenture and the
other indebtedness that would become payable upon the occurrence of such Change
of Control.
22
<PAGE> 30
RISKS RELATING TO THE COMPANY'S BUSINESS
Concentration of Customer Sales and Credit Risk. The concentration of
sales by the Company to party goods superstore chains has resulted in a
significant concentration of sales and unsecured trade receivables with such
customers.
Combined sales to the Company's two largest customers, Party City, a public
company with stock listed on the Nasdaq National Market, and Party Stores
Holdings, an independent and privately held party goods superstore chain,
accounted in the aggregate for approximately 10%, 17% and 21% of the Company's
sales in 1994, 1995 and 1996, respectively. In addition, at September 30, 1997,
these two customers together accounted for approximately 14% of the Company's
accounts receivable.
Although the Company believes its relationships with these customers are
good, should either of them significantly reduce their volume of purchases from
the Company, the Company's financial condition and results of operations could
be adversely affected. Moreover, while the Company believes that adequate
provisions for bad debts have been made in its financial statements, should it
be unable to collect receivables from its party superstore customers to any
significant extent, the Company's financial condition and results of operations
could be adversely affected. In January 1998, Party Stores Holdings filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code. From time to time, the Company has provided additional reserves or
restructured accounts receivables because of the credit condition of certain
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".
Importance of Identifying Design Trends and Consumer Preferences. In
manufacturing and distributing party goods, the Company's success depends in
part on its ability to anticipate the tastes and preferences of party goods
retailers and consumers. The Company's strategy has depended to a significant
extent on the regular introduction of new designs which are attractive and
distinctive. The Company's failure to anticipate, identify or react
appropriately to changes in consumer tastes could, among other things, lead to
excess inventories and significant markdowns or a shortage of products and
foregone sales, any of which could have an adverse effect on the Company's
financial condition or results of operations.
Competition. The party goods industry is highly competitive. The Company
competes with many other companies, including smaller, independent specialty
manufacturers as well as divisions or subsidiaries of larger companies with
greater financial and other resources than those of the Company. Certain of
these competitors control licenses for widely recognized images, such as cartoon
or motion picture characters, which could provide them with a competitive
advantage. The Company has pursued a strategy of developing its own designs and
generally has not pursued licensing opportunities.
Impact of Changing Raw Material Costs. The principal raw material used by
the Company in its products is paper, which historically accounts for
approximately 35-40% of the annual cost of production of the Company's paper
plates, cups and napkins. The price of paper is subject to change due to
numerous factors beyond the control of the Company. Any significant increase in
the cost of paper would adversely affect the Company's raw material costs.
Competitive conditions will determine how much of any raw material cost increase
can be passed on to party goods retailers. While historically the Company has
been able to pass on raw material cost increases to its customers, if the
Company is unable to pass future raw materials cost increases to the party goods
retailers, the Company's financial condition and results of operations would be
adversely affected.
Risks Associated with Further Expansion Through Acquisitions. The Company
has from time to time expanded its product line and further vertically
integrated its operations, through strategic acquisitions. The Company believes
that opportunities exist to make acquisitions of complementary businesses to
leverage the Company's existing marketing, distribution and production
capabilities, expand its presence in the various retail channels, further
broaden and deepen its product line and penetrate international markets. The
Company receives inquiries from time to time with respect to
23
<PAGE> 31
the possible acquisition by the Company of other entities and such inquiries
have been received since the announcement of the Transaction. As of the date of
this Prospectus, the Company has not entered into any agreements to acquire
other companies or businesses; however, the Company intends to pursue
acquisition opportunities aggressively. See "Business -- Company Strategy".
There are various risks associated with pursuing acquisitions. The risks
include problems inherent in integrating new businesses, including potential
loss of customers and key personnel and potential disruption of operations.
There can be no assurance that businesses acquired by the Company will generate
significant revenues or profits or satisfy the Company's strategic objectives.
Moreover, there can be no assurance that suitable acquisition candidates will be
available, that acquisitions can be completed on reasonable terms, that the
Company will successfully integrate the operations of any acquired entities or
that the Company will have access to adequate funds to effect any desired
acquisitions. The amount of debt financing available for future acquisitions
will be limited by restrictions contained in the Bank Credit Agreement and the
Indenture for the Exchange Notes.
SEASONALITY
Due to the number of holidays falling in the fourth quarter of the calendar
year, the Company's business is somewhat seasonal, and, as a result, 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, in part, offset 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results".
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the Exchange Notes. The Exchange Notes will constitute a new issue
of securities with no established trading market. Although the Exchange Notes
will generally be permitted to be resold or otherwise transferred by Holders who
are not affiliates of the Company without compliance with the registration
requirements under the Securities Act, the Company does not intend to list the
Exchange Notes on any national securities exchange or to seek the admission
thereof to trading in any automated quotation system. The Company has been
advised by Goldman Sachs that it presently intends to make a market in the
Exchange Notes. However, Goldman Sachs is not obligated to do so and any
market-making activity with respect to the Exchange Notes may be discontinued at
any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
If such a market were to develop, the Exchange Notes could trade at prices
that may be higher or lower than the initial offering price of the Notes
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities.
Goldman Sachs may be deemed to be an affiliate of the Company and, as such,
may be required to deliver a "market-maker" prospectus in connection with its
market-making activities in the Exchange Notes. Pursuant to the Registration
Rights Agreement, the Company agreed to file and maintain a registration
statement that would allow Goldman Sachs to engage in market-making
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<PAGE> 32
transactions in the Exchange Notes. The registration statement will remain
effective for as long as Goldman Sachs may be required to deliver a prospectus
in connection with secondary transactions in the Exchange Notes.
Notwithstanding the foregoing, at any time after consummation of the
Exchange Offer, the Company and the Guarantors may allow such "market-maker"
prospectus and the related registration statement to cease to be effective and
usable if (i) the Board of Directors of the Company determines in good faith
that such action is in the best interests of the Company, and the Company
notifies the Holders within a certain period of time after the Board of
Directors makes such determination or (ii) such prospectus or such related
registration statement contains an untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
Company has agreed to bear substantially all the costs and expenses related to
such registration statement.
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Notes and the Senior Subordinated Guarantees, and to the extent exchanged for
the Notes, the Exchange Notes, was incurred for proper purposes and in good
faith, and that as a result of, and after giving effect to, the Note Offering
and the Exchange Offer, based on forecasts, asset valuations and other financial
information, the Company was and will be solvent, had and will have sufficient
capital for carrying on its business and was and is able to pay its debts as
they mature. See "Risk Factors -- Substantial Leverage; Ability to Service
Indebtedness". Notwithstanding management's belief, however, if a court of
competent jurisdiction in a suit by an unpaid creditor or a representative of
creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to
find that, at the time of the incurrence of such indebtedness, the Company or
the Guarantors were insolvent, were rendered insolvent by reason of such
incurrence, were engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital, intended to incur, or believed
that they would incur, debts beyond their ability to pay such debts as they
matured, or intended to hinder, delay or defraud their creditors, and that the
indebtedness was incurred for less than reasonably equivalent value, then such
court could, among other things, (a) void all or a portion of the Company's or
the Guarantors' obligations to Holders of the Exchange Notes, the effect of
which would be that Holders of the Exchange Notes may not be repaid in full
and/or (b) subordinate the Company's or the Guarantors' obligations to Holders
of the Exchange Notes to other existing and future indebtedness of the Company
to a greater extent than would otherwise be the case, the effect of which would
be to entitle such other creditors to be paid in full before any payment could
be made on the Exchange Notes or the Senior Subordinated Guarantees.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes for
its own account
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<PAGE> 33
in exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Notes could be
adversely affected. See "The Exchange Offer".
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Company in a private offering exempt
from registration pursuant to the Securities Act and have been resold pursuant
to Rule 144A and Regulation S under the Securities Act. As a result, the Notes
may not be reoffered or resold by purchasers except pursuant to an effective
registration statement under the Securities Act, or pursuant to an applicable
exemption from such registration, and the Notes are legended to restrict
transfer as aforesaid. Each Holder (other than any Holder who is an affiliate or
promoter of the Company) who duly exchanges Notes for Exchange Notes in the
Exchange Offer will receive Exchange Notes that are freely transferable under
the Securities Act. Holders of Notes who participate in the Exchange Offer
should be aware, however, that if they accept the Exchange Offer for the purpose
of engaging in a distribution, the Exchange Notes may not be publicly reoffered
or resold without complying with the registration and prospectus delivery
requirements of the Securities Act. As a result, each Holder of Notes accepting
the Exchange Offer will be deemed to have represented, by its acceptance of the
Exchange Offer, that it acquired the Exchange Notes in the ordinary course of
business and that it is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. If existing Commission interpretations
permitting free transferability of the Exchange Notes following the Exchange
Offer are changed prior to consummation of the Exchange Offer, the Company will
use its best efforts to register the Notes for resale under the Securities Act.
See "Prospectus Summary -- The Exchange Offer" and "Description of Exchange
Notes -- Registration Rights".
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A or Regulation S, or pursuant to another available exemption under the
Securities Act, without registration under the Securities Act. To the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for the untendered and tendered but unaccepted Notes could be adversely
affected.
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<PAGE> 34
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on December 19, 1997, and were
subsequently resold to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to certain persons in transactions outside the
United States in reliance on Regulation S under the Securities Act. In
connection with the Note Offering, the Company entered into the Registration
Rights Agreement, which requires, among other things, that promptly following
the completion of the Transaction, the Company and the Guarantors (i) file with
the Commission a registration statement under the Securities Act with respect to
an issue of new notes of the Company identical in all material respects to the
Notes, (ii) use their best efforts to cause such registration statement to
become effective under the Securities Act and (iii) upon the effectiveness of
that registration statement, offer to the Holders of the Notes the opportunity
to exchange their Notes for a like principal amount of Exchange Notes, which
would be issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act (other
than any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act). A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer means
any person in whose name the Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the PORTAL System
of the National Association of Securities Dealers, Inc. Because the Company
anticipates that most holders of Notes will elect to exchange such Notes for
Exchange Notes due to the absence of restrictions on the resale of Exchange
Notes under the Securities Act, the Company anticipates that the liquidity of
the market for any Notes remaining after the consummation of the Exchange Offer
may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
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<PAGE> 35
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of the State of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to ten business days if the Exchange Offer
would otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Description of Exchange Notes -- Registration Rights;
Liquidated Damages".
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
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<PAGE> 36
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from December 19, 1997, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date to which interest on such Notes has been
paid). Accordingly, holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of tender,
but such interest will be payable on the first Interest Payment Date after the
Expiration Date. Interest on the Exchange Notes will be payable semiannually on
each June 15 and December 15, commencing June 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 5.00 p.m., New York City time, on
the Expiration Date. Delivery of the Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes".
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power,
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<PAGE> 37
signed by such registered Holder as such registered Holder's name appears on
such Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the Depository's system may make book-entry delivery of the Notes
by causing the Depository to transfer such Notes into the Exchange Agent's
account with respect to the Notes in accordance with the Depository's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Depository, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Depository does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed notice of
guaranteed delivery ("Notice of Guaranteed Delivery") (by facsimile
transmission, mail or hand delivery) setting forth the name and address of
the Holder, the certificate number(s) of such Notes and the principal
amount of Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificates(s) representing the Notes (or a confirma-
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<PAGE> 38
tion of book-entry transfer of such Notes into the Exchange Agent's account
at the Depository) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of notes transferred by
book-entry transfer, the name and number of the account at the Depository to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the
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<PAGE> 39
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Notes (see "-- Withdrawals of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if the
Exchange Offer would otherwise expire during such five to ten business-day
period.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company will act as Exchange Agent for the
Exchange Offer (the "Exchange Agent").
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for copies of the
Notice of Guaranteed Delivery should be directed to the Exchange Agent,
addressed as follows:
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window, Subcellar One (SC-1)
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and reimburse it
for its reasonable out-of-pocket expenses in connection therewith and pay other
registration expenses, including fees and expenses of the Trustee, filing fees,
blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes
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pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any Holder of such Exchange
Notes (other than any such Holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such Holder's
business and such Holder does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any Holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989) and
Morgan Stanley & Co., Incorporated (available June 5, 1991), or similar
no-action letters, but rather must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. In addition, any such resale transaction should be covered by an
effective registration statement containing the selling security holders
information required by Item 507 of Regulation S-K of the Securities Act. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, may be a statutory
underwriter and must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder incurring liability
under the Securities Act for which such Holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each Holder that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company will represent to the Company that such Holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act. In connection with the
Note Offering, the Company entered into the Registration Rights Agreement
33
<PAGE> 41
pursuant to which the Company agreed to file and maintain, subject to certain
limitations, a registration statement that would allow Goldman Sachs to engage
in market-making transactions with respect to the Notes or the Exchange Notes.
The Company has agreed to bear all registration expenses incurred under such
agreement, including printing and distribution expenses, reasonable fees of
counsel, blue sky fees and expenses, reasonable fees of independent accountants
in connection with the preparation of comfort letters, and Commission and the
National Association of Securities Dealers, Inc. filing fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, (iv)
outside the United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or (vi) to an institutional
accredited investor in a transaction exempt from the registration requirements
of the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. See "Risk Factors -- Restrictions on
Transfer".
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
34
<PAGE> 42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss would be recognized by
Holders of the Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a Holder's basis in the Exchange Notes should be the same as
such Holder's basis in the Notes exchanged therefor. A Holder's holding period
for the Exchange Notes should include the Holder's holding period for the Notes
exchanged therefor. The issue price and other tax characteristics of the
Exchange Notes should be identical to the issue price and other tax
characteristics of the Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes".
35
<PAGE> 43
THE TRANSACTION
CERTAIN AGREEMENTS
Pursuant to the Transaction Agreement, and following the approval and
adoption of the Transaction Agreement by the vote of a majority of the shares of
Company Common Stock entitled to vote thereon and the satisfaction or waiver of
the other conditions to the Transaction, on December 19, 1997, MergerCo was
merged with and into the Company with the Company as the surviving corporation.
Concurrent with entering into the Transaction Agreement, the Company
entered into the Tax Indemnification Agreement, dated as of August 10, 1997,
with the Estate and Christine Svenningsen (together, the "Svenningsen
Stockholders") (the "Tax Indemnification Agreement"), pursuant to which the
parties agreed to indemnify one another with respect to certain tax liabilities
that may arise in connection with the election by certain Subsidiaries of the
Company to have been treated and operated under the Code as S corporations (as
"S corporation" is defined in the Code). The Tax Indemnification Agreement
provides that the Company will indemnify the Svenningsen Stockholders for any
increase in certain tax liabilities attributable to an understatement of income
previously reported by such Subsidiaries to the extent of any actual reduction
in taxes on the Company or its Subsidiaries for a taxable year after December
18, 1996, the date of the Company's initial public offering. The Tax
Indemnification Agreement also provides that the Svenningsen Stockholders will
indemnify the Company for certain tax liabilities arising out of or resulting
from a claim by any taxing authority that any such Subsidiary was not an S
corporation under the Code at a time when it took such a position. Any payments
made under the Tax Indemnification Agreement will be reduced by any payments
made pursuant to the Tax Indemnification Agreement (the "Prior Tax
Indemnification Agreement"), by and between John A. Svenningsen and the Company,
dated as of December 18, 1996, regarding certain similar matters, which Prior
Tax Indemnification Agreement remains a separate valid and binding agreement.
See "Management -- Certain Relationships and Related Transactions".
Concurrent with the execution of the Transaction Agreement, MergerCo
entered into agreements with certain employees of the Company relating, for
certain of such employees, to their employment with the Company following the
Effective Time and relating to their ownership of Company Common Stock and
options to purchase shares of Company Common Stock following the Transaction
(collectively, the "New Employment Arrangements"). At the Effective Time,
certain of the New Employment Arrangements replaced and superseded prior
employment agreements for such employees. See "Management -- New Employment
Arrangements".
In addition, upon consummation of the Transaction, the Company entered into
a Stockholders' Agreement (the "Stockholders' Agreement") with GSCP and the
Estate and certain employees of the Company listed as parties thereto (including
the Estate, the "Non-GSCP Investors"). See "Ownership of Capital Stock".
36
<PAGE> 44
The following table sets forth the sources and uses of cash related to the
Transaction:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
SOURCES OF CASH
Term Loan...................................................................... $ 117,000
Senior Subordinated Notes...................................................... 110,000
--------
Total debt................................................................... 227,000
GSCP equity contribution(a).................................................... 61,875
--------
Total..................................................................... $ 288,875
========
USES OF CASH
Purchase equity in the Transaction............................................. $ 235,916
Redeem Company Stock Options................................................... 1,901
Repay certain existing debt(b)................................................. 23,908
Debt retirement costs.......................................................... 1,010
Transaction costs.............................................................. 17,152
Cash for working capital purposes.............................................. 8,988
--------
Total..................................................................... $ 288,875
========
</TABLE>
- ---------------
(a) In addition to the equity contribution, certain employees have made an
equity investment in the Company totaling $6.4 million (including
restricted stock grants and $0.8 million contributed by certain employees
immediately following consummation of the Transaction) and the Estate has
retained an interest in the Company of $7.5 million, together constituting
$13.9 million valued at the price per share paid by GSCP.
(b) Excludes existing mortgages on real property owned by Subsidiaries of the
Company in the amount of approximately $5.9 million, capital lease
obligations of approximately $4.6 million, and borrowings under a revolving
credit agreement of a Non-Guarantor Subsidiary of approximately $0.6
million each as of December 19, 1997. All other outstanding debt of the
Company was extinguished at or prior to the completion of the Transaction.
37
<PAGE> 45
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of September 30, 1997, and on a pro forma basis to give effect
to the Transaction, including the Transaction Financings and the application of
the proceeds therefrom, as if they had occurred on September 30, 1997. See "The
Transaction". The information set forth below should be read in conjunction with
the Company's Transaction Pro Forma Consolidated Financial Data, the Company's
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------
TRANSACTION
HISTORICAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 684 $ 3,975
======== ========
Total debt (including current portion)
Revolving Credit Facility(1)...................................... $ -- $ --
Term Loan......................................................... -- 117,000
Existing revolving credit facility................................ 9,550 --
Senior Subordinated Notes......................................... -- 110,000
Mortgages......................................................... 6,072 6,072
Capital leases and other.......................................... 24,782 4,727
-------- --------
Total debt..................................................... 40,404 237,799
Stockholders' equity (deficit)(2)................................... 89,002 (95,288)
-------- --------
Total capitalization........................................... $ 129,406 $ 142,511
======== ========
</TABLE>
- ------------------
(1) The Company has the ability to borrow up to $50 million pursuant to its
Revolving Credit Facility. The Revolving Credit Facility is available to
the Company for working capital purposes and acquisitions, subject to
certain limitations and restrictions. See "Description of Senior Debt".
(2) Upon completion of the Transaction, the Company had a negative net worth for
accounting purposes. In the Transaction, GSCP paid $61.9 million for
approximately 82.5% of the Company Common Stock. In addition, certain
employees of the Company acquired and the Estate retained approximately
7.5% and almost 10%, respectively, of the Company Common Stock which, based
upon the price per share paid by GSCP, has an aggregate value of
approximately $13.1 million. Combined with GSCP's payment of $61.9 million,
these holdings have an aggregate value of approximately $75.0 million.
38
<PAGE> 46
TRANSACTION PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited Transaction Pro Forma Consolidated Financial Data
have been derived by the application of pro forma adjustments to the Company's
historical consolidated financial statements appearing elsewhere in this
Prospectus giving effect to the merger of MergerCo with and into the Company.
The Transaction Pro Forma Consolidated Statements of Income for the year ended
December 31, 1996 and the nine and twelve month periods ended September 30, 1997
give effect to the Transaction as if it was consummated as of January 1, 1996.
The Transaction Pro Forma Consolidated Statements of Income for the year ended
December 31, 1996 and the twelve months ended September 30, 1997 include
supplemental pro forma adjustments to give effect to certain events that
occurred in conjunction with the Organization and the IPO as if such events had
occurred as of January 1, 1996. The Transaction Pro Forma Consolidated Balance
Sheet gives effect to the Transaction as if it had occurred as of September 30,
1997. The adjustments are described in the accompanying notes. The Transaction
Pro Forma Consolidated Financial Statements should not be considered indicative
of actual results that would have been achieved had the Transaction been
consummated on the date or for the periods indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Transaction Pro Forma Consolidated Financial
Statements should be read in conjunction with the Company's historical
consolidated financial statements and the related notes thereto appearing
elsewhere in this Prospectus. See "Index to Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
As a result of the Transaction, the Company incurred various costs of
approximately $27.6 million (pre-tax) in connection with consummation of the
Transaction and the transactions contemplated by the Transaction Agreement.
These costs consist primarily of professional, advisory and investment banking
fees, registration costs, compensation costs and other expenses of approximately
$22.1 million and deferred financing costs of approximately $5.5 million. The
Company has recorded a one-time pre-tax charge of approximately $22.1 million
($17.7 million after tax) in the fourth quarter of 1997 and, as a result, the
Company incurred a significant net loss in that quarter. Because this loss
resulted directly from the one-time charge incurred in connection with the
Transaction, and this charge was funded entirely through the proceeds of the
Transaction Financings, the Company does not expect this loss to materially
impact its liquidity, ongoing operations or market position. See "Risk Factors
- -- Substantial Leverage; Ability to Service Indebtedness" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
The pro forma adjustments giving effect to the Transaction were applied to
the respective historical consolidated financial statements to reflect and
account for the Transaction as a recapitalization. Accordingly, the historical
basis of the Company's assets and liabilities has not been impacted by the
Transaction.
39
<PAGE> 47
TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
ADJUSTMENTS PRO FORMA
TO GIVE TO GIVE PRO FORMA
EFFECT TO EFFECT ADJUSTMENTS TO
THE TO THE GIVE EFFECT TO
ORGANIZATION ORGANIZATION THE TRANSACTION
HISTORICAL AND THE IPO AND THE IPO TRANSACTION(F) PRO FORMA
---------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 192,705 $192,705 $ 192,705
Cost of sales.................. 123,913 123,913 123,913
------- ------- -------
Gross profit................. 68,792 68,792 68,792
OPERATING EXPENSES:
Selling expenses............. 11,838 11,838 11,838
General and administrative
expenses.................. 19,266 $ 250(a) 19,516 $ 435(g) 19,951
Art and development costs.... 5,173 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 31,830
Interest expense, net.......... 6,691 (2,228)(d) 4,463 18,583(h) 23,046
Other expense, net............. 335 335 335
------- ------- -------
Income before income taxes
and minority interests.... 5,732 27,467 8,449
Income taxes................... 1,952 9,347(e) 11,299 (7,702)(i) 3,597
Minority interests............. 1,653 (1,403)(a) 250 250
------- ------- -------
Net income..................... $ 2,127 $ 15,918 $ 4,602
======= ======= =======
Pro forma net income per
share........................ $ 4,556
Pro forma weighted average
common shares
outstanding(j)............... 1,010
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(k)............. $ 37,652 $ 37,217
Adjusted EBITDA margin......... 19.5% 19.3%
OTHER FINANCIAL DATA:
Gross margin................... 35.7% 35.7%
Depreciation and
amortization................. $ 5,137 $ 5,387
Cash capital expenditures...... 7,613 7,613
Earnings to fixed charges(l)... 1.7x 1.3x
</TABLE>
See Notes to Transaction Pro Forma Consolidated Statement of Income.
40
<PAGE> 48
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma, supplemental pro forma and Transaction pro
forma adjustments to the Company's historical consolidated financial statements
for the period noted. The adjustments give effect to certain events that
occurred in conjunction with the Organization and the IPO and to certain events
that occurred in connection with the Transaction, as if those events had
occurred as of January 1, 1996, including pro forma adjustments intended to
present the historical results as if certain subsidiaries had terminated their
treatment as S corporations for tax purposes. The Transaction has been accounted
for as a recapitalization, which will have no impact on the historical basis of
the Company's assets and liabilities.
(a) To reflect $250 amortization of goodwill per annum 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.
(b) To reflect reductions in compensation expense of $15,535, including stock
and cash of $12,535 for payments 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 employees of Amscan Inc.
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 employment
agreements entered into in connection with the IPO would have resulted 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 a statutory rate of 40.5% on earnings as if
Amscan Inc., Am-Source, Inc. and certain other subsidiaries of the Company
had not been treated as S corporations during the period presented and to
give effect to the tax effect of these adjustments.
(f) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Transaction
Pro Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
retirement costs, (iii) $7,500 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,901 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,652 of transaction fees and expenses incurred in connection with the
Transaction. Such amounts represent non-recurring expenses which will be
reflected in the Consolidated Statement of Income for the period in which
the Transaction is included.
(g) To reflect the amortization over a ten-year period of $1,125 of restricted
shares of Company Common Stock issued to an officer of the Company in
connection with the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction".
41
<PAGE> 49
(h) To adjust interest expense to reflect the following:
<TABLE>
<CAPTION>
<S> <C>
Interest on historical debt repaid in Transaction...................... $(2,869)
Interest expense on the Term Loan (8.5% rate).......................... 9,945
Interest expense on the Senior Subordinated Notes (9.875% rate)........ 10,863
Amortization of deferred financing costs (7-10 years) on new
indebtedness......................................................... 644
-------
Total adjustment..................................................... $18,583
=======
</TABLE>
For the year ended December 31, 1996, a 0.125% increase or decrease in the
interest rate on the Term Loan would change the Transaction pro forma
interest expense and net income by $146 and $87, respectively.
(i) To reflect the tax effects of the Transaction pro forma adjustments at a
40.5% statutory income tax rate.
(j) Pro forma weighted average common shares outstanding represents the shares
outstanding after the Effective Time (see Notes to the Consolidated
Financial Statements -- December 31, 1996, note (18)).
(k) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes Adjusted EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. Adjusted EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating Adjusted EBITDA,
investors should consider that Adjusted EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(l) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
42
<PAGE> 50
TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS TO
GIVE EFFECT TO
THE TRANSACTION
HISTORICAL TRANSACTION(A) PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
Net sales............................................ $ 161,286 $ 161,286
Cost of sales........................................ 103,460 103,460
-------- --------
Gross profit....................................... 57,826 57,826
Operating expenses:
Selling expenses................................... 9,598 9,598
General and administrative expenses................ 13,225 $ 104(b) 13,329
Art and development costs.......................... 3,891 3,891
-------- --------
Income from operations.......................... 31,112 31,008
Interest expense, net................................ 2,654 14,238(c) 16,892
Other income, net.................................... (219) (219)
-------- --------
Income before income taxes and minority
interests....................................... 28,677 14,335
Income taxes......................................... 11,627 (5,808)(d) 5,819
Minority interests................................... 149 149
-------- --------
Net income......................................... $ 16,901 $ 8,367
======== ========
Pro forma net income per share....................... $ 8,284
Pro forma weighted average common shares
outstanding(e)..................................... 1,010
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(f)................................... $ 35,617 $ 35,513
Adjusted EBITDA margin............................... 22.1% 22.0%
OTHER FINANCIAL DATA:
Gross margin......................................... 35.9% 35.9%
Depreciation and amortization........................ $ 4,505 $ 4,505
Cash capital expenditures............................ 6,895 6,895
Earnings to fixed charges(g)......................... 7.7x 1.8x
</TABLE>
See Notes to Transaction Pro Forma Consolidated Statement of Income.
43
<PAGE> 51
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma adjustments to the Company's historical
consolidated financial statements for the period noted. The adjustments give
effect to certain events that occurred in connection with the Transaction, as if
those events had occurred as of January 1, 1996. The Transaction has been
accounted for as a recapitalization, which will have no impact on the historical
basis of the Company's assets and liabilities.
(a) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Transaction
Pro Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
breakage costs, (iii) $7,500 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,901 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,652 of the transaction fees and expenses incurred in connection with
the Transaction. Such amounts represent non-recurring expenses which the
Company anticipates will be reflected in the Consolidated Statement of
Income for the period in which the Transaction is included.
(b) To reflect the amortization over a ten-year period of $1,125 of restricted
shares of Company Common Stock issued to an officer of the Company in
connection with the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction".
(c) To adjust interest expense, net to reflect the following:
<TABLE>
<S> <C>
Interest on historical debt repaid in Transaction................. $(1,852)
Interest expense on the Term Loan (8.5% rate)..................... 7,459
Interest expense on the Senior Subordinated Notes (9.875% rate)... 8,147
Amortization of deferred financing costs (7-10 years) on new
indebtedness.................................................... 484
-------
Total adjustment............................................. $14,238
=======
</TABLE>
For the nine months ended September 30, 1997, a 0.125% increase or decrease
in the interest rate on the Term Loan would change the Transaction pro
forma interest expense and net income by $110 and $65, respectively.
(d) To reflect the tax effects of the Transaction pro forma adjustments at a
40.5% statutory income tax rate.
(e) Pro forma weighted average common shares outstanding represents the shares
outstanding following the Effective Time (see Notes to Consolidated
Financial Statements -- September 30, 1997, note (7)).
(f) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes Adjusted EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. Adjusted EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating Adjusted EBITDA,
investors should consider that Adjusted EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and
44
<PAGE> 52
investing activities such as changes in operating assets and liabilities
and purchases of property and equipment, (ii) is not a measure of
performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(g) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of the
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
45
<PAGE> 53
TRANSACTION PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS TO
GIVE EFFECT TO
THE TRANSACTION
HISTORICAL TRANSACTION PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 684 $ 3,291(a) $ 3,975
Accounts receivable, net.............................. 56,276 56,276
Inventories........................................... 48,736 48,736
Deposits and other.................................... 9,680 9,680
-------- --------
Total current assets................................ 115,376 118,667
Property, plant and equipment, net.................... 37,157 37,157
Intangible assets, net................................ 7,540 7,540
Deferred financing costs.............................. -- 5,500(b) 5,500
Other assets, net..................................... 2,687 (20)(c) 2,667
-------- --------
Total assets........................................ $ 162,760 $ 171,531
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Loans and notes payable............................... $ 10,020 (10,020)(d) $ --
Accounts payable...................................... 11,153 11,153
Accrued expenses...................................... 7,317 7,317
Income taxes payable.................................. 6,458 (4,334)(e) 2,124
Current portions of long-term obligations............. 5,556 (3,771)(d) 1,785
-------- --------
Total current liabilities........................... 40,504 22,379
Long-term obligations, excluding current portion...... 24,828 211,186(d) 236,014
Deferred tax liabilities.............................. 5,585 5,585
Other................................................. 2,841 2,841
-------- --------
Total liabilities................................... 73,758 266,819
Stockholders' Equity (deficit):
Common Stock(f)....................................... 2,112 (2,112)(g) --
Additional paid-in capital............................ 65,985 63,000(h)
.................................................... 7,500(i)
.................................................... (136,485)(g) --
Unamortized restricted Common Stock award............. (1,125)(h) (1,125)
Retained earnings (deficit)........................... 21,649 (97,609)(g)
.................................................... (17,749)(e) (93,709)
Foreign currency translation adjustment............... (454) (454)
Treasury stock, at cost............................... (290) 290(g) --
-------- --------
Total stockholders' equity (deficit)................ 89,002 (95,288)
-------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 162,760 $ 171,531
======== ========
</TABLE>
See Notes to Transaction Pro Forma Consolidated Balance Sheet.
46
<PAGE> 54
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma adjustments to the historical consolidated
balance sheet as of September 30, 1997. The Transaction has been accounted for
as a recapitalization, which will have no impact on the Company's historical
basis of assets and liabilities.
(a) To increase cash by $3,291 to reflect the following:
<TABLE>
<S> <C>
USES OF CASH:
Purchase equity.................................................. $235,916
Redeem Company Stock Options(1).................................. 1,901
Repay historical debt............................................ 29,605
Debt retirement costs(2)......................................... 1,010
--------
Transaction fees and expenses, including deferred financing
costs(3)....................................................... 17,152
--------
Total uses....................................................... 285,584
--------
SOURCES OF CASH:
New debt......................................................... 227,000
New equity....................................................... 61,875
--------
Total sources.................................................... 288,875
--------
Net.............................................................. $ 3,291
========
</TABLE>
(b) To reflect the portion of transaction fees which will be recorded as
deferred financing costs and will be amortized over the life of the debt to
be issued.
(c) To reflect the write-off of deferred financing costs associated with the
historical debt being repaid and the termination of the Company's existing
term loan agreement.
(d) To adjust indebtedness to reflect the following:
<TABLE>
<S> <C>
Repayment of loans and notes payable............................. $(10,020)
Repayment of current portion of long-term obligations............ (3,771)
Adjustments to long-term obligations:
Repayment of long-term obligations (excluding current portion
of $3,771).................................................. (15,814)
Term Loan...................................................... 117,000
Senior Subordinated Notes...................................... 110,000
--------
Net adjustments to long-term obligations....................... 211,186
--------
Total.......................................................... $197,395
========
</TABLE>
47
<PAGE> 55
(e) To adjust retained earnings to reflect the following items as a result of
the Transaction and the related events:
<TABLE>
<S> <C>
Transaction fees and expenses(3)................................. $(11,652)
Redemption of Company Stock Options(1)........................... (1,901)
Debt retirement costs(2)......................................... (1,010)
One-time compensation charge payable by the Estate (see (i)
below)......................................................... (7,500)
Write-off of deferred financing costs(2)......................... (20)
--------
Total expenses(3).............................................. (22,083)
Income tax benefit attributable to deductible costs and
expenses....................................................... 4,334
--------
Total.......................................................... $(17,749)
========
</TABLE>
(f) At September 30, 1997, the Company's authorized capital stock consisted of
5,000,000 shares of Preferred Stock, at $0.10 par value, of which no shares
were issued or outstanding, and 50,000,000 shares of Company Common Stock,
$0.10 par value, of which 21,120,476 shares were issued and 21,098,785
shares were outstanding. Immediately following the Transaction, 1,000
shares of Company Common Stock were outstanding.
(g) To reflect the purchase of 5,801,441 shares of Company Common Stock for the
Cash Consideration of $16.50 per share ($95,724), the cash portion of the
Mixed Consideration paid for the 15,024,616 shares of Company Common Stock
held by the Estate ($140,192) and the retirement of 21,691 shares of
treasury stock ($290).
(h) To reflect the equity contribution of GSCP of $61,875 and the issuance of
$1,125 of restricted stock to an officer of the Company.
(i) To reflect a one-time compensation charge of $7,500 paid by the Estate and
the Svenningsen Trusts to Mr. Rittenberg under the terms of the Stock
Agreement. Such amount is reflected as compensation expense in the
Company's financial statements for the fourth quarter of 1997. The income
tax benefit attributable to the compensation expense is included in the
income tax adjustment of $4,334 in (e) above.
- ---------------
(1) The cost to redeem Company Stock Options is calculated based on the number
of options outstanding and the difference between the weighted average
exercise price of the options and the Cash Consideration of $16.50 per
share.
(2) The costs associated with the early extinguishment of historical debt will
be recognized as an extraordinary loss, net of the related tax benefit, in
the Company's financial statements for the period in which the Transaction
is included.
(3) Total expenses of $22,083 included $11,652 of (i) professional, advisory and
investment banking fees and expenses, (ii) compensation costs and (iii)
miscellaneous fees and expenses, such as printing and filing fees which
were paid, together with $5,500 of deferred financing costs from the
proceeds from the Transaction Financings.
48
<PAGE> 56
TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
ADJUSTMENTS PRO FORMA
TO GIVE TO GIVE PRO FORMA
EFFECT TO EFFECT TO ADJUSTMENTS TO
THE THE GIVE EFFECT
ORGANIZATION ORGANIZATION TO THE TRANSACTION
HISTORICAL AND THE IPO AND THE IPO TRANSACTION(F) PRO FORMA
---------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales........................ $ 206,983 $206,983 $ 206,983
Cost of sales.................... 134,512 134,512 134,512
-------- -------- --------
Gross profit................... 72,471 72,471 72,471
Operating expenses:
Selling expenses............... 12,745 12,745 12,745
General and administrative
expenses..................... 18,378 $ 62(a) 18,440 $ 213(g) 18,653
Art and development costs........ 5,393 5,393 5,393
Non-recurring compensation in
connection with the IPO...... 15,535 (15,535)(b) -- --
Special bonuses................ 922 (922)(c) -- --
-------- -------- --------
Income from operations......... 19,498 35,893 35,680
Interest expense, net............ 4,775 (557)(d) 4,218 18,884(h) 23,102
Other expense, net............... 417 417 417
Income before income taxes and
minority interests............. 14,306 31,258 12,161
Income taxes..................... 12,812 (180)(e) 12,632 (7,734)(i) 4,898
Minority interests............... 560 (351)(a) 209 209
-------- -------- --------
Net income..................... $ 934 $ 18,417 $ 7,054
======== ======== ========
Pro forma net income per share... $ 6,984
Pro forma weighted average common
shares outstanding(j).......... 1,010
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(k)............... $ 42,018
Adjusted EBITDA margin........... 20.3% 20.2%
OTHER FINANCIAL DATA:
Gross margin..................... 35.0% 35.0%
Depreciation and amortization.... $ 6,063 $ 6,125
Cash capital expenditures........ 8,934 8,934
Earnings to fixed charges(l)..... 2.8x 1.5x
</TABLE>
See Notes to Transaction Pro Forma Consolidated Statement of Income.
49
<PAGE> 57
NOTES TO TRANSACTION PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Transaction have been derived
by the application of pro forma, supplemental pro forma and Transaction pro
forma adjustments to the Company's historical consolidated financial statements
for the period noted. The adjustments give effect to certain events that
occurred in conjunction with the Organization and the IPO and to certain events
that occurred in connection with the Transaction, as if those events had
occurred as of January 1, 1996, including pro forma adjustments intended to
present the historical results as if certain subsidiaries had terminated their
treatment as S corporations for tax purposes. The Transaction has been accounted
for as a recapitalization, which will have no impact on the historical basis of
the Company's assets and liabilities.
(a) To reflect $62 amortization of goodwill and the elimination of $351 for
minority interest for the quarter ended December 31, 1996, related to the
acquisition of an additional 50% of Am-Source, Inc. as if it were acquired
as of January 1, 1996.
(b) To reflect reductions in compensation expense of $15,535, including stock
and cash of $12,535 for payments 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 employees of Amscan Inc.
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 employment
agreements entered into in connection with the IPO would have resulted in
performance-based compensation materially equivalent to that reflected in
the historical accounts under the prior employment agreements.
(d) To reflect the reduction of interest expense during the quarter ended
December 31, 1996, assuming the repayment of bank loans and loans from Mr.
Svenningsen from net proceeds of the IPO, as if the IPO occurred at January
1, 1996.
(e) To provide for income taxes at a statutory rate of 40.5% on earnings during
the quarter ended December 31, 1996 as if Amscan Inc., Am-Source, Inc. and
certain other subsidiaries of the Company had not been treated as S
corporations during the period and to give effect to the tax effect of
these adjustments.
(f) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Transaction
Pro Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
retirement costs, (iii) $7,500 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,901 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,652 of transaction fees and expenses incurred in connection with the
Transaction. Such amounts represent non-recurring expenses which the
Company anticipates will be reflected in the Consolidated Statement of
Income for the period in which the Transaction is included.
(g) To reflect the amortization over a ten-year period of $1,125 of restricted
shares of Company Common Stock issued to an officer of the Company in
connection with the Transaction. See "The Transaction -- Interests of
Certain Persons in the Transaction".
50
<PAGE> 58
(h) To adjust interest expense to reflect the following:
<TABLE>
<S> <C>
Interest on historical debt repaid in Transaction................. $(2,568)
Interest expense on the Term Loan (8.5% rate)..................... 9,945
Interest expense on the Senior Subordinated Notes (9.875% rate)... 10,863
Amortization of deferred financing costs (7-10 years) on new
indebtedness.................................................... 644
-------
Total adjustment............................................. $18,884
=======
</TABLE>
For the twelve months ended September 30, 1997, a 0.125% increase or
decrease in the interest rate on the Term Loan would change the Transaction
pro forma interest expense and net income by $146 and $87, respectively.
(i) To reflect the tax effects of the Transaction pro forma adjustments at a
40.5% statutory income tax rate.
(j) Pro forma weighted average common shares outstanding represents the shares
outstanding following the Effective Time (see Notes to Consolidated
Financial Statements -- September 30, 1997, note (7)).
(k) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes Adjusted EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. Adjusted EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating Adjusted EBITDA,
Investors should consider that Adjusted EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(l) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all
obligations, amortization of deferred financing costs and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
51
<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The party goods industry has experienced significant changes in both
distribution channels and product 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 1993
and 1996, sales to party superstore customers increased from $26.8 million to
$85.1 million, a 47% compound annual growth rate.
Revenues are generated from sales of approximately 14,000 SKUs consisting
of paper and plastic tableware, accessories and novelties for all occasions.
Tableware (plates, cups, cutlery, napkins and tablecovers) 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 SKUs
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.
FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY
In connection with the IPO in December 1996 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 was
carried over thereby not giving rise to any goodwill.
52
<PAGE> 60
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 Company
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 is being amortized over 30 years.
TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS
Pursuant to an agreement between Amscan Inc. and Mr. 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 prior 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 Company Common Stock
equal to approximately 3% of the total shares outstanding (excluding shares
issued upon exercise of the underwriters' over-allotment 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 managers were $2.2 million, $2.6
million and $4.2 million for the years ended December 31, 1994, 1995 and 1996,
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 the Company's Employee Stock Ownership
Plan (the "ESOP") for the benefit of the employees of Amscan Inc. and the
payment of stock bonuses to certain of such employees. At the time of the IPO,
there was a special one-time contribution of 250,000 shares of Company Common
Stock 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 exceeded 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 was paid to such
participant in the form of a stock bonus. The ESOP will be amended in certain
respects in connection with the Transaction.
CHANGE IN TAX STATUS OF CORPORATIONS
Prior to the IPO, Amscan Inc., Am-Source, Inc. and certain other
subsidiaries of the Company were operated as 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 S corporation status. Following the IPO, the
Company has been taxed as a C corporation under the Code (as "C corporation" is
defined therein) and it is anticipated that the Company will have an effective
income tax rate of approximately 40.5%.
53
<PAGE> 61
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 C corporation and thus subject to
income tax for all periods. See the consolidated financial statements included
elsewhere in this Prospectus.
STOCKHOLDER DISTRIBUTIONS
As S corporations, the accumulated profits of Amscan Inc., Am-Source, Inc.
and certain other subsidiaries of the Company were distributed to the
stockholders through December 18, 1996, the effective date of the IPO. Net
profits after the consummation of the IPO are added to the 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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Percentage of Net Sales
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
----- ------
<S> <C> <C>
Net Sales............................................................. 100.0% 100.0%
Cost of sales......................................................... 64.1 63.2
------ ------
Gross profit........................................................ 35.9 36.8
Operating expenses:
Selling expenses.................................................... 6.0 5.9
General and administrative expenses................................. 8.2 9.6
Art and development costs........................................... 2.4 2.5
Special bonuses..................................................... -- 2.2
------ ------
Total operating expenses.............................................. 16.6 20.2
------ ------
Income from operations.............................................. 19.3 16.6
Interest expense, net................................................. 1.6 3.1
Other income, net..................................................... (0.1) (0.2)
------ ------
Income before income taxes and minority interests................... 17.8 13.7
Income tax expense.................................................... 7.2 0.5
Minority interests.................................................... 0.1 0.9
------ ------
Net income.......................................................... 10.5% 12.3%
====== ======
</TABLE>
NET SALES
Net sales for the nine months ended September 30, 1997 were $161.3 million,
an increase of 9.7% over the nine months ended September 30, 1996. Sales to
national accounts totaled $84.2 million, or 22.1% higher than in the
corresponding period in 1996, principally as a result of sales to the party
goods superstore channel. Sales to international customers increased $1.6
million, contributing 11% to sales growth. Also contributing to the increase in
sales was the Company's marketing strategy of continually offering new products,
as well as new designs and themes for existing products. During the twelve month
period ended September 30, 1997, the Company added approximately 600 SKUs to its
product line.
54
<PAGE> 62
GROSS PROFIT
Gross profit for the nine months ended September 30, 1997 was $57.8
million, an increase of $3.7 million over the same period in 1996. As a percent
of sales, gross profit decreased for the first nine months of 1997 to 35.9% from
36.8% over the corresponding period in 1996 as a result of an increase in
manufacturing capacity and the addition of a new distribution facility, which
created near-term excess capacity.
SELLING EXPENSES
Selling expenses of $9.6 million for the nine months ended September 30,
1997 increased by $0.9 million and as a percentage of net sales to 6.0% as
compared to 5.9% in the corresponding time period in 1996, primarily due to the
expansion of foreign operations.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of $13.2 million for the nine months
ended September 30, 1997 decreased $0.9 million as compared to the corresponding
period in 1996. As a percentage of net sales, general and administrative
expenses decreased to 8.2% from 9.6%. The decrease is primarily attributable to
non-recurring costs incurred in the second quarter of 1996 associated with the
move to new corporate offices and additional personnel costs, including
relocation and recruitment. General cost reduction efforts in 1997 were offset
by increases in bad debt expense.
ART AND DEVELOPMENT COSTS
Art and development costs of $3.9 million for the nine months ended
September 30, 1997 decreased slightly to 2.4% of net sales during the nine
months ended September 30, 1997 from 2.5% for the corresponding period of 1996.
In 1996, the Company significantly expanded its creative and new product
development staff and internal development capabilities. The continued
investment in art and development expenditures in 1997 reflects the Company's
strategy to remain a leader in product quality and development.
SPECIAL BONUSES
The employment agreements which gave rise to special bonuses during the
first months of 1996 were substantially modified at the time of the IPO in
December 1996 to eliminate future special bonus payments. Such bonuses, which
were based entirely upon the pre-tax income of Amscan Inc. and certain
affiliates, were $3.3 million or 2.2% of net sales for the nine months ended
September 30, 1996.
INTEREST EXPENSE, NET
Interest expense, net, decreased by $1.9 million to $2.7 million for the
nine months ended September 30, 1997 over the corresponding period in 1996, as
the net proceeds received from the issuance of Common Stock in December 1996 and
January 1997 in connection with the IPO were used to reduce indebtedness under
the Company's line of credit and to repay subordinated debt.
INCOME TAXES
Income tax expense was $11.6 million for the nine months ended September
30, 1997 determined based upon an estimated consolidated effective income tax
rate of 40.5% for the year ending December 31, 1997. Prior to the IPO, Amscan
Inc., Am-Source, Inc., and certain other subsidiaries of the Company 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 no recognize
Subchapter S corporation status. In connection with the IPO, these subsidiaries
became subject to federal and state income
55
<PAGE> 63
taxes. The amounts shown as income taxes for the nine months ended September 30,
1996 consisted principally of foreign taxes.
MINORITY INTERESTS
Minority interests of $0.1 million and $1.2 million for the nine months
ended September 30, 1997 and 1996, respectively, represent the portion of income
of the Company's subsidiaries attributable to equity ownership not held by the
Company. In addition to the minority interests of certain foreign entities, the
minority interests for the nine months ended September 30, 1996 included a 50%
minority interest in Am-Source, Inc. On December 18, 1996, the Company acquired
the remaining minority interest in Am-Source, Inc.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1996 1995
----- -----
<S> <C> <C>
Net Sales.................................................................. 100.0% 100.0%
Cost of sales.............................................................. 64.3 64.9
------ ------
Gross profit............................................................. 35.7 35.1
Operating expenses:
Selling expenses......................................................... 6.1 7.4
General and administrative expenses...................................... 10.0 9.1
Art and development costs................................................ 2.7 2.5
Non-recurring compensation in connection with the IPO.................... 8.1
Special bonuses.......................................................... 2.2 1.5
------ ------
Total operating expenses................................................... 29.1 20.5
------ ------
Income from operations................................................... 6.6 14.6
Interest expense, net...................................................... 3.4 3.4
Other expense (income), net................................................ 0.2 (0.2)
------ ------
Income before income taxes and minority interests........................ 3.0 11.4
Income taxes............................................................... 1.0 0.4
Minority interests......................................................... 0.9 0.6
------ ------
Net income............................................................... 1.1% 10.4%
====== ======
</TABLE>
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 in 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 SKUs compared with approximately 13,400 SKUs in 1995.
Selling price increases related to core products (paper plates, cups, cutlery,
napkins and tablecovers) in response to higher paper costs 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.
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<PAGE> 64
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.
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 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 employees of Amscan Inc. 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 were
substantially modified to eliminate these special bonus payments in the future.
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<PAGE> 65
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. and certain other
subsidiaries of the Company were taxed as 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 S corporation status. In connection with the IPO, these subsidiaries
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 Mr. Svenningsen.
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<PAGE> 66
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1994
----- -----
<S> <C> <C>
Net Sales................................................................ 100.0% 100.0%
Cost of sales............................................................ 64.9 65.7
----- -----
Gross profit........................................................... 35.1 34.3
Operating expenses:
Selling expenses....................................................... 7.4 8.5
General and administrative expenses.................................... 9.1 11.0
Art and development costs.............................................. 2.5 2.1
Special bonuses........................................................ 1.5 1.7
----- -----
Total operating expenses................................................. 20.5 23.3
----- -----
Income from operations................................................. 14.6 11.0
Interest expense, net.................................................... 3.4 2.9
Other (income) expense, net.............................................. (0.2) 0.1
----- -----
Income before income taxes and minority interests...................... 11.4 8.0
Income taxes............................................................. 0.4 0.4
Minority interests....................................................... 0.6 0.1
----- -----
Net income............................................................. 10.4% 7.5%
===== =====
</TABLE>
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 SKUs compared to approximately 11,000 SKUs in 1994.
Selling price increases related to core products (paper plates, cups, napkins
and tablecovers) 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.
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
59
<PAGE> 67
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 were 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.
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. and certain other subsidiaries of the Company
elected to be taxed as 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 S
corporation status. In connection with the IPO, these subsidiaries terminated
their 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.
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<PAGE> 68
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth since 1994 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
debt owed to Mr. Svenningsen. The net proceeds from the IPO were used to reduce
indebtedness under the Company's line of credit and to repay subordinated debt.
Upon consummation of the Transaction, the Company's existing loan
arrangements terminated and the Company entered into the Transaction Financings.
As of September 30, 1997, after giving pro forma effect to the Transaction and
the Transaction Financings and the application of the net proceeds therefrom,
the Company would have had (i) $237.8 million of consolidated indebtedness and
(ii) $95.3 million of consolidated stockholders' deficiency. The Company's
significant debt service obligations following the Transaction could, under
certain circumstances, have material consequences to security holders of the
Company. See "Description of Senior Debt" and "Risk Factors -- Substantial
Leverage; Ability to Service Indebtedness".
In order to fund the payment of the cash portion of the Transaction
Consideration, to refinance certain existing outstanding indebtedness of the
Company, to pay transaction costs incurred in connection with the Transaction,
and for general corporate purposes, the Company issued the Notes and entered
into the Bank Credit Agreement providing for borrowings in the aggregate
principal amount of approximately $117 million under the Term Loan and revolving
loan borrowings of up to $50 million under the Revolving Credit Facility. The
Revolving Credit Facility is, subject to a borrowing base, available to fund the
working capital requirements of the Company.
Based upon the current level of operations and anticipated growth, the
Company anticipates that its operating cash flow, together with available
borrowings under the Revolving Credit Facility, will be adequate to meet its
anticipated future requirements for working capital and operating expenses, to
permit potential acquisitions and to service its debt requirements as they
become due. However, the Company's ability to make scheduled payments of
principal of, or to pay interest on, or to refinance its indebtedness (including
the Exchange Notes) and to satisfy its other obligations will depend upon its
future performance, which, to a certain extent, will be subject to general
economic, financial, competitive, business and other factors beyond its control.
Management believes that additions to plant and equipment during the past
three years provide adequate capacity to support its operations for at least the
next 12 months. As of September 30, 1997, the Company did not have material
commitments for capital expenditures. The Transaction Financings entered into in
connection with the Transaction may affect the Company's ability to make capital
expenditures. See "Risk Factors -- Substantial Leverage; Ability to Service
Indebtedness"; "Description of Senior Debt" and "Description of Exchange Notes".
CASH FLOW DATA -- NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
Net cash provided by operating activities increased by $6.9 million to $8.5
million for the nine months ended September 30, 1997 as compared to the same
period in 1996, primarily as a result of decreased working capital levels. Net
cash used in investing activities increased by $1.2 million to $6.8 million for
the nine months ended September 30, 1997 over the comparable period in 1996, and
consisted primarily of capital expenditures. Net cash used in financing
activities totaled $2.5 million for the nine months ended September 30, 1997 as
repayments of bank and other indebtedness exceeded net proceeds of $4.5 million
received from the sale of the Company's Common Stock to cover the exercise of
the underwriters' over-allotment option and proceeds under the Company's
existing loan arrangements.
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<PAGE> 69
BALANCE SHEET DATA -- SEPTEMBER 30, 1997 COMPARED TO DECEMBER 31, 1996
Accounts receivable, net, increased $18.9 million to $56.3 million at
September 30, 1997 from $37.4 million at December 31, 1996. This increase is
principally due to the increased sales and customary extended payment terms
offered on seasonal sales during the third quarter. Third quarter sales are
generally the highest of the year primarily due to the shipment of certain
seasonal holiday merchandise. During September 1997, the Company entered into an
agreement to convert $4.0 million of trade accounts receivable from one of its
two largest customers into an equity interest. The Company subsequently
transferred 50% of this interest to the Estate in full satisfaction of $2.0
million of obligations. The remaining equity interest is included in other
assets at September 30, 1997. Subsequently, the Company transferred the
remaining interest to the Estate for $1.0 million in cash and in full
satisfaction of $1.0 million of future obligations to the Estate.
Inventories increased $3.0 million to $48.7 million at September 30, 1997
from $45.7 million at December 31, 1996 due to seasonality of inventory levels.
Deposits and other current assets decreased $1.7 million to $9.7 million at
September 30, 1997 from December 31, 1996, principally due to a reduction in
deposits for the manufacture of equipment to be leased.
Property, plant and equipment, net, increased $2.5 million to $37.2 million
at September 30, 1997 from $34.7 million at December 31, 1996. The increase
represents the acquisition of certain domestic manufacturing and warehouse
equipment, partially offset by depreciation.
Loans and notes payable decreased $19.3 million to $10.0 million at
September 30, 1997 from December 31, 1996, reflecting the repayment of
borrowings under the Company's previous revolving credit line, which was
financed by advances under the Company's then-existing loan facilities and term
loans.
Income taxes payable increased $5.6 million to $6.5 million at September
30, 1997 from December 31, 1996. This increase is primarily due to the change in
tax status. In connection with the IPO on December 18, 1996, Amscan Inc.,
AmSource, Inc., and other subsidiaries of the Company terminated their S
corporation status, and accordingly became subject to federal and state income
taxes.
Third-party long-term financings for the nine months ended September 30,
1997 consisted primarily of borrowings under the previously mentioned term loan
and long-term loans secured by real property, machinery and equipment.
Common Stock and additional paid-in capital increased by $4.5 million as a
result of the exercise of the underwriters' over-allotment option.
CASH FLOW DATA -- YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995
Net cash provided by operating activities increased by $7.6 million to
$12.3 million in the year ended December 31, 1996 from $4.7 million in the year
ended December 31, 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.
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.
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<PAGE> 70
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
earnings and the return of previously provided capital.
In 1996 and 1995, the Company acquired $11.0 million and $4.5 million,
respectively, 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.
BALANCE SHEET DATA -- DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Accounts receivable, net increased $5.5 million to $37.4 million at
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 at
December 31, 1996 from December 31, 1995. This increase is 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
at December 31, 1996 from $29.2 million at December 31, 1995. This increase is
primarily due to manufacturing and warehouse equipment acquired, partially
offset by depreciation.
Intangible assets, net increased $7.1 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 and other debt 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 at December 31, 1996 primarily because of loans used to acquire
machinery and equipment.
Common stock increased $1.7 million to $2.1 million at 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, the
shares issued in the IPO and the shares issued in connection with the
establishment of the 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.
CASH FLOW DATA -- YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER
31, 1994
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 by 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.
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<PAGE> 71
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 cash in 1995 and $11.2 million of cash in 1994 to
fund its working capital needs, which consisted primarily of increases in
accounts receivable and inventory.
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.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128--Earnings
per Share, effective for interim and annual periods ending after December 15,
1997. The Company does not believe that the impact of SFAS No. 128 will have a
significant impact on its earnings per share calculation.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 170 establishes requirements for disclosure of comprehensive income.
The new standard becomes effective for the Company's fiscal year 1998 and
requires reclassification of earlier financial statements for comparative
purposes.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and requires
disclosure of selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement supersedes
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. The new
standard becomes effective for the Company's fiscal year 1998 and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard. The Company does not believe any substantial
changes to its disclosures will be made at the time SFAS No. 131 is adopted.
In November 1997, the Emerging Issues Task Force reached a consensus on
Issue 97-13, Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation. The consensus generally requires third
party consulting costs and internally generated costs associated with business
process reengineering projects to be expensed as incurred. The consensus became
effective for the Company's fiscal year ended December 31, 1997 and will not
have a significant impact on its financial position or results of operations.
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or not
significant to the financial statements of the Company.
QUARTERLY RESULTS
As a result of the seasonal nature of certain of the Company's products,
the quarterly results of operations may not be indicative of those for a full
year. Third quarter sales are generally the highest
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<PAGE> 72
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 receivables
balances and associated higher interest costs to support these balances. The
following table sets forth the historical net sales and income (loss) from
operations of the Company for 1997, 1996 and 1995 by quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Net sales...................................... $ 39,376 $41,046 $ 47,892 $ 39,089
Income from operations......................... 6,492 6,350 9,120 2,707(a)
1996
Net sales...................................... $ 47,258 $45,714 $ 54,036 $ 45,697
Income (loss) from operations.................. 7,586 7,563 9,223 (11,614)(b)
1997
Net sales...................................... $ 53,176 $49,225 $ 58,885
Income from operations......................... 10,029 9,306 11,777
</TABLE>
- ---------------
(a) In addition to the seasonal variability described above, income from
operations for the fourth quarter of 1995 was adversely affected by the
impact of higher paper costs for which selling price adjustments were
implemented in the first quarter of 1996. Income from operations for this
quarter were also adversely affected by additional bad debt reserves
(approximately $0.5 million, representing approximately one-third of the
provision for doubtful accounts recognized for the full year 1995) and
additional computer system expenses (approximately $0.5 million).
(b) Included in fourth quarter results in 1996 are non-recurring compensation
expenses of $15.5 million, including 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 employees of Amscan Inc.
and the payment of stock bonuses to certain of such employees.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
various provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including financial
projections, future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, including any
changes to operations, competitive strengths, goals, expansion and growth of the
Company's and its Subsidiaries' business and operations, plans, references to
future success and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including, but not limited to,
(1) the significant considerations discussed in this Prospectus, (2) the
concentration of sales by the Company to
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<PAGE> 73
party goods superstores where the reduction of purchases by a small number of
customers could materially reduce the Company's sales and profitability, (3) the
concentration of the Company's credit risk in party goods superstores, many of
which are privately held and have expanded rapidly in recent years, (4) the
failure by the Company to anticipate changes in tastes and preferences of party
goods retailers and consumers, (5) the introduction of new products by the
Company's competitors, (6) the inability of the Company to increase prices to
recover fully future increases in raw material prices, especially increases in
paper prices, (7) the loss of key employees, (8) changes in general business
conditions, (9) other factors which might be described from time to time in the
Company's filings with the Commission, and (10) other factors which are beyond
the control of the Company and its Subsidiaries. Consequently, all of the
forward-looking statements made in this Prospectus are qualified by these
cautionary statements, and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company and its Subsidiaries or their business or operations. In
addition, although the Company believes that it has the product offerings and
resources needed for continued growth in revenues and margins, future revenue
and margin trends cannot be reliably predicted. Changes in such trends may cause
the Company to adjust its operations in the future. Because of the foregoing and
other factors, recent trends should not be considered reliable indicators of
future financial results.
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<PAGE> 74
BUSINESS
THE COMPANY
Amscan designs, manufactures and distributes decorative party goods,
offering one of the broadest and deepest product lines in the industry. The
Company's products include paper and plastic tableware (such as plates, napkins,
tablecovers, cups and cutlery), accessories (such as invitations, thank-you
cards, table and wall decorations and balloons) and novelties (such as games and
party favors). The Company's products are sold to party goods superstores,
independent card and gift retailers, mass merchandisers and other distributors
which sell Amscan products in more than 20,000 retail outlets throughout the
world, including North America, Australia, the United Kingdom, Germany and
Sweden.
The Company currently offers over 250 product ensembles, generally
containing 30 to 150 coordinated items. These ensembles comprise a wide variety
of products to accessorize a party including matching invitations, tableware,
decorations, party favors and thank-you cards. The Company designs, manufactures
and markets party goods for a wide variety of occasions including seasonal
holidays, special events and theme celebrations. The Company's seasonal
ensembles enliven holiday parties throughout the year including New Year's,
Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of July, Halloween,
Thanksgiving, Hanukkah and Christmas. The Company's special event ensembles
include birthdays, christenings, first communions, bar mitzvahs, confirmations,
graduations, baby and bridal showers and anniversaries, while its theme-oriented
ensembles include Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
In addition to its long-standing relationships with independent card and
gift retailers, the Company is a leading supplier to the party superstore
distribution channel. Party goods superstores are growing rapidly by providing
consumers with a one-stop source for all of their party needs, generally at
discounted prices. The retail party goods business has historically been
fragmented among independent stores and drug, discount or department store
chains. However, according to industry analysts, there has been a significant
shift of sales since 1990 to the party goods superstores channel.
Company sales to superstores represented approximately 44% of total sales
in 1996. While the number of party superstores that Amscan supplies has grown at
a CAGR in excess of 20% from 1993 to 1996, the Company's sales to superstores
have grown by a 47% CAGR during the same period. With Amscan products occupying
an increasing share of superstore shelf space in many product categories, Amscan
believes it is well positioned to take advantage of continued growth in the
party superstore channel.
Amscan's sales and cash flows have grown substantially over the past five
years. From 1991 to 1996, sales and Adjusted EBITDA (adjusted for non-recurring
items, other income or expenses, and minority interests) have grown at compound
annual rates of 20% and 28%, respectively. During the same period, Adjusted
EBITDA margins increased from approximately 14% to 20% due in part to the
Company achieving greater economies of scale in manufacturing and distribution,
and significantly reducing selling expenses as a percentage of sales. Sales and
Adjusted EBITDA for the twelve months ended September 30, 1997 were
approximately $207 million and $42 million, respectively, representing an
Adjusted EBITDA margin of approximately 20%.
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<PAGE> 75
REVENUE AND ADJUSTED EBITDA GROWTH
[STRONG REVENUE AND EBITDA GROWTH BAR GRAPHS]
PARTY GOODS INDUSTRY OVERVIEW
According to industry analyst reports, the U.S. decorative party goods
industry (including tableware, accessories and novelties) generated
approximately $3.5 billion in retail sales in 1996 and has grown approximately
10% annually over the past several years. The Company believes this growth is
driven by several factors including favorable demographics and consumer spending
patterns, the emergence of the party superstore channel and growth in the number
of party events celebrated and party products available to consumers.
The Company believes that demographic trends favor continued growth in
decorative party goods sales. According to the United States Bureau of the
Census ("The Census Bureau"), between 1997 and 2005, population in the 10-19
year old age bracket is expected to increase by approximately 10%, and
population in the 20-24 year old age bracket is expected to increase by
approximately 15%. This suggests an increase in celebrations revolving around
teenagers and young adults including confirmations, bar mitzvahs, graduations
and bridal and baby showers. In addition, the 45-54 year old age bracket is
expected to increase by over 20% by 2005. According to The Census Bureau and the
United States Bureau of Labor Statistics, this population segment enjoyed the
highest median household income and spent the most money on entertainment in
1995. The Company believes that this population segment is a key buying group of
party goods for children and grandchildren, as well as products for adult
milestone events including birthdays, anniversaries and retirements.
Another factor contributing to growth in the decorative party goods
industry has been the emergence of party goods superstores which, according to
industry analysts, are poised for expansion as national penetration continues.
The Company believes that superstores are popular among consumers because of the
large variety of merchandise and substantial discounts they offer. Industry
analysts report that, over the past several years, the marketplace has begun to
accept a move toward the party goods superstore merchandising concept, similar
to earlier merchandising shifts in such product categories as toys, office
supplies, home furnishings and home improvements.
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<PAGE> 76
The Company believes that party goods sales volumes have also increased, in
part, as a result of:
- the creation of new product ensembles both in response to consumer
demand and as a means of stimulating customer purchases;
- the broadening of product lines through the addition of new items and
new accessories within ensembles;
- larger retail environments allowing retailers to employ marketing
techniques which result in increased average sales per customer; and
- the celebration of an increased number of party themes and events, such
as Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
The Company believes that by introducing products for new types of
celebrations, offering multiple product ensembles for individual celebrations
(such as multiple Halloween or birthday ensembles) and increasing the number of
"add-on" accessories, party goods suppliers have increased the frequency and
volume of consumer purchases of decorative party goods.
COMPETITIVE STRENGTHS
- Leading Supplier to the High Growth and High Volume Party Goods
Superstore Channel. In addition to its long-standing base of business
with independent card and party retailers, the Company believes that its
products account for an increasing portion of the retail sales by major
superstore chains, including Party City, Party Stores Holdings, Big Party
Corporation, The Paper Factory, The Half-Off Card Shop, Paper Warehouse
Inc. and Factory Card Outlet Corp. Approximately 44% of the Company's
sales were generated from superstores last year, and based on indications
from these chains that they intend to continue to expand nationwide, the
Company expects that sales to this segment will continue to grow
significantly.
- Single Source Supplier of Decorative Party Goods. The Company provides
one of the most extensive product lines of decorative party goods in the
industry, serving a wide variety of occasions. Amscan produces over 250
different ensembles, generally containing 30 to 150 coordinated SKUs
within each ensemble. With 14,000 SKUs, the Company is a one-stop
shopping, single-source supplier to retailers of decorative party goods.
The Company believes this breadth of product line provides enough variety
that competing retailers can each purchase Amscan products and still
differentiate themselves by the product they market to the end consumer.
- Strong Customer Relationships. The Company has built strong
relationships with its customer base which operates more than 20,000
retail outlets. The Company strives to provide superior service and, by
involving retailers in product development and marketing, seeks to become
a strategic partner to its customers.
- Product Design Leadership. The Company believes one of its strengths is
its leadership in creating innovative designs and party items. The
Company believes its product designs have a level of color, complexity
and style that are attractive to consumers and difficult to replicate.
The Company offers coordinated accessories and novelties which, the
Company believes, complement its tableware designs, enhancing the appeal
of its tableware products and encouraging "add on" impulse purchases.
- Strong and Committed Management Team. The Company's management team has
built the business into an industry leader with integrated design,
manufacturing, and distribution capabilities. Current management has been
instrumental in building the Company's strong industry position and in
the Company's achieving a 28% CAGR in Adjusted EBITDA since
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<PAGE> 77
1991. The management team and other key employees have committed $6.4
million (including restricted stock grants) to the Transaction.
COMPANY STRATEGY
The Company seeks to become the primary source for consumers' party goods
requirements. The key elements of the Company's strategy are as follows:
- Strengthen Position as a Leading Provider to Party Superstores. The
Company offers convenient "one-stop shopping" for large superstore buyers
and seeks to increase its proportionate share of sales volume and shelf
space in the superstores.
- Offer the Broadest and Deepest Product Line in the Industry. The
Company strives to offer the broadest and deepest product line in the
industry. The Company helps retailers boost average purchase volume per
consumer through coordinated ensembles that promote "add on" purchases.
- Diversify Distribution Channels, Product Offering and Geographic
Presence. The Company will seek, through internal growth and
acquisitions, to expand its distribution capabilities internationally,
increase its presence in additional retail channels and further broaden
and deepen its product line.
- Provide Superior Customer Service. The Company strives to achieve high
average fill rates in excess of 95% and ensure short turnaround times.
- Maintain Product Design Leadership. The Company will continue investing
in art and design to support a steady supply of fresh ideas and create
complex, unique ensembles that appeal to consumers and are difficult to
replicate.
- Maintain State-of-the-Art Manufacturing and Distribution
Technology. The Company intends to maintain technologically advanced
production and distribution systems in order to enhance product quality,
manufacturing efficiency, cost control and customer satisfaction.
- Pursue Attractive Acquisitions. The Company believes that opportunities
exist to make acquisitions of complementary businesses to leverage the
Company's existing marketing, distribution and production capabilities,
expand its presence in the various retail channels, further broaden and
deepen its product line and penetrate international markets. The Company
receives inquiries from time to time with respect to the possible
acquisition by the Company of other entities and the Company intends to
pursue acquisition opportunities aggressively.
BUSINESS OPERATIONS
PRODUCT DESIGN
The Company's 70-person in-house design staff produces and manages the
Company's party goods. From the designs and concepts developed by the Company's
artists, the Company selects those it believes best to replace approximately
one-third of its designed product ensembles each year. For 1997, the Company
introduced approximately 50 new ensembles.
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<PAGE> 78
PRODUCT LINE
The categories of products which the Company offers are tableware,
accessories and novelties. The percentages of sales for each product category
for 1994, 1995 and 1996 are set forth in the following table:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tableware........................................................... 58% 60% 59%
Accessories......................................................... 26 24 25
Novelties........................................................... 16 16 16
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Products. The following table sets forth the principal products in each of
the three categories:
<TABLE>
<CAPTION>
TABLEWARE ACCESSORIES NOVELTIES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Decorated Balloons Buttons
Paper Plates Cascades Cocktail Picks
Paper Napkins Confetti Games
Paper Tablecovers Banners Candles
Paper Cups Crepe Mugs
Solid Color Cutouts Noise Makers
Paper and Plastic Plates Decorative Tissues Party Favors
Paper Napkins Flags Party Hats
Paper and Plastic
Tablecovers Gift Bags Pom Poms
Paper and Plastic Cups Gift Wrap T-shirts
Plastic Cutlery Guest Towels
Honeycomb Centerpieces
Invitations and Notes
Ribbons and Bows
Signs
</TABLE>
Occasions. The Company supplies party goods for the following types of
occasions:
<TABLE>
<CAPTION>
SEASONAL EVERYDAY THEMES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
New Year's Anniversaries Fall
Valentine's Day Birthdays Fiesta
St. Patrick's Day Graduations Fifties Rock-and-Roll
Easter Retirements Hawaiian Luau
Passover Showers Mardi Gras
Fourth of July Weddings Patriotic
Halloween Bar Mitzvahs Religious
Thanksgiving Christenings Sports
Hanukkah First Communions Summer Fun
Christmas Confirmations
</TABLE>
Tableware. The Company believes that tableware products are the initial
focus of consumers in planning a party, since these items are necessary in
connection with the consumption of food and beverages. To distinguish its
tableware from that of its competitors, the Company seeks to create a broad
range of unique designs for its products. In addition, the Company's tableware
products are priced competitively and affordably, having suggested retail prices
(based upon quantity and product) ranging between $1.70 and $10.00.
Accessories and Novelty Items. The Company believes that consumers are
attracted to Amscan tableware due to the breadth and array of accessory and
novelty items. Unified displays of complete ensembles in retail stores are
designed to enhance the appeal of the Company's
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<PAGE> 79
tableware and encourage the impulse buying of accessories and novelties. The
Company believes that by offering a broad product line, it increases the number
of products sold per customer transaction.
MANUFACTURED PRODUCTS
Items manufactured by the Company accounted for approximately 50% of the
Company's sales in 1996. State-of-the-art printing, forming, folding and
packaging equipment support the Company's manufacturing operations. Company
facilities in Kentucky, New York, Rhode Island and California produce paper and
plastic plates, napkins, cups and other party and novelty items. This vertically
integrated manufacturing capability for many of its key products allows the
Company the opportunity to better control costs and monitor product quality,
manage inventory investment and provide efficiency in order fulfillment.
Given its size and sales volume, the Company is generally able to operate
its manufacturing equipment on the basis of at least two shifts per day thus
lowering its production costs. In addition, the Company manufactures products
for third parties allowing the Company to maintain a satisfactory level of
equipment utilization.
PURCHASED PRODUCTS
The Company sources the remainder of its products from independently-owned
manufacturers, many of whom are located in the Far East and with whom the
Company has long-standing relationships. The two largest such suppliers operate
as exclusive suppliers to the Company and represent relationships which have
been in place for more than ten years. The Company believes that the quality and
price of the products manufactured by these suppliers provide a significant
competitive advantage. The Company's business, however, is not dependent upon
any single source of supply for products manufactured for the Company by third
parties.
RAW MATERIALS
The principal raw material used by the Company in its products is paper.
The Company has historically been able to change its product prices in response
to changes in raw material costs. While the Company currently purchases such raw
material from a relatively small number of sources, paper is available from a
number of sources. The Company believes its current suppliers could be replaced
by the Company without adversely affecting its operations in any material
respect.
SALES AND MARKETING
The Company's principal sales and marketing efforts are conducted through a
domestic direct employee sales force of approximately 60 professionals servicing
over 5,000 retail accounts. These professionals have, on average, been
affiliated with the Company for approximately five years. In addition to this
seasoned sales team, the Company utilizes a select group of manufacturers'
representatives to handle specific account situations. International customers
are generally serviced by employees of the Company's foreign subsidiaries. To
support its marketing effort, the Company produces three separate product
catalogues annually, two for seasonal products and one for everyday products.
From 1991 to 1996, the Company significantly reduced selling, general and
administrative expenses as a percentage of sales, largely because of a
proportionate decrease in selling expenses.
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<PAGE> 80
SG&A AND ADJUSTED EBITDA AS % OF REVENUES
The Company's practice of including party goods retailers in all facets of
the Company's product development is a key element of the Company's sales and
marketing efforts. The Company targets important consumer preferences by
integrating its own market research with the input of party goods retailers in
the creation of its designs and products. In addition, the sales organization
assists customers in the actual set-up and layout of displays of the Company's
products, and, from time to time, the Company also provides customers with
promotional displays.
DISTRIBUTION AND SYSTEMS
The Company ships its products from distribution warehouses which employ
computer assisted systems. Nonseasonal products are shipped either from
California or New York to provide fast delivery of goods to party goods
retailers at economical freight costs. In order to better control inventory
investment, seasonal products are shipped out of a central warehouse located in
New York. Products for foreign markets are shipped from the Company's
distribution warehouses in Canada, Mexico, England and Australia.
Many of the Company's sales orders are generated electronically through
hand-held units with which the sales force and many customers are equipped.
Specifically, orders are entered into the hand-held units and then transmitted
over telephone lines to the Company's mainframe computer, where they are
processed for shipment. This electronic order entry expedites the order
processing which in turn improves the Company's ability to fill customer
merchandise needs accurately and quickly.
CUSTOMERS
The Company's customers are principally party goods superstores,
independent card and party retailers, mass merchandisers and other distributors.
In the aggregate, Amscan supplies more than 20,000 retail outlets both
domestically and internationally. The Company is a leading supplier to the party
superstore channel, which has been experiencing significant growth.
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<PAGE> 81
REVENUE BREAKDOWN BY RETAIL CHANNEL
1996 REVENUE OF $192.7 MILLION
[REVENUE BREAKDOWN PIE CHARTS]
The Company has a diverse customer base. Only one customer, Party City,
accounted for more than 10% of the Company's sales in 1996. Sales to Party City
accounted for 11% and 15% of the Company's sales in 1995 and 1996, respectively.
Although the Company believes its relationship with Party City is good, if it
were to significantly reduce its volume of purchases from the Company, the
Company's financial condition and results of operations could be adversely
affected.
FUTURE ACQUISITIONS
The Company believes that opportunities exist to make acquisitions of
complementary businesses to leverage the Company's existing marketing,
distribution and production capabilities, expand its presence in various retail
channels, further broaden and deepen its product line and penetrate
international markets. The Company receives inquiries from time to time with
respect to the possible acquisition by the Company of other entities. As of the
date of this Prospectus, the Company has not entered into any agreements to
acquire other companies or businesses; however, the Company intends to pursue
acquisition opportunities aggressively.
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 but believes that there are few competitors which manufacture
and distribute products with the complexity of design and breadth of product
offerings that the Company does. 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.
Competitors include smaller independent specialty manufacturers, as well as
divisions or subsidiaries of large companies with greater financial and other
resources than those of the Company. Certain of these competitors control
licenses for widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive advantage. The Company
has pursued a strategy of developing its own designs and generally has not
pursued licensing opportunities.
EMPLOYEES
As of September 30, 1997, 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> 82
FACILITIES
The Company maintains its corporate headquarters in Elmsford, New York and
conducts its principal design, manufacturing and distribution operations at the
following facilities:
<TABLE>
<CAPTION>
OWNED OR LEASED
LOCATION PRINCIPAL ACTIVITY SQUARE FEET (WITH EXPIRATION DATE)
- ------------------------- ----------------------------- --------------------- -----------------------------
<S> <C> <C> <C>
Elmsford, New York(1) Executive Offices; design and 50,000 square feet Leased (expiration date:
art production of paper party December 16, 2007)
products and decorations
Harriman, New York Manufacture of paper napkins 75,000 square feet Leased (expiration date:
and cups March 31, 1999)
Providence, Rhode Island Manufacture and distribution 51,000 square feet Leased (expiration date: June
of plastic plates, cups and 30, 2008)
bowls
Louisville, Kentucky Manufacture and distribution 183,000 square feet Leased (expiration date:
of paper plates March 31, 1999)
Anaheim, California Manufacture of novelty items 25,000 square feet Leased (expiration date:
February 28, 1999)
Newburgh, New York Manufacture and distribution 167,000 square feet Leased (expiration date:
of party products November 30, 1999)
Temecula, California(2) Distribution of party 212,000 square feet Leased (expiration date:
products and decorations February 28, 2000)
Goshen, New York Distribution of party 130,000 square feet Leased (expiration date:
products and decorations December 31, 1998)
Chester, New York(3) Distribution of party 287,000 square feet Owned
products and decorations
Montreal, Canada(4) Distribution of party 124,000 square feet Owned
products and decorations
Milton Keynes, England Distribution of party 110,000 square feet Leased (expiration date: June
products and decorations 30, 2017)
throughout United Kingdom and
Europe
Melbourne, Australia Distribution of party 10,000 square feet Owned
products and decorations in
Australia and Asia
</TABLE>
- ------------------
(1) Prior to December 16, 1997, this property was leased by the Company from a
limited liability company which is 79%-owned by a trust established for
benefit of Mr. Svenningsen's children, 20%-owned by a trust established for
the benefit of Mr. Svenningsen's sister's children and 1%-owned by a
corporation owned by the Estate. In July 1997, such limited liability
company entered into a purchase and sale agreement pursuant to which the
Elmsford property was sold on December 16, 1997. See "Management -- Certain
Relationships and Related Transactions".
(2) Property leased by the Company from the Estate. See "Management -- Certain
Relationships and Related Transactions".
(3) Property subject to a ten-year mortgage securing a loan in the original
principal amount of $5,925,000 bearing interest at a rate of 8.51%. Such
loan matures in September 2004. The principal amount outstanding as of
September 30, 1997 was approximately $4,147,500.
(4) Property subject to a mortgage securing a loan in the original principal
amount of $2,088,000 bearing interest at a rate of the lower of Hong Kong
Bank of Canada's Cost of Funds plus 1.6% or Canadian Prime plus 0.5%. The
principal amount outstanding as of September 30, 1997 was approximately
$1,924,000.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. To the extent such capacity is not needed for
the manufacture of the Company's products, the Company generally uses such
capacity for the manufacture of products for others pursuant to terminable
contracts. All properties generally are used on a basis of two shifts per day.
The Company also believes that upon the expiration of its
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<PAGE> 83
current leases, it either will be able to secure renewal terms or enter into
leases for alternative locations at market terms.
COMPANY ORGANIZATION
The business of Amscan Inc. was founded by John Svenningsen and his family
in 1947, and in December 1996, the Company completed its initial public
offering. 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. These
affiliated companies include 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 operates in a single
industry segment.
The principal executive offices of the Company are located at 80 Grasslands
Road, Elmsford, New York 10523 and the telephone number at such address is (914)
345-2020.
INTELLECTUAL PROPERTY AND LICENSES
The Company owns copyrights on the designs created by the Company and used
on its products. The Company owns trademarks in the words and designs used on or
in connection with its products. It is the practice of the Company to register
its copyrights with the United States Copyright Office to the extent it deems
reasonable. The Company does not believe that the loss of copyrights or
trademarks with respect to any particular product or products would have a
material adverse effect on the business of the Company.
The Company does not depend on licenses to any material degree in its
business and, therefore, does not incur any material licensing expenses.
LEGAL PROCEEDINGS
Neither the Company nor any of its Subsidiaries is a party to any material
pending legal proceedings. A lawsuit relating to the Transaction filed against
the Company, MergerCo, GSCP II and certain of the Company's then-directors was
voluntarily withdrawn on December 15, 1997.
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<PAGE> 84
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions with the Company of the
persons who are currently serving as directors and executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ---- -----------------------------------------------------
<S> <C> <C>
Terence M. O'Toole 39 Director, Chairman of the Board
Sanjeev K. Mehra 38 Director
Joseph P. DiSabato 31 Director
Gerald C. Rittenberg 45 Chief Executive Officer
James M. Harrison 46 President, Chief Financial Officer and Treasurer
William S. Wilkey 41 Senior Vice President -- Sales and Marketing
</TABLE>
Terence M. O'Toole is a Managing Director of Goldman, Sachs & Co. in the
Principal Investment Area. He joined Goldman Sachs in 1983. He is a member of
Goldman Sachs' Investment Committee. Mr. O'Toole serves on the Board of
Directors of AMF Bowling, Inc., Insilco Corporation, 21st Century Newspapers,
Inc., Western Wireless Corporation and several other privately held companies on
behalf of Goldman Sachs. He holds a B.S. degree from Villanova University and an
M.B.A. from the Stanford Graduate School of Business.
Sanjeev K. Mehra is a Managing Director of Goldman, Sachs & Co. in the
Principal Investment Area. He joined Goldman Sachs in 1986. He is a Director of
the Stone Street and Bridge Street Funds, private equity funds affiliated with
Goldman Sachs for the benefit of its employees. Mr. Mehra serves on the Board of
Directors of Great Plains Software, Inc. and several other privately held
companies on behalf of Goldman Sachs. He holds an A.B. from Harvard University
and an M.B.A. from the Harvard Graduate School of Business Administration.
Joseph P. DiSabato is an Associate of Goldman, Sachs & Co. in the Principal
Investment Area. He joined Goldman Sachs in 1988, worked as a Financial Analyst
until 1991, and returned in 1994 as an Associate. He holds a B.S. from the
Massachusetts Institute of Technology and an M.B.A. from the Anderson Graduate
School of Management.
Gerald C. Rittenberg became Chief Executive Officer upon consummation of
the Transaction. Prior to that time, Mr. Rittenberg served as the President of
the predecessor to the Company, Amscan Inc., since April 1996, and served as
President of the Company from the time of its formation in October 1996. From
May 1997 until December 1997, Mr. Rittenberg served as Acting Chairman of the
Board. 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. Prior to joining Amscan Inc., Mr. Rittenberg
was Senior Vice President of Different Looks, a division of Berwick Industries,
Incorporated which manufactures and distributes gift wrap and related products.
Previously, Mr. Rittenberg was Director of Operations for the packaging division
of Philip Morris Companies Inc.
James M. Harrison became President, Chief Financial Officer and Treasurer
upon consummation of the Transaction. Prior to that time, Mr. Harrison served as
the Chief Financial Officer of the predecessor to the Company, Amscan Inc.,
since August 1996 and served as Chief Financial Officer and Secretary of the
Company since February 1997. From 1993 to 1995, Mr. Harrison was the Executive
Vice President, Chief Operating Officer, Secretary, 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.
William S. Wilkey has served as the Senior Vice President -- Sales and
Marketing of Amscan Inc. since 1992 and as Vice President -- Marketing and Field
Sales from 1990 to 1992. From 1988 to
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<PAGE> 85
1990, Mr. Wilkey was employed by Paper Art, a manufacturer and distributor of
party goods (currently called Creative Expressions Group, Inc.), where he served
as National Sales Manager.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
earned for the past two years for the Company's former and current Chief
Executive Officer and each other executive officer of the Company as of December
31, 1996 whose aggregate salary and bonus for 1996 exceeded $100,000. The
amounts shown include compensation for services in all capacities that were
provided to the Company or its Subsidiaries. Unless otherwise indicated, amounts
shown were paid by the Company's principal Subsidiary, Amscan Inc. Information
with respect to Company Common Stock relates to the Company Common Stock prior
to the consummation of the Transaction.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) OPTIONS(B) COMPENSATION(C)
- ----------------------------- ---- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John A. Svenningsen 1996 $315,609 $ 0(d) $ 5,939
Former CEO and Chairman 1995 289,399 0(d) 10,614
Gerald C. Rittenberg 1996 211,000 2,800,000(e) 1,895
Chief Executive Officer 1995 200,269 1,682,000(e) 4,317
William S. Wilkey 1996 181,000 1,036,000(f) 100,000 21,679
Senior Vice President -- 1995 172,500 757,000(f) 4,317
Sales and Marketing
James M. Harrison 1996(g) 62,500 50,000 50,000 0
President, Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(a) Represents amounts earned with respect to the years indicated, whether paid
or accrued.
(b) Reflects stock options on shares of Company Common Stock ("Company Stock
Options") granted pursuant to the 1996 Stock Option Plan for Key Employees
(the "Prior Stock Plan") at an exercise price equal to the fair market
value on the date of grant.
(c) Represents contributions by the Company under the Profit Sharing & Savings
Plan maintained by the Company's principal Subsidiary, Amscan Inc., and
under the ESOP, as well as insurance premiums paid by the Company with
respect to term life insurance for the benefit of the named executive
officer.
(d) Prior to the IPO, which was consummated in December 1996, certain entities
which are now Subsidiaries of the Company elected to be taxed as S
corporations under the Code. Mr. Svenningsen received $11,009,000 and
$15,841,000 from such entities in 1995 and 1996, respectively. Such amounts
represented distributions to him as an S corporation shareholder and, with
respect to 1996, additional distributions of accumulated capital and
previously-taxed earnings in conjunction with the IPO.
(e) Represents bonuses earned by Mr. Rittenberg pursuant to his prior employment
agreement with Amscan Inc. which terminated in December 1996 in connection
with the IPO.
(f) Represents bonuses earned by Mr. Wilkey pursuant to an employment agreement
with Amscan Inc. which expired on December 31, 1996.
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<PAGE> 86
(g) Mr. Harrison became an employee and Chief Financial Officer of Amscan Inc.
on August 1, 1996.
OPTION GRANTS TABLE
The following table sets forth information concerning stock options which
were granted during 1996 to the executive officers named in the Summary
Compensation Table. The options were granted pursuant to the Prior Stock Plan.
Information with respect to options relates to options on the Company Common
Stock prior to the consummation of the Transaction.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
% OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF
GRANTED TO STOCK PRICE
EMPLOYEES APPRECIATION
IN EXPIRATION FOR OPTION TERM
OPTIONS FISCAL EXERCISE DATE ----------------------
NAME GRANTED(1) YEAR PRICE OF OPTIONS 5% 10%
- ---------------- ---------- ------------- -------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William S.
Wilkey........ 100,000 23.5% $ 12 December 19, 2006 $754,673 $1,912,491
James W.
Harrison...... 50,000 11.8 12 December 19, 2006 377,337 956,245
</TABLE>
(1) All Company Stock Options listed in this column were exercisable ratably
over four years beginning one year from the date of grant, and were
scheduled to expire ten years after the date of grant. To the extent
permitted under the Code, such options were incentive stock options.
FISCAL 1996 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED
OPTIONS AT
FISCAL 1996
YEAR END
(EXERCISABLE/
NON-EXERCISABLE)
----------------
<S> <C>
William S. Wilkey........................................................ 100,000
James M. Harrison........................................................ 50,000
</TABLE>
At December 31, 1996, the market price of the Company Common Stock was $12
per share, an amount equal to the exercise price of each of the Company Stock
Options granted to Mr. Wilkey and Mr. Harrison. As a result, none of such
Company Stock Options was "in the money" at December 31, 1996. No Company Stock
Options were exercised in the most recent fiscal year.
At the Effective Time, the Company Stock Options listed in the foregoing
table were converted pursuant to the New Employment Arrangements into options on
the common stock of the Company following the Transaction and a cash bonus
payment. For a description of such conversion and a description of additional
options granted to certain employees of the Company in connection with the
Transaction, see "-- New Employment Arrangements".
NEW EMPLOYMENT ARRANGEMENTS
Concurrent with the execution of the Transaction Agreement, MergerCo
entered into the New Employment Arrangements with certain employees of the
Company relating, for certain of such employees, to their employment with the
Company following the Effective Time and relating to their ownership of Company
Common Stock and options to purchase shares of Company Common Stock following
the Transaction, as more fully described below. At the Effective Time, certain
of the
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<PAGE> 87
New Employment Arrangements replaced and superseded former employment agreements
for such employees and became obligations of the Company, as the surviving
company in the Transaction.
Employment Agreement with Gerald C. Rittenberg. Under the Employment
Agreement between the Company and Gerald C. Rittenberg, dated as of August 10,
1997 (the "Rittenberg Employment Agreement"), Mr. Rittenberg serves as Chief
Executive Officer of the Company for a three-year period commencing at the
Effective Time (an "Initial Term"), which term will be extended automatically
for successive additional one-year periods (each an "Additional Term"), unless
either the Company gives Mr. Rittenberg, or Mr. Rittenberg gives the Company,
written notice of the intention not to extend the term no less than twelve
months prior to the end of the Initial Term or Additional Term, whichever is
then in effect. Mr. Rittenberg will receive during the Initial Term an annual
base salary of $295,000 which will be increased by 5% at the beginning of each
Additional Term. During Mr. Rittenberg's Initial Term and any Additional Term,
Mr. Rittenberg will be eligible for an annual bonus for each calendar year
comprised of (i) a non-discretionary bonus equal to 50% of his annual base
salary if certain operational and financial targets determined by the Board of
Directors in consultation with Mr. Rittenberg are attained, and (ii) a
discretionary bonus awarded in the sole discretion of the Board of Directors.
The Rittenberg Employment Agreement also provides for other customary benefits
including incentive, savings and retirement plans, paid vacation, health care
and life insurance plans, and expense reimbursement.
Under the Rittenberg Employment Agreement, if Mr. Rittenberg's employment
were to be terminated by the Company other than for Cause (as defined below),
death or Disability (as defined below), the Company would be obligated to pay
Mr. Rittenberg a lump sum cash payment in an amount equal to the sum of (1)
accrued unpaid salary, earned but unpaid bonus for any prior year, any deferred
compensation and accrued but unpaid vacation pay (collectively, "Accrued
Obligations") plus (2) severance pay equal to his annual base salary, provided,
however, that in connection with a termination by the Company other than for
Cause following a Sale Event (as defined below), such severance pay will be
equal to Mr. Rittenberg's annual base salary multiplied by the number of years
the Company elects as the Restriction Period (as defined below) in connection
with the non-competition provisions. Upon termination of Mr. Rittenberg's
employment by the Company for Cause, death, Disability or if he terminates his
employment, Mr. Rittenberg will be entitled to his unpaid Accrued Obligations.
Additionally, upon termination of Mr. Rittenberg's employment during his Initial
Term or any Additional Term (1) by the Company other than for Cause or (2) by
reason of his death or Disability, or if the Initial Term or any Additional Term
is not renewed at its expiration (other than for Cause), the Rittenberg
Employment Agreement provides for payment of a prorated portion of the bonus to
which Mr. Rittenberg would otherwise have been entitled.
As used in the Rittenberg Employment Agreement: (a) "Cause" means (1)
conviction of a felony (excluding felonies under the Motor Vehicle Code referred
to therein); (2) any act of intentional fraud against the Company; (3) any act
of gross negligence or willful misconduct with respect to Mr. Rittenberg's
duties under the Rittenberg Employment Agreement; and (4) any act of willful
disobedience in violation of specific reasonable directions of the Board of
Directors consistent with Mr. Rittenberg's duties, and (b) "Disability" means
that Mr. Rittenberg has been unable, for a period of (i) 180 consecutive days or
(ii) an aggregate of 210 days in a period of 365 consecutive days, to perform
his duties under the Rittenberg Employment Agreement, as a result of physical or
mental illness or injury.
The Rittenberg Employment Agreement also provides that during his Initial
Term, any Additional Term and during the three-year period following any
termination of his employment (the "Restriction Period"), Mr. Rittenberg shall
not participate in or permit his name to be used or become associated with any
person or entity that is or intends to be engaged in any business which is in
competition with the business of the Company, or any of its Subsidiaries or
controlled affiliates, in any country in which the Company or any of its
Subsidiaries or controlled affiliates operate, compete or are engaged in such
business or at such time intend to so operate, compete or become engaged
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<PAGE> 88
in such business (a "Competitor"), provided, however, that if Mr. Rittenberg's
employment is terminated by the Company other than for Cause following a Sale
Event, the Restriction Period will be instead a one, two or three-year period at
the election of the Company. For purposes of the Rittenberg Employment
Agreement, "Sale Event" means either (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) that is a Competitor (as defined in the Rittenberg Employment
Agreement), other than GSCP and its affiliates, of a majority of the outstanding
voting stock of the Company or (2) the sale or other disposition (other than by
way of merger or consolidation) of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any person or group of persons
that is a Competitor, provided, however, that an underwritten initial public
offering of shares of Company Common Stock pursuant to a registration statement
under the Securities Act will not constitute a Sale Event. The Rittenberg
Employment Agreement also provides for certain other restrictions during the
Restriction Period in connection with (a) the solicitation of persons or
entities with business relationships with the Company and (b) inducing any
employee of the Company to terminate their employment or offering employment to
such persons, in each case subject to certain conditions.
Pursuant to the Rittenberg Employment Agreement, Mr. Rittenberg contributed
to MergerCo immediately prior to the Effective Time, 272,728 shares of Company
Common Stock in exchange for 60.0 shares of MergerCo Common Stock, having an
aggregate value equal to 272,728 times the Cash Consideration of $16.50 per
share, or approximately $4.5 million, which shares of MergerCo Common Stock were
valued at the purchase price for which GSCP purchased common shares of MergerCo
immediately prior to the Effective Time (the "New Purchase Price"). At the
Effective Time, such shares of MergerCo Common Stock were converted into 60.0
shares of Company Common Stock as the surviving company in the Transaction (as
converted, the "Rollover Stock").
Also pursuant to the Rittenberg Employment Agreement, following the
Effective Time, Mr. Rittenberg was granted options ("New Options") to purchase
16.648 shares of Company Common Stock. The New Options were granted pursuant to
a new stock incentive plan and related option agreement (together, the "Option
Documents"), which were adopted by the Company following the Effective Time and
are more fully described below. Such New Options vest in equal annual
installments over a five-year period and are subject to forfeiture upon
termination of Mr. Rittenberg's employment if not vested and exercised within
certain time periods specified in the Option Documents. Unless sooner exercised
or forfeited as provided in the Option Documents, the New Options will expire on
the tenth anniversary of the Effective Time.
Mr. Rittenberg is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, shares of Rollover Stock or shares of
Company Common Stock acquired upon exercise of the New Options, except as
provided in the Stockholders' Agreement and the Option Documents, and the shares
of Rollover Stock and shares of Company Common Stock acquired upon exercise of
the New Options are subject to the terms of the Stockholders' Agreement.
At the Effective Time, the Rittenberg Employment Agreement replaced and
superseded Mr. Rittenberg's former employment agreement with the Company.
Employment Agreement with James M. Harrison. Under the Employment
Agreement, dated August 10, 1997, by and between the Company and James M.
Harrison (the "Harrison Employment Agreement"), Mr. Harrison serves as President
of the Company for a three-year Initial Term at an annual base salary of
$275,000. The Harrison Employment Agreement contains provisions for Additional
Terms, salary increases during any Additional Term, non-discretionary and
discretionary bonus payments, severance, other benefits, definitions of Cause
and Disability, and provisions for non-competition and non-solicitation similar
to those in the Rittenberg Employment Agreement, with the exception of the
provision for an election by the Company of a one, two or three-year Restriction
Period following a Sale Event; under the Harrison Employment Agreement, the
Restriction Period is fixed at three years and severance pay is fixed at one
year's annual base salary. In addition, the
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<PAGE> 89
Harrison Employment Agreement provides that Mr. Harrison's bonus for the 1997
calendar year will be equal to the bonus that would have been payable to him in
accordance with the relevant terms of his current employment agreement with the
Company, without taking into account any incremental financing or transaction
costs attributable to the Transaction as determined in good faith by the Board.
The Harrison Employment Agreement also provides that Mr. Harrison will receive a
bonus payment of $105,000 on March 15, 1998, in addition to any other bonus
payable.
Pursuant to the Harrison Employment Agreement, following the Effective
Time, Mr. Harrison was granted New Options to purchase 13.874 shares of Company
Common Stock. Such New Options were granted on terms similar to those granted
pursuant to the Rittenberg Employment Agreement.
Additionally, under the Harrison Employment Agreement, Mr. Harrison
converted, as of the Effective Time, his Company Stock Options to purchase
50,000 shares of Company Common Stock into options ("Rollover Options") to
purchase 2.394 shares of Company Common Stock. The Rollover Options have an
exercise price per share (the "Rollover Exercise Price") equal to $54,545. Mr.
Harrison also received at the Effective Time a cash bonus equal to $176,041 in
connection therewith. The Rollover Options were granted pursuant to the Option
Documents and on the same terms as the New Options.
Pursuant to the Harrison Employment Agreement, Mr. Harrison was granted
immediately prior to the Effective Time, 15.0 shares of MergerCo Common Stock
(the "Restricted Stock"), having an aggregate value of $1,125,000, based on the
New Purchase Price, which shares were converted in the Transaction into 15.0
shares of Company Common Stock. During the Stock Restricted Period (as defined
below), the Restricted Stock will be forfeitable and may not be sold, assigned,
transferred, pledged or otherwise encumbered by Mr. Harrison. For purposes of
the Harrison Employment Agreement, the "Stock Restricted Period" means the
period beginning on the date of grant of the Restricted Stock and ending on the
earliest of (i) the occurrence of an IPO (as such term is defined in the
Stockholders' Agreement); (ii) immediately prior to the consummation of a
transaction or series of transactions, approved by the Board of Directors,
pursuant to which a person, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, other than Goldman Sachs or any of its
affiliates, acquires a majority of the outstanding voting stock of the Company;
and (iii) the termination of Mr. Harrison's employment with the Company, (1)
because of his death, (2) by the Company without Cause, (3) by Mr. Harrison
because of the Company's material breach of its obligations under the Harrison
Employment Agreement, (4) by Mr. Harrison if the Company imposes on him duties
or work conditions materially burdensome to him which are inconsistent with his
prior duties and work conditions or (5) because of Mr. Harrison's Disability;
provided, however, that the Stock Restricted Period ended with respect to 25% of
the shares of Restricted Stock on January 1, 1998 and with respect to the
remaining 75%, in equal installments on January 1 of each of the years 1999
through 2007. Pursuant to the Harrison Employment Agreement, upon the voluntary
or involuntary termination of Mr. Harrison's employment during the Stock
Restricted Period for any reason other than a reason listed in clause (iii) of
the preceding sentence, all shares of Restricted Stock (with respect to which
the Stock Restricted Period has not then ended) will be forfeited and returned
to the Company without payment.
Mr. Harrison is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of Restricted Stock
or shares of Company Common Stock acquired upon exercise of the New Options or
Rollover Options (in either case, "Option Shares"), except as provided in the
Stockholders' Agreement and the Option Documents, and the shares of Restricted
Stock and Option Shares will be subject to the terms of the Stockholders'
Agreement.
At the Effective Time, the Harrison Employment Agreement replaced and
superseded Mr. Harrison's former employment agreement with the Company, dated as
of February 1, 1997 (the "Prior Harrison Employment Agreement"). At that time,
in consideration and in full satisfaction, and in lieu of the payment of any
Bonus (other than as set forth above) or Sale Bonus (as such terms
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<PAGE> 90
are defined in the Prior Harrison Employment Agreement), the Company paid to Mr.
Harrison, immediately after the Effective Time, $270,000 in cash. The Harrison
Employment Agreement also provides that none of the Transaction or other
transactions and arrangements contemplated by the Transaction Agreement, the
Stockholders' Agreement, the Voting Agreement and the Harrison Employment
Agreement would be or result in or give rise to any change of control or
potential change of control under or constitute good reason for Mr. Harrison
terminating the Prior Harrison Employment Agreement.
Stock and Option Agreement with William S. Wilkey. Pursuant to a Stock and
Option Agreement, dated as of August 10, 1997, by and between the Company and
William S. Wilkey (the "Wilkey Agreement"), Mr. Wilkey contributed to the
Company immediately after the Effective Time $500,000 in cash in exchange for
6.6666667 shares of Company Common Stock ("New Stock") valued at the New Cost
Per Share. Mr. Wilkey made payment to the Company for the New Stock immediately
after the Effective Time and borrowed the funds for such payment from the
Company. Such borrowing is evidenced by a personal full recourse note maturing
on March 15, 2001, accruing interest at 6.65%, compounded annually, and payable
in annual payments of principal and interest equal to one-quarter of any bonus
Mr. Wilkey receives from the Company (provided, that the first such payment will
be made from any bonus corresponding to the 1998 calendar year), with any
portion of the note remaining at maturity payable at maturity. Mr. Wilkey also
entered into a related stock pledge agreement with the Company.
Also pursuant to the Wilkey Agreement, following the Effective Time, Mr.
Wilkey was granted New Options to purchase 11.654 shares of Company Common
Stock. Such New Options were granted on terms similar to those granted pursuant
to the Rittenberg Employment Agreement.
Additionally, Mr. Wilkey converted, as of the Effective Time, his Company
Stock Options to purchase 100,000 shares of Company Common Stock into Rollover
Options to purchase 4.787 shares of Company Common Stock. The Rollover Options
have a Rollover Exercise Price equal to $54,545. Mr. Wilkey also received at the
Effective Time a cash bonus equal to $352,082 in connection therewith. The
Rollover Options were granted pursuant to the Option Documents and on the same
terms as the New Options.
Mr. Wilkey is not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders' Agreement and the Option
Documents, and the shares of New Stock and Option Shares are subject to the
terms of the Stockholders' Agreement.
The Wilkey Agreement is not intended to, and does not, supersede, amend,
modify or replace Mr. Wilkey's employment agreement with the Company, dated as
of October 4, 1996 (the "Wilkey Employment Agreement"), which, except for
certain provisions thereof relating to option grants under the Prior Stock Plan,
which plan was terminated at the Effective Time (and which provisions therefore
are no longer operative), will remain in full force and effect.
Under the terms of the Wilkey Employment Agreement, which commenced on
January 1, 1997, Mr. Wilkey is employed as Senior Vice President -- Sales and
Marketing of the Company for a period of five years. Mr. Wilkey received an
initial base salary of $200,000 for 1997, which will be increased by 5% each
successive year during the term of the agreement. In addition, Mr. Wilkey is
entitled to receive an annual bonus which will be determined by a formula which
takes into account the amount by which sales and profits are increased on a year
to year basis. Mr. Wilkey's agreement also provides that upon termination of
employment he may not for a period of three years be employed by, or associated
in any manner with, any business which is competitive with the Company. The
Wilkey Employment Agreement may be terminated by the Company upon the death or
permanent disability of Mr. Wilkey or for "cause".
Employment Agreement with Diane D. Spaar. Under the Employment Agreement,
dated August 10, 1997, by and between the Company and Diane D. Spaar (the "Spaar
Employment
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<PAGE> 91
Agreement"), Ms. Spaar serves as Senior Vice President of Creative Development
of the Company for a three-year Initial Term at an annual base salary of
$200,000. The Spaar Employment Agreement contains provisions for Additional
Terms, salary increases during any Additional Term, non-discretionary and
discretionary bonus payments, severance, other benefits, definitions of Cause
and Disability, and provisions for non-competition and non-solicitation similar
to those in the Harrison Employment Agreement. In addition, the Spaar Employment
Agreement provides that Ms. Spaar's bonus for the 1997 calendar year will be
equal to the bonus that would have been payable to her in accordance with the
relevant terms of her current employment agreement with the Company, without
taking into account any incremental financing or transaction costs attributable
to the Transaction as determined in good faith by the Board.
Pursuant to the Spaar Employment Agreement, Ms. Spaar contributed to the
Company immediately after the Effective Time $100,000 in cash in exchange for
1.3333333 shares of New Stock valued at the New Cost Per Share. Ms. Spaar made
payment to the Company for the New Stock immediately after the Effective Time
and borrowed the funds for such payment from the Company. Such borrowing is
evidenced by a personal full recourse note maturing in three years, accruing
interest at 6.07%, compounded annually, and payable in 36 equal monthly
installments of principal and interest. Ms. Spaar also entered into a related
stock pledge agreement with the Company.
Pursuant to the Spaar Employment Agreement, following the Effective Time,
Ms. Spaar was granted New Options to purchase 9.434 shares of Company Common
Stock. Such New Options were granted on terms similar to those granted pursuant
to the Rittenberg Employment Agreement.
Additionally, Ms. Spaar converted, as of the Effective Time, her Company
Stock Options to purchase 50,000 shares of Company Common Stock into Rollover
Options to purchase 2.393 shares of Company Common Stock. The Rollover Options
have a Rollover Exercise Price equal to $59,659. Ms. Spaar also received at the
Effective Time a cash bonus equal to $137,664 in connection therewith. The
Rollover Options were granted pursuant to the Option Documents and on the same
terms as the New Options.
Ms. Spaar is not permitted to sell, assign, transfer, pledge or otherwise
encumber any New Options, Rollover Options, shares of New Stock or Option
Shares, except as provided in the Stockholders' Agreement and the Option
Documents, and the shares of New Stock and Option Shares are subject to the
terms of the Stockholders' Agreement.
At the Effective Time, the Spaar Employment Agreement replaced and
superseded Ms. Spaar's former employment agreement with the Company. The Spaar
Employment Agreement also provides that none of the Transaction or other
transactions and arrangements contemplated by the Transaction Agreement, the
Stockholders' Agreement, the Voting Agreement or the Spaar Employment Agreement
would be or result in or give rise to any change of control under or good reason
for Ms. Spaar terminating her current employment agreement.
Employment Agreement with Katherine A. Kusnierz. Under the Employment
Agreement, dated August 10, 1997, by and between the Company and Katherine A.
Kusnierz (the "Kusnierz Employment Agreement"), Ms. Kusnierz serves as Vice
President of Product Design of the Company for a three-year Initial Term at an
annual base salary of $200,000. The Kusnierz Employment Agreement contains
provisions for Additional Terms, salary increases during any Additional Term,
non-discretionary and discretionary bonus payments, severance, other benefits,
definitions of Cause and Disability, and provisions for non-competition and
non-solicitation similar to those in the Harrison Employment Agreement.
Pursuant to the Kusnierz Employment Agreement, Ms. Kusnierz contributed to
the Company immediately after the Effective Time $150,000 in cash in exchange
for 2.0 shares of New Stock valued at the New Cost Per Share. Ms. Kusnierz made
payment to the Company for the New Stock immediately after the Effective Time
and borrowed the funds for such payment from the Company.
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<PAGE> 92
Such borrowing is evidenced by a personal full recourse note maturing in three
years, accruing interest at 6.07%, compounded annually, and payable in 36 equal
monthly installments of principal and interest. Ms. Kusnierz also entered into a
related stock pledge agreement with the Company.
Pursuant to the Kusnierz Employment Agreement, following the Effective
Time, Ms. Kusnierz was granted New Options to purchase 11.099 shares of Company
Common Stock. Such New Options were granted on terms similar to those granted
pursuant to the Rittenberg Employment Agreement.
Additionally, Ms. Kusnierz converted, as of the Effective Time, her Company
Stock Options to purchase 10,000 shares of Company Common Stock into Rollover
Options to purchase 0.478 shares of Company Common Stock. The Rollover Options
have a Rollover Exercise Price equal to $59,659. Ms. Kusnierz also received at
the Effective Time a cash bonus equal to $32,042 in connection therewith. The
Rollover Options were granted pursuant to the Option Documents and on the same
terms as the New Options.
Ms. Kusnierz is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders' Agreement and the Option
Documents, and the shares of New Stock and Option Shares are subject to the
terms of the Stockholders' Agreement.
Other Employment Matters. The Company has agreed in the Transaction
Agreement that, for a period of at least two years from the Effective Time,
subject to applicable law, the Company and its Subsidiaries will provide
benefits to their employees as a group (and not necessarily on an
individual-by-individual or group-by-group basis) that will, in the aggregate,
be similar to those currently provided by the Company and its Subsidiaries to
their employees.
AMSCAN HOLDINGS, INC. 1997 STOCK INCENTIVE PLAN
Following consummation of the Transaction, the Company adopted the Amscan
Holdings, Inc. 1997 Stock Incentive Plan (the "Stock Incentive Plan") under
which the Company may grant incentive awards in the form of shares of Company
Common Stock ("Restricted Stock Awards"), options to purchase shares of Company
Common Stock ("Company Stock Options") and stock appreciation rights ("Stock
Appreciation Rights") to certain directors, officers, employees and consultants
("Participants") of the Company and its affiliates. The total number of shares
of Company Common Stock initially reserved and available for grant under the
Stock Incentive Plan is 120 shares. A committee of the Company's board of
directors (the "Committee"), or the board itself in the absence of a Committee,
is authorized to make grants and various other decisions under the Stock
Incentive Plan. Unless otherwise determined by the Committee, any Participant
granted an award under the Stock Incentive Plan must become a party to, and
agree to be bound by, the Stockholders' Agreement.
Company Stock Option awards under the Stock Incentive Plan may include
incentive stock options, nonqualified stock options, or both types of Company
Stock Options, in each case with or without Stock Appreciation Rights. Company
Stock Options are nontransferable (except under certain limited circumstances)
and, unless otherwise determined by the Committee, have a term of ten years.
Upon a Participant's death or when the Participant's employment with the Company
or the applicable affiliate of the Company, is terminated for any reason, such
Participant's previously unvested Company Stock Options are forfeited and the
Participant or his or her legal representative may, within three months (if
termination of employment is for any reason other than death) or one year (in
the case of the Participant's death), exercise any previously vested Company
Stock Options. Stock Appreciation Rights may be granted in conjunction with all
or part of any Company Stock Option award, and are exercisable, subject to
certain limitations, only in connection with the exercise of the related Company
Stock Option. Upon termination or exercise of the related Company Stock Option,
Stock Appreciation Rights terminate and are no longer exercisable. Stock
Appreciation Rights are transferable only with the related Company Stock
Options.
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<PAGE> 93
Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders' Agreement, immediately prior to certain change of control
transactions described in the Stock Incentive Plan, all outstanding Company
Stock Options and Stock Appreciation Rights will, subject to certain
limitations, become fully exercisable and vested and any restrictions and
deferral limitations applicable to any Restricted Stock Awards will lapse.
The Stock Incentive Plan will terminate ten years after its effective date;
however, awards outstanding as of such date will not be affected or impaired by
such termination. The Company's board of directors and the Committee have
authority to amend the Stock Incentive Plan and awards granted thereunder,
subject to the terms of the Stock Incentive Plan.
COMPENSATION OF DIRECTORS
The Company currently does not compensate its directors other than for
expense reimbursement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company had no compensation committee. During 1996, Mr.
Svenningsen, then Chairman of the Board and Chief Executive Officer of the
Company, participated in deliberations concerning executive compensation. During
1997, prior to consummation of the Transaction, the members of the Compensation
Committee were Messrs. Rosenberry and Tugwell. See "-- Certain Relationships and
Related Transactions". Following the consummation of the Transaction, the
Company has no compensation committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Organization and the IPO, Amscan was privately held and its
business was conducted through corporations owned principally by Mr.
Svenningsen. These corporations entered into a variety of transactions and other
arrangements with Mr. Svenningsen and entities under his control, a number of
which have already been terminated. The remaining transactions and arrangements
are described below.
During 1996, the Company leased certain of its facilities from Mr.
Svenningsen or from entities that Mr. Svenningsen either owned directly or in
which he had a direct or indirect beneficial interest. The Company has paid rent
and expenses for those facilities on terms which it believes are at least as
favorable to the Company as the terms which would have been available for leases
negotiated with unaffiliated persons at the inception of each lease.
In March 1996, the Company began leasing approximately 45,000 square feet
for the Company's administrative headquarters in an office building of
approximately 90,000 square feet in Elmsford, New York. Prior to December 16,
1997, the building was owned by a limited liability company which is 79%-owned
by a trust established for the benefit of Mr. Svenningsen's children, 20%-owned
by a trust established for the benefit of Mr. Svenningsen's sister's children
and 1%-owned by a corporation owned by the Estate. Rent expense relating to this
lease was $752,000 for the year ended December 31, 1996. This lease, as amended,
provided for annual rent of $1,003,000 and a term which was scheduled to expire
on February 28, 2001. In July 1997, the limited liability company that owns the
building entered into a purchase and sale agreement pursuant to which the
Elmsford property was sold on December 16, 1997. Prior to March 1996, the
Company's headquarters had been in a facility owned by Mr. Svenningsen. Rent
expense related to that facility was $196,000 for the year ended December 31,
1996.
During 1996, the Company leased a 212,000 square foot warehouse in
Temecula, California from Mr. Svenningsen. Rent expense related to this
warehouse was $1,186,000 for the year ended December 31, 1996. The expiration
date of this lease, as amended, is February 28, 2000; however, the Company has
options to renew at market rental for two additional five-year periods.
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<PAGE> 94
During 1996, the aggregate rent paid to Mr. Svenningsen or the entities
owned directly or indirectly by him was $2,134,000. Future minimum lease
payments for 1997, 1998, 1999, 2000 and 2001 are $2,246,000, $2,309,000,
$2,374,000, $1,239,000 and $167,000, respectively.
The Company and Mr. Svenningsen entered into an agreement pursuant to which
the Company agreed to provide Mr. Svenningsen with the right to seek
reimbursement from the Company for any income tax obligation attributable to any
period prior to the organization of the Company in December 1996 (including any
gross-up for additional taxes), but only to the extent that such tax is
attributable to income that was not distributed to Mr. Svenningsen.
Alternatively, in the event that the status of Amscan Inc. and certain other
Subsidiaries of the Company, including Am-Source, Inc., JCS Realty Corp. or SSY
Realty Corp. as a S corporation is not respected, the Company was provided the
right to seek reimbursement from Mr. Svenningsen, but only to the extent that
Mr. Svenningsen is entitled to a tax refund attributable to amounts he
previously included in income in his capacity as a stockholder of such
corporations. In connection with the Transaction, the Company and the
Svenningsen Stockholders have entered into the Tax Indemnification Agreement,
pursuant to which the parties have agreed to indemnify one another with respect
to certain tax liabilities that may arise in connection with the election by
certain Subsidiaries of the Company to have been treated and operated as S
corporations under the Code. See "The Transaction -- Tax Indemnification
Agreement".
During September 1997, the Company entered into an agreement to convert
$4.0 million of trade accounts receivable from a customer into an equity
interest. The Company subsequently transferred this interest to the Estate for
(i) a cash payment of $1.0 million, (ii) satisfaction of approximately $2.0
million of certain debts and future lease obligations owed to the Estate, and
(iii) substantially all of the assets of Ya Otta Pinata ("Ya Otta"), a
California corporation 100% owned by the Estate, at a valuation of approximately
$1.0 million. Ya Otta manufactures pinatas which historically had been sold by
the Company's sales force with no commissions charged to Ya Otta. After the
Organization, the Company's sales force continued to sell pinatas manufactured
by Ya Otta and on any sales after the Organization, the Company receives a 5%
sales commission. For the year ended December 31, 1996, sales by Ya Otta were
approximately $3,650,000.
Nupaq-Group, Inc., a California corporation which is 100% owned by the
Estate ("Nupaq"), provides packaging services for the Company's novelty item
manufacturing operations. For the year ended December 31, 1996, the Company paid
Nupaq approximately $260,000 for such services.
During 1996, the Company amended its revolving credit agreement with
several banks, including Fleet Bank N.A. ("Fleet"). At the time such credit
agreement was entered into, Mr. Tugwell was President and Chief Executive
Officer of Fleet. Such revolving credit agreement has since been replaced by a
new credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
Under the Transaction Agreement, the Company has agreed to indemnify for
six years after the Effective Time all former directors, officers, employees and
agents of the Company, to the fullest extent currently provided in the Company's
Certificate of Incorporation and By-laws consistent with applicable law, for
acts or omissions occurring prior to the Effective Time to the extent such acts
or omissions are uninsured and will, subject to certain limitations, maintain
for six years its prior directors' and officers' liability insurance.
Goldman Sachs and its affiliates have certain interests in the Transaction
and in the Company in addition to being the Initial Purchaser of the Notes.
Messrs. O'Toole and Mehra are Managing Directors of Goldman Sachs, Mr. DiSabato
is an Associate of Goldman Sachs and each of them is a director of the Company.
GSCP currently owns approximately 81.7% of the outstanding shares of Company
Common Stock. Accordingly, the general and managing partners of each of the GSCP
Fund Partners (as defined herein), which are affiliates of Goldman Sachs and The
Goldman Sachs Group, will each be deemed to be an "affiliate" of GSCP and the
Company. See "Ownership of
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<PAGE> 95
Capital Stock". Goldman Sachs received an underwriting discount of approximately
$3.3 million in connection with its purchase and resale of the Notes.
Goldman Sachs also served as financial advisor to MergerCo in connection
with the Transaction and received a fee equal to 1% of the aggregate
consideration paid in the Transaction plus reimbursement of certain expenses
from MergerCo upon consummation of the Transaction. Goldman Sachs may from time
to time receive customary fees for services rendered to the Company.
In connection with the Bank Credit Facilities, GS Credit Partners acted as
Syndication Agent, Documentation Agent and Arranger, and Fleet is acting as
Administrative Agent. Goldman Sachs received a fee of approximately $2.7 million
plus reimbursement of certain expenses in connection with such services.
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<PAGE> 96
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information concerning ownership of
shares of Company Common Stock by: (i) persons who are known by the Company to
own beneficially more than 5% of the outstanding shares of Company Common Stock;
(ii) each director of the Company; (iii) each executive officer of the Company;
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMPANY
COMMON STOCK PERCENTAGE
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED OUTSTANDING(A)
- -------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Gerald C. Rittenberg.................................... 60.0 5.9%
James M. Harrison....................................... 15.0 1.5
William S. Wilkey....................................... 6.7 *
Katherine A. Kusnierz................................... 2.0 *
Diane D. Spaar.......................................... 1.3 *
Terence M. O'Toole(b)................................... -- --
Sanjeev K. Mehra(c)..................................... -- --
Joseph P. DiSabato(d)................................... -- --
Estate of John A. Svenningsen........................... 100.0 9.9
c/o Kurzman & Eisenberg LLP
One North Broadway, Suite 1004
White Plains, New York 10601
GS Capital Partners II, L.P(e).......................... 825.0 81.7
and other GSCP funds
85 Broad Street
New York, New York 10004
All directors and executive officers as group (8 85.0 8.4
persons)..............................................
</TABLE>
- ---------------
(a) The amounts and percentage of Company Common Stock beneficially owned are
reported on the basis of regulations of the Commission governing the
determination of beneficial ownership of securities. Under the rules of the
Commission, a person is deemed to be a "beneficial owner" of a security if
that person has or shares "voting power", which includes the power to vote
or to direct the voting of such security, or "investment power", which
includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any
securities of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may be deemed a
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which he has no economic interest. The
percentage of Company Common Stock outstanding is based on the 1,010 shares
of Company Common Stock outstanding as of the date of this Prospectus.
(b) Mr. O'Toole, who is a Managing Director of Goldman Sachs, disclaims
beneficial ownership of the shares of Company Common Stock that will be
owned by GSCP and its affiliates after the Effective Time.
(c) Mr. Mehra, who is a Managing Director of Goldman Sachs, disclaims beneficial
ownership of the shares of Company Common Stock that will be owned by GSCP
and its affiliates after the Effective Time.
(d) Mr. DiSabato, who is an Associate of Goldman Sachs, disclaims beneficial
ownership of the shares of Company Common Stock that will be owned by GSCP
and its affiliates after the Effective Time.
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<PAGE> 97
(e) Of the 825.0 shares of Company Common Stock beneficially owned by GSCP and
its affiliates, approximately 517.6 shares are owned by GSCP II,
approximately 205.8 shares will be owned by GS Capital Partners II
Offshore, L.P., approximately 19.1 shares are owned by Goldman, Sachs & Co.
Verwaltungs GmbH as nominee for GS Capital Partners II (Germany) C.L.P.,
approximately 55.5 shares are owned by Stone Street Fund 1997, L.P. and
approximately 27.0 shares are owned by Bridge Street Fund 1997, L.P. Each
of the GSCP funds are investment partnerships that are managed by Goldman
Sachs or its affiliates, which has full dispositive power with respect to
the holdings of such partnerships.
* Less than 1%
STOCKHOLDERS' AGREEMENT
As of the Effective Time, the Company entered into the Stockholders'
Agreement with GSCP and the Estate and certain employees of the Company listed
as parties thereto (including the Estate, the "Non-GSCP Investors"). The
following discussion summarizes the terms of the Stockholders' Agreement which
the Company believes are material to an investor in the Notes or the Exchange
Notes. This summary is qualified in its entirety by reference to the full text
of the Stockholders' Agreement, a copy of which is filed as an exhibit to the
Registration Statement of which this Propsectus is a part, and is incorporated
by reference herein. The Stockholders' Agreement provides, among other things,
for (i) the right of the Non-GSCP Investors to participate in, and the right of
GSCP to require the Non-GSCP Investors to participate in, certain sales of
Company Common Stock by GSCP, (ii) prior to an initial public offering of the
stock of the Company (as defined in the Stockholders' Agreement), certain rights
of the Company to purchase, and certain rights of the Non-GSCP Investors (other
than the Estate) to require the Company to purchase (except in the case of
termination of employment by such Non-GSCP Investors) all, but not less than
all, of the shares of Company Common Stock owned by a Non-GSCP Investor (other
than the Estate) upon the termination of employment or death of such Non-GSCP
Investor, at prices determined in accordance with the Stockholders' Agreement
and (iii) certain additional restrictions on the rights of the Non-GSCP
Investors to transfer shares of Company Common Stock. The Stockholders'
Agreement also contains certain provisions granting GSCP and the Non-GSCP
Investors certain rights in connection with registrations of Company Common
Stock in certain offerings and provides for indemnification and certain other
rights, restrictions and obligations in connection with such registrations. The
Stockholders' Agreement will terminate (i) with respect to the rights and
obligations of and restrictions on GSCP and the Non-GSCP Investors in connection
with certain restrictions on the transfer of shares of Company Common Stock,
when GSCP and its affiliates no longer hold at least 40% of the outstanding
shares of Company Common Stock, on a fully diluted basis; provided that the
Stockholders' Agreement will terminate in such respect in any event if the
Company enters into certain transactions resulting in GSCP, its affiliates, the
Non-GSCP Investors, and each of their respective permitted transferees, owning
less than a majority of the outstanding voting power of the entity surviving
such transaction; and (ii) with respect to the registration of Company Common
Stock in certain offerings, with certain exceptions, on the earlier of (1) the
date on which there are no longer any registrable securities outstanding (as
determined under the Stockholders' Agreement) and (2) the twentieth anniversary
of the Stockholders' Agreement.
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<PAGE> 98
DESCRIPTION OF SENIOR DEBT
In order to fund a portion of the payment of the cash portion of the
Transaction Consideration, to refinance certain existing outstanding
indebtedness of the Company, to pay transaction costs incurred in connection
with the Transaction, and for general corporate purposes the Company issued the
Notes and entered into the Revolving Credit Agreement and the AXEL Credit
Agreement providing for the Revolving Credit Facility and the Term Loan,
respectively, (together, the "Bank Credit Facilities"). The execution of the
Bank Credit Facilities, the borrowings necessary to complete the Transaction and
the delivery of required documentation thereunder, occurred at the time of
closing of the Transaction.
The following summary of the material provisions of the Revolving Credit
Agreement and the AXEL Credit Agreement does not purport to be complete, and is
qualified by reference to the full text of such agreements, which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
The Term Loan will mature seven years after funding and will provide for
amortization (in quarterly installments) of one percent of the principal amount
thereof per year for the first five years and 32.3% and 62.7% of the principal
amount thereof in the sixth and seventh years, respectively. The Term Loan will
bear interest, at the option of the Company, at the lenders' customary base rate
plus 1.375% per annum or at the lenders' customary reserve adjusted Eurodollar
rate plus 2.375% per annum. The Company will be required to make scheduled
amortization payments on the Term Loan as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING: AMORTIZATION % AMORTIZED
--------------------------------------------------------- ------------ -----------
<S> <C> <C>
December 31, 1998........................................ $ 1,170,000 1.0%
December 31, 1999........................................ 1,170,000 1.0
December 31, 2000........................................ 1,170,000 1.0
December 31, 2001........................................ 1,170,000 1.0
December 31, 2002........................................ 1,170,000 1.0
December 31, 2003........................................ 37,787,500 32.3
December 31, 2004........................................ 73,362,500 62.7
------------ ------
Total............................................. $117,000,000 100.0%
============ ======
</TABLE>
The Company is obligated to obtain interest rate protection, pursuant to
interest rate swaps, caps or other similar arrangements satisfactory to GS
Credit Partners, with respect to a notional amount of not less than half of the
aggregate amount outstanding under the Term Loan as of the Effective Time, which
protection must remain in effect for not less than three years after the
Effective Time.
In addition, the Company will be required to make prepayments on the Bank
Credit Facilities under certain circumstances, including upon certain asset
sales and issuance of debt or equity securities, subject to certain exceptions.
The Company will also be required to make prepayments on the Bank Credit
Facilities in an amount equal to 75% (to be reduced to 50% for any fiscal year
in which the Company's Consolidated Leverage Ratio (as defined in the Bank
Credit Agreements) is less than 3.75 to 1.0) of the Company's Excess Cash Flow
(as defined in the Bank Credit Agreements) for each fiscal year, commencing with
the fiscal year ending December 31, 1998. Such mandatory prepayments will be
applied to prepay the Term Loan first (on a pro rata basis) and thereafter to
prepay the Revolving Credit Facility and to reduce the commitments thereunder.
Subject to certain call protection provisions applicable for 18 months from the
Effective Time, the Company may prepay, in whole or in part, borrowings under
the Term Loan. Call protection provisions also apply to mandatory prepayments of
borrowings under the Term Loan except for
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<PAGE> 99
\mandatory prepayments from Excess Cash Flow. The Company may prepay borrowings
under or reduce commitments for the Revolving Credit Facility, in whole or in
part, without penalty.
The Revolving Credit Facility has a term of five years and will bear
interest, at the option of the Company, at the lenders' customary base rate plus
1.25% per annum or at the lenders' customary reserve adjusted Eurodollar rate
plus 2.25% per annum. Interest on balances out standing under the Revolving
Credit Facility are subject to adjustment in the future based on the Company's
performance. Amounts drawn on the Revolving Credit Facility for working capital
purposes are also subject to an agreed upon borrowing base and periodic
reduction of outstanding balances. All borrowings under the Revolving Credit
Facility are subject to mandatory prepayments upon the occurrence of certain
events as described above.
The Bank Credit Facilities are guaranteed by the Guarantors. Subject to
certain exceptions, all extensions of credit to the Company and all guarantees
are secured by all existing and after-acquired personal property of the Company
and the Guarantors, including, subject to certain exceptions, a pledge of all of
the stock of all Subsidiaries owned by the Company or any of the Guarantors and
first priority liens on after-acquired real property fee and leasehold interests
of the Company and the Guarantors.
The Bank Credit Facilities contain certain financial covenants, as well as
additional affirmative and negative covenants, constraining the Company. The
Company must maintain a minimum Consolidated Adjusted EBITDA (as defined in the
Bank Credit Agreements) of not less than an amount ranging from $35 million for
the four Fiscal Quarter (as defined in the Bank Credit Agreements) period ending
March 31, 1998 to $48.5 million for the four Fiscal Quarter period ending
December 31, 2002. The Company is required to maintain a Fixed Charge Coverage
Ratio (defined in the Bank Credit Agreements as the ratio of (a) Consolidated
Adjusted EBITDA to (b) Consolidated Fixed Charges (as defined in the Bank Credit
Agreements)) of not less than a ratio of 1.00 to 1.00 for the four-Fiscal
Quarter period ending March 31, 1998 to a ratio of 1.20 to 1.00 for the
four-Fiscal Quarter period ending December 31, 2002. The Company must not permit
the ratio of Consolidated Total Debt (as defined in the Bank Credit Agreements)
to Consolidated Adjusted EBITDA on the last day of any four Fiscal Quarter
period to exceed a ratio ranging from 6.60 to 1.00 for such period ending March
31, 1998 to 3.70 to 1.00 for such period ending December 31, 2002.
Borrowings under the Revolving Credit Facilities are subject to customary
affirmative and negative covenants, including but not limited to limitations on
other indebtedness, liens, investments, guarantees, restricted junior payments
(dividends, redemptions and payments on subordinated debt), mergers and
acquisitions, sales of assets, capital expenditures, leases, transactions with
affiliates, conduct of business and other provisions customary for financings of
this type, including exceptions and baskets.
The Revolving Credit Agreement permits business acquisitions in the same
line of business as the Company and its Subsidiaries subject to certain
restrictions, and permits borrowings thereunder to finance such acquisitions of
up to $25 million in the aggregate. As a condition to any such acquisitions in
excess of $10 million in the aggregate, the pro forma ratio of total
indebtedness to EBITDA at the time of any such acquisition must not exceed a
ratio of 5.5:1.0 through the last fiscal quarter of 1999 and lower ratios
thereafter decreasing to 3.7:1.0 for the four Fiscal Quarter period ending
December 31, 2002. Any such acquisitions in excess of $25 million in the
aggregate must be funded from either equity or a combination of equity and
subordinated debt or equity and additional term loans in accordance with certain
specified ratios.
Borrowings under the Revolving Credit Facility are subject to customary
events of default (with customary grace periods), including without limitation
failure to make payments when due, defaults under other indebtedness,
noncompliance with covenants, breach of representations and warranties,
bankruptcy, judgments in excess of specified amounts, invalidity of guarantees,
impairment of security interests in collateral and "changes of control".
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<PAGE> 100
Borrowings under the Term Loan are subject to affirmative covenants
identical to those set forth above with respect to borrowings under the
Revolving Credit Facility and negative covenants substantially as set forth in
the Notes, including limitations on the incurrence of indebtedness, investments,
guarantees, restricted payments (dividends, redemptions and payments on
subordinated debt), mergers, sales of assets, transactions with affiliates and
other provisions customary for financings of this type. The Term Loan also
contains a negative covenant restricting liens similar to the lien covenant in
the Revolving Credit Facility.
Borrowings under the Term Loan are subject to events of default
substantially as set forth in the Notes and the Exchange Notes; provided that
there is (i) an immediate default for principal payment defaults, (ii) a
three-day grace period for interest payment defaults, (iii) a cross default to
the Revolving Credit Facility and other debt with an aggregate principal amount
of $5 million or more in the event such default is not cured within twenty
business days and (iv) an immediate default if (1) prior to a Qualified Public
Offering (as defined in the Bank Credit Agreements), GSCP II and its affiliates
cease to own and control 51% or more of the voting power of the Company's
securities, (2) after a Qualified Public Offering, a person or group acquires
beneficial ownership of the Company's securities representing greater voting
power than GSCP II and its affiliates or (3) a Change of Control as defined in
the Indenture occurs.
The Indenture permits the Bank Credit Agreement to be amended, modified,
renewed, refunded, refinanced or replaced (in whole or in part) from time to
time.
OTHER SENIOR DEBT
As of the Effective Time, the Company had approximately $10.8 million in
outstanding indebtedness and capital leases outstanding, relating primarily to
mortgages of real property. The Company's distribution center in Chester, New
York, is subject to a ten-year mortgage securing a loan in the original
principal amount of $5,925,000 bearing interest at a rate of 8.51%. Such
mortgage loan matures in September 2004. The principal amount outstanding as of
September 30, 1997 was approximately $4,147,500. The Company's distribution
center in Montreal, Canada is subject to a mortgage securing a loan in the
original principal amount of $2,088,000. Such mortgage loan bears interest at a
rate of the lower of Hong Kong Bank of Canada's Cost of Funds plus 1.6% or
Canadian Prime plus 0.5%. The principal amount outstanding as of September 30,
1997 was approximately $1,924,000. The remaining amounts of indebtedness
outstanding relate to capital leases for the Company's machinery and equipment
and will be due and payable at scheduled maturities through 2003. The mortgages
and capital leases described above are Senior Debt.
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<PAGE> 101
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued by the Company pursuant to the same
Indenture (the "Indenture") among the Company, the Guarantors and IBJ Schroder
Bank & Trust Company, as trustee (the "Trustee"), under which the Notes were
issued. The terms of the Exchange Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The Exchange Notes are subject to all such
terms, and Holders of Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The discussion below summarizes the terms
of the Exchange Notes that the Company believes are material to an investor in
the Exchange Notes. This summary does not purport to be complete and is
qualified in its entirety by reference to the full text of the agreements
underlying this discussion, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein. The definitions of certain terms used in the following
summary are set forth below under the caption " -- Certain Definitions".
On December 19, 1997, the Company issued $110.0 million aggregate principal
amount of Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Notes.
Any Notes that remain outstanding after the consummation of the Exchange Offer,
together with the Exchange Notes, will be treated as a single class of
securities under the Indenture. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Exchange Notes
shall be deemed to mean, at any time after the Exchange Offer is consummated,
such percentage in aggregate principal amount of the Notes and Exchange Notes
then outstanding.
As of December 19, 1997, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are general unsecured obligations of the Company,
limited in aggregate principal amount, together with any outstanding Notes, to
$200 million, of which $110 million was issued in the Note Offering and,
assuming all Holders of Notes exchange their Notes, will be issued in the
Exchange Offer. Notes or Exchange Notes issued thereafter ("Additional Notes")
may be issued in one or more series from time to time, subject to compliance
with the covenants contained in the Indenture, provided, that no Additional Note
may be issued at a price that would cause such Additional Note to have "original
issue discount" within the meaning of Section 1273 of the Code. Any Additional
Notes will have the same terms, including interest rate, maturity and redemption
provisions, as the Exchange Notes initially being issued hereunder.
The Exchange Notes will mature on December 15, 2007. Interest on the
Exchange Notes will accrue at the rate of 9 7/8% per annum and will be payable
in cash semi-annually in arrears on June 15 and December 15, commencing on June
15, 1998, to Holders of record on the immediately preceding June 1 and December
1. Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 19, 1997,
the date of original issuance of the Notes. Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.
Principal, premium, if any, and interest on the Exchange Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the
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<PAGE> 102
option of the Company, payment of interest may be made by check mailed to the
Holders of the Exchange Notes at their respective addresses set forth in the
register of Holders of Exchange Notes; provided, however, that all payments with
respect to Global Exchange Notes and definitive Exchange Notes the Holders of
which have given wire transfer instructions to the Company at least 10 Business
Days prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Exchange Notes will be issued in minimum denominations of $1,000
and integral multiples thereof.
SETTLEMENT AND PAYMENT
Payments by the Company in respect of the Exchange Notes (including
principal, premium, if any, and interest) will be made in immediately available
funds as provided above. The Exchange Notes are expected to trade in the
Depository's settlement system, and any secondary market trading activity will,
therefore, be required by the Depository to be settled in immediately available
funds. No assurance can be given as to the effect, if any, of such settlement
arrangements on trading activity in the Exchange Notes.
Because of time-zone differences, the securities account of Euroclear or
Cedel Bank participants (each, a "Member Organization") purchasing an interest
in a Global Exchange Note from a Participant (as defined herein) that is not a
Member Organization will be credited during the securities settlement processing
day (which must be a business day for Euroclear or Cedel Bank, as the case may
be) immediately following the Depository Trust Company ("DTC") settlement date.
Transactions in interests in a Global Exchange Note settled during any
securities settlement processing day will be reported to the relevant Member
Organization on the same day. Cash received in Euroclear or Cedel Bank as a
result of sales of interests in a Global Exchange Note by or through a Member
Organization to a Participant that is not a Member Organization will be received
with value on the DTC settlement date, but will not be available in the relevant
Euroclear or Cedel Bank cash account until the business day following settlement
in DTC.
SUBORDINATION
The Exchange Notes will be unsecured senior subordinated indebtedness of
the Company ranking pari passu with all other existing and future senior
subordinated indebtedness of the Company. The payment of all Obligations in
respect of the Exchange Notes will be subordinated, as set forth in the
Indenture, in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Debt, whether outstanding on the date of the Indenture
or thereafter incurred.
The Indenture provides that, upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the documents relating to the applicable
Senior Debt, whether or not the claim for such interest is allowed as a claim in
such proceeding), or provision will be made for payment in cash or Cash
Equivalents or otherwise in a manner satisfactory to the holders of such Senior
Debt, before the Holders of Exchange Notes will be entitled to receive any
Securities Payment (other than payments in Permitted Junior Securities) and
until all Obligations with respect to Senior Debt are paid in full, or provision
is made for payment in cash or Cash Equivalents or otherwise in a manner
satisfactory to the holders of such Senior Debt, any Securities Payment (other
than any payments in Permitted Junior Securities) to which the Holders of
Exchange Notes would be entitled will be made to the holders of Senior Debt
(except that Holders of Exchange Notes may receive payments made from the trust
described under " -- Legal Defeasance and Covenant Defeasance").
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<PAGE> 103
The Indenture also provides that the Company may not make any Securities
Payment (other than payments in Permitted Junior Securities) upon or in respect
of the Exchange Notes (except from the trust described under " -- Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt occurs and
is continuing, or any judicial proceeding is pending to determine whether any
such default has occurred, or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits, or would permit, with the
passage of time or the giving of notice or both, holders of the Designated
Senior Debt to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Debt. Securities Payments on the
Exchange Notes may and shall be resumed (a) in the case of a payment default on
Designated Senior Debt, upon the date on which such default is cured or waived
or shall have ceased to exist, unless another default, event of default or other
event that would prohibit such payment shall have occurred and be continuing, or
all Obligations in respect of such Designated Senior Debt shall have been
discharged or paid in full and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received by
the Trustee. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the first day of effectiveness of the immediately
prior Payment Blockage Notice. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been subsequently cured or waived for a period of not
less than 180 days. In the event that, notwithstanding the foregoing, the
Company makes any Securities Payment (other than payments in Permitted Junior
Securities) to the Trustee or any Holder of an Exchange Note prohibited by the
subordination provisions, then and in such event such Securities Payment will be
required to be paid over and delivered forthwith to the holders of Senior Debt.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of Exchange Notes may
recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors". On a pro forma basis, after giving effect to the
Transaction and the Transaction Financings and the application of the proceeds
therefrom, the principal amount of Senior Debt outstanding at September 30, 1997
would have been approximately $128 million. The Indenture limits, subject to
certain financial tests, the amount of additional Indebtedness, including Senior
Debt, that the Company and its Restricted Subsidiaries can incur. See "--
Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock".
"Bank Debt" means all Obligations in respect of the Indebtedness
outstanding under the Bank Credit Agreement together with any amendment,
modification, renewal, refunding, refinancing or replacement (in whole or part)
from time to time of such Indebtedness.
"Bank Hedging Obligations" means all present and future Hedging
Obligations of the Company, whether existing now or in the future, that are
secured by the Bank Credit Agreement (or other agreement evidencing Bank Debt or
other Senior Debt) or any of the collateral documents executed from time to time
in connection therewith.
"Designated Senior Debt" means (i) so long as the Bank Debt is
outstanding, the Bank Debt, (ii) the Bank Hedging Obligations and (iii) any
Senior Debt permitted under the Indenture the principal amount of which is $15
million or more and that has been designated by the Company as "Designated
Senior Debt" and as to which the Trustee has been given written notice of such
designation.
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"Permitted Junior Securities" means, with respect to any payment or
distribution of any kind, equity securities or subordinated securities of the
Company or any successor obligor provided for by a plan of reorganization or
readjustment that, in the case of any such subordinated securities, are
subordinated in right of payment to all Senior Debt that may at the time be
outstanding to at least the same extent as the Exchange Notes are so
subordinated as provided in the Indenture.
"Securities Payment" means any payment or distribution of any kind,
whether in cash, property or securities (including any payment or distribution
deliverable by reason of the payment of any other Indebtedness subordinated to
the Exchange Notes) on account of the principal of (and premium, if any) or
interest on the Exchange Notes or on account of the purchase or redemption or
other acquisition of or satisfaction of obligations with respect to Exchange
Notes by the Company or any Subsidiary of the Company.
"Senior Debt" means (i) the Bank Debt, (ii) the Bank Hedging Obligations
and (iii) any other Indebtedness permitted to be incurred by the Company under
the terms of the Indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Exchange Notes. Notwithstanding anything to the contrary
in the foregoing, Senior Debt does not include (1) any liability for federal,
state, local or other taxes owed or owing by the Company, (2) any Indebtedness
of the Company to any of its Restricted Subsidiaries or other Affiliates (other
than Goldman, Sachs & Co. and its Affiliates, including Goldman Sachs Credit
Partners L.P.), (3) any trade payables, (4) that portion of any Indebtedness
that is incurred in violation of the Indenture, (5) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (6) any Indebtedness,
Guarantee or obligation of the Company which is contractually subordinate in
right of payment to any other Indebtedness, Guarantee or obligation of the
Company; provided, however, that this clause (6) does not apply to the
subordination of liens or security interests covering particular properties or
types of assets securing Senior Debt, (7) Indebtedness evidenced by the Notes or
the Exchange Notes and (8) Capital Stock.
SENIOR SUBORDINATED GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed on a senior subordinated basis (the "Senior
Subordinated Guarantees") by each Restricted Subsidiary of the Company (other
than a Restricted Subsidiary organized under the laws of a country other than
the United States) and each other Subsidiary of the Company that becomes a
guarantor under the Bank Credit Agreement. The obligations of each Guarantor
under its Senior Subordinated Guarantee will be subordinated to its Guarantee of
all Obligations under the Bank Credit Agreement (the "Senior Guarantees") and
will be limited so as not to constitute a fraudulent conveyance under applicable
law. See, however, "Risk Factors -- Fraudulent Conveyance".
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Exchange Notes and
the Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) the Company would be permitted by
virtue of the Company's pro forma Fixed Charge Coverage Ratio to incur,
immediately after giving effect to such transaction, at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock". The Indenture provides that
the foregoing will not prevent the merger, consolidation or sale of assets
between Guarantors or between the Company and any Guarantor.
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The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition (including, without
limitation, by foreclosure) of all of the Capital Stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise (including, without limitation, by
foreclosure), of all of the capital stock of such Guarantor) or the Person
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be automatically
released and relieved of any obligations under its Senior Subordinated
Guarantee; provided that the Net Proceeds of such sale or other disposition are
applied, as and if required, in accordance with the applicable provisions of the
Indenture. In addition, if any Guarantor is released and relieved of all
obligations it may have as a guarantor under the Bank Credit Agreement, then
such Guarantor will also be automatically released and relieved of any
obligations under its Senior Subordinated Guarantee. See "-- Repurchase at the
Option of Holders -- Asset Sales".
Certain of the operations of the Company, including a substantial portion
of its operations outside the United States, are conducted through Subsidiaries
that are not Guarantors. The Company is dependent upon the cash flow of those
Subsidiaries to meet its obligations, including its obligations under the
Exchange Notes. The Exchange Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables and capital lease
obligations) of the Company's Subsidiaries that are not Guarantors, which were
approximately $3 million (excluding inter-company payables to the Company) at
September 30, 1997. Any right of the Company to receive assets of any of such
Subsidiaries upon the latter's liquidation or reorganization (and the consequent
right of the Holders of the Exchange Notes to participate in those assets) will
be effectively subordinated to the claims of such Subsidiary's creditors, except
to the extent that the Company or a Guarantor is itself recognized as a creditor
of such Subsidiary, in which case the claims of the Company would still be
subordinate to any security in the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company or a
Guarantor. See "Risk Factors -- Holding Company Structure".
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes are not redeemable at the
Company's option prior to December 15, 2002. From and after December 15, 2002,
the Exchange Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' written
notice, at the Redemption Prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 15 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
------------------------------------------------------ -------------
<S> <C>
2002.................................................. 104.937%
2003.................................................. 103.292
2004.................................................. 101.646
2005 and thereafter................................... 100.000
</TABLE>
Prior to December 15, 2000, the Company may, at its option, on any one or
more occasions, redeem up to 35% of the principal amount of Exchange Notes at a
redemption price equal to 109.875% of the principal amount thereof, plus accrued
and unpaid interest thereon to the redemption date, with the net proceeds of
public or private sales of common stock of, or contributions to the common
equity capital of, the Company; provided that at least $65 million in aggregate
principal amount of Notes and Exchange Notes (or if Additional Notes have been
issued, a correspondingly higher amount) remains outstanding immediately after
the occurrence of each
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such redemption; and provided, further, that such redemption shall occur within
120 days of the date of the closing of the related sale of common stock of, or
capital contribution to, the Company.
In addition, at any time on or prior to December 15, 2002, upon the
occurrence of a Change of Control, the Company may redeem the Exchange Notes, in
whole but not in part, at a redemption price equal to the principal amount
thereof plus the Applicable Premium plus accrued and unpaid interest, if any, to
the date of redemption. Notice of redemption of the Exchange Notes pursuant to
this paragraph shall be mailed to holders of the Exchange Notes not more than 30
days following the occurrence of a Change of Control.
"Applicable Premium" means, with respect to an Exchange Note, the greater
of (i) 1.0% of the then outstanding principal amount of such Exchange Note and
(ii)(a) the present value of all remaining required interest and principal
payments due on such Exchange Note and all premium payments relating thereto
assuming a redemption date of December 15, 2002, computed using a discount rate
equal to the Treasury Rate plus 50 basis points minus (b) the then outstanding
principal amount of such Exchange Note minus (c) accrued interest thereon paid
on the redemption date.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for redemption (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining term to December 15, 2002; provided, however, that if the then
remaining term to December 15, 2002 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the then
remaining term to December 15, 2002 is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of such Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that the unredeemed portion of any
Exchange Note redeemed in part shall equal $1,000 or an integral multiple
thereof.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Exchange
Notes to be redeemed at such Holder's registered address. If any Exchange Note
is to be redeemed in part only, the notice of redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note. On and after the redemption date,
unless the Company defaults in payment of the redemption price, interest ceases
to accrue on Exchange Notes or portions of them called for redemption.
MANDATORY REDEMPTION; SINKING FUND PAYMENTS
Except as set below under "-- Repurchase at the Option of Holders", the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Exchange Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Exchange Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash (the "Change of Control Payment") equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, including
Liquidated Damages, if any, thereon to the date of repurchase. Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Exchange Notes pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Exchange Notes as a result
of a Change of Control.
On a date that is no earlier than 30 days nor later than 60 days from the
date that the Company mails notice of the Change of Control to the Holders (the
"Change of Control Payment Date"), the Company will, to the extent lawful, (1)
accept for payment all Exchange Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee for cancellation the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions there of being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Exchange
Note equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Exchange Notes to require that the
Company repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar transaction. Such a transaction could occur, and
could have an effect on the Exchange Notes, without constituting a Change of
Control.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset Sale
unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or
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otherwise disposed of and (ii) at least 80% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Exchange Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability, (y) any Excludable Current
Liabilities, and (z) any notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are immediately
converted by the Company or such Restricted Subsidiary into cash (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale (or in the case of an Asset Sale involving
the Specified Real Estate, by the later of (i) June 30, 1999 and (ii) the date
365 days after receipt of such Net Proceeds) the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently repay or reduce Obligations under the Bank Credit Agreement (and
to correspondingly reduce commitments with respect thereto) or other Senior
Debt, (ii) to secure Letter of Credit Obligations to the extent related letters
of credit have not been drawn or been returned undrawn, and/or (iii) to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets, in each case, used or useful in a Principal Business; provided,
that such Net Proceeds may, at the Company's option, be deemed to have been
applied pursuant to this clause (iii) to the extent of any expenditures by the
Company made to invest in, acquire or construct businesses, properties or assets
used in a Principal Business within one year preceding the date of such Asset
Sale. Pending the final application of any such Net Proceeds, the Company or
such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents. The Indenture provides that any Net Proceeds from the Asset Sale
that are not used as provided and within the time period set forth in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds".
When the aggregate amount of Excess Proceeds exceeds $15 million, the
Company will be required to make offers to all Holders of Exchange Notes and to
the holders of any other Senior Subordinated Indebtedness the terms of which so
require (each an "Asset Sale Offer") to purchase the maximum principal amount of
Exchange Notes and such other Senior Subordinated Indebtedness, that is an
integral multiple of $1,000, that may be purchased out of the Excess Proceeds at
an offer price in cash in an amount equal to 100% of the aggregate principal
amount thereof (or 100% of the accreted value thereof, in case of Senior
Subordinated Indebtedness issued at a discount), plus accrued and unpaid
interest thereon to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Excess Proceeds shall be
allocated to the respective Asset Sale Offers for the Exchange Notes and such
other Senior Subordinated Indebtedness in proportion to their relative principal
amounts (or accreted value, as applicable). The Indenture provides that the
Company may, in lieu of making an Asset Sale Offer for other Senior Subordinated
Indebtedness, satisfy its obligation under the governing agreement with respect
thereto by applying the Excess Proceeds allocated thereto to the prepayment,
redemption or public or private repurchase of such Senior Subordinated
Indebtedness.
The Company will commence any required Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that the aggregate
amount of Excess Proceeds exceeds $15 million by mailing the notice required
pursuant to the terms of the Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Exchange Notes (and such other Senior
Subordinated Indebtedness) tendered pursuant to any required Asset Sale Offer is
less than the Excess Proceeds allocated thereto, the Company may use any
remaining Excess Proceeds (x) to offer to redeem or purchase other Senior
Subordinated Indebtedness or Subordinated Indebtedness (a "Subordinated Asset
Sale Offer") in accordance with the provisions of the indenture or other
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agreement governing such other Senior Subordinated Indebtedness or Subordinated
Indebtedness or (y) for any other purpose not prohibited by the Indenture. If
the aggregate principal amount of Exchange Notes tendered pursuant to any Asset
Sale Offer exceeds the amount of Excess Proceeds allocated thereto, the Exchange
Notes so tendered shall be purchased on a pro rata basis, based upon the
principal amount tendered. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes and Exchange Notes as a result of an Asset Sale.
The Bank Credit Agreement prohibits the Company from purchasing any
Exchange Notes, and also provides that certain change of control events with
respect to the Company will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs or an Asset Sale Offer is required to be made at a time
when the Company is prohibited from purchasing Exchange Notes, the Company could
seek the consent of its lenders to the purchase of Exchange Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Exchange Notes. In such case, while the
Company's failure to purchase tendered Exchange Notes would constitute an Event
of Default under the Indenture, the subordination provisions of the Indenture
would likely have the practical effect of restricting payments to the Holders of
the Exchange Notes.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Company or
any Restricted Subsidiary of the Company); (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Equity Interests of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness, except for
a payment of principal or interest at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (including Restricted Payments permitted by
clause (i) of the next succeeding paragraph, but excluding all other
Restricted Payments permitted by the next succeeding paragraph), is less
than the
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sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the Board of Directors,
of marketable securities received by the Company from the issue or sale
since the date of the Indenture of Equity Interests (including Retired
Capital Stock (as defined below)) of the Company or of debt securities of
the Company that have been converted into such Equity Interests (other than
Refunding Capital Stock (as defined below) or Equity Interests or
convertible debt securities of the Company sold to a Restricted Subsidiary
of the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock), plus (iii) 100% of the
aggregate amounts contributed to the common equity capital of the Company
since the date of the Indenture, plus (iv) 100% of the aggregate amounts
received in cash and the fair market value of marketable securities (other
than Restricted Investments) received from (x) the sale or other
disposition of Restricted Investments made by the Company and its
Restricted Subsidiaries since the date of the Indenture or (y) the sale of
the stock of an Unrestricted Subsidiary or the sale of all or substantially
all of the assets of an Unrestricted Subsidiary to the extent that a
liquidating dividend is paid to the Company or any Subsidiary from the
proceeds of such sale, plus (v) 100% of any dividends received by the
Company or a Wholly Owned Restricted Subsidiary of the Company after the
date of the Indenture from an Unrestricted Subsidiary of the Company, plus
(vi) $10 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary (the
"Retired Capital Stock") or any Subordinated Indebtedness, in each case, in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of Equity Interests
of the Company (other than any Disqualified Stock) (the "Refunding Capital
Stock");
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(iv) the redemption, repurchase or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary
of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option or similar agreement; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed the sum of $5 million in any twelve-month period
plus the aggregate cash proceeds received by the Company during such
twelve-month period from any issuance of Equity Interests by the Company to
members of management of the Company and its Subsidiaries; provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the immediately preceding paragraph;
(v) Investments in Unrestricted Subsidiaries or in Joint Ventures
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (v) that are at that time
outstanding, not to exceed $15 million plus 5% of the increase in Total
Assets since the Closing Date (as defined herein) at the time of such
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value);
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(vi) repurchases of Equity Interests deemed to occur upon exercise or
conversion of stock options, warrants, convertible securities or other
similar Equity Interests if such Equity Interests represent a portion of
the exercise or conversion price of such options, warrants, convertible
securities or other similar Equity Interests;
(vii) the making and consummation of a Subordinated Asset Sale Offer
in accordance with the provisions described under the caption entitled "--
Repurchase at the Option of Holders -- Asset Sales"; and
(viii) any dividend or distribution payable on or in respect of any
class of Equity Interests issued by a Restricted Subsidiary of the Company;
provided that such dividend or distribution is paid on a pro rata basis to
all of the holders of such Equity Interests in accordance with their
respective holdings of such Equity Interests;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iv), (v) or (vii) above, no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof.
As of December 19, 1997, all of the Company's Subsidiaries were Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the last sentence of the definition
of "Unrestricted Subsidiary". For purposes of designating any Restricted
Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
equal to the book value of such Investment at the time of such designation. Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the Indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur" and correlatively, an
"incurrence" of) any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company for the most recent
four full fiscal quarters for which internal financial statements are available
at the time of such incurrence would have been at least 2.00 to 1.0, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, and the application of
the proceeds therefrom had occurred at the beginning of such four-quarter
period.
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The foregoing provisions will not apply to:
(a) the incurrence by the Company (and the Guarantee thereof by the
Guarantors) of Indebtedness under the Bank Credit Agreement and the
issuance of letters of credit thereunder (with letters of credit being
deemed to have a principal amount equal to the aggregate maximum amount
then available to be drawn thereunder, assuming compliance with all
conditions for drawing) up to an aggregate principal amount of $167 million
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving loans and letters
of credit under the Bank Credit Agreement (in each case, other than in
connection with an amendment, refinancing, refunding, replacement, renewal
or modification) made after the date of the Indenture;
(b) the incurrence by the Company or any of its Restricted
Subsidiaries of any Existing Indebtedness;
(c) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by the Notes and the Exchange
Notes (other than any Additional Notes);
(d) Indebtedness (including Acquired Debt) incurred by the Company or
any of its Restricted Subsidiaries to finance the purchase, lease or
improvement of property (real or personal), assets or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets), in an aggregate principal amount not to exceed $15
million plus 5% of the increase in Total Assets since the Closing Date;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) intercompany Indebtedness between or among the Company and any of
its Restricted Subsidiaries and Guarantees by the Company of Indebtedness
of any Restricted Subsidiary of the Company or by a Restricted Subsidiary
of the Company of Indebtedness of any other Restricted Subsidiary of the
Company or the Company;
(g) Hedging Obligations that are incurred (1) for the purpose of
fixing or hedging interest rate or currency exchange rate risk with respect
to any Indebtedness that is permitted by the terms of the Indenture to be
outstanding or (2) for the purpose of fixing or hedging currency exchange
rate risk with respect to any purchases or sales of goods or other
transactions or expenditures made or to be made in the ordinary course of
business and consistent with past practices as to which the payment
therefor or proceeds therefrom, as the case may be, are denominated in a
currency other than U.S. dollars;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(i) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred;
(j) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(k) the incurrence by the Company of additional Indebtedness
(including pursuant to the Bank Credit Agreement) not otherwise permitted
hereunder in an amount under this clause (k)
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not to exceed $25 million in aggregate principal amount (or accreted value,
as applicable) outstanding at any one time.
For purposes of calculating the Fixed Charge Coverage Ratio, the Indenture
permits, among other things, the Company to give pro forma effect to
acquisitions, and the cost savings expected to be realized in connection with
such acquisitions, that have occurred or are occurring since the beginning of
the applicable four-quarter reference period (or during the immediately
preceding four quarters). These adjustments and the other adjustments permitted
under the definition of Fixed Charge Coverage Ratio will be in addition to the
pro forma adjustments permitted to be included in pro forma financial statements
prepared in accordance with GAAP or Article 11 of Regulation S-X under the
Exchange Act.
ANTI-LAYERING PROVISION
The Indenture provides that (i) the Company will not directly or indirectly
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Exchange Notes and
(ii) no Guarantor will directly or indirectly incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Guarantees and senior in any respect in
right of payment to the Senior Subordinated Guarantees.
Except for the limitations on the incurrence of debt described above under
the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock,"
the Indenture does not limit the amount of debt that is pari passu with the
Exchange Notes.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien that secures obligations under any Senior
Subordinated Indebtedness or Subordinated Indebtedness on any asset or property
now owned or hereafter acquired by the Company or any of its Restricted
Subsidiaries, or on any income or profits therefrom, or assign or convey any
right to receive income therefrom to secure any Senior Subordinated Indebtedness
or Subordinated Indebtedness, unless the Exchange Notes are equally and ratably
secured with the obligations so secured or until such time as such obligations
are no longer secured by a Lien; provided, that in any case involving a Lien
securing Subordinated Indebtedness, such Lien is subordinated to the Lien
securing the Exchange Notes to the same extent that such Subordinated
Indebtedness is subordinated to the Exchange Notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) sell, lease or transfer any of
its properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indenture, (b) the Bank
Credit Agreement and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that the Bank Credit Agreement and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof are no more
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restrictive taken as a whole with respect to such dividend and other payment
restrictions than those terms included in the Bank Credit Agreement on the date
of the Indenture, (c) the Indenture and the Exchange Notes, (d) applicable law,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary
non-assignment or net worth provisions in leases and other agreements entered
into in the ordinary course of business and consistent with past practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (i) any Mortgage
Financing or Mortgage Refinancing that imposes restrictions on the real property
securing such Indebtedness, (j) any Permitted Investment, (k) contracts for the
sale of assets, including, without limitation customary restrictions with
respect to a Restricted Subsidiary of the Company pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary or (l) customary
provisions in joint venture agreements and other similar agreements.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions to, another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Exchange Notes and the Indenture pursuant to a
supplemental Indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock".
Notwithstanding the foregoing clauses (iii) and (iv), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (b) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend
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any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and (if there are any disinterested members of the Board of Directors)
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10 million, or with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5 million as to which there are no
disinterested members of the Board of Directors, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments or Permitted Investments permitted by the provisions of the
Indenture described above under "-- Restricted Payments"; (iii) the payment of
all fees, expenses and other amounts relating to the Transaction; (iv) the
payment of reasonable and customary regular fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company; (v) the transfer or provision of
inventory, goods or services by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business to any Affiliate of the Company on
terms that are customary in the industry or consistent with past practices,
including with respect to price and volume discounts; (vi) the execution of, or
the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any financial advisory, financing, underwriting
or placement agreement or any other agreement relating to investment banking or
financing activities with Goldman, Sachs & Co. or any of its Affiliates
including, without limitation, in connection with acquisitions or divestitures,
in each case to the extent that such agreement was approved by a majority of the
disinterested members of the Board of Directors in good faith; (vii) payments,
advances or loans to employees that are approved by a majority of the
disinterested members of the Board of Directors of the Company in good faith;
(viii) the performance of any agreement as in effect as of the date of the
Indenture or any transaction contemplated thereby (including pursuant to any
amendment thereto so long as any such amendment is not disadvantageous to the
Holders of the Exchange Notes in any material respect); (ix) the existence of,
or the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the date of the Indenture and any similar agreements which it
may enter into thereafter, provided, however, that the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of obligations
under, any future amendment to any such existing agreement or under any similar
agreement entered into after the date of the Indenture shall only be permitted
by this clause (ix) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the Holders of the Exchange Notes
in any material respect; (x) transactions permitted by, and complying with, the
provisions of the covenant described under "-- Merger, Consolidation, or Sale of
All or Substantially All Assets"; and (xi) transactions with suppliers or other
purchases or sales of goods or services, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in compliance with the terms of the Indenture which are fair to
the Company or its Restricted Subsidiaries, in the reasonable determination of a
majority of the disinterested members of the Board of Directors of the
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Company or an executive officer thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an unaffiliated party.
ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness unless such Restricted Subsidiary either
(i) is a Guarantor, or (ii) simultaneously executes and delivers a supplemental
indenture to the Indenture providing for the Guarantee of the payment of all
Obligations with respect to the Exchange Notes by such Restricted Subsidiary,
which Guarantee shall be senior to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Subordinated
Indebtedness and subordinated to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Senior Debt to the same
extent as the Exchange Notes are subordinated to Senior Debt. In addition, the
Indenture provides that (x) if the Company shall, after the date of the
Indenture, create or acquire any new Restricted Subsidiary (other than a
Restricted Subsidiary organized under the laws of a country other than the
United States), then such newly created or acquired Restricted Subsidiary shall
execute a Senior Subordinated Guarantee and deliver an opinion of counsel in
accordance with the terms of the Indenture, and (y) if the Company shall
(whether before or after the date of the Indenture) create or acquire any other
new Subsidiary that becomes a guarantor under the Bank Credit Agreement, then
such newly created or acquired Subsidiary shall execute a Senior Subordinated
Guarantee and deliver an opinion of counsel in accordance with the terms of the
Indenture. Notwithstanding the foregoing, any such Senior Subordinated Guarantee
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon certain mergers, consolidations, sales and other
dispositions (including, without limitation, by foreclosure) pursuant to the
terms of the Indenture. In addition, if any Guarantor is released and relieved
of all obligations it may have as a guarantor under the Bank Credit Agreement,
then such Guarantor will also be automatically released and relieved of any
obligations under its Senior Subordinated Guarantee. See "-- Senior Subordinated
Guarantees". The form of such Senior Subordinated Guarantee is attached as an
exhibit to the Indenture.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will, commencing after consummation of the Transaction, furnish to
the Holders of Exchange Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, following the consummation of
the Transaction, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
the Guarantors have agreed that, for so long as any Notes or Exchange Notes
remain outstanding, they will furnish to the Holders of the Notes and/or
Exchange Notes and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A (d)(4)
under the Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default with respect to the Exchange Notes: (i) default for 30 days in the
payment when due of interest, including Liquidated Damages, if any, on the
Exchange Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Exchange Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company for 30 days after
notice from the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Exchange Notes to comply with the provisions described
under "-- Change of Control", "-- Restricted Payments", "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "-- Merger, Consolidation,
or Sale of All or Substantially All Assets"; (iv) failure by the Company for 60
days after notice from the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Exchange Notes to comply with any of its other
agreements in the Indenture or the Exchange Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
the maturity of which has been so accelerated, aggregates $15 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $15 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Restricted Subsidiaries;
(viii) except as permitted by the Indenture, any Senior Subordinated Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect (except by its terms) or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Senior Subordinated Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare all the Exchange Notes to be due and payable immediately. Upon
such declaration the principal, interest, premium, if any, and Liquidated
Damages, if any, shall be due and payable immediately; provided, however, that
so long as Senior Debt or any commitment therefor is outstanding under the Bank
Credit Agreement, any such notice or declaration shall not be effective until
the earlier of (a) five Business Days after such notice is delivered to the
Representative for the Bank Debt or (b) the acceleration of any Indebtedness
under the Bank Credit Agreement. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company, any Significant Restricted Subsidiary or any group
of Restricted Subsidiaries that, taken together, would constitute a Significant
Restricted Subsidiary, all outstanding Exchange Notes will become due and
payable without further action or notice. Holders of the Exchange Notes may not
enforce the Indenture or the Exchange Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Exchange Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Exchange Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal, premium, if any, or interest)
if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Exchange Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon
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the acceleration of the Exchange Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Exchange Notes prior to December 15, 2002, then
the premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Exchange
Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Exchange Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of and premium, if any, on, the
Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Guarantor, as such, shall have any liability
for any obligations of the Company or the Guarantors under the Exchange Notes,
the Senior Subordinated Guarantees or the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Exchange Notes by accepting an Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guarantors discharged with respect to the
outstanding Exchange Notes and the Senior Subordinated Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Exchange Notes
to receive payments in respect of the principal of and premium, if any, and
interest on such Exchange Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Exchange
Notes concerning issuing temporary Exchange Notes, registration of Exchange
Notes, mutilated, destroyed, lost or stolen Exchange Notes and the maintenance
of an office or agency for payment and money for security payments held in
trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants that are described in the
Indenture and the Senior Subordinated Guarantees ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes and the Senior
Subordinated Guarantees. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "-- Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Exchange Notes and the
Senior Subordinated Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company or the Guarantors must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Exchange Notes, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium, if any, and
interest on the outstanding Exchange Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company or the
Guarantors must specify whether the Exchange Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company or the Guarantors shall have delivered to the Trustee an
opinion of counsel in the
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United States reasonably acceptable to the Trustee confirming that (A) the
Company or the Guarantors have received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company or the Guarantors shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company or the Guarantors must have
delivered to the Trustee an opinion of counsel to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company or the Guarantors must deliver to
the appropriate Trustee an Officers' Certificate stating that the deposit was
not made by the Company or the Guarantors, as applicable, with the intent of
preferring the Holders of Exchange Notes over the other creditors of the Company
or the Guarantors, as applicable, with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or the Guarantors, as
applicable, or others; and (viii) the Company or the Guarantors must deliver to
the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes initially issued in exchange for the Notes generally
will be represented by one or more fully-registered global notes (collectively,
the "Global Exchange Note"). Notwithstanding the foregoing, Notes held in
certificated form will be exchanged solely for Exchange Notes in certificated
form, as discussed below. The Global Exchange Note will be deposited upon
issuance with the Depository and registered in the name of the Depository or a
nominee of the Depository (the "Global Exchange Note Registered Owner"). Except
as set forth below, the Global Exchange Note may be transferred, in whole and
not in part, only to another nominee of the Depository or to a successor of the
Depository or its nominee.
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The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository, (i) upon deposit of the Global Exchange Note, the Depository will
credit the accounts of Participants designated by the Exchange Agent with
portions of the principal amount of the Global Exchange Note and (ii) ownership
of such interests in the Global Exchange Note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants), the
Depository's Participants and the Depository's Indirect Participants. The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Exchange
Notes is limited to that extent. For certain other restrictions on the
transferability of the Exchange Notes, see "Risk Factors -- Restrictions on
Transfer".
Except as described below, owners of interests in the Global Exchange Note
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in definitive form and will not be
considered the registered owners or holders thereof under the Indenture for any
purpose.
Payments in respect of the principal of and premium, if any, and interest
on any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner will be payable by the Trustee to the Global Exchange Note
Registered Owner in its capacity as the registered Holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Exchange Notes, including the Global Exchange Note,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of the Depository's
records or any Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Note, or for maintaining,
supervising or reviewing any of the Depository's records or any Participant's
records relating to the beneficial ownership interests in the Global Exchange
Note or (ii) any other matter relating to the actions and practices of the
Depository or any of its Participants. The Company believes, however, that it is
the current practice of the Depository, upon receipt of any payment in respect
of securities such as the Exchange Notes (including principal and interest), to
credit the accounts of the relevant Participants with the payment on the payment
date, in the amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depository unless the Depository has reason to believe it will not
receive payment on such payment date. Payments by the Participants and the
Indirect Participants to the beneficial owners of the Exchange Notes will be
governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not be
the responsibility of the Depository, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by the Depository or any of
its Participants in identifying the beneficial owners of the Exchange Notes, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instruction from the Global Exchange Note Registered Owner for all
purposes.
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The Global Exchange Note is exchangeable for definitive Exchange Notes if
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository of the Global Exchange Note and the Company thereupon
fails to appoint a successor Depository, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Exchange Notes in definitive registered form, (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the Exchange Notes
or (iv) as provided in the following paragraph. Such definitive Exchange Notes
shall be registered in the names of the owners of the beneficial interests in
the Global Exchange Note as provided by the Participants. Exchange Notes issued
in definitive form will be in fully registered form, without coupons, in minimum
denominations of $1,000 and integral multiples thereof. Upon issuance of
Exchange Notes in definitive form, the Trustee is required to register the
Exchange Notes in the name of, and cause the Exchange Notes to be delivered to,
the person or persons (or the nominee thereof) identified as the beneficial
owners as the Depository shall direct.
Subject to the restrictions on the transferability of the Exchange Notes
described in "Risk Factors -- Restrictions on Transfer," an Exchange Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any Exchange Note or interest therein to any person or
entity that does not participate in the Depository. The exchange of certificated
notes in the Exchange Offer may be made only by presentation of the Notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures". Transfers of certificated
Exchange Notes may be made only by presentation of Exchange Notes, duly
endorsed, to the Trustee for registration of transfer on the Note Register
maintained by the Trustee for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes evidenced by registered, definitive certificates ("Certificated
Securities") under the Indenture, then, upon surrender by the Global Exchange
Note Holder of its Global Exchange Notes, Exchange Notes in such form will be
issued to each person that the Global Exchange Note Holder and the Depository
identify as being the beneficial owner of the related Exchange Note.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depository for all purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement on December 19, 1997 (the "Closing Date").
Pursuant to the Registration Rights Agreement, the Company and the Guarantors
agreed to file with the Commission on or prior to 45 days after the Closing Date
the Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the Holders of
Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the
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Company and the Guarantors are not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities notifies the Company on or prior to
the 20th Business Day following consummation of the Exchange Offer that it alone
or together with Holders who hold in the aggregate at least $1.0 million in
principal amount of Notes (A) is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) is a
broker-dealer and owns Notes acquired directly from the Company or an affiliate
of the Company, the Company and the Guarantors will use their best efforts to
file with the Commission a Shelf Registration Statement to cover resales of the
Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective by the Commission as
described below. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until the earliest to occur of (i) the date on which such Note
has been exchanged by a person other than a broker-dealer for an Exchange Note
in the Exchange Offer and entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the
Securities Act, (ii) following the exchange by a broker-dealer in the Exchange
Offer of a Note for an Exchange Note, the date on which such Exchange Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been effectively
registered under the Securities Act and disposed of in accordance with a Shelf
Registration Statement and (iv) the date on which such Note is distributed to
the public pursuant to Rule 144 under the Securities Act. Notwithstanding the
foregoing, at any time after Consummation (as defined in the Registration Rights
Agreement) of the Exchange Offer, the Company and the Guarantors may allow the
Shelf Registration Statement to cease to be effective and usable if (i) the
Board of Directors of the Company determines in good faith that such action is
in the best interests of the Company, and the Company notifies the Holders
within a certain period of time after the Board of Directors makes such
determination or (ii) the prospectus contained in the Shelf Registration
Statement or the Shelf Registration Statement contains an untrue statement of a
material fact required to be stated therein or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided that the period referred to
in the Registration Rights Agreement during which the Shelf Registration
Statement is required to be effective and usable will be extended by the number
of days during which such registration statement was not effective or usable
pursuant to the foregoing provisions.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 45 days after the Closing Date, (ii) the Company and
the Guarantors will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 105
days after the date on which such Exchange Offer Registration Statement is filed
with the Commission, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company and the Guarantors will
commence the Exchange Offer and use their best efforts to issue on or prior to
45 days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company and the Guarantors will use their best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 45 days after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
105 days after the date such filing is required. If (a) the Company and the
Guarantors fail to file either of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) either of such
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Registration Statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
(c) the Company and the Guarantors fail to consummate the Exchange Offer within
45 days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement, or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then, subject to the last sentence of the preceding paragraph, the Company will
pay Liquidated Damages to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 in
principal amount of Notes constituting Transfer Restricted Securities held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 in principal amount of Notes constituting Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.50 per week per $1,000 in principal amount of Notes constituting
Transfer Restricted Securities. All accrued Liquidated Damages will be paid by
the Company in cash on each Damages Payment Date (as defined in the Registration
Rights Agreement) to the Global Note Holder (and any Holder of Certificated
Securities who has given wire transfer instructions to the Company at least 10
Business Days prior to the Damages Payment Date) by wire transfer of immediately
available funds and to all other Holders of Certificated Securities by mailing
checks to their registered addresses. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and will be provided
an opportunity to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to have
their Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the full text of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is incorporated by reference herein.
CONSENT OF HOLDERS; SINGLE CLASS
Except as described below under "-- Amendment, Supplement and Waiver", and
as otherwise described herein or in the Indenture, the Notes and the Exchange
Notes will be considered collectively to be a single class for all purposes
under the Indenture, including, without limitation, waivers, amendments,
redemptions and Repurchase Offers, and for purposes of this "Description of
Exchange Notes" (except under the caption, "-- Registration Rights; Liquidated
Damages") all reference herein to "Exchange Notes" shall be deemed to refer
collectively to the Notes and any Exchange Notes, unless the context otherwise
requires.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture and
the Exchange Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Exchange Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, such Exchange Notes), and
any existing default or compliance with any provision of the Indenture or the
Exchange Notes may be waived with the consent of the Holders of a majority in
principal amount of the then
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outstanding Exchange Notes (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, such Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a nonconsenting Holder): (i) reduce
the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under "-- Repurchase at the Option of Holders"), (iii)
reduce the rate of or change the time for payment of interest, including
Liquidated Damages, if any, on any Exchange Note, (iv) waive a Default or Event
of Default in the payment of principal of or premium, if any, or interest,
including Liquidated Damages, if any, on the Exchange Notes (except a rescission
of acceleration of the Exchange Notes by the Holders of at least a majority in
aggregate principal amount thereof and a waiver of the payment default that
resulted from such acceleration), (v) make any Exchange Note payable in money
other than that stated in the Exchange Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Exchange Notes to receive payments of principal of or premium, if
any, or interest, including Liquidated Damages, if any, on the Exchange Notes,
(vii) waive a redemption payment with respect to any Exchange Note (other than a
payment required by one of the covenants described above under "-- Repurchase at
the Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Company and the Trustee may amend or supplement the
Indenture or the Exchange Notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Exchange Notes in addition to or in place of
certificated Exchange Notes, to provide for the assumption of the Company's
obligations to Holders of Exchange Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Exchange Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if the Trustee acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions),
in each case, other than:
(a) a disposition of Cash Equivalents or goods held for sale in the
ordinary course of business or obsolete equipment or other obsolete
assets in the ordinary course of business consistent with past practices
of the Company;
(b) the disposition of all or substantially all of the assets of
the Company in a manner permitted pursuant to the provisions described
above under the covenant entitled "-- Merger, Consolidation, or Sale of
All or Substantially All Assets" or any disposition that constitutes a
Change of Control pursuant to the Indenture;
(c) any disposition that is a Restricted Payment or Permitted
Investment that is permitted under the covenant described above under
"-- Restricted Payments";
(d) any individual disposition, or series of related dispositions,
of assets with an aggregate fair market value of less than $2.5 million;
(e) any sale of an Equity Interest in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; and
(f) foreclosures on assets.
"Asset Sale Offer" has the meaning set forth under the caption "--
Repurchase at the Option of Holders -- Asset Sales".
"Bank Credit Agreement" means one or more credit agreements to be entered
into by and among the Company and the financial institutions party thereto
providing a portion of the financing for the Transaction, as well as financing
for the Company's ongoing requirements, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, refinanced
or replaced (in whole or in part) from time to time.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person (but excluding customary
employee incentive or bonus arrangements, and customary earn-out provisions
granted in connection with acquisition transactions and providing for aggregate
payouts not in excess of $5 million per year).
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any domestic bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" (or the
equivalent rating under a substantially similar ratings system if Keefe Bank
Watch Ratings are no longer published) or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation (or in their absence, an
equivalent rating from another nationally recognized securities rating agency)
and in each case maturing within one year after the date of acquisition.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries, taken as a whole, to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act) other than the
Permitted Holders and their Related Parties;
(ii) the Company becomes aware (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice
or otherwise) of the acquisition by any Person or group (within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders or
any of their Related Parties, in a single transaction or in a related
series of transactions, by way of merger, consolidation or other business
combination or purchase of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act, or any successor provision) of 50% or more of
the aggregate voting power of the Voting Stock of the Company, and such
Person or group beneficially owns Voting Stock having greater aggregate
voting power than the Permitted Holders and their Related Parties; or
(iii) a majority of the members of the Board of Directors of the
Company cease to be Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for
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taxes was deducted in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash operating expenses that were paid in a prior
period) and other non-cash charges of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income, minus (v) cash outlays that were made by such Person or any of its
Restricted Subsidiaries during such period in respect of any item that was
reflected as a non-cash charge in a prior period, provided that such non-cash
charge was added to Consolidated Net Income in determining Consolidated Cash
Flow for such prior period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) for such period of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with, or whose election to such Board of Directors was
approved by, the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election or (iii) is any designee of the Permitted Holders or their Affiliates
or was nominated by the Permitted Holders or their Affiliates or any designees
of the Permitted Holders or their Affiliates on the Board of Directors.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Exchange Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Excludable Current Liabilities" means, with respect to the consideration
received by the Company in connection with any Asset Sale, (i) each trade
payable incurred in the ordinary course of business of the Company or any
Restricted Subsidiary, (ii) each current liability that is in an amount less
than $50,000 on an individual basis, and (iii) each liability due within 90 days
of the date of consummation of such Asset Sale, in the case of each of clauses
(i) through (iii), that is assumed by the transferee of the assets that are
subject to such Asset Sale pursuant to customary assumption provisions.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Bank Credit
Agreement) in existence on the date of the Indenture, until such amounts are
repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues Preferred Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of Preferred Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In calculating the Fixed Charge Coverage Ratio, acquisitions will be given
pro forma effect as follows:
(i) (A) acquisitions that have been made or are being made by the Company
or any of its Restricted Subsidiaries during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date (including through mergers or consolidations and
including any related financing transactions) shall be deemed to have
occurred on the first day of the four-quarter reference period, and
(B) for purposes of determining the pro forma effects of any such
acquisition, Consolidated Cash Flow shall be increased to reflect the
annualized amount of any cost savings expected by the Company to be
realized in connection with such acquisition (from steps to be taken not
later than the first anniversary of such acquisition, and without
reduction for any non-recurring charges expected in connection with such
acquisition), as set forth in an Officers' Certificate signed by the
Company's chief executive and chief financial officers (which shall be
determinative of such matters) which states (x) the amount of such
increase, (y) that such increase is based on the reasonable beliefs of
the officers executing such Officers' Certificate at the time of such
execution (and that estimates of cost savings from prior acquisitions
have been reevaluated and updated) and (z) that any related incurrence
of Indebtedness is permitted pursuant to the Indenture.
(ii) Consolidated Cash Flow shall be further increased to reflect the
annualized amount of any cost savings expected by the Company but not
yet realized in respect of any acquisition made by the Company during
the four fiscal quarters immediately preceding the four-quarter
reference period prior to the Calculation Date, to the extent such cost
savings are (x) expected to result from steps taken not later than the
first anniversary of the relevant acquisition and (y) determined and
certified as set forth in clause (i) above.
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In addition, in calculating the Fixed Charge Coverage Ratio, discontinued
operations will be given pro forma effect as follows:
(1) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, shall be excluded, and
(2) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the Company or any of its Restricted
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) paid to any Person other than the Company or a
Restricted Subsidiary on any series of Preferred Stock of such Person, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person paying the dividend, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Guarantors" means each Subsidiary of the Company that executes a Senior
Subordinated Guarantee in accordance with the provisions of the Indenture, and,
in each case, their respective successors and assigns, while such Senior
Subordinated Guarantee is outstanding.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of any of the Notes or the Exchange Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is not an
Affiliate of the Company and that is, in the judgment of the Company's Board of
Directors, qualified to perform the task for which it has been engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than cash advances made to suppliers with respect to current or
anticipated purchases of inventory in the ordinary course of business) or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions of Indebtedness, Equity Interests or other securities
(directly from the issuer thereof or from third parties) together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Equity Interests of
such Subsidiary, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Subsidiary not sold or disposed of.
"Joint Ventures" means all corporations, partnerships, associations or
other business entities (i) that are engaged in a Principal Business and (ii) of
which 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more Restricted Subsidiaries of
the Company (or a combination thereof).
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit issued pursuant to the Bank Credit Agreement, which
Indebtedness shall be deemed to consist of (a) the aggregate maximum
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amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property acquired or improved by the Company or any Restricted
Subsidiary of the Company after the date of the Indenture.
"Mortgage Refinancing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property subject to a mortgage or other Lien existing on the date
of the Indenture or created or incurred subsequent to the date of the Indenture
as permitted by the terms of the Indenture and owned by the Company or any
Restricted Subsidiary of the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and brokerage and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Bank Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Guarantor Subsidiary" means each Subsidiary of the Company that is not
a Guarantor.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i) as
to which neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness of the Company or any of its Restricted Subsidiaries or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements set
forth in the Indenture.
"Permitted Holders" means Goldman, Sachs & Co. and any of its Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company (including the acquisition of any Equity
Interest in a Restricted Subsidiary) (b) any investment in cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary of the Company or (B) such Person, in one
transaction or a series of related transactions, is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investment made as a result of the receipt of consideration not
constituting cash or Cash Equivalents from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under "-- Repurchase at
the Option of Holders -- Asset Sales"; (e) any Investment existing on the date
of the Indenture; (f) any Investment by Restricted Subsidiaries in other
Restricted Subsidiaries and Investments by Subsidiaries that are not Restricted
Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries; (g)
advances to employees not in excess of $2.5 million outstanding at any one time;
(h) any Investment acquired by the Company or any of its Restricted Subsidiaries
(A) in exchange for any other Investment or accounts receivable held by the
Company or any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (i) Hedging Obligations; (j) loans and advances to officers, directors
and employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (k)
Investments the payment for which consists exclusively of Equity Interests
(exclusive of Disqualified Stock) of the Company; and (l) additional Investments
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (l) that are at that time outstanding, not to
exceed $15 million plus 5% of the increase in Total Assets since the Closing
Date at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
in whole or in part; provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date on or later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Exchange Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of the Exchange Notes, and is subordinated in right of payment to the
Exchange Notes, on terms at least as favorable to the Holders of Exchange Notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
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(iv) such Indebtedness is incurred either by the Company or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principal Business" means (i) the design, manufacture and distribution of
party goods and related products, including, but not limited to, tableware (such
as plates, cups, cutlery, napkins and table covers), decorations, banners,
balloons, novelties, horns, party hats, party favors, stationery, invitations,
greeting cards, gift wrap, ribbons, gift boxes, gift bags, giftware, costumes,
masks and makeup, and (ii) any activity or business incidental, directly related
or similar to those set forth in clause (i) of this definition, or any business
or activity that is a reasonable extension, development or expansion thereof or
ancillary thereto.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Related Parties" means any Person controlled by the Permitted Holders,
including any partnership of which any of the Permitted Holders or their
Affiliates is a general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of the Exchange Notes pursuant to the provisions described under the
covenants entitled " -- Repurchase at the Option of Holders -- Change of
Control" or " -- Repurchase at the Option of Holders -- Asset Sales".
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect
Subsidiary of an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of Restricted
Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Senior Guarantees" means the Guarantees by the Guarantors of Obligations
under the Bank Credit Agreement.
"Senior Subordinated Guarantees" means the Guarantees by the Guarantors of
the Obligations under the Indenture and the Exchange Notes.
"Senior Subordinated Indebtedness" means the Exchange Notes and any other
indebtedness which ranks pari passu in right of payment to the Exchange Notes.
"Significant Restricted Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date of the Indenture.
"Specified Real Estate" means the real properties owned by the Company or
its Subsidiaries as of the date of the Indenture, comprising the distribution
facilities in Chester, New York, Montreal, Quebec, Canada, and Melbourne,
Australia.
"Stated Maturity"means, with respect to any installment of interest or
principal on, or any other payments with respect to, any series of Indebtedness,
the date on which such payment of interest or principal or other payment
(including any sinking fund payment) was scheduled, or required to be paid, but
shall not include any acceleration of such payment or any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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"Subordinated Asset Sale Offer" has the meaning set forth under the caption
" -- Repurchase at the Option of Holders -- Asset Sales".
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Senior Subordinated Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means any Subsidiary (other than the Guarantors
or any successor to any of them) that is designated by the Board of Directors as
an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (c) is a Person
with respect to which neither the Company nor any of its Restricted Subsidiaries
has any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; (d) has
not guaranteed and does not otherwise directly or indirectly provide credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and (e) has at least one director on its board of directors that
is not a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under "Certain Covenants -- Restricted Payments". If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and, so long as such
Unrestricted Subsidiary remains a Subsidiary, any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under " -- Incurrence of
Indebtedness and Issuance of Disqualified Stock', the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under "Certain Covenants
- -- Incurrence of Indebtedness and Issuance of Disqualified Stock", and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of
127
<PAGE> 135
stockholders called for such purpose, without the occurrence of any additional
event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
128
<PAGE> 136
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Exchange
Notes by holders who acquire the Exchange Notes in the Exchange Offer. The
following summary does not discuss all of the aspects of federal income taxation
that may be relevant to such a prospective holder of the Exchange Notes in light
of his or her particular circumstances, or to certain types of holders
(including dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, S corporations, and except as discussed
below, foreign corporations, persons who are not citizens or residents of the
United States and persons who hold the Exchange Notes as part of a hedge,
straddle, "synthetic security" or other integrated investment) which are subject
to special treatment under the federal income tax laws. This discussion also
does not address the tax consequences to nonresident aliens or foreign
corporations that are subject to United States federal income tax on a net basis
on income with respect to an Exchange Note because such income is effectively
connected with the conduct of a U.S. trade or business. Such holders generally
are taxed in a similar manner to U.S. Holders (as defined below); however,
certain special rules apply. In addition, this discussion is limited to holders
who hold the Exchange Notes as capital assets within the meaning of Section 1221
of the Code. This summary also does not describe any tax consequences under
state, local, or foreign tax laws.
The discussion is based upon the Code, Treasury Regulations, IRS rulings
and pronouncements and judicial decisions all in effect as of the date hereof,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect a holder of the Exchange Notes. The Company has not
sought and will not seek any rulings or opinions from the IRS or counsel with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the purchase,
ownership or disposition of the Exchange Notes which are different from those
discussed herein.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL
INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS WELL AS THE APPLICATION OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of
the United States; (ii) a domestic corporation or domestic partnership; (iii) an
estate other than a "foreign estate" as defined in Section 7701(a)(31) of the
Code; or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust.
Taxation of Stated Interest. In general, U.S. Holders of the Exchange
Notes will be required to include interest received thereon in taxable income as
ordinary income at the time it accrues or is received, in accordance with the
holder's regular method of accounting for federal income tax purposes.
Effect of Optional Redemption and Repurchase. Under certain circumstances
the Company may be entitled to redeem a portion of the Exchange Notes. In
addition, under certain circumstances, each holder of Exchange Notes will have
the right to require the Company to repurchase all or any part of such holder's
Exchange Notes. Treasury Regulations contain special rules for determining the
yield to maturity and maturity on a debt instrument in the event the debt
instrument provides for a contingency that could result in the acceleration or
deferral of one or more payments. The Company does not believe that these rules
should apply to either the Company's right to redeem Exchange Notes or to the
holders' rights to require the Company to repurchase Exchange
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<PAGE> 137
Notes. Therefore, the Company has no present intention of treating such
redemption and repurchase provisions of the Exchange Notes as affecting the
computation of the yield to maturity or maturity date of the Exchange Notes.
Sale or other Taxable Disposition of the Exchange Notes. The sale,
exchange, redemption, retirement or other taxable disposition of an Exchange
Note will result in the recognition of gain or loss to a U.S. Holder in an
amount equal to the difference between (a) the amount of cash and fair market
value of property received in exchange therefor (except to the extent
attributable to the payment of accrued but unpaid stated interest) and (b) the
holder's adjusted tax basis in such Exchange Note.
A U.S. Holder's basis in an Exchange Note acquired in exchange for a Note
pursuant to the terms set forth in this Prospectus should be the same as such
U.S. Holder's basis in the Notes exchanged therefor. See "Certain Federal Income
Tax Consequences of the Exchange Offer", above. Otherwise, a U.S. Holder's
initial tax basis in an Exchange Note purchased by such Holder will be equal to
the price paid for the Exchange Note.
Any gain or loss on the sale or other taxable disposition of an Exchange
Note generally will be capital gain or loss. Payments on such disposition for
accrued interest not previously included in income will be treated as ordinary
interest income.
Backup Withholding. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of "reportable payments" and the IRS has notified
the payor that withholding is required, or (iv) the payee fails to certify under
the penalty of perjury that such payee is not subject to backup withholding. If
any one of the events discussed above occurs with respect to a holder of
Exchange Notes, the Company, its paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any "reportable payment" made in
connection with the Exchange Notes of such holder. A "reportable payment"
includes, among other things, amounts paid in respect of interest on an Exchange
Note. Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
federal income tax, provided that the required information is furnished to the
IRS. Certain holders (including, among others, corporations and certain
tax-exempt organizations) are not subject to backup withholding.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder of an Exchange Note has a tax basis in the Exchange Note
that is less than its "stated redemption price at maturity," the amount of the
difference will be treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, an Exchange Note as ordinary income to the extent of any
accured market discount that has not previously been included in income. Market
discount generally accrues on a straight-line basis over the term of a debt
instrument remaining after the acquisition. A U.S. Holder may not be allowed to
deduct immediately all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or to carry such Exchange Note (or the Note
for which the Exchange Note was exchanged, as the case may be). A U.S. Holder
may elect to include market discount in income currently as it accrues (either
on a straight-line basis or, if the U.S. Holder so elects, on a constant yield
basis), in which case the interest deferral rule set forth in the preceding
sentence will not apply. Such an election will apply to all bonds acquired by
the U.S. Holder on or after the first day of the first taxable year to which
such election applies and may be revoked only with the consent of the IRS.
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<PAGE> 138
If a U.S. Holder purchases an Exchange Note (or purchased the Note for
which the Exchange Note was exchanged, as the case may be) for an amount greater
than the sum of all amounts payable on the Exchange Note (or Note) after the
purchase date, other than stated interest, such holder will be considered to
have purchased such Exchange Note (or such Note) with "amortizable bond premium"
equal in amount to such excess, and may elect (in accordance with applicable
Code provisions) to amortize such premium, using a constant yield method over
the remaining term. The amount amortized in any year will be treated as a
reduction of the U.S. Holder's interest income from the Exchange Note in such
year. A U.S. Holder that elects to amortize bond premium must reduce its tax
basis in the Exchange Note by the amount of the premium amortized in any year.
An election to amortize bond premium applies to all taxable debt obligations
then owned and thereafter acquired by the U.S. Holder and may be revoked only
with the consent of the IRS.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Exchange Notes. This summary does not address the tax consequences to
stockholders, partners or beneficiaries in a Non-U.S. Holder. For purposes
hereof, a "Non-U.S. Holder" is any person who is not a U.S. Holder and is not
subject to U.S. federal income tax on a net basis on income with respect to an
Exchange Note because such income is effectively connected with the conduct of a
U.S. trade or business.
Interest. Payments of interest to a Non-U.S. Holder that do not qualify
for the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income tax
treaty applies to reduce the rate of withholding. To claim a treaty reduced
rate, the Non-U.S. Holder must provide a properly executed Form 1001.
Interest that is paid to a Non-U.S. Holder on an Exchange Note will not be
subject to U.S. income or withholding tax if the interest qualifies as
"portfolio interest". Generally, interest on the Exchange Notes that is paid by
the Company will qualify as portfolio interest if (i) the Non-U.S. Holder does
not own, actually or constructively, 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote; (ii) the Non-U.S.
Holder is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership for U.S. federal income tax
purposes; (iii) the Non-U.S. Holder is not a bank receiving interest on a loan
entered into in the ordinary course of business; and (iv) either (x) the
beneficial owner of the Exchange Note provides the Company or its paying agent
with a properly executed certification on IRS Form W-8 (or a suitable substitute
form) signed under penalties of perjury that the beneficial owner is not a "U.S.
person" for U.S. federal income tax purposes and that provides the beneficial
owner's name and address, or (y) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its business holds the Exchange Note and certifies to the Company or
its agent under penalties of perjury that the IRS Form W-8 (or a suitable
substitute) has been received by it from the beneficial owner of the Exchange
Note or a qualifying intermediary and furnishes the payor a copy thereof.
Recently issued Treasury regulations (the "Withholding Regulations") that
will be effective with respect to payments made after December 31, 1998, will
provide alternative methods for satisfying the certification requirements
described in clause (iv) above. The Withholding Regulations also will require,
in the case of Exchange Notes held by a foreign partnership, that (x) the
certification described in clause (iv) above be provided by the partners and (y)
the partnership provide certain information, including its taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships.
Sale, Exchange or Retirement of Exchange Notes. Any gain realized by a
Non-U.S. Holder on the sale, exchange or retirement of the Exchange Notes, will
generally not be subject to U.S. federal income tax or withholding unless (i)
the Non-U.S. Holder is an individual who was present in the U.S. for 183 days or
more in the taxable year of the disposition and meets certain other
131
<PAGE> 139
requirements; or (ii) the Non-U.S. Holder is subject to tax pursuant to certain
provisions of the Code applicable to certain individuals who renounce their U.S.
citizenship or terminate long-term U.S. residency. If a Non-U.S. Holder falls
under (ii) above, the holder will be taxed on the net gain derived from the sale
under the graduated U.S. federal income tax rates that are applicable to U.S.
citizens and resident aliens, and may be subject to withholding under certain
circumstances. If a Non-U.S. Holder falls under (i) above, the holder generally
will be subject to U.S. federal income tax at a rate of 30% on the gain derived
from the sale (or reduced treaty rate) and may be subject to withholding in
certain circumstances.
U.S. Information Reporting and Backup Withholding Tax. Back-up withholding
generally will not apply to an Exchange Note issued in registered form that is
beneficially owned by a Non-U.S. Holder if the certification of Non-U.S. Holder
status is provided to the Company or its agent as described above in "Certain
Federal Income Tax Consequences to Non-U.S. Holders -- Interest", provided that
the payor does not have actual knowledge that the holder is a U.S. person. The
Company may be required to report annually to the IRS and to each Non-U.S.
Holder the amount of interest paid to, and the tax withheld, if any, with
respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of
an Exchange Note by or through the foreign office of a custodian, nominee or
other agent of such beneficial owner, or if the proceeds of the sale of Exchange
Notes are paid to the beneficial owner of an Exchange Note through a foreign
office of a "broker" (as defined in the pertinent Regulations), the proceeds
will not be subject to backup withholding (absent actual knowledge that the
payee is a U.S. person). Information reporting (but not backup withholding) will
apply, however, to a payment by a foreign office of a custodian, nominee, agent
or broker that is (i) a U.S. person, (ii) a controlled foreign corporation for
U.S. federal income tax purposes, or (iii) a foreign person that derives 50% or
more of its gross income from the conduct of a U.S. trade or business for a
specified three-year period or, effective after December 31, 1998, by a foreign
office of certain other persons; unless the broker has in its records
documentary evidence that the holder is a Non-U.S. Holder and certain conditions
are met (including that the broker has no actual knowledge that the holder is a
U.S. Holder) or the holder otherwise establishes an exemption. Payment through
the U.S. office of a custodian, nominee, agent or broker is subject to both
backup withholding at a rate of 31% and information reporting, unless the holder
certifies that it is a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's
U.S. federal income tax liability, provided that certain information is provided
by the holder to the IRS.
132
<PAGE> 140
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 195 days after the Registration Statement is declared effective, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after commencement of the Exchange Offer), all
dealers effecting transactions in the Exchange Notes may be required to deliver
a Prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, or negotiated prices. Any such resale may be made directly to
the purchaser or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 195 days after the Registration Statement is declared
effective, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed to
pay certain expenses incident to the Exchange Offer, other than commission or
concessions of any brokers or dealers, and will indemnify the holders of the
Exchange Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer.
EXPERTS
The financial statements and schedule of the Company as of December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996, included
in this Prospectus, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein and in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.
VALIDITY OF THE EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York, counsel to the Company.
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<PAGE> 141
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Audited Financial Statements and Schedule:
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995............................ F-3
Consolidated Statements of Income -- For the Years Ended December 31,
1996, 1995 and 1994............................................................... F-4
Consolidated Statements of Stockholders' Equity -- For the Years Ended
December 31, 1996, 1995 and 1994.................................................. F-5
Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1996, 1995 and 1994.................................................. F-6
Notes to Consolidated Financial Statements........................................... F-8
Schedule -- Valuation and Qualifying Accounts........................................ F-31
Unaudited Financial Statements:
Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996.............. F-32
Consolidated Statements of Income -- For the Nine Months Ended
September 30, 1997 and 1996....................................................... F-33
Consolidated Statement of Stockholders' Equity -- For the Nine Months Ended
September 30, 1997................................................................ F-34
Consolidated Statements of Cash Flows -- For the Nine Months Ended
September 30, 1997 and 1996....................................................... F-35
Notes to Consolidated Financial Statements........................................... F-36
</TABLE>
F-1
<PAGE> 142
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, except for Notes 16 and 18
which are as of December 19, 1997
Stamford, Connecticut
F-2
<PAGE> 143
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
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, net................................................. 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
Foreign currency 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
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 144
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
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................ $ 11,891
Pro forma weighted average common shares
outstanding................................. 1,010
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 145
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------- ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1993..... $ 393 $ 9,090 $ 9,520 $ (420) $ (87) $ 18,496
Net income.......................... 9,967 9,967
Subchapter S distributions and
other............................. (7,450) (7,450)
Net change in cumulative translation
adjustment........................ (193) (193)
------ ------- -------- ----- ---- --------
Balance as of December 31, 1994..... 393 9,090 12,037 (613) (87) 20,820
Net income.......................... 17,434 17,434
Subchapter S distributions and
other............................. (11,009) (11,009)
Net change in cumulative translation
adjustment........................ (40) (40)
------ ------- -------- ----- ---- --------
Balance as of 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 distributions 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 as of December 31, 1996..... $2,070 $ 61,503 $ 4,748 $ (372) $ -- $ 67,949
====== ======= ======== ===== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 146
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 147
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL INFORMATION ON NONCASH ACTIVITIES:
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, John A. Svenningsen (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 $7,500.
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> 148
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 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.
<TABLE>
<CAPTION>
SUBSIDIARY OWNERSHIP PRINCIPAL ACTIVITY
- ------------------------------------ --------- ---------------------------------------------
<S> <C> <C>
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
</TABLE>
F-8
<PAGE> 149
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
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.
F-9
<PAGE> 150
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-10
<PAGE> 151
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-11
<PAGE> 152
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
======== ========
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at December 31, 1996
and 1995 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
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
========= =========
</TABLE>
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 (dollars in thousands):
<TABLE>
<S> <C>
September 20, 1996 -- September 19, 1997................................ $55,000
September 20, 1997 -- September 20, 2000................................ 60,000
</TABLE>
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-12
<PAGE> 153
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans and notes payable outstanding at December 31, 1996 and 1995 consisted
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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 (dollars in thousands):
<TABLE>
<CAPTION>
ADDITIONAL INTEREST
EXPENSE
NOTIONAL FIXED ---------------------
DATE OF CONTRACT AMOUNT TERM RATE 1996 1995 1994
- ------------------------------------- -------- -------- ------ ---- ---- ---
<S> <C> <C> <C> <C> <C> <C>
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
==== ==== ===
</TABLE>
(6) LONG-TERM INDEBTEDNESS
Long-term indebtedness at December 31, 1996 and 1995 consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
(a) The Company has mortgage obligations payable to financial institutions
relating to certain distribution facilities due through September 13,
2004. The mortgages are
F-13
<PAGE> 154
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL
MORTGAGES LEASE
AND LOANS OBLIGATIONS TOTAL
--------- ----------- -------
<S> <C> <C> <C>
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
======= ====== =======
</TABLE>
(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
F-14
<PAGE> 155
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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
F-15
<PAGE> 156
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Domestic.......................................... $3,137 $17,750 $10,009
Foreign........................................... 2,595 1,456 582
</TABLE>
The provision for income taxes consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
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
====== ==== ====
</TABLE>
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 (dollars in
thousands):
<TABLE>
<S> <C>
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
======
</TABLE>
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
F-16
<PAGE> 157
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Provision at federal statutory rate.................... 35.0% 35.0% 35.0%
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%
===== ===== =====
</TABLE>
(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.
(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 (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Machinery and equipment...................................... $ 6,452 $3,174
Less: accumulated amortization............................... (1,042) (564)
------- ------
$ 5,410 $2,610
======= ======
</TABLE>
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
F-17
<PAGE> 158
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
At December 31, 1996 future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
UNCONSOLIDATED
THIRD PARTIES AFFILIATES TOTAL
------------- -------------- -------
<S> <C> <C> <C>
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
======= ====== =======
</TABLE>
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 (dollars in
thousands):
<TABLE>
<S> <C>
1997......................................................... $ 1,305
1998......................................................... 1,305
1999......................................................... 1,305
2000......................................................... 1,305
2001......................................................... 1,305
Thereafter................................................... 9,135
-------
$15,660
=======
</TABLE>
F-18
<PAGE> 159
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
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 of Australia, Canada, Germany, Mexico, Sweden, and the
United Kingdom. No one single foreign operation is significant to the Company's
consolidated operations. Intersegment sales between geographic areas are made at
cost plus a share of operating profit.
The Company's geographic area data for each of the three fiscal years ended
December 31, 1996, 1995 and 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
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................... $127,472 $ 12,802 $140,274
======== ======== ========
1995
Sales to unaffiliated customers....... $146,198 $ 21,205 $167,403
Sales between geographic areas........ 8,508 60 $ (8,568) --
-------- -------- -------- --------
Net sales............................. $154,706 $ 21,265 $ (8,568) $167,403
======== ======== ======== ========
Income from operations................ $ 22,782 $ 1,887 $ 24,669
======== ========
Interest expense, net................. 5,772
Other income, net..................... (309)
--------
Income before income taxes and
minority interests.................. $ 19,206
--------
Identifiable assets................... $ 99,123 $ 15,478 $114,601
======== ======== ========
</TABLE>
F-19
<PAGE> 160
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1994
Sales to unaffiliated customers....... $115,196 $ 16,833 $132,029
Sales between geographic areas........ 5,645 89 $ (5,734) --
-------- -------- -------- --------
Net sales............................. $120,841 $ 16,922 $ (5,734) $132,029
======== ======== ======== ========
Income from operations................ $ 13,468 $ 1,048 $ 14,516
Interest expense, net................. 3,843
Other expense, net.................... 82
-------- -------- -------- --------
Income before income taxes and
minority interests.................. $ 10,591
Identifiable assets................... $ 80,117 $ 13,767 $ 93,884
======== ======== ======== ========
</TABLE>
(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 (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.
For purposes of the pro forma net income per share calculation 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 pro forma weighted average common shares outstanding represents the
number of common shares outstanding following the Effective Time (see note
(18)).
F-20
<PAGE> 161
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(18) MERGER TRANSACTION
On August 10, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for a recapitalization of Amscan Holdings in
which Confetti will be merged with and into Amscan Holdings (the "Merger"), with
Amscan Holdings as the surviving corporation.
On December 19, 1997 (the "Effective Time"), the Merger was consummated
pursuant to the Merger Agreement. Confetti was merged with and into the Company,
with the Company as the surviving corporation. At the Effective Time, each share
of the Common Stock, par value $0.10 per share, of the Company (the "Company
Common Stock"), issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock owned, directly or indirectly, by the
Company or by Confetti) were converted, at the election of each of the Company's
stockholders, into the right to receive from the Company either (A) $16.50 in
cash (the "Cash Consideration") or (B) $9.33 in cash plus a retained interest in
the Company equal to one share of Company Common Stock for every 150,000 shares
held by such stockholder (the "Mixed Consideration"), with fractional shares of
Company Common Stock paid in cash. The Estate of John A. Svenningsen (the
"Estate"), which owned approximately 72% of the outstanding Company Common Stock
immediately prior to the Effective Time, elected to retain almost 10% of the
outstanding shares of Company Common Stock. No stockholder other than the Estate
elected to retain shares. Also pursuant to the Merger Agreement, at the
Effective Time each outstanding share of Common Stock, par value $0.10 per
share, of Confetti ("Confetti Common Stock"), was converted into an equal number
of shares of Company Common Stock as surviving corporation in the Merger.
Pursuant to certain employment arrangements, certain employees of the Company
purchased an aggregate of 10 shares of Company Common Stock following the
Effective Time. Accordingly, in the Merger the 825 shares of Confetti Common
Stock owned by GSCP immediately prior to the Effective Time were converted into
825 shares of Company Common Stock, representing approximately 81.7% of the
1,010 issued and outstanding shares of the Company immediately following the
Effective Time.
The Merger was financed with an equity contribution of approximately $67.5
million (including contributions of Company Common Stock by certain employee
stockholders and including issuances of restricted stock), $117 million from a
senior term loan and $110 million from the issuance of senior subordinated
notes. The senior subordinated notes are guaranteed jointly and severally, fully
and unconditionally, by each of the Company's wholly-owned domestic
subsidiaries, which include Amscan Inc., Trisar, Inc., Am-Source, Inc., SSY
Realty Corp. and JCS Realty Corp.
F-21
<PAGE> 162
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Non-guarantor companies include the following:
- Amscan Distributors (Canada) Ltd.
- Amscan Holdings Limited
- Amscan (Asia-Pacific) Pty. Ltd.
- Amscan Partyartikel GmbH
- Amscan Svenska AB
- Amscan de Mexico, S.A. de C.V.
The following consolidating information presents consolidating balance
sheets as of December 31, 1996 and 1995, and the related consolidating
statements of income and cash flows for the years ended December 31, 1996, 1995,
and 1994 for the combined guarantors and the combined non-guarantors and
elimination entries necessary to consolidate the entities comprising the
combined companies.
F-22
<PAGE> 163
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 272 $ 1,317 $ 1,589
Accounts receivable, net................. 32,605 4,773 37,378
Inventories.............................. 40,101 5,592 45,693
Deposits and other....................... 10,749 611 11,360
--------- -------- --------- ---------
Total current assets................ 83,727 12,293 96,020
Property, plant and equipment, net......... 33,387 1,276 34,663
Intangible assets, net..................... 7,443 -- 7,443
Other assets, net.......................... 12,298 -- $(10,150) 2,148
--------- -------- --------- ---------
Total assets........................ $136,855 $ 13,569 $(10,150) $140,274
========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable.................. $ 28,950 $ 378 $ 29,328
Subordinated debt and other due to
stockholders.......................... 1,392 1 1,393
Accounts payable......................... 6,843 285 7,128
Accrued expenses......................... 8,650 1575 10,225
Current installments of long-term
obligations........................... 2,472 69 2,541
--------- -------- --------- ---------
Total current liabilities........... 48,307 2,308 50,615
Long-term obligations, excluding current
portion.................................. 14,994 91 15,085
Deferred tax liabilities................... 5,605 57 5,662
Other...................................... 4,021 $ (3,058) 963
--------- -------- --------- ---------
Total liabilities................... 68,906 6,477 (3,058) 72,325
Stockholders' equity:
Preferred Stock..........................
Common Stock............................. 2,070 339 (339) 2,070
Additional paid-in capital............... 61,503 158 (158) 61,503
Retained earnings........................ 4,748..... 6,911 (6,911) 4,748
Foreign currency translation
adjustment............................ (372) (316) 316 (372)
--------- -------- --------- ---------
Total stockholders' equity.......... 67,949 7,092 (7,092) 67,949
--------- -------- --------- ---------
Total liabilities and stockholders'
equity........................... $136,855 $ 13,569 $(10,150) $140,274
========= ======== ========= =========
</TABLE>
F-23
<PAGE> 164
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,593 $ 899 $ 2,492
Accounts receivable, net............... 27,969 3,911 31,880
Inventories............................ 39,643 5,370 45,013
Deposits and other..................... 2,298 622 2,920
-------- ------- ------- --------
Total current assets.............. 71,503 10,802 82,305
Property, plant and equipment, net....... 28,059 1,114 29,173
Intangible assets, net................... 350 350
Other assets, net........................ 6,047 $ (3,274) 2,773
-------- ------- ------- --------
Total assets...................... $105,959 $ 11,916 $ (3,274) $114,601
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable................ $ 37,060 $ 789 $ 37,849
Subordinated debt and other due to
stockholders........................ 18,174 279 18,453
Accounts payable....................... 4,511 1,344 5,855
Accrued expenses....................... 9,526 9,526
Current installments of long-term
obligations......................... 2,197 42 2,239
-------- ------- ------- --------
Total current liabilities......... 71,468 2,454 73,922
Long-term obligations, excluding current
portion................................ 12,218 66 12,284
Other.................................... 655 3,809 $ (3,274) 1,190
-------- ------- ------- --------
Total liabilities................. 84,341 6,329 (3,274) 87,396
Stockholders' equity:
Preferred Stock........................ --
Common Stock........................... 54 339 393
Additional paid-in capital............. 9,082 8 9,090
Retained earnings...................... 12,636 5,826 18,462
Foreign currency translation
adjustment.......................... (67) (586) (653)
Treasury stock, at cost................ (87) (87)
-------- ------- ------- --------
Total stockholders' equity............. 21,618 5,587 27,205
-------- ------- ------- --------
Total liabilities and
stockholders' equity........... $105,959 $ 11,916 $ (3,274) $114,601
======== ======= ======= ========
</TABLE>
F-24
<PAGE> 165
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $176,808 $ 24,656 $ (8,759) $192,705
Cost of sales............................ 118,244 15,704 (10,035) 123,913
-------- ------- --------- --------
Gross profit...................... 58,564 8,952 1,276 68,792
Operating expenses:
Selling expenses....................... 9,723 2,173 (58) 11,838
General and administrative expenses.... 15,718 4,562 (1,014) 19,266
Art and development.................... 5,173 5,173
Non-recurring compensation in
connection with the IPO............. 15,535 15,535
Special bonuses..................... 4,222 4,222
-------- ------- --------- --------
Income from operations............ 8,193 2,217 2,348 12,758
Interest expense, net.................... 6,602 3 86 6,691
Other expense (income), net.............. (5,550) (38) 5,923 335
-------- ------- --------- --------
Income before income taxes and
minority interests............. 7,141 2,252 (3,661) 5,732
Income taxes............................. 1,035 917 1,952
Minority interests....................... 1,403 250 1,653
-------- ------- --------- --------
Net income........................ $ 4,703 $ 1,085 $ (3,661) $ 2,127
======== ======= ========= ========
Pro forma data (unaudited) (note(16)):
Income before income taxes............. $ 4,079
Pro forma income tax expense........... 1,827
--------
Pro forma net income.............. $ 2,252
========
</TABLE>
F-25
<PAGE> 166
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $154,706 $ 21,265 $ (8,568) $167,403
Cost of sales............................ 107,009 13,447 (11,802) 108,654
------------ ---------- ------------ ------------
Gross profit...................... 47,697 7,818 3,234 58,749
Operating expenses:
Selling expenses....................... 10,273 1,968 12,241
General and administrative expenses.... 12,188 3,896 (1,082) 15,002
Art and development.................... 4,256 4,256
Special bonuses........................ 2,581 2,581
------------ ---------- ------------ ------------
Income from operations............ 18,399 1,954 4,316 24,669
Interest expense, net.................. 5,582 304 (114) 5,772
Other expense (income), net............ (3,170) (154) 3,015 (309)
------------ ---------- ------------ ------------
Income before income taxes and
minority interests............. 15,987 1,804 1,415 19,206
Income taxes............................. 83 648 731
Minority interests....................... 927 114 1,041
------------ ---------- ------------ ------------
Net income........................ $ 14,977 $ 1,042 $ 1,415 $ 17,434
========== ========= ========== ==========
Pro forma data (unaudited) (note(16)):
Income before income taxes............. $ 18,165
Pro forma income tax expense........... 7,403
------------
Pro forma net income.............. $ 10,762
==========
</TABLE>
F-26
<PAGE> 167
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $120,841 $ 16,922 $ (5,734) $132,029
Cost of sales............................ 83,512 10,649 (7,413) 86,748
-------- ------- --------- --------
Gross profit...................... 37,329 6,273 1,679 45,281
Operating expenses:
Selling expenses....................... 9,427 1,882 11,309
General and administrative expenses 12,528.... 3,321 (1,389) 14,460
Art and development.................... 2,474 322 2,796
Special bonuses........................ 2,200 2,200
-------- ------- --------- --------
Income from operations............ 10,700 1,070 2,746 14,516
Interest expense, net.................... 3,775 68 3,843
Other expense (income), net.............. (2,593) 34 2,641 82
-------- ------- --------- --------
Income before income taxes and
minority interests............. 9,518 968 105 10,591
Income taxes............................. 73 391 464
Minority interests....................... 103 57 160
-------- ------- --------- --------
Net income........................ $ 9,342 $ 520 $ 105 $ 9,967
======== ======= ========= ========
Pro forma data (unaudited) (note(16)):
Income before income taxes............. $ 10,431
Pro forma income tax expense........... 4,238
--------
Pro forma net income.............. $ 6,193
========
</TABLE>
F-27
<PAGE> 168
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 4,703 $ 1,085 $ (3,661) $ 2,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock compensation expense in connection
with the IPO.......................... 10,920 10,920
Depreciation and amortization........... 4,764 373 5,137
Loss on disposal of property and
equipment............................. 660 660
Provision for doubtful accounts......... 2,048 302 2,350
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable................ (6,684) (1,164) (7,848)
Inventories........................ (1,574) (222) 1,116 (680)
Deposits and other, net............ (3,544) 496 (3,048)
Other assets....................... (1,670) (215) 2,568 683
Accounts payable and accrued
expenses......................... 1,508 516 (52) 1,972
--------- -------- -------- ---------
Net cash provided by operating
activities....................... 11,131 1,171 (29) 12,273
Cash flows from investing activities:
Capital expenditures....................... (7,076) (537) (7,613)
--------- -------- -------- ---------
Net cash used in investing
activities....................... (7,076) (537) (7,613)
Cash flows from financing activities:
Net proceeds from IPO...................... 43,340 43,340
Proceeds from loans, notes payable and
long-term indebtedness.................. 2,777 496 3,273
Repayment of loans, notes payable and long-
term indebtedness....................... (11,113) (855) (11,968)
Repayment of loans, notes and subordinated
indebtedness to Principal Stockholder... (16,900) (279) (17,179)
Subchapter S distributions and other....... (23,574) 150 (23,424)
--------- -------- -------- ---------
Net cash used in financing
activities....................... (5,470) (488) (5,958)
Effect of exchange rate changes on cash...... 94 272 29 395
--------- -------- -------- ---------
Net increase (decrease) in cash and
cash equivalents................. (1,321) 418 -- (903)
Cash and cash equivalents at beginning of
year....................................... 1,593 899 2,492
--------- -------- -------- ---------
Cash and cash equivalents at end of year..... $ 272 $ 1,317 -- $ 1,589
========= ======== ======== =========
</TABLE>
F-28
<PAGE> 169
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... 14$,977.... $ 1,042 $ 1,415 $ 17,434
Adjustments to reconcile net income to net
cash provided by activities:
Depreciation and amortization.............. 4,029..... 303 4,332
Gain on disposal of property and
equipment................................ (5) (5)
Provision for doubtful accounts............ 1,570 11 1,581
Changes in operating assets and
liabilities:
Accounts receivable................... (8,769) (845) (9,614)
Inventories........................... (9,055) (1,493) (10,548)
Deposits and other, net............... 128 (229) (101)
Other assets.......................... (1,282) 1,525 (1,415) (1,172)
Accounts payable and accrued
expenses............................ 3,088 (274) 2,814
-------- ------- ------- --------
Net cash provided by operating
activities............................... 4,681 40 -- 4,721
Cash flows from investing activities:
Capital expenditures......................... (4,033) (489) (4,522)
Proceeds from disposal of property and
equipment.................................. 9 9
-------- ------- ------- --------
Net cash used in investing
activities.......................... (4,024) (489) (4,513)
Cash flows from financing activities:
Proceeds from loans, notes payable and
long-term indebtedness..................... 41,415 896 42,311
Repayment of loans, notes payable and
long-term indebtedness..................... (32,246) (67) (32,313)
Proceeds from loans, notes and subordinated
indebtedness to Principal Stockholder...... 4,000 4,000
Repayment of loans, notes and subordinated
indebtedness to Principal Stockholder...... (2,557) (285) (2,842)
Subchapter S distributions and other......... (11,009) (11,009)
-------- ------- ------- --------
Net cash (used in) provided by
financing activities................ (397) 544 147
Effect of exchange rate changes on cash........ (23) (69) (92)
-------- ------- ------- --------
Net increase in cash and cash
equivalents......................... 237 26 263
Cash and cash equivalents at beginning of
year......................................... 1,356 873 2,229
-------- ------- ------- --------
Cash and cash equivalents at end of year....... $ 1,593 $ 899 -- $ 2,492
======== ======= ======= ========
</TABLE>
F-29
<PAGE> 170
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 9,342 $ 520 $ 105 $ 9,967
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 3,522 150 3,672
Loss on disposal of property and
equipment........................... 35 35
Provision for doubtful accounts....... 2,676 2,676
Changes in operating assets and
liabilities:
Accounts receivable.............. (4,495) (546) (5,041)
Inventories...................... (4,904) (778) (5,682)
Deposits and other, net.......... (1,126) 1,076 (105) (155)
Other assets..................... (1,280) 15 (1,265)
Accounts payable and accrued
expenses....................... 969 (57) 912
------- ----- ---- -------
Net cash provided by operating
activities..................... 4,739 380 -- 5,119
Cash flows from investing activities:
Capital expenditures.................... (7,276) (116) (7,392)
Proceeds from disposal of property and
equipment............................. 98 98
------- ----- ---- -------
Net cash used in investing
activities..................... (7,178) (116) (7,294)
Cash flows from financing activities:
Proceeds from loans, notes payable and
long-term indebtedness................ 6,266 58 6,324
Repayment of loans, notes payable and
long-term indebtedness................ (2,434) (2,434)
Proceeds from loans, notes and
subordinated indebtedness to Principal
Stockholder........................... 6,316 6,316
Subchapter S distributions and other.... (7,450) (7,450)
------- ----- ---- -------
Net cash provided by financing
activities..................... 2,698 58 2,756
Effect of exchange rate changes on cash... 403 (133) 270
------- ----- ---- -------
Net increase in cash and cash
equivalents.................... 662 189 851
Cash and cash equivalents at beginning of
year.................................... 694 684 1,378
------- ----- ---- -------
Cash and cash equivalents at end of
year.................................... $ 1,356 $ 873 -- $ 2,229
======= ===== ==== =======
</TABLE>
F-30
<PAGE> 171
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
F-31
<PAGE> 172
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1997 (NOTE)
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 684 $ 1,589
Accounts receivable, net of allowances..................... 56,276 37,378
Inventories................................................ 48,736 45,693
Deposits and other current assets.......................... 9,680 11,360
-------- --------
Total current assets.................................. 115,376 96,020
Property, plant and equipment, net........................... 37,157 34,663
Intangible assets, net....................................... 7,540 7,443
Other assets, net............................................ 2,687 2,148
-------- --------
Total assets.......................................... $ 162,760 $140,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable.................................... $ 10,020 $ 29,328
Subordinated and other indebtedness due to stockholders.... 1,393
Accounts payable........................................... 11,153 7,128
Accrued expenses........................................... 7,317 9,403
Income taxes payable....................................... 6,458 822
Current portion of long-term obligations................... 5,556 2,541
-------- --------
Total current liabilities............................. 40,504 50,615
Long-term obligations, excluding current portion............. 24,828 15,085
Deferred tax liabilities..................................... 5,585 5,662
Other........................................................ 2,841 963
-------- --------
Total liabilities..................................... 73,758 72,325
Stockholders' equity:
Preferred Stock ($0.10 par value; 5,000,000 shares
authorized; none issued and outstanding) Common stock
($0.10 par value; 50,000,000 shares authorized; 21,120,476
and 20,698,076 shares issued, respectively)................ 2,112 2,070
Additional paid-in-capital................................... 65,985 61,503
Retained earnings............................................ 21,649 4,748
Foreign currency translation adjustment...................... (454) (372)
Treasury stock, at cost (21,691 shares)...................... (290)
-------- --------
Total stockholders' equity............................ 89,002 67,949
-------- --------
Total liabilities and stockholders' equity......... $ 162,760 $140,274
======== ========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 173
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996
---------
1997 (NOTE)
-----------
(UNAUDITED)
<S> <C> <C>
Net sales....................................................... $ 161,286 $ 147,008
Cost of sales................................................... 103,460 92,861
---------- --------
Gross profit.................................................... 57,826 54,147
Operating expenses:
Selling expenses.............................................. 9,598 8,691
General and administrative expenses........................... 13,225 14,113
Art and development costs..................................... 3,891 3,671
Special bonuses............................................... 3,300
---------- --------
Total operating expenses................................. 26,714 29,775
---------- --------
Income from operations................................... 31,112 24,372
Interest expense, net........................................... 2,654 4,569
Other (income) expense, net..................................... (219) (301)
---------- --------
Income before income taxes and minority interests........ 28,677 20,104
Income taxes.................................................... 11,627 767
Minority interests.............................................. 149 1,242
---------- --------
Net income............................................... $ 16,901 $ 18,095
========== ========
Pro forma net income per common share (Note (5))......... $ 16,734
==========
Pro forma weighted average common shares outstanding
(Note (5))............................................ 1,010
==========
Pro forma data (Note(6)):
Income before income taxes.................................... $ 18,862
Pro forma income tax expense.................................. 7,888
--------
Pro forma net income.......................................... $ 10,974
========
</TABLE>
Note: The statement of income for the nine months ended September 30, 1996 has
been derived from the audited consolidated financial statements at that
date.
See accompany notes to consolidated financial statements.
F-33
<PAGE> 174
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996... $2,070 $ 61,503 $ 4,748 $ (372) $67,949
Net income........................ 16,901 16,901
Net proceeds from sale of Common
Stock (Note 3).................. 42 4,482 4,524
Payments to acquire treasury
stock........................... $ (290) (290)
Net change in translation
adjustment...................... (82) (82)
------ ---------- -------- ---------- -------- -------
Balance as of September 30, 1997.. $2,112 $ 65,985 $ 21,649 $ (454) $ (290) $89,002
======= ======== ======== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE> 175
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996
---------
1997 (NOTE)
-----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 16,901 $ 18,095
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 4,505 3,579
Provision for doubtful accounts............................. 1,423 963
Gain on disposal of equipment............................... (29)
Changes in operating assets and liabilities:
Increase in accounts receivable............................. (24,310) (20,442)
Increase in inventories..................................... (3,043) (61)
Decrease in deposits and other current assets............... 2,469 262
Increase in accounts payable, accrued expenses and income
taxes payable............................................. 7,575 (1,029)
Other, net..................................................... 2,988 195
------- -------
Net cash provided by operating activities.............. 8,479 1,562
Cash flows from investing activities:
Capital expenditures........................................... (6,895) (5,574)
Proceeds from disposal of equipment............................ 140
-------
Net cash used in investing activities.................. (6,755) (5,574)
Cash flows from financing activities:
Net proceeds from sale of Common Stock......................... 4,524
Proceeds from loans, notes payable and long-term obligations... 15,620 10,242
Repayment of loans, notes payable and long-term obligations.... (22,208) (2,003)
Repayment of subordinated and other indebtedness due to
stockholders................................................ (182) (3,220)
Payments to acquire treasury stock............................. (290) --
------- -------
Net cash (used in) provided by financing activities.... (2,536) 5,019
Effect of exchange rate changes on cash and cash equivalents... (93) 31
------- -------
Net (decrease) increase in cash and cash equivalents........... (905) 1,038
Cash and cash equivalents at beginning of period............... 1,589 2,492
------- -------
Cash and cash equivalents at end of period..................... $ 684 $ 3,530
======= =======
SUPPLEMENTAL DISCLOSURE:
Interest paid.................................................. $ 2,622 $ 4,970
Taxes paid..................................................... $ 6,612 $ 546
</TABLE>
Supplemental information on non-cash activities:
Capital lease obligations of $59 and $2,074 were incurred during the nine
months ended September 30, 1997 and 1996, respectively.
During September 1996, the Company declared the distribution of $7,600 of
previously provided capital and $13,067 of previously undistributed earnings.
Such amounts were included in subordinated and other indebtedness to
stockholders.
Note: The statement of cash flows for the nine months ended September 30, 1996
has been derived from the audited consolidated financial statements at
that date.
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 176
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE (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 (the "Affiliated Group"). An initial public offering of
4,000,000 shares of the Company's 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 the Affiliated Group 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 members
of the Affiliated Group were operated as Subchapter S corporations for federal
and, where available, state income tax purposes. In connection with the IPO,
such members declared dividends 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 paper and plastic party
goods, accessories and novelty items principally in the United States, Canada
and Europe.
NOTE (2) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries. Investments in less than
majority-owned subsidiaries are accounted for on an equity basis. As a result of
the transfer of ownership between the former stockholders of the Affiliated
Group and Amscan Holdings, certain members of the Affiliated Group terminated
their Subchapter S election on December 18, 1996 and are being taxed as
Subchapter C corporations under federal and certain state income tax
requirements. Such transfer of ownership was accounted for in a manner similar
to a pooling of interests. For the period prior to December 18, 1996, financial
statements are presented on a combined basis. Certain reclassifications have
been made to conform to the current year's presentation.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. The results of operations may be affected by
seasonal factors such as the timing of holidays or industry factors that may be
specific to a particular period, such as movement in and the general level of
raw material costs. For further information, see the financial statements and
footnotes thereto included in the Amscan Holdings annual report on Form 10-K for
the year ended December 31, 1996.
NOTE (3) COMMON STOCK
On January 8, 1997, an additional 422,400 shares of the Company's Common
Stock were sold at $12.00 per share to cover the over-allotment option as
provided for in the underwriting agreement between the Company and the
underwriters associated with the IPO. The proceeds, net of
F-36
<PAGE> 177
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
underwriters' discount, fees and expenses, of $4,523,984 were used to repay
outstanding bank borrowings.
NOTE (4) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods....................................... $45,357 $ 42,127
Raw materials........................................ 3,408 3,863
Work-in-process...................................... 1,708 1,388
------- -------
50,473 47,378
Less: reserve for slow moving and obsolete
inventory.......................................... (1,737) (1,685)
------- -------
$48,736 $ 45,693
======= =======
</TABLE>
Substantially all inventories are valued at the lower of cost, determined
on a first in-first out basis, or market.
NOTE (5) PRO FORMA NET INCOME PER COMMON SHARE
Pro forma net income per common share is computed by dividing net income by
the number of common shares outstanding following the Effective Time (see Note
(7)).
NOTE (6) INCOME TAXES
The consolidated income tax provision for the nine months ended September
30, 1997 was determined based upon an estimate of the Company's consolidated
effective income tax rates for the year ending December 31, 1997. The
differences between the consolidated effective income tax rate and the U.S.
Federal statutory rate are primarily attributable to state income taxes and the
effects of foreign operations.
The amounts shown as income taxes for the nine months ended September 30,
1996 consisted principally of foreign income taxes as most of the members of the
Affiliated Group had elected Subchapter S Corporation status for such period.
Pro forma net income for the nine months ended September 30, 1996 gives effect
to pro forma income tax provisions at an estimated effective tax rate (40.5%)
assuming those members of the Affiliated Group had not elected Subchapter S
corporation status for such periods.
NOTE (7) MERGER TRANSACTION
On August 10, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by Goldman,
Sachs & Co. (collectively, "GSCP"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for a recapitalization of Amscan Holdings in
which Confetti will be merged with and into Amscan Holdings (the "Merger"), with
Amscan Holdings as the surviving corporation.
On December 19, 1997 (the "Effective Time"), the Merger was consummated
pursuant to the Merger Agreement. Confetti was merged with and into the Company,
with the Company as the
F-37
<PAGE> 178
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
surviving corporation. At the Effective Time, each share of the Common Stock,
par value $0.10 per share, of the Company (the "Company Common Stock"), issued
and outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock owned, directly or indirectly, by the Company or by
Confetti) were converted, at the election of each of the Company's stockholders,
into the right to receive from the Company either (A) $16.50 in cash (the "Cash
Consideration") or (B) $9.33 in cash plus a retained interest in the Company
equal to one share of Company Common Stock for every 150,000 shares held by such
stockholder (the "Mixed Consideration"), with fractional shares of Company
Common Stock paid in cash. The Estate of John A. Svenningsen (the "Estate"),
which owned approximately 72% of the outstanding Company Common Stock
immediately prior to the Effective Time, elected to retain almost 10% of the
outstanding shares of Company Common Stock. No stockholder other than the Estate
elected to retain shares. Also pursuant to the Merger Agreement, at the
Effective Time each outstanding share of Common Stock, par value $0.10 per
share, of Confetti ("Confetti Common Stock"), was converted into an equal number
of shares of Company Common Stock as surviving corporation in the Merger.
Pursuant to certain employment arrangements, certain employees of the Company
purchased an aggregate of 10 shares of Company Common Stock following the
Effective Time. Accordingly, in the Merger the 825 shares of Confetti Common
Stock owned by GSCP immediately prior to the Effective Time were converted into
825 shares of Company Common Stock, representing approximately 81.7% of the
1,010 issued and outstanding shares of the Company immediately following the
Effective Time.
The Merger was financed with an equity contribution of approximately $67.5
million (including contributions of Company Common Stock by certain employee
stockholders and including issuances of restricted stock), $117 million from a
senior term loan and $110 million from the issuance of senior subordinated
notes. The senior subordinated notes are guaranteed jointly and severally, fully
and unconditionally, by each of the Company's wholly-owned domestic
subsidiaries, which include Amscan Inc., Trisar, Inc., Am-Source, Inc., SSY
Realty Corp. and JCS Realty Corp.
Non-guarantor companies include the following:
- Amscan Distributors (Canada) Ltd.
- Amscan Holdings Limited
- Amscan (Asia-Pacific) Pty. Ltd.
- Amscan Partyartikel GmbH
- Amscan Svenska AB
- Amscan de Mexico, S.A. de C.V.
F-38
<PAGE> 179
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following consolidating information presents consolidating balance
sheets as of September 30, 1997, and the related consolidating statements of
income and cash flows for the nine-month periods ended September 30, 1997 and
1996 for the combined guarantors and the combined non-guarantors and the
elimination entries necessary to consolidate the entities comprising the
combined companies.
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 111 $ 573 $ 684
Accounts receivable, net...................... 50,253 6,023 56,276
Inventories................................... 40,396 8,340 48,736
Deposits and other current assets............. 8,697 983 9,680
------ ------ ------ ------
Total current assets...................... 99,457 15,919 115,376
Property, plant and equipment, net............ 35,470 1,687 37,157
Intangible assets, net........................ 7,254 286 7,540
Other assets, net............................. 14,490 $(11,803) 2,687
------ ------ ------ ------
Total assets.............................. $156,671 $ 17,892 $(11,803) $162,760
====== ====== ====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable $ 9,550 $ 470 $ 10,020
Accounts payable.............................. 10,471 682 11,153
Accrued expenses.............................. 5,872 1,445 7,317
Income taxes payable.......................... 5,953 505 6,458
Current portion of long-term obligations...... 5,489 67 5,556
------ ------ ------ ------
Total current liabilities................. 37,335 3,169 40,504
Long-term obligations excluding current
portion....................................... 24,749 79 24,828
Deferred tax liabilities........................ 5,585 5,585
Other........................................... 6,915 $ (4,074) 2,841
------ ------ ------ ------
Total liabilities......................... 67,669 10,163 (4,074) 73,758
Stockholders' equity:
Preferred Stock............................... --
Common Stock.................................. 2,112 339 (339) 2,112
Additional paid-in capital.................... 65,985 458 (458) 65,985
Retained earnings............................. 21,649 7,322 (7,322) 21,649
Foreign currency translation adjustment....... (454) (390) 390 (454)
Treasury stock, at cost....................... (290) (290)
------ ------ ------ ------
Total stockholders' equity................ 89,002 7,729 (7,729) 89,002
------ ------ ------ ------
Total liabilities and stockholders'
equity............................... $156,671 $ 17,892 $(11,803) $162,760
====== ====== ====== ======
</TABLE>
F-39
<PAGE> 180
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $151,378 $ 19,054 $ (9,146) $161,286
Cost of sales............................ 100,485 12,803 (9,828) 103,460
-------- ------- ------- --------
Gross profit........................... 50,893 6,251 682 57,826
Operating expenses:
Selling expenses....................... 7,257 2,341 9,598
General and administrative expenses.... 10,654 3,045 (474) 13,225
Art and development costs.............. 3,891 3,891
-------- ------- ------- --------
Total operating expenses.......... 21,802 5,386 (474) 26,714
-------- ------- ------- --------
Income from operations......... 29,091 865 1,156 31,112
Interest expense, net.................... 2,615 39 2,654
Other income, net........................ (1,312) (6) 1,099 (219)
-------- ------- ------- --------
Income before income taxes and
minority interests........... 27,788 832 57 28,677
Income taxes............................. 11,308 273 46 11,627
Minority interests....................... 149 149
-------- ------- ------- --------
Net income..................... $ 16,480 $ 410 $ 11 $ 16,901
======== ======= ======= ========
</TABLE>
F-40
<PAGE> 181
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................ $136,816 $ 17,198 $ (7,006) $147,008
Cost of sales............................ 88,326 10,644 (6,109) 92,861
-------- ------- ------- --------
Gross profit........................... 48,490 6,554 (897) 54,147
Operating expenses:
Selling expenses....................... 7,168 1,523 8,691
General and administrative expenses.... 11,025 3,628 (540) 14,113
Art and development costs.............. 3,671 3,671
Special bonuses........................ 3,300 3,300
-------- ------- ------- --------
Total operating expenses....... 25,164 5,151 (540) 29,775
-------- ------- ------- --------
Income from operations......... 23,326 1,403 (357) 24,372
Interest expense, net.................... 4,528 41 4,569
Other income, net........................ (1,348) (22) 1,069 (301)
-------- ------- ------- --------
Income before income taxes and
minority interests........... 20,146 1,384 (1,426) 20,104
Income taxes............................. 268 499 767
Minority interests....................... 1,138 104 1,242
-------- ------- ------- --------
Net income..................... $ 18,740 $ 781 $ (1,426) $ 18,095
======== ======= ======= ========
Pro forma data (Note (6)):
Income before income taxes............. $ 18,862
Pro forma income tax expense........... 7,888
--------
Pro forma net income........... $ 10,974
========
</TABLE>
F-41
<PAGE> 182
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 16,480 $ 410 $ 11 $ 16,901
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 4,233 272 4,505
Provision for doubtful accounts........... 1,116 307 1,423
Gain on disposal of property and
equipment.............................. (29) (29)
Changes in operating assets and
liabilities, net of acquisitions:
Increase in accounts receivable........... (22,764) (1,546) (24,310)
Increase in inventories................... (232) (2,748) (63) (3,043)
Decrease (increase) in deposits and other
assets, net............................ 2,841 (372) 2,469
Increase in accounts payable and accrued
expenses............................... 6,757 772 46 7,575
Other, net...................................... 121 2,880 (13) 2,988
--------- -------- ----- --------
Net cash provided by (used in) operating
activities............................. 8,523 (25) (19) 8,479
Cash flows from investing activities:
Capital expenditures.......................... (6,216) (679) (6,895)
Proceeds from disposal of equipment........... 140 140
--------- -------- ----- --------
Net cash used in investing activities......... (6,076) (679) (6,755)
--------- -------- ----- --------
Cash flows from financing activities:
Net proceeds from sale of Common Stock........ 4,524 4,524
Proceeds from loans, notes payable and long
term obligations............................ 15,480 140 15,620
Repayment of loans, notes payable and long
term obligations............................ (22,154) (54) (22,208)
Repayment of subordinated and other
indebtedness to stockholder................. (181) (1) (182)
Payments to acquire treasury stock............ (290) (290)
--------- -------- ----- --------
Net cash provided by (used in) financing
activities............................. (2,621) 85 (2,536)
Effect of exchange rate changes on cash......... 13 (125) 19 (93)
--------- -------- ----- --------
Net decrease in cash and cash
equivalents............................ (161) (744) -- (905)
Cash and cash equivalents at beginning of
period........................................ 272 1,317 1,589
--------- -------- ----- --------
Cash and cash equivalents at end of period...... $ 111 $ 573 -- $ 684
========= ======== ===== ========
</TABLE>
F-42
<PAGE> 183
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AMSCAN
HOLDINGS AND COMBINED
COMBINED NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 18,740 $ 781 $ (1,426) $ 18,095
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization................. 3,313 266 3,579
Provision for doubtful accounts............... 808 155 963
Changes in operating assets and liabilities:
Increase in accounts receivable............... (18,826) (1,616) (20,442)
Increase in inventories....................... (244) (1,243) 1,426 (61)
Decrease (increase) in deposits and other
current assets.............................. 416 (154) 262
(Increase) decrease in other assets........... (263) 969 706
(Decrease) increase in accounts payable,
accrued expenses and income taxes payable... (1,586) 557 (1,029)
Other, net...................................... (511) (511)
-------- ------- ------- --------
Net cash provided by (used in) operating
activities............................. 1,847 (285) -- 1,562
Cash flows from investing activities:
Capital expenditures.......................... (5,166) (408) (5,574)
Proceeds from disposal of property and
equipment...................................
-------- ------- ------- --------
Net cash used in investing activities..... (5,166) (408) (5,574)
Cash flows from financing activities:...........
Proceeds from loans, notes payable and long
term obligations............................ 8,771 1,471 10,242
Repayment of loans, notes payable and long
term obligations............................ (1,819) (184) (2,003)
Repayment of subordinated and other
indebtedness to stockholder................. (2,941) (279) (3,220)
-------- ------- ------- --------
Net cash provided by financing
activities............................. 4,011 1,008 5,019
Effect of exchange rate changes on cash and cash
equivalents................................... 15 16 31
-------- ------- ------- --------
Net increase in cash and cash equivalents....... 707 331 1,038
Cash and cash equivalents at beginning of
period........................................ 1,593 899 2,492
-------- ------- ------- --------
Cash and cash equivalents at end of period...... $ 2,300 $ 1,230 -- $ 3,530
======== ======= ======= ========
</TABLE>
F-43
<PAGE> 184
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (8) OTHER MATTERS
On July 7, 1997, a customer accounting for approximately 2% of the
Company's consolidated sales for the nine months ended September 30, 1997 and
the year ended December 31, 1996, filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code. According to publicly available
documents, the customer is currently operating as a debtor-in-possession and
plans to reorganize pursuant to the Bankruptcy Code. At September 30, 1997,
amounts receivable from the customer which totaled approximately $1.8 million,
have been substantially provided for in the Company's allowance for doubtful
accounts. The Company does not believe the potential loss of this customer will
have a material adverse effect on the Company's future results of operations or
its financial condition.
During September 1997, the Company entered into an agreement to convert
$4.0 million of trade accounts receivable from a customer into an equity
interest. The Company subsequently transferred this interest to the Estate for
(i) a cash payment of $1.0 million, (ii) satisfaction of approximately $2.0
million of certain debts and future lease obligations owed to the Estate, and
(iii) substantially all of the assets of Ya Otta Pinata ("Ya Otta"), a
California corporation 100% owned by the Estate, at a valuation of approximately
$1.0 million.
F-44
<PAGE> 185
=========================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
OR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................... iv
Prospectus Summary....................... 1
Risk Factors............................. 20
The Exchange Offer....................... 27
Certain Federal Income Tax Consequences
of the Exchange Offer.................. 35
The Transaction.......................... 36
Capitalization........................... 38
Transaction Pro Forma Consolidated
Financial Data (Unaudited)............. 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 52
Business................................. 67
Management............................... 77
Ownership of Capital Stock............... 89
Description of Senior Debt............... 91
Description of Exchange Notes............ 94
Description of Certain Federal Income Tax
Consequences of an Investment in the
Exchange Notes......................... 129
Plan of Distribution..................... 133
Experts.................................. 133
Validity of the Exchange Notes........... 133
Index to Financial Statements............ F-1
Independent Auditors' Report............. F-2
</TABLE>
=========================================================
=========================================================
AMSCAN HOLDINGS, INC.
OFFER TO EXCHANGE
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007
($110,000,000 PRINCIPAL AMOUNT)
FOR
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
------------------------------
[AMSCAN LOGO]
------------------------------
=========================================================
<PAGE> 186
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity at another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that such person's conduct was
unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify any
person who was or is a party or threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted under similar
standards, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 of the DGCL also provides that to the extent that a director,
officer, employee or agent of a corporation is successful on the merits or
otherwise in the defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
In accordance with Section 145 of the DGCL, the Registrant's By-laws
provide that the Registrant will indemnify, to the maximum extent permitted by
applicable law, any person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including any action
by or in the right of the Registrant to procure a judgment in its favor, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Registrant or is or was serving at the request of the Registrant as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
The Registrant's By-laws also provide that expenses incurred by an officer
or director in defending an action, suit or proceeding will be paid by the
Registrant in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person seeking
indemnification to repay such amount in the event that it shall be ultimately
determined that such person is not entitled to be indemnified by the Registrant
by law or pursuant to the Registrant's By-laws. The Registrant's By-laws define
the term "expenses" to include, without limitation, costs of and expenses
incurred in connection with or in preparation for litigation,
II-1
<PAGE> 187
attorneys' fees, judgments, fines, penalties, amounts paid in settlement, excise
taxes in respect of any employee benefit plan of the Registrant, and interest on
any of the foregoing.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(regarding certain illegal distributions) or (iv) for any transaction from which
the director derived an improper personal benefit. The Registrant's Certificate
of Incorporation provides that the personal liability of the Registrant's
directors to the Registrant or any of its stockholders for monetary damages for
breach of fiduciary duty by such director as a director is limited to the
fullest extent permitted by Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, by and among Amscan Holdings, Inc. and Confetti
Acquisition, Inc., dated as of August 10, 1997.
3.1 Certificate of Incorporation of Amscan Holdings, Inc.
3.2 Amended By-Laws of Amscan Holdings, Inc.
3.3 Certificate of Incorporation of Amscan Inc.
3.4 By-Laws of Amscan Inc.
3.5 Restated Articles of Incorporation of Trisar, Inc.
3.6 By-Laws of Trisar, Inc.
3.7 Original Articles of Incorporation of Am-Source, Inc.
3.8 By-Laws of Am-Source Inc.
3.9 Certificate of Incorporation of SSY Realty Corp.
3.10 By-Laws of SSY Realty Corp.
3.11 Certificate of Incorporation of JCS Realty Corp.
3.12 By-Laws of JCS Realty Corp.
4.1 Indenture, dated as of December 19, 1997, by and among the Company, the Guarantors
named therein and IBJ Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 Exchange and Registration Rights Agreement, dated as of December 19, 1997, by and
among the Company and Goldman, Sachs & Co.
*10.2 Revolving Loan Credit Agreement, dated as of December 19, 1997, among the Company,
Goldman, Sachs Credit Partners L.P., as Arranger and Syndication Agent, Fleet
National Bank as Administrative Agent and the respective lenders signatory thereto.*
*10.3 AXEL Credit Agreement, dated as of December 19, 1997, among the Company, Goldman,
Sachs Credit Partners L.P., as Arranger and Syndication Agent, Fleet National Bank
as Administrative Agent and the respective lenders signatory thereto.*
10.4 Stockholders' Agreement, dated as of December 19, 1997, by and among the Company and
the Stockholders thereto.
10.5 Employment Agreement, dated as of August 10, 1997, by and among the Company and
Gerald C. Rittenberg.
</TABLE>
II-2
<PAGE> 188
<TABLE>
<C> <S>
10.6 Employment Agreement, dated as of August 10, 1997, by and among the Company and
James M. Harrison.
10.7 Amscan Holdings, Inc. 1997 Stock Incentive Plan (contained in Exhibit 10.4).
12.1 Statement re computation of ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ Schroder
Bank & Trust Company under the Trust Indenture Act of 1939.
99.1 Form of Letter of Transmittal for the 9 7/8% Senior Subordinated Notes due 2007.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such posteffective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE> 189
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-4
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 2, 1998.
AMSCAN HOLDINGS, INC.
By: /s/ JAMES M. HARRISON
------------------------------------
Name: James M. Harrison
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 2, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
/s/ GERALD C. RITTENBERG Chief Executive Officer
- ------------------------------------------
Gerald C. Rittenberg
/s/ JAMES M. HARRISON President, Chief Financial Officer and Treasurer
- ------------------------------------------
James M. Harrison
/s/ MICHAEL A. CORREALE Secretary and Controller
- ------------------------------------------
Michael A. Correale
/s/ TERENCE M. O'TOOLE Chairman of the Board and Director
- ------------------------------------------
Terence M. O'Toole
/s/ SANJEEV K. MEHRA Director
- ------------------------------------------
Sanjeev K. Mehra
/s/ JOSEPH P. DISABATO Director
- ------------------------------------------
Joseph P. DiSabato
</TABLE>
II-5
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 2, 1998.
AMSCAN INC.
By: /s/ JAMES M. HARRISON
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 2, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
/s/ GERALD C. RITTENBERG President and Director
- ------------------------------------------
Gerald C. Rittenberg
/s/ JAMES M. HARRISON Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
/s/ MICHAEL A. CORREALE Director
- ------------------------------------------
Michael A. Correale
</TABLE>
II-6
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 2, 1998.
TRISAR, INC.
By: /s/ JAMES M. HARRISON
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 2, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
/s/ GERALD C. RITTENBERG President and Director
- ------------------------------------------
Gerald C. Rittenberg
/s/ JAMES M. HARRISON Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
/s/ MICHAEL A. CORREALE Director
- ------------------------------------------
Michael A. Correale
</TABLE>
II-7
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 2, 1998.
AM-SOURCE, INC.
By: /s/ JAMES M. HARRISON
--------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 2, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
/s/ GERALD C. RITTENBERG President and Director
- ------------------------------------------
Gerald C. Rittenberg
/s/ JAMES M. HARRISON Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
/s/ MICHAEL A. CORREALE Director
- ------------------------------------------
Michael A. Correale
</TABLE>
II-8
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 2, 1998.
SSY REALTY CORP.
By: /s/ JAMES M. HARRISON
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 2, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
/s/ GERALD C. RITTENBERG President and Director
- ------------------------------------------
Gerald C. Rittenberg
/s/ JAMES M. HARRISON Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
/s/ MICHAEL A. CORREALE Director
- ------------------------------------------
Michael A. Correale
</TABLE>
II-9
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 2, 1998.
JCS REALTY CORP.
By: /s/ JAMES M. HARRISON
------------------------------------
Name: James M. Harrison
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on February 2, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------ ------------------------------------------------
<C> <S>
/s/ GERALD C. RITTENBERG President and Director
- ------------------------------------------
Gerald C. Rittenberg
/s/ JAMES M. HARRISON Treasurer, Secretary and Director
- ------------------------------------------
James M. Harrison
/s/ MICHAEL A. CORREALE Director
- ------------------------------------------
Michael A. Correale
</TABLE>
II-10
<PAGE> 196
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, by and among Amscan Holdings, Inc. and
Confetti Acquisition, Inc., dated as of August 10, 1997. ...............
3.1 Certificate of Incorporation of Amscan Holdings, Inc. ..................
3.2 Amended By-Laws of Amscan Holdings, Inc. ...............................
3.3 Certificate of Incorporation of Amscan Inc. ............................
3.4 By-Laws of Amscan Inc. .................................................
3.5 Restated Articles of Incorporation of Trisar, Inc. .....................
3.6 By-Laws of Trisar, Inc. ................................................
3.7 Original Articles of Incorporation of Am-Source, Inc. ..................
3.8 By-Laws of Am-Source Inc. ..............................................
3.9 Certificate of Incorporation of SSY Realty Corp. .......................
3.10 By-Laws of SSY Realty Corp. ............................................
3.11 Certificate of Incorporation of JCS Realty Corp. .......................
3.12 By-Laws of JCS Realty Corp. ............................................
4.1 Indenture, dated as of December 19, 1997, by and among the Company, the
Guarantors named therein and IBJ Schroder Bank & Trust Company with
respect to the Senior Subordinated Notes. ..............................
5.1 Opinion of Wachtell, Lipton, Rosen & Katz. .............................
10.1 Exchange and Registration Rights Agreement, dated as of December 19,
1997, by and among the Company and Goldman, Sachs & Co. ................
*10.2 Revolving Loan Credit Agreement, dated as of December 19, 1997, among
the Company, Goldman, Sachs Credit Partners L.P., as Arranger and
Syndication Agent, Fleet National Bank as Administrative Agent and the
respective lenders signatory thereto.*..................................
*10.3 AXEL Credit Agreement, dated as of December 19, 1997, among the Com-
pany, Goldman, Sachs Credit Partners L.P., as Arranger and Syndication
Agent, Fleet National Bank as Administrative Agent and the respective
lenders signatory thereto.*.............................................
10.4 Stockholders' Agreement, dated as of December 19, 1997, by and among the
Company and the Stockholders thereto. ..................................
10.5 Employment Agreement, dated as of August 10, 1997, by and among the
Company and Gerald C. Rittenberg. ......................................
10.6 Employment Agreement, dated as of August 10, 1997, by and among the
Company and James M. Harrison. .........................................
10.7 Amscan Holdings, Inc. 1997 Stock Incentive Plan (contained in Exhibit
10.4). .................................................................
12.1 Statement re computation of ratios. ....................................
21.1 Subsidiaries of the Company. ...........................................
23.1 Consent of KPMG Peat Marwick LLP. ......................................
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit
5.1). ..................................................................
24.1 Powers of Attorney. ....................................................
</TABLE>
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<TABLE>
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SEQUENTIALLY
NUMBERED
PAGE
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25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ
Schroder Bank & Trust Company under the Trust Indenture Act of 1939. ...
99.1 Form of Letter of Transmittal for the 9 7/8% Senior Subordinated Notes
due 2007. ..............................................................
99.2 Form of Notice of Guaranteed Delivery. .................................
</TABLE>
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* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
CONFETTI ACQUISITION, INC.
AND
AMSCAN HOLDINGS, INC.
DATED AS OF AUGUST 10, 1997
------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE 1
THE MERGER
SECTION 1.1 The Merger............................................................ A-1
SECTION 1.2 Closing............................................................... A-2
SECTION 1.3 Effective Time........................................................ A-2
SECTION 1.4 Effects of the Merger................................................. A-2
SECTION 1.5 Certificate of Incorporation; By-Laws................................. A-2
SECTION 1.6 Directors and Officers................................................ A-2
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock............................................... A-2
SECTION 2.2 Dissenting Share...................................................... A-3
SECTION 2.3 Mixed Consideration Elections......................................... A-3
SECTION 2.4 Treatment of Options.................................................. A-4
SECTION 2.5 Surrender of Shares; Transfer Books................................... A-5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification; Subsidiaries.......................... A-7
SECTION 3.2 Certificates of Incorporation and By-Laws............................. A-7
SECTION 3.3 Capitalization........................................................ A-7
SECTION 3.4 Authority Relative to This Agreement.................................. A-8
SECTION 3.5 No Conflict; Required Filings and Consents............................ A-9
SECTION 3.6 Compliance............................................................ A-10
SECTION 3.7 SEC Filings; Financial Statements..................................... A-10
SECTION 3.8 Absence of Certain Changes or Events.................................. A-10
SECTION 3.9 Absence of Litigation................................................. A-10
SECTION 3.10 Properties............................................................ A-11
SECTION 3.11 Employee Benefit Plans................................................ A-12
SECTION 3.12 Tax Matters........................................................... A-13
SECTION 3.13 Environmental Laws.................................................... A-14
SECTION 3.14 Intellectual Property................................................. A-15
SECTION 3.15 Labor Matters......................................................... A-15
SECTION 3.16 Business Relationships; No Restrictive Agreements..................... A-16
SECTION 3.17 Form S-4; Proxy Statement............................................. A-16
SECTION 3.18 Brokers............................................................... A-16
SECTION 3.19 Opinion of Company Financial Advisor.................................. A-16
SECTION 3.20 Board Recommendation.................................................. A-16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF NEWCO
SECTION 4.1 Corporate Organization................................................ A-17
SECTION 4.2 Authority Relative to This Agreement.................................. A-17
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SECTION 4.3.. No Conflict; Required Filings and Consents............................ A-17
SECTION 4.4 Form S-4; Proxy Statement............................................. A-18
SECTION 4.5 Brokers............................................................... A-18
SECTION 4.6 Financing............................................................. A-18
SECTION 4.7 Newco Not an Interested Stockholder................................... A-18
SECTION 4.8 Solvency of the Company Following the Merger.......................... A-18
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business Pending the Merger................................ A-18
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting.................................................. A-20
SECTION 6.2 Form S-4 and Proxy Statement.......................................... A-20
SECTION 6.3 Access to Information; Confidentiality................................ A-21
SECTION 6.4 No Solicitation....................................................... A-22
SECTION 6.5 ESOP.................................................................. A-22
SECTION 6.6 Directors' and Officers' Indemnification and Insurance................ A-22
SECTION 6.7 Notification of Certain Matters....................................... A-23
SECTION 6.8 Further Action; Best Efforts.......................................... A-23
SECTION 6.9 Public Announcements.................................................. A-25
SECTION 6.10 Disposition of Litigation............................................. A-25
SECTION 6.11 Affiliates............................................................ A-25
SECTION 6.12 Stop Transfer Order................................................... A-25
SECTION 6.13 Transfer Taxes........................................................ A-25
SECTION 6.14 Employee Plans and Benefits........................................... A-25
ARTICLE 7
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger........... A-26
SECTION 7.2 Conditions to Obligation of Newco..................................... A-26
SECTION 7.3 Conditions to Obligation of the Company............................... A-27
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination........................................................... A-28
SECTION 8.2 Effect of Termination................................................. A-28
SECTION 8.3 Fees and Expenses..................................................... A-28
SECTION 8.4 Amendment............................................................. A-29
SECTION 8.5 Waiver................................................................ A-29
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements............ A-29
SECTION 9.2 Notices............................................................... A-29
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SECTION 9.3 Certain Definitions................................................... A-30
SECTION 9.4 Severability.......................................................... A-31
SECTION 9.5 Entire Agreement; Assignment.......................................... A-31
SECTION 9.6 Parties in Interest................................................... A-31
SECTION 9.7 Governing Law......................................................... A-31
SECTION 9.8 Headings.............................................................. A-31
SECTION 9.9 Counterparts.......................................................... A-31
Annex A -- Form of Affiliate Letter
Exhibit A -- Certificate of Incorporation of Amscan Holdings, Inc.
</TABLE>
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<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 10, 1997 (the
"Agreement"), between Confetti Acquisition, Inc., a Delaware corporation
("Newco"), and Amscan Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company and Newco have
determined that the merger of Newco with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement, based
on the availability of the Cash Election Price to any stockholder who so elects,
would be fair to and in the best interests of their respective stockholders, and
such Boards of Directors have approved the Merger, pursuant to which each share
of common stock, par value $.10 per share (the "Company Common Stock"), issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3) (other than (a) shares of Company Common Stock owned, directly or
indirectly, by the Company or any Subsidiary (as defined in Section 9.3) of the
Company or by Newco or any Subsidiary of Newco and (b) Dissenting Shares (as
defined in Section 2.2)), will be converted into either (A) at the election of
the holder thereof and subject to the terms hereof, the right to retain one-one
hundred fifty thousandth (1/150,000) of each share of their Company Common Stock
and the right to receive $9.33 per share in cash or (B) the right to receive
$16.50 per share in cash;
WHEREAS, the Merger and this Agreement require the affirmative vote by the
holders of a majority of the shares of the Company Common Stock outstanding and
entitled to vote for the adoption and approval thereof (the "Company Stockholder
Approval");
WHEREAS, Newco is a newly formed corporation organized at the direction of
GS Capital Partners II, L.P.;
WHEREAS, as a condition to Newco's willingness to enter into this Agreement
and consummate the transactions contemplated hereby, Newco has required that the
"Stockholder" (as defined in the Voting Agreement (as defined below)) agree,
among other things, to vote all shares of Company Common Stock beneficially
owned by the Stockholder and certain related persons (as defined in Section 9.3)
in accordance with the Voting Agreement and comply with the other provisions of
the Voting Agreement, and to make a Mixed Consideration Election (as defined
herein) with respect to all shares of Company Common Stock owned by the
Stockholder; and in order to induce Newco to enter into this Agreement, the
Stockholder will execute and deliver the Voting Agreement, dated as of the date
hereof, among Newco, the Estate of John A. Svenningsen, and Christine
Svenningsen (the "Voting Agreement");
WHEREAS, in connection with this Agreement, Newco and certain employees of
the Company entered into certain agreements as of the date hereof relating to
their employment with the Company following the Effective Time and relating to
their ownership of the capital stock of Newco (collectively, the "Employment
Arrangements");
WHEREAS, certain terms used herein are defined in Section 9.3;
WHEREAS, Newco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), at the Effective Time
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(as defined in Section 1.3), Newco shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Newco shall cease
and the Company shall survive the Merger.
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article 7, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on the second business day after satisfaction or waiver of the
conditions set forth in Article 7 (the "Closing Date"), at the offices of
Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019,
unless another date, time or place is agreed to in writing by the parties
hereto.
SECTION 1.3 Effective Time. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article 7, the parties hereto shall
cause the Merger to be consummated by filing this Agreement or a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as required by and executed in accordance with the
relevant provisions of the DGCL (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (or
such later time as is specified in the Certificate of Merger) being the
"Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing and subject thereto, at the Effective Time all the property,
rights, privileges, immunities, powers and franchises of the Company and Newco
shall vest in the Company following the Merger, and all debts, liabilities and
duties of the Company and Newco shall become the debts, liabilities and duties
of the Company following the Merger.
SECTION 1.5 Certificate of Incorporation; By-Laws. (a) At the Effective
Time and without any further action on the part of the Company or Newco or their
respective stockholders, the certificate of incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be amended and restated so
as to read in its entirety in the form set forth as Exhibit A hereto and, as so
amended, until thereafter further amended as provided therein and under the
DGCL, it shall be the certificate of incorporation of the Company following the
Merger.
(b) At the Effective Time and without any further action on the part of the
Company or Newco or their respective stockholders, the by-laws of Newco as in
effect immediately prior to the Effective Time shall be the by-laws of the
Company following the Merger and thereafter may be amended or repealed in
accordance with their terms and the certificate of incorporation of the Company
following the Merger and as provided under the DGCL.
SECTION 1.6 Directors and Officers. The directors of Newco immediately
prior to the Effective Time shall be the initial directors of the Company
following the Merger, each to hold office in accordance with the certificate of
incorporation and by-laws of the Company following the Merger, and the officers
of the Company immediately prior to the Effective Time shall be the initial
officers of the Company following the Merger, in each case until their
respective successors are duly elected or appointed (as the case may be) and
qualified.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, Newco or any
holder of any shares of Company Common Stock or any shares of capital stock of
Newco:
(a) Common Stock of Newco. Each share of common stock, par value $.10
per share, of Newco ("Newco Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into a number of
fully paid and nonassessable shares of the common stock, par value $.10 per
share, of the Company following the Merger equal to the quotient of (i) 900
divided by (ii) the number of shares of Newco Common Stock outstanding
immediately prior to the Effective Time.
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<PAGE> 7
(b) Cancellation of Treasury Stock and Newco-Owned Company Common
Stock. Each share of Company Common Stock that, immediately prior to the
Effective Time, is owned by the Company or by any Subsidiary of the
Company, and each share of Company Common Stock that, immediately prior to
the Effective Time, is owned by Newco or any Subsidiary of Newco shall
automatically be cancelled and retired and shall cease to exist, and no
cash, Company Common Stock or other consideration shall be delivered or
deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein, each issued and outstanding share of Company Common Stock (other
than any such shares to be cancelled pursuant to Section 2.1(b) and any
Dissenting Shares (as defined in Section 2.2)) shall be converted into the
following (the "Merger Consideration"):
(i) for each such share of Company Common Stock with respect to
which an election to retain Company Common Stock has been effectively
made and not revoked or lost, pursuant to Section 2.3 ("Electing
Shares"), the right to retain one-one hundred fifty thousandth
(1/150,000) of a fully paid and nonassessable share of Company Common
Stock and the right to receive in cash from the Company following the
Merger an amount equal to $9.33 (such Company Common Stock and cash,
together, being the "Mixed Consideration"); or
(ii) for each such share of Company Common Stock, other than
Electing Shares, the right to receive in cash from the Company following
the Merger an amount equal to $16.50 (the "Cash Election Price").
(d) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than those shares issued
pursuant to Section 2.1(a) (the "New Shares") and those shares retained
pursuant to Section 2.1(c)(i) after giving effect to Section 2.5(e) (the
"Retained Shares")) shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock (other
than New Shares and Retained Shares) shall, to the extent such certificate
represents such shares, cease to have any rights with respect thereto,
except the right to receive cash, including cash in lieu of fractional
shares of Company Common Stock, to be issued or paid in consideration
therefor upon surrender of such certificate in accordance with Section 2.5.
SECTION 2.2 Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who have not voted in favor of or consented to the Merger and who
shall have delivered a written demand for appraisal of such shares in the time
and manner provided in Section 262 of the DGCL and shall not have failed to
perfect or shall not have effectively withdrawn or lost their rights to
appraisal and payment under the DGCL (the "Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration, but shall be
entitled to receive the consideration as shall be determined pursuant to Section
262 of the DGCL; provided, however, that, if any such holder shall have failed
to perfect or shall have effectively withdrawn or lost his, her or its right to
appraisal and payment under the DGCL, such holder's shares of Company Common
Stock shall thereupon be deemed to have been converted, at the Effective Time,
into the right to receive the Merger Consideration set forth in Section
2.1(c)(ii) of this Agreement, without any interest thereon.
(b) The Company shall give Newco (i) prompt notice of any demands for
appraisal pursuant to Section 262 received by the Company, withdrawals of such
demands and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Newco, make any payment with respect to
any such demands for appraisal or offer to settle or settle any such demands.
SECTION 2.3 Mixed Consideration Elections. (a) Each person who, on or
prior to the Election Date referred to in (c) below, is a record holder of
shares of Company Common Stock will be entitled, with respect
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<PAGE> 8
to all or any portion of his shares, to make an unconditional election (a "Mixed
Election") on or prior to such Election Date to retain and receive, as
applicable, Mixed Consideration, on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.17), Newco shall appoint a bank or trust company to act as exchange agent (the
"Exchange Agent") for the payment of the Merger Consideration.
(c) Newco shall prepare and mail a form of election, which form shall be
subject to the reasonable approval of the Company (the "Form of Election"), with
the Proxy Statement to the record holders of Company Common Stock as of the
record date for the Stockholders Meeting (as defined in Section 6.1), which Form
of Election shall be used by each record holder of shares of Company Common
Stock who wishes to elect to retain and receive, as applicable, Mixed
Consideration for any or all shares of Company Common Stock held by such holder.
The Company will use its best efforts to make the Form of Election and the Proxy
Statement available to all persons who become holders of Company Common Stock
during the period between such record date and the Election Date referred to
below. Any such holder's election to retain and receive, as applicable, Mixed
Consideration shall have been properly made only if the Exchange Agent shall
have received at its designated office, by 5:00 p.m., New York City time, on the
business day (the "Election Date") next preceding the date of the Stockholders
Meeting, a Form of Election properly completed and signed and accompanied by
certificates for the shares of Company Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by an appropriate guarantee of delivery
of such certificates as set forth in such Form of Election from a firm which is
a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within three NASDAQ
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder after submitting
it to the Exchange Agent only by written notice received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Election Date (which shall be the
record date for determination of stockholders entitled to make the Mixed
Election), unless Newco and such stockholder agree otherwise. In addition, all
Forms of Election shall automatically be revoked if the Exchange Agent is
notified in writing by Newco and the Company that the Merger has been abandoned.
If a Form of Election is revoked, the certificate or certificates (or guarantees
of delivery, as appropriate) for the shares of Company Common Stock to which
such Form of Election relates shall be promptly returned to the stockholder
submitting the same to the Exchange Agent.
(e) The good faith determination of the Exchange Agent as to whether or not
elections to retain and receive, as applicable, Mixed Consideration have been
properly made or revoked pursuant to this Section 2.3 with respect to shares of
Company Common Stock, and as to when elections and revocations were received by
it, shall be binding. If the Exchange Agent determines that any election to
retain and receive, as applicable, Mixed Consideration was not properly made
with respect to shares of Company Common Stock, such shares shall be treated by
the Exchange Agent as shares which were not Electing Shares at the Effective
Time, and such shares shall be exchanged in the Merger for cash pursuant to
Section 2.1(c)(ii). The Exchange Agent may, with the mutual agreement of Newco
and the Company, make such rules as are consistent with this Section 2.3 for the
implementation of the elections provided for herein as shall be necessary or
desirable fully to effect such elections.
SECTION 2.4 Treatment of Options. (a) Except as otherwise agreed by Newco
and any such holder of an Option (as defined below) prior to the Effective Time,
including pursuant to the Employment Arrangements, immediately prior to the
Effective Time, each outstanding stock option held by any current or former
employee or director (an "Option") granted under the 1996 Stock Option Plan for
Key Employees (the "Stock Plan"), whether or not then exercisable, shall be
cancelled by the Company, and except as otherwise agreed by the Company, Newco
and the holder, the holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company in consideration for
such cancellation an amount in cash equal to the product of (a) the number of
shares of Company Common Stock previously subject to such Option and (b) the
excess, if any, of the Cash Election Price over the per share exercise price
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<PAGE> 9
of the shares of Company Common Stock previously subject to such Option, reduced
by the amount of any withholding or other taxes required by law to be withheld
(the "Option Cash-Out Amount").
(b) The Company shall use its reasonable best efforts to take all such
action as is necessary prior to the Effective Time to terminate the Stock Plan
so that on and after the Effective Time no current or former employee or
director shall have any Option to purchase shares of Company Common Stock or any
other equity interest in the Company under the Stock Plan and to provide that
from and after the Effective Time, to the extent any Option has not been
cancelled as contemplated by Section 2.4(a), upon exercise of any such Option,
the holder thereof shall be entitled to receive only the Option Cash-Out Amount.
The Company shall use its reasonable best efforts to obtain any consents
necessary to release the Company from any liability in respect of any Option.
SECTION 2.5 Surrender of Shares; Transfer Books. (a) Exchange
Agent. Following the Effective Time, the Company shall deposit with the
Exchange Agent, for the benefit of the holders of shares of Company Common
Stock, as and when needed, the cash portion of the Merger Consideration for
exchange in accordance with this Article 2. Such funds shall be invested by the
Exchange Agent as directed by the Company, provided that such investments shall
be (i) securities issued or directly and fully guaranteed or insured by the
United Stated government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (ii)
certificates of deposit, eurodollar time deposits and bankers' acceptances with
maturities not exceeding six months and overnight bank deposits with any
commercial bank, depository institution or trust company incorporated or doing
business under the laws of the United States of America, any state thereof or
the District of Columbia, provided that such commercial bank, depository
institution or trust company has, at the time of investment, (A) capital and
surplus exceeding $250 million and (B) outstanding short-term debt securities
which are rated at least A-1 by Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.
or carry an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease to publish ratings of investments, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clauses (i) and (ii) above entered into
with any financial institution meeting the qualifications specified in clause
(ii) above, (iv) commercial paper having a rating in the highest rating
categories from Standard & Poor's Rating Group Division of The McGraw-Hill
Companies, Inc. or Moody's Investors Service, Inc. or carrying an equivalent
rating by a nationally recognized rating agency if both of the two named rating
agencies cease to publish ratings of investments and in each case maturing
within six months after the date of acquisition and (v) money market mutual or
similar funds having assets in excess of $1 billion. Any net profit resulting
from, or interest or income produced by, such investments will be payable to the
Company upon the Company's request.
(b) Exchange Procedures for Shares of Company Common Stock. As soon as
practicable after the Effective Time, each holder of an outstanding certificate
or certificates which prior thereto represented shares of Company Common Stock
shall, upon surrender to the Exchange Agent of such certificate or certificates
and acceptance thereof by the Exchange Agent, be entitled to a certificate or
certificates representing the number of full shares of Company Common Stock, if
any, to be retained by the holder thereof pursuant to this Agreement and the
amount of cash, if any, into which the number of shares of Company Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to this Agreement. The Exchange Agent shall accept
such certificates upon compliance with such reasonable terms and conditions as
the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. After the Effective Time, there shall
be no further transfer on the records of the Company or its transfer agent of
certificates representing shares of Company Common Stock which have been
converted, in whole or in part, pursuant to this Agreement into the right to
receive cash, and if such certificates are presented to the Company for
transfer, they shall be cancelled against delivery of cash and, if appropriate,
certificates for retained Company Common Stock. If any certificate for such
Company Common Stock is to be issued in, or if cash is to be remitted to, a name
other than that in which the certificate for Company Common Stock surrendered
for exchange is registered, it shall be a condition of such exchange or payment
that the certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange or payment shall pay to the Company or its
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<PAGE> 10
transfer agent any transfer or other taxes required by reason of the issuance of
certificates for Company Common Stock pursuant hereto in a name other than that
of, or payment to a person other than, the registered holder of the certificate
surrendered, or establish to the satisfaction of the Company or its transfer
agent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.5(b), each certificate for shares of Company
Common Stock shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration as
contemplated by Section 2.1. No interest will be paid or will accrue on any cash
payable as Merger Consideration or in lieu of any fractional shares of Company
Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to retained Company Common Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
certificate for shares of Company Common Stock with respect to the shares of
retained Company Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.5(e)
until the surrender of such certificate in accordance with this Article 2.
Subject to the effect of applicable laws, following surrender of any such
certificate, there shall be paid to the holder of the certificate representing
whole shares of retained Company Common Stock issued in connection therewith,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of retained Company Common Stock to which
such holder is entitled pursuant to Section 2.5(e) and the proportionate amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of retained Company Common
Stock, and (ii) at the appropriate payment date, the proportionate amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of retained Company Common Stock.
(d) No Further Ownership Rights in Company Common Stock Exchanged. All
cash paid or shares of Company Common Stock retained upon the surrender for
exchange of certificates representing shares of Company Common Stock in
accordance with the terms of this Article 2 (including any cash paid pursuant to
Section 2.5(e)) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such certificates.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of retained Company Common Stock shall be issued pursuant to a Mixed
Election in connection with the Merger, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of the
Company after the Merger. Notwithstanding any other provision of this Agreement,
each record holder of shares of Company Common Stock exchanged pursuant to a
Mixed Election in connection with the Merger who would otherwise have been
entitled to receive a fraction of a share of retained Company Common Stock
(after taking into account all shares of Company Common Stock delivered by such
holder) shall receive, in lieu thereof, a cash payment (without interest) equal
to an amount equal to the same fraction of $75,000 as is equal to the fraction
of one share of Company Common Stock such holder would have been entitled to
otherwise retain.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.5 (the "Exchange
Fund") which remains undistributed to the holders of the certificates
representing shares of Company Common Stock for six months after the Effective
Time shall be delivered to the Company, upon demand, and any holders of shares
of Company Common Stock prior to the Merger who have not theretofore complied
with this Article 2 shall thereafter look only to the Company and only as
general creditors thereof for payment of their claims for cash, if any, retained
Company Common Stock, if any, any cash in lieu of fractional shares of retained
Company Common Stock, or any dividends or distributions with respect to retained
Company Common Stock to which such holders may be entitled.
(g) No Liability. None of Newco, the Company or the Exchange Agent shall
be liable to any person in respect of any shares of retained Company Common
Stock (or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of Company Common Stock shall not have been
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surrendered prior to one year after the Effective Time (or immediately prior to
such earlier date on which any cash, if any, any cash in lieu of fractional
shares of retained Company Common Stock, or any dividends or distributions with
respect to retained Company Common Stock in respect of such certificate would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.5(b)), any such cash, dividends or distributions in respect
of such certificate shall, to the extent permitted by applicable law, become the
property of the Company, free and clear of all claims or interest of any person
previously entitled thereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco that, except as set
forth in the Section of the Disclosure Schedule delivered in connection with
this Agreement as of the date hereof (the "Disclosure Schedule") relating to the
correlative Section of this Article 3:
SECTION 3.1 Organization and Qualification; Subsidiaries. (a) Each of the
Company and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approval would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (as defined below).
Each of the Company and each of its Subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. When used in connection with the
Company or any of its Subsidiaries, the term "Material Adverse Effect" means any
change or effect that (a) either individually or in the aggregate with all other
changes or effects, is materially adverse to the business, condition (financial
or otherwise), or results of operations of the Company and its Subsidiaries
taken as a whole or (b) would prevent consummation of, or materially adversely
affect the ability of the parties hereto to consummate, the transactions
contemplated by this Agreement.
(b) The only direct or indirect Subsidiaries of the Company are those
listed in Section 3.1(b) of the Disclosure Schedule. Except as set forth in
Section 3.1(b) of the Disclosure Schedule, all the outstanding shares of capital
stock of and other equity interests in each such Subsidiary have been validly
issued and are fully paid and non-assessable and are owned (of record and
beneficially) by the Company, by another Subsidiary of the Company or by the
Company and another such Subsidiary, free and clear of all pledges, claims,
mortgages, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"). Section 3.1(b) sets forth a list of
any other person that owns capital stock of and other equity interests in any
Subsidiary of the Company, and the amount of such capital stock so owned. Except
for the ownership interests set forth in Section 3.1(b) of the Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock or
other ownership interest in any other person.
SECTION 3.2 Certificates of Incorporation and By-Laws. The Company has
heretofore furnished to Newco complete and correct copies of the certificate of
incorporation and the by-laws of the Company and each of its Subsidiaries as
currently in effect. Such certificates of incorporation and by-laws are in full
force and effect and no other organizational documents are applicable to or
binding upon the Company or such Subsidiaries. The Company and its Subsidiaries
are not in violation of any of the provisions of their respective certificates
of incorporation or by-laws.
SECTION 3.3 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 5,000,000 shares of
Preferred Stock, $.10 par value per share (the "Company Preferred Stock"). As of
July 31, 1997, (i) 21,098,785 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
were issued free of preemptive (or similar) rights, (ii) 21,691 shares of
Company Common Stock were held in the treasury of the
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Company and (iii) an aggregate of 512,000 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding Options. Other than the shares of Company
Common Stock reserved for issuance as set forth in the preceding clause (iii),
no capital stock or other equity interests in the Company or any of its
Subsidiaries is issuable upon exercise of the Options. As of the date hereof, no
shares of Company Preferred Stock are, and as of the Closing Date no shares of
Preferred Stock will be, issued and outstanding. Since July 31, 1997, the
Company has not issued or reserved for issuance (a) any shares of capital stock
or other voting securities of the Company or any of its Subsidiaries, except as
a result of the exercise of Options outstanding at July 31, 1997 or (b) any
Options, except as described in this Section 3.3. All shares of Company Common
Stock subject to issuance as aforesaid pursuant to Options, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive (or similar) rights. To the knowledge of the Company,
other than as provided in the Voting Agreement, there are no irrevocable proxies
with respect to shares of capital stock or other equity interests in the Company
or any Subsidiary of the Company. Except as set forth in Section 3.3 of the
Disclosure Schedule, there are no agreements or arrangements pursuant to which
the Company is or could be required to register shares of Company Common Stock
or other securities under the Securities Act of 1933, as amended (the
"Securities Act"), or other agreements or arrangements with or among any
securityholders of the Company with respect to securities of the Company. There
are no outstanding bonds, debentures, notes or other indebtedness or other
securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except for the Options, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity or
voting securities of the Company or of any of its Subsidiaries, or any
securities exchangeable for or convertible into capital stock or other equity or
voting securities of the Company or any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking, and there are not outstanding any equity equivalents, interests
in the ownership or earnings of the Company or any of its Subsidiaries or other
similar rights (collectively, with the Options, "Company Securities") and there
are no other options, calls, warrants or other similar rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of or equity or voting interests in the Company or any of its
Subsidiaries to which the Company or any of its Subsidiaries is a party. Except
as set forth in Section 3.3 of the Disclosure Schedule, there are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or any outstanding Company Common Stock
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity. As of the
date hereof, the only outstanding indebtedness for borrowed money of the Company
and its Subsidiaries is set forth in Section 3.3 of the Disclosure Schedule (the
"Company Debt"). Except as set forth in Section 3.3 of the Disclosure Schedule,
(i) the loans and other extensions of credit under the Company Debt are each
prepayable on not more than 30 days notice, without additional cost other than
reimbursement of customary breakage costs, and (ii) interest payable with
respect to each of the loans and other extensions of credit under the Company
Debt is calculated on the basis of a floating interest rate.
SECTION 3.4 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. Assuming the accuracy of Newco's representations contained
in Section 4.7 (without giving effect to the knowledge qualification thereof),
the execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the approval of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock, and the filing and
recordation of appropriate merger documents as required by the DGCL). This
Agreement has been duly
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and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Newco, constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms. The Board of Directors of the Company has approved
this Agreement, the Voting Agreement (including the option contemplated thereby)
and, to the extent necessary, the Employment Arrangements and the transactions
contemplated hereby and thereby (including the Merger) (provided, in the case of
the Voting Agreement and the Employment Arrangements, that such approval is
limited to the forms provided to the Company at the time of execution hereof
without giving effect to any amendments, modifications or waivers thereunder not
approved by the Company) so as to render inapplicable hereto and thereto the
limitation on business combinations contained in Section 203 of the DGCL (or any
similar provision). As a result of the foregoing actions, assuming the accuracy
of Newco's representations contained in Section 4.7 (without giving effect to
the knowledge qualification thereof), the only vote required to authorize the
Merger is the affirmative vote of a majority of the outstanding shares of
Company Common Stock. To the knowledge of the Company, no state takeover statute
or similar statute or regulation, other than Section 203 of the DGCL, applies or
purports to apply to this Agreement, the Merger, the Voting Agreement, the
Employment Arrangements, or any of the other transactions contemplated hereby or
thereby. No provision of the certificate of incorporation, by-laws or other
governing instruments of the Company or any of its Subsidiaries would, directly
or indirectly, restrict or impair the ability of Newco or its affiliates to
vote, or otherwise to exercise the rights of a stockholder with respect to,
securities of the Company and its Subsidiaries that may be acquired or
controlled by Newco or its affiliates or permit any stockholder to acquire
securities of the Company on a basis not available to Newco in the event that
Newco were to acquire securities of the Company, and neither the Company nor any
of its Subsidiaries has any rights plan, preferred stock or similar arrangement
which have any of the aforementioned consequences.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby by the Company do not and
will not: (i) conflict with or violate the certificate of incorporation or
by-laws of the Company or the equivalent organizational documents of any of its
Significant Subsidiaries; (ii) assuming that all consents, approvals and
authorizations contemplated by clauses (i) and (ii) of subsection (b) below have
been obtained and all filings described in such clauses have been made, conflict
with or violate any law, rule, regulation, order, ordinance, judgment, arbitral
award or decree applicable to the Company or any of its Subsidiaries or by which
they or any of their respective properties are bound or affected; or (iii)
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss of a material benefit under, or give rise to any right of termination,
amendment, alteration, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any of
its Subsidiaries pursuant to, any loan, credit agreement, note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, concession, franchise or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or its or any of
their respective properties are bound or affected, except (A) in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect and (B) in the case of
clause (iii), other than as set forth on Section 3.5(a) of the Disclosure
Schedule.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby by the
Company do not and will not require any consent, approval, authorization, order
or permit of, action by, registration, declaration or filing with or notice or
notification to, any Federal, state, local or foreign government or any court,
arbitral authority, administrative agency or commission or other governmental
authority, official or agency, domestic or foreign (a "Governmental Entity"),
except for (i) the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder, the Securities Act and the rules and regulations promulgated
thereunder, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and state securities or "Blue Sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, orders, permits, actions,
registrations, declarations, filings, notices or notifications the failure of
which to make
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or obtain would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
SECTION 3.6 Compliance. The conduct of the business of each of the
Company and each of its Subsidiaries complies with all laws, rules, regulations,
orders, ordinances, judgments, arbitral awards and decrees applicable thereto,
except for violations or failures so to comply, if any, that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is, or has received any
notice or has knowledge that any other party is, in default or violation of any
loan, credit agreement, note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, concession, franchise or other instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or its or any of their respective properties
are bound or affected, except for any such conflicts, defaults or violations
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports, statements and documents required to be filed with the
Securities and Exchange Commission (the "SEC") since October 15, 1996
(collectively, including all exhibits and schedules thereto and documents
incorporated therein by reference, the "SEC Reports"), each of which has
complied in all material respects with the applicable requirements of the
Securities Act, and the rules and regulations promulgated thereunder, or the
Exchange Act and the rules and regulations promulgated thereunder, as
applicable, each as in effect on the date so filed. No SEC Report contained,
when filed, any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Except to the extent
revised or superseded by a subsequent filing with the SEC (a copy of which has
been provided to Newco prior to the date hereof), none of the SEC Reports filed
prior to the date hereof contains any untrue statement of a material fact or
omits to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial statements of
the Company (including any related notes thereto) included in the SEC Reports,
complies as to form in all material respects with all applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and fairly presents
the consolidated financial position of the Company and its Subsidiaries at the
respective date thereof and the consolidated results of its operations and
changes in cash flows for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance sheet
of the Company and its Subsidiaries at December 31, 1996, including the notes
thereto, neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1996, except as contemplated by this Agreement, disclosed in the SEC Reports
filed and publicly available prior to the date of this Agreement or disclosed in
Section 3.8 of the Disclosure Schedule, the Company and its Subsidiaries have
conducted their businesses only in the ordinary course of business consistent
with past practice and, since such date, there has not been (i) any condition,
event or occurrence which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or (ii) any action which, if it had
been taken after the date hereof, would have required the consent of Newco under
Section 5.1 hereof.
SECTION 3.9 Absence of Litigation. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries, or any
properties or rights of the Company or any of its Subsidiaries, before any
Governmental Entity, that individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, and, to the knowledge of the
Company, no basis for any such suit, claim, action, proceeding or investigation
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exists. Neither the Company nor any of its Subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which, insofar as can be
reasonably foreseen, in the future would reasonably be expected to have a
Material Adverse Effect. As of the date hereof, no officer or director of the
Company is a defendant in any litigation commenced by stockholders of the
Company with respect to the performance of his or her duties as an officer
and/or director of the Company under any Federal, state, local or foreign law
(including litigation under Federal and state securities laws). Except as set
forth in Section 3.9 of the Disclosure Schedule, to the knowledge of the
Company, there exist no indemnification agreements with any of the directors and
officers of the Company. Each of the director indemnification agreements
referred to in item A.2. of Section 3.9 of the Disclosure Schedule is in the
form included as Exhibit 10(l) to the Company's Form 10-K for the year ended
December 31, 1996.
SECTION 3.10 Properties. (a) The Company or one of its Subsidiaries has
(i) good and marketable fee title to the real property owned in fee by the
Company or any of its Subsidiaries (collectively, the "Owned Properties") and
(ii) good and valid leasehold title or other occupancy right to the real
property leased, subleased or licensed by the Company or any of its Subsidiaries
(collectively, the "Leased Properties") (Owned Properties and Leased Properties
being sometimes referred to herein collectively as the "Company Properties"), in
each case free and clear of all options to purchase or lease (in the case of the
Owned Properties), leases, subleases, rights of first offer, conditions of
limitation, easements, Liens, covenants, rights-of-way and other restrictions
(collectively, "Title Matters"), except for such Title Matters set forth in
Section 3.10(a) of the Disclosure Schedule, which Title Matters, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Section 3.10(a) of the Disclosure Schedule sets forth a complete and
accurate list and description of all Owned Properties and all Leased Properties.
(b) Each agreement under which real property is leased, subleased or
licensed to the Company or one of its Subsidiaries (collectively, the "Company
Leases") is in full force and effect in accordance with its respective terms and
the Company or one of its Subsidiaries is the holder of the lessee's or tenant's
interest thereunder and there exists no default under any of the Company Leases
by the Company or any of its Subsidiaries and no circumstance exists which, with
the giving of notice, the passage of time or both could result in such a
default, except for such defaults or other circumstances which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Except as set forth in Section 3.10(b) of the Disclosure Schedule, the
transfer of the shares of Company Common Stock or the consummation of any other
part of the transactions contemplated hereby does not violate the terms of any
of the Company Leases. Except as set forth in Section 3.10(b) of the Disclosure
Schedule, no Company Lease is subject to any pledge, Lien, sublease, assignment,
license or other agreement granting to any third party any interest in such
Company Lease or any right to the use or occupancy of any Leased Property.
Except as set forth in Section 3.10(b) of the Disclosure Schedule, true and
complete copies of the Company Leases have previously been delivered to Newco,
including (without limitation) all amendments or modifications thereof and all
side letters or other instruments affecting the obligations of any party
thereunder. The lessee under each Company Lease is now in possession of the
applicable Leased Property.
(c) Each of the Company and its Subsidiaries has all permits necessary to
own or operate its Owned Real Property and Leased Real Property as currently
owned, and no such permits will be required, as a result of the Merger or the
other transactions contemplated hereby, to be issued after the Closing in order
to permit the Company following the Merger to continue to own or operate such
Company Properties, other than any such permits the absence of which would not
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Section 3.10(c) of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has received, with respect to any Owned Real Property or Leased
Real Property, any written notice of default or any written notice of
noncompliance with respect to applicable Federal, state, local and foreign laws
and regulations relating to zoning, building, fire, use restriction or safety or
health codes which have not been remedied in all respects which would reasonably
be expected to have a Material Adverse Effect. There is no pending or, to the
knowledge of the Company, threatened condemnation or other governmental taking
of any of the Owned Real Property or Leased Real Property. All buildings,
structures, improvements and fixtures located on, under, over or within the
Company Properties, and all other aspects of each of the Company Properties, (A)
are in good operating condition and repair and are structurally sound and free
of any
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material defects; and (B) are suitable, sufficient and appropriate in all
respects for their current and contemplated uses.
SECTION 3.11 Employee Benefit Plans. (a) Section 3.11(a) of the
Disclosure Schedule contains, to the knowledge of the Company, a true and
complete list of each "employee benefit plan" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including without limitation multiemployer plans within the meaning
of ERISA Section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transactions contemplated by this Agreement or
otherwise), under which any employee or former employee of the Company or any of
its Subsidiaries has, or could reasonably be expected to have, any present or
future right to benefits or under which the Company or any Subsidiary of the
Company has, or could reasonably be expected to have, any present or future
material liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans". Section
3.11(a) of the Disclosure Schedule also contains a true and complete description
of all severance plans of the Company or any of its Subsidiaries. No Company
Plan is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA
or is an "employee pension plan" within the meaning of Section 3(2) of ERISA
subject to Title IV of ERISA.
(b) With respect to each Company Plan, the Company has delivered or made
available to Newco a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable, (i) any related trust agreement, annuity contract or other funding
instrument; (ii) the most recent determination letter; (iii) any summary plan
description and other written communications (or description of any oral
communication) by the Company or any of its Subsidiaries which modify in any
significant respect the benefits provided under the terms of any Company Plan in
a manner not reflected in any of the documents otherwise described in this
subsection (b); and (iv) for the three most recent years (A) the Form 5500 and
attached schedules; (B) audited financial statements; and (C) actuarial
valuation reports.
(c) With respect to all the Company Plans, except as set forth in the SEC
Reports: (i) all Company Plans are in compliance with all applicable law,
including the Internal Revenue Code of 1986, as amended (the "Code"), and ERISA,
including in compliance with all filing and reporting requirements, except as
would not reasonably be expected to have a Material Adverse Effect; (ii) the
aggregate projected benefit obligations of each pension plan that is subject to
Title IV of ERISA (as of the date of the most recent actuarial valuation
prepared for such Plan) do not exceed the fair market value of the assets of
such pension plan (as of the date of such valuation), and, to the knowledge of
the Company, no material adverse change has occurred with respect to the
financial condition of such plan since such last valuation; (iii) each of the
Company Plans which is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and such determination has not been modified, revoked or limited by
failure to satisfy any condition thereof or by a subsequent amendment thereto or
a failure to amend, except that it may be necessary to make additional
amendments retroactively to maintain the "qualified" status of such Company
Plans, and the period for making any such necessary retroactive amendments has
not expired; (iv) no act, omission or transaction (individually or in the
aggregate) has occurred with respect to any Company Plan that has resulted or
could result in any material liability (direct or indirect) of the Company or
any of its Subsidiaries under Sections 409 or 502(c)(i) or (l) of ERISA or
Chapter 43 of Subtitle (A) of the Code; (v) there is no pending or, to the
knowledge of the Company, threatened litigation or administrative agency
proceeding relating to any Company Plan (other than benefit claims in the
ordinary course); (vi) the Company has no obligations under any unfunded
deferred compensation plans; (vii) neither the Company, its Subsidiaries nor any
entity that is treated as a single employer with the Company or its Subsidiaries
under Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate") has
incurred or reasonably expects to incur any Lien or liability to the Pension
Benefit Guaranty Corporation, any Pension Plan or otherwise under Sections 3.02
or 6.01 et seq. of Title IV of ERISA (other than the payment of contributions or
premiums, none of which are overdue) or under Sections 412,
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4971 or 4980B of the Code; and (viii) neither the Company nor any of its
Subsidiaries makes any contributions to or has any obligation to create or
contribute to any multiemployer plan (within the meaning of Section 3(37) of
ERISA) or a multiple employer plan (within the meaning of Section 413(c) of the
Code).
(d) Except as specifically contemplated by this Agreement or as disclosed
in Section 3.11(d) of the Disclosure Schedule, the consummation of the Merger
and the other transactions contemplated hereby will not (x) entitle any employee
or director of the Company or any of its Subsidiaries to severance pay, or (y)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Company Plans.
SECTION 3.12 Tax Matters. For purposes of this Section 3.12 and Section
3.11, any reference to the Company or its Subsidiaries shall include any
corporation that merged or was liquidated with and into the Company or any of
its Subsidiaries. Except as would not individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect:
(a) All Tax Returns required to be filed by or with respect to the
Company and its Subsidiaries have been timely filed. The Company and its
Subsidiaries have (i) timely paid all Taxes that are due, or that have been
asserted in writing by any taxing authority to be due, from or with respect
to it for the periods ending prior to the date hereof or (ii) provided
adequate reserves in its financial statements for any Taxes that have not
been paid, whether or not shown as being due on any Tax Returns.
(b) No claim for unpaid Taxes has become a Lien against the property
of the Company or any of its Subsidiaries or is being asserted against the
Company or any of its Subsidiaries.
(c) The statute of limitations with respect to the Tax Returns of the
Company and its Subsidiaries and of each affiliated group (within the
meaning of the Code) of which the Company and any of its Subsidiaries are
or have been a member for all periods through the respective years
specified in Section 3.12 of the Disclosure Schedule has expired. There are
no outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with respect to the Company
or any Subsidiary of the Company for any taxable period, and no power of
attorney granted by or with respect to the Company or any Subsidiary of the
Company relating to Taxes is currently in force.
(d) No audit or other proceeding by any Governmental Entity has
formally commenced and no notification has been given to the Company or any
Subsidiary of the Company that such an audit or other proceeding is pending
or threatened with respect to any Taxes due from or with respect to the
Company or any Subsidiary of the Company or any Tax Return filed by or with
respect to the Company or any Subsidiary of the Company. No assessment of
Tax has been proposed in writing against the Company or any Subsidiary of
the Company or any of their assets or properties.
(e) As of the Effective Time, neither the Company nor any of the
Subsidiaries shall be a party to, be bound by or have any obligation under,
any Tax sharing agreement or similar contract or arrangement.
(f) There is no contract or agreement, plan or arrangement by the
Company or any Subsidiary of the Company covering any person that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible by the Company or its Subsidiaries by reason
of Section 162(m) or Section 280G of the Code or otherwise, as now in
effect or as in effect as of the Effective Time.
(g) As used herein, "Taxes" shall mean all taxes of any kind,
including, without limitation, those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any Governmental Entity. As used herein,
"Tax Return" shall mean any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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SECTION 3.13 Environmental Laws. (a) Except as could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect: (i)
the Company and its Subsidiaries hold, and, to the knowledge of the Company, are
in compliance with, all Environmental Permits, and the Company and its
Subsidiaries are otherwise in compliance with all applicable Environmental Laws
and there are no circumstances that might prevent or interfere with such
compliance in the future; (ii) none of the Company or any of its Subsidiaries
has received any Environmental Claim, and the Company is not aware of any
threatened Environmental Claim or of any circumstances, conditions or events
that could reasonably be expected to give rise to a Environmental Claim, against
the Company or any of its Subsidiaries; (iii) none of the Company or any of its
Subsidiaries has entered into or agreed to any consent decree, order or
agreement under any Environmental Law, and none of the Company or any of its
Subsidiaries is subject to any judgment, decree, order or other requirement
relating to compliance with any Environmental Law or to investigation, cleanup,
remediation or removal of regulated substances under any Environmental Law; (iv)
to the knowledge of the Company, there are no (A) underground storage tanks, (B)
polychlorinated biphenyls, (C) asbestos or asbestos-containing materials, (D)
urea-formaldehyde insulation, (E) sumps, (F) surface impoundments, (G)
landfills, (H) sewers or septic systems or (I) other Hazardous Materials present
at any facility owned, leased, operated or otherwise used by the Company or any
of its Subsidiaries that could reasonably be expected to give rise to a
liability of the Company or any of its Subsidiaries under any Environmental
Laws; (v) to the knowledge of the Company, there are no past (including, without
limitation, with respect to assets or businesses formerly owned, leased or
operated by the Company or any of its Subsidiaries) or present actions,
activities, events, conditions or circumstances, including without limitation
the release, threatened release, migration, emission, discharge, generation,
treatment, storage or disposal of Hazardous Materials, that could reasonably be
expected to give rise to a material liability of the Company or any of its
Subsidiaries under any Environmental Laws or any contract or agreement; (vi) no
modification, revocation, reissuance, alteration, transfer, or amendment of the
Environmental Permits, or any review by, or approval of, any third party of the
Environmental Permits is required in connection with the execution or delivery
of this Agreement or the consummation of the transactions contemplated hereby or
the continuation of the business of the Company or its Subsidiaries following
such consummation; (vii) to the knowledge of the Company, Hazardous Materials
have not been generated, transported, treated, stored, disposed of, released or
threatened to be released at, on, from or under any of the properties or
facilities currently or formerly owned, leased or otherwise used by the Company
or any of its Subsidiaries, in violation of, or in a manner or to a location
that could give rise to a material liability under, any Environmental Laws; and
(viii) to the knowledge of the Company, the Company and its Subsidiaries have
not assumed, contractually or by operation of law, any liabilities or
obligations under any Environmental Laws.
(b) For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials at any location, whether or
not owned, leased or operated by the Company or any of its Subsidiaries,
(ii) circumstances forming the basis of any violation or alleged violation
of any Environmental Law or Environmental Permit or (iii) otherwise
relating to obligations or liabilities under any Environmental Laws.
"Environmental Laws" means all applicable Federal, state, local and
foreign statutes, rules, regulations, ordinances, orders, decrees and
common law relating in any manner to contamination, pollution or protection
of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, the
Solid Waste Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act, the
Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state, local and foreign laws.
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"Environmental Permits" means all permits, licenses, registrations and
other governmental authorizations required under Environmental Laws for the
Company and its Subsidiaries, including without limitation in connection
with the operations of the Company's and its Subsidiaries' facilities and
otherwise to conduct their respective businesses.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos containing
materials, pollutants, contaminants and all other materials, substances and
forces, including but not limited to electromagnetic fields, regulated
pursuant to, or that could form the basis of liability under, any
Environmental Law.
SECTION 3.14 Intellectual Property. Except as would not reasonably be
expected to have a Material Adverse Effect: (i) the Company and each of its
Subsidiaries owns, or is licensed or otherwise has the right to use (in each
case, free and clear of any Liens of any kind), all Intellectual Property used
in or necessary for the conduct of its business as currently conducted; (ii) no
claims are pending or, to the knowledge of the Company, threatened, and the
Company and its Subsidiaries have not received any notice or notification
alleging, that the Company or any of its Subsidiaries is infringing on or
otherwise violating the rights of any person with regard to any Intellectual
Property owned by, licensed to and/or used by the Company or its Subsidiaries
and, to the knowledge of the Company, there is no basis therefor; (iii) neither
the Company nor any of its subsidiaries has infringed upon or misappropriated,
or is infringing upon or misappropriating, any U.S. or foreign patents or
copyrights or any U.S., state or foreign trademarks, or other Intellectual
Property rights of any person; (iv) to the knowledge of the Company, no person
is infringing on or otherwise violating any right of the Company or any of its
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to the Company or its Subsidiaries; and (v) the execution and delivery of this
contemplated hereby do not and will not conflict with or result in any violation
or default (with or without notice or lapse of time or both) or give rise to any
right, license or Lien relating to Intellectual Property, or right of
termination, alteration, amendment, cancellation or acceleration of any
Intellectual Property right or obligation, or the loss or encumbrance of any
Intellectual Property or benefit related thereto, or result in or require the
creation, imposition or extension of any Lien upon any Intellectual Property or
right. For purposes of this Agreement, "Intellectual Property" means all
intellectual property or other proprietary rights of every kind, including,
without limitation, all domestic or foreign patents, patent applications,
inventions (whether or not patentable), processes, products, technologies,
discoveries, copyrightable and copyrighted works, apparatus, trade secrets,
trademarks (registered and unregistered) and trademark applications and
registrations, brand names, certification marks, service marks and service mark
applications and registrations, trade names, trade dress, copyright
registrations, design rights, customer lists, marketing and customer
information, mask works, rights, know-how, licenses, technical information
(whether confidential or otherwise), software, and all documentation thereof.
The items disclosed on Section 3.14 of the Disclosure Schedule do not and will
not, in any material respect, limit the ability of the Company and its
Subsidiaries to conduct their business in the ordinary course of business
consistent with past practice, and do not and will not result in the imposition
of significant additional costs.
SECTION 3.15 Labor Matters. Except as disclosed in Section 3.15 of the
Disclosure Schedule, (i) neither the Company nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization; (ii) to the
knowledge of the Company, neither the Company nor any of its Subsidiaries is the
subject of any proceeding asserting that it or any of its Subsidiaries has
committed an unfair labor practice or seeking to compel it to bargain with any
labor organization as to wages or conditions of employment; (iii) there is no
strike, work stoppage or other labor dispute involving the Company or any of its
Subsidiaries pending or, to the Company's knowledge, threatened; (iv) to the
knowledge of the Company, no action, suit, complaint, charge, arbitration,
inquiry, proceeding or investigation by or before any Governmental Entity
brought by or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of its employees is pending
or threatened against the Company or any of its Subsidiaries; (v) to the
knowledge of the Company, no grievance is pending or threatened against the
Company or any of its Subsidiaries; and
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<PAGE> 20
(vi) neither the Company nor any of its Subsidiaries is a party to, or otherwise
bound by, any consent decree with, or citation by, any Governmental Entity
relating to employees or employment practices.
SECTION 3.16 Business Relationships; No Restrictive Agreements. (a) The
relationships of the Company and its Subsidiaries with its customers,
distributors, licensors, designers and suppliers are satisfactory in all
material respects and the execution of this Agreement and the consummation of
the Merger and the transactions contemplated hereby will not materially
adversely affect the relationships of the Company and its Subsidiaries with such
customers, distributors, licensors, designers and suppliers.
(b) The Company and its Subsidiaries are not parties to or bound by any
agreement, contract, policy, license, document, instrument, arrangement or
commitment that limits the freedom of the Company or any of its Subsidiaries to
compete in any line of business or with any person or in any geographic area or
which would so limit the freedom of the Company or any of its Subsidiaries or
affiliates after the Effective Time.
SECTION 3.17 Form S-4; Proxy Statement. None of the information supplied
by the Company for inclusion in (i) the registration statement on Form S-4 to be
filed with the SEC by the Company in connection with the retention of Company
Common Stock following the Merger (such Form S-4, as amended or supplemented, is
herein referred to as the "Form S-4") will, at the time the Form S-4 is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the proxy
statement to be sent to the stockholders of the Company in connection with the
Stockholders Meeting (as defined in Section 6.1) (such proxy statement, as
amended or supplemented, is herein referred to as the "Proxy Statement") will,
at the date it is first mailed to the Company's stockholders or at the time of
the Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, except that no representation is made by
the Company with respect to statements made or incorporated by reference therein
based on information supplied in writing by Newco specifically for inclusion in
the Proxy Statement. The Form S-4 will, as of its effective date, and the
prospectus contained therein will, as of its date, comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Agreement, the
parties agree that statements made and information in the Form S-4 and the Proxy
Statement relating to the Federal income tax consequences of the transactions
herein contemplated to holders of Company Common Stock shall be deemed to be
supplied by the Company and not by Newco.
SECTION 3.18 Brokers. No broker, finder or investment banker other than
Wasserstein Perella & Co., Inc. (the "Company Financial Advisor") is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of the Company. The Company has heretofore furnished to Newco a
complete and correct copy of all agreements between the Company and the Company
Financial Advisor pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereby. Assuming the amount of net
debt reflected in the Company's financial records as of June 30, 1997, as
provided to the Company Financial Advisor, is the same amount at the Closing,
the aggregate fees payable under such agreements would be approximately $2.0
million. Compensation for the Company Financial Advisor's services in connection
with the transactions contemplated by this Agreement will be calculated on the
Closing Date and will be based on the Aggregate Consideration (as such term is
defined in the letter agreement, dated July 8, 1997, between the Company
Financial Advisor and the Company) paid in such transactions.
SECTION 3.19 Opinion of Company Financial Advisor. The Company has
received the opinion of the Company Financial Advisor dated the date of this
Agreement, to the effect that the Cash Election Price to be received in the
Merger by the Company's stockholders, other than the Stockholder, is fair to
such stockholders from a financial point of view.
SECTION 3.20 Board Recommendation. The Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote of the disinterested
directors present (which directors constituted a
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quorum) (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, and the Voting Agreement and the transactions
contemplated thereby, taken together, based on the availability of the Cash
Election Price to any stockholder who so elects, are fair to and in the best
interests of the stockholders of the Company (other than the Stockholder), and
(ii) resolved to recommend that the holders of the shares of Company Common
Stock approve this Agreement and the transactions contemplated herein, including
the Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF NEWCO
Newco hereby represents and warrants to the Company that:
SECTION 4.1 Corporate Organization. Newco is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has the requisite corporate power and authority and any necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, reasonably be expected to
prevent the consummation of the Merger. Newco was formed on June 23, 1997 solely
for the purpose of engaging in the transactions contemplated hereby. Newco has
not (i) incurred, nor will it incur prior to and including the Effective Time,
directly or indirectly, any liabilities or obligations, (ii) engaged in any
business activity or transaction, or (iii) entered into any agreement or
arrangement with any person or entity, except, in any such case, in connection
with its organization or the negotiation of this Agreement, the Voting
Agreement, the Employment Arrangements, the financing of the transactions
contemplated hereby and the performance thereof.
SECTION 4.2 Authority Relative to This Agreement. Newco has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Newco and
the consummation by Newco of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Newco are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than, with respect to the
Merger, the filing and recordation of appropriate merger documents as required
by the DGCL). This Agreement has been duly and validly executed and delivered by
Newco and, assuming due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Newco enforceable against
it in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by Newco does not and will
not: (i) conflict with or violate the certificate of incorporation or by-laws of
Newco; (ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i) and (ii) of subsection (b) below have been obtained
and all filings described in such clauses have been made, conflict with or
violate any law, rule, regulation, order, ordinance, judgment, arbitral award or
decree applicable to Newco or by which it or any of its properties are bound or
affected; or (iii) result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both could become a default)
or result in the loss of a material benefit under, or give rise to any right of
termination, amendment, alteration, acceleration or cancellation of, or result
in the creation of a Lien on any of the properties or assets of Newco pursuant
to, any loan, credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, concession, franchise or other instrument or
obligation to which Newco is a party or by which Newco or any of its properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not, individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger.
(b) The execution, delivery and performance of this Agreement by Newco and
the consummation of the transactions contemplated hereby by Newco do not and
will not require any consent, approval, authorization,
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order or permit of, action by, registration, declaration or filing with or
notice or notification to, any Governmental Entity, except for (i) the
applicable requirements, if any, of the Exchange Act and the rules and
regulations promulgated thereunder, the Securities Act and the rules and
regulations promulgated thereunder, the HSR Act, and state securities or "Blue
Sky" laws, (ii) the filing and recordation of appropriate merger or other
documents as required by the DGCL, and (iii) such consents, approvals,
authorizations, orders, permits, actions, registrations, declarations, filings,
notices or notifications the failure of which to make or obtain would not,
individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger.
SECTION 4.4 Form S-4; Proxy Statement. None of the information supplied
in writing by Newco specifically for inclusion in (i) the Form S-4 will, at the
time the Form S-4 is filed with the SEC, and at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Proxy Statement will, at the date it is first mailed
to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, Newco makes no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained in or incorporated by reference in any of the
foregoing documents.
SECTION 4.5 Brokers. No broker, finder or investment banker (other than
Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Newco. A copy of the fee
arrangement has previously been provided to the Company. Unless the Merger is
consummated, the Company shall not be responsible for the payment of any such
fees to Goldman, Sachs & Co.
SECTION 4.6 Financing. Attached as Annexes A-1 to A-3 of the Disclosure
Schedule are true and complete copies of the letters, dated the date hereof,
issued in connection with the financing of the transactions contemplated by this
Agreement. The terms and conditions of the letters attached as Annexes A-1 to
A-3 of the Disclosure Schedule are satisfactory to Newco. As of the date of this
Agreement, Newco has been advised by its independent accountants that such
accountants believe the Merger will be recorded as a recapitalization for
financial reporting purposes.
SECTION 4.7 Newco Not an Interested Stockholder. As of the date of this
Agreement, to the knowledge of Newco, neither Newco nor any of its affiliates is
an "interested stockholder" as such term is defined in Section 203 of the DGCL.
SECTION 4.8 Solvency of the Company Following the Merger. Newco believes
that, immediately after the Effective Time and after giving effect to the Merger
and the transactions contemplated hereby, the Company will not (i) be insolvent
(either because its financial condition is such that the sum of its debts is
greater than the fair market value of its assets or because the fair saleable
value of its assets is less than the amount required to pay its probable
liability on its existing debts as they mature), (ii) have unreasonably small
capital with which to engage in its business or (iii) have incurred debts beyond
its ability to pay as they become due.
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business Pending the Merger. The Company covenants
and agrees that, during the period from the date hereof to the Effective Time,
unless Newco gives its prior written consent, the businesses of the Company and
its Subsidiaries shall be conducted only in, and the Company and its
Subsidiaries shall not take any action except in, the ordinary course of
business consistent with past practice and in compliance with applicable laws;
and the Company and its Subsidiaries shall each use its reasonable best efforts
(i) to preserve substantially intact the business organization of the Company
and its Subsidiaries,
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<PAGE> 23
(ii) to keep available the services of the present officers, employees and
consultants of the Company and its Subsidiaries and (iii) to preserve the
present relationships of the Company and its Subsidiaries with customers,
distributors, licensors, designers and suppliers and other persons with which
the Company or any of its Subsidiaries has significant business relations.
Except as expressly contemplated by this Agreement, by way of amplification and
not limitation, neither the Company nor any of its Subsidiaries shall, between
the date of this Agreement and the Effective Time, except as set forth in
Section 5.1 of the Disclosure Schedule, directly or indirectly take, or propose
or commit to take, any of the following actions without the prior written
consent of Newco:
(a) amend or otherwise change the certificate of incorporation or
by-laws or equivalent organizational documents of the Company or any of its
Subsidiaries;
(b) issue, deliver, sell, lease, sell and leaseback, pledge, mortgage,
dispose of or encumber or subject to any Lien, or authorize or commit to
the issuance, delivery, sale, lease, sale/leaseback, pledge, mortgage,
disposition or encumbrance of or to the subjection to any Lien, (A) any
shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock or any other ownership interest (including but not limited to stock
appreciation rights or phantom stock) of the Company or any of its
Subsidiaries (except for the issuance and delivery of shares of Company
Common Stock issuable in accordance with the terms of Options outstanding
as of the date hereof, and upon the terms in effect as of the date hereof)
or (B) any assets of the Company or any of its Subsidiaries, other than
inventory or other assets sold, leased or disposed of in the ordinary
course of business consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, other than dividends or distributions by a
direct or indirect wholly owned Subsidiary of the Company to the Company
and/or other direct or indirect wholly owned Subsidiaries of the Company;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of the capital stock, or any
other ownership interest (including but not limited to stock appreciation
rights or phantom stock), of the Company or any of its Subsidiaries or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom stock),
other than in connection with the exercise of Options outstanding on the
date hereof pursuant to Section 8.3 of the Stock Plan;
(e) (i) other than with respect to borrowings and repayments in the
ordinary course of business under the lines of credit listed on Schedule
5.1(e)(i) (which borrowings shall not in aggregate amount exceed $18
million in U.S. dollars at any one time outstanding and shall not have
interest rate periods extending beyond the Effective Time), repurchase,
repay, incur or cause or permit to exist any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of
any person, or enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, or make any
loans, advances or capital contributions to, or investments in, any person
other than the Company or a direct or indirect wholly owned Subsidiary of
the Company; (ii) enter into, terminate, waive, modify or amend any
material contract, license or agreement, other than in the ordinary course
of business consistent with past practice; or (iii) except as set forth in
the Company's capital budget which is set forth in Section 5.1(e)(iii) of
the Disclosure Schedule, authorize any single expenditure for any capital
or acquisition (including without limitation any acquisition of any
corporation, partnership or other business enterprise or division thereof
by share purchase, merger, consolidation or otherwise) other than capital
expenditures not to exceed $50,000 individually or $200,000 in the
aggregate;
(f) (i) increase the compensation or fringe benefits of any of its
directors, officers or employees, except for increases in salary or wages
of employees of the Company or its Subsidiaries, who are not directors or
officers of the Company, in the ordinary course of business and consistent
in all material
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respects with the Company's budget, (ii) grant any severance or termination
pay not currently required to be paid under existing severance plans to, or
enter into or modify in any material or economic respect any employment,
consulting or severance agreement or arrangement with, any present or
former director, officer or other employee of the Company or any of its
Subsidiaries, except for the granting of severance or termination pay, in
the ordinary course of business consistent with past practice, to
nonexecutive employees who are terminated by the Company after the date
hereof, (iii) establish, adopt, enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any directors, officers or
employees or (iv) terminate the existing employment arrangements with any
of the individuals listed in Section 5.1(f) of the Disclosure Schedule or
take any action that would constitute a breach of any such arrangements or
take any action (other than consummation of the Merger) which would cause
any change-of-control, severance or similar payment to be payable to any
such individual or make any payment of any bonus or other extraordinary or
termination payment which such individual has agreed to waive, modify or
amend in connection with the Employment Arrangements;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change in any material respect
any of the accounting practices or principles used by it;
(h) make any material tax election or settle or compromise any
material Federal, state, local or foreign Tax liability;
(i) settle or compromise any pending or threatened suit, action or
claim for in excess of $100,000 per suit, action or claim, and $250,000 in
the aggregate, or which relates to the transactions contemplated hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than this
Agreement and the Merger); or
(k) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 5.1(a) through 5.1(j).
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. The Company, acting through its Board
of Directors, will, as promptly as practicable following the date of
effectiveness of the Form S-4 and in consultation with Newco, (i) duly call,
give notice of, convene and hold a meeting of its stockholders for the purpose
of considering and adopting and approving this Agreement and the transactions
contemplated hereby (the "Stockholders Meeting") and (ii) (A) include in the
Proxy Statement the unanimous recommendation of the Board of Directors that the
stockholders of the Company vote in favor of the approval of this Agreement and
the transactions contemplated hereby and the written opinion of the Company
Financial Advisor that the Cash Election Price to be received by the
stockholders of the Company, other than the Stockholder, pursuant to the Merger,
is fair to such stockholders from a financial point of view, (B) include along
with the Proxy Statement a Form of Election, and (C) use its best efforts to
hold such meeting and obtain the necessary approval of this Agreement and the
transactions contemplated hereby by its stockholders, as soon as practicable
after the date hereof.
SECTION 6.2 Form S-4 and Proxy Statement. Promptly following the date of
this Agreement, the Company shall prepare the Proxy Statement, and the Company
shall prepare and file with the SEC the Form S-4, in which the Proxy Statement
will be included. The Company shall use its best efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. The Company shall use its best efforts to cause the Proxy Statement
to be mailed to the Company's stockholders as promptly as practicable after the
Form S-4 is declared effective under the Securities Act. The Company
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shall also take any action required to be taken under any applicable state
securities or "Blue Sky" laws in connection with the registration and
qualification in connection with the Merger of capital stock of the Company
following the Merger. The information provided by the Company for use in the
Form S-4, and to be supplied by Newco in writing specifically for use in the
Form S-4, shall, at the time the Form S-4 becomes effective and on the date of
the Stockholders Meeting referred to above, be true and correct in all material
respects and shall not omit to state any material fact required to be stated
therein or necessary in order to make such information not misleading, and the
Company and Newco each agree to correct any information provided by it for use
in the Form S-4 which shall have become false or misleading. The foregoing
notwithstanding, from and after the Effective Time, the Company will have no
obligation to maintain the registration of the Company Common Stock or to make
any further filings under any federal or state securities or "Blue Sky" laws
with respect to the Company Common Stock, except as may then be required by law,
and, to the extent not prohibited by applicable law, may terminate any such
prior registration. Newco and the Company will cooperate with each other in the
preparation of the Proxy Statement and the Form S-4; without limiting the
generality of the foregoing, the Company will immediately notify Newco of the
receipt of any comments from the SEC, the effectiveness of the Form S-4 and any
request by the SEC for any amendment to the Proxy Statement or the Form S-4 or
for additional information. All filings with the SEC, including the Proxy
Statement and the Form S-4 and any amendment thereto, and all mailings to the
Company's stockholders in connection with the Merger, including the Proxy
Statement, shall be subject to the prior review, comment and approval of Newco.
Newco will furnish to the Company the information relating to it required by the
Exchange Act and the rules and regulations promulgated thereunder to be set
forth in the Proxy Statement. The Company agrees to use its reasonable best
efforts, after consultation with Newco, to respond promptly to any comments made
by the SEC with respect to the Proxy Statement (and any preliminary version
thereof filed by it) and the Form S-4.
SECTION 6.3 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause its
Subsidiaries, officers, directors, employees, auditors, environmental auditors,
counsel, financial advisors and other agents to, afford Newco and its
representatives and potential financing sources, reasonable access at all
reasonable times to its officers, employees, agents, properties, offices,
warehouses and other facilities and to all books, contracts and records, and
shall furnish Newco and such financing sources with all financial, operating and
other data and information as Newco, its representatives or such financing
sources may from time to time reasonably request. During such period, the
Company shall, and shall cause its Subsidiaries, officers, employees and
representatives to, furnish promptly to Newco a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities or "Blue Sky" laws.
(b) Each of the Company and Newco agrees with respect to all confidential
information relating to the other party (the "Disclosing Party") that is or has
been furnished or disclosed to the first party (the "Receiving Party") on, after
or before the date hereof including, but not limited to, information regarding
the Disclosing Party's organization, personnel, business activities, customers,
policies, assets, finances, costs, sales, revenues, rights, obligations,
liabilities and strategies ("Confidential Information"), that, unless and until
the transactions contemplated by this Agreement shall have been consummated, (1)
such Confidential Information is confidential and/or proprietary to the
Disclosing Party and entitled to and shall receive treatment as such by the
Receiving Party and (2) the Receiving Party will, and will require all of its
directors, officers, employees, representatives, stockholders, agents and
advisors (including attorneys, accountants, consultants, bankers and financial
advisors) who have access to such Confidential Information to, hold in
confidence and not disclose to others nor use (except in respect of the
transactions contemplated by this Agreement or as required by law or in a court,
administrative, or regulatory proceeding) any such Confidential Information;
provided, however, that the Receiving Party shall not have any restrictive
obligation with respect to any Confidential Information which (x) is or becomes
publicly known through no wrongful act or omission of, or violation of the terms
hereof by, the Receiving Party or (y) becomes known to the Receiving Party from
a source which, to the best of the Receiving Party's knowledge, has no
confidentiality obligation with respect to such Confidential Information at the
time of receipt of such Confidential Information. The Receiving Party shall
provide Confidential Information only to its directors, officers, employees,
representatives, stockholders, agents, advisors (including attorneys,
accountants, consultants, bankers and financial advisors) and potential
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financing sources who have a need to know such Confidential Information in
connection with the transactions contemplated by this Agreement.
(c) No investigation pursuant to this Section 6.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 6.4 No Solicitation. (a) The Company and its Subsidiaries and
their respective officers, directors, employees, representatives, agents and
advisors (including attorneys, accountants, consultants, bankers and financial
advisors) shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any Acquisition
Transaction (as defined below). The Company agrees that, prior to the Effective
Time, it shall not, and shall not authorize or permit any of its Subsidiaries or
any of its or its Subsidiaries' directors, officers, employees, agents,
representatives or advisors (including attorneys, accountants, consultants,
bankers and financial advisors), directly or indirectly, to, solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal with respect to any
merger, liquidation, recapitalization, consolidation or other business
combination involving the Company or its Subsidiaries or acquisition or exchange
of any capital stock or any material portion of the assets (except for
acquisitions of assets in the ordinary course of business consistent with past
practice) of the Company or its Subsidiaries, or any combination of the
foregoing (an "Acquisition Transaction"), or negotiate, explore or otherwise
engage in substantive discussions with any person (other than Newco) with
respect to any Acquisition Transaction or enter into any agreement, arrangement
or understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated hereby; provided that the Company
may furnish information to, and negotiate or otherwise engage in substantive
discussions with, any party who delivers a bona fide written proposal for an
Acquisition Transaction if the Company's Board of Directors determines in good
faith and upon the advice from its outside legal counsel, that failing to take
such action would constitute a breach of the fiduciary duties of the Company's
Board of Directors and such a proposal is, in the opinion of the Company's Board
of Directors, more favorable to the Company's stockholders (other than the
Stockholder) from a financial point of view than the transactions contemplated
by this Agreement.
(b) From and after the execution of this Agreement, the Company shall
immediately advise Newco in writing of the receipt, directly or indirectly, of
any inquiries, discussions, negotiations or proposals relating to an Acquisition
Transaction, identify the offeror and furnish to Newco a copy of any such
proposal or inquiry, if it is in writing, or a written summary of any such
proposal relating to an Acquisition Transaction if it is not in writing. The
Company shall promptly advise Newco of any development relating to such
proposal, including the results of any discussions or negotiations with respect
thereto.
SECTION 6.5 ESOP. The Company shall cooperate with Newco in taking all
steps necessary or appropriate so that, effective as of the Effective Time, the
Company's Employee Stock Ownership Plan (the "ESOP") shall be amended so as to
(i) eliminate the right of participants in the ESOP to receive distributions in
the form of employer securities, (ii) terminate the status of the ESOP as an
employee stock ownership plan, (iii) provide that the Merger Consideration
received by the ESOP in the Merger shall not be reinvested in employer
securities, (iv) freeze benefit accruals under the ESOP, and (v) vest all
participants in the ESOP in their account balances in the ESOP.
SECTION 6.6 Directors' and Officers' Indemnification and
Insurance. (a) For six years after the Effective Time, the Company shall
indemnify all present and former directors, officers, employees and agents of
the Company for acts or omissions occurring prior to the Effective Time to the
fullest extent now provided in the Company's certificate of incorporation and
by-laws consistent with applicable law, to the extent such acts or omissions are
uninsured (provided, that to the extent that during any such period insurance
does not fully indemnify any person contemplated to be indemnified in accordance
with the terms of this Section 6.6, the Company shall indemnify such person in
accordance with such terms), and shall, in connection with defending against any
action for which indemnification is available hereunder, and subject to Section
6.6(c) hereof, reimburse and advance expenses to such officers, directors,
employees and agents, from time to time upon receipt of reasonably sufficient
supporting documentation, for any reasonable costs and expenses reasonably
incurred by such officers, directors, employees and agents in connection with
such defense;
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provided that such advancement and reimbursement shall be conditioned upon such
officer's, director's, employee's or agent's agreement promptly to return such
amounts to the Company if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such officer or director in the manner contemplated
hereby is prohibited by applicable law. In addition to the foregoing, the
Company will comply with its obligations under the indemnification agreements
referred to in item A.2. of Section 3.9 of the Disclosure Schedule, subject to
the terms and provisions thereof.
(b) The Company shall maintain in effect for six years from the Effective
Time policies of directors' and officers' liability insurance containing terms
and conditions which are not less advantageous than those policies maintained by
the Company at the date hereof, with respect to matters occurring prior to the
Effective Time, to the extent available, and having the maximum available
coverage under the current policies of directors' and officers' liability
insurance; provided that (i) the Company following the Merger shall not be
required to spend in excess of a $770,000 annual premium therefor; provided
further that if the Company following the Merger would be required to spend in
excess of a $770,000 premium per annum to obtain insurance having the maximum
available coverage under the current policies, the Company will be required to
spend $770,000 to maintain or procure insurance coverage pursuant hereto,
subject to availability of such (or similar) coverage and (ii) such policies may
in the sole discretion of the Company be one or more "tail" policies for all or
any portion of the full six year period.
(c) In furtherance of and not in limitation of the preceding paragraphs,
Newco agrees that the officers and directors of the Company who are defendants
in all litigation commenced by stockholders of the Company, whether before or
after the date of this Agreement, with respect to (x) the performance of their
duties at or prior to the Effective Time as such officers and/or directors under
Federal or state law (including without limitation litigation under Federal and
state securities laws) or (y) this Agreement, the Voting Agreement and the
transactions contemplated hereby (the "Subject Litigation") shall be entitled to
be represented, at the reasonable expense of the Company, in the Subject
Litigation by one counsel (and one local counsel in each jurisdiction in which a
case is pending), each of which such counsel shall be selected by a plurality of
such officer/director defendants, subject to the approval of the Company, which
approval shall not be unreasonably withheld; provided that neither Newco nor the
Company shall be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and that a condition
to any further indemnification payments provided in Section 6.6(a) shall be that
such officer/ director defendant shall not have settled any Subject Litigation
without the consent of Newco and the Company; and provided further that neither
Newco nor the Company shall have any obligation hereunder to any
officer/director defendant when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such officer/director defendant in the
manner contemplated hereby is prohibited by applicable law.
SECTION 6.7 Notification of Certain Matters. The Company shall give
prompt notice to Newco, and Newco shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company or Newco, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.7 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 6.8 Further Action; Best Efforts. (a) Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all action, and to do or cause to be
done, and to assist and cooperate with the parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and the Voting Agreement, including but not limited to (i) cooperation in the
preparation and filing of the Form S-4, the Proxy Statement, any required
filings under the HSR Act and any amendments to any thereof, (ii) determining
whether any filings are required to be made or consents, approvals, waivers,
licenses, permits or authorizations are required to be obtained (or, which if
not obtained, would result in an event of default, termination, amendment,
alteration or acceleration of any agreement or
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any put right under any agreement) under any applicable law or regulation or
from any Governmental Entities or third parties, including parties to loan
agreements or other debt instruments, in connection with the transactions
contemplated by this Agreement, and (iii) promptly making any such filings,
furnishing information required in connection therewith and timely seeking to
obtain any such consents, approvals, permits or authorizations. The Company
shall not take any action to restrict, limit or prohibit Newco's ability to
exercise all of its rights and obligations under the Voting Agreement, and the
Company and its Board of Directors has provided and shall provide and maintain
all approvals required under Section 203 of the DGCL in order to permit such
exercise; provided, however, that the Company and its Board of Directors will
not be prohibited from taking any action required by the Board of Directors'
fiduciary duties it deems reasonably appropriate in response to Newco attempting
to acquire any shares of Company Common Stock other than those subject to the
option under Section 4 of the Voting Agreement (the "Voting Agreement Option"),
except the Company and the Board of Directors will not revoke, amend or restrict
the approvals under Section 203 of the DGCL referred to above, or attempt to
assert that such approvals are not valid or are inapplicable.
(b) Each of the parties agrees to cooperate with each other in taking, or
causing to be taken, all actions necessary to delist the shares of Company
Common Stock from The Nasdaq Stock Market Inc.'s (the "NASDAQ") National Market,
provided that such delisting shall not be effective until after the Effective
Time. The parties also acknowledge that it is Newco's intent that the shares of
retained Company Common Stock following the Merger will not be quoted on the
NASDAQ National Market or listed on any national securities exchange.
(c) The Company agrees to provide, and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, all necessary
cooperation in connection with the arrangement of any financing to be
consummated contemporaneous with or at or after the Closing in respect of the
transactions contemplated by this Agreement, including without limitation,
participation in meetings, due diligence sessions, road shows, the preparation
of offering memoranda, private placement memoranda, prospectuses and similar
documents, the execution and delivery of any commitment letters, underwriting or
placement agreements, pledge and security documents, other definitive financing
documents, or other requested certificates or documents, including a certificate
of the chief financial officer of the Company with respect to solvency matters,
comfort letters of accountants and legal opinions as may be requested by Newco
or its sources of financing. The parties acknowledge that the payment of any
fees by the Company in connection with any commitment letters shall be subject
to the occurrence of the Closing. In addition, in conjunction with the obtaining
of any such financing, the Company agrees, at the request of Newco, to call for
prepayment or redemption, or to prepay, redeem and/or renegotiate, as the case
may be, any then existing indebtedness or equipment leases of the Company and
its Subsidiaries; provided that no such prepayment, redemption or renegotiation
shall themselves actually be made effective until contemporaneous with or after
the Effective Time.
(d) The Company shall cooperate with any reasonable requests of Newco or
the SEC related to the recording of the Merger as a recapitalization for
financial reporting purposes, including, without limitation, to assist Newco and
its affiliates and representatives with any presentation to the SEC with regard
to such recording and to include appropriate disclosure with regard to such
recording in all filings with the SEC and all mailings to stockholders made in
connection with the Merger. In furtherance of the foregoing, the Company shall
provide to Newco, and Newco shall provide to the Company, for the prior review
of Newco's and the Company's advisors, any description of the transactions
contemplated by this Agreement which is meant to be disseminated.
(e) (i) Newco hereby agrees to use its reasonable best efforts, subject to
normal conditions, to arrange the financing described in Annexes A-1 and A-2 of
the Disclosure Schedule in respect of the transactions contemplated by this
Agreement, including using its reasonable best efforts (A) to assist the Company
in the negotiation of definitive agreements with respect thereto and (B) to
satisfy all conditions applicable to Newco in such definitive agreements. Newco
will keep the Company informed of the status of its efforts to arrange such
financing, including making reports with respect to significant developments. In
the event Newco is unable to arrange any portion of such financing in the manner
or from the sources originally contemplated,
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Newco will use its reasonable best efforts, subject to normal conditions, to
arrange any such portion from alternative sources on substantially similar terms
to those contemplated in such Annexes A-1 and A-2.
(ii) Subject to the Company having received the proceeds of the
financing described in Section 7.2(f) on terms satisfactory to Newco, Newco
at the Closing will be capitalized with an equity contribution of $67.5
million (including contributions of Company Common Stock by certain
employee stockholders valued at the Cash Election Price per share and
including issuances of restricted stock valued at the purchase price paid
by investors purchasing shares of Newco for cash). Newco will be under no
obligation pursuant to the preceding sentence unless and until the Company
receives the proceeds of the financing described in Section 7.2(f) on terms
satisfactory to Newco. In addition, Newco will be under no obligation under
any circumstances to be capitalized with equity of more than $67.5 million
(calculated as described above).
(f) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such necessary action.
SECTION 6.9 Public Announcements. Prior to the Effective Time, neither
Newco nor the Company will issue any press release or public statement with
respect to the transactions contemplated by this Agreement, including the
Merger, or the Voting Agreement, without the other party's prior consent, except
as may be required by applicable law, court process or by obligations pursuant
to its inclusion in the NASDAQ National Market. In addition to the foregoing,
Newco and the Company will consult with each other before issuing, and provide
each other the opportunity to review and comment upon, any such press release or
other public statements with respect to such transactions. The parties agree
that the initial press release or releases to be issued with respect to the
transactions contemplated by this Agreement shall be mutually agreed upon prior
to the issuance thereof.
SECTION 6.10 Disposition of Litigation. The Company will not voluntarily
cooperate with any third party which has sought or may hereafter seek to
restrain or prohibit or otherwise oppose the Merger and will cooperate with
Newco to resist any such effort to restrain or prohibit or otherwise oppose the
Merger.
SECTION 6.11 Affiliates. Prior to the Closing Date, the Company shall
deliver to Newco a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its reasonable best efforts to cause each such person who
makes a Mixed Election to deliver to Newco on or prior to the Closing Date a
written agreement substantially in the form attached as Annex A hereto.
SECTION 6.12 Stop Transfer Order. The Company shall notify the Company's
transfer agent that there is a stop transfer order with respect to all of the
Subject Shares (as defined in the Voting Agreement) and that the Voting
Agreement places limits on the voting of the Subject Shares.
SECTION 6.13 Transfer Taxes. Newco shall pay when due any and all
transfer, documentary, sales, use, registration and other similar taxes
(including without limitation any applicable stock transfer (except as provided
in Section 2.5(b)) and real property taxes) and related amounts incurred as a
result of the Merger and the transactions contemplated hereby.
SECTION 6.14 Employee Plans and Benefits. (a) Subject to applicable law,
the Company will honor in accordance with their terms all existing employment
agreements and employee benefits plans between the Company or any of its
Subsidiaries and any officer, director or employee of the Company or any of its
Subsidiaries; provided that nothing in this Section 6.14(a) shall prevent the
Company from amending or terminating any such agreements or plans in accordance
with the terms thereof.
(b) Newco agrees that, for at least two years from the Effective Time,
subject to applicable law, the Company and its Subsidiaries will provide
benefits to their employees as a group (and not necessarily on an
individual-by-individual or group-by-group basis) which will, in the aggregate,
be similar to those currently provided by the Company and its Subsidiaries to
their employees; provided that the Company and its Subsidiaries will not be
under any obligation to retain any employee or group of employees.
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ARTICLE 7
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
(d) Form S-4. To the extent required by applicable law, the Form S-4
shall have become effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order, and any
material "Blue Sky" and other state securities laws applicable to the
registration and qualification of the retained Company Common Stock
following the Merger shall have been complied with.
SECTION 7.2 Conditions to Obligation of Newco. The obligation of Newco to
effect the Merger is further subject to the satisfaction or waiver at or prior
to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement that are qualified as
to materiality shall be true and correct and any such representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing as though made at
and as of the Closing. Newco shall have received a certificate signed on
behalf of the Company by a senior executive officer of the Company to the
effect set forth in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this
Agreement at or prior to the Closing (except for such failures to perform
as, either individually or in the aggregate, have not had or would not
reasonably be expected to have, a Material Adverse Effect).
(c) Consents, Etc. Newco shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Entities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained,
except where the failure to obtain such licenses, permits, consents,
approvals, authorizations, qualifications and orders would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; provided, however, that in any case, the consents and
amendments set forth in Section 7.2(c) of the Disclosure Schedule shall
have been obtained.
(d) No Material Litigation. There shall not be pending by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or proceeding which has a reasonable likelihood of
success) (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or the Voting Agreement or seeking to obtain from Newco, the
Company or any of their respective Subsidiaries or affiliates any damages
that are material to any such party, (ii) seeking to prohibit or limit the
ownership or operation by Newco, the Company or any of its Subsidiaries of
any material portion of the business or assets of the Company or any of its
Subsidiaries, (iii) seeking to impose limitations on the ability of Newco
(or any designee of
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Newco pursuant to the Voting Agreement) or any stockholder of Newco or the
Company to acquire or hold, or exercise full rights of ownership of, any
shares of Company Common Stock, including, without limitation, the right to
vote the Company Common Stock on all matters properly presented to the
stockholders of the Company or (iv) seeking to prohibit Newco or any of its
affiliates from effectively controlling in any material respect the
business or operations of the Company or its Subsidiaries.
(e) Affiliate Letters. Newco shall have received the agreements
referred to in Section 6.11.
(f) Financing. Newco and the Company shall have received the proceeds
of financing on the terms and conditions set forth in Annexes A-1 through
A-3 of the Disclosure Schedule or upon terms and conditions which are, in
the reasonable judgement of Newco, substantially equivalent thereto, and to
the extent that any terms and conditions are not set forth in Annexes A-1
through A-3 of the Disclosure Schedule, on terms and conditions reasonably
satisfactory to Newco.
(g) Recapitalization Accounting. Newco shall be reasonably satisfied
that the Merger shall be recorded as a recapitalization for financial
reporting purposes (provided that if Newco is advised that the SEC finally
determines that recapitalization treatment will not be available, Newco
will advise the Company within 30 days of receipt of such final
determination whether it intends to waive such condition and if it advises
the Company that it has determined not to so waive, the Company may
terminate this Agreement pursuant to Section 8.1(c) as if the date of such
advice from Newco was deemed to be December 31, 1997 for purposes of
Section 8.1(c)).
(h) Employees. Newco shall be reasonably satisfied that the
Employment Arrangements are in full force and effect and that the
individuals who are listed on Schedule 5.1(f) will be employed by the
Company following the Effective Time pursuant to the Employment
Arrangements and such employees will not have been paid nor have the right
to receive any payment from Newco or the Company of any severance,
change-of-control, or similar payments as a result, in whole or in part, of
the consummation of any of the transactions contemplated hereby, except as
expressly provided in the Employment Arrangements.
(i) Mixed Consideration Election. Effective as of the Effective Time,
the Stockholder shall have made and not revoked a Mixed Election with
respect to at least 15,024,616 shares of Company Common Stock owned by the
Stockholder immediately prior to the Effective Time.
(j) Tax Indemnification Agreement. The Tax Indemnification Agreement,
dated as of the date hereof, among the Company, the Estate of John A.
Svenningsen and Christine Svenningsen shall be in full force and effect and
enforceable by the Company following the Effective Time, in accordance with
the terms as in effect on the date hereof and in the form provided to Newco
on the date hereof, or as it may be amended with the consent of Newco.
SECTION 7.3 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Newco set forth in this Agreement that are qualified as to
materiality shall be true and correct and any such representations and
warranties of Newco set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the
date of this Agreement and as of the Closing as though made at and as of
the Closing. The Company shall have received a certificate signed on behalf
of Newco by a senior executive officer of Newco to the effect set forth in
this paragraph.
(b) Performance of Obligations of Newco. Newco shall have performed
the obligations required to be performed by it under this Agreement at or
prior to the Closing (except for such failures to perform as would not,
either individually or in the aggregate, materially adversely affect the
ability of Newco to consummate the transactions herein contemplated or to
perform its obligations hereunder).
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ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent of Newco and the Company;
(b) by either Newco or the Company if any court of competent
jurisdiction, arbitrator or other Governmental Entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or any of
the transactions contemplated by this Agreement or the Voting Agreement, or
otherwise altering the terms of any of the foregoing in any significant
respect, and such order, decree, ruling or other action is or shall have
become final and nonappealable;
(c) by either Newco or the Company if the Merger shall not have been
consummated on or before December 31, 1997, provided that the right to
terminate this Agreement under this Section 8.1(c) shall not be available
to the party whose action or failure to act has been the cause of or
resulted in the failure of the Merger to occur on or before such date where
such action or failure to act constitutes a breach of this Agreement;
(d) by Newco if any required approval of the stockholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at
any adjournment thereof; or
(e) by the Company if, prior to receipt of the Company Stockholder
Approval, the Board of Directors of the Company approves an Acquisition
Transaction, on terms which the Board of Directors of the Company has
determined in good faith (i) to be more favorable to the Company and its
stockholders (other than the Stockholder) than the transactions
contemplated by this Agreement and (ii) based upon the advice of its
outside counsel, that failing to approve such Acquisition Transaction and
terminate this Agreement would constitute a breach of the fiduciary duties
of the Board of Directors of the Company under applicable law; provided
that the termination described in this Section 8.1(e) shall not be
permissible unless and until the Company shall have provided Newco prior
written notice at least three business days prior to such termination that
the Board of Directors of the Company has authorized and intends to effect
the termination of this Agreement pursuant to this Section 8.1(e), the
Company shall otherwise be in compliance in all material respects with its
obligations under this Agreement and on or prior to such termination the
Company shall have paid to Newco the fee described in Section 8.3(a).
SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall, except as provided
in Section 9.1, forthwith become void and there shall be no liability on the
part of any party hereto except as set forth in Section 8.3 and Section 9.1;
provided, however, that nothing herein shall relieve any party from liability
for any breach hereof.
SECTION 8.3 Fees and Expenses. (a) In the event that this Agreement is
terminated pursuant to Section 8.1(e) hereof, then the Company shall, prior to
such termination, pay Newco a termination fee of $8 million; provided, however,
that if Newco exercises the Voting Agreement Option, promptly upon receipt by
Newco of the shares subject to the Voting Agreement Option registered in the
name of Newco or its designee, Newco shall return such termination fee to the
Company; provided further that Newco shall not be required to return such
termination fee or, if already returned, the Company shall again pay such
termination fee to Newco, if the Company or its Board of Directors takes any
affirmative action preventing or restricting Newco or its designee from
acquiring shares of Company Common Stock (including pursuant to the tender offer
contemplated by the Voting Agreement) in addition to the shares acquired
pursuant to the Voting Agreement Option (provided that recommending not to
tender in a tender offer or not recommending in favor of such tender offer,
alone, shall not be deemed such an affirmative action).
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<PAGE> 33
(b) In addition to any other amounts which may be payable or become
payable pursuant to Section 8.3(c), the Company shall (provided that the
Company is then in material breach of its representations, warranties,
covenants or other obligations under this Agreement), promptly following
termination of this Agreement pursuant to Section 8.1(c), but in no event
later than two business days following a written request by Newco therefor,
together with related bills or receipts, reimburse Newco and its
affiliates, in an aggregate amount of up to $3 million, for all reasonable
out-of-pocket expenses and fees (including, without limitation, fees
payable to all banks, investment banking firms and other financial
institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, experts and consultants to Newco
and its affiliates), whether incurred prior to, on or after the date
hereof, in connection with the Merger and the consummation of all
transactions contemplated by this Agreement and the financing thereof;
provided that the Company shall not be required to make payment pursuant to
this Section 8.3(b) if it is obligated to make the payment required
pursuant to Section 8.3(a).
(c) Except as otherwise specifically provided herein, each party shall
bear its own expenses in connection with this Agreement and the
transactions contemplated hereby; provided, however, that if the Merger is
consummated, the Company shall pay the expenses of Goldman, Sachs & Co.
referred to in Section 4.5.
SECTION 8.4 Amendment. Subject to the following sentence, this Agreement
may be amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of the
Company, no amendment that by law would require the further approval by such
stockholders may be made without such approval. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby, but such extension or waiver or failure to insist on strict compliance
with an obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Articles 1 and 2, Sections 6.5 and 6.6 and Articles 8 and 9 shall
survive the Effective Time and those set forth in Section 6.3(b) and Section
6.8(a) (as it relates to the Voting Agreement) and Articles 8 and 9 shall
survive termination of this Agreement.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the
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<PAGE> 34
respective parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
if to Newco:
Confetti Acquisition, Inc.
c/o GS Capital Partners II, L.P.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attn.: Mitchell S. Presser
Telecopier No.: (212) 403-2000
if to the Company:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, NY 10523
Attn.: Corporate Secretary
Telecopier No.: (914) 345-2056
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn.: Milton G. Strom
Randall H. Doud
Telecopier No.: (212) 735-2000
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(c) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States, in each case applied on a basis consistent
with the manner in which the audited financial statements for the fiscal
year of the Company ended December 31, 1996 were prepared;
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d)(3) of the Exchange Act);
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<PAGE> 35
(e) "Significant Subsidiary" has the meaning set forth in Section 1-02
of Regulation S-X promulgated by the SEC;
(f) "Subsidiary" or "Subsidiaries" of any person means any other
person in which such first person (either alone or through or together with
any other Subsidiary of such person), owns, directly or indirectly, 50% or
more of the stock or other equity interests or has the right, through
ownership of equity, contractually or otherwise, to elect at least half of
its Board of Directors or other governing body; and
(g) "transactions contemplated hereby," "transactions contemplated by
this Agreement" and other similar references shall include the Merger and
all other actions and transactions contemplated by this Agreement, the
Voting Agreement and the Employment Arrangements.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 9.5 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Newco may assign all or any of its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary or subsidiaries of Newco, provided
that no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, with respect to the
provisions of Sections 6.6 and 8.3, shall inure to the benefit of the persons or
entities benefitting from the provisions thereof who are intended to be
third-party beneficiaries thereof. Except as provided in the preceding sentence,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent the laws of the State of Delaware are
required to be applicable under applicable choice of law principles.
SECTION 9.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE> 36
[MERGER AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, Newco and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
CONFETTI ACQUISITION, INC.
By: /s/ TERENCE M. O'TOOLE
------------------------------------
Title: Chairman of the Board
and President
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Title: President
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<PAGE> 37
ANNEX A
TO AGREEMENT AND PLAN OF MERGER
FORM OF AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of common stock, par value $.10 per
share ("Company Stock"), of Amscan Holdings, Inc., a Delaware corporation (the
"Company"), is entitled to retain and receive in connection with the merger (the
"Merger") of the Company with Confetti Acquisition, Inc., a Delaware
corporation, securities (collectively, the "Securities") of the Company. The
undersigned acknowledges that the undersigned may be deemed an "affiliate" of
the Company within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act of 1933 (the "Act"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities retained by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that
the undersigned will not sell, assign or transfer any of the Securities retained
by the undersigned pursuant the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act.
In the event of a sale or other disposition by the undersigned of
Securities pursuant to Rule 145, the undersigned will supply the Company with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto.
The undersigned understands that the Company may instruct its transfer
agent to withhold the transfer of any Securities disposed of by the undersigned,
but that upon receipt of such evidence of compliance the transfer agent shall
effectuate the transfer of the Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities retained by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel
reasonably satisfactory to the Company to the effect that such legends are no
longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by Newco of this letter is an inducement and a condition to
Newco's obligations to consummate the Merger.
Very truly yours,
Dated:
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<PAGE> 38
ANNEX I
TO ANNEX A
TO AGREEMENT AND PLAN OF MERGER
[Name]
[Date]
On the undersigned sold the securities ("Securities") of
Amscan Holdings, Inc. (the "Company") described below in the space provided for
that purpose (the "Securities"). The Securities were retained by the undersigned
in connection with the merger of Confetti Acquisition, Inc., a Delaware
corporation, with and into the Company.
Based upon the most recent report or statement filed by the Company with
the Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
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<PAGE> 39
EXHIBIT A
TO AGREEMENT AND PLAN OF MERGER
CERTIFICATE OF INCORPORATION
OF
AMSCAN HOLDINGS, INC.
ARTICLE 1
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
AMSCAN HOLDINGS, INC.
ARTICLE 2
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware (the "DGCL").
ARTICLE 4
Section 4.1 The total number of shares of stock which the Corporation is
authorized to issue is 50,000,000 shares of Common Stock, having a par value of
$0.10 per share.
Section 4.2 Except as otherwise provided by law, the Common Stock shall
have the exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
ARTICLE 5
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors of the Corporation (the "Board"), and
unless and except to the extent that the Bylaws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE 6
In furtherance and not in limitation of the powers conferred by law, the
Board is expressly authorized and empowered to make, alter and repeal the Bylaws
of the Corporation by a majority vote at any regular or special meeting of the
Board or by written consent, subject to the power of the stockholders of the
Corporation to alter or repeal any Bylaws made by the Board.
ARTICLE 7
The Corporation reserves the right at any time from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
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<PAGE> 40
ARTICLE 8
Section 8.1 Elimination of Certain Liability of Directors. A director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
If the DGCL is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
Section 8.2 Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b)
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the DGCL requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of the Board, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct
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<PAGE> 41
which make it permissible under the DGCL for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
* * *
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<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMSCAN HOLDINGS, INC.
ARTICLE 1.
The name of the corporation (which is hereinafter referred to
as the "Corporation") is:
AMSCAN HOLDINGS, INC.
ARTICLE 2.
The address of the Corporation's registered office in the
State of Delaware is The Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
ARTICLE 3.
The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized and incorporated
under the General Corporation Law of the State of Delaware (the "DGCL").
ARTICLE 4.
Section 4.1. The total number of shares of stock which the
Corporation is authorized to issue is 50,000,000 shares of Common Stock, having
a par value of $0.10 per share.
Section 4.2. Except as otherwise provided by law, the Common
Stock shall have the exclusive right to vote for the election of directors and
for all other purposes. Each share of Common Stock shall have one vote, and the
Common Stock shall vote together as a single class.
ARTICLE 5.
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors of the Corporation (the
"Board"), and unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
ARTICLE 6.
In furtherance and not in limitation of the powers conferred
by law, the Board is expressly authorized and empowered to make, alter and
repeal the Bylaws of the Corporation by
<PAGE> 2
a majority vote at any regular or special meeting of the Board or by written
consent, subject to the power of the stockholders of the Corporation to alter
or repeal any Bylaws made by the Board.
ARTICLE 7.
The Corporation reserves the right at any time from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and any other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the right
reserved in this Article.
ARTICLE 8.
Section 8.1. Elimination of Certain Liability of Directors. A
director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit.
If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the DCGL, as so amended.
Any repeal or modification of the foregoing paragraph shall
not adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
Section 8.2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the DCGL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said
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law permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs, executors
and administrators; provided, however, that, except as provided in paragraph
(b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in this Section shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the DGCL requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service is or was rendered
by such person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of the Board, provide indemnification to employees
and agents of the Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the DGCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
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(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
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Exhibit 3.2
AMENDED BY-LAWS
of
AMSCAN HOLDINGS, INC.
=======================================
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of AMSCAN
HOLDINGS (the "Corporation") shall be established and maintained at the office
of The Corporation Trust Company at The Corporation Trust Center, 1209 Orange
Street in the City of Wilmington, County of New Castle, State of Delaware, and
said Corporation Trust Company shall be the registered agent of the Corporation
in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders for
the election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting shall be held on the
next succeeding business day. At each annual meeting, the stockholders entitled
to vote shall elect a Board of Directors and they may transact such other
corporate business as shall be stated in the notice of the meeting.
<PAGE> 2
SECTION 2. SPECIAL MEETINGS -- Special meetings of the stockholders
for any purpose or purposes may be called by the Chairman of the Board, the
Chief Executive Officer, the President or the Secretary, or by resolution of the
Board of Directors.
SECTION 3. VOTING -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation of the Corporation and these
Bylaws may vote in person or by proxy, but no proxy shall be voted after three
years from its date unless such proxy provides for a longer period. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, by the
Certificate of Incorporation of the Corporation or by these Bylaws, the
presence, in person or by proxy, of stockholders holding shares constituting a
majority of the voting power of the Corporation shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at the meeting as originally noticed; but only those stockholders entitled to
vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to
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each stockholder entitled to vote thereat, at his or her address as it appears
on the records of the Corporation, not less than ten nor more than sixty days
before the date of the meeting. No business other than that stated in the notice
shall be transacted at any meeting without the unanimous consent of all the
stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING -- Unless otherwise provided by
the Certificate of Incorporation of the Corporation, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM -- The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors which
shall consist of not less than one person. The exact number of directors shall
initially be three and may thereafter be fixed from time to time by action of
the stockholders or by resolution of the Board of Directors. Directors shall be
elected at the annual meeting of stockholders and each director shall be elected
to serve until his or her successor shall be elected and shall qualify. A
director need not be a stockholder.
SECTION 2. RESIGNATIONS -- Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
SECTION 3. VACANCIES -- If the office of any director becomes
vacant, the remaining directors in the office, though less than a quorum, by a
majority vote, may appoint any qualified person to fill such vacancy, who shall
hold office for the unexpired term and until his or her successor shall be
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duly chosen. If the office of any director becomes vacant and there are no
remaining directors, the stockholders, by the affirmative vote of the holders of
shares constituting a majority of the voting power of the Corporation, at a
special meeting called for such purpose, may appoint any qualified person to
fill such vacancy.
SECTION 4. REMOVAL -- Except as hereinafter provided, any director
or directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of the voting power entitled to
vote for the election of directors, at an annual meeting or a special meeting
called for the purpose, and the vacancy thus created may be filled, at such
meeting, by the affirmative vote of holders of shares constituting a majority of
the voting power of the Corporation.
SECTION 5. COMMITTEES -- The Board of Directors may, by resolution
or resolutions passed by a majority of the whole Board of Directors, designate
one or more committees, each committee to consist of one or more directors of
the Corporation.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these Bylaws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it.
SECTION 6. MEETINGS -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the Directors.
Regular meetings of the Board of Directors may be held without
notice at such places and times as shall be determined from time to time by
resolution of the Board of Directors.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, the Chief Executive Officer or the President, or by the
Secretary on the written request of any director, on at least one day's notice
to each director (except that notice to any director may be waived in writing by
such director) and shall be held at such place or places as may be determined by
the Board of Directors, or as shall be stated in the call of the meeting.
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<PAGE> 5
Unless otherwise restricted by the Certificate of Incorporation of
the Corporation or these By-laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in any meeting
of the Board of Directors or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
SECTION 7. QUORUM -- A majority of the Directors shall constitute a
quorum for the transaction of business. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum is obtained, and no
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned. The vote of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors unless the Certificate of Incorporation of the Corporation or these
Bylaws shall require the vote of a greater number.
SECTION 8. COMPENSATION -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board of Directors a fixed fee and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 9. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS -- The officers of the Corporation shall be a
Chief Executive Officer, a President, one or more Vice Presidents, a Treasurer
and a Secretary, all of whom shall be elected by the Board of Directors and
shall hold office until their successors are duly elected and qualified. In
addition, the Board of Directors may elect such Assistant
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<PAGE> 6
Secretaries and Assistant Treasurers as they may deem proper. The Board of
Directors may appoint such other officers and agents as it may deem advisable,
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of the Board shall
not be an officer of the Corporation. He or she shall preside at all meetings of
the Board of Directors and shall have an perform such other duties as may be
assigned to him or her by the Board of Directors.
SECTION 3. CHIEF EXECUTIVE OFFICER -- The Chief Executive Officer
shall shall have the general powers and duties of supervision and management
usually vested in the office of Chief Executive Officer of a corporation. He or
she shall have the power to execute bonds, mortgages and other contracts on
behalf of the Corporation, and to cause the seal of the Corporation to be
affixed to any instrument requiring it, and when so affixed the seal shall be
attested to by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
SECTION 4. PRESIDENT -- The President shall be the Chief Operating
Officer of the Corporation. He or she shall have the general powers and duties
of supervision and management usually vested in the office of President of a
corporation. The President shall have the power to execute bonds, mortgages and
other contracts on behalf of the Corporation, and to cause the seal to be
affixed to any instrument requiring it, and when so affixed the seal shall be
attested to by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENTS -- Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by the
Board of Directors.
SECTION 6. TREASURER -- The Treasurer shall be the Chief Financial
Officer of the Corporation. He or she shall have the custody of the Corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He or she shall deposit all
moneys and other valuables in the name and to the credit of the Corporation in
such depositaries as may be designated by the Board of Directors. He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President, taking proper vouchers for such
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disbursements. He or she shall render to the Chairman of the Board, the Chief
Executive Officer, the President and Board of Directors at the regular meetings
of the Board of Directors, or whenever they may request it, an account of all
his or her transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he or she shall give the
Corporation a bond for the faithful discharge of his or her duties in such
amount and with such surety as the Board of Directors shall prescribe.
SECTION 7. SECRETARY -- The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and of the Board of Directors and
all other notices required by law or by these Bylaws, and in case of his or her
absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chairman of the Board, the Chief Executive
Officer or the President, or by the Board of Directors, upon whose request the
meeting is called as provided in these Bylaws. He or she shall record all the
proceedings of the meetings of the Board of Directors, any committees thereof
and the stockholders of the Corporation in a book to be kept for that purpose,
and shall perform such other duties as may be assigned to him or her by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President. He or she shall have the custody of the seal of the Corporation
and shall affix the same to all instruments requiring it, when authorized by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President, and attest to the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES --
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock shall be
issued to each stockholder certifying the number of shares owned by such
stockholder in the Corporation. Certificates of stock of the Corporation shall
be of such form and device as the Board of Directors may from time to time
determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may be
issued in the place of any certificate theretofore
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<PAGE> 8
issued by the Corporation, alleged to have been lost or destroyed, and the Board
of Directors may, in its discretion, require the owner of the lost or destroyed
certificate, or such owner's legal representatives, to give the Corporation a
bond, in such sum as they may direct, not exceeding double the value of the
stock, to indemnify the Corporation against any claim that may be made against
it on account of the alleged loss of any such certificate, or the issuance of
any such new certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; (2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2)
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<PAGE> 9
the record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting when no prior action of the Board
of Directors is required by law, shall be the first day on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors may, out of funds
legally available therefor at any regular or special meeting, declare dividends
upon stock of the Corporation as and when they deem appropriate. Before
declaring any dividend, there may be set apart out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall be in
such form as shall be determined by resolution of the Board of Directors. Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation shall
be determined by resolution of the Board of Directors.
SECTION 8. CHECKS -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, or agent or agents,
of the Corporation, and in such manner as shall be determined from time to time
by resolution of the Board of Directors.
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<PAGE> 10
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice is
required to be given under these Bylaws, personal notice is not required unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his or her address as it appears on
the records of the Corporation, and such notice shall be deemed to have been
given on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by law.
Whenever any notice is required to be given under the provisions of any law, or
under the provisions of the Certificate of Incorporation of the Corporation or
of these Bylaws, a waiver thereof, in writing and signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to such required notice.
ARTICLE VI
AMENDMENTS
These Bylaws may be altered, amended or repealed at any annual
meeting of the stockholders (or at any special meeting thereof if notice of such
proposed alteration, amendment or repeal to be considered is contained in the
notice of such special meeting) by the affirmative vote of the holders of shares
constituting a majority of the voting power of the Corporation. Except as
otherwise provided in the Certificate of Incorporation of the Corporation, the
Board of Directors may by majority vote of those present at any meeting at which
a quorum is present alter, amend or repeal these Bylaws, or enact such other
Bylaws as in their judgment may be advisable for the regulation and conduct of
the affairs of the Corporation.
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EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
of
THE AMSCAN CO., INC.
(Pursuant to Article Two of the Stock Corporation Law)
WE, THE UNDERSIGNED, desiring to form a corporation pursuant
to Article Two of the Stock Corporation Law of the State of New York, do hereby
make, subscribe and acknowledge this certificate for that purpose, as follows:
FIRST:- The name of the proposed corporation is
THE AMSCAN CO., INC.
SECOND:- The purposes for which this corporation is to be
formed are as follows; to wit:
(a) To carry on a general merchandising, trading, commission
and brokerage business; to buy, manufacture, produce or otherwise acquire, sell,
import, export, trade and deal in either as principal, agent, commission
merchant, factor, broker or attorney-in-fact, every and all kinds of goods,
wares, merchandise, commodities and personal property, and to make and enter
into all manner and kinds of contracts, agreements and obligations with any
individual, partnership, corporation, association, foreign or domestic,
including government or governmental authorities, international, supreme, local
or otherwise.
(b) To acquire, hold, use, sell, assign, lease, grant licenses
in respect of, mortgage, or otherwise dispose of letters patent of the United
States or of
<PAGE> 2
any foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyright, trademarks and trade names relating to or
in connection with any business of this corporation.
(c) To take, buy, exchange, lease or otherwise acquire real
estate and any interest or right therein, and to hold, own, operate, control,
maintain, manage and develop the same and to construct, maintain, alter, manage
and control directly or through ownership of stock in any other corporation any
and all kinds of buildings, stores, offices, warehouses, mills, shops,
factories, machinery and plants, and any and all other structures and erections
which may at any time be necessary, useful or advantageous for the purposes of
this corporation.
(d) To buy, exchange, contract for, lease and in any and all
other ways acquire, take, hold and own personal property of every character and
description, and to sell, mortgage, lease and otherwise dispose of the same.
(e) To sell, assign and transfer, convey, lease or otherwise
alienate or dispose of, and to mortgage or otherwise encumber the lands,
buildings, real and personal property of the corporation wherever situated, and
any and all legal and equitable interests therein.
(f) To acquire, by purchase, subscription or otherwise and to
own, hold for investment or otherwise, and to use, sell, assign, transfer,
mortgage, pledge, exchange or otherwise dispose of shares of stock, bonds,
debentures, notes, scrip, securities, evidences of indebtedness, contracts or
other obligations of any corporation or corporations, association or
associations, domestic or foreign, or of any
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<PAGE> 3
firm or individual, or of the United States or any territory or dependency
thereof, or of any state or political subdivision thereof, or of any foreign
government or governmental subdivision; and to issue in exchange therefor,
stocks, bonds, or other securities or evidences of indebtedness of the
corporation, and while the owner or holder of any such property, to receive,
collect, or dispose of the interest, dividends and income and other rights
accruing on or from such property and to possess and exercise in respect thereof
all of the rights, powers and privileges of ownership and including all voting
powers connected therewith.
(g) To purchase, acquire and take over as a going concern, or
otherwise, and carry on, all or any part of the property or business of any
person, firm or corporation possessed of property which can be used for any of
the purposes of this company, or carrying on any business which this company is
authorized to carry on, and as the consideration for the same, to pay cash or to
issue shares, stocks, debentures or obligations of this company, and, in
connection with any such transaction, to undertake any liabilities relating to
the business or property so acquired; when necessary in the course of its
business to guarantee or assume, in so far as is authorized to business
corporations, the payment of principal, dividends or interest of or on any
shares of stock or notes, bonds or other securities of another corporation or of
any firm or individual whose stock, business or property shall be acquired in
whole or in part by it, or any contract or obligation issued or executed or
incurred by any such corporation, firm or individual, and, in so far as is
authorized to business corporations, to use its name and credit for the benefit
of other corporations, firms or individuals.
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(h) To have one or more offices, to carry on all or any of its
operations and business without restriction or limit as to amount; to purchase
or otherwise acquire, hold, own, mortgage and sell, convey or otherwise dispose
of real and personal property of every class and description in any of the
states, districts, territories or dependencies of the United States and in any
and all foreign countries and international zones.
(i) The foregoing and following clauses shall be construed as
objects and powers in furtherance and not in limitation of the general powers
conferred by the laws of the State of New York and it is hereby expressly
provided that the enumeration herein of specific powers shall not be held to
limit or restrict in any manner the powers of this corporation, and that this
corporation may do all and everything necessary, suitable or proper for the
accomplishment of any of the purposes or objects hereinafter enumerated either
alone or in association with other corporations, firms, individuals or
governmental authorities to the same extent and as fully as individuals might or
could do as principals, agents, contractors or otherwise.
THIRD:- The amount of the capital stock shall be in the sum of Ten
Thousand ($10,000) Dollars, which shall consist of one hundred (100) shares of
the par value of One Hundred ($100) Dollars.
FOURTH:- The Secretary of State of the State of New York is hereby
designated as the agent of the corporation upon whom process in any action or
proceeding against it may be served; the office of the corporation shall be
located in the Village of Bronxville, County of Westchester, State of New York
and the address to
-4-
<PAGE> 5
which the Secretary of State shall mail a copy of process in
any action or proceeding against the corporation which may be served upon him
is: Room 1701, No. 40 Exchange Place, New York 5, N.Y.
FIFTH:- The duration of said corporation shall be perpetual.
SIXTH:- The number of directors shall be not less than three nor more
than seven. A director need not be a stockholder.
SEVENTH:- The names and post office addresses of the directors until
the first annual meeting of the stockholders, are as follows:
<TABLE>
<CAPTION>
Names Post Office Addresses
----- ---------------------
<S> <C>
ELVERA SVENNINGSEN 25 Birchbrook Road, Bronxville, New York
JOHN SVENNINGSEN 25 Birchbrook Road, Bronxville, New York
REGINA NELSON 259 Reynolds Terrace, Orange, New Jersey
</TABLE>
EIGHTH:- The names and post office addresses of the subscribers of this
certificate of incorporation and a statement of the number of shares which each
agrees to take in the corporation are as follows:
<TABLE>
<CAPTION>
Number
Names Post Office Addresses of shares
----- --------------------- ---------
<S> <C> <C>
ALFRED J. BEDARD 40 Exchange Place, New York 5, N.Y. 1
JULIAN A. RONAN 40 Exchange Place, New York 5, N.Y. 1
M. JOSEPHINE MESSENGER 40 Exchange Place, New York 5, N.Y. 1
</TABLE>
NINTH:- All of the subscribers of this certificate are of full
age, and at least two-thirds of them are citizens of the United States, and at
least one of them is a
-5-
<PAGE> 6
resident of the State of New York and at least one of the persons named as a
director is a citizen of the United States and a resident of the State of New
York.
TENTH:- No contract or other transaction between the
corporation and any other corporation shall be affected or invalidated by the
fact that any one or more of the directors of this corporation [ ] interested
in, or is a director or officer, or are directors or officers of such other
corporation, and any director or directors, individually or jointly may be a
party or parties to or may be interested in any contract or transaction of this
corporation or in which this corporation is interested; and no contract, act or
transaction of this corporation with any person or persons, firms or
corporations, shall be affected or invalidated by the fact that any director or
directors of this corporation is a party, or are parties to, or interested in,
such contract, act or transaction, or in any way connected with such person or
persons, firm or association, and each and every person who may become a
director of this corporation is hereby relieved from any liability that might
otherwise exist from contracting with the corporation for the benefit of himself
or any firm or corporation in which he may be in any wise interested.
Subject always to by-laws made by the stockholders, the board
of directors may make by-laws and from time to time may alter, amend or repeal
any by-laws, but any by-laws made by the board of directors may be altered or
repealed by the stockholders.
-6-
<PAGE> 7
IN WITNESS WHEREOF, we have made, subscribed and acknowledged
this certificate this day of June 1954.
/s/ (L.S.)
---------------------------------------
/s/ (L.S.)
---------------------------------------
/s/ (L.S.)
---------------------------------------
-7-
<PAGE> 8
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 30th day of June, 1954, before me came ALFRED J. BEDARD, JULIAN
A. RONAN and M. JOSEPHINE MESSENGER to me known to be the persons described in
and who executed the foregoing certificate of incorporation and they thereupon
severally duly acknowledged to me that they executed the same.
/s/
-----------------------------------
-8-
<PAGE> 9
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE
OF INCORPORATION OF
THE AMSCAN CO., INC.
Under Section 805 of the Business Corporation Law.
1. The name of the Corporation is THE AMSCAN CO., INC.
2. Its Certificate of Incorporation was filed by the Department of
State on July 1st, 1954.
3. The Certificate of Incorporation of the Corporation is amended as
follows:
The name of the Corporation is changed to AMSCAN INC.
4. This amendment of the Certificate of Incorporation was authorized by
a vote of the holder of a majority of all outstanding shares entitled to vote
thereon at a meeting of the share holders duly held on February 10, 1965.
IN WITNESS WHEREOF, we have made and subscribed this Certificate, this
day of February, 1965.
/s/
--------------------------------------
President
/s/
--------------------------------------
Secretary
<PAGE> 10
STATE OF NEW YORK )
:ss.:
COUNTY OF WESTCHESTER )
On this day of February, 1965, before me personally came ELVERA
SVENNINGSEN and ALLYN POWELL, to me known and known to me to be the persons
described in and who executed the foregoing certificate of change of name, and
they thereupon severally duly acknowledged to me that they executed the same.
/s/
--------------------------------------
Notary Public,
County of Westchester
-2-
<PAGE> 11
STATE OF NEW YORK )
:ss.:
COUNTY OF WESTCHESTER )
ELVERA SVENNINGSEN and ALLYN POWELL, being duly sworn, depose
and say, and each for herself and himself deposes and says that she, ELVERA
SVENNINGSEN, is the President of THE AMSCAN CO., INC., and he ALLYN POWELL, is
the Secretary thereof; that they were duly authorized to execute and file the
foregoing certificate of amendment of the Certificate of Incorporation of said
corporation by the votes of the holders of record of a majority of the
outstanding shares of the corporation entitled to vote on such amendment, cast
in person, at a stockholders' meeting held upon notice as prescribed in section
605 of the Business Corporation Law, at No. 30 Grove Avenue, in the City of New
Rochelle, New York, on the 10th day of February, 1965, at 2 o'clock p.m. That
they have read the foregoing certificate, and know the contents thereof, and
that the same is true of their own knowledge, except as to the matters therein
stated to be alleged upon information and belief, and as to those matters they
believe it to be true.
/s/
-------------------------------------
/s/
-------------------------------------
Subscribed and sworn to before me this
10th day of February, 1965.
/s/
- ---------------------------------
Notary Public
County of Westchester
-3-
<PAGE> 12
AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
AMSCAN INC.
-----------
1. The name of the corporation is, AMSCAN INC. It was formed under the name of
The Amscan Co., Inc.
2. The Certificate of Incorporation was filed by the Department of State of the
State of New York on July 1st, 1954.
3. The Certificate of Incorporation, as previously amended, is further amended
so as to change the presently authorized 100 shares of the par value of One
Hundred ($100.00) Dollars each into 1,000 shares without par value.
4. Paragraph "THIRD" of the Certificate of Incorporation which refers to
authorized shares is amended to read as follows:
"THIRD:-The total number of shares that may be issued by the
corporation is one thousand (1,000) shares all of which are to be
without par value and which are to be of common stock."
5. Of the 100 shares originally authorized, 99 shares have been issued. 990
shares of the 1,000 shares to be authorized by this amendment, are to be issued
at the rate of 10 shares of no par value stock for each share of par value stock
presently issued.
<PAGE> 13
6. This amendment of the Certificate of Incorporation was authorized by a vote
of the holder of a majority of all outstanding shares entitled to vote thereon
at a meeting of the share holders duly held on January 3rd, 1966.
IN WITNESS WHEREOF, we have made and subscribed this
Certificate this 5th day of January, 1966.
/s/ Elvera Svenningsen
-----------------------------------------
Elvera Svenningsen, President
/s/ Allyn Powell
-----------------------------------------
Allyn Powell, Secretary
STATE OF NEW YORK )
:ss.:
COUNTY OF WESTCHESTER )
On this 5th day of January, 1966, before me personally came
ELVERA SVENNINGSEN and ALLYN POWELL, to me known and known to me to be the
persons described in and who executed the foregoing certificate of change of
name, and they thereupon severally duly acknowledged to me that they executed
the same.
/s/ Harry Schopp
-----------------------------------------
Notary Public #60-8843000
of New York State
Appointed in and for
Westchester County
Commission expires March 30, 1966
-2-
<PAGE> 14
STATE OF NEW YORK )
:ss.:
COUNTY OF WESTCHESTER )
ELVERA SVENNINGSEN and ALLYN POWELL, being duly sworn, depose
and say, and each for herself and himself deposes and says that she, ELVERA
SVENNINGSEN, is the President of THE AMSCAN CO., INC., and he ALLYN POWELL, is
the Secretary thereof; that they were duly authorized to execute and file the
foregoing certificate of amendment of the Certificate of Incorporation of said
corporation by the votes of the holders of record of a majority of the
outstanding shares of the corporation entitled to vote on such amendment, case
in person, at a stockholders' meeting held upon notice as prescribed in section
605 of the Business Corporation Law, at No. 30 Grove Avenue, in the City of New
Rochelle, New York, on the 3rd day of January, 1966, at 10:00 A.M. That they
have read the foregoing certificate and know the contents thereof and that the
same is true of their own knowledge except as to the matters therein stated to
be alleged upon information and belief and as to those matters they believe it
to be true.
/s/ Elvera Svenningsen
-----------------------------------------
Elvera Svenningsen
/s/ Allyn Powell
-----------------------------------------
Allyn Powell
-3-
<PAGE> 15
Subscribed and sworn to before me this
5th day of January, 1966
/s/ Harry Schopp
- -------------------------------------
Notary Public #60-8843000
of New York State
Appointed in and for Westchester County
Commission expires March 30, 1966
-4-
<PAGE> 16
CERTIFICATE OF CHANGE
OF
AMSCAN INC.
UNDER SECTION 805-A OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, John A. Svenningsen and Stephen P. Stein, being
respectively the President and the Secretary of Amscan, Inc. hereby certify:
1. The name of the corporation is Amscan, Inc. It was incorporated under
the name The Amscan Co., Inc.
2. The Certificate of Incorporation of said corporation was filed by the
Department of State on July 1, 1954.
3. The following was authorized by the Board of Directors:
To change the post office address to which the Secretary of
State shall mail a copy of process in any action or proceeding against the
corporation which may be served on him from The Amscan Co., Inc., 40 Exchange
Place, Room 1701, New York, N.Y. to Amscan, Inc., South Road, P.O. Box 587,
Harrison, New York 10528-0587.
<PAGE> 17
IN WITNESS WHEREOF, we have signed this certificate on the
23rd day of June, 1995 and we affirm the statements contained therein as true
under penalties of perjury.
/s/ John A. Svenningsen
--------------------------------------
John A. Svenningsen, President
/s/ Stephen J. Stein
--------------------------------------
Stephen J. Stein, Secretary
-2-
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
OF
THE AMSCAN CO., INC.
ARTICLE I.
MEETING OF STOCKHOLDERS
Sec. 1. ANNUAL MEETINGS. The annual meeting of the Stockholders shall
be held at the principal office of the Corporation, on the 1st day of July of
each year, at 2:00 o'clock in the afternoon of that day. If the day so
designated falls upon a Sunday or a legal holiday, then the meeting shall be
held upon the first secular day thereafter. The Secretary shall serve
personally, or send through the post office, at least ten days before such
meeting a notice thereof, addressed to each stockholder at his last known post
office address, and publish notice thereof as required by law; but at any
meeting at which all stockholders shall be present, or of which all stockholders
not present have waived notice in writing, the giving of notice as above
required may be dispensed with.
Sec. 2. QUORUM. At all meetings of stockholders, except where it is
otherwise provided by law, it shall be necessary that stockholders, representing
in person or by proxy majority of the capital stock, shall be present to
constitute a quorum.
Sec. 3. SPECIAL MEETINGS. Special Meetings of Stockholders other than
those regulated by statute, may be called at any time by a majority of the
Directors, upon ten days' notice to each stockholder of record, such notice to
contain a
<PAGE> 2
statement of the business to be transacted at such meeting, and to be served
personally or sent through the Post Office, addressed to each of such
stockholders of record at his last known Post Office address; but at any meeting
at which all stockholders shall be present, or of which stockholders not present
have waived notice in writing, the giving of notice as above described may be
dispensed with. The Board of Directors shall also, in like manner, call a
special meeting of stockholders whenever so requested in writing by stockholders
representing not less than one-half of the capital stock of the company. No
business other than that specified in the call for the meeting, shall be
transacted at any special meeting of the stockholders.
Sec. 4. VOTING. At all meetings of the Stockholders all questions, the
manner of deciding which is not specifically regulated by statute, shall be
determined by a majority vote of the Stockholders present in person or by proxy;
provided, however, that any qualified voter may demand a stock vote, in which
case each Stockholder present, in person or by proxy, shall be entitled to cast
one vote for each share of stock owned or represented by him. All voting shall
be viva voce, except that a stock vote shall be by ballot, each of which shall
state the name of the Stockholder voting and the number of shares owned by him,
and in addition, if such ballot be cast by proxy, the name of the proxy shall be
stated. The casting of all votes at special meetings of Stockholders shall be
governed by the provisions of the Corporation Laws of this state.
Sec. 5. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be as follows:
-2-
<PAGE> 3
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Inspectors of Election.
7. Election of Directors.
8. Unfinished Business.
9. New Business.
ARTICLE II.
DIRECTORS
Sec. 1. NUMBER. The affairs and business of this Corporation shall be
managed by a Board of Directors, who need not be stockholders of record, and at
least one of such Directors shall be a resident of the State of New York and a
citizen of the United States.
Sec. 2. HOW ELECTED. At the annual meeting of Stockholders, the three
persons receiving a plurality of the votes cast shall be directors and shall
constitute the Board of Directors for the ensuing year.
Sec. 3. TERM OF OFFICE. The term of office of each of the Directors
shall be one year, and thereafter until his successor has been elected.
Sec. 4. DUTIES OF DIRECTORS. The Board of Directors shall have the
control and general management of the affairs and business of the Corporation.
-3-
<PAGE> 4
Such Directors shall in all cases act as a Board, regularly convened, by a
majority and they may adopt such rules and regulations for the conduct of their
meetings and the management of the Corporation, as they may deem proper, not
inconsistent with these BY-LAWS and the Laws of the State of New York.
Sec. 5. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the Stockholders, and
at such other times as the Board of Directors may determine. Special meetings of
the Board of Directors may be called by the President at any time, and shall be
called by the President or the Secretary upon the written request of two
directors.
Sec. 6. NOTICE OF MEETINGS. Notice of meetings, other than the regular
annual meeting shall be given by service upon each Director in person, or by
mailing to him at his last known Post Office address, at least ten days before
the date therein designated for such meeting, including the day of mailing, of a
written or printed notice thereof specifying the time and place of such meeting,
and the business to be brought before the meeting and no business other than
that specified in such notice shall be transacted at any special meeting. At any
meeting at which every member of the Board of Directors shall be present,
although held without notice, any business may be transacted which might have
been transacted if the meeting had been duly called.
Sec. 7. QUORUM. At any meeting of the Board of Directors, a majority of
the Board shall constitute a quorum for the transaction of business; but in the
event of a quorum not being present, a less number may adjourn the meeting to
some future time, not more than twenty days later.
-4-
<PAGE> 5
Sec. 8. VOTING. At all meetings of the Board of Directors, each
Director is to have one vote, irrespective of the number of shares of stock that
he may hold.
Sec. 9. VACANCIES. Whenever any vacancy shall occur in the Board of
Directors by death, resignation, removal or otherwise, the same shall be filled
without undue delay by a majority vote by ballot of the remaining members of the
Board at a Special meeting which shall be called for that purpose. Such election
shall be held within sixty days after the occurrence of such vacancy. The person
so chosen shall hold office until the next annual meeting or until his successor
shall have been chosen at a special meeting of the Stockholders.
Sec. 10. REMOVAL OF DIRECTORS. Any one or more of the Directors may be
removed either with or without cause, at any time by a vote of the stockholders
holding sixty-six and two-thirds of the stock, at any special meeting called for
the purpose, or at the annual meeting.
ARTICLE III.
OFFICERS
Sec. 1. NUMBER. The officers of this Corporation shall be:
1. President.
2. Vice-President.
3. Secretary.
4. Treasurer.
5.
-5-
<PAGE> 6
Sec. 2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately after the
meeting of stockholders, and shall hold office for the term of one year or until
their successors are duly elected.
Sec. 3. DUTIES OF OFFICERS. The duties and powers of the officers of
the Corporation shall be as follows:
PRESIDENT.
The President shall preside at all meetings of the Board of Directors
and Stockholders.
He shall present at each annual meeting of the Stockholders and
Directors a report of the condition of the business of the Corporation.
He shall cause to be called regular and special meetings of the
Stockholders and Directors in accordance with these By-Laws.
He shall appoint and remove, employ and discharge, and fix the
compensation of all servants, agents employees and clerks of the Corporation
other than the duly appointed officers, subject to the approval of the Board of
Directors.
He shall sign and make all contracts and agreements in the name of the
Corporation, and see that they are properly carried out.
He shall see that the books, reports, statements and certificates
required by the statutes are properly kept, made and filed according to law.
-6-
<PAGE> 7
He shall sign all certificates of stock, notes, drafts or bills of
exchange, warrants or other orders for the payment of money duly drawn by the
Treasurer.
He shall enforce these By-Laws and perform all the duties incident to
the position and office, and which are required by law.
VICE-PRESIDENT.
During the absence and inability of the President to render and perform
his duties or exercise his powers, as set forth in these By-Laws or in the acts
under which this Corporation is organized, the same shall be performed and
exercised by the Vice-President; and when so acting, he shall have all the
powers and be subject to all responsibilities hereby given to or imposed upon
such President.
SECRETARY.
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the Stockholders in appropriate books.
He shall give and serve all notices of the Corporation.
He shall be custodian of the records and of the seal, and affix the
latter when required.
He shall keep the stock and transfer books in the manner prescribed by
law, so as to show at all times the amount of capital stock, the manner and the
time the same was paid in, the names of the owners thereof, alphabetically
arranged, their respective places of residence, their post office addresses, the
number of shares owned by each, the time at which each person became such owner,
and the amount
-7-
<PAGE> 8
paid thereon; and keep such stock and transfer books open daily
during business hours at the office of the Corporation, subject to the
inspection of any Stockholder of the Corporation, and permit such Stockholder to
make extracts from said books to the extent and as prescribed by law.
He shall sign all certificates of stock.
He shall present to the Board of Directors at their stated meetings all
communications addressed to him officially by the President or any officer or
shareholder of the Corporation.
He shall attend to all correspondence and perform all the duties
incident to the office of Secretary.
TREASURER.
The Treasurer shall have the care and custody of and be responsible for
all the funds and securities of the Corporation, and deposit all such funds in
the name of the Corporation in such bank or banks, trust company or trust
companies or safe deposit vaults as the Board of Directors may designate.
He shall sign, make, and endorse in the name of the Corporation, all
checks, drafts, warrants and orders for the payment of money and pay out and
dispose of same and receipt therefor, under the direction of the President or
the Board of Directors.
-8-
<PAGE> 9
He shall exhibit at all reasonable times his books and accounts to any
director or stockholder of the Corporation upon application at the office of the
Corporation during business hours.
He shall render a statement of the condition of the finances of the
Corporation at each regular meeting of the Board of Directors, and at such other
times as shall be required of him, and a full financial report, at the annual
meeting of the stockholders.
He shall keep at the office of the Corporation, correct books of
account of all its business and transactions and such other books of account as
the Board of Directors may require.
He shall do and perform all duties appertaining to the office of
Treasurer.
Sec. 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge of
his duties as the Board may direct.
Sec. 5. VACANCIES, HOW FILLED. All vacancies in any office, shall be
filled by the Board of Directors without undue delay, at its regular meeting, or
at a meeting specially called for that purpose.
Sec. 6. COMPENSATION OF OFFICERS. The officers shall receive such
salary or compensation as may be determined by the Board of Directors.
Sec. 7. REMOVAL OF OFFICERS. The Board of Directors may remove any
officer, by a majority vote, at any time, with or without cause.
-9-
<PAGE> 10
ARTICLE IV.
Sec. 1. SEAL. The seal of the Corporation shall be as follows:
ARTICLE V.
CERTIFICATES OF STOCK
Sec. 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock
shall be numbered and registered in the order in which they are issued. They
shall be bound in a book and shall be issued in consecutive order therefrom, and
in the margin thereof shall be entered the name of the person owning the shares
therein represented, with the number of shares and the date thereof. Such
certificates shall exhibit the holder's name and the number of shares. They
shall be signed by the President or Vice-President, and countersigned by the
Secretary or Treasurer and sealed with the seal of the Corporation.
Sec. 2. TRANSFER OF STOCK. The stock of the Corporation shall be
assigned and transferable on the books of the Corporation only by the person in
whose name it appears on said books, or his legal representatives. In case of
transfer by attorney, the power of attorney, duly executed and acknowledged,
shall be deposited with the Secretary. In all cases of transfer, the former
certificate must be surrendered up and cancelled before a new certificate be
issued. No transfer shall be made upon the books of the Corporation within ten
days next preceding the annual meeting of the Shareholders.
-10-
<PAGE> 11
ARTICLE VI.
DIVIDENDS
Sec. 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient for
such dividends to be declared.
ARTICLE VII.
BILLS, NOTES, &C.
Sec. 1. HOW AMENDED. All bills payable, notes, checks or other
negotiable instruments of the Corporation shall be made in the name of the
Corporation, and shall be signed by such officer or officers as the Board of
Directors shall from time to time direct. No officer or agent of the
Corporation, either singly or jointly with others, shall have the power to make
any bill payable, note, check, draft or warrant or other negotiable instrument,
or endorse the same in the name of the Corporation, or contract or cause to be
contracted any debt or liability in the name or in behalf of the Corporation,
except as herein expressly prescribed and provided.
ARTICLE VIII.
AMENDMENTS.
Sec. 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or
added to by an affirmative vote of the stockholders representing a majority of
the whole capital stock, at an annual meeting or at a special meeting called for
that purpose, provided that a written notice shall have been sent to each
stockholder of
-11-
<PAGE> 12
record at his last known post office address, at least ten days before the date
of such annual or special meeting, which notice shall state the alterations,
amendments or changes which are proposed to be made in such By-Laws. Only such
changes as have been specified in the notice shall be made. If, however, all the
stockholders shall be present at any regular or special meeting, these By-Laws
may be amended by a unanimous vote, without any previous notice.
-12-
<PAGE> 1
EXHIBIT 3.5
RESTATED
ARTICLES OF INCORPORATION
OF
TRISAR, INC.
L. Randall Harris and Edgar Alan Shook certify that:
1. They are the President and the Secretary, respectively, of TRISAR, INC., a
California corporation.
2. The Articles of Incorporation of this Corporation are hereby amended and
restated as follows:
NAME
FIRST: The name of this corporation is:
TRISAR, INC.
PURPOSES AND POWERS
SECOND: The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the business of a bank or trust company
or the practice of a profession permitted to be incorporated under the
California Corporations Code.
STOCK
THIRD: This corporation is authorized to issue only one class of shares
of stock having a total number of 10,000 shares and zero value per share.
<PAGE> 2
DIRECTOR LIABILITY
FOURTH: The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
INDEMNIFICATION OF AGENTS
FIFTH: This Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Corporation and its stockholders through bylaw provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.
3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. The total number
of outstanding shares of the Corporation is Two Hundred Sixty Six One
Hundredths (266.66). The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was two-thirds (2/3).
<PAGE> 3
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth herein are true and correct of our own
knowledge.
DATED: 2/2/89 /s/ L. Randall Harris
-------- -----------------------------------------
L. RANDALL HARRIS, President
/s/ Edgar Allen Shook
-----------------------------------------
EDGAR ALAN SHOOK, Secretary
[seal of the Secretary of
State, California]
<PAGE> 1
EXHIBIT 3.6
BYLAWS
OF
TRISAR, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE
The principal executive office of the corporation shall be in the City
of Irvine, County of Orange, State of California.
The corporation may also have offices at such other places as the Board
of Directors may from time to time designate, or as the business of the
corporation may require.
ARTICLE II
SHAREHOLDERS' MEETING
SECTION 1. PLACE OF MEETINGS
All meetings of the shareholders shall be held at the principal
executive office of the corporation or at such other place as may be determined
by the Board of Directors.
SECTION 2. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held on the fifth day
of October in each year, if not a holiday, at 9:00 A.M. at which time the
shareholders shall elect a Board of Directors and transact any other proper
business. If this date falls on a holiday, then the meeting shall be held on the
following business day at the same hour.
SECTION 3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the Board of
Directors, the Chairman of the Board of Directors, the President or by one or
more shareholders holding at least 10 percent of the voting power of the
corporation.
SECTION 4. NOTICE OF MEETINGS
Notices of meetings, annual or special, shall be given in writing to
shareholders entitled to vote at the meeting by the Secretary or an Assistant
Secretary, or, if there be no such officer, or in the case of his neglect or
refusal, by any Director or shareholder.
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Such notices shall be given either personally or by mail or other means
of written communication, addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. Notice shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting.
Such notice shall state the place, date and hour of the meeting and
(1), in the case of a special meeting, the general nature of the business to be
transacted, and that no other business may be transacted, or (2), in the case of
an annual meeting, those matters which the Board at the time of the mailing of
the notice, intends to present for action by the shareholders, but subject to
the provisions of Section 6 of this Article that any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
Directors are to be elected shall include the names of nominees which at the
time of the notice, management intends to present for election. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
SECTION 5. WAIVER OF NOTICE
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present, whether in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers or consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Neither the business to be
transacted at the meeting, nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice, except as
provided in Section 6 of this Article.
SECTION 6. SPECIAL NOTICE AND WAIVER OF NOTICE REQUIREMENT
Except as provided below, any shareholder approval at a meeting, with
respect to the following proposals, shall be valid only if the general nature of
the proposal so approved was stated in the notice of meeting, or in any written
waiver of notice:
1. Approval of a contract or other transaction between the corporation
and one or more of its Directors or between the corporation and any corporation,
firm or association in which one or more of the directors has a material
financial interest, pursuant to Section 310 of the California Corporations Code;
2. Amendment of the Articles of Incorporation after any shares have
been issued pursuant to Section 902 of the California Corporations Code;
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3. Approval of the principal terms of a reorganization pursuant to
Section 1201 of the California Corporations Code;
4. Election to voluntarily wind up and dissolve the corporation
pursuant to Section 1900 of the California Corporations Code; and
5. Approval of a plan of distribution of shares as part of the winding
up of the corporation pursuant to Section 2007 of the California Corporations
Code.
Approval of the above proposals at a meeting shall be valid with or
without such notice, if by the unanimous approval of those entitled to vote at
the meeting.
SECTION 7. ACTION WITHOUT MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if, a
consent, in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of any shareholders' approval, with respect to any
one of the following proposals, without a meeting, by less than unanimous
written consent shall be given at least ten (10) days before the consummation of
the action authorized by such approval:
1. Approval of a contract or other transaction between the corporation
and one or more of its Directors or another corporation, firm or association in
which one or more of its directors has a material financial interest, pursuant
to Section 310 of the Corporations Code;
2. To indemnify an agent of the corporation pursuant to Section 317 of
the California Corporations Code;
3. To approve the principal terms of a reorganization, pursuant to
Section 1201 of the California Corporations Code, or
4. Approval of a plan of distribution as part of the winding up of the
corporation pursuant to Section 2007 of the California Corporations Code.
Prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than a unanimous
written consent to those shareholders entitled to vote who have not consented in
writing.
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Notwithstanding any of the foregoing provisions of this section,
Directors may not be elected by written consent except by the unanimous written
consent of all shares entitled to vote for the election of Directors.
A written consent may be revoked by a writing received by the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the Secretary of the corporation.
SECTION 8. QUORUM
A majority of the shareholders entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum
is present, the affirmative vote of the majority of shareholders represented at
the meeting and entitled to vote on any matter shall be the act of the
shareholders, unless the vote of a greater number is required by law and except
as provided in the following provisions of this section.
The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action is approved by at least a majority of the shares required
to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares represented
either in person or by proxy, but no other business may be transacted except as
provided in the foregoing provisions of this section.
SECTION 9. VOTING
Only persons in whose names shares entitled to vote stand on the record
date for voting purposes fixed by the Board of Directors pursuant to Article
VIII, Section 3 of these Bylaws, or, if there be no such date so fixed, on the
record dates given below, shall be entitled to vote at such meeting.
If no record date is fixed:
1. The record date for determining shareholders entitled to notice of,
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
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2. The record date for determining the shareholders entitled to give
consent to corporate actions in writing without a meeting, when no prior action
by the Board is necessary, shall be the day on which the first written consent
is given.
3. The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto, or the 60th day prior to the date of such other
action, whichever is later.
Every shareholder entitled to vote shall be entitled to one vote for
each share held, except that for the election of Directors, every shareholder
entitled to vote at any election of Directors, if a candidate's name has been
placed in nomination prior to the voting, and one or more shareholders has given
notice at the meeting prior to the voting of the shareholder's intent to
cumulate the shareholder's votes, shall be entitled to cumulate his votes and
give one candidate a number of votes equal to the number of Directors to be
elected multiplied by the number of shares which he is entitled to vote, or
distribute his vote on the same principle among as many candidates as the
shareholder thinks fit. The candidates receiving the highest number of votes up
to the number of Directors to be elected shall be elected. Upon the demand of
any shareholder made before the voting begins, the election of Directors shall
be by ballot.
SECTION 10. PROXIES
Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares by filing a written proxy
executed by such person or his duly authorized agent, with the Secretary of the
corporation.
A proxy shall not be valid after the expiration of eleven (11) months
from the date thereof unless otherwise provided in the proxy. Every proxy
continues in full force and effect until revoked by the person executing it
prior to the vote pursuant thereto, except as otherwise provided in Section 705
of the California Corporations Code.
ARTICLE III
DIRECTORS, MANAGEMENT
SECTION 1. POWERS
Subject to any limitations in the Articles of Incorporation and to the
provisions of the California Corporations Code, and further subject to any
shareholders' agreement relating to any of the affairs of this corporation so
long as it remains a close corporation, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by, or
under the direction, of the Board of Directors.
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SECTION 2. NUMBER
The authorized number of Directors shall be three until changed by
amendment to this Article of these Bylaws.
After issuance of shares, this Bylaw may only be amended by approval of
a majority of the outstanding shares entitled to vote; provided, however, that a
Bylaw reducing the number of Directors cannot be adopted unless in accordance
with the provisions of Section 212 of the Corporations Code.
SECTION 3. ELECTION AND TENURE OF OFFICE
The Directors shall be elected at the annual meeting of the
shareholders and hold office until the next annual meeting and until their
successors have been elected and qualified.
SECTION 4. VACANCIES
A vacancy in the Board of Directors shall exist in the case of death,
resignation or removal of any Director, or in case the authorized number of
Directors is increased, or in case the shareholders fail to elect the full,
authorized number of Directors at any annual or special meeting of the
shareholders at which any Director is elected, or in case the authorized number
of Directors is increased. The Board of Directors may declare vacant the office
of a Director who has been declared of unsound mind by an order of court, or who
has been convicted of a felony.
Except for a vacancy created by the removal of a Director, vacancies on
the Board of Directors may be filled by a majority vote of the Directors then in
office, whether or not less than a quorum, or by a sole remaining Director, and
each Director so elected shall hold office until the next annual meeting of the
shareholders and until his successor has been elected and qualified. The
shareholders may elect a Director at any time to fill a vacancy not filled by
the Director. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote. Any Director may resign
effective upon giving written notice to the Chairman of the Board of Directors,
the President, the Secretary of the Board of Directors of the corporation unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation is effective at a further time, a successor may be elected to
take office when the resignation becomes effective. Any reduction of the
authorized number of Directors does not remove any Director prior to the
expiration of such Director's term in office.
SECTION 5. REMOVAL
Any or all of the Directors may be removed without cause if such
removal is approved by a majority of the outstanding shares entitled to vote,
subject to the provisions of Section 303 of the California Corporations Code.
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Except as provided in Sections 302, 303 and 304 of the California
Corporations Code, a Director may not be removed prior to the expiration of such
Director's term of office.
The Superior Court of the proper county may, on the suit of
shareholders holding at least 10 percent of the number of outstanding shares of
any class, remove from office any Director in case of fraudulent or dishonest
acts or gross abuse of authority or discretion with reference to the corporation
and may bar from re-election any Director so removed for a period prescribed by
the court. The corporation shall be made a party to such action.
SECTION 6. PLACE OF MEETINGS
Meetings of the Board of Directors shall be held at any place, within
or without the State of California which has been designated in the notice of
the meeting, or, if not stated in the notice or there is no notice, at the
principal executive office of the corporation or as designated from time to time
by resolution of the Board of Directors.
SECTION 7. CALL AND NOTICE OF MEETINGS
Meetings of the Board of Directors may be called by the Chairman of the
Board, or the President, or Vice President, or Secretary or any two Directors.
Regular annual meetings of the Board of Directors shall be held without
notice immediately after and at the same place as the annual meeting of
shareholders. Special meetings of the Board of Directors shall be held upon four
(4) days' notice by mail, or 48 hours' notice delivered personally or by
telephone or telegraph. A notice or waiver of notice need not specify the
purpose of any special meeting of the Board of Directors.
SECTION 8. QUORUM
A quorum of all meetings of the Board of Directors shall be 2/3 of the
authorized number of Directors.
Every act or decision done or made by a majority of the Directors
present at a meeting duly held at which a quorum is present is the act of the
Board, subject to the provisions of Section 310 and subdivision (e) of Section
317 of the California Corporations Code. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of Directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
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SECTION 9. WAIVER OF NOTICE
The transactions of any meeting of the Board, however called and
noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the Directors not present signs a written waiver of
notice, a consent to holding the meeting or an approval of the minutes thereof.
All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 10. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the Board may be taken
without a meeting, if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board. Such action by
written consent shall have the same force and effect as a unanimous vote of such
Directors.
SECTION 11. COMPENSATION
No salary shall be paid Directors, as such, for their services, but, by
resolution, the Board of Directors may allow a fixed sum and expenses to be paid
for attendance at regular or special meetings. Nothing contained herein shall
prevent a Director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attendance at meetings.
ARTICLES IV
OFFICERS
SECTION 1. OFFICERS
The officers of the corporation shall be a President, Vice-President, a
Secretary and a Treasurer, who shall be the chief financial officer of the
corporation. The corporation may also have such other officers with such titles
and duties as shall be determined by the Board of Directors. Any number of
offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
SECTION 2. ELECTION
All officers of the corporation shall be chosen by the Board. Each
officer shall hold office until his death, resignation or removal or until his
successor shall be chosen and qualified. A vacancy in any office because of
death, resignation or removal or other cause shall be filled by the Board.
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SECTION 3. REMOVAL AND RESIGNATION
An officer may be removed at any time, either with or without cause, by
the Board. An officer may resign at any time upon written notice to the
corporation given to the Board, the President, or the Secretary of the
corporation. Any such resignation shall take effect at the day of receipt of
such notice or at any other time specified therein. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 4. PRESIDENT
The President shall be the chief executive officer of the corporation
and shall, subject to the direction and control of the Board of Directors, have
general supervision, direction and control of the business and affairs of the
corporation. He shall preside at all meetings of the shareholders and Directors
and be an ex-officio member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of President of a corporation, and shall
have such other powers and duties as may from time to time be prescribed by the
Board of Directors or the Bylaws.
SECTION 5. VICE-PRESIDENT
In the absence or disability of the President, the Vice-Presidents, in
order of their rank as fixed by the Board of Directors, or if not ranked, the
Vice-President designated by the Board, shall perform all the duties of the
President, and when so acting, shall have all the powers of, and be subject to
all the restrictions upon the President. Each Vice-President shall have such
other powers and perform such other duties as may from time to time be
prescribed by the Board of Directors or the Bylaws.
SECTION 6. SECRETARY
The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, a book of minutes of all meetings of
Directors and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at Directors' meetings, the number of shares present or
represented at shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, or at the office of the corporation's
transfer agent, a share register, showing the names of the shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for shares, and the number and date of cancellation
of every certificate surrendered for cancellation.
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The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, the original or a copy of the Bylaws as
amended or otherwise altered to date, certified by him.
The Secretary shall give, or cause to be given, notice of all meetings
of shareholders and Directors required to be given by law or the Bylaws.
The Secretary shall have charge of the seal of the corporation and have
such other powers and perform such other duties as may from time to time be
prescribed by the Board or the Bylaws.
SECTION 7. TREASURER
The Treasurer shall keep and maintain or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation.
The Treasurer shall deposit moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board of Directors. He shall disburse the funds of the corporation in
payment of the just demands against the corporation or as may be ordered by the
Board of Directors; shall render to the President and Directors, whenever they
request it, an account of all his transactions as Treasurer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may from time to time be prescribed by the Board of Directors or
the By-Laws.
In the absence or disability of the Treasurer, the Assistant
Treasurers, if any, in order of their rank as fixed by the Board of Directors or
if not ranked, the Assistant Treasurer designated by the Board of Directors,
shall perform all the duties of the Treasurer, and when so acting, shall have
all the powers of, and be subject to, all the restrictions upon the Treasurer.
The Assistant Treasurers, if any, shall have such other powers and perform such
other duties as may from time to time be prescribed by the Board of Directors or
the Bylaws.
ARTICLE V
EXECUTIVE COMMITTEES
SECTION 1.
The Board may, by resolution adopted by a majority of the authorized
number of Directors, designate one or more committees, each consisting of two or
more Directors, to serve at the pleasure of the Board. Any such committee, to
the extent provided in the resolution of the Board, shall have all the authority
of the Board, except with respect to:
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a. The approval of any action for which this division also requires
shareholders' approval or approval of the outstanding shares.
b. The filling of vacancies on the Board or in any committee.
c. The fixing of compensation of the Directors for serving on the Board
or on any committee.
d. The amendment or repeal of Bylaws or the adoption of new Bylaws.
e. The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable.
f. A distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board.
g. The appointment of other committees of the Board or the members
thereof.
SECTION 2. COMPENSATION
The salaries of the officers shall be fixed, from time to time, by the
Board of Directors.
ARTICLE VI
CORPORATE RECORDS AND REPORTS
SECTION 1. INSPECTION BY SHAREHOLDERS
The share register shall be open to inspection and copying by any
shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to such holder's interest as a shareholder or holder of a voting trust
certificate. Such inspection and copying under this section may be made in
person or by agent or attorney.
The accounting books and records and minutes of proceedings of the
shareholders and the Board and committees of the Board also shall be open to
inspection upon the written demand on the corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of such voting trust certificate. Such inspection
by a shareholder or holder of voting trust certificate may be made in person or
by agent or attorney, and the right of inspection includes the right to copy and
make extracts.
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Shareholders shall also have the right to inspect the original or copy
of these Bylaws, as amended to date, kept at the corporation's principal
executive office, at all reasonable times during business hours.
SECTION 2. INSPECTION BY DIRECTORS
Every Director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation, domestic or foreign, of which such
person is a Director. Such inspection by a Director may be made in person or by
agent or attorney and the right of inspection includes the right to copy and
make extracts.
SECTION 3. RIGHT TO INSPECT WRITTEN RECORDS
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation at its expense makes such record available in written
form.
SECTION 4. WAIVER OF ANNUAL REPORT
The annual report to shareholders, described in Section 1501 of the
California Corporations Code, is hereby expressly waived.
SECTION 5. CONTRACTS, ETC.
The Board of Directors, except as otherwise provided in the Bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name and on behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the Board of Directors, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement, or to pledge
its credit, or to render it liable for any purpose or to any amount.
ARTICLE VII
INDEMNIFICATION OF CORPORATE AGENTS
SECTION 1.
The corporation shall indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts, actually and reasonably
incurred by such person by reason of such person's having been made or having
been threatened to be made a party to a proceeding, to the fullest extent
permissible by the provisions of Section 317 of the California Corporations
Code. The corporation shall advance the expenses reasonably expected to be
incurred by such agent in defending any such proceeding
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upon receipt of the undertaking required by subdivision (f) of such section. The
terms "agent", "proceeding" and "expenses" used in this Section 1 shall have the
same meaning as such terms in said Section 317 of the California Corporations
Code.
ARTICLE VIII
SHARES
SECTION 1. CERTIFICATES
The corporation shall issue certificates for its shares when fully
paid. Certificates of stock shall be issued in numerical order, and state the
name of the recordholder of the shares represented thereby; the number,
designation, if any, and class or series of shares represented thereby; and
contain any statement or summary required by an applicable provision of the
California Corporations Code.
Every certificate for shares shall be signed in the name of the
corporation by the Chairman or Vice-Chairman of the Board or the President or a
Vice-President, and the Treasurer, the Secretary or an Assistant Secretary.
SECTION 2. TRANSFER OF SHARES
Upon surrender to the Secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Secretary of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its share
register.
SECTION 3. RECORD DATE AND CLOSING OF TRANSFER BOOKS
The Board of Directors may fix a time in the future as a record date
for the determination of the shareholders entitled to notice of and to vote at
any meeting of shareholders or entitled to receive payment of any, dividend or
distribution, or any allotment of rights, or to exercise rights in respect to
any other lawful action. The record date so fixed shall not be more than sixty
(60) nor less than ten (10) days prior to the date of the meeting or event for
the purpose of which it is fixed. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution, or allotment of rights, or to
exercise the rights as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date.
The Board of Directors may close the books of the corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend,
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distribution, or allotment of rights vests, or the effective date of any change,
conversion or exchange of shares.
ARTICLE IX
AMENDMENT OF BYLAWS
SECTION 1. BY SHAREHOLDERS
Bylaws may be adopted, amended or repealed by the vote or the written
consent of shareholders entitled to exercise a majority of the voting power of
the corporation.
SECTION 2. BY DIRECTORS
Subject to the right of shareholders to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board of Directors, except
that a Bylaw amendment thereof changing the authorized number of Directors may
be adopted by the Board of Directors only if prior to the issuance of shares.
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CERTIFICATE
This is to certify that the foregoing is a true and correct copy of the
Bylaws of the Corporation named in the title thereto and that such Bylaws were
duly adopted by the Board of Directors of said Corporation on the date set forth
below.
Dated:
/s/
-----------------------------------------
Secretary
[seal]
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EXHIBIT 3.7
Filing Fee $150.00
State of Rhode Island and Providence Plantations
OFFICE OF THE SECRETARY OF STATE
CORPORATIONS DIVISION
100 NORTH MAIN STREET
PROVIDENCE, RI 02903
Corp. I.D. # 72616
BUSINESS CORPORATION
------------------
ORIGINAL ARTICLES OF INCORPORATION
------------------
The undersigned acting as incorporator(s) of a corporation under
Chapter 7-1.1 of the General Laws, 1956, as amended, adopt(s) the following
Articles of Incorporation for such corporation:
FIRST. The name of the corporation is AM-SOURCE, INC.
(A close corporation pursuant to Section 7-1.1-51 of the General Laws, 1956, as
amended) (strike if inapplicable)
SECOND. The period of its duration is (if perpetual, so state) perpetual
THIRD. The purpose or purposes for which the corporation is organized
are:
To carry on and conduct domestic and foreign sales, importing and exporting, of
food servicing, packaging, and related products to the food service industry, to
act, and to appoint others to act as agent, broker, factor, manufacturer's
agent, purchasing agent, sales agent, distributing agent, representative,
commissioned and commissioned merchant, for individuals, firms, associations or
corporations and the distribution, delivery, purchase and sale of goods, wares,
merchandise, property, commodities and articles of commerce of every kind and
description, and in the selling, promoting the sale of, advertising, and
introducing, and contracting for the sale, introduction, advertisement, and use
of, services of all kinds, relating to any and all kinds of businesses, for any
and all purposes for which corporations may be organized under the laws of the
State of Rhode Island, and to have all such other powers conferred upon
corporations organized under the laws of the State of Rhode Island.
<PAGE> 2
FOURTH. The aggregate number of shares which the corporation shall have
authority to issue is:
(a) If only one class: Total number of shares 1,000 - Common - No
Par Value
(If the authorized shares are to consist of one class only,
state the par value of such shares or a statement that all
of such shares are to be without par value.)
or
(b) If more than one class: Total number of shares
(State (A) the number of shares of each class thereof that
are to have a par value and the par value of each share of
each such class, and/or (B) the number of such shares that
are to be without par value, and (C) a statement of all or
any of the designations and the powers, preferences and
rights, including voting rights, and the qualifications,
limitations or restrictions thereof, which are permitted by
the provisions of title 7 of the General Laws in respect of
any class or classes of stock of the corporation and the
fixing of which by the articles of association is desired,
and an express grant of such authority as it may then be
desired to grant to the board of directors to fix by vote or
votes any thereof that may be desired but which shall not be
fixed by the articles.)
FIFTH. Provisions (if any) dealing with the preemptive right of
shareholders pursuant to Section 7-1.1-24 of the General Laws, 1956, as amended:
None
<PAGE> 3
SIXTH. Provisions (if any) for the regulation of the internal affairs
of the corporation:
None
SEVENTH. The address of the initial registered office of the
corporation is c/o Peabody & Brown, One Citizens Plaza, Providence, RI 02903
(add Zip Code) and the name of its initial registered agent at such address is
Peter J. Furness P.C.
/s/ P.J. Furness, P.C.
- ---------------------------------------
Signature of registered agent
EIGHTH. The number of directors constituting the initial board of
directors of the corporation is none (0) and the names and addresses of the
persons who are to serve as directors until the first annual meeting of
shareholders or until their successors are elected and shall qualify are:
(If this is a close corporation pursuant to Section 7-1.1-51 of the
General Laws, 1956, as amended, state the name(s) and address(es) of the
officers of the corporation.)
<TABLE>
<CAPTION>
Name Address
<S> <C>
Arthur J. Kaufman 56 Valley Brook Drive, Warwick, RI
- --------------------------------------------------- -------------------------------------------------------------------
Michael F. Hodges 54 Wisteria Drive, Coventry, RI
- --------------------------------------------------- -------------------------------------------------------------------
John Svenningsen c/o Samuel Eisenberg, Esq.,
- --------------------------------------------------- -------------------------------------------------------------------
Kurzman & Eisenberg
- --------------------------------------------------- -------------------------------------------------------------------
1 North Broadway, White Plains, NY
- --------------------------------------------------- -------------------------------------------------------------------
10601
- --------------------------------------------------- -------------------------------------------------------------------
</TABLE>
NINTH. The name and address of each incorporator is:
<TABLE>
<CAPTION>
Name Address
<S> <C>
Janice A. Wilson Peabody & Brown, One Citizens Plaza
- --------------------------------------------------- ------------------------------------------------------------------
Providence, RI 02903
- --------------------------------------------------- ------------------------------------------------------------------
- --------------------------------------------------- ------------------------------------------------------------------
- --------------------------------------------------- ------------------------------------------------------------------
- --------------------------------------------------- ------------------------------------------------------------------
- --------------------------------------------------- ------------------------------------------------------------------
</TABLE>
<PAGE> 4
TENTH. Date when corporate existence to begin (not more than 30 days
after filing of these articles of incorporation):
upon filing
- --------------------------------------------------------------------------------
Dated May 24 , 1993
/s/ Janice A. Wilson
-----------------------------------------
Signature of each incorporator
-----------------------------------------
-----------------------------------------
<PAGE> 5
STATE OF RHODE ISLAND
In the of Providence
COUNTY OF PROVIDENCE City ----------------------
in said county this 24th day of May , A.D. 1993
-------- ----------------- --
then personally appeared before me Janice A. Wilson
---------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
each and all known to me and known by me to be the parties executing the
foregoing instrument, and they severally acknowledged said instrument by them
subscribed to be their free act and deed.
/s/
----------------------------------------
Notary Public
<PAGE> 1
EXHIBIT 3.8
BY-LAWS
of
AM-SOURCE, INC.
(A close corporation pursuant to Sec. 7-1.1-51
of the general laws, 1956, as amended)
Article I
OFFICES
The Corporation shall have offices at such places both within
and without the State of Rhode Island as may from time to time be determined or
as the business of the Corporation may require.
Article II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All annual meetings of the
shareholders and all special meetings of the shareholders called by the
president shall be held at such place within or without the State of Rhode
Island as shall be stated in the notice of meeting. All other special meetings
of shareholders shall be held at an office of the Corporation in the State of
Rhode Island.
Section 2. Annual Meeting. An annual meeting of the
shareholders shall be held on the first Tuesday in March of each year if not a
legal holiday in the place where it is to be held, and if a legal holiday, then
on the next day following which is not a legal holiday, beginning at 10:00 a.m.
At each annual meeting, the shareholders shall
<PAGE> 2
elect officers and shall transact such other business as may properly come
before the meeting. In the event of the failure to hold said annual meeting at
any time or for any cause, any and all business which might have been transacted
at such meeting may be transacted at the next succeeding meeting, whether
special or annual.
Section 3. Special Meetings. A special meeting of the
shareholders, for any purpose or purposes, may be called by the president or the
holders of record of not less than one-tenth of the shares entitled to vote at
such meeting. Any such call shall state the purpose or purposes of the proposed
meeting.
Section 4. Notice of Meetings. Written notice of each annual
or special meeting stating the place, day and hour of the meeting (and the
purpose or purposes of any special meeting) shall be given by or at the
direction of the president, the secretary, or the person or persons calling the
meeting to each shareholder of record entitled to vote at such meeting not less
than ten or more than sixty days before the meeting. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice of the meeting or any written waiver thereof.
Section 5. Quorum. The holders of a majority of the capital
shares issued, outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholder for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time,
<PAGE> 3
without notice other than announcement at the meeting, until a quorum shall be
given to each shareholder entitled to vote at the meeting. When a quorum is
present at any meeting, the unanimous vote of all shareholders present shall
decide any question brought before such meeting, unless the vote of a greater
number is required by law.
Section 6. Proxies. Each shareholder entitled to vote at a
meeting or to express consent without a meeting may authorize another person or
persons to act for him by proxy, executed in writing by the shareholder or by
his duty authorized attorney-in-fact. No proxy shall be valid after eleven
months from the date thereof, unless otherwise provided in the proxy.
Section 7. Consent Vote. Any action required or permitted to
be taken at a meeting of shareholders may be taken without a meeting if all the
shareholders entitled to vote thereon consent thereto in writing.
Article III
DIRECTORS
The Corporation shall not have a board of directors. All
powers normally vested in the board of directors are assigned to the
shareholders.
Article IV
NOTICES
Section 1. How Delivered. Whenever under the provisions of the
Rhode Island business corporation act or of the articles of incorporation or of
these by-laws written notice is required to be given to any person, such notice
may be given by mail,
<PAGE> 4
addressed to such person, at his address as it appears in the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
delivered, if mailed, at the time when the same shall be deposited in the United
Stated mail in the State of Rhode Island.
Section 2. Waivers of Notice. Whenever any notice is required
to be given under the provisions of the Rhode Island business corporation act or
of the articles of incorporation or of these by-laws, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened.
Section 3. Specification of Business. Neither the business to
be transacted at, nor the purpose of, any meeting of the shareholders need be
specified in any written waiver of notice, except as otherwise herein expressly
provided.
Article V
OFFICERS
Section 1. Number. The officers of the Corporation shall be a
president, a secretary, and a treasurer. The shareholders may from time to time
elect or appoint such other officers, including one or more vice presidents,
assistant officers and agents and delegate assign to them such authorities and
duties, as they may deem necessary.
<PAGE> 5
Any two or more of the offices may be held by the same person. None of the
officers need be a shareholder.
Section 2. Election and Term. The officers of the Corporation
shall be elected by the shareholders at their annual meetings. Each officer
shall be elected to serve until his successor shall have been elected and shall
have qualified or until his earlier death, resignation or removal as hereinafter
provided. Any officer or agent may be removed by the shareholders whenever in
their judgment the best interest of the Corporation will be served thereby, but
such removal will be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 3. Authority and Duties. The president shall be the
principal executive officer of the Corporation and shall supervise and conduct
the business and affairs of the Corporation. The other officers of the
Corporation shall have the powers and shall perform the duties customarily
appurtenant to their respective offices, and shall have such further powers and
shall perform such further duties as shall be from time to time assigned to
them.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal or otherwise may be filled by the shareholders for
the unexpired portion of the term.
Section 5. Signing of Instruments. All checks, drafts, orders,
notes and other obligations of the Corporation for the payment of money, and
deeds, mortgages,
<PAGE> 6
leases, contracts, bonds and other corporate instruments may be signed by such
officer or officers of the Corporation or by such other person or persons as may
from time to time be designated by general or special vote of the shareholders.
Section 6. Voting of Securities. Except as the shareholders
may generally or in particular cases otherwise specify, the president or the
treasurer may on behalf of the Corporation vote or take any other action with
respect to shares of stock or beneficial interest of any other corporation, or
of any association, trust or firm, of which any securities are held by the
Corporation, and may appoint any person or persons to act as proxy or
attorney-in-fact for the Corporation, with or without power of substitution, at
any meeting thereof.
Article VI
CERTIFICATES FOR SHARES
Section 1. Share Certificates. Certificates representing
shares of the Corporation shall be in such form as shall be approved by the
incorporators or by the shareholders from time to time thereafter and shall be
signed by any two officers of the Corporation and shall be sealed with the seal
of the Corporation or a facsimile thereof.
Section 2. Transfers of Shares. Transfers of shares shall be
registered by the Corporation upon the surrender of the certificate or
certificates therefor; duly endorsed by the appropriate person or persons or
accompanied by proper evidence of succession, assignment or authority to
transfer, and complying with such other requirements as are established by law.
<PAGE> 7
Section 3. Registered Shareholders. Except as otherwise
provided by law, the Corporation may treat the person registered on the books of
the Corporation as the owner of shares as the person exclusively entitled to
vote, to receive notifications and otherwise to exercise all rights and powers
of an owner; and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
Section 4. Issue of New Certificates. In the event of the
loss, theft or destruction of any certificates representing shares of the
Corporation, the owner thereof shall be entitled to have new certificates for
the same number of shares, issued in lieu of said certificates so lost, stolen
or destroyed, upon satisfactory proof of ownership and upon the giving of such
bond or security to the Corporation to indemnify it against any loss, cost,
damage or expenses which may accrue to it by reason of the issue of said
certificates in lieu of the certificates so lost, stolen, destroyed, as the
shareholders may deem necessary.
Article VII
FISCAL
The fiscal year of the Corporation shall be determined by the
shareholders and in the absence of such determination shall be the calendar
year.
<PAGE> 8
Article VIII
SEAL
The Corporate seal shall be in the form of a circle with the
name of the Corporation, the words "Incorporated Rhode Island" and the year of
its incorporation inscribed therein. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or otherwise reproduced.
Article IX
INDEMNIFICATION
The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was an officer, employee or
agent of the Corporation, or a shareholder purporting to act on behalf of the
Corporation, (or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise), against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement, to the extent permitted
by law.
Article X
AMENDMENTS
These by-laws may be altered, amended or repealed or new
by-laws may be adopted at any annual or special meeting of the shareholders by
the affirmative vote
<PAGE> 9
of the holders of all of the shares issued and outstanding and entitled to vote,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new by-laws shall be contained in the notice of such meeting.
The undersigned, being the sole incorporator of AM-SOURCE,
INC., hereby certifies that the foregoing copy of the By-Laws is true and
complete and that the By-Laws were duly adopted by the undersigned.
___________________________
Janice A. Wilson
Sole Incorporator
<PAGE> 1
EXHIBIT 3.9
CERTIFICATE OF INCORPORATION
SSY REALTY CORP.
Under Section 402 of the Business Corporation Law.
The undersigned, for the purpose of forming a corporation
pursuant to Section 402 of the Business Corporation Law of the State of New
York, does hereby certify and set forth:
FIRST: The name of the corporation is SSY REALTY CORP.
SECOND: The purposes for which the corporation is formed are:
To engage in any lawful act or activity for which corporations
may be organized under the business corporation law, provided that the
corporation is not formed to engage in any act or activity which requires the
act or approval of any state official, department, board, agency or other body
without such approval or consent being first obtained.
Directly, or through ownership of stock in any corporation, to
purchase, lease, rent, exchange, or otherwise acquire real estate and property,
either improved or unimproved, and any interest therein; to own, hold, control,
maintain, manage and develop the same; to erect, construct, maintain, improve,
rebuild, enlarge, alter, manage, operate and control all kinds of buildings,
houses, hotels, apartments, motels, stores, offices, warehouses, mills, shops,
factories and plants and all structures or erections of any description on any
lands owned, held, rented or leased by the corporation, or upon any other lands;
to lease or sublet offices, stores, apartments and
-1-
<PAGE> 2
other space in such building or buildings, and to sell, rent, lease, sublet,
mortgage, exchange, assign, transfer, convey, pledge, alienate or otherwise
dispose of any such real estate and property, and any interest therein.
To acquire by purchase, lease or manufacture, or otherwise,
any personal property deemed necessary or proper or useful in the equipment,
furnishing, improvement, development or management of any property, real or
personal, at any time owned, held or occupied by the corporation and to invest,
trade and deal in any personal property deemed beneficial to the corporation,
and to mortgage, pledge, sell, let or otherwise dispose of any personal property
at any time owned or held by the corporation.
To purchase or otherwise acquire, hold, exchange, pledge,
hypothecate, sell, deal in and dispose of mortgages covering any kind of real
and personal property, tax liens and transfers of tax liens on real estate.
To make, enter into, perform and arrange for carrying out,
contracts for constructing, building, altering, improving, repairing,
decorating, maintaining, furnishing an fitting up buildings, tenements and
structures of every description, and to advance money to and enter into
agreements of all kinds with building contractors, property owners and others,
for said purpose.
To acquire by purchase, subscription, underwriting or
otherwise, and to own hold for investment, or otherwise, and to use, sell,
assign, transfer, mortgage, pledge, exchange or otherwise dispose of real and
personal property of every sort and description and wheresoever situated,
including shares of stock, bonds, debentures,
-2-
<PAGE> 3
notes, scrip, securities, evidences of indebtedness, contracts or obligations of
any corporation or association, whether domestic or foreign, or of any firm or
individual or of the United States or any state, territory or dependency of the
United States or any foreign country, or any municipality or local authority
within or without the United States, and also to issue in exchange therefor,
stocks, bonds, or other securities or evidences of indebtedness of this
corporation and, while the owner or holder of any such property, to receive,
collect and dispose of the interest, dividends and income on or from such
property and to possess and exercise in respect thereto all of the rights,
powers and privileges of ownership, including all voting powers thereon.
To construct, build, purchase, lease or otherwise acquire,
equip, hold, own, improve, develop, manage, maintain, control, operate, lease,
mortgage, create liens upon, sell, convey or otherwise dispose of and turn to
account, any and all plants, machinery, works, implements and things or
property, real and personal, of every kind and description, incidental to,
connected with, or suitable, necessary or convenient for any of the purposes
enumerated herein, including all or any part or parts of the properties, assets,
business and good will of any persons, firms, associations or corporations.
The powers, rights and privileges provided in this certificate
are not to be deemed to be in limitation of similar, other or additional powers,
rights and privileges granted or permitted to a corporation by the Business
Corporation Law, it being intended that this corporation shall have all the
rights, powers and privileges granted or permitted to a corporation by such
statute.
-3-
<PAGE> 4
THIRD: The office of the corporation is to be located in the
County of Westchester, State of New York.
FOURTH: The aggregate number of shares which the corporation
shall have the authority to issue is Two Hundred (200), all of which shall be
without par value.
FIFTH: The Secretary of State is designated as the agent of
the corporation upon whom process against it may be served. The post office
address to which the Secretary of State shall mail a copy of any process against
the corporation served on him is:
Stuart S. Stengel, Esq.
317 North Avenue
New Rochelle, New York, 10801
SIXTH: The personal liability of directors to the corporation
or its shareholders for damages for any breach of duty in such capacity is
hereby eliminated except that such personal liability shall not be eliminated if
a judgement or other financial adjudication adverse to such director establishes
that his acts or omissions were in bad faith or involved intentional misconduct
or a knowing violation of law or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or that his acts
violated Section 719 of the Business Corporation Law.
-4-
<PAGE> 5
IN WITNESS WHEREOF, this certificate had been subscribed to
this 1st day of June, 1988, by the undersigned who affirms that the statements
made herein are true under penalties of perjury.
/s/ Gerald Weinberg
---------------------------
GERALD WEINBERG
90 State Street
Albany, New York
-5-
<PAGE> 1
EXHIBIT 3.10
SSY REALTY CORP.
----------------
BY-LAWS
----------------
ARTICLE I
THE CORPORATION
Section 1. Name. The legal name of this corporation
(hereinafter called the "Corporation") is SSY REALTY CORP.
Section 2. Offices. The Corporation shall have its principal
office in the State of New York. The Corporation may also have offices at such
other places within and without the United States as the Board of Directors may
from time to time appoint or the business of the Corporation may require.
Section 3. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, New York". One or more duplicate dies for impressing such seal
may be kept and used.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders
shall be held at the principal office of the Corporation in the State of New
York or at such other place, within or without the State of New York, as is
fixed in the notice of the meeting.
Section 2. Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and the
transaction of such other business as may properly come before the meeting shall
be held on the first Monday of in each year if not a legal
holiday, and if a legal holiday, then on the next secular day following, at ten
o'clock A.M., Eastern Standard Time, or at such other time as is fixed in the
notice of the meeting. If for any reason any annual meeting shall not be held at
the time herein specified, the same may be held at any time thereafter upon
notice, as herein provided, or the business thereof may be transacted at any
special meeting called for the purpose.
<PAGE> 2
Section 3. Special Meetings. Special meetings of shareholders
may be called by the President whenever he deems it necessary or advisable. A
special meeting of the shareholders shall be called by the President whenever so
directed in writing by a majority of the entire Board of Directors or whenever
the holders of one-third (1/3) of the number of shares of the capital stock of
the Corporation entitled to vote at such meeting shall, in writing, request the
same.
Section 4. Notice of Meetings. Notice of the time and place of
the annual and of each special meeting of the shareholders shall be given to
each of the shareholders entitled to vote at such meeting by mailing the same in
a postage prepaid wrapper addressed to each such shareholders at his address as
it appears on the books of the Corporation, or by delivering the same personally
to any such shareholder in lieu of such mailing, at least ten (10) and not more
than fifty (50) days prior to each meeting. Meetings may be held without notice
if all of the shareholders entitled to vote thereat are present in person or by
proxy, or if notice thereof is waived by all such shareholders not present in
person or by proxy, before or after the meeting. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
mail. If a meeting is adjourned to another time, not more than thirty (30) days
hence, or to another place, and if an announcement of the adjourned time or
place is made at the meeting, it shall not be necessary to give notice of the
adjourned meeting unless the Board of Directors, after adjournment fix a new
record date for the adjourned meeting. Notice of the annual and each special
meeting of the shareholders shall indicate that it is being issued by or at the
direction of the person or persons calling the meeting, and shall state the name
and capacity of each such person. Notice of each special meeting shall also
state the purpose or purposes for which it has been called. Neither the business
to be transacted at nor the purpose of the annual or any special meeting of the
shareholders need be specified in any written waiver of notice.
Section 5. Record Date for Shareholders. For the purpose of
determining the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than fifty (50) days nor less than ten (10) days before the
date of such meeting, nor more than fifty (50) days prior to any other action.
If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held; the record date
for determining shareholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining shareholders for any other purpose shall be at
the close of business on the day on
-2-
<PAGE> 3
which the Board of Directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at any
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Proxy Representation. Every shareholder may
authorize another person or persons to act for him by proxy in all matters in
which a shareholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the shareholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after eleven months from
its date unless such proxy provides for a longer period. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except as otherwise
provided in Section 608 of the New York Business Corporation Law.
Section 7. Voting at Shareholders' Meetings. Each share of
stock shall entitle the holder thereof to one vote. In the election of
directors, a plurality of the votes cast shall elect. Any other action shall be
authorized by a majority of the votes cast except where the New York Business
Corporation Law prescribes a different percentage of votes or a different
exercise of voting power. In the election of directors, and for any other
action, voting need not be by ballot.
Section 8. Quorum and Adjournment. Except for a special
election of directors pursuant to Section 603 of the New York Business
Corporation Law, the presence, in person or by proxy, of the holders of a
majority of the shares of the stock of the Corporation outstanding and entitled
to vote thereat shall be requisite and shall constitute a quorum at any meeting
of the shareholders. When a quorum is once present to organize a meeting, it
shall not be broken by the subsequent withdrawal of any shareholders. If at any
meeting of shareholders there shall be less than a quorum so present, the
shareholders present in person or by proxy and entitled to vote thereat, may
adjourn the meeting from time to time until a quorum shall be present, but no
business shall be transacted at any such adjourned meeting except such as might
have been lawfully transacted had the meeting not adjourned.
Section 9. List of Shareholders. The officer who has charge of
the stock ledger of the Corporation shall prepare, make and certify, at least
ten (10) days before every meeting of shareholders, a complete list of the
shareholders, as of the record date fixed for such meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city or other municipality or
community where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any shareholder who is present. If the right to vote at any
-3-
<PAGE> 4
meeting is challenged, the inspectors of election, if any, or the person
presiding thereat, shall require such list of shareholders to be produced as
evidence of the right of the persons challenged to vote at such meeting, and all
persons who appear from such list to be shareholders entitled to vote thereat
may vote at such meeting.
Section 10. Inspectors of Election. The Board of Directors, in
advance of any meeting, may, but need not, appoint one or more inspectors of
election to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not appointed, the person presiding at the meeting may, and at
the request of any shareholder entitled to vote thereat shall, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder entitled to
vote thereat, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them. Any report or
certificate made by the inspector or inspectors shall be prima facie evidence of
the facts stated and of the vote as certified by them.
Section 11. Action of the Shareholders Without Meetings. Any
action which may be taken at any annual or special meeting of the shareholders
may be taken without a meeting on written consent, setting forth the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
Written consent thus given by the holders of all outstanding shares entitled to
vote shall have the same effect as a unanimous vote of the shareholders.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the entire Board of Directors shall be at least three, except
that where all outstanding shares of the stock of the Corporation are owned
beneficially and of record by less than three shareholders, the number of
directors may be less than three but not less than the number of shareholders.
Subject to the foregoing limitation, such number may be fixed from time to time
by action of a majority of the entire Board of Directors or
-4-
<PAGE> 5
of the shareholders at an annual or special meeting, or, if the number of
directors is not so fixed, the number shall be three or shall be equal to the
number of shareholders (determined as aforesaid), whichever is less. Until such
time as the corporation shall issue shares of its stock, the Board of Directors
shall consist of two persons. No decrease in the number of directors shall
shorten the term of any incumbent director.
Section 2. Election and Term. The initial Board of Directors
shall be elected by the incorporator and each initial director so elected shall
hold office until the first annual meeting of shareholders and until his
successor has been elected and qualified. Thereafter, each director who is
elected at an annual meeting of shareholders, and each director who is elected
in the interim to fill a vacancy or a newly created directorship, shall hold
office until the next annual meeting of shareholders and, until his successor
has been elected and qualified.
Section 3. Filling Vacancies, Resignation and Removal. Any
director may tender his resignation at any time. Any director or the entire
Board of Directors may be removed, with or without cause, by vote of the
shareholders. In the interim between annual meetings of shareholders or special
meetings of shareholders called for the election of directors or for the removal
of one or more directors and for the filling of any vacancy in that connection,
newly created directorships and any vacancies in the Board of Directors,
including unfilled vacancies resulting from the resignation or removal of
directors for cause or without cause, may be filled by the vote of a majority of
the remaining directors then in office, although less than a quorum, or by the
sole remaining director.
Section 4. Qualifications and Powers. Each director shall be
at least eighteen years of age. A director need not be a shareholder, a citizen
of the United States or a resident of the State of New York. The business of the
Corporation shall be managed by the Board of Directors, subject to the
provisions of the Certificate of Incorporation. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done exclusively by the shareholders.
Section 5. Regular and Special Meetings of the Board. The
Board of Directors may hold its meetings, whether regular or special, either
within or without the State of New York. The newly elected Board may meet at
such place and time as shall be fixed by the vote of the shareholders at the
annual meeting, for the purpose of organization or otherwise, and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a majority of the entire Board shall be
present; or they may meet at such place and time as shall be fixed by the
consent in writing of all directors. Regular meetings of the Board may be held
with or without notice at such time and place as shall from time to time be
determined by resolution of the Board. Whenever the time or place of regular
meetings
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<PAGE> 6
of the Board shall have been determined by resolution of the Board, no regular
meetings shall be held pursuant to any resolution of the Board altering or
modifying its previous resolution relating to the time or place of the holding
of regular meetings, without first giving at least three days written notice to
each director, either personally or by telegram, or at least five days written
notice to each director by mail, of the substance and effect of such new
resolution relating to the time and place at which regular meetings of the Board
may thereafter be held without notice. Special meetings of the Board shall be
held whenever called by the President, Vice-President, the Secretary or any
director in writing. Notice of each special meeting of the Board shall be
delivered personally to each director or sent by telegraph to his residence or
usual place of business at least three days before the meeting, or mailed to him
to his residence or usual place of business at least five days before the
meeting. Meetings of the Board, whether regular or special, may be held at any
time and place, and for any purpose, without notice, when all the directors are
present or when all directors not present shall, in writing, waive notice of and
consent to the holding of such meeting, which waiver and consent may be given
after the holding of such meeting. All or any of the directors may waive notice
of any meeting and the presence of a director at any meeting of the Board shall
be deemed a waiver of notice thereof by him. A notice, or waiver of notice, need
not specify the purpose or purposes of any regular or special meeting of the
Board.
Section 6. Quorum and Action. A majority of the entire Board
of Directors shall constitute a quorum except that when the entire Board
consists of one director, then one director shall constitute a quorum, and
except that when a vacancy or vacancies prevents such majority, a majority of
the directors in office shall constitute a quorum, provided that such majority
shall constitute at lease one-third of the entire Board. A majority of the
directors present, whether or not they constitute a quorum, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the New York Business Corporation Law, the vote
of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board.
Section 7. Telephonic Meetings. Any member or members of the
Board of Directors, or of any committee designated by the Board, may participate
in a meeting of the Board, or any such committee, as the case may be, by means
of conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
Section 8. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
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Section 9. Compensation of Directors. By resolution of the
Board of Directors, the directors may be paid their expenses, if any, for
attendance at each regular or special meeting of the Board or of any committee
designated by the Board and may be paid a fixed sum for attendance at such
meeting, or a stated salary as director, or both. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor; provided however that directors
who are also salaried officers shall not receive fees or salaries as directors.
ARTICLE IV
COMMITTEES
Section 1. In General. The Board of Directors may, by
resolution or resolutions passed by the affirmative vote therefore of a majority
of the entire Board, designate an Executive Committee and such other committees
as the Board may from time to time determine, each to consist of three or more
directors, and each of which, to the extent provided in the resolution or in the
certificate of incorporation or in the By-Laws, shall have all the powers of the
Board, except that no such Committee shall have power to fill vacancies in the
Board, or to change the membership of or to fill vacancies in any Committee, or
to make, amend, repeal or adopt By-Laws of the Corporation, or to submit to the
shareholders any action that needs shareholder approval under these By-Laws or
the New York Business Corporation Law, or to fix the compensation of the
directors for serving on the Board or any committee thereof, or to amend or
repeal any resolution of the Board which by its terms shall not be so amendable
or repealable. Each committee shall serve at the pleasure of the Board. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Section 2. Executive Committee. Except as otherwise limited by
the Board of Directors or by these By-Laws, the Executive Committee, if so
designated by the Board of Directors, shall have and may exercise, when the
Board is not in session, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have power
to authorize the seal of the Corporation to be affixed to all papers which may
require it. The Board shall have the power at any time to change the membership
of the Executive Committee, to fill vacancies in it, or to dissolve it. The
Executive Committee may make rules for the conduct of its business and may
appoint such assistance as it shall from time to time deem necessary. A majority
of the members of the Executive Committee, if more than a single member, shall
constitute a quorum.
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ARTICLE V
OFFICERS
Section 1. Designation, Term and Vacancies. The officers of
the Corporation shall be a President, one or more Vice-Presidents, a Secretary,
a Treasurer, and such other officers as the Board of Directors may from time to
time deem necessary. Such officers may have and perform the powers and duties
usually pertaining to their respective offices, the powers and duties
respectively prescribed by law and by these By-Laws, and such additional powers
and duties as may from time to time be prescribed by the Board. The same person
may hold any two or more offices, except that the offices of President and
Secretary may not be held by the same person unless all the issued and
outstanding stock of the Corporation is owned by one person, in which instance
such person may hold all or any combination of offices.
The initial officers of the Corporation shall be appointed by
the initial Board of Directors, each to hold office until the meeting of the
Board of Directors following the first annual meeting of shareholders and until
his successor has been appointed and qualified. Thereafter, the officers of the
Corporation shall be appointed by the Board as soon as practicable after the
election of the Board at the annual meeting of shareholders, and each officer so
appointed shall hold office until the first meeting of the Board of Directors
following the next annual meeting of shareholders and until his successor has
been appointed and qualified. Any officer may be removed at any time, with or
without cause, by the affirmative note therefor of a majority of the entire
Board of Directors. All other agents and employees of the Corporation shall hold
office during the pleasure of the Board of Directors. Vacancies occurring among
the officers of the Corporation shall be filled by the Board of Directors. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
Section 2. President. The President shall preside at all
meetings of the shareholders and at all meetings of the Board of Directors at
which he may be present. Subject to the direction of the Board of Directors, he
shall be the chief executive officer of the Corporation, and shall have general
charge of the entire business of the Corporation. He may sign certificates of
stock and sign and seal bonds, debentures, contracts or other obligations
authorized by the Board, and may, without previous authority of the Board, make
such contracts as the ordinary conduct of the Corporation's business requires.
He shall have the usual powers and duties vested in the President of a
corporation. He shall have power to select and appoint all necessary officers
and employees of the Corporation, except those selected by the Board of
Directors, and to remove all such officers and employees except those selected
by the Board of Directors, and make new appointments to fill vacancies. He may
delegate any of his powers to a Vice-President of the Corporation.
Section 3. Vice-President. A Vice-President shall have such of
the President's powers and duties as the President may from time to time
delegate to him,
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and shall have such other powers and perform such other duties as may be
assigned to him by the Board of Directors. During the absence or incapacity of
the President, the Vice-President, or, if there be more than one, the
Vice-President having the greatest seniority in office, shall perform the duties
of the President, and when so acting shall have all the powers and be subject to
all the responsibilities of the office of President.
Section 4. Treasurer. The Treasurer shall have custody of such
funds and securities of the Corporation as may come to his hands or be committed
to his care by the Board of Directors. Whenever necessary or proper, he shall
endorse on behalf of the Corporation, for collection, checks, notes, or other
obligations, and shall deposit the same to the credit of the Corporation in such
bank or banks or depositories, approved by the Board of Directors as the Board
of Directors or President may designate. He may sign receipts or vouchers for
payments made to the Corporation, and the Board of Directors may require that
such receipts or vouchers shall also be signed by some other officer to be
designated by them. Whenever required by the Board of Directors, he shall render
a statement of his cash accounts and such other statements respecting the
affairs of the Corporation as may be required. He shall keep proper and accurate
books of account. He shall perform all acts incident to the office of Treasurer,
subject to the control of the Board.
Section 5. Secretary. The Secretary shall have custody of the
seal of the Corporation and when required by the Board of Directors, or when any
instrument shall have been signed by the President duly authorized to sign the
same, or when necessary to attest any proceedings of the shareholders or
directors, shall affix it to any instrument requiring the same and shall attest
the same with his signature, provided that the seal may be affixed by the
President or Vice-President or other officer of the Corporation to any document
executed by either of them respectively on behalf of the Corporation which does
not require the attestation of the Secretary. He shall attend to the giving and
serving of notices of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care by the Board of
Directors. He shall perform such other duties as appertain to his office or as
may be required by the Board of Directors.
Section 6. Delegation. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may temporarily delegate the powers or duties, or any of
them, of such officer to any other officer or to any director.
Article VI
STOCK
Section 1. Certificates Representing Shares. All certificates
representing shares of the capital stock of the Corporation shall be in such
form not inconsistent with the Certificate of Incorporation, these By-Laws or
the laws of the State
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<PAGE> 10
of New York and shall set forth thereon the statements prescribed by Section
508, and where applicable, by Sections 505, 616, 620, 709 and 1002 of the
Business Corporation Law. Such shares shall be approved by the Board of
Directors, and shall be signed by the President or a Vice-President and by the
Secretary or the Treasurer and shall bear the seal of the Corporation and shall
not be valid unless so signed and sealed. Certificates countersigned by a duly
appointed transfer agent and/or registered by a duly appointed registrar shall
be deemed to be so signed and sealed whether the signatures be manual or
facsimile signatures and whether the seal be a facsimile seal or any other form
of seal. All certificates shall be consecutively numbered and the name of the
person owning the shares represented thereby, his residence, with the number of
such shares and the date of issue, shall be entered on the Corporation's books.
All certificates surrendered shall be canceled and no new certificates issued
until the former certificates for the same number of shares shall have been
surrendered and canceled, except as provided for herein.
In case any officer or officers who shall have signed or whose
facsimile signature or signatures shall have been affixed to any such
certificate or certificates, shall cease to be such officer or officers of the
Corporation before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation, and may be issued and delivered as though the person or persons
who signed such certificates, or whose facsimile signature or signatures shall
have been affixed thereto, had not ceased to be such officer or officers of the
Corporation.
Any restriction on the transfer or registration of transfer of
any shares of stock of any class or series shall be noted conspicuously on the
certificate representing such shares.
Section 2. Fractional Share Interests. The Corporation, may,
but shall not be required to, issue certificates for fractions of a share. If
the Corporation does not issue fractions of a share, it shall (1) arrange for
the disposition of fractional interests by those entitled thereto, (2) pay in
cash the fair value of fractions of a share as of the time when those entitled
to receive such fractions are determined, or (3) issue scrip or warrants in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
distribution of the assets of the Corporation in the event of liquidation. The
Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the condition
that the shares for which scrip or warrants are exchangeable may be sold by the
Corporation and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions which the Board of Directors may
impose.
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<PAGE> 11
Section 3. Addresses of Shareholders. Every shareholder shall
furnish the Corporation with an address to which notices of meetings and all
other notices may be served upon or mailed to him, and in default thereof
notices may be addressed to him at his last known post office address.
Section 4. Stolen, Lost or Destroyed Certificates. The Board
of Directors may in its sole discretion direct that a new certificate or
certificates of stock be issued in place of any certificate or certificates of
stock theretofore issued by the Corporation, alleged to have been stolen, lost
or destroyed, and the Board of Directors when authorizing the issuance of such
new certificate or certificates, may, in its discretion, and as a condition
precedent thereto, require the owner of such stolen, lost or destroyed
certificate or certificates or his legal representatives to give to the
Corporation and to such registrar or registrars and/or transfer agent or
transfer agents as may be authorized or required to countersign such new
certificate or certificates, a bond in such sum as the Corporation may direct
not exceeding double the value of the stock represented by the certificate
alleged to have been stolen, lost or destroyed, as indemnity against any claim
that may be made against them or any of them for or in respect of the shares of
stock represented by the certificate alleged to have been stolen, lost or
destroyed.
Section 5. Transfers of Shares. Upon compliance with all
provisions restricting the transferability of shares, if any, transfers of stock
shall be made only upon the books of the Corporation by the holder in person or
by his attorney thereunto authorized by power of attorney duly filed with the
Secretary of the Corporation or with a transfer agent or registrar, if any, upon
the surrender and cancellation of the certificate or certificates for such
shares properly endorsed and the payment of all taxes due thereon. The Board of
Directors may appoint one or more suitable banks and/or trust companies as
transfer agents and/or registrars of transfers, for facilitating transfers of
any class or series of stock of the Corporation by the holders thereof under
such regulations as the Board of Directors may from time to time prescribe. Upon
such appointment being made all certificates of stock of such class or series
thereafter issued shall be countersigned by one of such transfer agents and/or
one of such registrars of transfers, and shall not be valid unless so
countersigned.
ARTICLE VII
DIVIDENDS AND FINANCE
Section 1. Dividends. The Board of Directors shall have power
to fix and determine and to vary, from time to time, the amount of the working
capital of the Corporation before declaring any dividends among it shareholders,
and to direct and determine the use and disposition of any net profits or
surplus, and to determine the date or dates for the declaration and payment of
dividends and to determine the amount of any dividend, and the amount of any
reserves necessary in their judgment
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<PAGE> 12
before declaring any dividends among its shareholder, and to determine the
amount of the net profits of the Corporation from time to time available for
dividends.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall end on the last day of in each year and shall begin on the
next succeeding day, or shall be for such other period as the Board of Directors
may from time to time designate with the consent of the Department of Taxation
and Finance, where applicable.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Stock of Other Corporations. The Board of Directors
shall have the right to authorize any director, officer or other person on
behalf of the Corporation to attend, act and vote at meetings of the
Shareholders of any corporation in which the Corporation shall hold stock, and
to exercise thereat any and all rights and powers incident to the ownership of
such stock, and to execute waivers of notice of such meetings and calls
therefor; and authority may be given to exercise the same either on one or more
designated occasions, or generally on all occasions until revoked by the Board.
In the event that the Board shall fail to give such authority, such authority
may be exercised by the President in person or by proxy appointed by him on
behalf of the Corporation.
Any stocks or securities owned by this Corporation may, if so
determined by the Board of Directors, be registered either in the name of this
Corporation or in the name of any nominee or nominees appointed for that purpose
by the Board of Directors.
Section 2. Books and Records. Subject to the New York Business
Corporation Law, the Corporation may keep its books and accounts outside the
State of New York.
Section 3. Notices. Whenever any notice is required by these
By-Laws to be given, personal notice is not meant unless expressly so stated,
and any notice so required shall be deemed to be sufficient if given by
depositing the same in a post office box in a sealed postpaid wrapper, addressed
to the person entitled thereto at his last known post office address, and such
notice shall be deemed to have been given on the day of such mailing.
Whenever any notice whatsoever is required to be given under
the provisions of any law, or under the provisions of the Certificate of
Incorporation or these By-Laws a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
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Section 4. Amendments. Except as otherwise provided herein,
these By-Laws may be altered, amended or repealed and By-Laws may be made at any
annual meeting of the shareholders or at any special meeting thereof if notice
of the proposed alteration, amendment or repeal, or By-Law or By-Laws to be made
be contained in the notice of such special meeting, by the holders of a majority
of the shares of stock of the Corporation outstanding and entitled to vote
thereat; or by a majority of the Board of Directors at any regular meeting of
the Board of Directors, or at any special meeting of the Board of Directors, if
notice of the proposed alteration, amendment or repeal, or By-Law or By-Laws to
be made, be contained in the Notice of such Special Meeting.
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EXHIBIT 3.11
CERTIFICATE OF INCORPORATION
JCS REALTY CORP.
Under Section 402 of the Business Corporation Law.
The undersigned, for the purpose of forming a corporation
pursuant to Section 402 of the Business Corporation Law of the State of New
York, does hereby certify and set forth:
FIRST: The name of the corporation is JCS REALTY CORP.
SECOND: The purposes for which the corporation is formed are:
To engage in any lawful act or activity for which corporations
may be organized under the business corporation law, provided that the
corporation is not formed to engage in any act or activity which requires the
act or approval of any state official, department, board, agency or other body
without such approval or consent being first obtained.
Directly, or through ownership of stock in any corporation, to
purchase, lease, rent, exchange, or otherwise acquire real estate and property,
either improved or unimproved, and any interest therein; to own, hold, control,
maintain, manage and develop the same; to erect, construct, maintain, improve,
rebuild, enlarge, alter, manage, operate and control all kinds of buildings,
houses, hotels, apartments, motels, stores, offices, warehouses, mills, shops,
factories and plants and all structures or erections of any description on any
lands owned, held, rented or leased by the corporation, or upon any other lands;
to lease or sublet offices, stores, apartments and
<PAGE> 2
other space in such building or buildings, and to sell, rent, lease, sublet,
mortgage, exchange, assign, transfer, convey, pledge, alienate or otherwise
dispose of any such real estate and property, and any interest therein.
To acquire by purchase, lease or manufacture, or otherwise,
any personal property deemed necessary or proper or useful in the equipment,
furnishing, improvement, development or management of any property, real or
personal, at any time owned, held or occupied by the corporation and to invest,
trade and deal in any personal property deemed beneficial to the corporation,
and to mortgage, pledge, sell, let or otherwise dispose of any personal property
at any time owned or held by the corporation.
To purchase or otherwise acquire, hold, exchange, pledge,
hypothecate, sell, deal in and dispose of mortgages covering any kind of real
and personal property, tax liens and transfers of tax liens on real estate.
To make, enter into, perform and arrange for carrying out,
contracts for constructing, building, altering, improving, repairing,
decorating, maintaining, furnishing and fitting up buildings, tenements and
structures of every description, and to advance money to and enter into
agreements of all kinds with building contractors, property owners and others,
for said purpose.
To acquire by purchase, subscription, underwriting or
otherwise, and to own, hold for investment, or otherwise, and to use, sell,
assign, transfer, mortgage, pledge, exchange or otherwise dispose of real and
personal property of every sort and description and wheresoever situated,
including shares of stock, bonds, debentures,
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<PAGE> 3
notes, scrip, securities, evidences of indebtedness, contracts or obligations of
any corporation or association, whether domestic or foreign, or of any firm or
individual or of the United States or any state, territory or dependency of the
United States or any foreign country, or any municipality or local authority
within or without the United States, and also to issue in exchange therefor,
stocks, bonds, or other securities or evidences of indebtedness of this
corporation and, while the owner or holder of any such property, to receive,
collect and dispose of the interest, dividends and income on or from such
property and to possess and exercise in respect thereto all of the rights,
powers and privileges of ownership, including all voting powers thereon.
To construct, build, purchase, lease or otherwise acquire,
equip, hold, own, improve, develop, manage, maintain, control, operate, lease,
mortgage, create liens upon, sell, convey or otherwise dispose of and turn to
account, any and all plants, machinery, works, implements and things or
property, real and personal, of every kind and description, incidental to,
connected with, or suitable, necessary or convenient for any of the purposes
enumerated herein, including all or any part or parts of the properties, assets,
business and good will of any persons, firms, associations or corporations.
The powers, rights and privileges provided in this certificate
are not to be deemed to be in limitation of similar, other or additional powers,
rights and privileges granted or permitted to a corporation by the Business
Corporation Law, it being intended that this corporation shall have all the
rights, powers and privileges granted or permitted to a corporation by such
statute.
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<PAGE> 4
THIRD: The office of the corporation is to be located in the
County of Westchester, State of New York.
FOURTH: The aggregate number of shares which the corporation
shall have the authority to issue is Two Hundred (200), all of which shall be
without par value.
FIFTH: The Secretary of State is designated as the agent of
the corporation upon whom process against it may be served. The post office
address to which the Secretary of State shall mail a copy of any process against
the corporation served on him is:
Stuart S. Stengel, Esq.
317 North Avenue
New Rochelle, New York, 10801
SIXTH: The personal liability of directors to the corporation
or its shareholders for damages for any breach of duty in such capacity is
hereby eliminated except that such personal liability shall not be eliminated if
a judgement or other financial adjudication adverse to such director establishes
that his acts or omissions were in bad faith or involved intentional misconduct
or a knowing violation of law or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or that his acts
violated Section 719 of the Business Corporation Law.
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<PAGE> 5
IN WITNESS WHEREOF, this certificate had been subscribed to
this 7th day of October, 1987, by the undersigned who affirms that the
statements made herein are true under penalties of perjury.
/s/ GERALD WEINBERG
---------------------------
GERALD WEINBERG
90 State Street
Albany, New York
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<PAGE> 1
EXHIBIT 3.12
--------------
BY- LAWS
--------------
ARTICLE I
The Corporation
Section 1. Name. The legal name of this corporation
(hereinafter called the "Corporation") is JCS Realty Corp.
Section 2. Offices. The Corporation shall have its principal
office in the State of New York. The Corporation may also have offices at such
other places within and without the United States as the Board of Directors may
from time to time appoint or the business of the Corporation may require.
Section 3. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, New York". One or more duplicate dies for impressing such seal
may be kept and used.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. All meetings of the shareholders
shall be held at the principal office of the Corporation in the State of New
York or at such other place, within or without the State of New York, as is
fixed in the notice of the meeting.
Section 2. Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and the
transaction of such other business as may properly come before the meeting shall
be held on the first Monday of in each year if not a legal
holiday, and if a legal holiday, then on the next secular day following, at ten
o'clock A.M., Eastern Standard Time, or at such other time as is fixed in the
notice of the meeting. If for any reason any annual meeting shall not be held at
the time herein specified, the same may be held at any time thereafter upon
notice, as herein provided, or the business thereof may be transacted at any
special meeting called for the purpose.
Section 3. Special Meetings. Special meetings of shareholders
may be called by the President whenever he deems it necessary or advisable. A
special meeting of the shareholders shall be called by the President whenever so
directed in writing by a majority of the entire Board of Directors or whenever
the holders of
one-
<PAGE> 2
third (1/3) of the number of shares of the capital stock of the Corporation
entitled to vote at such meeting shall, in writing, request the same.
Section 4. Notice of Meetings. Notice of the time and place of
the annual and of each special meeting of the shareholders shall be given to
each of the shareholders entitled to vote at such meeting by mailing the same in
a postage prepaid wrapper addressed to each such shareholders at his address as
it appears on the books of the Corporation, or by delivering the same personally
to any such shareholder in lieu of such mailing, at least ten (10) and not more
than fifty (50) days prior to each meeting. Meetings may be held without notice
if all of the shareholders entitled to vote thereat are present in person or by
proxy, or if notice thereof is waived by all such shareholders not present in
person or by proxy, before or after the meeting. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
mail. If a meeting is adjourned to another time, not more than thirty (30) days
hence, or to another place, and if an announcement of the adjourned time or
place is made at the meeting, it shall not be necessary to give notice of the
adjourned meeting unless the Board of Directors, after adjournment fix a new
record date for the adjourned meeting. Notice of the annual and each special
meeting of the shareholders shall indicate that it is being issued by or at the
direction of the person or persons calling the meeting, and shall state the name
and capacity of each such person. Notice of each special meeting shall also
state the purpose or purposes for which it has been called. Neither the business
to be transacted at nor the purpose of the annual or any special meeting of the
shareholders need be specified in any written waiver of notice.
Section 5. Record Date for Shareholders. For the purpose of
determining the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than fifty (50) days nor less than ten (10) days before the
date of such meeting, nor more than fifty (50) days prior to any other action.
If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held; the record date
for determining shareholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining shareholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record entitled
to notice of or to vote at any meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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<PAGE> 3
Section 6. Proxy Representation. Every shareholder may
authorize another person or persons to act for him by proxy in all matters in
which a shareholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the shareholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after eleven months from
its date unless such proxy provides for a longer period. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except as otherwise
provided in Section 608 of the New York Business Corporation Law.
Section 7. Voting at Shareholders' Meetings. Each share of
stock shall entitle the holder thereof to one vote. In the election of
directors, a plurality of the votes cast shall elect. Any other action shall be
authorized by a majority of the votes cast except where the New York Business
Corporation Law prescribes a different percentage of votes or a different
exercise of voting power. In the election of directors, and for any other
action, voting need not be by ballot.
Section 8. Quorum and Adjournment. Except for a special
election of directors pursuant to Section 603 of the New York Business
Corporation Law, the presence, in person or by proxy, of the holders of a
majority of the shares of the stock of the Corporation outstanding and entitled
to vote thereat shall be requisite and shall constitute a quorum at any meeting
of the shareholders. When a quorum is once present to organize a meeting, it
shall not be broken by the subsequent withdrawal of any shareholders. If at any
meeting of shareholders there shall be less than a quorum so present, the
shareholders present in person or by proxy and entitled to vote thereat, may
adjourn the meeting from time to time until a quorum shall be present, but no
business shall be transacted at any such adjourned meeting except such as might
have been lawfully transacted had the meeting not adjourned.
Section 9. List of Shareholders. The officer who has charge of
the stock ledger of the Corporation shall prepare, make and certify, at least
ten (10) days before every meeting of shareholders, a complete list of the
shareholders, as of the record date fixed for such meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city or other municipality or
community where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any shareholder who is present. If the right to vote at any
meeting is challenged, the inspectors of election, if any, or the person
presiding thereat, shall require such list of shareholders to be produced as
evidence of the right of the persons challenged to vote at such meeting, and all
persons who appear from such list to be shareholders entitled to vote thereat
may vote at such meeting.
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Section 10. Inspectors of Election. The Board of Directors, in
advance of any meeting, may, but need not, appoint one or more inspectors of
election to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not appointed, the person presiding at the meeting may, and at
the request of any shareholder entitled to vote thereat shall, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder entitled to
vote thereat, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them. Any report or
certificate made by the inspector or inspectors shall be prima facie evidence of
the facts stated and of the vote as certified by them.
Section 11. Action of the Shareholders Without Meetings. Any
action which may be taken at any annual or special meeting of the shareholders
may be taken without a meeting on written consent, setting forth the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
Written consent thus given by the holders of all outstanding shares entitled to
vote shall have the same effect as a unanimous vote of the shareholders.
ARTICLE III
Directors
Section 1. Number of Directors. The number of directors which
shall constitute the entire Board of Directors shall be at least three, except
that where all outstanding shares of the stock of the Corporation are owned
beneficially and of record by less than three shareholders, the number of
directors may be less than three but not less than the number of shareholders.
Subject to the foregoing limitation, such number may be fixed from time to time
by action of a majority of the entire Board of Directors or of the shareholders
at an annual or special meeting, or, if the number of directors is not so fixed,
the number shall be three or shall be equal to the number of shareholders
(determined as aforesaid), whichever is less. Until such time as the corporation
shall issue shares of its stock, the Board of Directors shall consist of two
persons. No decrease in the number of directors shall shorten the term of any
incumbent director.
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Section 2. Election and Term. The initial Board of Directors
shall be elected by the incorporator and each initial director so elected shall
hold office until the first annual meeting of shareholders and until his
successor has been elected and qualified. Thereafter, each director who is
elected at an annual meeting of shareholders, and each director who is elected
in the interim to fill a vacancy or a newly created directorship, shall hold
office until the next annual meeting of shareholders and until his successor has
been elected and qualified.
Section 3. Filling Vacancies, Resignation and Removal. Any
director may tender his resignation at any time. Any director or the entire
Board of Directors may be removed, with or without cause, by vote of the
shareholders. In the interim between annual meetings of shareholders or special
meetings of shareholders called for the election of directors or for the removal
of one or more directors and for the filling of any vacancy in that connection,
newly created directorships and any vacancies in the Board of Directors,
including unfilled vacancies resulting from the resignation or removal of
directors for cause or without cause, may be filled by the vote of a majority of
the remaining directors then in office, although less than a quorum, or by the
sole remaining director.
Section 4. Qualifications and Powers. Each director shall be
at least eighteen years of age. A director need not be a shareholder, a citizen
of the United States or a resident of the State of New York. The business of the
Corporation shall be managed by the Board of Directors, subject to the
provisions of the Certificate of Incorporation. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done exclusively by the shareholders.
Section 5. Regular and Special Meetings of the Board. The
Board of Directors may hold its meetings, whether regular or special, either
within or without the State of New York. The newly elected Board may meet at
such place and time as shall be fixed by the vote of the shareholders at the
annual meeting, for the purpose of organization or otherwise, and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a majority of the entire Board shall be
present; or they may meet at such place and time as shall be fixed by the
consent in writing of all directors. Regular meetings of the Board may be held
with or without notice at such time and place as shall from time to time be
determined by resolution of the Board. Whenever the time or place of regular
meetings of the Board shall have been determined by resolution of the Board, no
regular meetings shall be held pursuant to any resolution of the Board altering
or modifying its previous resolution relating to the time or place of the
holding of regular meetings, without first giving at least three days written
notice to each director, either personally or by telegram, or at least five days
written notice to each director by mail, of the substance and effect of such new
resolution relating to the time and place at which
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<PAGE> 6
regular meetings of the Board may thereafter be held without notice. Special
meetings of the Board shall be held whenever called by the President,
Vice-President, the Secretary or any director in writing. Notice of each special
meeting of the Board shall be delivered personally to each director or sent by
telegraph to his residence or usual place of business at least three days before
the meeting, or mailed to him to his residence or usual place of business at
least five days before the meeting. Meetings of the Board, whether regular or
special, may be held at any time and place, and for any purpose, without notice,
when all the directors are present or when all directors not present shall, in
writing, waive notice of and consent to the holding of such meeting, which
waiver and consent may be given after the holding of such meeting. All or any of
the directors may waive notice of any meeting and the presence of a director at
any meeting of the Board shall be deemed a waiver of notice thereof by him. A
notice, or waiver of notice, need not specify the purpose or purposes of any
regular or special meeting of the Board.
Section 6. Quorum and Action. A majority of the entire Board
of Directors shall constitute a quorum except that when the entire Board
consists of one director, then one director shall constitute a quorum, and
except that when a vacancy or vacancies prevents such majority, a majority of
the directors in office shall constitute a quorum, provided that such majority
shall constitute at lease one-third of the entire Board. A majority of the
directors present, whether or not they constitute a quorum, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the New York Business Corporation Law, the vote
of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board.
Section 7. Telephonic Meetings. Any member or members of the
Board of Directors, or of any committee designated by the Board, may participate
in a meeting of the Board, or any such committee, as the case may be, by means
of conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
Section 8. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 9. Compensation of Directors. By resolution of the
Board of Directors, the directors may be paid their expenses, if any, for
attendance at each regular or special meeting of the Board or of any committee
designated by the Board and may be paid a fixed sum for attendance at such
meeting, or a stated salary as director, or both. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor;
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provided however that directors who are also salaried officers shall not receive
fees or salaries as directors.
ARTICLE IV
Committees
Section 1. In General. The Board of Directors may, by
resolution or resolutions passed by the affirmative vote therefore of a majority
of the entire Board, designate an Executive Committee and such other committees
as the Board may from time to time determine, each to consist of three or more
directors, and each of which, to the extent provided in the resolution or in the
certificate of incorporation or in the By-Laws, shall have all the powers of the
Board, except that no such Committee shall have power to fill vacancies in the
Board, or to change the membership of or to fill vacancies in any Committee, or
to make, amend, repeal or adopt By-Laws of the Corporation, or to submit to the
shareholders any action that needs shareholder approval under these By-Laws or
the New York Business Corporation Law, or to fix the compensation of the
directors for serving on the Board or any committee thereof, or to amend or
repeal any resolution of the Board which by its terms shall not be so amendable
or repealable. Each committee shall serve at the pleasure of the Board. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Section 2. Executive Committee. Except as otherwise limited by
the Board of Directors or by these By-Laws, the Executive Committee, if so
designated by the Board of Directors, shall have and may exercise, when the
Board is not in session, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have power
to authorize the seal of the Corporation to be affixed to all papers which may
require it. The Board shall have the power at any time to change the membership
of the Executive Committee, to fill vacancies in it, or to dissolve it. The
Executive Committee may make rules for the conduct of its business and may
appoint such assistance as it shall from time to time deem necessary. A majority
of the members of the Executive Committee, if more than a single member, shall
constitute a quorum.
ARTICLE V
Officers
Section 1. Designation, Term and Vacancies. The officers of
the Corporation shall be a President, one or more Vice-Presidents, a Secretary,
a
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Treasurer, and such other officers as the Board of Directors may from time to
time deem necessary. Such officers may have and perform the powers and duties
usually pertaining to their respective offices, the powers and duties
respectively prescribed by law and by these By-Laws, and such additional powers
and duties as may from time to time be prescribed by the Board. The same person
may hold any two or more offices, except that the offices of President and
Secretary may not be held by the same person unless all the issued and
outstanding stock of the Corporation is owned by one person, in which instance
such person may hold all or any combination of offices.
The initial officers of the Corporation shall be appointed by
the initial Board of Directors, each to hold office until the meeting of the
Board of Directors following the first annual meeting of shareholders and until
his successor has been appointed and qualified. Thereafter, the officers of the
Corporation shall be appointed by the Board as soon as practicable after the
election of the Board at the annual meeting of shareholders, and each officer so
appointed shall hold office until the first meeting of the Board of Directors
following the next annual meeting of shareholders and until his successor has
been appointed and qualified. Any officer may be removed at any time, with or
without cause, by the affirmative note therefor of a majority of the entire
Board of Directors. All other agents and employees of the Corporation shall hold
office during the pleasure of the Board of Directors. Vacancies occurring among
the officers of the Corporation shall be filled by the Board of Directors. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
Section 2. President. The President shall preside at all
meetings of the shareholders and at all meetings of the Board of Directors at
which he may be present. Subject to the direction of the Board of Directors, he
shall be the chief executive officer of the Corporation, and shall have general
charge of the entire business of the Corporation. He may sign certificates of
stock and sign and seal bonds, debentures, contracts or other obligations
authorized by the Board, and may, without previous authority of the Board, make
such contracts as the ordinary conduct of the Corporation's business requires.
He shall have the usual powers and duties vested in the President of a
corporation. He shall have power to select and appoint all necessary officers
and employees of the Corporation, except those selected by the Board of
Directors, and to remove all such officers and employees except those selected
by the Board of Directors, and make new appointments to fill vacancies. He may
delegate any of his powers to a Vice-President of the Corporation.
Section 3. Vice-President. A Vice-President shall have such of
the President's powers and duties as the President may from time to time
delegate to him, and shall have such other powers and perform such other duties
as may be assigned to him by the Board of Directors. During the absence or
incapacity of the President, the Vice-President, or, if there be more than one,
the Vice-President having the greatest seniority in office, shall perform the
duties of the President, and when so acting shall have all the powers and be
subject to all the responsibilities of the office of President.
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Section 4. Treasurer. The Treasurer shall have custody of such
funds and securities of the Corporation as may come to his hands or be committed
to his care by the Board of Directors. Whenever necessary or proper, he shall
endorse on behalf of the Corporation, for collection, checks, notes, or other
obligations, and shall deposit the same to the credit of the Corporation in such
bank or banks or depositaries, approved by the Board of Directors as the Board
of Directors or President may designate. He may sign receipts or vouchers for
payments made to the Corporation, and the Board of Directors may require that
such receipts or vouchers shall also be signed by some other officer to be
designated by them. Whenever required by the Board of Directors, he shall render
a statement of his cash accounts and such other statements respecting the
affairs of the Corporation as may be required. He shall keep proper and accurate
books of account. He shall perform all acts incident to the office of Treasurer,
subject to the control of the Board.
Section 5. Secretary. The Secretary shall have custody of the
seal of the Corporation and when required by the Board of Directors, or when any
instrument shall have been signed by the President duly authorized to sign the
same, or when necessary to attest any proceedings of the shareholders or
directors, shall affix it to any instrument requiring the same and shall attest
the same with his signature, provided that the seal may be affixed by the
President or Vice-President or other officer of the Corporation to any document
executed by either of them respectively on behalf of the Corporation which does
not require the attestation of the Secretary. He shall attend to the giving and
serving of notices of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care by the Board of
Directors. He shall perform such other duties as appertain to his office or as
may be required by the Board of Directors.
Section 6. Delegation. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may temporarily delegate the powers or duties, or any of
them, of such officer to any other officer or to any director.
ARTICLE VI
Stock
Section 1. Certificates Representing Shares. All certificates
representing shares of the capital stock of the Corporation shall be in such
form not inconsistent with the Certificate of Incorporation, these By-Laws or
the laws of the State of New York and shall set forth thereon the statements
prescribed by Section 508, and where applicable, by Sections 505, 616, 620, 709
and 1002 of the Business Corporation Law. Such shares shall be approved by the
Board of Directors, and shall be signed by the President or a Vice-President and
by the Secretary or the Treasurer and shall bear the seal of the Corporation and
shall not be valid unless so signed and sealed. Certificates countersigned by a
duly appointed transfer agent and/or registered
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<PAGE> 10
by a duly appointed registrar shall be deemed to be so signed and sealed whether
the signatures be manual or facsimile signatures and whether the seal be a
facsimile seal or any other form of seal. All certificates shall be
consecutively numbered and the name of the person owning the shares represented
thereby, his residence, with the number of such shares and the date of issue,
shall be entered on the Corporation's books. All certificates surrendered shall
be cancelled and no new certificates issued until the former certificates for
the same number of shares shall have been surrendered and cancelled, except as
provided for herein.
In case any officer or officers who shall have signed or whose
facsimile signature or signatures shall have been affixed to any such
certificate or certificates, shall cease to be such officer or officers of the
Corporation before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation, and may be issued and delivered as though the person or persons
who signed such certificates, or whose facsimile signature or signatures shall
have been affixed thereto, had not ceased to be such officer or officers of the
Corporation.
Any restriction on the transfer or registration of transfer of
any shares of stock of any class or series shall be noted conspicuously on the
certificate representing such shares.
Section 2. Fractional Share Interests. The Corporation, may,
but shall not be required to, issue certificates for fractions of a share. If
the Corporation does not issue fractions of a share, it shall (1) arrange for
the disposition of fractional interests by those entitled thereto, (2) pay in
cash the fair value of fractions of a share as of the time when those entitled
to receive such fractions are determined, or (3) issue scrip or warrants in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
distribution of the assets of the Corporation in the event of liquidation. The
Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the condition
that the shares for which scrip or warrants are exchangeable may be sold by the
Corporation and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions which the Board of Directors may
impose.
Section 3. Addresses of Shareholders. Every shareholder shall
furnish the Corporation with an address to which notices of meetings and all
other notices may be served upon or mailed to him, and in default thereof
notices may be addressed to him at his last known post office address.
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<PAGE> 11
Section 4. Stolen, Lost or Destroyed Certificates. The Board
of Directors may in its sole discretion direct that a new certificate or
certificates of stock be issued in place of any certificate or certificates of
stock theretofore issued by the Corporation, alleged to have been stolen, lost
or destroyed, and the Board of Directors when authorizing the issuance of such
new certificate or certificates, may, in its discretion, and as a condition
precedent thereto, require the owner of such stolen, lost or destroyed
certificate or certificates or his legal representatives to give to the
Corporation and to such registrar or registrars and/or transfer agent or
transfer agents as may be authorized or required to countersign such new
certificate or certificates, a bond in such sum as the Corporation may direct
not exceeding double the value of the stock represented by the certificate
alleged to have been stolen, lost or destroyed, as indemnity against any claim
that may be made against them or any of them for or in respect of the shares of
stock represented by the certificate alleged to have been stolen, lost or
destroyed.
Section 5. Transfers of Shares. Upon compliance with all
provisions restricting the transferability of shares, if any, transfers of stock
shall be made only upon the books of the Corporation by the holder in person or
by his attorney thereunto authorized by power of attorney duly filed with the
Secretary of the Corporation or with a transfer agent or registrar, if any, upon
the surrender and cancellation of the certificate or certificates for such
shares properly endorsed and the payment of all taxes due thereon. The Board of
Directors may appoint one or more suitable banks and/or trust companies as
transfer agents and/or registrars of transfers, for facilitating transfers of
any class or series of stock of the Corporation by the holders thereof under
such regulations as the Board of Directors may from time to time prescribe. Upon
such appointment being made all certificates of stock of such class or series
thereafter issued shall be countersigned by one of such transfer agents and/or
one of such registrars of transfers, and shall not be valid unless so
countersigned.
ARTICLE VII
Dividends and Finance
Section 1. Dividends. The Board of Directors shall have power
to fix and determine and to vary, from time to time, the amount of the working
capital of the Corporation before declaring any dividends among it shareholders,
and to direct and determine the use and disposition of any net profits or
surplus, and to determine the date or dates for the declaration and payment of
dividends and to determine the amount of any dividend, and the amount of any
reserves necessary in their judgment before declaring any dividends among its
shareholder, and to determine the amount of the net profits of the Corporation
from time to time available for dividends.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall end on the last day of in each year and shall begin on the
next succeeding day, or shall be for such other period as the Board of Directors
may from time to time
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<PAGE> 12
designate with the consent of the Department of Taxation and Finance, where
applicable.
ARTICLE VIII
Miscellaneous Provisions
Section 1. Stock of Other Corporations. The Board of Directors
shall have the right to authorize any director, officer or other person on
behalf of the Corporation to attend, act and vote at meetings of the
Shareholders of any corporation in which the Corporation shall hold stock, and
to exercise thereat any and all rights and powers incident to the ownership of
such stock, and to execute waivers of notice of such meetings and calls
therefor; and authority may be given to exercise the same either on one or more
designated occasions, or generally on all occasions until revoked by the Board.
In the event that the Board shall fail to give such authority, such authority
may be exercised by the President in person or by proxy appointed by him on
behalf of the Corporation.
Any stocks or securities owned by this Corporation may, if so
determined by the Board of Directors, be registered either in the name of this
Corporation or in the name of any nominee or nominees appointed for that purpose
by the Board of Directors.
Section 2. Books and Records. Subject to the New York Business
Corporation Law, the Corporation may keep its books and accounts outside the
State of New York.
Section 3. Notices. Whenever any notice is required by these
By-Laws to be given, personal notice is not meant unless expressly so stated,
and any notice so required shall be deemed to be sufficient if given by
depositing the same in a post office box in a sealed postpaid wrapper, addressed
to the person entitled thereto at his last known post office address, and such
notice shall be deemed to have been given on the day of such mailing.
Whenever any notice whatsoever is required to be given under
the provisions of any law, or under the provisions of the Certificate of
Incorporation or these By-Laws a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Section 4. Amendments. Except as otherwise provided herein,
these By-Laws may be altered, amended or repealed and By-Laws may be made at any
annual meeting of the shareholders or at any special meeting thereof if notice
of the proposed alteration, amendment or repeal, or By-Law or By-Laws to be made
be contained in the notice of such special meeting, by the holders of a majority
of the
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shares of stock of the Corporation outstanding and entitled to vote thereat; or
by a majority of the Board of Directors at any regular meeting of the Board of
Directors, or at any special meeting of the Board of Directors, if notice of the
proposed alteration, amendment or repeal, or By-Law or By-Laws to be made, be
contained in the Notice of such Special Meeting.
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Exhibit 4.1
- ------------------------------------------------------------------------------
AMSCAN HOLDINGS, INC.
as Issuer
and
THE GUARANTORS NAMED HEREIN
as Guarantors
TO
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
------------
Indenture
Dated as of December 19, 1997
------------
$200,000,000
9.875% SENIOR SUBORDINATED NOTES DUE 2007
- ------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1)......................................... 7.10
(a)(2)............................................ 7.10
(a)(3)............................................ N.A.
(a)(4)............................................ N.A.
(a)(5)............................................ 7.10
(b)............................................... 7.10
(c)............................................... N.A.
311(a)............................................ 7.11
(b)............................................... 7.11
(c)............................................... N.A.
312(a)............................................ 2.05
(b)............................................... 12.03
(c)............................................... 12.03
313(a)............................................ 7.06
(b)(1)............................................ 9.03
(b)(2)............................................ 7.06; 7.07
(c)............................................... 7.06; 12.02
(d)............................................... 7.06
314(a)............................................ 4.03; 12.02
(b)............................................... 9.02
(c)(1)............................................ 12.04
(c)(2)............................................ 12.04
(c)(3)............................................ N.A.
(d)............................................... 9.03-9.05
(e)............................................... 12.05
(f)............................................... N.A.
315(a)............................................ 7.01
(b)............................................... 7.05; 12.02
(c) ............................................. 7.01
(d)............................................... 7.01
(e)............................................... 6.11
316(a)(last sentence)............................. 2.09
(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(a)(2)............................................ N.A.
(b)............................................... 6.07
(i)
<PAGE> 3
(c)............................................... 2.12
317(a)(1)......................................... 6.08
(a)(2)............................................ 6.09
(b) .............................................. 2.04
318(a)............................................ 12.01
(b)............................................... N.A.
(c)............................................... 12.01
- ----------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS
Page
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ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.................................... 1
Section 1.02 Other Definitions.............................. 20
Section 1.03 Incorporation by Reference of Trust
Indenture Act................................ 21
Section 1.04 Rules of Construction.......................... 22
ARTICLE 2
THE SENIOR SUBORDINATED NOTES
Section 2.01 Form and Dating................................ 22
Section 2.02 Execution and Authentication................... 24
Section 2.03 Registrar and Paying Agent..................... 26
Section 2.04 Paying Agent to Hold Money in Trust............ 26
Section 2.05 Holder Lists................................... 27
Section 2.06 Transfer and Exchange.......................... 27
Section 2.07 Replacement Senior Subordinated Notes.......... 35
Section 2.08 Outstanding Senior Subordinated Notes.......... 36
Section 2.09 Treasury Senior Subordinated Notes............. 36
Section 2.10 Temporary Senior Subordinated Notes............ 37
Section 2.11 Cancellation................................... 37
Section 2.12 Defaulted Interest; Notice of Liquidated Damages 37
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee............................. 38
Section 3.02 Selection of Senior Subordinated Notes
to Be Redeemed............................... 38
Section 3.03 Notice of Redemption........................... 39
Section 3.04 Effect of Notice of Redemption................. 40
Section 3.05 Deposit of Redemption Price.................... 40
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Section 3.06 Senior Subordinated Notes Redeemed in Part..... 40
Section 3.07 Optional Redemption............................ 41
Section 3.08 Mandatory Redemption........................... 42
Section 3.09 Offer to Purchase by Application
of Excess Proceeds........................... 42
ARTICLE 4
COVENANTS
Section 4.01 Payment of Senior Subordinated Notes........... 44
Section 4.02 Maintenance of Office or Agency................ 45
Section 4.03 Reports........................................ 45
Section 4.04 Compliance Certificate......................... 46
Section 4.05 Taxes.......................................... 47
Section 4.06 Stay, Extension and Usury Laws................. 47
Section 4.07 Restricted Payments............................ 47
Section 4.08 Dividend and Other Payment Restrictions
Affecting Subsidiaries....................... 50
Section 4.09 Incurrence of Indebtedness and Issuance
of Disqualified Stock........................ 51
Section 4.10 Asset Sales.................................... 53
Section 4.11 Transactions with Affiliates................... 55
Section 4.12 Liens.......................................... 57
Section 4.13 Offer to Repurchase Upon Change
of Control................................... 57
Section 4.14 Issuances of Guarantees of Indebtedness........ 59
Section 4.15 Corporate Existence............................ 59
Section 4.16 No Senior Subordinated Debt.................... 60
ARTICLE 5
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of
All or Substantially All Assets.............. 60
Section 5.02 Successor Corporation Substituted.............. 61
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ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.............................. 61
Section 6.02 Acceleration................................... 64
Section 6.03 Other Remedies................................. 64
Section 6.04 Waiver of Past Defaults........................ 65
Section 6.05 Control by Majority............................ 65
Section 6.06 Limitation on Suits............................ 65
Section 6.07 Rights of Holders of Senior Subordinated
Notes to Receive Payment..................... 66
Section 6.08 Collection Suit by Trustee..................... 66
Section 6.09 Trustee May File Proofs of Claim............... 66
Section 6.10 Priorities..................................... 67
Section 6.11 Undertaking for Costs.......................... 68
ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee.............................. 68
Section 7.02 Rights of Trustee.............................. 69
Section 7.03 Individual Rights of Trustee................... 70
Section 7.04 Trustee's Disclaimer........................... 70
Section 7.05 Notice of Defaults............................. 70
Section 7.06 Reports by Trustee to Holders of the
Senior Subordinated Notes.................... 71
Section 7.07 Compensation and Indemnity..................... 71
Section 7.08 Replacement of Trustee......................... 72
Section 7.09 Successor Trustee by Merger, etc............... 73
Section 7.10 Eligibility; Disqualification.................. 74
Section 7.11 Preferential Collection of Claims Against Company 74
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or
Covenant Defeasance.......................... 74
Section 8.02 Legal Defeasance and Discharge................. 74
Section 8.03 Covenant Defeasance............................ 75
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Section 8.04 Conditions to Legal or Covenant Defeasance..... 76
Section 8.05 Deposited Money and Government
Securities to be Held in Trust;
Other Miscellaneous Provisions............... 77
Section 8.06 Repayment to Company........................... 78
Section 8.07 Reinstatement.................................. 78
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Senior
Subordinated Notes........................... 79
Section 9.02 With Consent of Holders of Senior
Subordinated Notes........................... 80
Section 9.03 Compliance with Trust Indenture Act............ 82
Section 9.04 Revocation and Effect of Consents.............. 82
Section 9.05 Notation on or Exchange of Senior
Subordinated Notes........................... 82
Section 9.06 Trustee to Sign Amendments, etc................ 82
ARTICLE 10
SUBORDINATION
Section 10.01 Agreement to Subordinate....................... 83
Section 10.02 Certain Definitions............................ 83
Section 10.03 Liquidation; Dissolution; Bankruptcy........... 84
Section 10.04 Default on Designated Senior Debt.............. 85
Section 10.05 Acceleration of Senior Subordinated Notes...... 86
Section 10.06 When Distribution Must Be Paid Over............ 86
Section 10.07 Notice by Company.............................. 87
Section 10.08 Subrogation.................................... 87
Section 10.09 Relative Rights................................ 88
Section 10.10 Subordination May Not Be Impaired by
Company..................................... 88
Section 10.11 Distribution or Notice to Representative....... 89
Section 10.12 Rights of Trustee and Paying Agent............. 89
Section 10.13 Authorization to Effect Subordination.......... 90
Section 10.14 Amendments..................................... 90
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<PAGE> 8
ARTICLE 11
SENIOR SUBORDINATED GUARANTEES
Section 11.01 Senior Subordinated Guarantees................. 90
Section 11.02 Subordination of Senior Subordinated
Guarantee.................................... 92
Section 11.03 Limitation on Guarantor Liability.............. 92
Section 11.04 Execution and Delivery of Senior
Subordinated Guarantees...................... 92
Section 11.05 Guarantors May Consolidate, etc.,
on Certain Terms............................. 93
Section 11.06 Releases of Senior Subordinated Guarantees..... 94
Section 11.07 "Trustee" to Include Paying Agent.............. 95
ARTICLE 12
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls................... 95
Section 12.02 Notices........................................ 95
Section 12.03 Communication by Holders of Senior Subordinated
Notes with Other Holders of Senior
Subordinated Notes........................... 96
Section 12.04 Certificate and Opinion as to Conditions
Precedent.................................... 97
Section 12.05 Statements Required in Certificate
or Opinion................................... 97
Section 12.06 Rules by Trustee and Agents.................... 98
Section 12.07 No Personal Liability of Directors,
Officers, Employees and Stockholders......... 98
Section 12.08 Governing Law.................................. 98
Section 12.09 No Adverse Interpretation of Other
Agreements................................... 98
Section 12.10 Successors..................................... 98
Section 12.11 Severability................................... 98
Section 12.12 Counterpart Originals.......................... 98
Section 12.13 Table of Contents, Headings, etc............... 98
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EXHIBITS
Exhibit A-1 FORM OF SENIOR SUBORDINATED NOTE
Exhibit B-1 FORM OF CERTIFICATE OF EXCHANGE OR REGISTRATION OF
TRANSFER FROM RULE 144A GLOBAL NOTE TO REGULATION S
GLOBAL NOTE
Exhibit B-2 FORM OF CERTIFICATE OF EXCHANGE OR REGISTRATION OF
TRANSFER FROM REGULATION S GLOBAL NOTE TO RULE 144A
GLOBAL NOTE
Exhibit B-3 FORM OF CERTIFICATE OF EXCHANGE OR REGISTRATION OF
TRANSFER OF CERTIFICATED NOTES
Exhibit B-4 FORM OF UNRESTRICTED NOTE CERTIFICATE
Exhibit C GUARANTORS
Exhibit D FORM OF SENIOR SUBORDINATED GUARANTEE
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
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<PAGE> 10
INDENTURE dated as of December 19, 1997 among Amscan Holdings, Inc., a
Delaware corporation (the "Company"), each of the Persons listed on Exhibit C
hereto (each, a "Guarantor" and, collectively, the "Guarantors") and IBJ
Schroder Bank & Trust Company, as trustee (the "Trustee").
RECITALS OF THE COMPANY AND THE GUARANTORS
The Company has duly authorized the creation of an issue of its 9.875%
Senior Subordinated Notes Due 2007 (herein called the "Senior Subordinated
Notes") of substantially the tenor and amount hereinafter set forth, and to
provide therefor the Company has duly authorized the execution and delivery of
this Indenture. Senior Subordinated Notes may consist of any or all of the
Senior Subordinated Notes sold pursuant to Rule 144A or Regulation S or Exchange
Notes, each as defined herein. The Senior Subordinated Notes sold pursuant to
Rule 144A Securities and Regulation S and Exchange Notes shall rank pari passu
with each other.
The Company and the Guarantors are members of the same consolidated
group of companies and are engaged in related businesses and the Guarantors will
derive direct and indirect economic benefit from the issuance of the Senior
Subordinated Notes; accordingly, the Guarantors have each duly authorized the
execution and delivery of this Indenture to provide for the Senior Subordinated
Guarantee (as hereinafter defined) by each of them with respect to the Senior
Subordinated Notes as set forth in this Indenture.
All things necessary to make the Senior Subordinated Notes with Senior
Subordinated Guarantees endorsed thereon, when executed by the Company and the
Guarantors, respectively, and authenticated and delivered hereunder and duly
issued by the Company and the Guarantors, the valid obligations of the Company
and the Guarantors, and to make this Indenture a valid agreement of the Company
and the Guarantors, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Senior
Subordinated Notes with the Senior Subordinated Guarantees of the Guarantors
endorsed thereon by the Holders thereof, it is mutually agreed, for the equal
and proportionate benefit of all Holders of the Senior Subordinated Notes, as
follows:
<PAGE> 11
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions. "Accrued Bankruptcy Interest" has the meaning
set forth in Section 10.02 hereof.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Members" means any member of, or participant in, the Depositary.
"Agreement and Plan of Merger" means the Agreement and Plan of Merger,
dated August 10, 1997, between the Company and Confetti Acquisition, Inc.
"Applicable Premium" means, with respect to a Senior Subordinated Note,
the greater of (i) 1.0% of the then outstanding principal amount of such Senior
Subordinated Note and (ii)(a) the present value of all remaining required
interest and principal payments due on such Senior Subordinated Note and all
premium payments relating thereto assuming a redemption date of December 15,
2002, computed using a discount rate equal to the Treasury Rate plus 50 basis
points minus (b) the then outstanding principal amount of such Senior
Subordinated Note minus (c) accrued interest thereon paid on the redemption
date.
"Applicable Procedures" means, with respect to any transfer or exchange
of beneficial interests in a Global Note, the rules and procedures of the
Depositary, Euroclear and Cedel Bank that are applicable to such transfer or
exchange.
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<PAGE> 12
"Asset Sale" means: (i) the sale, conveyance, transfer or other
disposition (whether in a single transaction or a series of related
transactions) of property or assets (including by way of a sale and leaseback)
of the Company or any Restricted Subsidiary (each referred to in this definition
as a "disposition") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than: (a) a disposition of Cash Equivalents
or goods held for sale in the ordinary course of business or obsolete equipment
or other obsolete assets in the ordinary course of business consistent with past
practices of the Company; (b) the disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to the provisions of
Section 5.01 hereof or any disposition that constitutes a Change of Control
pursuant to this Indenture; (c) any disposition that is a Restricted Payment or
Permitted Investment that is permitted pursuant to Section 4.07 hereof; (d) any
individual disposition or series of related dispositions, of assets with an
aggregate fair market value of less than $2.5 million; (e) any sale of an Equity
Interest in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
and (f) foreclosures on assets.
"Bank Credit Agreement" means one or more credit agreements to be
entered into by and among the Company and the financial institutions party
thereto providing a portion of the financing for the Transaction, as well as
financing for the Company's ongoing requirements, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
refinanced or replaced (in whole or in part) from time to time.
"Bankruptcy Law" has the meaning set forth in Section 10.02 hereof.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of that Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person (but excluding customary
employee incentive
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<PAGE> 13
or bonus arrangements, and customary earn-out provisions granted in connection
with acquisition transactions and providing for aggregate payouts not in excess
of $5 million per year).
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any domestic bank having
capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of
"B" (or the equivalent rating under a substantially similar ratings system if
Keefe Bank Watch Ratings are no longer published) or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or in their absence,
an equivalent rating from another nationally recognized securities rating
agency) and in each case maturing within one year after the date of acquisition.
"Cedel Bank" means Cedel Bank, societe anonyme.
"Certificated Notes" means Senior Subordinated Notes that are in the
form of the Senior Subordinated Notes attached hereto as Exhibit A-1, that do
not include the information called for by footnotes 1 and 4 thereof.
"Change of Control" means the occurrence of any of the following:
(a) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries, taken as a whole, to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act) other than
the Permitted Holders and their Related Parties;
(b) the Company becomes aware (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote,
written notice or otherwise) of the acquisition by any Person or group
(within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, or any successor provision), including any group acting
for the purpose of acquiring, holding or disposing of securities (within
the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the
Permitted Holders or any of their Related Parties, in a single
transaction or in a related series of transactions, by way of merger,
consolidation or other business combination or purchase of beneficial
ownership (within the meaning of Rule 13d-3
-4-
<PAGE> 14
under the Exchange Act, or any successor provision) of 50% or more of
the aggregate voting power of the Voting Stock of the Company, and such
Person or group beneficially owns Voting Stock having greater aggregate
voting power than the Permitted Holders and their Related Parties; or
(c) a majority of the members of the Board of Directors of the
Company cease to be Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash operating expenses that
were paid in a prior period) and other non-cash charges of such Person and its
Restricted Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing such
Consolidated Net Income, minus (v) cash outlays that were made by such Person or
any of its Restricted Subsidiaries during such period in respect of any item
that was reflected as a non-cash charge in a prior period, provided that such
non-cash charge was added to Consolidated Net Income in determining Consolidated
Cash Flow for such prior period.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) for such period of
any Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a
Wholly-Owned Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted
-5-
<PAGE> 15
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to the Company or one of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of Directors
on the date of this Indenture or (ii) was nominated for election or elected to
such Board of Directors with, or whose election to such Board of Directors was
approved by, the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election or (iii) is any designee of the Permitted Holders or their Affiliates
or was nominated by the Permitted Holders or their Affiliates or any designees
of the Permitted Holders or their Affiliates on the Board of Directors.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depositary" means, with respect to the Senior Subordinated Notes
issuable or issued in whole or in part in global form, the Person specified in
Section 2.03 hereof as the Depositary with respect to the Senior Subordinated
Notes, until a successor shall have been appointed and become such pursuant to
the applicable provision of this Indenture, and, thereafter, "Depositary" shall
mean or include such successor.
"Designated Senior Debt" has the meaning set forth in Section 10.02
hereof.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Senior Subordinated Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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<PAGE> 16
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System.
"Event of Default" has the meaning set forth in Section 6.01 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Note" means any Senior Subordinated Note (i) issued in
exchange for a Transfer Restricted Security or Transfer Restricted Securities
pursuant to an Exchange Offer, or (ii) otherwise issued in a transaction
registered under the Securities Act, whether pursuant to a Resale Registration
Statement or otherwise pursuant to the Registration Rights Agreement and any
Senior Subordinated Note with respect to which the predecessor Senior
Subordinated Note was an Exchange Note.
"Exchange Offer" means the offer that may be made by the Company
pursuant to an effective registration statement under the Securities Act to
exchange Exchange Notes for Transfer Restricted Securities.
"Exchange Registration Statement" means a registration statement of the
Company under the Securities Act registering Exchange Notes for distribution
pursuant to the Exchange Offer.
"Excludable Current Liabilities" means, with respect to the
consideration received by the Company in connection with any Asset Sale, (i)
each trade payable incurred in the ordinary course of business of the Company or
any Restricted Subsidiary, (ii) each current liability that is in an amount less
than $50,000 on an individual basis, and (iii) each liability due within 90 days
of the date of consummation of such Asset Sale, in the case of each of clauses
(i) through (iii), that is assumed by the transferee of the assets that are
subject to such Asset Sale pursuant to customary assumption provisions.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Bank Credit
Agreement) in existence on the date of this Indenture, until such amounts are
repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues Preferred Stock
subsequent to the commencement of the period for which the Fixed Charge
-7-
<PAGE> 17
Coverage Ratio is being calculated but on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of Preferred Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In calculating the Fixed Charge Coverage Ratio, acquisitions will be
given pro forma effect as follows:
(i) (A) acquisitions that have been made or are being made by the
Company or any of its Restricted Subsidiaries during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date (including through mergers or consolidations and including
any related financing transactions) shall be deemed to have occurred on the
first day of the four-quarter reference period, and
(B) for purposes of determining the pro forma effects of any such
acquisition, Consolidated Cash Flow shall be increased to reflect the
annualized amount of any cost savings expected by the Company to be realized
in connection with such acquisition (from steps to be taken not later than the
first anniversary of such acquisition, and without reduction for any
non-recurring charges expected in connection with such acquisition), as set
forth in an Officers' Certificate signed by the Company's chief executive and
chief financial officers (which shall be determinative of such matters) which
states (x) the amount of such increase, (y) that such increase is based on the
reasonable beliefs of the officers executing such Officers' Certificate at the
time of such execution (and that estimates of cost savings from prior
acquisitions have been reevaluated and updated) and (z) that any related
incurrence of Indebtedness is permitted pursuant to Section 4.09.
(ii) Consolidated Cash Flow shall be further increased to reflect the
annualized amount of any cost savings expected by the Company but not yet
realized in respect of any acquisition made by the Company during the four
fiscal quarters immediately preceding the four-quarter reference period prior
to the Calculation Date, to the extent such cost savings are (x) expected to
result from steps taken not later than the first anniversary of the relevant
acquisition and (y) determined and certified as set forth in clause (i) above.
In addition, in calculating the Fixed Charge Coverage Ratio,
discontinued operations will be given pro forma effect as follows:
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<PAGE> 18
(1) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed
of on or prior to the Calculation Date, shall be excluded, and
(2) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
on or prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be obligations
of the Company or any of its Restricted Subsidiaries following the Calculation
Date.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) paid to any Person other than the Company or a
Restricted Subsidiary on any series of Preferred Stock of such Person, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person paying the dividend, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.
"Global Notes" means, individually and collectively, the Regulation S
Temporary Global Note, the Regulation S Permanent Global Note and the Rule 144A
Global Note.
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<PAGE> 19
"Government Securities" means securities that are (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each Subsidiary of the Company that executes a Senior
Subordinated Guarantee in accordance with the provisions of this Indenture, and,
in each case, their respective successors and assigns, while such Senior
Subordinated Guarantee is outstanding.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers' acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person
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<PAGE> 20
prepared in accordance with GAAP, as well as all indebtedness of others secured
by a Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any Indebtedness of any other Person.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Independent Financial Advisor" means an accounting, appraisal,
investment banking firm or consultant of nationally recognized standing that is
not an Affiliate of the Company and that is, in the judgment of the Company's
Board of Directors, qualified to perform the task for which it has been engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than cash advances made to suppliers with respect to current or
anticipated purchases of inventory in the ordinary course of business) or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions of Indebtedness, Equity Interests or other securities
(directly from the issuer thereof or from third parties) together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Equity Interests of
such Subsidiary, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Subsidiary not sold or disposed of.
"Joint Ventures" means all corporations, partnerships, associations or
other business entities (i) that are engaged in a Principal Business and (ii) of
which 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the
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time owned or controlled, directly or indirectly, by the Company or one or more
Restricted Subsidiaries of the Company (or a combination thereof).
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit issued pursuant to the Bank Credit Agreement, which
Indebtedness shall be deemed to consist of (a) the aggregate maximum amount then
available to be drawn under all such letters of credit (the determination of
such maximum amount to assume compliance with all conditions for drawing) and
(b) the aggregate amount that has then been paid by, and not reimbursed to, the
issuers under such letters of credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Mortgage Financing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property acquired or improved by the Company or any Restricted
Subsidiary of the Company after the date of this Indenture.
"Mortgage Refinancing" means the incurrence by the Company or a
Restricted Subsidiary of the Company of any Indebtedness secured by a mortgage
or other Lien on real property subject to a mortgage or other Lien existing on
the date of this Indenture or created or incurred subsequent to the date of this
Indenture as permitted by the terms of this Indenture and owned by the Company
or any Restricted Subsidiary of the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any
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<PAGE> 22
Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such Person
or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and brokerage and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Bank Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i)
as to which neither the Company nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness), (b) is directly or indirectly
liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no
default with respect to which (including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness of the Company or any of its Restricted Subsidiaries or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Note Custodian" means the Trustee, as custodian with respect to the
Senior Subordinated Notes in global form, or any successor entity thereto.
"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any such Indebtedness.
"Offering" means the offering of the Senior Subordinated Notes by the
Company.
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<PAGE> 23
"Offering Circular" means the circular or memorandum, dated December 15,
1997, prepared in connection with and relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Guarantor or the Trustee.
"Permitted Holders" means Goldman, Sachs & Co. and any of its
Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company (including the acquisition of any Equity
Interest in a Restricted Subsidiary); (b) any investment in cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary of the Company or (B) such Person, in one
transaction or a series of related transactions, is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investment made as a result of the receipt of consideration not
constituting cash or Cash Equivalents from an Asset Sale that was made pursuant
to and in compliance with Section 4.10; (e) any Investment existing on the date
of this Indenture; (f) any Investment by Restricted Subsidiaries in other
Restricted Subsidiaries and Investments by Subsidiaries that are not Restricted
Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries; (g)
advances to employees not in excess of $2.5 million outstanding at any one time;
(h) any Investment acquired by the Company or any of its Restricted Subsidiaries
(A) in exchange for any other Investment or accounts receivable held by the
Company or any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (i) Hedging Obligations; (j) loans and advances to officers, directors
and employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (k)
Investments the payment for which
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consists exclusively of Equity Interests (exclusive of Disqualified Stock) of
the Company; and (1) additional Investments having an aggregate fair market
value, taken together with all other Investments made pursuant to this clause
(1) that are at that time outstanding, not to exceed $15 million plus 5% of the
increase in Total Assets since the date of this Indenture at the time of such
Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
in whole or in part; provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date on or later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Securities, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of the Securities, and is subordinated in right of payment to the
Securities, on terms at least as favorable to the Holders of Securities as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principal Business" means (i) the design, manufacture and distribution
of party goods and related products, including, but not limited to, tableware
(such as plates, cups, cutlery, napkins and table covers), decorations, banners,
balloons, novelties, horns, party hats, party favors, stationery, invitations,
greeting cards, gift wrap, ribbons, gift boxes, gift bags, giftware, costumes,
masks and makeup, and (ii) any activity or business incidental,
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directly related or similar to those set forth in clause (i) of this definition,
or any business or activity that is a reasonable extension, development or
expansion thereof or ancillary thereto.
"Purchase Agreement" means that certain Purchase Agreement, dated
December 15, 1997, between the Company and Goldman, Sachs & Co. pursuant to
which the Senior Subordinated Notes are sold by the Company and delivered to,
and purchased and accepted by, Goldman, Sachs & Co.
"Registration Rights Agreement" means that certain Exchange and
Registration Rights Agreement, dated as of December 19, 1997, by and among the
Company and the other parties named on the signature pages thereof, as such
agreement may be amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a permanent global security that is
deposited with and registered in the name of the Depositary or its nominee,
representing Senior Subordinated Notes sold in reliance on Regulation S.
"Related Parties" means any Person controlled by the Permitted Holders,
including any partnership of which any of the Permitted Holders or their
Affiliates is a general partner.
"Representative" has the meaning set forth in Section 10.02 hereof.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a Holder's Senior Subordinated Notes pursuant to Section 4.10 or
4.13 hereof.
"Resale Registration Statement" means a shelf registration statement
under the Securities Act filed by the Company, if required by, and meeting the
requirements of, the Exchange and Registration Rights Agreement, registering the
Transfer Restricted Securities for resale.
"Responsible Officer," when used with respect to the Trustee, means any
Officer within the Corporate Finance Department of the Trustee (or any successor
group of the Trustee) or any other Officer of the Trustee customarily performing
functions similar to those performed by any of the above designated Officers and
also means, with respect to a particular corporate trust matter, any other
Officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" means, with respect to any Person, any
Subsidiary of such Person that is not (i) an Unrestricted Subsidiary or (ii) a
direct or indirect Subsidiary of an Unrestricted Subsidiary; provided, however,
that upon the occurrence of any Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
Restricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that contains the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 4 to the form of the Senior Subordinated Note attached hereto as
Exhibit A-1, and that is deposited with and registered in the name of the
Depositary or its nominee, representing a series of Senior Subordinated Notes
sold to U.S. Persons in reliance on Rule 144A or another exemption from the
registration requirements of the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" has the meaning set forth in Section 10.02 hereof.
"Senior Guarantees" means the Guarantees by the Guarantors of
Obligations under the Bank Credit Agreement.
"Senior Subordinated Guarantees" means the Guarantees by the Guarantors
of the Obligations under this Indenture and the Senior Subordinated Notes.
"Senior Subordinated Indebtedness" means the Securities and any other
indebtedness which ranks pari passu in right of payment to the Securities.
"Significant Restricted Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of this Indenture.
"Specified Real Estate" means the real properties owned by the Company
or its Subsidiaries as of the date hereof, comprising the distribution
facilities in Chester, New York, Montreal, Quebec, Canada, and Melbourne,
Australia.
"Stated Maturity" means, with respect to any installment of interest or
principal on, or any other payments with respect to, any series of Indebtedness,
the date on which such
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payment of interest or principal or other payment (including any sinking fund
payment) was scheduled or required to be paid, but shall not include any
acceleration of such payment or any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date originally scheduled
for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
of its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Senior Subordinated Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Transaction" means the merger of the Company and Confetti Acquisition,
Inc. pursuant to the Agreement and Plan of Merger.
"Transfer Restricted Securities" means securities that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the date fixed
for redemption (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining term to December 15, 2002; provided, however, that if the then
remaining term to December 15, 2002 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the then
remaining term to December 15, 2002 is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
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"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Unrestricted Subsidiary" means any Subsidiary (other than the
Guarantors or any successor to any of them) that is designated by the Board of
Directors of the Company as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed and does not
otherwise directly or indirectly provide credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by Section 4.07 hereof.
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes hereof and, so long as such Unrestricted
Subsidiary remains a Subsidiary, any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
Section 4.09 hereof, the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designated any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 4.09
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<PAGE> 29
hereof, and (ii) no Default or Event of Default would be in existence following
such designation.
"U.S. Person" has the meaning specified in Regulation S.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" is any Wholly-Owned Subsidiary that
is a Restricted Subsidiary.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
Section 1.02 Other Definitions.
Defined in
Term Section
"Affiliate Transaction" 4.11
"Asset Sale Offer" 4.10
"Authentication Order" 2.02
"Change of Control Offer" 4.13
"Change of Control Payment" 4.13
"Change of Control Payment Date" 4.13
"Covenant Defeasance" 8.03
"Custodian" 6.01
"DTC" 2.03
"Event of Default" 6.01
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"Excess Proceeds" 4.10
"incur" 4.09
"incurrence" 4.09
"Legal Defeasance" 8.02
"Offer Amount" 3.09
"Offer Period" 3.09
"Paying Agent" 2.03
"Payment Blockage Notice" 10.04
"Purchase Date" 3.09
"QIBs" 2.01
"Refunding Capital Stock" 4.07
"Registrar" 2.03
"Restricted Payments" 4.07
"Retired Capital Stock" 4.07
"Subordinated Asset Sale Offer" 4.10
Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the Trust Indenture Act, the provision
is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms used in this Indenture have the
following meanings:
"indenture securities" means the Senior Subordinated Notes;
"indenture security Holder" means a Holder of a Senior Subordinated
Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Senior Subordinated Notes and the Senior Subordinated
Guarantees means the Company and the Guarantors, respectively, and any successor
obligor upon the Senior Subordinated Notes and the Senior Subordinated
Guarantees, respectively.
All other terms used in this Indenture that are defined by the Trust
Indenture Act, defined by Trust Indenture Act reference to another statute or
defined by SEC rule under the Trust Indenture Act have the meanings so assigned
to them.
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Section 1.04 Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2
THE SENIOR SUBORDINATED NOTES
Section 2.01 Form and Dating. The Senior Subordinated Notes and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A-1 attached hereto. The Senior Subordinated Guarantees shall be
substantially in the form of Exhibit D attached hereto, the terms of which are
incorporated in and made part of this Indenture. The Senior Subordinated Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Senior Subordinated Note shall be dated the date of its
authentication. The Senior Subordinated Notes shall be issued in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof. The
terms and provisions contained in the Senior Subordinated Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
(a) Global Notes. Senior Subordinated Notes offered and sold to
qualified institutional buyers as defined in Rule 144A ("QIBs") in reliance on
Rule 144A shall be issued initially in the form of Rule 144A Global Notes, which
shall be deposited on behalf of the purchasers of the Senior Subordinated Notes
represented thereby with the Depositary at its New York office, and registered
in the name of the Depositary or a nominee of the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Rule 144A
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Global Notes may from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depositary or its nominee as hereinafter
provided.
Senior Subordinated Notes offered and sold in reliance on Regulation S
shall be issued in the form of the Regulation S Global Note, which shall be
deposited on behalf of the purchasers of the Senior Subordinated Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. Until the expiration of the 40-day restricted
period (as defined in Regulation S), beneficial interests in the Regulation S
Global Note shall be held only in or through accounts maintained at the
Depositary by Euroclear or Cedel Bank (or by Agent Members acting for the
account thereof), and no Person shall be entitled to effect any transfer or
exchange that would result in any such interest being held otherwise than in or
through such an account; provided that this clause shall not prohibit any
transfer or exchange of such an interest in accordance with Section 2.06(a)(ii).
The "40-day restricted period" shall terminate upon the 41st day after the later
of (A) the day that Goldman, Sachs & Co. advises the Company and the Trustee is
the day on which Senior Subordinated Notes are first offered to Persons other
than distributors (as defined in Regulation S) and (B) the day on which the
initial delivery of the Senior Subordinated Notes occurs pursuant to the
Purchase Agreement. The aggregate principal amount of the Regulation S Global
Notes may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
Each Global Note shall represent such of the outstanding Senior
Subordinated Notes as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Senior Subordinated Notes
from time to time endorsed thereon and that the aggregate amount of outstanding
Senior Subordinated Notes represented thereby may from time to time be reduced
or increased, as appropriate, to reflect exchanges, redemptions and transfers of
interest. Any endorsement of a Global Note to reflect the amount of any increase
or decrease in the amount of outstanding Senior Subordinated Notes represented
thereby shall be made by the Trustee or the Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable
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to interests in the Regulation S Global Notes that are held by the Agent Members
through Euroclear or Cedel Bank.
Except as set forth in Section 2.06 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply only to Rule
144A Global Notes and the Regulation S Global Notes deposited with or on behalf
of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(b), authenticate and deliver the Global Notes that (i) shall be
registered in the name of the Depositary or the nominee of the Depositary and
(ii) shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Agent Members shall have no rights either under this Indenture with
respect to any Global Note held on their behalf by the Depositary or by the
Trustee as custodian for the Depositary or under such Global Note, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such Depositary governing the exercise of
the rights of an owner of a beneficial interest in any Global Note.
(c) Certificated Notes. Senior Subordinated Notes issued in certificated
form shall be substantially in the form of Exhibit A-1 attached hereto (but
without including the text referred to in footnotes 1 and 4 thereto).
Section 2.02 Execution and Authentication. Two Officers of the Company
shall sign the Senior Subordinated Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Senior Subordinated
Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Senior Subordinated
Note no longer holds that office at the time a Senior Subordinated Note is
authenticated, the Senior Subordinated Note shall nevertheless be valid.
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A Senior Subordinated Note shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence that
the Senior Subordinated Note has been authenticated under this Indenture.
The Trustee shall, upon receipt of a written order of the Company signed
by two Officers of the Company (the "Authentication Order"), authenticate Senior
Subordinated Notes for original issue. The Trustee shall authenticate Senior
Subordinated Notes for original issue on the date of this Indenture in an
aggregate amount not to exceed $110,000,000 upon receipt of an Authentication
Order. In addition, the Trustee shall, from time to time, authenticate Senior
Subordinated Notes issued in one or more series (such Senior Subordinated Notes
to be substantially in the form of Exhibit A-1) in an aggregate principal amount
not to exceed $90,000,000 upon receipt of an Authentication Order; provided,
however, that the Company agrees that such Senior Subordinated Notes shall not
be issued at a price that would cause such Senior Subordinated Notes to have
"original issue discount" within the meaning of Section 1273 of the Internal
Revenue Code of 1986, as amended. The aggregate principal amount of Senior
Subordinated Notes outstanding at any one time shall not exceed $200,000,000
except as provided in Section 2.07 hereof and in the immediately succeeding
paragraph.
At any time and from time to time after the execution and delivery of
this Indenture and after the effectiveness of a registration statement under the
Securities Act with respect thereto, the Company may deliver Exchange Notes
executed by the Company, and having endorsed thereon the Senior Subordinated
Guarantees executed under Section 11.04 by the Guarantors, to the Trustee for
authentication, together with an Authentication Order for the authentication and
delivery of such Exchange Notes and a like principal amount of Transfer
Restricted Securities for cancellation in accordance with Section 2.11 of this
Indenture, and the Trustee in accordance with the Authentication Order shall
authenticate and deliver such Exchange Notes, with the Senior Subordinated
Guarantees endorsed thereon. Prior to authenticating such Exchange Notes, and
accepting any additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive, if requested, and
(subject to Section 7.01) shall be fully protected in relying upon, an Opinion
of Counsel stating in substance
(a) that all conditions hereunder precedent to the authentication and
delivery of such Exchange Notes with the Senior Subordinated Guarantees of the
Guarantors endorsed thereon have been complied with and that such Exchange
Notes and the Senior Subordinated Guarantees of the Guarantors endorsed
thereon, when such Senior Subordinated Notes have been duly authenticated and
delivered by the Trustee (and subject to any other conditions specified in
such Opinion of Counsel), have been duly issued and delivered and will
constitute valid and legally binding obligations of the
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Company and the Guarantors, respectively, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and
(b) that the issuance of the Exchange Notes in exchange for Transfer
Restricted Securities has been effected in compliance with the Securities Act.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Senior Subordinated Notes. An authenticating agent may
authenticate Senior Subordinated Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
Section 2.03 Registrar and Paying Agent. The Company shall maintain an
office or agency where Senior Subordinated Notes may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where Senior Subordinated Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Senior Subordinated Notes and of
their transfer and exchange. The Company may appoint one or more co-registrars
and one or more additional paying agents. The term "Registrar" includes any
co-registrar and the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company shall notify the Trustee in writing of the name and address
of any Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act as
such. The Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as the Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes. The
Company initially appoints the Trustee to act as the Registrar and Paying Agent
with respect to the Certificated Notes.
Section 2.04 Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Holders or the Trustee all
money held by the Paying Agent for the payment of principal, premium, if any, or
interest, including Liquidated Damages, if any, on the Senior Subordinated
Notes, and will notify the Trustee of any default by the Company or any
Guarantor in making any such payment. While any such default
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continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or a Subsidiary) shall have no further liability for
the money. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders all
money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company or a Guarantor, the Trustee shall serve as
Paying Agent for the Senior Subordinated Notes.
Section 2.05 Holder Lists. The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of all Holders and shall otherwise comply with Section
312(a) of the Trust Indenture Act. If the Trustee is not the Registrar, the
Company and/or the Guarantors shall furnish to the Trustee at least 10 Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of the Holders of Senior
Subordinated Notes and the Company and the Guarantors shall otherwise comply
with Section 312(a) of the Trust Indenture Act.
Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global
Notes. The transfer and exchange of Global Notes or beneficial interests therein
shall be effected through the Depositary, in accordance with this Indenture and
the procedures of the Depositary therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. The Trustee shall have no obligation to ascertain the
Depositary's compliance with such restrictions on transfer. Beneficial interests
in a Global Note may be transferred to Persons who take delivery thereof in the
form of a beneficial interest in the same Global Note in accordance with the
transfer restrictions set forth in the legend in subsection (g) of this Section
2.06. Transfers of beneficial interests in the Global Notes to Persons required
to take delivery thereof in the form of an interest in another Global Note shall
be permitted as follows:
(i) Rule 144A Global Note to Regulation S Global Note. If, at any
time, an owner of a beneficial interest in a Rule 144A Global Note deposited
with the Depositary (or the Trustee as custodian for the Depositary) wishes to
transfer its beneficial interest in such Rule 144A Global Note to a Person who
is required or permitted to take delivery thereof in the form of an interest
in a Regulation S Global Note, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of such interest for an equivalent
beneficial interest in a Regulation S Global Note as provided in this Section
2.06(a)(i). Upon receipt by the Trustee of (1) instructions given in
accordance with the Applicable Procedures from an Agent Member
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directing the Trustee to credit or cause to be credited a beneficial interest
in the Regulation S Global Note in an amount equal to the beneficial interest
in the Rule 144A Global Note to be exchanged, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
participant account of the Depositary and the Euroclear or Cedel Bank account
to be credited with such increase and (3) a certificate in the form of Exhibit
B-1 hereto given by the owner of such beneficial interest stating that the
transfer of such interest has been made in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and in accordance
with Rule 903 or Rule 904 of Regulation S, then the Registrar shall instruct
the Depositary to reduce or cause to be reduced the aggregate principal amount
at maturity of the applicable Rule 144A Global Note and to increase or cause
to be increased the aggregate principal amount at maturity of the applicable
Regulation S Global Note by the principal amount at maturity of the beneficial
interest in the Rule 144A Global Note to be exchanged or transferred, to
credit or cause to be credited to the account of the Person specified in such
instructions a beneficial interest in the Regulation S Global Note equal to
the reduction in the aggregate principal amount at maturity of the Rule 144A
Global Note, and to debit, or cause to be debited, from the account of the
Person making such exchange or transfer the beneficial interest in the Rule
144A Global Note that is being exchanged or transferred.
(ii) Regulation S Global Note to Rule 144A Global Note. If, at any
time, an owner of a beneficial interest in a Regulation S Global Note
deposited with the Depositary (or with the Trustee as custodian for the
Depositary) wishes to transfer its beneficial interest in such Regulation S
Global Note to a Person who is required or permitted to take delivery thereof
in the form of an interest in a Rule 144A Global Note, such owner shall,
subject to the Applicable Procedures, exchange or cause the exchange of such
interest for an equivalent beneficial interest in a Rule 144A Global Note as
provided in this Section 2.06(a)(ii). Upon receipt by the Trustee of (1)
instructions from Euroclear or Cedel Bank, if applicable, and the Depositary,
directing the Registrar to credit or cause to be credited a beneficial
interest in the Rule 144A Global Note equal to the beneficial interest in the
Regulation S Global Note to be exchanged, such instructions to contain
information regarding the participant account with the Depositary to be
credited with such increase, (2) a written order given in accordance with the
Applicable Procedures containing information regarding the participant account
of the Depositary and (3) if such transfer is to occur during the 40-day
restricted period, a certificate in the form of Exhibit B-2 attached hereto
given by the owner of such beneficial interest stating (A) if the transfer is
pursuant to Rule 144A, that the Person transferring such interest in a
Regulation S Global Note reasonably believes that the Person acquiring such
interest in a Rule 144A Global Note is a QIB and is obtaining such beneficial
interest in a transaction meeting the requirements of Rule 144A and any
applicable blue sky or securities laws of any state of the United States, (B)
that the transfer complies with the requirements of Rule 144 under the
Securities Act and any
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applicable blue sky or securities laws of any state of the United States or
(C) if the transfer is pursuant to any other exemption from the registration
requirements of the Securities Act, that the transfer of such interest has
been made in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the requirements of the
exemption claimed, such statement to be supported by an Opinion of Counsel
from the transferee or the transferor in form reasonably acceptable to the
Company and to the Registrar, then the Registrar shall instruct the Depositary
to reduce or cause to be reduced the aggregate principal amount at maturity of
such Regulation S Global Note and to increase or cause to be increased the
aggregate principal amount at maturity of the applicable Rule 144A Global Note
by the principal amount at maturity of the beneficial interest in the
Regulation S Global Note to be exchanged or transferred, and the Registrar
shall instruct the Depositary, concurrently with such reduction, to credit or
cause to be credited to the account of the Person specified in such
instructions a beneficial interest in the applicable Rule 144A Global Note
equal to the reduction in the aggregate principal amount at maturity of such
Regulation S Global Note and to debit or cause to be debited from the account
of the Person making such transfer the beneficial interest in the Regulation S
Global Note that is being exchanged or transferred.
(b) Transfer and Exchange of Certificated Notes. When Certificated Notes
are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Certificated Notes; or
(y) to exchange such Certificated Notes for an equal principal
amount of Certificated Notes of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested;
provided, however, that the Certificated Notes presented or surrendered for
registration of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing; and
(ii) in the case of a Certificated Note that is a Transfer Restricted
Security, such request shall be accompanied by the following additional
information and documents, as applicable:
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(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of
such Holder, without transfer, or such Transfer Restricted
Security is being transferred to the Company, a
certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto);
(B) if such Transfer Restricted Security is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto);
or
(C) if such Transfer Restricted Security is being transferred
in reliance on any other exemption from the registration
requirements of the Securities Act, a certification to
that effect from such Holder (in substantially the form of
Exhibit B-3 hereto) and an Opinion of Counsel from such
Holder or the transferee reasonably acceptable to the
Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act.
(c) Transfer of a Beneficial Interest in a Rule 144A Global Note or
Regulation S Global Note for a Certificated Note. Except as set forth in Section
2.06(f), a beneficial interest in a Global Note may not be exchanged for a
Certificated Note.
(d) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
(e) Transfer and Exchange of a Certificated Note for a Beneficial
Interest in a Global Note. A Certificated Note may not be transferred or
exchanged for a beneficial interest in a Global Note.
(f) Authentication of Certificated Notes in Absence of Depositary. If at
any time:
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(i) the Depositary for the Senior Subordinated Notes notifies
the Company that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes and a successor
Depositary for the Global Notes is not appointed by the
Company within 90 days after delivery of such notice; or
(ii) the Company delivers to the Trustee an Officers' Certificate
or an order signed by two Officers of the Company notifying
the Trustee that it elects to cause the issuance of
Certificated Notes under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, authenticate and
deliver, Certificated Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii)
and (iv), each Senior Subordinated Note certificate
evidencing Global Notes and Certificated Notes (and all
Senior Subordinated Notes issued in exchange therefor or
substitution thereof) shall bear a legend in substantially
the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION
COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE),
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(4) TO AN INSTITUTION THAT IS AN ACCREDITED INVESTOR WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) OF REGULATION
D IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (IF AVAILABLE) OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO
REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE
EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THE NOTES."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act
or pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Certificated Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted
Security for a Certificated Note that does not bear
the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer
Restricted Security upon receipt of a certification
from the transferring Holder substantially in the form
of Exhibit B-4 hereto; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted
Security shall not be required to bear the legend set
forth in (i) above, but shall continue to be subject
to the provisions of Section 2.06(a) and (b) hereof;
provided, however, that with respect to any request
for an exchange of a Transfer Restricted Security that
is represented by a Global Note for a Certificated
Note (if such exchange is permitted by the terms of
this Section 2.06) that does not bear the legend set
forth in (i) above, which request is made in
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reliance upon Rule 144, the Holder thereof shall
certify in writing to the Registrar that such request
is being made pursuant to Rule 144 (such certification
to be substantially in the form of Exhibit B-4
hereto).
(iii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) in reliance on any exemption from the
registration requirements of the Securities Act (other than
exemptions pursuant to Rule 144A or Rule 144 under the
Securities Act) in which the Holder or the transferee
provides an Opinion of Counsel to the Company and the
Registrar in form and substance reasonably acceptable to the
Company and the Registrar (which Opinion of Counsel shall
also state that the transfer restrictions contained in the
legend are no longer applicable):
(A) in the case of any Transfer Restricted Security that
is a Certificated Note, the Registrar shall permit
the Holder thereof to exchange such Transfer
Restricted Security for a Certificated Note that does
not bear the legend set forth in (i) above and
rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer
Restricted Security shall not be required to bear the
legend set forth in (i) above, but shall continue to
be subject to the provisions of Section 2.06(a) and
(b) hereof.
(iv) Notwithstanding the foregoing, upon consummation of the
Exchange Offer in accordance with the Registration Rights
Agreement, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof,
the Trustee shall authenticate Exchange Notes in exchange
for Transfer Restricted Securities accepted for exchange in
the Exchange Offer, which Exchange Notes shall not bear the
legend set forth in (i) above, and the Registrar shall
rescind any restriction on the transfer of such Exchange
Notes, in each case unless the Holder of such Transfer
Restricted Securities is
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either (A) a broker-dealer, (B) a Person participating
in the distribution of the Transfer Restricted
Securities or (C) a Person who is an affiliate (as
defined in Rule 144A) of the Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Certificated Notes,
redeemed, repurchased or canceled, all Global Notes shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for an interest in another Global Note or for Certificated Notes,
redeemed, repurchased or canceled, the principal amount of Senior Subordinated
Notes represented by such Global Note shall be reduced accordingly and an
endorsement shall be made on such Global Note, by the Trustee or the Note
Custodian, at the direction of the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Certificated Notes and Global Notes at the Registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer
pursuant to Sections 3.07, 3.09, 4.10, 4.13 and 9.05
hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Senior Subordinated Note
selected for redemption in whole or in part, except the
unredeemed portion of any Senior Subordinated Note being
redeemed in part.
(iv) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes
or Global Notes shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Certificated
Notes or Global Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required:
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(A) to issue, to register the transfer of or to exchange
Senior Subordinated Notes during a period beginning
at the opening of business 15 days before the day of
any selection of Senior Subordinated Notes for
redemption under Section 3.02 hereof and ending at
the close of business on the day of selection; or
(B) to register the transfer of or to exchange any Senior
Subordinated Note so selected for redemption in whole
or in part, except the unredeemed portion of any
Senior Subordinated Note being redeemed in part; or
(C) to register the transfer of or to exchange a Senior
Subordinated Note between a record date and the next
succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Senior Subordinated Note, the Trustee, any
Agent and the Company may deem and treat the Person in
whose name any Senior Subordinated Note is registered as
the absolute owner of such Senior Subordinated Note for
the purpose of receiving payment of principal of and
interest on such Senior Subordinated Notes, and neither
the Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
(vii) The Trustee shall authenticate Certificated Notes and
Global Notes in accordance with the provisions of Section
2.02 hereof.
Section 2.07. Replacement Senior Subordinated Notes. If any mutilated
Senior Subordinated Note is surrendered to the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Senior Subordinated Note, the Company shall issue and the Trustee shall
authenticate a replacement Senior Subordinated Note, with a Senior Subordinate
Guarantee endorsed thereon, if the conditions for replacement set forth herein
have been met. If required by the Trustee or the Company, an indemnity bond must
be supplied by the Holder that is sufficient in the judgment of the Trustee and
the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Senior
Subordinated Note is replaced. The Company and the Trustee may charge for their
expenses in replacing a Senior Subordinated Note.
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Every replacement Senior Subordinated Note is an additional obligation
of the Company and shall be entitled to all of the benefits of this Indenture
equally and proportionately with all other Senior Subordinated Notes duly issued
hereunder.
Section 2.08. Outstanding Senior Subordinated Notes. The Senior
Subordinated Notes outstanding at any time are all the Senior Subordinated Notes
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Note effected
by the Trustee in accordance with the provisions hereof, those described in this
Section as not outstanding and, for purposes of the aggregate principal amount
of Senior Subordinated Notes that are required to remain outstanding immediately
following a redemption thereof in accordance with Section 3.07(b) hereof, those
held by the Company or any Affiliate (except Goldman, Sachs & Co.). Except as
set forth in Section 2.09 hereof or as otherwise provided in this Section 2.08
with respect to Section 3.07(b), a Senior Subordinated Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Senior
Subordinated Note.
If a Senior Subordinated Note is replaced pursuant to Section 2.07
hereof, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Senior Subordinated Note is held by a bona
fide purchaser.
If the principal amount of any Senior Subordinated Note is considered
paid under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Senior Subordinated Notes payable on that date, then on and
after that date such Senior Subordinated Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
Section 2.09. Treasury Senior Subordinated Notes. In determining whether
the Holders of the required principal amount of Senior Subordinated Notes have
concurred in any direction, waiver or consent, Senior Subordinated Notes owned
by the Company, any Guarantor, or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any Guarantor (other than Senior Subordinated Notes held by Goldman,
Sachs & Co.), shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Senior Subordinated Notes shown on the
Trustee's register as being so owned shall be so disregarded.
Section 2.10. Temporary Senior Subordinated Notes. Until Certificated
Notes are ready for delivery, the Company may prepare and the Trustee shall
authenticate
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temporary Senior Subordinated Notes upon a written order of the Company signed
by two Officers of the Company. Temporary Senior Subordinated Notes shall be
substantially in the form of Certificated Notes but may have variations that the
Company considers appropriate for temporary Senior Subordinated Notes and as
shall be reasonably acceptable to the Trustee. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate Certificated Notes in
exchange for temporary Senior Subordinated Notes.
Holders of temporary Senior Subordinated Notes shall be entitled to all
of the benefits of this Indenture.
Section 2.11. Cancellation. The Company at any time may deliver Senior
Subordinated Notes to the Trustee for cancellation. The Registrar and Paying
Agent shall forward to the Trustee any Senior Subordinated Notes surrendered to
them for registration of transfer, exchange or payment. The Trustee and no one
else shall cancel all Senior Subordinated Notes, and the Senior Subordinated
Guarantees endorsed thereon, surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall retain or destroy, in accordance
with its normal practice, canceled Senior Subordinated Notes, and the Senior
Subordinated Guarantees endorsed thereon, (subject to the record retention
requirement of the Exchange Act). If such Senior Subordinated Notes are
destroyed, certification of the destruction of all canceled Senior Subordinated
Notes shall be delivered to the Company. The Company may not issue new Senior
Subordinated Notes to replace Senior Subordinated Notes that it has paid or that
have been delivered to the Trustee for cancellation other than as provided in
Section 2.02 in connection with the issuance of Exchange Notes or as otherwise
provided for under the terms of this Indenture.
Section 2.12. Defaulted Interest; Notice of Liquidated Damages. If the
Company defaults in a payment of interest on the Senior Subordinated Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Senior Subordinated Notes and in Section 4.01 hereof. The Company shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Senior Subordinated Note and the date of the proposed payment. The
Company shall fix or cause to be fixed each such special record date and payment
date, provided that no such special record date shall be less than 10 days prior
to the related payment date for such defaulted interest. At least 15 days before
the special record date, the Company (or, upon the written request of the
Company, the Trustee in the name and at the expense of the Company) shall mail
or cause to be mailed
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to Holders a notice that states the special record date, the related payment
date and the amount of such interest to be paid.
The Company shall notify the Trustee in writing if the Company becomes
obligated to pay Liquidated Damages.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee. If the Company elects to redeem Senior
Subordinated Notes pursuant to the optional redemption provisions of Section
3.07 hereof, it shall furnish to the Trustee, at least 30 days (or at least 45
days if the Company requests the Trustee to give notice to the Holders pursuant
to Section 3.03 hereof) but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Senior Subordinated Notes to be redeemed and (iv) the redemption
price.
Section 3.02. Selection of Senior Subordinated Notes to Be Redeemed. If
less than all of the Senior Subordinated Notes are to be redeemed at any time,
selection of the Senior Subordinated Notes for redemption shall be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Senior Subordinated Notes are listed or, if the
Senior Subordinated Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided, that no
Senior Subordinated Notes of $1,000 or less shall be redeemed in part. In the
event of partial redemption by lot, the particular Senior Subordinated Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Senior Subordinated Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Senior
Subordinated Notes selected for redemption and, in the case of any Senior
Subordinated Note selected for partial redemption, the principal amount thereof
to be redeemed. Senior Subordinated Notes and portions of Senior Subordinated
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Senior Subordinated Notes of a Holder are to be
redeemed, the entire outstanding amount of Senior Subordinated Notes held by
such Holder, even if not a multiple of $1,000, shall be redeemed. If any Senior
Subordinated Note is to be redeemed in part only, a new Senior Subordinated
Note, with a Senior Subordinated Guarantee endorsed thereon, in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Senior Subordinated Note. On and after
the
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redemption date, unless the Company defaults in payment of the redemption price,
interest ceases to accrue on Senior Subordinated Notes or portions of them
called for redemption. Except as provided in this Section 3.02, provisions of
this Indenture that apply to Senior Subordinated Notes called for redemption
also apply to portions of Senior Subordinated Notes called for redemption.
Section 3.03. Notice of Redemption. Subject to the provisions of Section
3.09 hereof, at least 30 days but not more than 60 days before a redemption
date, the Company shall mail or cause to be mailed, by first class mail, a
notice of redemption to the Trustee and to each Holder of Senior Subordinated
Notes to be redeemed at such Holder's registered address.
The notice shall identify the Senior Subordinated Notes to be redeemed
and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Subordinated Note is being redeemed in part, the
portion of the principal amount of such Senior Subordinated Note to be
redeemed and that, after the redemption date upon surrender of such Senior
Subordinated Note, a new Senior Subordinated Note or Senior Subordinated Notes
in principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Senior Subordinated Note;
(d) the name and address of the Paying Agent or the place or places
where such Senior Subordinated Notes are to be surrendered for payment;
(e) that Senior Subordinated Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Senior Subordinated Notes called for redemption ceases to accrue
on and after the redemption date;
(g) the paragraph of the Senior Subordinated Notes and/or Section of
this Indenture pursuant to which the Senior Subordinated Notes called for
redemption are being redeemed; and
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(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Senior
Subordinated Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption. Once notice of redemption
is mailed in accordance with Section 3.03 hereof, Senior Subordinated Notes
called for redemption become irrevocably due and payable on the redemption date
at the redemption price. A notice of redemption may not be conditional.
Section 3.05. Deposit of Redemption Price. At least one Business Day
prior to the redemption date, the Company shall deposit with the Trustee or with
the Paying Agent money sufficient to pay the redemption price of and accrued
interest, including Liquidated Damages, if any, on all Senior Subordinated Notes
to be redeemed on that date. The Trustee or the Paying Agent shall promptly
return to the Company any money deposited with the Trustee or the Paying Agent
by the Company in excess of the amounts necessary to pay the redemption price
of, and accrued interest on, all Senior Subordinated Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Senior
Subordinated Notes or the portions of Senior Subordinated Notes called for
redemption. If a Senior Subordinated Note is redeemed on or after an interest
record date but on or prior to the related interest payment date, then any
accrued and unpaid interest shall be paid to the Person in whose name such
Senior Subordinated Note was registered at the close of business on such record
date. If any Senior Subordinated Note called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, interest shall be paid on the unpaid principal,
from the redemption date until such principal is paid, and to the extent lawful
on any interest, including Liquidated Damages, if any, not paid on such unpaid
principal, in each case at the rate provided in the Senior Subordinated Notes
and in Section 4.01 hereof.
Section 3.06. Senior Subordinated Notes Redeemed in Part. Upon surrender
of a Senior Subordinated Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder at the expense of the Company
a new Senior Subordinated Note, with the Senior Subordinated Guarantees endorsed
thereon, equal in principal amount to the unredeemed portion of the Senior
Subordinated Note surrendered.
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Section 3.07. Optional Redemption. (a) Except as set forth in clause (b)
or (c) of this Section 3.07, the Company shall not have the option to redeem the
Senior Subordinated Notes pursuant to this Section 3.07 prior to December 15,
2002. From and after December 15, 2002, the Company shall have the option to
redeem the Senior Subordinated Notes, in whole or in part, upon not less than 30
nor more than 60 days' written notice at the Senior Subordinated Note redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest, including Liquidated Damages, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on December 15 of each of the years indicated below:
Percentage of
Year Principal Amount
---- ----------------
2002................................ 104.937%
2003................................ 103.292%
2004................................ 101.646%
2005 and thereafter....................... 100%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07,
at any time prior to December 15, 2000, the Company may, at its option, on any
one or more occasions, redeem up to 35% of the aggregate principal amount of
Senior Subordinated Notes issued hereunder at a redemption price equal to
109.875% of the principal amount thereof, plus accrued and unpaid interest,
including Liquidated Damages, if any, thereon to the redemption date, with the
net proceeds of public or private sales of common stock of, or contributions to
the common equity capital of, the Company; provided that at least 59% of the
aggregate principal amount of Senior Subordinated Notes issued hereunder remains
outstanding immediately after the occurrence of each such redemption; and
provided, further, that such redemption shall occur within 120 days of the date
of the closing of the related sale of common stock of, or capital contribution
to, the Company.
(c) Notwithstanding the provisions of clause (a) of this Section 3.07,
at any time on or prior to December 15, 2002, upon the occurrence of a Change of
Control, the Company may redeem the Senior Subordinated Notes, in whole but not
in part, at a redemption price equal to the principal amount thereof plus the
Applicable Premium plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date.
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Notice of redemption of the Senior Subordinated Notes pursuant to this paragraph
shall be mailed to the Holders of the Senior Subordinated Notes not more than 30
days following the occurrence of a Change of Control.
(d) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Sections 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption. Except as set forth under Sections
4.10 and 4.13 hereof, the Company shall not be required to make mandatory
redemption or sinking fund payments with respect to the Senior Subordinated
Notes.
Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the
event that, pursuant to Section 4.10 hereof, the Company shall be required to
commence an offer to all Holders of Senior Subordinated Notes to purchase Senior
Subordinated Notes, it shall follow the procedures specified below.
The Asset Sale Offer (as defined in Section 4.10 hereof) shall remain
open for a period of 20 Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable law (the
"Offer Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Senior Subordinated Notes required to be purchased pursuant to Section
4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been
tendered, all Senior Subordinated Notes tendered in response to the Asset Sale
Offer. Payment for any Senior Subordinated Notes so purchased shall be made in
the same manner (as to payment of funds) as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest,
including Liquidated Damages, if any, shall be paid to the Person in whose name
a Senior Subordinated Note is registered at the close of business on such record
date, and no additional interest shall be payable to Holders who tender Senior
Subordinated Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Depositary. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Senior Subordinated Notes pursuant to
the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
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(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Senior Subordinated Note not tendered or accepted for
payment shall continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Senior Subordinated Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest on and after the Purchase Date;
(e) that Holders electing to have a Senior Subordinated Note
purchased pursuant to an Asset Sale Offer may only elect to have all of such
Senior Subordinated Note purchased and may not elect to have only a portion of
such Senior Subordinated Note purchased;
(f) that Holders electing to have a Senior Subordinated Note
purchased pursuant to any Asset Sale Offer shall be required to surrender the
Senior Subordinated Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Subordinated Note completed, or
transfer such Senior Subordinated Note by book-entry transfer, to the Company,
a depository, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Senior Subordinated Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Senior Subordinated Note purchased;
(h) that, if the aggregate principal amount of Senior Subordinated
Notes surrendered by Holders exceeds the Offer Amount, the Company shall
select the Notes to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Company so that only Senior Subordinated
Notes in denominations of $1,000, or integral multiples thereof, shall be
purchased); and
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(i) that Holders whose Senior Subordinated Notes were purchased
only in part shall be issued new Senior Subordinated Notes equal in principal
amount to the unpurchased portion of the Senior Subordinated Notes surrendered
(or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Senior Subordinated Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all Senior
Subordinated Notes tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Senior Subordinated Notes or portions thereof were
accepted for payment by the Company in accordance with the terms of this Section
3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of the
Senior Subordinated Notes tendered by such Holder and accepted by the Company
for purchase, and the Company shall promptly issue a new Senior Subordinated
Note, with the Senior Subordinated Guarantee endorsed thereon, and the Trustee,
upon receipt of an Authentication Order, shall authenticate and mail or deliver
such new Senior Subordinated Note to such Holder, in a principal amount equal to
any unpurchased portion of the Senior Subordinated Note surrendered. Any Senior
Subordinated Note not so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09 any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01 Payment of Senior Subordinated Notes. The Company shall pay
or cause to be paid the principal of, premium, if any, and interest, together
with Liquidated Damages, if any, on the Senior Subordinated Notes on the dates
and in the manner provided in the Senior Subordinated Notes. Principal, premium,
if any, and interest shall be considered paid on the date due if the Paying
Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m.
Eastern Time on the due date (or, if required by the Depositary, such earlier
time to allow the Trustee to make timely payment to the Depositary) money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in immediately
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available funds in the same manner on the dates and in the amounts set forth in
the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Senior
Subordinated Notes to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency. The Company shall maintain
in the Borough of Manhattan, The City of New York, an office or agency (which
may be an office of the Trustee or an Affiliate of the Trustee, Registrar or
co-registrar) where Senior Subordinated Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Senior Subordinated Notes and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Senior Subordinated Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03.
Section 4.03 Reports. (a) Whether or not required by the rules and
regulations of the SEC, so long as any Senior Subordinated Notes are
outstanding, the Company shall, commencing after consummation of the
Transaction, furnish to the Holders of Senior Subordinated Notes as of the same
dates and for the same periods as would be required pursuant to the Exchange Act
if the Company were subject to the Exchange Act (i) all quarterly and annual
financial information that would be required to be contained in
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a filing with the SEC on Forms 10-Q and 10-K if the Company were required to
file such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the SEC on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the SEC, following the consummation
of the Transaction, the Company shall file a copy of all such information and
reports with the SEC for public availability (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. The Company shall at all times comply with
Section 314(a) of the Trust Indenture Act.
(b) For so long as any Senior Subordinated Notes remain outstanding, the
Company and the Guarantors shall furnish to the Holders of the Senior
Subordinated Notes and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate. (a) The Company shall deliver to
the Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, Liquidated Damages or interest, if any,
on the Senior Subordinated Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(a) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any
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such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(b) The Company shall, so long as any of the Senior Subordinated Notes
are outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of any Default or Event of Default, an Officers' Certificate specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
Section 4.05 Taxes. The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Senior Subordinated Notes.
Section 4.06 Stay, Extension and Usury Laws. Each of the Company and the
Guarantors covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and each of the Company and the Guarantors (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
Section 4.07 Restricted Payments. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Restricted Subsidiary of the Company); (ii) purchase, redeem,
defease or otherwise acquire or retire for value any Equity Interests of the
Company; (iii) make any principal or interest payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, except for a payment of principal or interest at
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
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(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of this Indenture (including Restricted Payments permitted by clause
(i) of the next succeeding paragraph, but excluding all other Restricted
Payments permitted by the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of this Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds and the fair market value, as
determined in good faith by the Board of Directors, of marketable securities
received by the Company from the issue or sale since the date of this
Indenture of Equity Interests (including Retired Capital Stock (as defined
below)) of the Company (except in connection with the Transaction) or of debt
securities of the Company that have been converted into such Equity Interests
(other than Refunding Capital Stock (as defined below) or Equity Interests or
convertible debt securities of the Company sold to a Restricted Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (iii) 100% of the aggregate
amounts contributed to the common equity capital of the Company since the date
of this Indenture, (except amounts contributed to finance the Transaction),
plus (iv) 100% of the aggregate amounts received in cash and the fair market
value of marketable securities (other than Restricted Investments) received
from (x) the sale or other disposition of Restricted Investments made by the
Company and its Restricted Subsidiaries since the date of this Indenture or
(y) the sale of the stock of an Unrestricted Subsidiary or the sale of all or
substantially all of the assets of an Unrestricted Subsidiary to the extent
that a liquidating dividend is paid to the Company or any Subsidiary from the
proceeds of such sale, plus (v) 100% of any dividends received by the Company
or a Wholly-Owned Restricted Subsidiary of the Company after the date of this
Indenture from an Unrestricted Subsidiary of the Company, plus (vi) $10.0
million.
The foregoing provisions shall not prohibit:
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(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company or any Restricted Subsidiary (the "Retired
Capital Stock") or any Subordinated Indebtedness, in each case, in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than
to a Restricted Subsidiary of the Company) of Equity Interests of the Company
(other than any Disqualified Stock) (the "Refunding Capital Stock"); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(ii) of the immediately preceding paragraph;
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(iv) the redemption, repurchase or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary of
the Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option or similar agreement; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed the sum of $5.0 million in any twelve-month period plus the aggregate
cash proceeds received by the Company during such twelve-month period from any
issuance of Equity Interests by the Company to members of management of the
Company and its Subsidiaries; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the immediately
preceding paragraph;
(v) Investments in Unrestricted Subsidiaries or Joint Ventures having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (v) that are at that time outstanding, not to exceed
$15 million plus 5% of the increase in Total Assets since the date of this
Indenture at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(vi) repurchases of Equity Interests deemed to occur upon exercise or
conversion of stock options, warrants, convertible securities or other similar
Equity Interests if such Equity Interests represent a portion of the exercise
or conversion price of such options, warrants, convertible securities or other
similar Equity Interests;
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(vii) the making and consummation of a Subordinated Asset Sale Offer in
accordance with the provisions of Section 4.10 hereof; and
(viii) any dividend or distribution payable on or in respect of any
class of Equity Interests issued by a Restricted Subsidiary of the Company;
provided that such dividend or distribution is paid on a pro rata basis to all
of the holders of such Equity Interests in accordance with their respective
holdings of such Equity Interests;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iv), (v) or (vii) above, no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof.
As of the date of this Indenture, all of the Company's Subsidiaries
shall be Restricted Subsidiaries. The Company shall not permit any Unrestricted
Subsidiary to become a Restricted Subsidiary except pursuant to the last
sentence of the definition of Unrestricted Subsidiary in Section 1.01 hereof.
For purposes of designating any Restricted Subsidiary as an Unrestricted
Subsidiary, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid) in the Subsidiary so designated shall
be deemed to be Restricted Payments in an amount equal to the book value of such
Investment at the time of such designation. Such designation shall only be
permitted if a Restricted Payment in such amount would be permitted at such time
and if such Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Unrestricted Subsidiaries shall not be subject to any of the
restrictive covenants set forth in this Article 4.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations may
be based upon the Company's latest available financial statements.
Section 4.08 Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the
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Company or any of its Restricted Subsidiaries, (ii) make loans or advances to
the Company or any of its Restricted Subsidiaries or (iii) sell, lease or
transfer any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of this Indenture,
(b) the Bank Credit Agreement and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that the Bank Credit Agreement and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof are no more restrictive taken as a whole
with respect to such dividend and other payment restrictions than those terms
described in the Bank Credit Agreement on the date of this Indenture, (c) this
Indenture and the Senior Subordinated Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Indenture to be incurred, (f) customary non-assignment or net
worth provisions in leases and other agreements entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (i) any Mortgage Financing or Mortgage
Refinancing that imposes restrictions on the real property securing such
Indebtedness, (j) any Permitted Investment, (k) contracts for the sale of
assets, including, without limitation, customary restrictions with respect to a
Restricted Subsidiary of the Company pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary or (l) customary
provisions in joint venture agreements and other similar agreements.
Section 4.09 Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur" and correlatively, an "incurrence" of) any Indebtedness
(including Acquired Debt) and the Company shall not issue any Disqualified
Stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock
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if the Fixed Charge Coverage Ratio for the Company for the most recent four full
fiscal quarters for which internal financial statements are available at the
time of such incurrence would have been at least 2.00 to 1.0 determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred or the Disqualified Stock
had been issued, as the case may be, and the application of the proceeds
therefrom had occurred at the beginning of such four-quarter period.
The foregoing provisions shall not apply to:
(a) the incurrence by the Company (and the Guarantee thereof by the
Guarantors) of Indebtedness under the Bank Credit Agreement and the issuance
of letters of credit thereunder (with letters of credit being deemed to have a
principal amount equal to the aggregate maximum amount then available to be
drawn thereunder, assuming compliance with all conditions for drawing) up to
an aggregate principal amount of $167.0 million outstanding at any one time,
less principal repayments of term loans and permanent commitment reductions
with respect to revolving loans and letters of credit under the Bank Credit
Agreement (in each case, other than in connection with an amendment,
refinancing, refunding, replacement, renewal or modification) made after the
date of this Indenture;
(b) the incurrence by the Company or any of its Restricted Subsidiaries
of any Existing Indebtedness;
(c) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by the Senior Subordinated Notes (but, with
respect to this clause (c), only up to the aggregate principal amount thereof
issued on the date of this Indenture);
(d) Indebtedness (including Acquired Debt) incurred by the Company or
any of its Restricted Subsidiaries to finance the purchase, lease or
improvement of property (real or personal), assets or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets), in an aggregate principal amount not to exceed $15
million plus 5% of the increase in Total Assets since the date of this
Indenture;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
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(f) intercompany Indebtedness between or among the Company and any of
its Restricted Subsidiaries and Guarantees by the Company of Indebtedness of
any Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company of Indebtedness of any other Restricted Subsidiary of the Company or
the Company;
(g) Hedging Obligations that are incurred (1) for the purpose of fixing
or hedging interest rate or currency exchange rate risk with respect to any
Indebtedness that is permitted by the terms of this Indenture to be
outstanding or (2) for the purpose of fixing or hedging currency exchange rate
risk with respect to any purchases or sales of goods or other transactions or
expenditures made or to be made in the ordinary course of business and
consistent with past practices as to which the payment therefor or proceeds
therefrom, as the case may be, are denominated in a currency other than U.S.
dollars;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary in
the ordinary course of business;
(i) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by this Indenture to be incurred;
(j) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company; and
(k) the incurrence by the Company of additional Indebtedness (including
pursuant to the Bank Credit Agreement) not otherwise permitted hereunder in an
amount under this clause (k) not to exceed $25.0 million in aggregate
principal amount (or accreted value, as applicable) outstanding at any one
time.
Section 4.10 Asset Sales. The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset
Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as
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shown on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Senior
Subordinated Notes or any guarantee thereof) that are assumed by the transferee
of any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability, (y) any Excludable
Current Liabilities and (z) any notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
immediately converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 365 days after the Company's or any Restricted Subsidiary's
receipt of the Net Proceeds of any Asset Sale (or, in the case of any Asset Sale
involving the Specified Real Estate, by the later of (i) June 30, 1999 and (ii)
the date 365 days after receipt of the Net Proceeds), the Company or such
Restricted Subsidiary may apply the Net Proceeds from such Asset Sale, at its
option, (i) to permanently repay or reduce Obligations under the Bank Credit
Agreement (and to correspondingly reduce commitments with respect thereto) or
other Senior Debt, (ii) to secure Letter of Credit Obligations to the extent
related letters of credit have not been drawn upon or returned undrawn and/or
(iii) to an investment in any one or more businesses, capital expenditures or
acquisitions of other assets, in each case, used or useful in a Principal
Business; provided that such Net Proceeds may, at the Company's option, be
deemed to have been applied pursuant to clause (iii) to the extent of any
expenditures by the Company made to invest in, acquire or construct businesses,
properties or assets used in the Principal Business within one year preceding
the date of such Asset Sale. Pending the final application of any such Net
Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest such
Net Proceeds in Cash Equivalents. Any Net Proceeds from the Asset Sale that are
not invested as provided and within the time period set forth in the first
sentence of this paragraph shall be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall
make offers to all Holders of Senior Subordinated Notes and to holders of any
other Senior Subordinated Indebtedness, the terms of which so require (each an
"Asset Sale Offer"), to purchase the maximum principal amount of Senior
Subordinated Notes and such other Senior Subordinated Indebtedness, that is an
integral multiple of $1,000, that may be purchased out of the Excess Proceeds at
an offer price in cash in an amount equal to 100% of the aggregate principal
amount thereof (or 100% of the accreted value thereof, in the case of Senior
Subordinated Indebtedness issued at a discount), plus accrued and unpaid
interest, including Liquidated Damages, if any, thereon to the date fixed for
the closing of such offer in accordance with the procedures set forth in Section
3.09 hereof. The Excess Proceeds shall be allocated to the respective Asset Sale
Offers for the Senior Subordinated Notes and such other Senior Subordinated
Indebtedness in proportion to their relative principal amounts (or accreted
value, as applicable). The Company shall
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commence an Asset Sale Offer with respect to Excess Proceeds within 10 Business
Days after the date that the aggregate amount of Excess Proceeds exceeds $15.0
million according to the procedure described in Section 3.09 hereof. To the
extent that the aggregate amount of Senior Subordinated Notes (and other Senior
Subordinated Indebtedness) tendered pursuant to any required Asset Sale Offer is
less than the Excess Proceeds allocated thereto, the Company may use any
remaining Excess Proceeds (x) to offer to redeem or purchase other Senior
Subordinated Indebtedness or Subordinated Indebtedness (a "Subordinated Asset
Sale Offer") in accordance with the provisions of the indenture or other
agreement governing such other Senior Subordinated Indebtedness or Subordinated
Indebtedness or (y) for any other purpose not prohibited by any provision
herein. If the aggregate principal amount of Senior Subordinated Notes tendered
pursuant to any Asset Sale Offer exceeds the amount of Excess Proceeds allocated
thereto, the Trustee shall select the Senior Subordinated Notes to be purchased
on a pro rata basis, based upon the principal amount of Senior Subordinated
Notes tendered. Upon completion of any such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
Notwithstanding the foregoing, the Company may, in lieu of making an
Asset Sale Offer for other Senior Subordinated Indebtedness, satisfy its
obligation under the governing agreement with respect thereto by applying the
Excess Proceeds allocated to such other Senior Subordinated Indebtedness to the
prepayment, redemption or public or private repurchase of such Senior
Subordinated Indebtedness.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Subordinated Notes as a result of an Asset Sale.
Section 4.11 Transactions with Affiliates. The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies
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with clause (i) above and, if there are any disinterested members of the Board
of Directors, that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, or with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million as to which there are no
disinterested members of the Board of Directors, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions shall not apply to the following: (i)
transactions between or among the Company and/or any of its Restricted
Subsidiaries; (ii) Restricted Payments or Permitted Investments permitted under
Section 4.07 hereof; (iii) the payment of all fees, expenses and other amounts
as disclosed in the Offering Circular relating to the Transaction; (iv) the
payment of reasonable and customary regular fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company; (v) the transfer or provision of
inventory, goods or services by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business to any Affiliate of the Company on
terms that are customary in the industry or consistent with past practices,
including with respect to price and volume discounts; (vi) the execution of, or
the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any financial advisory, financing, underwriting
or placement agreement or any other agreement relating to investment banking or
financing activities with Goldman, Sachs & Co. or any of its Affiliates
including, without limitation, in connection with acquisitions or divestitures,
in each case to the extent that such agreement was approved by a majority of the
disinterested members of the Board of Directors in good faith; (vii) payments,
advances or loans to employees that are approved by a majority of the
disinterested members of the Board of Directors of the Company in good faith;
(viii) the performance of any agreement as in effect as of the date of this
Indenture or any transaction contemplated thereby (including pursuant to any
amendment thereto so long as any such amendment is not disadvantageous to the
Holders of Senior Subordinated Notes in any material respect); (ix) the
existence of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the date of this Indenture and any similar
agreements which it may enter into thereafter, provided, however, that the
existence of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under, any future amendment to any such existing
agreement or under any similar agreement entered into after the date of this
Indenture shall only be permitted by this clause (ix) to the extent that the
terms of any such amendment or new agreement are not otherwise disadvantageous
to the Holders of the Senior Subordinated Notes in any material respect; (x)
transactions permitted by, and
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complying with, the provisions of Section 5.01 hereof; and (xi) transactions
with suppliers or other purchases or sales of goods or services, in each case in
the ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of this
Indenture which are fair to the Company or its Restricted Subsidiaries, in the
reasonable determination of a majority of the disinterested members of the Board
of Directors of the Company or an executive officer thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
Section 4.12 Liens. The Company shall not, and shall not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien that secures obligations under any Senior Subordinated
Indebtedness or Subordinated Indebtedness on any asset or property now owned or
hereafter acquired by the Company or any of its Restricted Subsidiaries, or on
any income or profits therefrom, or assign or convey any right to receive income
therefrom to secure any Senior Subordinated Indebtedness or Subordinated
Indebtedness, unless the Senior Subordinated Notes are equally and ratably
secured with the obligations so secured or until such time as such obligations
are no longer secured by a Lien; provided, that in any case involving a Lien
securing Subordinated Indebtedness, such Lien is subordinated to the Lien
securing the Senior Subordinated Notes to the same extent that such Subordinated
Indebtedness is subordinated to the Senior Subordinated Notes.
Section 4.13 Offer to Repurchase Upon Change of Control. (a) Upon the
occurrence of a Change of Control, each Holder of Senior Subordinated Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 in principal amount or an integral multiple thereof) of such Holder's
Senior Subordinated Notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash (the "Change of Control Payment")
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, including Liquidated Damages, if any, thereon to the date of
repurchase. Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder, the Trustee and the Depositary stating: (1) that
the Change of Control Offer is being made pursuant to this Section 4.13 and that
all Senior Subordinated Notes tendered shall be accepted for payment; (2) the
purchase price and the Change of Control Payment Date (as defined below); (3)
that any Senior Subordinated Note not tendered shall continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Senior Subordinated Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date; (5) that Holders electing to have any Senior Subordinated
Notes purchased pursuant to a Change of Control Offer shall be required to
surrender the Senior Subordinated Notes, with the form
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entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Subordinated Notes completed, to the Paying Agent or the Depositary, as
applicable at the address specified in the notice prior to the close of business
on the third Business Day preceding the Change of Control Payment Date; (6) that
Holders shall be entitled to withdraw their election if the Paying Agent or the
Depositary, as applicable, receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date (or such later
date required by applicable law), a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Senior
Subordinated Notes delivered for purchase, and a statement that such Holder is
withdrawing his or her election to have the Senior Subordinated Notes purchased;
and (7) that Holders whose Senior Subordinated Notes are being purchased only in
part shall be issued new Senior Subordinated Notes, with the Senior Subordinated
Guarantees endorsed thereon, equal in principal amount to the unpurchased
portion of the Senior Subordinated Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof.
Such notice shall describe the transaction or transactions that constitute the
Change of Control. The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Senior Subordinated Notes as a result of a Change of Control.
(b) On a date that is no earlier than 30 days nor later than 60 days
from the date that the Company mails or causes to be mailed notice of the Change
of Control to the Holders (the "Change of Control Payment Date"), the Company
shall, to the extent lawful, (1) accept for payment all Senior Subordinated
Notes or portions thereof properly tendered pursuant to the Change of Control
Offer, (2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Senior Subordinated Notes or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee for
cancellation the Senior Subordinated Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Senior
Subordinated Notes or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to each Holder of Senior Subordinated Notes so
tendered the Change of Control Payment for such Senior Subordinated Notes, and
the Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Senior Subordinated Note, with the Senior
Subordinated Guarantees endorsed thereon, equal in principal amount to any
unpurchased portion of the Senior Subordinated Notes surrendered, if any;
provided that each such new Senior Subordinated Note shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
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(c) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 4.13 and Section 3.07(c) hereof and such third party
purchases all of the Senior Subordinated Notes validly tendered and not
withdrawn under such Change of Control Offer.
Section 4.14 Issuances of Guarantees of Indebtedness. The Company shall
not permit any Restricted Subsidiary, directly or indirectly, to guarantee or
pledge any assets to secure the payment of any other Indebtedness unless such
Restricted Subsidiary either (i) is a Guarantor, or (ii) simultaneously executes
and delivers a supplemental indenture to this Indenture, in the form of Exhibit
E hereto, providing for the Guarantee of the payment of all Obligations with
respect to the Senior Subordinated Notes by such Restricted Subsidiary, which
Guarantee shall be senior to such Restricted Subsidiary's Guarantee of or pledge
to secure any other Indebtedness that constitutes Subordinated Indebtedness and
subordinated to such Restricted Subsidiary's Guarantee of or pledge to secure
any other Indebtedness that constitutes Senior Debt to the same extent as the
Senior Subordinated Notes are subordinated to Senior Debt. In addition, (x) if
the Company shall, after the date of this Indenture, create or acquire any new
Restricted Subsidiary (other than a Restricted Subsidiary organized under the
laws of a country other than the United States), then such newly created or
acquired Restricted Subsidiary shall execute a Senior Subordinated Guarantee and
deliver an Opinion of Counsel in accordance with Article 11 hereof, and (y) if
the Company shall (whether before or after the date of this Indenture) create or
acquire any other new Subsidiary that becomes a guarantor under the Bank Credit
Agreement, then such newly created or acquired Subsidiary shall execute a Senior
Subordinated Guarantee and deliver an Opinion of Counsel in accordance with
Article 11 hereof. Notwithstanding the foregoing, any such Senior Subordinated
Guarantee shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon certain mergers, consolidations,
sales and other dispositions (including, without limitation, by foreclosure)
pursuant to Article 11 hereof. In addition, if any Guarantor is released and
relieved of all obligations it may have as a guarantor under the Bank Credit
Agreement, then such Guarantor shall also be automatically released and relieved
of any obligations under its Senior Subordinated Guarantee.
Section 4.15 Corporate Existence. Subject to Article 5 hereof, the
Company and the Guarantors shall do or cause to be done all things necessary to
preserve and keep in full force and effect (i) its corporate existence, and the
corporate, partnership or other existence of each of its Restricted
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Restricted
Subsidiary and (ii) the rights (charter and statutory),
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licenses and franchises of the Company, the Guarantors and their respective
Restricted Subsidiaries; provided, however, that the Company and the Guarantors
shall not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of their respective Restricted
Subsidiaries, if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company or
such Guarantor, as applicable, and its Restricted Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Senior Subordinated Notes. Notwithstanding the foregoing, the
loss of licenses shall not be deemed a default under this Section 4.15 provided
that such loss is not adverse in any material respect to the Holders of the
Senior Subordinated Notes.
Section 4.16 No Senior Subordinated Debt. Notwithstanding the provisions
of Section 4.09 hereof, (i) the Company shall not directly or indirectly incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to any Senior Debt and senior
in any respect in right of payment to the Senior Subordinated Notes and (ii) no
Guarantor shall directly or indirectly incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to the Senior Guarantees and senior in any respect in right of
payment to the Senior Subordinated Guarantees.
ARTICLE 5
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of All or Substantially All
Assets. The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or Person
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Senior
Subordinated Notes and this Indenture pursuant to a supplemental indenture in
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly-Owned Restricted Subsidiary of
the Company, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such
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sale, assignment, transfer, lease, conveyance or other disposition shall have
been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof. Notwithstanding the
foregoing clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (b) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction.
Section 5.02 Successor Corporation Substituted. Upon any consolidation
or merger, or any sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01 hereof, the successor Person formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor Person and not to the Company), and may exercise
every right and power of the Company under this Indenture with the same effect
as if such successor Person had been named as the Company herein; provided,
however, that the predecessor Company shall not be relieved from the obligation
to pay the principal of and interest on the Senior Subordinated Notes except in
the case of a sale of all of the Company's assets that meets the requirements of
Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest, including
Liquidated Damages, if any, on the Senior Subordinated Notes when the same
becomes due and payable and the Default continues for a period of 30 days,
whether or not such payment is prohibited by the provisions of Article 10
hereof;
(2) the Company defaults in the payment of the principal of or premium,
if any, on the Senior Subordinated Notes when the same becomes due and payable
at maturity, upon redemption or otherwise, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
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(3) the Company fails, and such failure continues for 30 days after
notice from the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Senior Subordinated Notes, to observe or perform any
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to Sections 4.07, 4.09, 4.13 and 5.01 hereof;
(4) the Company fails, and such failure continues for 60 days after
notice from the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Senior Subordinated Notes, to comply with any of its
other agreements or covenants in, or provisions of, the Senior Subordinated
Notes or this Indenture;
(5) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or shall be created after the date of this Indenture, which default
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness the maturity of which has
been so accelerated, aggregates $15.0 million or more;
(6) the Company or any of its Restricted Subsidiaries fails to pay final
judgments aggregating in excess of $15.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) the Company or any of its Restricted Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors,
or
(e) admits in writing its inability to pay its debts as they
become due;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
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(a) is for relief against the Company or any Restricted Subsidiary
in an involuntary case,
(b) appoints a Custodian of the Company or any Restricted
Subsidiary or for all or substantially all of the property of the
Company or any Restricted Subsidiary, or
(c) orders the liquidation of the Company or any Restricted
Subsidiary,
and the order or decree remains unstayed and in effect for 60 consecutive
days;
or
(9) except as otherwise permitted under the provisions of this
Indenture, any Senior Subordinated Guarantee is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to be in
full force and effect (except by its terms) or any Guarantor, or any Person
acting on behalf of any Guarantor, denies or disaffirms such Guarantor's
obligations under its Senior Subordinated Guarantee.
The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. Except for a Default or an Event
of Default pursuant to Sections 6.01(1) or 6.01(2) hereof, the Trustee shall not
be deemed to have knowledge of any Default or Event of Default unless the
Trustee shall have received written notification of such Default or Event of
Default.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Subordinated Notes
pursuant to Section 3.07 hereof, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Senior Subordinated Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Subordinated Notes prior to December 15,
2002, pursuant to Section 3.07 hereof, then the premium payable for purposes of
this paragraph for each of the years beginning on December 15 of the years set
forth below shall be as set forth in the following table expressed as a
percentage of the principal amount, plus accrued interest, if any, and
Liquidated Damages, if any, to the date of payment:
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Percentage of
Year Principal Amount
---- ----------------
1997................................ 109.875%
1998................................ 108.887%
1999................................ 107.900%
2000................................ 106.912%
2001................................ 105.925%
Section 6.02 Acceleration. If an Event of Default (other than an Event
of Default specified in clauses (7) and (8) of Section 6.01 hereof) relating to
the Company or any Restricted Subsidiary occurs and is continuing, the Trustee
by notice to the Company, or the Holders of at least 25% in principal amount of
the then outstanding Senior Subordinated Notes by written notice to the Company
and the Trustee, may declare the unpaid principal amount of, any accrued
interest on and any Liquidated Damages due in respect of all the Senior
Subordinated Notes to be due and payable immediately. Upon such declaration the
principal, premium, if any, and interest, including Liquidated Damages, if any,
shall be due and payable immediately; provided, however, that so long as any
Senior Debt or any commitment therefor is outstanding under the Bank Credit
Agreement, any such notice or declaration shall not become effective until the
earlier of (a) five Business Days after such notice is delivered to the
Representative for the Bank Debt or (b) the acceleration of any Indebtedness
under the Bank Credit Agreement. Notwithstanding the foregoing, if an Event of
Default specified in clause (7) or (8) of Section 6.01 hereof relating to the
Company, any Significant Restricted Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Restricted
Subsidiary occurs, all outstanding Senior Subordinated Notes shall become and be
immediately due and payable without any declaration, notice or action on the
part of the Trustee or any Holder. The Holders of a majority in aggregate
principal amount of the then outstanding Senior Subordinated Notes by written
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree.
Section 6.03 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal, premium, if any, and interest, including Liquidated Damages, if
any, on the Senior
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Subordinated Notes or to enforce the performance of any provision of the Senior
Subordinated Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Senior Subordinated Notes or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder of a Senior Subordinated Note
in exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults. Holders of not less than a
majority in aggregate principal amount of the Senior Subordinated Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Senior Subordinated Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of principal of, premium, if any, and interest, including Liquidated
Damages, if any, on, the Senior Subordinated Notes (including in connection with
an offer to purchase or a tender or exchange offer) (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Senior Subordinated Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05 Control by Majority. Holders of a majority in principal
amount of the then outstanding Senior Subordinated Notes may direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee or exercising any trust or power conferred on it.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture that the Trustee determines may be unduly prejudicial to the
rights of other Holders of Senior Subordinated Notes or that may involve the
Trustee in personal liability.
Section 6.06 Limitation on Suits. A Holder of a Senior Subordinated Note
may pursue a remedy with respect to this Indenture or the Senior Subordinated
Notes only if:
(a) the Holder of a Senior Subordinated Note gives to the Trustee
written notice of a continuing Event of Default;
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(b) the Holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Senior Subordinated Note or Holders of Senior
Subordinated Notes offer and, if requested, provide to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Senior Subordinated Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Senior Subordinated Note may not use this Indenture to prejudice
the rights of another Holder of a Senior Subordinated Note or to obtain a
preference or priority over another Holder of a Senior Subordinated Note.
Section 6.07 Rights of Holders of Senior Subordinated Notes to Receive
Payment. Notwithstanding any other provision of this Indenture, the right of any
Holder of a Senior Subordinated Note to receive payment of principal, premium,
if any, and interest, including Liquidated Damages, if any, on the Senior
Subordinated Note, on or after the respective due dates expressed in the Senior
Subordinated Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08 Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is
authorized to recover judgments in its own name and as trustee of an express
trust against the Company or any Guarantor for the whole amount of principal of,
premium, if any, and interest, including Liquidated Damages, if any, remaining
unpaid on the Senior Subordinated Notes and interest on overdue principal and,
to the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized
to file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and the Holders of the Senior Subordinated
Notes allowed in any judicial
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proceedings relative to the Company or any of the Guarantors (or any other
obligor upon the Senior Subordinated Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Senior Subordinated Notes or the rights
of any Holder, or to authorize the Trustee to vote in respect of the claim of
any Holder in any such proceeding.
Section 6.10 Priorities. If the Trustee collects any money pursuant to
this Article, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Senior Subordinated Notes for amounts due and
unpaid on the Senior Subordinated Notes for principal, premium, if any, and
interest, including Liquidated Damages, if any, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Senior
Subordinated Notes for principal, premium, if any, and interest, including
Liquidated Damages, if any, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Senior Subordinated Notes pursuant to this Section 6.10.
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Section 6.11 Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as a Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder of a Senior Subordinated Note pursuant to Section
6.07 hereof, or a suit by Holders of more than 10% in principal amount of the
then outstanding Senior Subordinated Notes.
ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in its
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
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(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity reasonably satisfactory to it against any loss, liability
or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction.
(g) Except with respect to Sections 4.01 and 4.04 hereof, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.01(1) or 6.01(2) hereof or (ii) any Default or
Event of Default of which the Trustee shall have received written notification
or obtained actual knowledge.
Section 7.03 Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Senior Subordinated
Notes and may otherwise deal with the Company, the Guarantors or any Affiliate
of the Company with the same rights it would have if it were not Trustee.
However, in the event that the Trustee acquires any conflicting interest, it
must eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04 Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this
Indenture, the Senior Subordinated Notes or the Senior Subordinated Guarantees;
it shall not be accountable for the Company's use of the proceeds from the
Senior Subordinated Notes or any money paid to the Company or upon the Company's
direction under any provision of this Indenture; it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee; and it shall not be responsible for any statement or recital herein or
any statement in the Senior Subordinated Notes or any other document in
connection with the sale of the Senior Subordinated Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults. If a Default or Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Trustee,
the Trustee shall mail to Holders of Senior Subordinated Notes a notice of the
Default or Event of Default within 90 days after it occurs unless such Default
or Event of Default has been cured. Except in the case of a Default or Event of
Default in payment of principal of, premium,
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if any, or interest, including Liquidated Damages, if any, on, any Senior
Subordinated Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Senior Subordinated Notes.
Section 7.06 Reports by Trustee to Holders of the Senior Subordinated
Notes. Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Senior Subordinated Notes remain
outstanding, the Trustee shall mail to the Holders of the Senior Subordinated
Notes a brief report dated as of such reporting date that complies with Section
313(a) of the Trust Indenture Act (but if no event described in Section 313(a)
of the Trust Indenture Act has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with Section 313(b)(2) of the Trust Indenture Act. The Trustee shall also
transmit by mail all reports as required by Section 313(c) of the Trust
Indenture Act.
A copy of each report at the time of its mailing to the Holders of
Senior Subordinated Notes shall be mailed to the Company and filed with the SEC
and each stock exchange on which the Senior Subordinated Notes are listed in
accordance with Section 313(d) of the Trust Indenture Act. The Company shall
promptly notify the Trustee when the Senior Subordinated Notes are listed on any
stock exchange.
Section 7.07 Compensation and Indemnity. The Company and the Guarantors
shall pay to the Trustee from time to time reasonable compensation for its
acceptance of this Indenture and services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company and the Guarantors shall reimburse the Trustee promptly upon
request for all reasonable disbursements, advances and expenses incurred or made
by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel whether incurred in disputes between the parties or in
disputes with third parties or otherwise.
The Company and the Guarantors shall indemnify the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company and the Guarantors (including this Section 7.07) and defending
itself against any claim (whether asserted by the Company, the Guarantors or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company and the Guarantors promptly of any
claim
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for which it may seek indemnity. Failure by the Trustee to so notify the Company
and the Guarantors shall not relieve the Company and the Guarantors of their
obligations hereunder. The Company and the Guarantors shall defend the claim and
the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company and the Guarantors shall pay the reasonable fees and
expenses of such counsel. The Company and the Guarantors need not pay for any
settlement made without their consent, which consent shall not be unreasonably
withheld.
The obligations of the Company and the Guarantors under this Section
7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Guarantors' payment obligations in this
Section, the Trustee shall have a Lien prior to the Senior Subordinated Notes on
all money or property held or collected by the Trustee, except that held in
trust to pay principal, premium, if any, and interest, including Liquidated
Damages, if any, on particular Senior Subordinated Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(7) or (8) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of Section 313(b)(2) of the
Trust Indenture Act to the extent applicable.
Section 7.08 Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Senior Subordinated Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
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(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Senior Subordinated
Notes may appoint a successor Trustee to replace the successor Trustee appointed
by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Senior Subordinated Notes of at least 10% in principal amount of
the then outstanding Senior Subordinated Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Senior
Subordinated Note who has been a Holder of a Senior Subordinated Note for at
least six months, fails to comply with Section 7.10, such Holder of a Senior
Subordinated Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Senior Subordinated Notes. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the successor
Trustee, provided all sums owing to the Trustee hereunder have been paid and
subject to the Lien provided for in Section 7.07 hereof. Notwithstanding
replacement of the Trustee pursuant to this Section 7.08, the Company's
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
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Section 7.10 Eligibility; Disqualification. There shall at all times be
a Trustee hereunder that is a corporation organized and doing business under the
laws of the United States of America or of any state thereof that is authorized
under such laws to exercise corporate trustee power, that is subject to
supervision or examination by federal or state authorities and that has a
combined capital and surplus of at least $50.0 million as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of Sections 310(a)(1), (2) and (5) of the Trust Indenture Act. The
Trustee is subject to Section 310(b) of the Trust Indenture Act.
Section 7.11 Preferential Collection of Claims Against Company. The
Trustee is subject to Section 311(a) of the Trust Indenture Act, excluding any
creditor relationship listed in Section 311(b) of the Trust Indenture Act. A
Trustee who has resigned or been removed shall be subject to Section 311(a) of
the Trust Indenture Act to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Senior
Subordinated Notes upon compliance with the conditions set forth below in this
Article 8.
Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.02, the
Company and the Guarantors shall, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, be deemed to have been discharged from their
obligations with respect to all outstanding Senior Subordinated Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Senior Subordinated Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Senior Subordinated Notes and
this Indenture and the Senior Subordinated Guarantees (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Senior Subordinated Notes to receive
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payments in respect of the principal of, premium, if any, and interest,
including Liquidated Damages, if any, on such Senior Subordinated Notes when
such payments are due from the trust fund described in Section 8.04 hereof, and
as more fully set forth in such Section, (b) the Company's obligations with
respect to such Senior Subordinated Notes under Article 2 and Section 4.02
hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith and (d) this
Article 8. Subject to compliance with this Article 8, the Company may exercise
its option under this Section 8.02 notwithstanding the prior exercise of its
option under Section 8.03 hereof.
Section 8.03 Covenant Defeasance. Upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03, the Company
and the Guarantors shall, subject to the satisfaction of the conditions set
forth in Section 8.04 hereof, be released from their obligations under the
covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14
and 4.16 hereof and the covenants contained in the Senior Subordinated
Guarantees with respect to the outstanding Senior Subordinated Notes on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Senior Subordinated Notes shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Senior
Subordinated Notes shall not be deemed outstanding for accounting purposes). For
this purpose, Covenant Defeasance means that, with respect to the outstanding
Senior Subordinated Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture, such
Senior Subordinated Notes and such Senior Subordinated Guarantees shall be
unaffected thereby. In addition, upon the Company's exercise under Section 8.01
hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(3) through 6.01(6) and 6.01(9) hereof shall not constitute Events of
Default.
Section 8.04 Conditions to Legal or Covenant Defeasance. The following
shall be the conditions to the application of either Section 8.02 or 8.03 hereof
to the outstanding Senior Subordinated Notes:
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company or the Guarantors must irrevocably deposit
with the Trustee, in trust, for the benefit of the Holders of the Senior
Subordinated Notes, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants provided to the Trustee, to pay the
principal of, premium, if any, and interest, including Liquidated
Damages, if any, on the outstanding Senior Subordinated Notes on the
stated maturity or on the applicable redemption date, as the case may
be, and the Company or the Guarantors must, concurrently with such
deposit and opinion, provide written notice to the Trustee specifying
whether the Senior Subordinated Notes are being defeased to maturity or
to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof,
the Company or the Guarantors shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company or the Guarantors have received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm that, the
Holders of the outstanding Senior Subordinated Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof,
the Company or the Guarantors shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Senior
Subordinated Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Section 6.01(7) or 6.01(8) hereof is concerned,
at any time in the period ending on the 91st day after the date of
deposit;
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(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which
the Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries is bound;
(f) the Company or the Guarantors shall have delivered to
the Trustee an Opinion of Counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company or the Guarantors shall have delivered to
the Trustee an Officers' Certificate stating that the deposit was not
made by the Company or the Guarantors, as applicable, with the intent of
preferring the Holders of Senior Subordinated Notes over the other
creditors of the Company or the Guarantors, as applicable, with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company or the Guarantors, as applicable, or others; and
(h) the Company or the Guarantors shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money
and non-callable Government Securities (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in
respect of the outstanding Senior Subordinated Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Senior
Subordinated Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Senior Subordinated Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, including Liquidated Damages, if any, but such money need not be
segregated from other funds except to the extent required by law.
The Company and the Guarantors shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the cash or
non-callable
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Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Senior
Subordinated Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to Company. Any money deposited with the Trustee
or any Paying Agent, or then held by the Company, in trust for the payment of
the principal of, premium, if any, or interest, including Liquidated Damages, if
any, on any Senior Subordinated Note and remaining unclaimed for two years after
such principal, premium, if any, or interest, including Liquidated Damages, if
any, has become due and payable shall be paid to the Company on its request or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Senior Subordinated Note shall thereafter, as a general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to
apply any United States dollars or non-callable Government Securities in
accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the obligations of
the Company and the Guarantors under this Indenture, the Senior Subordinated
Notes and the Senior Subordinated Guarantees shall be revived and reinstated as
though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Company or any Guarantor makes any payment of principal
of, premium, if any, or interest, including Liquidated Damages, if any, on any
Senior Subordinated Note following the reinstatement of its obligations, the
Company or such Guarantor shall be
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subrogated to the rights of the Holders of such Senior Subordinated Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Senior Subordinated Notes.
Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and
the Trustee may amend or supplement this Indenture or the Senior Subordinated
Notes without the consent of any Holder of a Senior Subordinated Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Subordinated Notes in addition
to or in place of certificated Senior Subordinated Notes;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Senior Subordinated Notes in the case of a merger or
consolidation pursuant to Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Subordinated Notes or that does not
adversely affect the legal rights hereunder of any Holder of the Senior
Subordinated Notes;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act; or
(f) to allow any Guarantor to execute a supplemental indenture and/or a
Senior Subordinated Guarantee with respect to the Senior Subordinated Notes.
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company and each of the Guarantors, as the case may be,
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.02 hereof,
the Trustee shall join with the Company and the Guarantors in the execution of
any amended or supplemental Indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental Indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.
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Section 9.02 With Consent of Holders of Senior Subordinated Notes.
Except as provided below in this Section 9.02, the Company, the Guarantors and
the Trustee may amend or supplement this Indenture (including Section 4.10 and
4.13 hereof) and the Senior Subordinated Notes with the consent of the Holders
of at least a majority in principal amount of the Senior Subordinated Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, the Senior Subordinated
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest, including Liquidated
Damages, if any, on the Senior Subordinated Notes, except a payment default
resulting from an acceleration that has been rescinded) or compliance with any
provision of this Indenture or the Senior Subordinated Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Subordinated Notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, the Senior Subordinated Notes).
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company and each of the Guarantors, as the case may be,
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Senior Subordinated Notes as aforesaid, and upon
receipt by the Trustee of the documents described in Section 7.02 hereof, the
Trustee shall join with the Company and the Guarantors in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Senior
Subordinated Notes under this Section 9.02 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Senior Subordinated Notes
affected thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such amended
or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding may waive compliance in a particular
instance by the Company or any Guarantor with any provision of this Indenture or
the Senior Subordinated Notes. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Senior
Subordinated Notes held by a non-consenting Holder):
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(a) reduce the principal amount of Senior Subordinated Notes whose
Holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Senior Subordinated Note or alter the provisions with respect to the
redemption of the Senior Subordinated Notes (except as provided above
with respect to Sections 4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of interest,
including Liquidated Damages, if any, or default interest on any Senior
Subordinated Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest, including Liquidated
Damages, if any, on the Senior Subordinated Notes (except a rescission
of acceleration of the Senior Subordinated Notes by the Holders of at
least a majority in aggregate principal amount of the Senior
Subordinated Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Senior Subordinated Note payable in money other than
that stated in the Senior Subordinated Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Senior
Subordinated Notes to receive payments of principal of or premium, if
any, or interest, including Liquidated Damages, if any, on the Senior
Subordinated Notes;
(g) waive a redemption payment with respect to any Senior
Subordinated Note (except as provided above with respect to Sections
4.10 and 4.13 hereof);
(h) make any change in the foregoing amendment and waiver
provisions.
Section 9.03 Compliance with Trust Indenture Act. Every amendment or
supplement to this Indenture or the Senior Subordinated Notes shall be set forth
in an amended or supplemental Indenture that complies with the Trust Indenture
Act as then in effect.
Section 9.04 Revocation and Effect of Consents. Until an amendment,
supplement or waiver becomes effective, a consent to it by a Holder of a Senior
Subordinated Note is a continuing consent by the Holder of a Senior Subordinated
Note
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and every subsequent Holder of a Senior Subordinated Note or portion of a Senior
Subordinated Note that evidences the same debt as the consenting Holder's Senior
Subordinated Note, even if notation of the consent is not made on any Senior
Subordinated Note. However, any such Holder of a Senior Subordinated Note or
subsequent Holder of a Senior Subordinated Note may revoke the consent as to its
Senior Subordinated Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver becomes effective in accordance with its terms
and thereafter binds every Holder.
Section 9.05 Notation on or Exchange of Senior Subordinated Notes. The
Trustee may place an appropriate notation about an amendment, supplement or
waiver on any Senior Subordinated Note thereafter authenticated. The Company in
exchange for all Senior Subordinated Notes may issue and the Trustee shall, upon
receipt of an Authentication Order, authenticate new Senior Subordinated Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior
Subordinated Note shall not affect the validity and effect of such amendment,
supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc. The Trustee shall sign any
amended or supplemental Indenture authorized pursuant to this Article 9 if the
amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. Neither the Company nor any Guarantor
may sign an amended or supplemental Indenture until its respective Board of
Directors approves it. In executing any amended or supplemental indenture, the
Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that there has been compliance
with all conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.01 Agreement to Subordinate. The Company agrees, and each
Holder by accepting a Senior Subordinated Note agrees, that the Indebtedness
evidenced by the Senior Subordinated Note is subordinated in right of payment,
to the extent and in the manner provided in this Article, to the prior payment
in full of all Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Debt.
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Section 10.02 Certain Definitions. "Accrued Bankruptcy Interest" means,
with respect to any Senior Debt, all interest accruing thereon after the filing
of a petition by or against the Company under any Bankruptcy Law, in accordance
with and at the rate (including any rate applicable upon any default or event of
default, to the extent lawful) specified in the documents evidencing or
governing such Senior Debt, whether or not the claim for such interest is
allowed as a claim after such filing in any proceeding under such Bankruptcy
Law.
"Bank Debt" means all Obligations in respect of the Indebtedness
outstanding under the Bank Credit Agreement, together with any amendment,
modification, renewal, refunding, refinancing or replacement (in whole or in
part) from time to time of such Indebtedness.
"Bank Hedging Obligations" means all present and future Hedging
Obligations of the Company, whether existing now or in the future, that are
secured by the Bank Credit Agreement (or other agreement evidencing Bank Debt or
other Senior Debt) or any of the collateral documents executed from time to time
in connection therewith.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Designated Senior Debt" means (i) so long as the Bank Debt is
outstanding, the Bank Debt, (ii) the Bank Hedging Obligations and (iii) any
Senior Debt permitted under this Indenture the principal amount of which is
$15.0 million or more and that has been designated by the Company as "Designated
Senior Debt" and as to which the Trustee has been given written notice of such
designation.
"Permitted Junior Securities" means, with respect to any payment or
distribution of any kind, equity securities or subordinated securities of the
Company or any successor obligor provided for by a plan of reorganization or
readjustment that, in the case of any such subordinated securities, are
subordinated in right of payment to all Senior Debt that may at the time be
outstanding to at least the same extent as the Senior Subordinated Notes are so
subordinated as provided in this Indenture.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
Securities Payment" means any payment or distribution of any kind,
whether in cash, property or securities (including any payment or distribution
deliverable by reason of the payment of any other Indebtedness subordinated to
the Senior Subordinated Notes)
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on account of the principal of (and premium, if any) or interest on the Senior
Subordinated Notes or on account of the purchase or redemption or other
acquisition of or satisfaction of obligations with respect to Senior
Subordinated Notes by the Company or any Subsidiary of the Company.
"Senior Debt" means (i) the Bank Debt, (ii) the Bank Hedging Obligations
and (iii) any other Indebtedness permitted to be incurred by the Company under
the terms of this Indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Senior Subordinated Notes. Notwithstanding anything to
the contrary in the foregoing, Senior Debt will not include (1) any liability
for federal, state, local or other taxes owed or owing by the Company, (2) any
Indebtedness of the Company to any of its Restricted Subsidiaries or other
Affiliates (other than Goldman, Sachs & Co. and its Affiliates, including
Goldman Sachs Credit Partners L.P.), (3) any trade payables, (4) that portion of
any Indebtedness that is incurred in violation of this Indenture, (5)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company, (6) any Indebtedness, Guarantee or obligation of the Company which is
contractually subordinate in right of payment to any other Indebtedness,
Guarantee or obligation of the Company; provided, however, that this clause (6)
shall not apply to the subordination of liens or security interests covering
particular properties or types of assets securing Senior Debt, (7) Indebtedness
evidenced by the Senior Subordinated Notes and (8) Capital Stock.
All Designated Senior Debt now or hereafter existing and all other
Obligations relating thereto shall not be deemed to have been paid in full
unless the holders or owners thereof shall have received payment in full in cash
or Cash Equivalents with respect to such Designated Senior Debt and all other
Obligations with respect thereto.
Section 10.03 Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
the holders of Senior Debt shall be entitled to receive payment in full of all
Obligations due in respect of such Senior Debt (including Accrued Bankruptcy
Interest), or provision shall be made for such payment in cash or Cash
Equivalents or otherwise in a manner satisfactory to the holders of such Senior
Debt, before the Holders of the Senior Subordinated Notes shall be entitled to
receive any Securities Payment (other than payments in Permitted Junior
Securities) and until all Obligations with respect to Senior Debt are paid in
full, or provision is made for payment in cash or Cash Equivalents or otherwise
in a manner satisfactory to the holders of such Senior Debt, any Securities
Payment (other than payments in Permitted Junior Securities) to which the
Holders of Senior Subordinated Notes would be entitled shall be made to the
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holders of Senior Debt (except that the Trustee or the Holders of Senior
Subordinated Notes may receive payments and other distributions made from any
defeasance trust created pursuant to Section 8.01 hereof).
Section 10.04 Default on Designated Senior Debt. The Company may not
make any Securities Payment (other than payments in Permitted Junior Securities)
to the Trustee or any Holder upon or in respect of Obligations with respect to
the Senior Subordinated Notes (other than payments and other distributions made
from any defeasance trust created pursuant to Section 8.01 hereof) until all
principal and other Obligations with respect to the Senior Debt have been paid
in full or provision has been made for the payment in full in cash or Cash
Equivalents or otherwise in a manner satisfactory to the holders of such Senior
Debt if:
(i) a default in the payment of any principal of, premium, if any, or
interest on Designated Senior Debt occurs and is continuing (including any
default in payment upon the maturity of any Designated Senior Debt by lapse of
time, acceleration or otherwise), or any judicial proceeding is pending to
determine whether any such default has occurred; or
(ii) a default, other than a payment default described in subsection (i)
above, occurs and is continuing with respect to Designated Senior Debt that
permits, or would permit with the giving of notice or passage of time, or
both, (as such default or event of default is defined in any agreement,
indenture or other document governing such Designated Senior Debt) holders of
the Designated Senior Debt to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior
Debt.
If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall be effective for purposes of this Section unless
and until at least 360 days shall have elapsed since the first day of
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or waived for
a period of not less than 180 days.
If the Company is prohibited from making Securities Payments on the
Senior Subordinated Notes under subsection (i) or (ii) above, the Company may
and shall resume Securities Payments on the Senior Subordinated Notes upon:
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(1) in the case of a default pursuant to the Section 10.04(i), the date
upon which the default, event of default or other event giving rise to such
prohibition is cured or waived or shall have ceased to exist, unless another
default, event of default or other event that would prohibit such payment under
Section 10.04(i) has occurred and is continuing, or all Obligations in respect
of such Designated Senior Debt shall have been discharged or paid in full, or
(2) in the case of any prohibition referred to in Section 10.04(ii)
hereof, the earlier of the date on which such nonpayment default is cured or
waived or 179 days pass after the relevant Payment Blockage Notice is received
by the Trustee thereunder,
in each such case, if this Article otherwise permits a Securities Payment.
Section 10.05 Acceleration of Senior Subordinated Notes. If payment of
the Senior Subordinated Notes is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration.
Section 10.06 When Distribution Must Be Paid Over. If, notwithstanding
the provisions of Sections 10.03 and 10.04, any direct or indirect Securities
Payment (other than payments in Permitted Junior Securities) on account of
principal of or interest on or other Obligations with respect to the Senior
Subordinated Notes shall be made by or on behalf of the Company (including any
payments or distribution by any liquidating trustee or agent or other Person in
a proceeding referred to in Section 10.03) and received by the Trustee or any
Holder of Senior Subordinated Notes at a time when such Securities Payment or
distribution was prohibited by the provisions of Section 10.03 or 10.04 or such
Securities Payment was required to be made to holders of Senior Debt or their
Representatives, then, unless and until such payment or distribution is no
longer prohibited by Section 10.03 or 10.04, such Securities Payment or
distribution shall be received, segregated from other funds or assets and held
in trust by the Trustee or such Holder of Senior Subordinated Notes, as the case
may be, for the benefit of, and shall be immediately paid or delivered over to,
the holders of Senior Debt or their Representatives, ratably in accordance with
the respective amounts of the principal of such Senior Debt, interest (including
Accrued Bankruptcy Interest) thereon and all other Obligations with respect
thereto held or represented by each, until the principal of all Senior Debt,
interest (including Accrued Bankruptcy Interest) thereon and all other
Obligations with respect thereto have been paid in full in cash or Cash
Equivalents or otherwise in a manner satisfactory to the holders of such Senior
Debt. Any distribution to the holders of Senior Debt or their Representatives of
assets other than cash or Cash Equivalents or otherwise in a manner satisfactory
to the holders of such Senior Debt may be held by such holders or such
Representatives as additional collateral without any duty to the Holder of
Senior Subordinated Notes to liquidate or otherwise realize on such assets or to
apply such assets to any Senior Debt or other Obligations relating thereto.
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With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to or on behalf of
Holders of Senior Subordinated Notes or the Company or any other Person money or
assets to which any holders of Senior Debt shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee. Nothing in this Section 10.06 shall affect
the obligation of any Person other than the Trustee to hold such payment or
distribution for the benefit of, and to pay or deliver such payment or
distribution over to, the holders of Senior Debt or their Representatives.
Section 10.07 Notice by Company. The Company shall promptly notify the
Trustee and the Paying Agent of any facts known to the Company that would cause
a payment of any Obligations with respect to the Senior Subordinated Notes to
violate this Article, but failure to give such notice shall not affect the
subordination of the Senior Subordinated Notes to the Senior Debt as provided in
this Article 10.
Section 10.08 Subrogation. After all Senior Debt is paid in full and
until the Senior Subordinated Notes are paid in full, Holders of Senior
Subordinated Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Senior Subordinated Notes) to the rights of
holders of Senior Debt to receive distributions applicable to Senior Debt to the
extent that distributions otherwise payable to the Holders of Senior
Subordinated Notes have been applied to the payment of Senior Debt. A
distribution made under this Article 10 to holders of Senior Debt that otherwise
would have been made to Holders of Senior Subordinated Notes is not, as between
the Company and Holders, a payment by the Company on the Senior Subordinated
Notes.
Section 10.09 Relative Rights. This Article 10 defines the relative
rights of Holders of Senior Subordinated Notes and holders of Senior Debt.
Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of, premium, if
any, and interest, including Liquidated Damages, if any, on the Senior
Subordinated Notes in accordance with their terms;
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(2) affect the relative rights of Holders and creditors of the Company
other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders
and owners of Senior Debt to receive distributions and payments otherwise
payable to Holders.
If the Company fails because of this Article 10 to pay principal of,
premium if any, or interest, including Liquidated Damages, if any, on a Senior
Subordinated Note on the due date, the failure is still a Default or Event of
Default.
Section 10.10 Subordination May Not Be Impaired by Company. No right of
any present or future holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Senior Subordinated Notes shall be impaired by any
act or failure to act by the Company or any Holder of Senior Subordinated Notes
or any holder of Senior Debt or by the failure of the Company or any Holder of
Senior Subordinated Notes or any holder of Senior Debt to comply with this
Indenture regardless of any knowledge thereof that any such Holder of Senior
Subordinated Notes or holder of Senior Debt, as the case may be, may have or be
otherwise charged with. The holders of Senior Debt may extend, renew, restate,
supplement, modify or amend the terms of the Senior Debt or any Obligations with
respect thereto or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Company and its Subsidiaries and
Affiliates all without affecting the liabilities and obligations of the parties
to this Indenture or the Holders. No provision in any supplemental indenture
that adversely affects the subordination of the Senior Subordinated Notes or
other provisions of this Article 10 shall be effective against the holders of
the Designated Senior Debt that have not consented thereto.
Each Holder of the Senior Subordinated Notes by their acceptance
thereof: (a) acknowledges and agrees that the holders of any Senior Debt or
their Representative, in its or their discretion, and without affecting any
rights of any holder of Senior Debt under this Article 10, may foreclose any
mortgage or deed of trust covering interest in real property securing such
Senior Debt or any guarantee thereof by judicial or nonjudicial sale, even
though such action may release the Company or any guarantor of such Senior Debt
from further liability under such Senior Debt or any guarantee thereof or may
otherwise limit the remedies available to the holders thereof; and (b) hereby
waives any defense that such Holder may otherwise have to the enforcement by any
holder of any Senior Debt or any Representative of such holder against such
Holder of this Article 10 after or as a result of any action, including any such
defense based on any loss or impairment of rights of subrogation.
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If at any time any payment of Obligations with respect to any Senior
Debt is rescinded or must otherwise be returned upon the insolvency, bankruptcy,
reorganization or liquidation of the Company or otherwise, the provisions of
this Article 10 shall continue to be effective or reinstated, as the case may
be, to the same extent as though such payments had not been made.
Section 10.11 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of Senior Subordinated Notes shall
be entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Senior Subordinated Notes for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 10.
Section 10.12 Rights of Trustee and Paying Agent. Notwithstanding the
provisions of this Article 10 or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment or distribution by the Trustee, and the
Trustee and the Paying Agent may continue to make payments on the Senior
Subordinated Notes, unless a Responsible Officer of the Trustee shall have
received at its Corporate Trust Office at least two Business Days prior to the
date of such payment written notice of facts that would cause the payment of any
Obligations with respect to the Senior Subordinated Notes to violate this
Article. Only the Company or a Representative may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 10.13 Authorization to Effect Subordination. Each Holder of a
Senior Subordinated Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the
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Holder's attorney-in-fact for any and all such purposes. If the Trustee does not
file a proper proof of claim or proof of debt in the form required in any
proceeding referred to in Section 6.09 hereof at least 30 days before the
expiration of the time to file such claim, the agent under the Bank Credit
Agreement is hereby authorized to file an appropriate claim for and on behalf of
the Holders of the Senior Subordinated Notes.
The Company, the Trustee and each Holder by their acceptance of the
Senior Subordinated Notes acknowledge that damages would be inadequate to
compensate the holders of Senior Debt for any breach or default by the Company,
the Trustee or any such Holder of its obligations under this Article 10, and,
therefore, agree that the holders of Senior Debt and their Representatives shall
be entitled to equitable relief, including injunctive relief and specific
performance, in the enforcement thereof.
Section 10.14 Amendments. The provisions of this Article 10 shall not be
amended or modified without the written consent of the holders of all Senior
Debt unless such amendment or modification does not adversely affect the holders
of such Senior Debt.
ARTICLE 11
SENIOR SUBORDINATED GUARANTEES
Section 11.01 Senior Subordinated Guarantees. Subject to this Article
11, each of the Guarantors, jointly and severally, hereby unconditionally
guarantees to each Holder of a Senior Subordinated Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Senior
Subordinated Notes or the obligations of the Company under this Indenture or the
Senior Subordinated Notes, that: (a) the principal of, premium, if any, and
interest, including Liquidated Damages, if any, on the Senior Subordinated Notes
shall be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and (to the extent permitted by law) interest on the
overdue principal of, premium and interest, including Liquidated Damages, on the
Senior Subordinated Notes, if any, and all other obligations of the Company to
the Holders or the Trustee under this Indenture or the Senior Subordinated Notes
shall be promptly paid in full or performed, all in accordance with the terms of
this Indenture and the Senior Subordinated Notes; and (b) in case of any
extension of time of payment or renewal of any Senior Subordinated Notes or any
of such other obligations, that same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. Failing payment when due of any
amount so guaranteed for whatever reason, the Guarantors shall be obligated to
pay the same immediately whether or not such failure to pay has become an Event
of Default which could cause acceleration pursuant to Section 6.02
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hereof. Each Guarantor agrees that this is a guarantee of payment and not a
guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Senior Subordinated Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Senior Subordinated
Notes with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that, subject
to this Article 11, this Senior Subordinated Guarantee shall not be discharged
except by complete performance of the obligations contained in the Senior
Subordinated Notes and this Indenture.
If any Holder of Senior Subordinated Notes or the Trustee is required by
any court or otherwise to return to the Company or Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to either the
Company or Guarantors, any amount paid by either to the Trustee or such Holder,
this Senior Subordinated Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders of Senior Subordinated Notes in respect
of any Obligations guaranteed hereby until payment in full of all Obligations
guaranteed hereby. Each Guarantor further agrees that, as between the
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article 6 hereof for the purposes of this Senior Subordinated
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Obligations guaranteed hereby and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Section 6.02 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Senior Subordinated Guarantee. The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Senior Subordinated
Guarantees.
Section 11.02 Subordination of Senior Subordinated Guarantee. The
Obligations of each Guarantor under its Senior Subordinated Guarantee pursuant
to this
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Article 11 shall be junior and subordinated to the Senior Guarantee of such
Guarantor on the same basis as the Senior Subordinated Notes are junior and
subordinated to Senior Debt of the Company. For the purposes of the foregoing
sentence, the Trustee and the Holders shall have the right to receive and/or
retain payments by any of the Guarantors only at such times as they may receive
and/or retain payments in respect of the Senior Subordinated Notes pursuant to
this Indenture, including Article 10 hereof.
Section 11.03 Limitation on Guarantor Liability. Each Guarantor, and by
its acceptance of Senior Subordinated Notes, each Holder, hereby confirms that
it is the intention of all such parties that the Senior Subordinated Guarantee
of such Guarantor not constitute a fraudulent transfer or conveyance for
purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar federal or state law to the extent
applicable to any Senior Subordinated Guarantee. To effectuate the foregoing
intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree
that the obligations of such Guarantor under its Senior Subordinated Guarantee
and this Article 11 shall be limited to the maximum amount as will, after giving
effect to such maximum amount and all other contingent and fixed liabilities of
such Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under this Article 11, result in the obligations of such Guarantor
under its Senior Subordinated Guarantee not constituting a fraudulent transfer
or conveyance.
Section 11.04 Execution and Delivery of Senior Subordinated Guarantees.
To evidence its Senior Subordinated Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Senior Subordinated Guarantee
substantially in the form of Exhibit D shall be endorsed by an Officer of such
Guarantor on each Senior Subordinated Note authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of such Guarantor by
its President or one of its Vice Presidents and attested to by an Officer of
such Guarantor.
Each Guarantor hereby agrees that its Senior Subordinated Guarantee set
forth in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Senior Subordinated Note a notation of such Senior
Subordinated Guarantee.
If an Officer whose signature is on this Indenture or on the Senior
Subordinated Guarantee no longer holds that office at the time the Trustee
authenticates the Senior Subordinated Note on which a Senior Subordinated
Guarantee is endorsed, the Senior Subordinated Guarantee shall be valid
nevertheless.
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The delivery of any Senior Subordinated Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Senior
Subordinated Guarantee set forth in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new Subsidiaries
subsequent to the date of this Indenture, if required by Section 4.14 hereof,
the Company shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Senior Subordinated Guarantees in accordance with Section
4.14 hereof and this Article 11, to the extent applicable.
Section 11.05 Guarantors May Consolidate, etc., on Certain Terms. No
Guarantor may consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person) another Person whether or not affiliated with
such Guarantor unless:
(a) subject to Section 11.06 hereof, the Person formed by or surviving
any such consolidation or merger (if other than such Guarantor)
unconditionally assumes all the obligations of such Guarantor under the Senior
Subordinated Guarantee and this Indenture on the terms set forth herein
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee;
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(c) the Company would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio to incur, immediately after giving effect to such
transaction, at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section 4.09
hereof.
In case of any such consolidation or merger and upon the assumption by the
successor Person, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the Senior Subordinated
Guarantee endorsed upon the Senior Subordinated Notes and of the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Senior Subordinated Guarantees to be endorsed upon all of the
Senior Subordinated Notes issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the Trustee. All the Senior
Subordinated Guarantees so issued shall in all respects have the same legal rank
and benefit under this Indenture as
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the Guarantees theretofore and thereafter issued in accordance with the terms of
this Indenture as though all of such Senior Subordinated Guarantees had been
issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding
clauses (a) through (c) above, nothing contained in this Indenture or in any of
the Senior Subordinated Notes shall prevent any consolidation or merger of a
Guarantor with or into the Company or another Guarantor, or shall prevent any
sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety to the Company or another Guarantor.
Section 11.06 Releases of Senior Subordinated Guarantees. In the event
of a sale or other disposition of all or substantially all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition (including, without limitation, by foreclosure) of all of the
Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise
(including, without limitation, by foreclosure), of all of the Capital Stock of
such Guarantor) or the Person acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be automatically released and relieved of any obligations under its Senior
Subordinated Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied, as and if required; in accordance with Section 4.10
hereof. In addition, if any Guarantor is released and relieved of all
obligations it may have as a guarantor under the Bank Credit Agreement, then
such Guarantor shall also be automatically released and relieved of any
obligations under its Senior Subordinated Guarantee. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture, including without limitation
Sections 4.10 and 5.01 hereof, the Trustee shall execute any documents
reasonably required in order to evidence the release of any Guarantor from its
obligations under its Senior Subordinated Guarantee.
Any Guarantor not released from its obligations under its Senior
Subordinated Guarantee shall remain liable for the full amount of principal of
and interest on the Senior Subordinated Notes and for the other obligations of
any Guarantor under this Indenture as provided in this Article 11.
Section 11.07 "Trustee" to Include Paying Agent. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article 11 shall in
such case (unless the context shall otherwise require) be construed as extending
to and including such Paying Agent within its meaning as fully and for all
intents and purposes as if such Paying Agent were named in this Article 11 in
place of the Trustee.
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ARTICLE 12
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with the duties imposed by Section
318(c) of the Trust Indenture Act, the imposed duties shall control.
Section 12.02 Notices. Any notice, request, instruction, order or other
communication by the Company, the Guarantors or the Trustee to the others is
duly given only if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guarantors:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Telecopier No.: (914) 345-2056
Attention: Secretary
With a copy to:
GS Capital Partners II, L.P.
85 Broad Street
New York, NY 10004
Telecopier No.: (212) 357-5505
Attention: David J. Greenwald
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Telecopier No.: (212) 403-2000
Attention: Mitchell S. Presser
If to the Trustee:
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IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Telecopier No.: (212) 858-2156
Attention: Corporate Finance Department
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in Section 313(c) of the Trust Indenture Act, to the extent
required by the Trust Indenture Act. Failure to mail a notice or communication
to a Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
Section 12.03 Communication by Holders of Senior Subordinated Notes with
Other Holders of Senior Subordinated Notes. Holders may communicate pursuant to
Section 312(b) of the Trust Indenture Act with other Holders with respect to
their rights under this Indenture or the Senior Subordinated Notes. The Company,
the Guarantors, the Trustee, the Registrar and anyone else shall have the
protection of Section 312(c) of the Trust Indenture Act.
Section 12.04 Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company or any Guarantor to the Trustee to
take any action under this Indenture, the Company or such Guarantor, as the case
may be, shall furnish to the Trustee:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 12.05 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
Section 314(a)(4) of the Trust Indenture Act) shall comply with the provisions
of Section 314(e) of the Trust Indenture Act and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 12.06 Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or at a meeting of Holders. The Registrar or
Paying Agent may make reasonable rules and set reasonable requirements for its
functions.
Section 12.07 No Personal Liability of Directors, Officers, Employees
and Stockholders. No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall have
any liability for any obligations of the Company or the Guarantors under the
Senior Subordinated Notes, the Senior Subordinated Guarantees, this Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Senior Subordinated
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Notes by accepting a Senior Subordinated Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Subordinated Notes.
Section 12.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE SENIOR SUBORDINATED
NOTES AND THE SENIOR SUBORDINATED GUARANTEES.
Section 12.09 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret any other indenture, loan or debt
agreement of the Company or its Subsidiaries or of any other Person. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture
and the Senior Subordinated Guarantees.
Section 12.10 Successors. All agreements of the Company and each
Guarantor in this Indenture and the Senior Subordinated Notes shall bind its
respective successors. All agreements of the Trustee in this Indenture shall
bind its successors.
Section 12.11 Severability. In case any provision in this Indenture or
in the Senior Subordinated Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 12.12 Counterpart Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
Section 12.13 Table of Contents, Headings, etc. The Table of Contents,
Cross-Reference Table and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part of this Indenture and shall in no way modify or restrict any
of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of December 19, 1997
Amscan Holdings, Inc.
Attest: By: /s/ GERALD C. RITTENBERG
----------------------------------
Name: Gerald C. Rittenberg
/s/ JAMES M. HARRISON Title: Chief Executive Officer
- -------------------------------
Name: James M. Harrison
Title: President, Chief Financial
Officer and Treasurer
Amscan Inc.
Attest: By: /s/ GERALD C. RITTENBERG
----------------------------------
Name: Gerald C. Rittenberg
/s/ JAMES M. HARRISON Title: President
- -------------------------------
Name: James M. Harrison
Title: Secretary and Treasurer
Am-Source, Inc.
Attest: By: /s/ GERALD C. RITTENBERG
----------------------------------
Name: Gerald C. Rittenberg
/s/ JAMES M. HARRISON Title: President
- -------------------------------
Name: James M. Harrison
Title: Secretary and Treasurer
Trisar, Inc.
Attest: By:/s/ GERALD C. RITTENBERG
----------------------------------
Name: Gerald C. Rittenberg
/s/ JAMES M. HARRISON Title: President
- -------------------------------
Name: James M. Harrison
Title: Secretary and Treasurer
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<PAGE> 109
SSY Realty Corp.
Attest: By:/s/ GERALD C. RITTENBERG
----------------------------------
Name: Gerald C. Rittenberg
/s/ JAMES M. HARRISON Title: President
- -------------------------------
Name: James M. Harrison
Title: Secretary and Treasurer
JCS Realty Corp.
Attest: By:/s/ GERALD C. RITTENBERG
----------------------------------
Name: Gerald C. Rittenberg
/s/ JAMES M. HARRISON Title: President
- -------------------------------
Name: James M. Harrison
Title: Secretary and Treasurer
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<PAGE> 110
Dated as of December 19, 1997 IBJ Schroder Bank & Trust Company
Trustee
Attest: By: /s/ LUIS PEREZ
----------------------------------
Name: Luis Perez
Title: Asst. Vice President
/s/ JAMES M. HARRISON
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<PAGE> 111
Exhibit A-1
(Face of Senior Subordinated Note)
================================================================================
CUSIP o
No. ___ $__________
9.875% Senior Subordinated Notes due 2007
AMSCAN HOLDINGS, INC.
promises to pay to _______________ or registered assigns, the principal sum of
Dollars ($____________) on December 15, 2007.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Dated: __________, ____
AMSCAN HOLDINGS, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
This is one of the Senior
Subordinated Notes referred to
in the within-mentioned Indenture: (SEAL)
IBJ Schroder Bank & Trust Company,
as Trustee
By:__________________________________
Authorized Signatory
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<PAGE> 112
================================================================================
(Back of Senior Subordinated Note)
9.875% Senior Subordinated Notes due 2007
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SENIOR
SUBORDINATED NOTES IN DEFINITIVE FORM, THIS SENIOR SUBORDINATED NOTE MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET,
NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER
ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.](1)
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER
- ----------
(1) This paragraph should be included only if the Senior Subordinated
Note is issued in global form.
A-1-2
<PAGE> 113
THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN
INSTITUTION THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1),
(2), (3) OR (7) OF REGULATION D IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (IF AVAILABLE) OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER
JURISDICTIONS. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THE NOTES."
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Amscan Holdings, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Senior
Subordinated Note at the rate of 9.875% per annum, which interest shall be
payable in cash semi-annually in arrears on June 15 and December 15, or if any
such day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"); provided that the first Interest Payment Date shall be
June 15, 1998. Interest on the Senior Subordinated Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the Company shall
pay interest and Liquidated Damages, if any, to the Person who is the Holder of
record of this Senior Subordinated Note as of the close of business on June 1 or
December 1 immediately preceding such Interest Payment Date, even if this Senior
Subordinated Note is canceled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. Principal, premium, if any, and interest,
including Liquidated Damages, if any, on this Senior Subordinated Note will be
payable at the office or agency of the Company maintained for such purpose
within The City and State of New York or, at the option of the Company, payment
of interest, including Liquidated Damages, if any, may be made by check mailed
to the Holder of this Senior Subordinated Note at its address set forth in the
register of
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<PAGE> 114
Holders of Senior Subordinated Notes; provided, however, that all payments with
respect to Global Notes and Certificated Notes the Holders of which have given
wire transfer instructions to the Company at least 10 Business Days prior to the
applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company, any Guarantor or any other of its Restricted
Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Senior Subordinated Notes under an
Indenture dated as of December 19, 1997 ("Indenture") among the Company, the
Guarantors and the Trustee. The terms of the Senior Subordinated Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss.
77aaa-77bbbb). The Senior Subordinated Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Senior Subordinated Notes are general unsecured obligations of the
Company limited in an aggregate principal amount at maturity to $200.0 million
and will mature on December 15, 2007.
5. Optional Redemption. (a) Except as set forth in clause (b) or (c) of
this Paragraph 5, the Senior Subordinated Notes are not redeemable at the
Company's option prior to December 15, 2002. From and after December 15, 2002,
the Senior Subordinated Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
written notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest, including Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on December 15 of the years indicated below:
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Year Percentage
- ---- ----------
2002.............................................. 104.937%
2003.............................................. 103.292%
2004.............................................. 101.646%
2005 and thereafter............................... 100%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5,
prior to December 15, 2000, the Company may, at its option, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of Senior
Subordinated Notes issued under the Indenture at a redemption price equal to
109.875% of the principal amount thereof, plus accrued and unpaid interest,
including Liquidated Damages, if any, thereon to the redemption date, with the
net proceeds of public or private sales of common stock of, or contributions to
the common equity capital of, the Company; provided that at least 59% of the
aggregate principal amount of Senior Subordinated Notes issued under the
Indenture remains outstanding immediately after the occurrence of each such
redemption; and provided, further, that such redemption shall occur within 120
days of the date of the closing of the related sale of common stock of, or
capital contribution to, the Company.
(c) Notwithstanding the provisions of clause (a) of this Paragraph 5, at
any time on or prior to December 15, 2002, upon the occurrence of a Change of
Control, the Company may redeem the Senior Subordinated Notes, in whole but not
in part, at a redemption price equal to the principal amount thereof plus the
Applicable Premium plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date. Notice of redemption of the Senior Subordinated
Notes pursuant to this paragraph shall be mailed to the Holders of the Senior
Subordinated Notes not more than 30 days following the occurrence of a Change of
Control.
6. Mandatory Redemption. Except as set forth in Paragraph 7 below, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Subordinated Notes.
7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change
of Control, each Holder of Senior Subordinated Notes shall have the right to
require the Company to repurchase all or any part (equal to $1,000 in principal
amount or an integral multiple thereof) of such Holder's Senior Subordinated
Notes pursuant to the offer
A-1-5
<PAGE> 116
described below (the "Change of Control Offer") at an offer price in cash (the
"Change of Control Payment") equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, including Liquidated Damages, if any,
thereon to the date of repurchase. Within 30 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer and describing the transaction
or transactions that constitute the Change of Control as required by the
Indenture.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Indenture, within 10 Business Days of the date on which
the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall
commence an offer to all Holders of Senior Subordinated Notes and to the holders
of any other Senior Subordinated Indebtedness the terms of which so require (an
"Asset Sale Offer") pursuant to Section 4.10 of the Indenture to purchase the
maximum principal amount of Senior Subordinated Notes and such other Senior
Subordinated Indebtedness, that is an integral multiple of $1,000, that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the aggregate principal amount thereof (or 100% of the accreted
value thereof, in case of Senior Subordinated Indebtedness issued at a
discount), plus accrued and unpaid interest, including Liquidated Damages, if
any, thereon to the date fixed for the closing of such offer, in accordance with
the procedures set forth in the Indenture. The Excess Proceeds shall be
allocated to the respective Asset Sale Offers for the Senior Subordinated Notes
and such other Senior Subordinated Indebtedness in proportion to their relative
amounts (or accreted value, as applicable). To the extent that the aggregate
amount of Senior Subordinated Notes (and such other Senior Subordinated
Indebtedness) tendered pursuant to any required Asset Sale Offer is less than
the Excess Proceeds allocated thereto, the Company may use any remaining Excess
Proceeds (x) to offer to redeem or purchase other Senior Subordinated
Indebtedness or Subordinated Indebtedness in accordance with the provisions of
the Indenture or other agreement governing such other Senior Subordinated
Indebtedness or Subordinated Indebtedness or (y) for any other purpose not
prohibited by any provision of the Indenture. If the aggregate principal amount
of Senior Subordinated Notes tendered pursuant to any Asset Sale Offer exceeds
the amount of Excess Proceeds allocated thereto, the Trustee shall select the
Senior Subordinate Notes to be purchased on a pro rata basis based upon the
principal amount of Senior Subordinated Notes tendered. Holders of Senior
Subordinated Notes that are the subject of an offer to purchase will receive an
Asset Sale Offer from the Company prior to any related purchase date and may
elect to have such Senior Subordinated Notes purchased by completing the form
entitled "Option of Holder to Elect Purchase" on the reverse of this Senior
Subordinated Note.
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<PAGE> 117
8. Notice of Optional Redemption. Notice of optional redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder whose Senior Subordinated Notes are to be redeemed at its registered
address. Senior Subordinated Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000, unless all of the Senior
Subordinated Notes held by a Holder are to be redeemed. On and after the
redemption date, unless the Company defaults in payment of the redemption price,
interest ceases to accrue on Senior Subordinated Notes or portions of them
called for redemption.
9. Denominations, Transfer, Exchange. The Senior Subordinated Notes are
in registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Senior Subordinated Notes may be registered
and Senior Subordinated Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Senior
Subordinated Note or portion of a Senior Subordinated Note selected for
redemption, except for the unredeemed portion of any Senior Subordinated Note
being redeemed in part. Also, it need not exchange or register the transfer of
any Senior Subordinated Notes during a period beginning at the opening of
business 15 days before the day of any selection of Senior Subordinated Notes to
be redeemed and ending at the close of business on the day of selection or
during the period between a record date and the next succeeding Interest Payment
Date.
10. Persons Deemed Owners. The registered Holder of a Senior
Subordinated Note may be treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Senior Subordinated Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
Senior Subordinated Notes then outstanding, and any existing Default or Event of
Default or compliance with any provision of the Indenture or the Senior
Subordinated Notes may be waived with the consent of the Holders of a majority
in principal amount of the then outstanding Senior Subordinated Notes. Without
the consent of any Holder of a Senior Subordinated Note, the Indenture or the
Senior Subordinated Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Senior Subordinated Notes
in addition to or in place of certificated Senior Subordinated Notes, to provide
for the assumption of the Company's obligations to the Holders of the Senior
Subordinated Notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the
Senior
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<PAGE> 118
Subordinated Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, or to allow any Guarantor to execute a supplemental indenture
and/or a Senior Subordinated Guarantee with respect to the Senior Subordinated
Notes.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest, including Liquidated Damages, if any,
on the Senior Subordinated Notes (whether or not prohibited by Article 10 the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Senior Subordinated Notes (whether or not prohibited by Article 10
of the Indenture); (iii) failure by the Company for 30 days after notice from
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes to comply with Sections 4.07, 4.09, 4.13
or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice
from the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes to comply with any of its other agreements
or covenants in, or provisions of, the Indenture or the Senior Subordinated
Notes; (v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Indebtedness or guarantee now exists or is created
after the date of the Indenture, which default results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness the maturity of which has been so accelerated, aggregates
$15.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $15.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days;
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Restricted Subsidiaries; and (viii) except as permitted by the
Indenture, any Senior Subordinated Guarantee is held in any judicial proceeding
to be unenforceable or invalid or ceases for any reason to be in full force and
effect (except by its terms) or any Guarantor, or any Person acting on behalf of
any Guarantor, denies or disaffirms such Guarantor's obligations under its
Senior Subordinated Guarantee. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes may declare all the Senior Subordinated
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Senior Subordinated Notes will become due and
payable without further action or notice. Holders may not enforce the Indenture
or the Senior Subordinated Notes except as
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<PAGE> 119
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Senior Subordinated Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Senior Subordinated Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest, including Liquidated Damages, if any) if it determines
that withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Senior Subordinated Notes then outstanding by
notice to the Trustee may on behalf of the Holders of all of the Senior
Subordinated Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest, including Liquidated Damages, if any, on, or the
principal and premium, if any, of, the Senior Subordinated Notes. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may become the owner or pledgee of Senior Subordinated Notes,
and may otherwise deal with the Company, any Guarantor or any of their
respective Affiliates, as if it were not the Trustee. However, in the event that
the Trustee acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue as trustee or
resign.
14. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder of the Company or any Guarantor,
as such, shall have any liability for any obligations of the Company or the
Guarantors under the Senior Subordinated Notes, the Senior Subordinated
Guarantees, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Senior Subordinated Notes
by accepting a Senior Subordinated Note waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Senior Subordinated Notes.
15. Authentication. This Senior Subordinated Note shall not be valid
until authenticated by the manual signature of the Trustee or an authenticating
agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-1-9
<PAGE> 120
17. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Senior Subordinated Notes under
the Indenture, Holders of Transferred Restricted Securities shall have all the
rights set forth in the Exchange and Registration Rights Agreement dated as of
December 19, 1997, between the Company and the parties named on the signature
pages thereto (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Subordinated Notes and the Trustee may
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Subordinated Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Telecopier No.: (914) 345-2056
Attention: Secretary
A-1-10
<PAGE> 121
Assignment Form
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
(Insert assignee's Social Security or tax I.D. No.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this Security on the books of the
Company. The agent may substitute another to act for him.
Date:
Your Signature:_________________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:(2)
- ----------
(2) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-1-11
<PAGE> 122
Option of Holder to Elect Purchase
If you want to elect to have this Senior Subordinated Note purchased by
the Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box
below:
Section 4.10 |_| |_| Section 4.13
If you want to elect to have only part of the Senior Subordinated Note
purchased by the Company pursuant to Section 4.10 or Section 4.13 of the
Indenture, state the amount you elect to have purchased: $___________
Date:
Your Signature:___________________________________________________
(Sign exactly as your name appears on the Security)
Tax Identification No.:______________________
Signature Guarantee:(3)_______________________
- --------
(3) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-1-12
<PAGE> 123
SCHEDULE OF EXCHANGES FOR CERTIFICATED NOTES
OR ANOTHER GLOBAL NOTE4
The following exchanges of a part of this Global Note for another Global
Note have been made:
Principal Amount
Amount of Amount of of this Signature of
decrease in increase in Global Note authorized
Principal Amount Principal Amount following officer of
Date of of this of this such decrease Trustee or
Exchange Global Note Global Note (or increase) Note Custodian
- -------- ----------- ----------- ------------- --------------
- --------
(4) To be included only if the Senior Subordinated Note is issued in global
form.
A-1-13
<PAGE> 124
Exhibit B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(i) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Division
Re: 9.875% Senior Subordinated Notes
due 2007 of Amscan Holdings, Inc.
Reference is hereby made to the Indenture, dated as of December 19, 1997
(the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the
Parties Listed on Exhibit C thereto as guarantors and IBJ Schroder Bank & Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Senior Subordinated
Notes which are evidenced by one or more Rule 144A Global Notes (CUSIP
03216NAA1) and held with the Depositary in the name of
____________________________ (the "Transferor"). The Transferor has requested a
transfer of such beneficial interest in the Senior Subordinated Notes to a
Person who will take delivery thereof in the form of an equal principal amount
of Senior Subordinated Notes evidenced by one or more Regulation S Global Notes
(CUSIP U00180AA4), which amount, immediately after such transfer, is to be held
with the Depositary through Euroclear or Cedel Bank or both (Common Code o).
In connection with such request and in respect of such Senior
Subordinated Notes, the Transferor hereby certifies that such transfer has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with Rule 903 or Rule 904 under the
United States Securities Act of 1933, as amended (the "Securities Act"), and
accordingly the Transferor hereby further certifies that:
(1) The offer of the Senior Subordinated Notes was not made to a person in
the United States;
B-1-1
<PAGE> 125
(2) either:
(a) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting
on its behalf reasonably believed and believes that the transferee
was outside the United States; or
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither the Transferor
nor any person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary through
Euroclear or Cedel Bank or both (Common Code o).
Upon giving effect to this request to exchange a beneficial interest in
a Rule 144A Global Note for a beneficial interest in a Regulation S Global Note,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Regulation S Global Notes pursuant to the Indenture and
the Securities Act.
B-1-2
<PAGE> 126
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Goldman, Sachs & Co. (85 Broad
Street, New York, New York, 10004), the initial purchaser of such Senior
Subordinated Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
____________________________________
[Insert Name of Transferor]
By:_________________________________
Name:
Title:
Dated: _________, ___
cc: Amscan Holdings, Inc.
Goldman, Sachs & Co.
B-1-3
<PAGE> 127
Exhibit B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Division
Re: 9.875% Senior Subordinated Notes
due 2007 of Amscan Holdings, Inc.
Reference is hereby made to the Indenture, dated as of December 19, 1997
(the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the
Parties Listed on Exhibit C thereto as guarantors and IBJ Schroder Bank & Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Senior Subordinated
Notes which are evidenced by one or more Regulation S Global Notes (CUSIP
U00180AA4) and held with the Depositary through [Euroclear] [Cedel Bank] (Common
Code o) in the name of ____________________________ (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the Senior
Subordinated Notes to a Person who will take delivery thereof in the form of an
equal principal amount of Senior Subordinated Notes evidenced by one or more
Rule 144A Global Notes (CUSIP 03216NAA1), to be held with the Depositary.
In connection with such request and in respect of such Senior
Subordinated Notes, the Transferor hereby certifies that:
[CHECK ONE]
|_| such transfer is being effected pursuant to and in accordance with
Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Senior
B-2-1
<PAGE> 128
Subordinated Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Senior Subordinated Notes for its
own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of
Rule 144A in a transaction meeting the requirements of Rule 144A;
or
|_| such transfer is being effected pursuant to and in accordance with Rule
144 under the Securities Act;
or
|_| such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
|_| such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Senior
Subordinated Notes are being transferred in compliance with the transfer
restrictions applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is supported
by an Opinion of Counsel, provided by the transferor or the transferee
(a copy of which the Transferor has attached to this certification) in
form reasonably acceptable to the Company and to the Registrar, to the
effect that such transfer is in compliance with the Securities Act;
and such Senior Subordinated Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Notes for a beneficial interest in Rule 144A Global Notes,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Rule 144A Global Notes pursuant to the Indenture and the
Securities Act.
B-2-2
<PAGE> 129
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Goldman, Sachs & Co. (85 Broad
Street, New York, New York, 10004), the initial purchaser of such Senior
Subordinated Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
_____________________________________
[Insert Name of Transferor]
By:_______________________
Name:
Title:
Dated: _________, __
cc: Amscan Holdings, Inc.
Goldman, Sachs & Co.
B-2-3
<PAGE> 130
Exhibit B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF CERTIFICATED NOTES
(Pursuant to Section 2.06(b) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Division
Re: 9.875% Senior Subordinated Notes
due 2006 of Amscan Holdings, Inc.
Reference is hereby made to the Indenture, dated as of December 19, 1997
(the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the
Parties Listed on Exhibit C thereto as guarantors and IBJ Schroder Bank & Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Senior Subordinated
Notes which are evidenced by one or more Certificated Notes (CUSIP o) in the
name of ________________ (the "Transferor"). The Transferor has requested an
exchange or transfer of such Certificated Note(s) in the form of an equal
principal amount of Senior Subordinated Notes evidenced by one or more
Certificated Notes (CUSIP o), to be delivered to the Transferor or, in the case
of a transfer of such Senior Subordinated Notes, to such Person as the
Transferor instructs the Trustee.
In connection with such request and in respect of the Senior
Subordinated Notes surrendered to the Trustee herewith for exchange or transfer
(the "Surrendered Senior Subordinated Notes"), the Transferor hereby certifies
that:
[CHECK ONE]
|_| the Surrendered Senior Subordinated Notes are being acquired for the
Transferor's own account, without transfer;
or
B-3-1
<PAGE> 131
|_| the Surrendered Senior Subordinated Notes are being transferred to the
Company;
or
|_| the Surrendered Senior Subordinated Notes are being transferred
pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being transferred to a Person
that the Transferor reasonably believes is purchasing the Surrendered
Senior Subordinated Notes for its own account, or for one or more
accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A; or
|_| the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
|_| the Surrendered Senior Subordinated Notes are being transferred
pursuant to an effective registration statement under the Securities
Act;
or
|_| such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Senior
Subordinated Notes are being transferred in compliance with the transfer
restrictions applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is supported
by an Opinion of Counsel, provided by the transferor or the transferee
(a copy of which the Transferor has attached to this certification) in
form reasonably acceptable to the Company and to the Registrar, to the
effect that such transfer is in compliance with the Securities Act;
B-3-2
<PAGE> 132
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Goldman, Sachs & Co. (85 Broad
Street, New York, New York, 10004), the initial purchaser of such Senior
Subordinated Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
____________________________________
[Insert Name of Transferor]
By:_______________________
Name:
Title:
Dated: ____________, __
cc: Amscan Holdings, Inc.
Goldman, Sachs & Co.
B-3-3
<PAGE> 133
Exhibit B-4
FORM OF UNRESTRICTED NOTE CERTIFICATE
(Pursuant to Section 2.06(c) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Division
Re: 9.875% Senior Subordinated Notes
due 2007 of Amscan Holdings, Inc.
Reference is hereby made to the Indenture, dated as of December 19, 1997
(the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the
Parties Listed on Exhibit C thereto as guarantors and IBJ Schroder Bank & Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Senior Subordinated
Notes which are evidenced by a beneficial interest in one or more Rule 144A
Global Notes or Regulation S Global Notes or are in certificated form (CUSIP
__________) (the "Specified Security") in the name of ______________________
(the "Owner"). The Owner has requested that the Specified Security be exchanged
for one or more Senior Subordinated Notes bearing no legend pursuant to Section
2.06(g)(ii) of the Indenture.
In connection with such exchange, the Owner hereby certifies that the
exchange is occurring after December 15, 1999 and the Owner is not, and during
the preceding three months has not been an affiliate of the Company;
The Owner also acknowledges that any future transfer of the Specified Security
must be in compliance with any applicable blue sky securities laws of any state
of the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Goldman, Sachs & Co. (85 Broad
Street, New York, New York, 10004), the initial purchaser of such Senior
Subordinated Notes being exchanged.
B-4-1
<PAGE> 134
_____________________________________
[Insert Name of Owner]
By:__________________________________
Name:
Title:
Dated: ______________, __
cc: Amscan Holdings, Inc.
Goldman, Sachs & Co.
B-4-2
<PAGE> 135
Exhibit C
GUARANTORS
1. Amscan Inc.
2. Am-Source, Inc.
3. Trisar, Inc.
4. SSY Realty Corp.
5. JCS Realty Corp.
C-1
<PAGE> 136
Exhibit D
FORM OF SENIOR SUBORDINATED GUARANTEE
The obligations of the Guarantors to the Holders of Senior Subordinated
Notes and to the Trustee pursuant to this Senior Subordinated Guarantee and the
Indenture dated December 19, 1997, among Amscan Holdings, Inc., each of the
Persons listed on Exhibit C thereto and IBJ Schroder Bank & Trust Company, as
trustee, (the "Indenture") are expressly set forth in Article 11 of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of this Senior Subordinated Guarantee. The terms of Article 11 of the Indenture
are incorporated herein by reference.
Each of the Guarantors, jointly and severally, hereby unconditionally
guarantees to each Holder of a Senior Subordinated Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of the Indenture, the Senior
Subordinated Notes or the obligations of the Company under the Indenture or the
Senior Subordinated Notes, that: (a) the principal of, premium, if any, and
interest, including Liquidated Damages, if any, on the Senior Subordinated Notes
shall be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and (to the extent permitted by law) interest on the
overdue principal of, premium, if any, and interest, including Liquidated
Damages, if any, on the Senior Subordinated Notes, if any, and all other
obligations of the Company to the Holders or the Trustee under the Indenture or
the Senior Subordinated Notes shall be promptly paid in full or performed, all
in accordance with the terms of the Indenture and the Senior Subordinated Notes;
and (b) in case of any extension of time of payment or renewal of any Senior
Subordinated Notes or any of such other obligations, that same shall be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed for whatever reason, the Guarantors
shall be obligated to pay the same immediately whether or not such failure to
pay has become an Event of Default which could cause acceleration pursuant to
Section 6.02 of the Indenture. Each Guarantor agrees that this is a guarantee of
payment and not a guarantee of collection.
Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Senior Subordinated Notes or the Indenture, the absence of any action to enforce
the same, any waiver or consent by any Holder of the Senior Subordinated Notes
with respect to any provisions thereof, the recovery of any judgment against the
Company, any action to
D-1
<PAGE> 137
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that, subject to Article 11 of the Indenture, this Senior
Subordinated Guarantee shall not be discharged except by complete performance of
the obligations contained in the Senior Subordinated Notes and the Indenture.
If any Holder of Senior Subordinated Notes or the Trustee is required by
any court or otherwise to return to the Company or Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to either the
Company or Guarantors, any amount paid by either to the Trustee or such Holder,
this Senior Subordinated Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders of Senior Subordinated Notes in respect
of any Obligations guaranteed hereby until payment in full of all Obligations
guaranteed hereby. Each Guarantor further agrees that, as between the
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article 6 of the Indenture for the purposes of this Senior
Subordinated Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby and (y) in the event of any declaration of acceleration of
such Obligations as provided in Section 6.02 of the Indenture, such Obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Senior Subordinated Guarantee. The Guarantors
shall have the right to seek contribution from any non-paying Guarantor so long
as the exercise of such right does not impair the rights of the Holders under
the Senior Subordinated Guarantees.
The Obligations of each Guarantor under this Senior Subordinated
Guarantee are junior and subordinated to the Senior Guarantee of such Guarantor
on the same basis as the Senior Subordinated Notes are junior and subordinated
to Senior Debt of the Company. For the purposes of the foregoing sentence, the
Trustee and the Holders shall have the right to receive and/or retain payments
by any of the Guarantors only at such times as they may receive and/or retain
payments in respect of the Senior Subordinated Notes pursuant to the Indenture,
including Article 10 thereof.
D-2
<PAGE> 138
Each Guarantor, and by its acceptance of Senior Subordinated Notes, each
Holder, hereby confirms that it is the intention of all such parties that this
Senior Subordinated Guarantee not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable. To effectuate the foregoing intention, the Trustee, the
Holders and the Guarantors hereby irrevocably agree that the obligations of each
Guarantor under this Senior Subordinated Guarantee shall be limited to the
maximum amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant under such
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under Article 11 of the
Indenture, result in the obligations of such Guarantor under this Senior
Subordinated Guarantee not constituting a fraudulent transfer or conveyance.
This is a continuing Senior Subordinated Guarantee and shall remain in
full force and effect and shall be binding upon each Guarantor and its
respective successors and assigns to the extent set forth in the Indenture until
full and final payment of all of the Company's Obligations under the Senior
Subordinated Notes and the Indenture and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders of Senior Subordinated
Notes and, in the event of any transfer or assignment of rights by any Holder of
Senior Subordinated Notes or the Trustee, the rights and privileges herein
conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof and of
Article 11 of the Indenture.
This Senior Subordinated Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Senior Subordinated
Note upon which this Senior Subordinated Guarantee is noted shall have been
executed by the Trustee under the Indenture by the manual signature of one of
its authorized officers. Notwithstanding the foregoing, in the event that this
Senior Subordinated Guarantee is executed subsequent to such manual signature of
one of the Trustee's authorized officers on such certificate of authentication,
then immediately upon the execution of this Senior Subordinated Guarantee all
obligations hereunder and under the Indenture shall be valid and obligatory with
respect to such Senior Subordinated Note(s) as if this Senior Subordinated
Guarantee were noted thereon.
D-3
<PAGE> 139
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Amscan Inc.
Attest:
By:
---------------------------------
Name:
Title:
- -----------------------------
Name:
Title:
Am-Source, Inc.
Attest:
By:
---------------------------------
Name:
Title:
- -----------------------------
Name:
Title:
Trisar, Inc.
Attest:
By:
---------------------------------
Name:
Title:
- -----------------------------
Name:
Title:
SSY Realty Corp.
Attest:
By:
---------------------------------
Name:
Title:
- -----------------------------
Name:
Title:
D-4
<PAGE> 140
JCS Realty Corp.
Attest:
By:
---------------------------------
Name:
Title:
- -----------------------------
Name:
Title:
D-5
<PAGE> 141
Exhibit E
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE dated as of ________________, _____ between
__________________ (the "Guarantor" and, together with the Persons identified on
Exhibit C to the Indenture referred to below and any other Guarantors that
execute this form of Supplemental Indenture, the "Guarantors"), a Subsidiary of
Amscan Holdings, Inc., a Delaware corporation, or its successors and assigns
(the "Company"), and IBJ Schroder Bank & Trust Company, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of December 19, 1997, providing
for the issuance of an aggregate principal amount of $200.0 million of 9.875%
Senior Subordinated Notes Due 2007 (the "Senior Subordinated Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantor shall execute and deliver to the Trustee a supplemental indenture
pursuant to which the Guarantor shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes on the terms and
conditions set forth herein (the "Senior Subordinated Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Senior Subordinated Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Counterpart to the Indenture. This Supplemental Indenture
specifically incorporates, restates and reaffirms all of the warranties,
representations, covenants and
E-1
<PAGE> 142
other provisions of the Indenture, notwithstanding the fact that such provisions
are not restated herein. By executing this Supplemental Indenture, the Guarantor
subscribes to all of the covenants and other provisions in the Indenture as
applicable to the Guarantors, and the Guarantor hereby agrees that it shall be
bound by all of the provisions of the Indenture. Upon execution, this
Supplemental Indenture shall become part of the Indenture and the rights and
obligations of the Guarantor hereunder shall be construed to be identical to the
rights and obligations of the Guarantors under the Indenture. Reference is
hereby made to the Indenture for the precise terms of this Supplemental
Indenture. In the event of any conflict between the provisions herein and the
provisions of the Indenture, the Indenture shall control.
3. Agreement to Guarantee. The Guarantor hereby agrees as follows:
(a) Subject to Article 11 of the Indenture, the Guarantor, jointly and
severally with the other Guarantors, hereby unconditionally guarantees to each
Holder of a Senior Subordinated Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the Senior Subordinated Notes or
the Obligations of the Company under the Indenture or the Senior Subordinated
Notes, that: (a) the principal of, premium, if any, and interest, including
Liquidated Damages, if any, on the Senior Subordinated Notes shall be promptly
paid in full when due, whether at maturity, by acceleration, redemption or
otherwise, and (to the extent permitted by law) interest on the overdue
principal of, premium and interest, including Liquidated Damages, on the
Senior Subordinated Notes, if any, and all other obligations of the Company to
the Holders or the Trustee under the Indenture or the Senior Subordinated
Notes shall be promptly paid in full or performed, all in accordance with the
terms of the Indenture and the Senior Subordinated Notes; and (b) in case of
any extension of time for payment or renewal of any Senior Subordinated Notes
or any of such other obligations, that the same shall be promptly paid in full
when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed for whatever reason, the
Guarantors shall be obligated to pay the same immediately whether or not such
failure to pay has become an Event of Default which could cause acceleration
pursuant to Section 6.02 of the Indenture. The Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.
(b) The Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Senior Subordinated Notes or the Indenture, the absence of any action to
enforce the same, any
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<PAGE> 143
waiver or consent by any Holder of the Senior Subordinated Notes with respect
to any provisions thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. The
Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice
and all demands whatsoever and covenants that, subject to Article 11 of the
Indenture, this Senior Subordinated Guarantee shall not be discharged except
by complete performance of the obligations contained in the Senior
Subordinated Notes and the Indenture.
(c) If any Holder of Senior Subordinated Notes or the Trustee is
required by any court or otherwise to return to the Company or the Guarantors,
or any Custodian, Trustee, liquidator or other similar official acting in
relation to either the Company or the Guarantors, any amount paid by either to
the Trustee or such Holder, this Senior Subordinated Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect.
(d) The Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders of Senior Subordinated Notes in respect
of any Obligations guaranteed hereby until payment in full of all Obligations
guaranteed hereby. The Guarantor further agrees that, as between the
Guarantors, on the one hand, and the Holders and the Trustee, on the other
hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated
as provided in Article 6 of the Indenture for the purposes of this Senior
Subordinated Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Obligations
guaranteed thereby and (y) in the event of any declaration of acceleration of
such Obligations as provided in Section 6.02 of the Indenture, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Senior Subordinated
Guarantee. The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Senior Subordinated Guarantees.
4. Subordination of Senior Subordinated Guarantee. The Obligations of
each Guarantor under its Senior Subordinated Guarantee pursuant to Article 11 of
the Indenture shall be junior and subordinated to the Senior Guarantee of such
Guarantor on the same basis as the Senior Subordinated Notes are junior and
subordinated to Senior Debt of the Company. For the purposes of the foregoing
sentence, the Trustee and the Holders shall have the right to receive and/or
retain payments by any of the Guarantors
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<PAGE> 144
only at such times as they may receive and/or retain payments in respect of the
Senior Subordinated Notes pursuant to the Indenture, including Article 10
thereof.
5. Limitation on Guarantor Liability. The Guarantor, and by its
acceptance of Senior Subordinated Notes, each Holder, hereby confirms that it is
the intention of all such parties that the Senior Subordinated Guarantee of the
Guarantor not constitute a fraudulent transfer or conveyance for purposes of
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to any
Senior Subordinated Guarantee. To effectuate the foregoing intention, the
Trustee, the Holders and the Guarantor hereby irrevocably agree that the
obligations of the Guarantor under its Senior Subordinated Guarantee and Article
11 of the Indenture shall be limited to the maximum amount as will, after giving
effect to such maximum amount and all other contingent and fixed liabilities of
the Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under Article 11 of the Indenture, result in the obligations of the
Guarantor under its Senior Subordinated Guarantee not constituting a fraudulent
transfer or conveyance.
6. Execution and Delivery of Senior Subordinated Guarantees. (a) To
evidence its Senior Subordinated Guarantee set forth in this Supplemental
Indenture and in Section 11.01 of the Indenture, the Guarantor hereby agrees
that a notation of such Senior Subordinated Guarantee substantially in the form
of Exhibit D to the Indenture shall be endorsed by an Officer of the Guarantor
on each Senior Subordinated Note authenticated and delivered by the Trustee and
that this Supplemental Indenture, as a counterpart to the Indenture, shall be
executed on behalf of the Guarantor by its President or one of its Vice
Presidents and attested to by an Officer of the Guarantor.
(b) The Guarantor hereby agrees that its Senior Subordinated Guarantee
set forth in this Supplemental Indenture and in Section 11.01 of the Indenture
shall remain in full force and effect notwithstanding any failure to endorse
on each Senior Subordinated Note a notation of such Senior Subordinated
Guarantee.
(c) If an Officer whose signature is on this Supplemental Indenture or
on the Senior Subordinated Guarantee no longer holds that office at the time
the Trustee authenticates the Senior Subordinated Note on which a Senior
Subordinated Guarantee is endorsed, the Senior Subordinated Guarantee shall be
valid nevertheless.
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<PAGE> 145
(d) The delivery of any Senior Subordinated Note by the Trustee, after
the authentication thereof under the Indenture, shall constitute due delivery
of the Senior Subordinated Guarantee set forth in the Indenture on behalf of
the Guarantor.
7. Guarantor May Consolidate, Etc., on Certain Terms. No Guarantor may
consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person) another Person whether or not affiliated with such Guarantor
unless:
(a) subject to Section 11.06 of the Indenture, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
unconditionally assumes all the obligations of such Guarantor under the Senior
Subordinated Guarantee and the Indenture on the terms set forth in the
Indenture pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee;
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(c) the Company would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio to incur, immediately after giving effect to such
transaction, at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 of
the Indenture.
In case of any such consolidation or merger and upon the assumption by the
successor Person by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the Senior Subordinated
Guarantee endorsed upon the Senior Subordinated Notes and of the due and
punctual performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by the Guarantor, such successor
Person shall succeed to and be substituted for the Guarantor with the same
effect as if it had been named in the Indenture as a Guarantor. Such successor
Person thereupon may cause to be signed any or all of the Senior Subordinated
Guarantees to be endorsed upon all of the Senior Subordinated Notes issuable
under the Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Senior Subordinated Guarantees so issued
shall in all respects have the same legal rank and benefit under the Indenture
as the Senior Subordinated Guarantees theretofore and thereafter issued in
accordance with the terms of the Indenture as though all of such Senior
Subordinated Guarantees had been issued at the date of the execution of the
Indenture.
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<PAGE> 146
Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) through (c) above, nothing contained in the
Indenture, this Supplemental Indenture or in any of the Senior Subordinated
Notes shall prevent any consolidation or merger of the Guarantor with or into
the Company or another Guarantor, or shall prevent any sale or conveyance of the
property of the Guarantor as an entirety or substantially as an entirety to the
Company or another Guarantor.
8. Releases of Senior Subordinated Guarantees. In the event of a sale or
other disposition of all or substantially all of the assets of the Guarantor, by
way of merger, consolidation or otherwise, or a sale or other disposition
(including, without limitation, by foreclosure) of all of the Capital Stock of
the Guarantor, then the Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise (including, without
limitation, by foreclosure), of all of the Capital Stock of the Guarantor) or
the Person acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of the Guarantor) shall be
automatically released and relieved of any obligations under its Senior
Subordinated Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied, as and if required, in accordance with Section 4.10 of
the Indenture. In addition, if any Guarantor is released and relieved of all
obligations it may have as a guarantor under the Bank Credit Agreement, then
such Guarantor will also be automatically released and relieved of any
obligations under its Senior Subordinated Guarantee. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of the Indenture, including without limitation
Sections 4.10 and 5.01 thereof, the Trustee shall execute any documents
reasonably required in order to evidence the release of the Guarantor from its
obligations under its Senior Subordinated Guarantee.
Any Guarantor not released from its obligations under its Senior
Subordinated Guarantee shall remain liable for the full amount of principal of
and interest on the Senior Subordinated Notes and for the other obligations of
any Guarantor under the Indenture as provided in Article 11 thereof.
9. "Trustee" to Include Paying Agent. In case at any time any Paying
Agent other than the Trustee shall have been appointed by the Company and be
then acting under the Indenture, the term "Trustee" as used in Article 11
thereto shall in such case (unless the context shall otherwise require) be
construed as extending to and including such Paying Agent within its meaning as
fully and for all intents and purposes as if such Paying Agent were named in
Article 11 of the Indenture in place of the Trustee.
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<PAGE> 147
10. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder of the Guarantor, as such, shall
have any liability for any obligations of the Company or any Guarantor under the
Senior Subordinated Notes, any Senior Subordinated Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Senior
Subordinated Notes by accepting a Senior Subordinated Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Senior Subordinated Notes.
11. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE AND THE SENIOR
SUBORDINATED GUARANTEE.
12. Counterpart Originals. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
13. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
14. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guarantor and the Company.
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<PAGE> 148
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ____________, ____ [Guarantor]
By:___________________________________
Attest: Name:
Title:
___________________________
Dated: ____________, ____ IBJ Schroder Bank & Trust Company
as Trustee
By:___________________________________
Attest: Name:
Title:
____________________________
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<PAGE> 1
Exhibit 5.1
[Letterhead of Wachtell, Lipton, Rosen & Katz]
February 2, 1998
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Dear Sirs:
We have acted as counsel for Amscan Holdings, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Company (the "Registration
Statement"), to be filed with the Securities and Exchange Commission on
February 2, 1998, relating to an offer to exchange (the "Exchange Offer") 9 7/8%
Senior Subordinated Notes due 2007 of the Company (the "Exchange Notes") which
will have been registered under the Securities Act of 1933, as amended, for
an equal principal amount of the Company's outstanding 9 7/8% Senior
Subordinated Notes due 2007 (the "Notes"). The Exchange Notes will be guaranteed
on a senior subordinated basis (the "Guarantees") by each of the Company's
domestic subsidiaries (collectively, the "Guarantors").
The Exchange Notes will be issued under an Indenture dated as of
December 19, 1997 (the "Indenture"), among the Company, the Guarantors and IBJ
Schroder Bank & Trust Company, as trustee (the "Trustee").
As counsel we have examined the Registration Statement, the
Indenture, the form of the Exchange Notes, the form of the Notes and such other
documents, records and other matters as we have deemed necessary or appropriate
in order to give the opinions set forth herein.
In giving the opinions contained herein, we have, with your
approval, relied upon representations of officers of the Company and the
Guarantors and certificates of public officials with respect to the accuracy of
the material factual matters addressed by such representations and certificates.
We have, with your approval, assumed the genuineness of all signatures or
<PAGE> 2
Amscan Holdings, Inc.
February 2, 1998
Page 2
instruments submitted to us, and the conformity of certified copies submitted to
us with the original documents to which such certified copies relate.
We are members of the bar of the State of New York and we express no
opinion as to the laws of any jurisdiction other than the federal laws of the
United States and the laws of the State of New York. In addition, we express no
opinion as to the effects of either (i) Section 548 of Title 11 of the United
States Code or (ii) Article 10 of the New York Debtor and Creditor Law, relating
to fraudulent transfers, on any obligation under the Guarantees of the
Guarantors that are direct or indirect subsidiaries of the Company.
Based upon and subject to the foregoing, assuming that the Indenture
has been duly authorized, executed and delivered by, and represents the valid
and binding obligations of, the Trustee, it is our opinion that:
(1) the Indenture has been duly executed and delivered by, and
constitutes the legal, valid and binding obligation of, the Company
and each of the Guarantors, as the case may be, enforceable against
the Company and each of the Guarantors, as the case may be, in
accordance with its terms;
(2) the Exchange Notes, when duly executed and delivered by the Company
upon the terms set forth in the Exchange Offer, will constitute
legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms; and
(3) the Guarantees will constitute the legal, valid and binding
obligations of the Guarantors, enforceable against the Guarantors in
accordance with their respective terms;
subject in each case to (a) bankruptcy, insolvency, moratorium, reorganization
and other laws of general applicability relating to or affecting creditors'
rights from time to time in effect and (b) application of general principles of
equity (regardless of whether considered in proceedings in equity or at law).
The opinions expressed above are subject to (i) standards of
commercial reasonableness and good faith, (ii) public policy and (iii) other
applicable laws, rules, regulations, court decisions and constitutional
requirements in and of the State of New York or the United States of America
limiting or affecting the exercise of remedies under the Indenture and the
Exchange Notes, provided that any limitations imposed by such other applicable
laws, rules, regulations, court decisions, and constitutional requirements will
not, in our opinion, materially interfere with the realization by the holders of
the Exchange Notes of the practical benefits intended to be conferred by the
Exchange Notes and the Indenture, although they may result in a delay thereof
(and we express no opinion with respect to the economic consequence of any such
delay).
<PAGE> 3
Amscan Holdings, Inc.
February 2, 1998
Page 3
We express no opinion with respect to: (i) the enforceability of
provisions in the Indentures relating to delay or omission of enforcement of
rights or remedies, or waivers of defenses, or waivers of benefits of usury,
appraisement, valuation, stay, extension, moratorium, redemption, statutes of
limitation, or other non-waivable benefits bestowed by operation of law; or (ii)
the lawfulness or enforceability of exculpation clauses, clauses relating to
releases of unmatured claims, clauses purporting to waive unmatured rights,
severability clauses, and clauses similar in substance or nature to those
expressed in the foregoing clause (i) and this clause (ii), insofar as any of
the foregoing are contained in the Indenture. In addition, we express no opinion
as to whether a federal or state court outside of the State of New York would
give effect to the choice of New York law provided for in the Indenture.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus that
is a part of the Registration Statement. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
Wachtell, Lipton, Rosen & Katz
<PAGE> 1
Exhibit 10.1
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of December 19, 1997
by and among
Amscan Holdings, Inc.,
the Guarantors party hereto
and
Goldman, Sachs & Co.
<PAGE> 2
This Exchange and Registration Rights Agreement (this "Agreement")
is made and entered into as of December 19, 1997 by and among Amscan Holdings,
Inc., a Delaware corporation (the "Company"), each subsidiary of the Company
which is a signatory hereof and by each additional subsidiary of the Company
that is created or acquired after the date hereof that executes a counterpart to
this Agreement substantially in the form of Exhibit A attached hereto pursuant
to Section 6(d)(xxii) (collectively, including such signatories, the
"Guarantors"), and Goldman, Sachs & Co. (the "Initial Purchaser"), who has
agreed to purchase the Company's 9.875% Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes") pursuant to the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated
December 15, 1997 (the "Purchase Agreement"), by and among the Company, the
Guarantors and the Initial Purchaser. In order to induce the Initial Purchaser
to purchase the Senior Subordinated Notes, the Company and the Guarantors have
agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the obligations of
the Initial Purchaser set forth in Section 2 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1 DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered with the Commission
under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: Exchange Notes that
are acquired by a Restricted Broker-Dealer for its own account as a result of
market-making activities or other trading activities.
Closing Date: The date of the closing of the Transaction.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed
"Consummated" (including correlative terms) for purposes of this Agreement upon
the occurrence of (i) the filing and effectiveness under the Act of the Exchange
Offer Registration Statement relating to the Exchange Notes to be issued in the
Exchange Offer, (ii) the maintenance of such Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the minimum period required pursuant to Section 3(b) hereof, and (iii) the
delivery by the Company to the Registrar under the Indenture (or an indenture
substantially identical to the Indenture) of Exchange Notes in the same
aggregate principal amount as the aggregate principal amount of Senior
Subordinated Notes that were tendered by Holders thereof pursuant to the
Exchange Offer.
<PAGE> 3
Damages Payment Date: With respect to the Senior Subordinated Notes,
each Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: Debt securities and guarantees of the Company and
the Guarantors, respectively, which debt securities and guarantees shall be
substantially identical to the Senior Subordinated Notes and the Senior
Subordinated Guarantees (as defined in the Indenture), respectively, except that
they have been registered pursuant to an effective Registration Statement under
the Act, and are entitled to the benefits of the Indenture or an indenture which
is substantially identical to the Indenture and which has been qualified under
the Trust Indenture Act.
Exchange Offer: The registration by the Company under the Act of the
Exchange Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser
proposes to sell the Senior Subordinated Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the Act.
Guarantors: As defined in the preamble hereto.
Holders: As defined in Sections 2(b) and 2(c) hereof.
Indenture: The Indenture, dated as of December 19, 1997, among the
Company, IBJ Schroder Bank & Trust Company, as trustee (the "Trustee") and the
Guarantors, pursuant to which the Senior Subordinated Notes and the Exchange
Notes are to be issued, as such Indenture may be amended or supplemented from
time to time in accordance with the terms thereof; except that, if the Exchange
Notes are issued pursuant to an indenture substantially identical to the
Indenture, then Indenture shall also refer to such indenture.
Initial Purchaser: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Notes.
Market-Maker Prospectus: As defined in Section 4 hereof.
NASD: National Association of Securities Dealers, Inc.
Notes: The Senior Subordinated Notes and the Exchange Notes.
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<PAGE> 4
Person: An individual, partnership, corporation, trust, limited
liability company or unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement
including, without limitation, a Market-Maker Prospectus, in each case, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
Restricted Broker-Dealer: Any Broker-Dealer that is an affiliate of
the Company and that holds Broker-Dealer Transfer Restricted Securities.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer, (b)
the registration for resale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, which is filed pursuant to the provisions of
Section 4(a) of this Agreement, or (c) the registration for resale of
Broker-Dealer Transfer Restricted Securities, which is filed pursuant to the
provisions of Section 4(c) of this Agreement, in each case, including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Senior Subordinated Notes: As defined in the preamble hereto.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Transaction: As defined in the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged by a person other than a
Broker-Dealer for an Exchange Note in the Exchange Offer and entitled to be
resold to the public by the Holder thereof without complying with the prospectus
delivery requirements of the Act, (b) following the exchange by a Broker-Dealer
in the Exchange Offer of a Senior Subordinated Note for an Exchange Note, the
date on which such Exchange Note is sold to a purchaser who receives from such
Broker-Dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (c) the date on which
such Note has been effectively registered under the Act and disposed of in
accordance with a Shelf Registration Statement and (d) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Act.
Trust Indenture Act: The Trust Indenture Act of 1939 (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date of the Indenture.
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<PAGE> 5
Underwritten Registration or Underwritten Offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2 SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities and Broker-Dealer Transfer
Restricted Securities. The securities entitled to the benefits of this Agreement
are the Transfer Restricted Securities and the Broker-Dealer Transfer Restricted
Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
(c) Holders of Broker-Dealer Transfer Restricted Securities. A
Restricted Broker-Dealer is deemed to be a holder of Broker-Dealer Transfer
Restricted Securities (each, a "Holder") whenever such Restricted Broker-Dealer
owns Broker-Dealer Transfer Restricted Securities.
SECTION 3 REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company and the Guarantors shall (i)
cause to be filed with the Commission as soon as practicable after the Closing
Date, but in no event later than 45 days after the Closing Date, a Registration
Statement under the Act relating to the Exchange Notes and the Exchange Offer,
(ii) use their best efforts to cause such Registration Statement to become
effective at the earliest possible time, but in no event later than 105 days
after the date on which such Registration Statement is filed with the Commission
(which 105-day period shall be extended for a number of days equal to the number
of Business Days (as defined in the Indenture), if any, that the Commission is
officially closed during such period), (iii) in connection with the foregoing,
(A) file all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective, (B)
file, if applicable, a post-effective amendment to such Registration Statement
pursuant to Rule 430A under the Act and (C) cause all necessary filings in
connection with the registration and qualification of the Exchange Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. The Exchange Offer
Registration Statement shall be on the appropriate form permitting registration
of the Exchange Notes to be offered in exchange for the Transfer Restricted
Securities and to permit resales of Notes held by Broker-Dealers as contemplated
by Section 3(c) below.
(b) The Company and the Guarantors shall cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 Business
Days. The Company and the Guarantors shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other than
the Notes shall be included in the Exchange Offer Registration
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<PAGE> 6
Statement. The Company and the Guarantors shall use their best efforts to cause
the Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 45 days thereafter.
(c) The Company and the Guarantors shall indicate in a "Plan of
Distribution" section contained in the Prospectus contained in the Exchange
Offer Registration Statement that any Broker-Dealer who holds Senior
Subordinated Notes that are Transfer Restricted Securities and that were
acquired for its own account as a result of market-making activities or other
trading activities (other than Transfer Restricted Securities acquired directly
from the Company), may exchange such Senior Subordinated Notes pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with any sales of the Exchange Notes
received by such Broker-Dealer in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of the
Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with respect to
such resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer except to the extent required by the Commission.
The Company and the Guarantors shall use their best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended as required by the provisions of Section 6(d) below to the extent
necessary to ensure that it is available for resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that such Registration Statement
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 195 days from the date on which the Exchange Offer Registration
Statement is declared effective.
The Company and the Guarantors shall promptly provide sufficient
copies of the latest version of such Prospectus to Broker-Dealers promptly upon
request, at any time during such 195-day period in order to facilitate such
sales.
SECTION 4 SHELF REGISTRATION; MARKET-MAKER PROSPECTUS
(a) Shelf Registration. If (i) the Company and the Guarantors are
not required to file an Exchange Offer Registration Statement or permitted to
Consummate the Exchange Offer, in either case, because the Exchange Offer is not
permitted by applicable law or Commission policy (after the procedures set forth
in Section 6(a) below have been complied with) or (ii) any Holder of Transfer
Restricted Securities shall notify the Company on or prior to the 20th Business
Day following Consummation of the Exchange Offer that such Holder alone or
together with Holders who hold in the aggregate at least $1.0 million in
principal amount of Senior Subordinated Notes (A) is prohibited by law or
Commission policy from participating in the Exchange Offer, or (B) may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and that the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or
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available for such resales by such Holder or (C) is a Broker-Dealer and holds
Notes acquired directly from the Company or one of the Company's affiliates,
then the Company and the Guarantors shall use their best efforts to
(x) cause to be filed a shelf registration statement pursuant to
Rule 415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement") on or prior to the earlier to occur of (1) the 45th day after
the date on which the Company is notified by the Commission or otherwise
determines that it is not required to file the Exchange Offer Registration
Statement or permitted to Consummate the Exchange Offer, and (2) the 45th
day after the date on which the Company receives notice from a Holder of
Transfer Restricted Securities as contemplated by clause (ii) above (such
earlier date being the "Shelf Filing Deadline"), which Shelf Registration
Statement shall provide for resales of all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant
to Section 4(b) hereof; and
(y) cause such Shelf Registration Statement to be declared effective
by the Commission on or before the 105th day after the Shelf Filing
Deadline.
The Company and the Guarantors shall use their best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (d) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, until the second anniversary of the Closing Date or such shorter period
that will terminate when all the Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement or become
eligible for resale pursuant to Rule 144 without volume or other restrictions.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 Business Days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
(c) Market-Maker Prospectus. The Company and the Guarantors
acknowledge that any Restricted Broker-Dealer holding Broker-Dealer Transfer
Restricted Securities may not resell such Broker-Dealer Transfer Restricted
Securities without delivering a Prospectus. Consequently, on the date that the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is filed with the Commission, the Company and the Guarantors
shall file a Registration Statement for use with respect to
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<PAGE> 8
such resales (which may be the Exchange Offer Registration Statement or, if the
filing of the Exchange Offer Registration Statement is not required hereunder,
the Shelf Registration Statement if permitted by the rules and regulations of
the Commission) and shall use their best efforts to cause such Registration
Statement to be declared effective by the Commission on or prior to the
Consummation of the Exchange Offer. The Company and the Guarantors shall use
their best efforts to keep such Registration Statement continuously effective,
supplemented and amended as required by the provisions of Sections 6(c) and (d)
hereof to the extent necessary to ensure that it is available for resales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, and
to ensure that it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, until such time as all Restricted Broker-Dealers determine in their
judgment that they are no longer required to deliver a Prospectus in connection
with sales of Broker-Dealer Transfer Restricted Securities. The Prospectus
included in such Registration Statement is referred to in this Agreement as a
"Market-Maker Prospectus."
SECTION 5 LIQUIDATED DAMAGES
If (i) either of the Registration Statements required by Section 3
or 4(a) of this Agreement is not filed with the Commission on or prior to the
date specified for such filing in this Agreement, (ii) either of such
Registration Statements has not been declared effective by the Commission on or
prior to the date specified for such effectiveness in this Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been Consummated
within 45 Business Days after the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (iv) either Registration Statement
required by Section 3 or 4(a) of this Agreement is filed and declared effective
but shall thereafter cease to be effective or fail to be usable (except as
permitted by Section 6(d)(i) of this Agreement) for its intended purpose without
being succeeded immediately by a post-effective amendment to such Registration
Statement that cures such failure and that is itself immediately declared
effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company and the Guarantors hereby jointly and
severally agree to pay liquidated damages to each Holder of Transfer Restricted
Securities with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to $0.05 per week
per $1,000 principal amount of Transfer Restricted Securities held by such
Holder for each week or portion thereof that the Registration Default continues.
The amount of the liquidated damages shall increase by an additional $0.05 per
week per $1,000 in principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $0.50 per week per
$1,000 principal amount of Transfer Restricted Securities. All accrued
liquidated damages shall be paid to Record Holders by the Company by wire
transfer of immediately available funds on each Damages Payment Date, as
provided in the Indenture. Following the cure of all Registration Defaults
relating to any particular Transfer Restricted Securities, the accrual of
liquidated damages with respect to such Transfer Restricted Securities will
cease.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
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<PAGE> 9
SECTION 6 REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(d) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company there is
a question as to whether the Exchange Offer is permitted by applicable
law, the Company and the Guarantors hereby agree to seek a no-action
letter or other favorable decision from the Commission allowing the
Company and the Guarantors to Consummate an Exchange Offer for such Senior
Subordinated Notes. The Company and the Guarantors each hereby agrees to
pursue the issuance of such a decision to the Commission staff level but
shall not be required to take commercially unreasonable action to effect a
change of Commission policy. The Company and the Guarantors each hereby
agrees, however, to (A) participate in telephonic conferences with the
Commission, (B) deliver to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursue a resolution (which need not be favorable) by
the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Company, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes to be issued in the
Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary
course of business. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company's preparations for the
Exchange Offer. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer
(1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange
for Senior Subordinated Notes acquired by such Holder directly from the
Company.
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<PAGE> 10
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall, if required by the
Commission, provide a supplemental letter to the Commission (A) stating
that the Company and the Guarantors are registering the Exchange Offer in
reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co.,
Inc. (available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above and (B) including a representation
that neither the Company nor the Guarantors have entered into any
arrangement or understanding with any Person to distribute the Exchange
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the Exchange Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes received in the
Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(d) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto, to the extent required by Section 4(a), the Company will as
expeditiously as possible prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted Securities
in accordance with the intended method or methods of distribution thereof.
(c) Market-Maker Prospectus. In connection with any Registration
Statement filed pursuant to Section 4(c) of this Agreement, during the period it
is required to be effective hereunder, the Company and the Guarantors will
comply with all of the provisions of Section 6(d) (other than sub-sections
(xii), (xiii), (xvi), (xix) and (xx)) below until such time as all Restricted
Broker-Dealers determine in their judgment that they are no longer required to
deliver Market-Maker Prospectuses in connection with sales of Broker-Dealer
Transfer Restricted Securities. The Company and Guarantors shall use their best
efforts to deliver Market-Maker Prospectuses to all Restricted Broker-Dealers
immediately upon the effectiveness of the Registration Statement and from time
to time thereafter, during the period the Registration Statement is required to
be effective hereunder, upon request, in such quantities as such Restricted
Broker-Dealer shall require.
(d) General Provisions. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Notes by Broker-Dealers) and Broker-Dealer Transfer Restricted Securities, the
Company and the Guarantors shall:
(i) use their best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder, financial
statements of the Guarantors) for the period specified in Section 3 or 4
of this Agreement, as applicable; upon the occurrence of any event that
would cause any such Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
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<PAGE> 11
to be effective and usable for resale of Transfer Restricted Securities or
Broker-Dealer Transfer Restricted Securities, as applicable, during the
period required by this Agreement, the Company and the Guarantors shall
file promptly an appropriate amendment to such Registration Statement, in
the case of clause (A), correcting any such misstatement or omission, and,
in the case of either clause (A) or (B), use their best efforts to cause
such amendment to be declared effective and such Registration Statement
and the related Prospectus to become usable for their intended purpose(s)
as soon as practicable thereafter. Notwithstanding the foregoing and the
provisions of Section 4, at any time after Consummation of the Exchange
Offer, the Company and the Guarantors may allow the Shelf Registration
Statement or Market-Maker Prospectus and the related Registration
Statement to cease to be effective and usable if (x) the Board of
Directors of the Company determines in good faith that such action is in
the best interests of the Company, and the Company notifies the Holders
within two Business Days after the Board of Directors makes such
determination, or (y) the Prospectus contained in the Shelf Registration
Statement or the Market-Maker Prospectus or the Registration Statement
relating to either, as the case may be, contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading; provided that the two-year period referred to
in Section 4(a) hereof during which the Shelf Registration Statement is
required to be effective and usable shall be extended by the number of
days during which such registration statement was not effective or usable
pursuant to the foregoing provisions;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as applicable; cause the
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with the applicable provisions of Rules 424 and 430A under
the Act in a timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders of
Transfer Restricted Securities and, following the Consummation of the
Exchange Offer, Holders of Broker-Dealer Transfer Restricted Securities,
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, for offering or sale in any jurisdiction, or the initiation of
any proceeding
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<PAGE> 12
for any of the preceding purposes, and (D) of the existence of any fact or
the happening of any event that makes any statement of a material fact
made in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, or any
state securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification of the
Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, under state securities or Blue Sky laws, the
Company and the Guarantors shall use their best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders of Transfer Restricted
Securities or Holders of Broker-Dealer Transfer Restricted Securities and
each of the underwriter(s), if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein
(except that the Exchange Offer Registration Statement need only be
provided to such underwriters) or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review of such Holders
and underwriter(s), if any, for a period of at least five Business Days,
and the Company and the Guarantors will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) if a selling Holder of Transfer Restricted
Securities or a Holder of Broker-Dealer Transfer Restricted Securities, as
applicable, covered by such Registration Statement or the underwriter(s),
if any, shall not have had such an opportunity to participate in the
preparation thereof;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders of Transfer
Restricted Securities or the Holders of Broker-Dealer Transfer Restricted
Securities, as applicable, and to the underwriter(s), if any, make the
Company's representatives available (and representatives of the
Guarantors) for discussion of such document and other customary due
diligence matters, and include such information in such document prior to
the filing thereof as such selling Holders or underwriter(s), if any,
reasonably may request;
(vi) make available at reasonable times at the Company's principal
place of business for inspection by the selling Holders of Transfer
Restricted Securities, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the underwriter(s) who shall
certify to the Company and the Guarantors that they have a current
intention to sell Transfer Restricted Securities or Broker-Dealer Transfer
Restricted Securities pursuant to a Shelf Registration Statement or
Market-Maker Prospectus, and, following the Consummation of the Exchange
Offer, the Holders of Broker-Dealer Transfer Restricted Securities, such
financial and other information of the Company and the Guarantors as
reasonably requested and cause the Company's and the Guarantors' officers,
directors and employees to respond to such
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<PAGE> 13
inquiries as shall be reasonably necessary, in the reasonable judgment of
counsel to such Holders, to conduct a reasonable investigation; provided,
however, that each such party shall be required to maintain in confidence
and not to disclose to any other person any information or records
reasonably designated by the Company in writing as being confidential,
until such time as (A) such information becomes a matter of public record
(whether by virtue of its inclusion in such Registration Statement or
otherwise), or (B) such person shall be required so to disclose such
information pursuant to the subpoena or order of any court or other
governmental agency or body having jurisdiction over the matter (subject
to the requirements of such order, and only after such person shall have
given the Company prompt prior written notice of such requirement), or (C)
such information is required to be set forth in such Registration
Statement or the Prospectus included therein or in an amendment to such
Registration Statement or an amendment or supplement to such Prospectus in
order that such Registration Statement, Prospectus, amendment or
supplement, as the case may be, does not contain an untrue statement of a
material fact or omit to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
(vii) if requested by any selling Holders of Transfer Restricted
Securities or Holders of Broker-Dealer Transfer Restricted Securities, as
applicable, or the underwriter(s), if any, promptly incorporate in any
Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information that is required
by the Act as such Holders and underwriter(s), if any, may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the purchase
price being paid therefor and any other terms of the offering of the
Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(viii) furnish to each Holder of Transfer Restricted Securities or
Holders of Broker-Dealer Transfer Restricted Securities, as applicable,
and each of the underwriter(s), if any, without charge, at least one copy
of the Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(ix) deliver to each selling Holder of Transfer Restricted
Securities and each of the underwriter(s), if any, and each Holder of
Broker-Dealer Transfer Restricted Securities, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably may request;
the Company and the Guarantors hereby consent to the use of the Prospectus
and any amendment or supplement thereto by each of the selling Holders and
each of the underwriter(s), if any, and each Holder of Broker-Dealer
Transfer Restricted Securities, in connection with the offering and the
sale of
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<PAGE> 14
the Transfer Restricted Securities and Broker-Dealer Transfer Restricted
Securities, as applicable, covered by the Prospectus or any amendment or
supplement thereto;
(x) enter into, and cause the Guarantors to enter into, such
agreements (including an underwriting agreement), and make, and cause the
Guarantors to make, such representations and warranties, and take all such
other actions in connection therewith in order to expedite or facilitate
the disposition of the Transfer Restricted Securities and Broker-Dealer
Transfer Restricted Securities, as applicable, pursuant to any
Registration Statement contemplated by this Agreement, all to such extent
as may be requested by the Initial Purchaser or, in the case of
registration for resale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, by any Holder or Holders of Transfer
Restricted Securities who hold Transfer Restricted Securities in an amount
equal to at least 25% in aggregate principal amount of outstanding Notes
or, in the case of Broker-Dealer Transfer Restricted Securities, by any
Holder of Broker-Dealer Transfer Restricted Securities; provided, that,
the Company and the Guarantors shall not be required to enter into any
such agreement more than once with respect to all of the Transfer
Restricted Securities and, in the case of a Shelf Registration Statement,
may delay entering into such agreement if the Board of Directors of the
Company determines in good faith that it is in the best interests of the
Company; and whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, the
Company and the Guarantors shall:
(A) furnish to the Initial Purchaser, the Holders of Transfer
Restricted Securities who hold Transfer Restricted Securities in an
amount equal to at least 25% in aggregate principal amount of
outstanding Notes (in the case of a Shelf Registration Statement),
each Holder of Broker-Dealer Transfer Restricted Securities and each
underwriter, if any, in such substance and scope as they may request
and as are customarily made in connection with an offering of debt
securities pursuant to a Registration Statement (i) upon the
effective date of any Registration Statement (and if such
Registration Statement contemplates an Underwritten Offering of
Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, upon the date of the closing under the
underwriting agreement related thereto) and (ii) upon the filing of
any amendment or supplement to any Registration Statement or any
other document that is incorporated in any Registration Statement by
reference and includes financial data with respect to a fiscal
quarter or year:
(1) a certificate, dated the date of effectiveness of
any Registration Statement (and if such Registration Statement
contemplates an Underwritten Offering of Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, the date of the closing under the underwriting
agreement related thereto) or the date of the filing of any
other document pursuant to clause (A)(ii) above, as the case
may be, signed by (y) the President or any Vice President and
(z) a principal financial or accounting officer of each of the
Company and the Guarantors, confirming, as of the date
thereof, the matters set forth in paragraphs (e), (f) and (j)
of Section 7 of the
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<PAGE> 15
Purchase Agreement and such other matters as such parties may
reasonably request;
(2) an opinion, dated the date of effectiveness of any
Registration Statement (and if such Registration Statement
contemplates an Underwritten Offering of Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, the date of the closing under the underwriting
agreement related thereto) or the date of the filing of any
other document pursuant to clause (A)(ii) above, as the case
may be, of counsel for the Company and the Guarantors,
covering the matters set forth in paragraphs (b) and (c) of
Section 7 of the Purchase Agreement and such other matter as
such parties may reasonably request, and in any event
including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company and the Guarantors,
representatives of the independent public accountants for the
Company and the Guarantors (if applicable), the Initial
Purchaser's representatives and the Initial Purchaser's
counsel in connection with the preparation of such
Registration Statement and the related Prospectus and have
considered the matters required to be stated therein and the
factual statements contained therein, although such counsel
has not independently verified the accuracy, completeness or
fairness of such statements; and that such counsel advises
that, on the basis of the foregoing (relying as to materiality
to a certain extent upon facts provided to such counsel by
officers and other representatives of the Company and the
Guarantors and without independent check or verification),
nothing came to such counsel's attention that caused such
counsel to believe that the applicable Registration Statement,
at the time such Registration Statement or any post-effective
amendment thereto became effective, and, in the case of the
Exchange Offer Registration Statement, as of the date of
Consummation, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer,
as of the date of Consummation, contained an untrue statement
of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, has not
independently verified and expresses no opinion with respect
to, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data
included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
effectiveness of any Registration Statement (and if such
Registration Statement
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<PAGE> 16
contemplates an Underwritten Offering of Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, the date of the closing under the underwriting
agreement related thereto) or the date of the filing of any
other document pursuant to clause (A) (ii) above, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters by underwriters in connection with
an offering of debt securities pursuant to a Registration
Statement, and affirming, or updating, as applicable, the
matters set forth in the comfort letters delivered pursuant to
Section 7(d) of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company pursuant to this clause (x), if any.
(xi) prior to any public offering of Transfer Restricted Securities
or Broker-Dealer Transfer Restricted Securities, as applicable, cooperate
with, and cause the Guarantors to cooperate with, the selling Holders of
Transfer Restricted Securities, the Holders of Broker-Dealer Transfer
Restricted Securities, the underwriter(s), if any, and their respective
counsel in connection with the registration and qualification of the
Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, under the securities or Blue Sky laws of such
jurisdictions as the selling Holders of Transfer Restricted Securities or
Holders of Broker-Dealer Transfer Restricted Securities or underwriter(s)
may reasonably request and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, covered by any Registration Statement filed
pursuant to Section 4 hereof; provided, however, that neither the Company
nor the Guarantors shall be required to register or qualify as a foreign
corporation where they are not now so qualified or to take any action that
would subject them to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where they are not now so subject;
(xii) shall issue, upon the request of any Holder of Senior
Subordinated Notes covered by the Shelf Registration Statement, Exchange
Notes, having an aggregate principal amount equal to the aggregate
principal amount of Senior Subordinated Notes surrendered to the Company
by such Holder in exchange therefor or being sold by such Holder; such
Exchange Notes to be registered in the name of such Holder or in the name
of the purchaser(s) of such Notes, as the case may be; in return, the
Senior Subordinated Notes held by such Holder shall be surrendered to the
Company for cancellation;
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<PAGE> 17
(xiii) cooperate with, and cause the Guarantors to cooperate with,
the selling Holders of Transfer Restricted Securities and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and enable such Transfer Restricted
Securities to be in such denominations and registered in such names as
such Holders or the underwriter(s), if any, may request at least two
Business Days prior to any sale of Transfer Restricted Securities made by
such underwriter(s);
(xiv) use its reasonable best efforts to cause the Transfer
Restricted Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as applicable,
subject to the proviso contained in clause (xi) above;
(xv) if any fact or event contemplated by clause (d)(iii)(D) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities or Broker-Dealer Transfer Restricted Securities, as
applicable, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(xvi) provide CUSIP numbers for all Transfer Restricted Securities
not later than the effective date of the Registration Statement and
provide the Trustees under the Indentures with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of
the NASD;
(xviii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
for the twelve-month period (A) commencing at the end of any fiscal
quarter in which Transfer Restricted Securities are sold to underwriters
in a firm or best efforts Underwritten Offering or (B) if not sold to
underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement;
(xix) cause the Indenture to be qualified under the Trust Indenture
Act not later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate, and
cause the Guarantors to cooperate, with the Trustees and the Holders of
Notes to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance
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<PAGE> 18
with the terms of the Trust Indenture Act; and execute, and cause the
Guarantors to execute, and use their best efforts to cause the Trustees to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner;
(xx) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Notes or the
managing underwriter(s), if any;
(xxi) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Exchange Act; and
(xxii) cause each direct or indirect domestic subsidiary of the
Company that is created or acquired and that is required to become a
guarantor of the Notes under the Indenture, upon the creation or
acquisition of such subsidiary (if then required to become a guarantor),
to execute a counterpart to this Agreement in the form attached hereto as
Exhibit A and to deliver such counterpart, together with an opinion of
counsel as to the enforceability thereof against such entity, to the
Initial Purchaser no later than seven days following the execution
thereof.
Each Holder agrees by acquisition of a Transfer Restricted Security
or Broker-Dealer Transfer Restricted Securities, as applicable, that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 6(d)(iii)(D) hereof, such Holder will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(d)(xv) hereof, or
until it is advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as applicable, that
was current at the time of receipt of such notice. In the event the Company
shall give any such notice, the time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4(a) hereof, as applicable,
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 6(d)(iii)(D) hereof to and
including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(d)(xv) hereof or shall have received the
Advice.
The Company may require each Holder of Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities as to which any
registration is being effected to furnish to the Company such information
regarding such Holder and such Holder's intended method of distribution of the
applicable Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities as the Company may from time to time reasonably
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<PAGE> 19
request in writing, but only to the extent that such information is required in
order to comply with the Act. Each such Holder agrees to notify the Company as
promptly as practicable of (i) any inaccuracy or change in information
previously furnished by such Holder to the Company or (ii) the occurrence of any
event, in either case, as a result of which any Prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such Holder or such Holder's intended method of distribution of the
applicable Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities or omits to state any material fact regarding such Holder or such
Holder's intended method of distribution of the applicable Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities required to be stated
therein or necessary to make the statements therein not misleading and promptly
to furnish to the Company any additional information required to correct and
update any previously furnished information or required so that such Prospectus
shall not contain, with respect to such Holder or the distribution of the
applicable Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
SECTION 7 REGISTRATION EXPENSES
(a) All expenses associated with and incident to the Company's or
the Guarantors' performance of or compliance with this Agreement will be borne
by the Company or the Guarantors, regardless of whether a Registration Statement
becomes effective, including without limitation: (i) all registration and filing
fees and expenses (including filings made by the Initial Purchaser or any Holder
with the NASD and reasonable counsel fees and disbursements in connection
therewith (and, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the rules and
regulations of the NASD)); (ii) all reasonable fees and disbursements of
compliance with federal securities and state Blue Sky or securities laws
(including all reasonable fees and expenses of counsel to the underwriter(s) in
connection with compliance with state Blue Sky or securities laws); (iii) all
expenses of printing (including printing certificates for the Exchange Notes to
be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and the Guarantors and, subject to Section 7(b)) below, the
reasonable fees and disbursements of counsel for the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; (vi) all fees and expenses of the Trustees
under the Indenture to the extent provided in the Indenture and of any custodian
or exchange agent; and (vii) all fees and disbursements of independent certified
public accountants of the Company and the Guarantors (including the expenses of
any special audit and comfort letters required by or incident to such
performance).
The Company shall, in any event, bear its and the Guarantors'
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any Person, including
special experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company shall reimburse the
Initial Purchaser and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or
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<PAGE> 20
resold pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be such counsel as the Initial Purchaser shall
appoint or such other counsel as may be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
SECTION 8 INDEMNIFICATION
(a) Indemnification by the Company and the Guarantors. Upon any
registration of Transfer Restricted Securities or Broker-Dealer Transfer
Restricted Securities, as applicable, pursuant to Sections 3 and 4 hereof, and
in consideration of the agreements of the Initial Purchaser contained herein,
and as an inducement to the Initial Purchaser to purchase the Notes, the Company
and the Guarantors, jointly and severally, shall and hereby agree to, (i)
indemnify and hold harmless each Holder of Transfer Restricted Securities and
Broker-Dealer Transfer Restricted Securities, as applicable, to be included in
such registration and each person who participates as a placement or sales agent
or as an underwriter in any offering or sale of such Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as applicable,
against any losses, claims, damages or liabilities, joint or several, to which
such Holder, agent or underwriter may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, were registered under the Act, or any preliminary,
final or summary Prospectus contained therein or furnished by the Company to any
such Holder, agent or underwriter, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) reimburse such Holder, such agent
and such underwriter for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company and the Guarantors
shall not be liable under (i) above to any such person in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement, or preliminary, final or summary
Prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by such person
expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters.
The Company and the Guarantors may require, as a condition to including any
Transfer Restricted Securities or Broker-Dealer Transfer Restricted Securities,
as applicable, in any Registration Statement filed pursuant to Sections 3 and 4
hereof and to entering into any underwriting or placement or sales agent
agreement, if any, with respect thereto, that the Company and the Guarantors
shall have received an undertaking reasonably satisfactory to them from the
Holders of such Transfer Restricted Securities or Broker-Dealer Transfer
Restricted Securities, as applicable, and from each underwriter or agent named
in any such underwriting or placement or sales agent agreement, if any,
severally and not jointly, to (i) indemnify and hold harmless the Company and
the Guarantors, and, in the case of a Shelf Registration Statement, all other
Holders of Transfer Restricted Securities, against any
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<PAGE> 21
losses, claims, damages or liabilities to which the Company, the Guarantors or
such other Holders of Transfer Restricted Securities or Broker-Dealer Transfer
Restricted Securities, as applicable, may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement, or
any preliminary, final or summary Prospectus contained therein or furnished by
the Company to any such Holder, agent or underwriter, if any, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Holder,
agent or underwriter expressly for use therein, and (ii) reimburse the Company
and the Guarantors for any legal or other expenses reasonably incurred by the
Company and the Guarantors in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that no
such Holder shall be required to undertake liability to any person under this
Section 8(b) for any amounts in excess of the dollar amount of the proceeds to
be received by such Holder from the sale of such Holder's Transfer Restricted
Securities or Broker-Dealer Transfer Restricted Securities, as applicable,
pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 8, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 8(a) or 8(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, such indemnifying party shall not be liable to such
indemnified party for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
Notwithstanding the foregoing, any indemnified party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless the indemnified party shall have been advised by
counsel that representation of the indemnified party by counsel provided by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between the indemnifying party and the indemnified party, including
situations in which there are one or more legal defenses available to the
indemnified party that are different from or additional to those available to
the indemnifying party; provided, however, that the indemnifying party shall
not, in connection with any one such action or proceeding or separate but
substantially similar actions or proceedings arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
of attorneys at any time for all indemnified parties, except to the extent that
local counsel, in addition to its regular counsel, is
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<PAGE> 22
required in order to effectively defend against such action or proceeding. The
indemnifying party shall not be required to indemnify any indemnified party for
any amount paid or payable by such indemnified party in the settlement of any
action, proceeding or investigation without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) Contribution. Each party hereto agrees that, if for any reason
the indemnification provisions contemplated by Section 8(a) or Section 8(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 8(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), no Holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such Holder from the sale of any Transfer
Restricted Securities (after deducting any fees, discounts and commissions
applicable thereto) or Broker-Dealer Transfer Restricted Securities, as
applicable, exceeds the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and no underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Transfer Restricted Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' and any underwriters' obligations in
this Section 8(d) to contribute shall be several in proportion to the principal
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<PAGE> 23
amount of Transfer Restricted Securities or Broker-Dealer Transfer Restricted
Securities, as applicable, registered or underwritten, as the case may be, by
them and not joint.
(e) The obligations of the Company and the Guarantors under this
Section 8 shall be in addition to any liability which the Company and the
Guarantors may otherwise have and shall extend, upon the same terms and
conditions, to each officer, director and partner of each Holder, agent and
underwriter and each person, if any, who controls any Holder, agent or
underwriter within the meaning of the Act; and the obligations of the Holders
and any underwriters contemplated by this Section 8 shall be in addition to any
liability which the respective Holder or underwriter may otherwise have and
shall extend, upon the same terms and conditions, to each officer and director
of the Company and the Guarantors (including any person who, with his consent,
is named in any Registration Statement as about to become a director of the
Company and the Guarantors) and to each person, if any, who controls the Company
and the Guarantors within the meaning of the Act.
SECTION 9 RULE 144A
The Company and the Guarantors hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11 SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Company; provided, that such
investment bankers and managers must be Goldman, Sachs & Co. or another firm
reasonably satisfactory to the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities included in such offering.
SECTION 12 MISCELLANEOUS
(a) Remedies. The Company and the Guarantors agree that monetary
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this
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<PAGE> 24
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, and will cause
the Guarantors not to, on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Guarantors have previously
entered into any agreement granting any registration rights with respect to its
debt securities or convertible debt securities to any Person. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company and the Guarantors
shall not take any action, or permit any change to occur, with respect to the
Notes that would materially and adversely affect the ability of the Holders to
Consummate the Exchange Offer or the ability of the Holders to include such
Notes in the Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered. The provisions of
Sections 4(c), 6(d), 7, 8 and this Section 12(d) may not be amended, modified or
supplemented without the written consent of the Initial Purchaser.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrars under the Indentures, with a copy to the Registrars under the
Indentures; and
(ii) if to the Company and the Guarantors:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Telecopier No.: (914) 345-2056
Attention: Secretary
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<PAGE> 25
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopier No.: (212) 403-2000
Attention: Mitchell S. Presser
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next Business Day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustees at the
address specified in the Indentures.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the Indenture,
the Notes and Purchase Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company and the
Guarantors with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
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<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: Chief Executive Officer
AMSCAN INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: President
AM-SOURCE, INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: President
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<PAGE> 27
TRISAR, INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: President
SSY REALTY CORP.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: President
JCS REALTY CORP.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: President
GOLDMAN, SACHS & CO.
/s/ GOLDMAN, SACHS & CO.
------------------------------------
(Goldman, Sachs & Co.)
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<PAGE> 28
<PAGE> 29
Exhibit A
Counterpart To Exchange and Registration Rights Agreement
The undersigned hereby absolutely, unconditionally and irrevocably
agrees to be bound by the terms and provisions of the Exchange and Registration
Rights Agreement, dated as of December 19, 1997, by and among Amscan Holdings,
Inc., a Delaware corporation, each of the Guarantors (as defined therein) and
the Initial Purchaser (as defined therein).
IN WITNESS WHEREOF, the undersigned has executed this Counterpart as
of _______________, 199_.
[NAME]
By:
------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.4
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of December 19, 1997 (the
"Agreement"), by and among AMSCAN HOLDINGS, INC., a Delaware corporation (the
"Company"), GS CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("GSCP
II"), GS CAPITAL PARTNERS II OFFSHORE, L.P., a Cayman Islands exempt limited
partnership ("GSCP II Offshore"), GOLDMAN, SACHS & CO. VERWAL-TUNGS GMBH, a
corporation recorded in the Commercial Register Frankfurt, as nominee for GS
Capital Partners II Germany C.L.P. ("GSCP II Germany"), STONE STREET FUND 1997,
L.P., a Delaware limited partnership ("Stone Street"), BRIDGE STREET FUND 1997,
L.P., a Delaware limited partnership ("Bridge Street" and, together with GSCP
II, GSCP II Offshore, GSCP II Germany and Stone Street, "GSCP") and each of the
individuals and the Estate of John A. Svenningsen (the "Estate") listed on
Schedule I hereto (collectively, including the Estate, the "Management
Investors"). References herein to the Company shall mean the Company as the
surviving corporation in the Merger (as defined below). Employees, directors,
consultants and certain other Persons (as defined below) having significant
business relationships with the Company and its Affiliates (as defined below)
may be issued shares of Common Stock (as defined below) (or other equity
securities of the Company) or securities convertible into or exchangeable for
Common Stock (or other equity securities of the Company) subject to the terms of
this Agreement and, if so issued, the Company, without the consent of any other
party hereto, may amend this Agreement to allow any such Person the Company so
chooses to become an additional Management Investor hereunder, subject to such
Person becoming a signatory to this Agreement. The parties hereto (other than
the Company) and any other Person who shall hereafter acquire shares of Common
Stock of the Company (or other equity securities of the Company) or securities
convertible into or exchangeable for Common Stock (or other equity securities of
the Company) pursuant to the provisions of, and/or subject to the restrictions
and rights set forth in, this Agreement (including through participation in
certain Company stock or option plans) are sometimes hereinafter referred to
individually as a "Stockholder" or collectively as the "Stockholders."
RECITALS
A. The Company, as of the Effective Date (as defined herein), will
have an authorized capital stock consisting of 50,000,000 shares of Common
Stock, par value $0.10 per share (the "Common Stock"), each share of which is
entitled to one vote on all stockholder matters as more specifically provided
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in the amended certificate of incorporation of the Company (the "Amended
Certificate"), and of which 1,010 shares will be issued and outstanding
immediately after the Effective Date. As used in this Agreement, Common Stock
shall include any shares of Restricted Stock (as defined below) of the Company
granted to Management Investors; provided, however, that to the extent the
Transfer (as defined herein) thereof is otherwise prohibited or restricted, no
rights to Transfer, including pursuant to Section 2.4 or Article III, shall be
granted hereunder. In addition, the Company will have reserved, as of the
Effective Date, 120 shares of Common Stock for issuance pursuant to the Company
1997 Stock Incentive Plan (the "Stock Incentive Plan").
B. An Agreement and Plan of Merger, dated August 10, 1997 (the
"Merger Agreement"), has been executed by and among Confetti Acquisition, Inc.,
a Delaware corporation ("Confetti"), and the Company, pursuant to which Confetti
was merged with and into the Company (the "Merger") with the Company as the
surviving corporation in the Merger.
C. In connection with the Merger, Confetti entered into employment
and/or equity agreements with certain Management Investors (the "Employment
Agreements") that provide for, among other things, the investment by such
Management Investors in the Common Stock and the grant and/or rollover of
Options to such Management Investors. As of or immediately following the
Effective Date, the Company has executed or shall execute and become a party to
the Employment Agreements.
D. In connection with the Merger, Confetti entered into a Voting
Agreement, dated August 10, 1997 (the "Voting Agreement"), by and among
Confetti, the Estate and a certain individual.
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E. The individual holdings of Common Stock of each Stockholder,
immediately after the closing of the transactions contemplated in the Merger
Agreement and the Employment Agreements (not assuming the exercise of any
Options) are as follows:
Number of Shares
of Common Stock
Name Held After Closing
---- ------------------
GSCP II 517.6286775
GSCP II Offshore 205.7786775
GSCP II Germany 19.0926450
Stone Street 55.5348750
Bridge Street 26.9651250
Estate of John A. Svenningsen 100.0000000
Gerald C. Rittenberg 60.0000000
James M. Harrison 15.0000000
William Wilkey 6.6666667
Diane D. Spaar 1.3333333
Katherine A. Kusnierz 2.0000000
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Total 1,010.0000000
F. The individual holdings of Options to purchase shares of Common
Stock of each Stockholder, immediately after the closing of the transactions
contemplated in the Merger Agreement and the Employment Agreements are as set
forth as follows:
Number of Shares
of Common Stock
Subject to Options
Name Held After Closing
---- ------------------
Gerald C. Rittenberg 16.648
James M. Harrison 16.268
William S. Wilkey 16.441
Diane D. Spaar 11.827
Katherine A. Kusnierz 11.577
Morton Fisher 2.383
William Mark 1.280
Angelo Giummarra 2.477
Karen McKenzie 1.477
Keith Johnson 1.280
Howard Harding 1.280
Walter Thompson 1.144
Charles Phillips 0.478
Susan Scott 1.144
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Rose Giagrande 1.238
Randy Harris 0.718
Eric Stollman 1.238
Kathleen Rooney 1.238
James Dotti 1.238
Vincent Anastasi 0.794
Michael A. Correale 2.570
Mark Irvine 0.555
Scott Lametto 0.999
Joseph Walter 0.555
Cheryl Considine 0.999
Patrick Venuti 0.555
Dallas Hartman 0.555
Robert Yedowitz 0.555
Nigel Keane 0.555
Connie Weckman 0.555
Ken Danforth 0.555
-------------------------- -----------
Total 101.179
G. The parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock which the parties
hereto own or may hereafter acquire, and to provide for certain rights and
obligations in respect thereof as hereinafter provided.
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NOW, THEREFORE, in consideration of the premises and of the terms and
conditions contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Affected Holder" shall have the meaning ascribed to it in Section 5.10
hereof.
"Affiliate" of a Person shall mean a Person directly or indirectly
controlled by, controlling or under common control with such Person.
"Agreement" shall have the meaning ascribed to it in the Introduction
hereof.
"Amended Certificate" shall have the meaning ascribed to it in the
Recitals hereof.
"Bridge Street" shall have the meaning ascribed to it in the Introduction
hereof.
"Buy-Out Note" shall mean an unsecured promissory note of the Company, or
a direct or indirect subsidiary thereof, which shall have a stated maturity of
five (5) years, shall accrue interest at seven (7) percent per annum, shall be
prepayable at the option of the Company or such subsidiary at any time, in whole
or in part, at its principal amount plus any accrued and unpaid interest, shall
provide for the reimbursement of reasonable expenses incurred by the holder to
enforce the note and shall accelerate upon the earlier of a Change of Control or
the consummation of an IPO.
"Change of Control" shall mean (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) other than GSCP and their Affiliates of a majority of the
outstanding voting stock of the Company or (2) the sale of or other disposition
(other than by way of merger or consolidation) of all or substantially all of
the assets of the Company and its subsidiaries taken as a whole to any Person or
group of Persons, other than to a Person (or group of Persons) a majority of the
outstanding voting stock (or other interests) of which are beneficially owned by
GSCP and their Affiliates.
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"Claims" shall mean losses, claims, damages or liabilities, joint or
several, actions or proceedings (whether commenced or threatened).
"Common Stock" shall have the meaning ascribed to it in the Recitals
hereof.
"Company" shall have the meaning ascribed to it in the Introduction
hereof.
"Confetti" shall have the meaning ascribed to it in the Recitals hereof.
"Demand Registration" shall have the meaning ascribed to it in Section
3.1(b) hereof.
"Drag-Along Right" shall have the meaning ascribed to it in Section 2.5.1
hereof.
"Drag-Along Seller" shall have the meaning ascribed to it in Section 2.5.2
hereof.
"Effective Date" shall have the meaning ascribed to it in Section 5.1(a)
hereof.
"Employment Agreements" shall have the meaning ascribed to it in the
Recitals hereof.
"Estate" shall have the meaning ascribed to it in the Introduction
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean fair value as reasonably determined by
Goldman Sachs in light of all circumstances including comparable recent bona
fide third party sales.
"Goldman Sachs" shall mean Goldman, Sachs & Co.
"GSCP", "GSCP II", "GSCP II Germany" and "GSCP II Offshore" shall have the
meanings ascribed to them in the Introduction hereof.
"IPO" shall mean an underwritten initial public offering or public
offerings (on a cumulative basis) of shares of Common Stock pursuant to a
registration statement or registration statements under the Securities Act with
aggregate gross proceeds to the Company of at least $50 million.
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"Management Investors" shall have the meaning ascribed to it in the
Introduction hereof.
"Merger" shall have the meaning ascribed to it in the Recitals hereof.
"Merger Agreement" shall have the meaning ascribed to it in the Recitals
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean The Nasdaq Stock Market, Inc.
"New Cost Per Share" shall have the meaning ascribed to it in the
Employment Agreement, by and between James M. Harrison and Confetti, dated as of
August 10, 1997, as in effect on the date hereof.
"Offer Shares" shall have the meaning ascribed to it in Section 2.4.1.
"Offeree Stockholders" shall have the meaning ascribed to it in Section
2.4.1.
"Options" shall mean options to purchase shares of Common Stock from the
Company, whether granted pursuant to the Stock Incentive Plan or otherwise.
"Permitted Transferee" shall have the meaning ascribed to it in Sections
2.3.3 and 2.3.4 hereof.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization, government (or any department or
agency thereof) or other entity.
"Piggyback Notice" shall have the meaning ascribed to it in Section 3.1(a)
hereof.
"Piggyback Registration" shall have the meaning ascribed to it in Section
3.1(a) hereof.
"Proposed Transferee" means a Person or group as defined in Section
13(d)(3) of the Exchange Act, other than any Stockholders or their Affiliates
(whether any such Affiliate is such prior to or upon consummation of the
proposed Transfer, but not solely by virtue of becoming a party to this
Agreement), to whom Common Stock is proposed to be Transferred pursuant to the
terms of Section 2.4.3(a) or 2.5 of this Agreement.
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"Registrable Securities" shall mean the shares of Common Stock; provided,
however, as to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company, (iv) such securities shall
have ceased to be outstanding (and, in the case of shares of Common Stock
underlying options granted under the Stock Incentive Plan or underlying options
or warrants granted otherwise, such shares of Common Stock shall have ceased to
be outstanding after issuance pursuant to the exercise of such options or
warrants), or (v) in the case of shares of Common Stock held by a Management
Investor, such securities shall have been transferred to any Person other than a
Management Investor or a Permitted Transferee.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with Article III of this Agreement, including
without limitation, (i) all SEC and stock exchange or the NASD registration and
filing fees, (ii) all fees and expenses of complying with securities or "blue
sky" laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses, (iv) the fees
and disbursements of counsel for the Company and of the Company's independent
public accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance, (v)
the reasonable fees and disbursements of one counsel retained by the
Stockholders (if GSCP is one of the selling Stockholders, such counsel to be
selected by GSCP) as a group in connection with each such registration, (vi) any
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
in connection with the requested registration, including any fee payable to a
qualified independent underwriter within the meaning of the rules of the NASD,
but excluding underwriting discounts and commissions and transfer taxes, if any,
(vii) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties) and (viii) securities acts liability insurance (if the
Company elects to obtain such insurance).
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"Restricted Stock" shall have the meaning ascribed to it in the Employment
Agreements.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Sale Notice" shall have the meaning ascribed to it is Section 2.4.1.
"SEC" shall mean the Securities and Exchange Commission.
"Section 3.1 Sale Number" shall have the meaning ascribed to it in Section
3.1(d) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Incentive Plan" shall have the meaning ascribed to it in the
Recitals hereof.
"Stone Street" shall have the meaning ascribed to it in the Introduction
hereof.
"Subsidiary Dividend" shall have the meaning ascribed to it in Section 4.1
hereof.
"Tag-Along Right" shall have the meaning ascribed to it in Section
2.4.3(a) hereof.
"Tag-Along Seller" shall have the meaning ascribed to it in Section
2.4.3(b) hereof.
"Tag-Along Shares" shall have the meaning ascribed to it in Section 2.4.2
hereof.
"Transfer" shall mean to sell, assign, pledge or encumber or otherwise
transfer, directly or indirectly, whether or not for consideration.
"Transferee" shall mean any Person to whom a Transfer is made, regardless
of the method of Transfer.
"Transferor" shall mean any Person by whom a Transfer is made, regardless
of the method of Transfer.
"Violation" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
"Voting Agreement" shall have the meaning ascribed to it in the Recitals
hereof.
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ARTICLE II
RESTRICTIONS ON TRANSFERS OF STOCK
2.1 General Prohibition on Transfers.
(a) Prohibition on Transfers Generally. No Management Investor
shall, at any time prior to an IPO, Transfer any shares of Common Stock, unless
such Transfer is made in accordance with Section 2.3, 2.4 or 2.5 or pursuant to
a Piggyback Registration, and any Transfer by any Management Investor of any
shares of Common Stock owned as of the date hereof or hereafter acquired not in
accordance with such provisions shall be null and void.
(b) Recordation. The Company shall not record upon its books any
Transfer of shares of Common Stock held or owned by any of the Management
Investors to any other Person except Transfers in accordance with this
Agreement.
(c) Obligations of Transferees. No Transfer of shares of Common
Stock by a Management Investor otherwise permitted pursuant to this Agreement
(other than pursuant to a Piggyback Registration or pursuant to a Tag-Along
Right or Drag-Along Right) shall be effective unless (x) the Transferee
(including a Permitted Transferee pursuant to Section 2.3) shall have executed
an appropriate document in form and substance reasonably satisfactory to the
Company confirming that (i) the Transferee takes such shares subject to all the
terms and conditions of this Agreement to the same extent as its Transferor was
bound by and entitled to the benefits of such provisions and (ii) the shares
shall bear legends, substantially in the forms required by Section 2.6, and (y)
such document shall have been delivered to and approved (as described above) by
the Company prior to such Transferee's acquisition of shares of Common Stock.
(d) Transfers to Competitors. Notwithstanding anything to the
contrary in this Agreement, no Management Investor shall, at any time, directly
or indirectly, Transfer any shares of Common Stock to any Person who is a
competitor of the Company or to any Affiliate of such a competitor (other than
Transfers to the Company and its Affiliates), unless such Transfer (i) is made
in connection with the exercise of a Tag-Along Right pursuant to Section 2.4 or
in connection with the exercise of a Drag-Along Right pursuant to Section 2.5,
in which event such sale may be effected only in accordance with such Section
2.4 or Section 2.5, as applicable, or (ii) is made
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in accordance with the terms of this Agreement and is made pursuant to a widely
distributed, underwritten public offering registered under the Securities Act
(or an underwritten offering pursuant to the exercise of such Management
Investor's piggyback registration rights pursuant to Section 3.1(a) hereof) or
pursuant to a sale effected through an open market, nondirected broker's
transaction pursuant to Rule 144 in which the seller does not know that the
buyer is a competitor. For purposes of this provision, the good faith
determination of a majority of the entire Board that a proposed Transferee is a
"competitor," made within thirty (30) days of written notice to the Board of the
proposed Transfer, shall in all respects be conclusive.
2.2 Compliance with Securities Laws. No Management Investor shall Transfer
any shares of Common Stock unless the Transfer is made in accordance with the
terms of this Agreement and (i) the Transfer is pursuant to an effective
registration statement under the Securities Act and in compliance with any other
applicable federal securities laws and state securities or "blue sky" laws or
(ii) such Management Investor shall have furnished the Company with an opinion
of counsel, if reasonably requested by the Company, which opinion and counsel
shall be reasonably satisfactory to the Company, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Securities Act and under any applicable state securities
or "blue sky" laws and that the Transfer otherwise complies with this Agreement
and any other applicable federal securities laws and state securities or "blue
sky" laws.
2.3 Permitted Transfers.
2.3.1 GSCP Transfers. (a) GSCP and any Affiliate of GSCP shall be
free to Transfer shares of Common Stock to any Person, in whole at any time, or
in part from time to time; provided, however, that if such Person is not
Affiliate of GSCP, such Transfer shall be subject to Section 2.4 and Section 2.5
hereof. In any Transfer made pursuant to the foregoing to an Affiliate of GSCP,
the Transferee shall agree, in connection with such Transfer, for the benefit of
the Company, that such Transferee will Transfer back to the Transferor or
another continuing Affiliate of GSCP (that will be similarly bound by this
sentence) any shares of Common Stock so Transferred, if the Transferee at any
time is no longer an Affiliate of GSCP.
(b) No Transfer of shares of Common Stock by GSCP or an Affiliate of
GSCP otherwise permitted pursuant to this Section 2.3.1 shall be effective
unless the Transferee (whether or not an Affiliate of GSCP) shall have executed
an appropriate
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document in form and substance reasonably satisfactory to the Company confirming
that the Transferee takes such shares subject to all the terms and conditions of
this Agreement to the same extent as its Transferor was bound by and entitled to
the benefits of such provisions.
2.3.2 Management Investors. (a) The restrictions contained in
Sections 2.1(a) of this Agreement with respect to Transfers by Management
Investors (other than the Estate) of shares of Common Stock shall not apply to
any Transfer by a Management Investor (other than the Estate): (i) to or among
such Management Investor's spouse, children, grandchildren or other living
descendants, or to a trust or family partnership of which there are no principal
(i.e., corpus) beneficiaries or partners other than the grantor or one or more
of such Management Investor, spouse or described relatives, and provided, in the
case of a trust, that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval and, in the case of a family partnership, that the
partners thereof have the power to act with respect to the partnership's assets
without court approval and the partnership is not permitted to (x) distribute
assets to Persons who are not among the relatives listed above or (y) have
partners who are not among the relatives listed above, and, in any case, all the
partners agree, for the benefit of the Company and GSCP, not to amend such
provisions; (ii) to a legal representative of such Management Investor in the
event such Management Investor becomes mentally incompetent or to such
Management Investor's personal representative following the death of such
Management Investor; (iii) with the prior written approval of the Company, which
approval may be granted or withheld by the Board of Directors of the Company in
its sole and absolute discretion; and (iv) pursuant to any pledge by a
Management Investor to the Company or an Affiliate thereof for money borrowed to
purchase shares of Common Stock pursuant to the Employment Agreements, if
applicable.
(b) The restrictions contained in Section 2.1(a) of this Agreement
with respect to Transfers by the Estate shall not apply to any of the following
Transfers by the Estate: (i) to a qualified terminable interest property trust
in accordance with the terms of the will of the decedent of the Estate or (ii)
with the prior written approval of the Company which approval may be granted or
withheld by the Board of Directors of the Company in its sole and absolute
discretion.
2.3.3 Permitted Transferees. Transferees to whom Transfers are
permitted pursuant to clauses (i), (ii) and (iii) of Section 2.3.2(a) and
clauses (i) and (ii) of Section
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2.3.2(b) are referred to herein as "Permitted Transferees." Any such permitted
Transfer shall be subject to the terms of this Agreement, including compliance
with Section 2.1(c).
2.3.4 Transfer by Permitted Transferees. The restrictions contained
in Section 2.1(a) of this Agreement with respect to Transfers by Management
Investors of shares of Common Stock shall not apply to any Transfer by a
Permitted Transferee of a Management Investor to such Management Investor or to
another Permitted Transferee of such Stockholder, and any such Transferee shall
also be a "Permitted Transferee," subject to the provisions of Section 2.3.3.
2.3.5 Other Transfer Restrictions. The restrictions contained in
Sections 2.1(a), 2.4 and 2.5 hereof and the provisions regarding Permitted
Transferees contained in this Section 2.3 shall be in addition to and not in
lieu or limitation of any restrictions on the ownership or Transfer of shares of
Common Stock (including with respect to any Restricted Stock) contained in any
Employment Agreement or any analogous provision of any employment, compensation
or benefit agreement or arrangement or other agreement between Confetti or the
Company and any Stockholder; provided, however, that upon the termination of any
such Employment Agreement or other such agreement or arrangement or lapsing of
such restrictions, the restrictions and provisions contained herein shall
continue in full force and effect pursuant to this Agreement.
2.4 Tag-Along Rights.
2.4.1 Sale Notice. If GSCP proposes to sell any of the Common Stock
owned by it, other than (a) to an Affiliate of GSCP, (b) pursuant to the
exercise of a Drag-Along Right pursuant to Section 2.5 of this Agreement, (c)
pursuant to a Demand Registration (which affords piggyback registration rights
pursuant to Section 3.1) or Piggyback Registration, or (d) following an IPO,
sales effected through open market, nondirected broker's transactions pursuant
to Rule 144, then GSCP shall first give written notice (the "Sale Notice") to
the Company and to each of the Management Investors (such Management Investors,
being referred to herein as the "Offeree Stockholders"), stating that GSCP
desires to make such sale, referring to Section 2.4 of this Agreement,
specifying the number of shares of Common Stock proposed to be sold by GSCP
pursuant to the offer (the "Offer Shares"), and specifying the price, the form
of consideration and the material terms pursuant to which such sale is proposed
to be made.
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2.4.2 Tag-Along Election. Within seven (7) days of the date of
receipt of the Sale Notice, each Offeree Stockholder, other than GSCP, shall
deliver to GSCP and to the Company a written notice stating whether the Offeree
Stockholder elects to sell a pro rata portion of its Common Stock (equal to (A)
the total number of shares of Common Stock owned by such Offeree Stockholder,
plus the total number of shares of Common Stock then issuable upon exercise of
vested Options then exercisable by such Offeree Stockholder, multiplied by (B) a
fraction, (i) the numerator of which is the number of Offer Shares and (ii) the
denominator of which is the total number of shares of Common Stock held by GSCP
plus the total number of shares of Common Stock then issuable upon exercise or
conversion of any convertible securities, if applicable, then exercisable or
convertible by GSCP) to such Proposed Transferee on the same terms and
conditions as GSCP (with respect to each Offeree Stockholder, its "Tag-Along
Shares"). An election pursuant to the first sentence of this Section 2.4.2 shall
constitute an irrevocable commitment by the Offeree Stockholder making such
election to sell such Common Stock to the Proposed Transferee if the sale of
Offer Shares to the Proposed Transferee occurs on the terms contemplated hereby.
2.4.3 Seller's Rights to Transfer.
(a) Third Party Sale; Tag-Along Buyer. A sale to a Proposed
Transferee pursuant to Section 2.4 shall only be consummated if the Proposed
Transferee shall purchase, within 120 days of the date of the Sale Notice,
concurrently with and on the same terms and conditions and at the same price as
the Offer Shares, all of each Offeree Stockholder's Tag-Along Shares with
respect to such sale, in accordance with their elections pursuant to Section
2.4.2 (the "Tag-Along Right").
(b) Sale Agreement. Each Offeree Stockholder electing to sell
Tag-Along Shares (a "Tag-Along Seller") agrees to cooperate in consummating such
a sale, including, without limitation, by becoming a party to the sales
agreement and all other appropriate related agreements (other than any amendment
to such Tag-Along Seller's Employment Agreement, if any), delivering at the
consummation of such sale, stock certificates and other instruments for such
Common Stock duly endorsed for transfer, free and clear of all liens and
encumbrances, and voting or consenting in favor of such transaction (to the
extent a vote or consent is required) and taking any other necessary or
appropriate action in furtherance thereof, including the execution and delivery
of any other appropriate agreements, certificates, instruments and other
documents. The foregoing notwithstanding, in connection with such sale, a
Tag-Along
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Seller, as such, shall not be required to make any representations and
warranties with respect to the Company or the Company's business or with respect
to any other seller. In addition, each Tag-Along Seller shall be severally
responsible for its proportionate share of the expenses of sale incurred by the
sellers in connection with such sale and the obligations and liabilities
incurred by the sellers in connection with such sale. Such obligations and
liabilities shall include (to the extent such obligations are incurred)
obligations and liabilities for indemnification (including for (x) breaches of
representations and warranties made in connection with such sale by the Company
or any other seller with respect to the Company or the Company's business, (y)
breaches of covenants and (z) other matters), and shall also include amounts
paid into escrow or subject to holdbacks, and amounts subject to post-closing
purchase price adjustments. The foregoing notwithstanding, (1) without the
written consent of a Tag-Along Seller, the amount of such obligations and
liabilities for which such Tag-Along Seller shall be responsible shall not
exceed the gross proceeds received by such Tag-Along Seller in such sale and (2)
a Tag-Along Seller shall not be responsible for the fraud of any other seller or
for any indemnification obligations and liabilities for breaches of
representations and warranties made by any other seller with respect to such
other seller's (i) ownership of and title to shares of capital stock of the
Company, (ii) organization, (iii) authority and (iv) conflicts and consents.
(c) No Liability. Notwithstanding any other provision contained in
this Section 2.4.3, there shall be no liability on the part of the Company or
GSCP in the event that the sale pursuant to this Section 2.4.3 is not
consummated for any reason whatsoever. The decision whether to effect a Transfer
pursuant to this Section 2.4.3 shall be in the sole and absolute discretion of
GSCP.
2.5 Drag-Along Right.
2.5.1 Exercise. If GSCP proposes to make a bona fide sale of all of
its shares of Common Stock to a Proposed Transferee, pursuant to a stock sale,
merger, business combination, recapitalization, consolidation, reorganization,
restructuring or similar transaction, GSCP shall have the right (a "Drag-Along
Right"), exercisable upon fifteen (15) days' prior written notice to the other
Stockholders, to require the other Stockholders to sell all of their shares of
Common Stock and, at the election of GSCP, Options (whether vested or unvested)
to the Proposed Transferee on the same terms and conditions and at the same
price (in the case of Options the purchase price of each Option shall be equal
to the purchase price attributable
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to the number of shares of Common Stock issuable upon exercise of such Option
less the exercise price thereof) as GSCP.
2.5.2 Sale Agreement. Each Stockholder selling shares of Common
Stock pursuant to a transaction contemplated by this Section 2.5 (a "Drag-Along
Seller") agrees to cooperate in consummating such a sale, including, without
limitation, by becoming a party to the sales agreement and all other appropriate
related agreements (other than any amendment to such Drag-Along Seller's
Employment Agreement, if any), delivering at the consummation of such sale,
stock certificates and other instruments for such shares of Common Stock duly
endorsed for transfer, free and clear of all liens and encumbrances, and voting
or consenting in favor of such transaction (to the extent a vote or consent is
required) and taking any other necessary or appropriate action in furtherance
thereof, including the execution and delivery of any other appropriate
agreements, certificates, instruments and other documents. The foregoing
notwithstanding, in connection with such sale, a Drag-Along Seller, as such,
shall not be required to make any representations and warranties with respect to
the Company or the Company's business or with respect to any other seller. In
addition, each Drag-Along Seller shall be severally responsible for its
proportionate share of the expenses of sale incurred by GSCP in connection with
such sale and the obligations and liabilities incurred by the seller in
connection with such sale. Such obligations and liabilities shall include (to
the extent such obligations are incurred) obligations and liabilities for
indemnification (including for (x) breaches of representations and warranties
made in connection with such sale by the Company or any other seller with
respect to the Company or the Company's business, (y) breaches of covenants and
(z) other matters), and shall also include amounts paid into escrow or subject
to holdbacks, and amounts subject to post-closing purchase price adjustments.
The foregoing notwithstanding, (1) without the written consent of a Drag-Along
Seller, the amount of such obligations and liabilities for which such Drag-Along
Seller shall be responsible shall not exceed the gross proceeds received by such
Drag-Along Seller in such sale and (2) a Drag-Along Seller shall not be
responsible for the fraud of any other seller or any indemnification obligations
and liabilities for breaches of representations and warranties made by any other
seller with respect to such other seller's (i) ownership of and title to shares
of capital stock of the Company, (ii) organization, (iii) authority and (iv)
conflicts and consents.
2.5.3 No Liability. Notwithstanding any other provision contained in
this Section 2.5, there shall be no liability on the part of the Company or GSCP
in the event that the sale pursuant to this Section 2.5 is not consummated for
any
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reason whatsoever. The decision whether to effect a Transfer pursuant to this
Section 2.5 shall be in the sole and absolute discretion of GSCP.
2.6 Additional Provisions Relating to Restrictions on Transfers.
2.6.1 Legends. Each of the Stockholders hereby agrees that each
outstanding certificate representing shares of Common Stock held or owned by
such Stockholder or its Transferee, including any certificate representing
shares of Common Stock acquired in accordance with the provisions of this
Agreement or the Employment Agreements and any certificates representing shares
of Common Stock issued upon exercise of the Options, in any case, subject to the
provisions of this Agreement and issued prior to the date when the applicable
restrictions are terminated pursuant to Section 2.6.3, shall bear endorsements
reading substantially as follows:
(a) The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or under the
securities laws of any state and may not be transferred, sold or otherwise
disposed of except while such a registration is in effect or pursuant to
an exemption from registration under said Act and applicable state
securities laws.
(b) The securities represented by this certificate are subject
to the terms and conditions set forth in a Stockholders' Agreement, dated
as of December 19, 1997, copies of which may be obtained from the issuer
or from the holder of this security. No transfer of such securities will
be made on the books of the issuer unless accompanied by evidence of
compliance with the terms of such agreement.
Each outstanding certificate representing shares of Common Stock
shall also bear any legend required by the terms of the Employment Agreements or
the Stock Incentive Plan or as the Company may otherwise deem appropriate.
2.6.2 Copy of Agreement. A copy of this Agreement shall be filed
with the corporate secretary of the Company and kept with the records of the
Company and shall be made available for inspection by any stockholder of the
Company at the principal executive offices of the Company.
2.6.3 Termination of Restrictions. The restriction referred to in
the endorsement required pursuant to Section 2.6.1(a) shall cease and terminate
as to any particular shares
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of Common Stock when, in the reasonable opinion of counsel for the Company, such
restriction is no longer required in order to assure compliance with the
Securities Act. The Company or the Company's counsel, at their election, may
request from any Stockholder a certificate or an opinion of such Stockholder's
counsel with respect to any relevant matters in connection with the removal of
the endorsement set forth in Section 2.6.1(a) from such Stockholder's stock
certificates, any such certificate or opinion of counsel to be reasonably
satisfactory to the Company and its counsel. The restrictions referred to in
Section 2.6.1(b) shall cease and terminate as to any particular shares of Common
Stock when, in the reasonable opinion of counsel for the Company, the provisions
of this Agreement are no longer applicable to such shares or this Agreement
shall have terminated in accordance with its terms. Any other restrictions
referred to in any other legends required pursuant to Section 2.6.1 shall cease
and terminate when, in the reasonable opinion of counsel for the Company, such
restrictions are no longer applicable. Whenever such restrictions shall cease
and terminate as to any shares of Common Stock, the Stockholder holding such
shares shall be entitled to receive from the Company, without expense (other
than applicable transfer taxes, if any, if such unlegended shares are being
delivered and transferred to any Person other than the registered holder
thereof), new certificates for a like number of shares of Common Stock not
bearing the relevant legend(s) set forth or referred to in Section 2.6.1.
ARTICLE III
REGISTRATION RIGHTS
3.1 Piggyback and Demand Registrations.
(a) Piggyback Registrations. If at any time the Company proposes to
register for sale by the Company under the Securities Act any of its equity
securities (other than a registration on Form S-4 or Form S-8, or any successor
or similar forms), or any shares of Common Stock held by GSCP pursuant to
Section 3.1(b), in a manner that would permit registration of Registrable
Securities for sale to the public under the Securities Act and in an
underwritten offering, the Company will each such time promptly give written
notice to all Stockholders who beneficially own any Registrable Securities of
its intention to do so, of the registration form of the SEC that has been
selected by the Company and of such holders' rights under this Section 3.1 (the
"Piggyback Notice"). The Company will use its reasonable best efforts to
include, and to cause the underwriter or underwriters to include, in the
proposed offering, on
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the same terms and conditions as the securities of the Company included in such
offering, all Registrable Securities that the Company has been requested in
writing, within fifteen (15) calendar days after the Piggyback Notice is given,
to register by the Stockholders thereof (each such registration pursuant to this
Section 3.1(a), a "Piggyback Registration"); provided, however, that (i) if, at
any time after giving a Piggyback Notice and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such equity securities (or, in
the case of a Demand Registration (as defined below), GSCP so determines), the
Company may, at its election (or, in the case of a Demand Registration where
GSCP so determines, the Company shall), give written notice of such
determination to all Stockholders who beneficially own any Registrable
Securities and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such abandoned registration, and (ii)
in case of a determination by the Company to delay registration of its equity
securities (or, in the case of a Demand Registration, GSCP so determines), the
Company shall be permitted to (or, in the case of a Demand Registration where
GSCP so determines, the Company shall) delay the registration of such
Registrable Securities for the same period as the delay in registering such
other equity securities (provided that clauses (i) and (ii) shall not relieve
the Company of its obligations under Section 3.1(b)). In the case of any
registration of Registrable Securities in an underwritten offering pursuant to
this Section 3.1(a), all Stockholders proposing to distribute their securities
pursuant to this Section 3.1(a) shall, at the request of the Company (or, in the
case of a Demand Registration, GSCP), enter into an agreement in customary form
with the underwriter or underwriters selected by the Company (or, in the case of
a Demand Registration, selected by GSCP). Notwithstanding the foregoing,
following an IPO, the Company shall not be obligated to effect registration of
Registrable Securities for which Piggyback Registration is requested by a
Management Investor if, at the time of such request, all such Registrable
Securities are eligible for sale to the public by the requesting Management
Investor without registration under Rule 144 under the Securities Act, with such
sale not being limited by the volume restrictions thereunder.
(b) Demand Registrations. The Company, upon the reasonable request
of GSCP, shall, from time to time, use its reasonable best efforts to register
under the Securities Act any reasonable portion of Registrable Securities held
by GSCP (including, at the election of GSCP, in an underwritten offering) and
bear all expenses in connection with such offering in a manner consistent with
paragraph (c) below and shall enter into such other agreements in furtherance
thereof (including
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with underwriters selected by GSCP, including, in any case, Affiliates of GSCP
as lead underwriters, if requested by GSCP) (each such registration pursuant to
this Section 3.1(b), a "Demand Registration"), and the Company shall provide
customary indemnifications in such instances (in a manner consistent with the
indemnification provisions of this Article III) to GSCP and any such
underwriters; provided, however, that the Company shall not be obligated to
effect more than four Demand Registrations. A registration shall not count as a
Demand Registration unless and until the registration statement relating thereto
has been declared effective by the SEC and not withdrawn.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 3.1; provided, however, that each Stockholder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Stockholder's Registrable Securities pursuant to
a registration statement effected pursuant to this Section 3.1.
(d) Priority in Piggyback and Demand Registrations. If the managing
underwriter for a registration pursuant to this Section 3.1 shall advise the
Company in writing that, in its opinion, the number of securities requested to
be included in such registration exceeds the number (the "Section 3.1 Sale
Number") that can be sold in an orderly manner in such offering within a price
range acceptable to the Company (or, in the case of a Demand Registration, to
GSCP), the Company shall include in such offering (i) first, all the securities
the Company proposes to register for its own sale, and (ii) second, to the
extent that the securities the Company proposes to register are less than the
Section 3.1 Sale Number, all Registrable Securities requested to be included by
all Stockholders; provided, however, that if the number of such Registrable
Securities exceeds (x) the Section 3.1 Sale Number less (y) the number of
securities included pursuant to clause (i) hereof, then the number of such
Registrable Securities included in such registration shall be allocated pro rata
among all requesting Stockholders, on the basis of the relative number of shares
of such Registrable Securities each such Stockholder then holds. If there is any
reduction or exclusion of Registrable Securities pursuant to this Section 3.1(d)
in connection with a Demand Registration, such registration shall not be deemed
to be a Demand Registration for purposes of determining the maximum number of
Demand Registrations the Company is obligated to effect pursuant to Section
3.1(b) hereof.
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(e) Underwriting Requirements. In connection with any offering
involving any underwriting of securities in a Piggyback Registration, the
Company shall not be required to include any Stockholder's Registrable
Securities in such underwriting unless such Stockholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters in such
quantities and on such terms as set forth in Section 3.1(a) hereof, and such
Management Investor agrees to sell such Management Investor's securities on the
basis provided therein and completes and/or executes all questionnaires,
indemnities, lock-ups, underwriting agreements and other documents (including
powers of attorney and custody arrangements) required generally of all selling
Stockholders, in each case in customary form and substance, which are requested
to be executed in connection therewith.
3.2 Registration Procedures. If and whenever the Company is required to
use its reasonable best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Article III,
the Company will, as soon as practicable:
(a) prepare and file with the SEC the requisite registration
statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become and
remain effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for such period as the Company shall deem appropriate and to
comply with the provisions of the Securities Act with respect to the sale
or other disposition of all securities covered by such registration
statement during such period;
(c) furnish to each seller of such Registrable Securities and each
underwriter such number of copies of such registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and summary
prospectus), in conformity with the requirements of the Securities Act,
and such other documents as such seller may reasonably request;
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(d) promptly notify each Stockholder that holds Registrable
Securities covered by such registration statement, (i) when such
registration statement or any post-effective amendment or supplement
thereto becomes effective, (ii) of the issuance by the SEC or any state
securities authority of any stop order, injunction or other order or
requirement suspending the effectiveness of such registration statement
(and take all reasonable action to prevent the entry of such stop order or
to remove it if entered, or the initiation of any proceedings for that
purpose), or (iii) of the happening of any event as a result of which the
registration statement, as then in effect, the prospectus related thereto
or any document included therein by reference includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made and promptly file
such amendments and supplements which may be required on account of such
event and use its reasonable best efforts to cause each such amendment and
supplement to become effective;
(e) promptly furnish counsel for each underwriter, if any, and for
the selling Stockholders of Registrable Securities copies of any written
request by the SEC or any state securities authority for amendments or
supplements to a registration statement and prospectus or for additional
information;
(f) use reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement at the
earliest possible time;
(g) use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on the principal
securities exchange or authorized for quotation on Nasdaq on which similar
equity securities issued by the Company are then listed or authorized for
quotation, or eligible for listing or quotation, if the listing or
authorization for quotation of such securities is then permitted under the
rules of such exchange or the NASD;
(h) enter into an underwriting agreement with the underwriter of
such offering in the form customary for such underwriter for similar
offerings, including such representations and warranties by the Company,
provisions
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regarding the delivery of opinions of counsel for the Company and
accountants' letters, provisions regarding indemnification and
contribution, and such other terms and conditions as are at the time
customarily contained in such underwriter's underwriting agreements for
similar offerings (the sellers of Registrable Securities which are to be
distributed by such underwriter(s) may, at their option, require that any
or all of the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriter(s)
shall also be made to and for the benefit of such sellers of Registrable
Securities);
(i) make available for inspection by representatives of the selling
Stockholders who hold Registrable Securities and any underwriters
participating in any disposition pursuant hereto and any counsel or
accountant retained by such Stockholders or underwriters, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and cause the respective officers, directors and employees
of the Company to supply all information reasonably requested by any such
representative, underwriter, counsel or accountant in connection with a
registration pursuant hereto; provided, however, that, with respect to
records, documents or information which the Company determines, in good
faith, to be confidential and as to which the Company notifies such
representatives, underwriters, counsel or accountants in writing of such
confidentiality, such representatives, underwriters, counsel or
accountants shall not disclose such records, documents or information
unless (i) the release of such records, documents or information is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, (ii) such records, documents or information have previously
been generally made available to the public, or (iii) the disclosure of
such records, documents or information is necessary, in the written
opinion of outside legal counsel, to avoid or correct a material
misstatement or omission in the registration statement and then only after
reasonable request has been made to the Company to make such disclosure
and the Company has denied such request. Each selling Stockholder of such
Registrable Securities agrees that information obtained by it as a result
of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Company or its Affiliates (or for such Stockholder's business purposes or
for any reason other than in connection with a registration hereunder)
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unless and until such information is made generally available (other than
by such Stockholder or where such Stockholder knows that such information
became publicly available as a result of a breach of any confidentiality
arrangement) to the public. Each selling Stockholder of such Registrable
Securities further agrees that it will, upon learning that disclosure of
such records is sought, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of
the records deemed confidential;
(j) permit any beneficial owner of Registrable Securities who, in
the sole judgment, exercised in good faith, of such holder, might be
deemed to be a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require
the insertion therein of material, furnished to the Company in writing,
that in the judgment of such holder, as aforesaid, should be included; and
(k) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into
account the needs of the Company's businesses and the requirements of the
marketing process) in the marketing of Registrable Securities in any
underwritten offering.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing. The Company shall not be
required to register or qualify any Registrable Securities covered by such
registration statement under any state securities, or "blue sky," laws of such
jurisdictions other than as it deems necessary in connection with the chosen
method of distribution or to take any other actions or do any other things other
than those it deems necessary or advisable to consummate such distribution, and
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
otherwise be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any such
jurisdiction.
Each beneficial owner of Registrable Securities agrees that upon
receipt of any notice from the Company of the happening of any event of the kind
described in subclauses (i) and (ii) of clause (d) of this Section 3.2, such
beneficial owner will forthwith discontinue disposition of Registrable
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Securities pursuant to the registration statement covering such Registrable
Securities until such beneficial owner's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (d) of this Section
3.2, and, if so directed by the Company, such beneficial owner will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in such beneficial owner's possession, of the prospectus covering
such Registrable Securities that was in effect prior to such amendment or
supplement.
3.3 Indemnification.
(a) In the event of any registration of any Registrable Securities
pursuant to this Article III, the Company will, and hereby does, indemnify and
hold harmless, to the fullest extent permitted by law, the seller of any
Registrable Securities covered by such registration statement, its directors,
officers, fiduciaries, employees and stockholders or general and limited
partners (and the directors, officers, fiduciaries, employees and stockholders
or general and limited partners thereof), each other Person who participates as
an underwriter or a qualified independent underwriter, if any, in the offering
or sale of such securities, each director, officer, fiduciary, employee and
stockholder or general and limited partner of such underwriter or qualified
independent underwriter, and each other Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, who controls such seller or any such underwriter or
qualified independent underwriter, within the meaning of the Securities Act,
against any and all Claims in respect thereof and expenses (including reasonable
fees and expenses of counsel and any amounts paid in any settlement effected
with the Company's consent, which consent shall not be unreasonably withheld or
delayed) to which each such indemnified party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims or
expenses arise out of or are based upon any of the following actual or alleged
statements, omissions or violations (each, a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement under which such securities were registered pursuant to
this Agreement under the Securities Act or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary prospectus or any
amendment or supplement thereto, together with the documents incorporated by
reference therein, or the omission or alleged omission to state therein a
material
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fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with any such registration,
and the Company will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, that the Company shall not be liable to any such indemnified party in
any such case to the extent such Claim or expense arises out of or is based upon
any Violation which occurs in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf of
such indemnified party expressly stating that such information is for use
therein.
(b) Each holder of Registrable Securities that are included in the
securities as to which any Demand Registration or Piggyback Registration is
being effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in connection with
any Demand Registration or Piggyback Registration, any underwriter and qualified
independent underwriter, if any) shall, severally and not jointly, indemnify and
hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section 3.3), to the extent permitted by law, the Company,
its directors, officers, fiduciaries, employees and stockholders (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof) and each Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, controlling the Company within the meaning of the
Securities Act and all other prospective sellers and their directors, officers,
fiduciaries, employees and stockholders or general and limited partners and
respective controlling Persons (including any such Person's directors, officers,
fiduciaries, employees and stockholders or general and limited partners) against
any and all Claims and expenses (including reasonable fees and expenses of
counsel and any amounts paid in any settlement effected with the consent of the
indemnifying party, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims or expenses arise out
of or are based upon any Violation which occurs in reliance upon and in
conformity with written information furnished to the Company or its
representatives by or on behalf of such holder or underwriter or qualified
independent underwriter, if any, expressly
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stating that such information is for use in connection with any registration
statement, preliminary, final or summary prospectus or amendment or supplement
or document incorporated by reference into any of the foregoing; provided,
however, that the aggregate amount which any such holder, underwriter or
qualified independent underwriter shall be required to pay pursuant to this
Section 3.3(b) and Sections 3.3(c) and (e) shall be limited to (x) in the case
of any such holder, the amount of the gross proceeds received by such holder
upon the sale of the Registrable Securities pursuant to the registration
statement giving rise to such claim and (y) in the case of any such underwriter
or qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it pursuant to the registration
statement giving rise to such claim.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 3.3 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities (and, if
the Company requires as a condition to including any Registrable Securities in
any registration statement filed in connection with any Demand Registration or
Piggyback Registration, any underwriter and qualified independent underwriter,
if any) with respect to any required registration or other qualification of
securities under any state securities and "blue sky" laws.
(d) Any Person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 3.3, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 3.3, except to the
extent the indemnifying party is prejudiced thereby and shall not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this Section 3.3. In case any action or proceeding is
brought against an indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, unless in the reasonable opinion of outside counsel to
the indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any
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legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within twenty (20) days after receiving notice from such indemnified party that
the indemnified party believes it has failed to do so; or (ii) if such
indemnified party who is a defendant in any action or proceeding which is also
brought against the indemnifying party reasonably shall have concluded that
there may be one or more legal defenses available to such indemnified party
which are not available to the indemnifying party; or (iii) if representation of
both parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, then, in any such case, the indemnified party
shall have the right to assume or continue its own defense as set forth above
(but with no more than one firm of counsel for all indemnified parties in each
jurisdiction, except to the extent any indemnified party or parties reasonably
shall have concluded that there may be legal defenses available to such party or
parties which are not available to the other indemnified parties or to the
extent representation of all indemnified parties by the same counsel is
otherwise inappropriate under applicable standards of professional conduct) and
the indemnifying party shall be liable for any expenses therefor. No
indemnifying party shall, without the written consent of the indemnified party,
which consent shall not be unreasonably withheld, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (A) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (B) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Section 3.3(a), (b) or
(c), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other from the relevant offering of
securities. If, however, the allocation provided in the immediately preceding
sentence is not permitted by applicable law, or if the indemnified party failed
to give the notice required by Section 3.3(d) above and
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<PAGE> 29
the indemnifying party is prejudiced thereby, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of but also
the relative benefits received by the indemnifying party, on the one hand, and
the indemnified party, on the other hand, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the Violation relates to information supplied by
the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 3.3(e) were to be determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentences of this
Section 3.3(e). The amount paid or payable in respect of any Claim shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 3.3(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this Section 3.3(e) to
contribute any amount in excess of (x) in the case of an indemnifying party that
is a holder of Registrable Securities, the gross proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, or (y) in the case of an indemnifying party that is an underwriter or a
qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate, less,
in any such case referred to in (x) and (y), the amount of all indemnification
and contribution payments made pursuant to Sections 3.3(b) and (c) and this
Section 3.3(e), as the case may be, in connection with such offering.
(f) The indemnity agreements contained herein shall be in addition
to any other rights to indemnification or contribution which any indemnified
party may have pursuant to law or contract and shall remain operative and in
full force and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party and shall survive the transfer of the
Registrable Securities by any such party.
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<PAGE> 30
(g) The indemnification and contribution required by this Section
3.3 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(h) In connection with underwritten offerings, the Company will use
reasonable best efforts to negotiate terms of indemnification that are
reasonably favorable to the various sellers pursuant thereto, as appropriate
under the circumstances.
3.4 Holdback Agreement.
(a) If requested in writing by the Company or the underwriter, if
any, of any offering affording Stockholders registration rights pursuant to
Section 3.1 (whether or not some or all of such Stockholder's Registrable
Securities are subject to a cutback pursuant to Section 3.1 of this Agreement),
including without limitation an IPO, each Stockholder agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144, of any
Registrable Securities or any other equity security of the Company or of any
security convertible into or exchangeable or exercisable for any equity security
of the Company (in each case, other than as part of such underwritten public
offering) within fourteen (14) days before or 180 days after the effective date
of a registration statement affording Stockholders registration rights pursuant
to Section 3.1 (including where subject to a cutback pursuant to Section
3.1(d)).
(b) If requested in writing by the underwriter of any offering in
connection with a Demand Registration, the Company agrees not to effect any
public sale or distribution (other than public sales or distributions solely by
and for the account of the Company of securities issued (x) pursuant to any
employee or director benefit or similar plan or any dividend reinvestment plan
or (y) in any acquisition by the Company) of any Registrable Securities or any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering), within fourteen
(14) days before or 180 days after the effective date of a registration
statement filed in connection with a Demand Registration, or for such shorter
period as the sole or lead managing underwriter shall request, in any such case,
unless consented to by such underwriter.
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<PAGE> 31
ARTICLE IV
MANAGEMENT INVESTORS' PUTS AND CALLS
4.1 Call Rights. If, prior to the consummation of an IPO, a Management
Investor (other than the Estate or the Estate's Permitted Transferees) dies or
the Management Investor's (other than the Estate or the Estate's Permitted
Transferees) employment by the Company terminates for any reason (including due
to a Disability, as defined in such Management Investor's Employment Agreement
or any analogous provision of any employment, compensation or benefit agreement
or arrangement, if any, and if not so defined, upon the good faith determination
of the Board of Directors of the Company of such Disability), the Company shall
have the right, at its election, to purchase all (but not less than all) of the
Management Investor's shares of Common Stock (including any shares held by its
Permitted Transferees) within six (6) months after such termination, or fifteen
(15) months after such termination in the case of death of the Management
Investor (with respect to any shares of Common Stock acquired after such
termination or death upon the exercise of Options held by the Management
Investor, such period to run from the date of exercise) at a price equal to the
Fair Market Value of such Common Stock determined as of, in all cases other than
the death of the Management Investor, the date such termination is effective
and, in the case of the Management Investor's death, as of the date of death.
The Company shall pay the purchase price in cash to the extent that (x)
subsidiaries of the Company are permitted to dividend the funds for such
purchase to the Company (a "Subsidiary Dividend") (under both applicable law and
the indebtedness of the Company and its Affiliates) and (y) the Company is
permitted to purchase such shares for cash (under both applicable law and such
indebtedness). The Company shall fund any amount not permitted to be funded
through a Subsidiary Dividend or to be used to purchase such shares with a
Buy-Out Note. The Board of Directors of the Company may, in its discretion,
assign the rights and obligations of the Company under this Section 4.1 to any
other Person, but no such assignment shall relieve the Company of its
obligations hereunder to the extent not satisfied by such assignee.
4.2 Put Rights. If, prior to the consummation of an IPO, a Management
Investor (other than the Estate or the Estate's Permitted Transferee) dies or
the Management Investor's (other than the Estate or the Estate's Permitted
Transferee's) employment by the Company is terminated by the Company for any
reason (including due to a Disability, as defined in such Management Investor's
Employment Agreement or any analogous provision of any employment, compensation
or benefit
-27-
<PAGE> 32
agreement or arrangement, if any, and if not so defined, upon the good faith
determination of the Board of Directors of the Company of such Disability), the
Management Investor or the Management Investor's legal representative or
trustee, as the case may be, shall have the right, within three (3) months after
such termination is effective (or one year after the date of death in the case
of the Management Investor's death), to require the Company to purchase all (but
not less than all) of the Management Investor's Common Stock (including any
shares held by its Permitted Transferees) at a price equal to (A) in the case of
termination by reason of death or Disability, the Fair Market Value thereof
determined as of the date of death (in the case of termination due to death) or
the date such other termination is effective and (B) in the case of termination
by the Company for any other reason, the lower of (1) Fair Market Value and (2)
the product of (x) the number of shares of Common Stock and (y) the New Cost Per
Share (subject to adjustment to reflect any adjustments to the Common Stock made
to reflect any merger, reorganization, consolidation, recapitalization, spinoff,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common Stock,
as the Company reasonably shall deem fair and appropriate). To the extent the
funds for such purchase are permitted under the indebtedness of the Company and
its Affiliates and applicable law to be funded through a Subsidiary Dividend and
to be used to purchase such shares, the Company shall pay the purchase price in
cash. The Company shall pay any amount not permitted to be funded through a
Subsidiary Dividend or to be used to purchase such shares with a Buy-Out Note.
The Board of Directors of the Company may, in its discretion, assign the rights
and obligations of the Company under this Section 4.2 to any other Person, but
no such assignment shall relieve the Company of its obligations hereunder to the
extent not satisfied by such assignee.
ARTICLE V
MISCELLANEOUS
5.1 Effectiveness; Term. (a) This Agreement shall become effective (the
"Effective Date") simultaneously with the closing of the transactions under the
Merger Agreement and shall terminate without liability or penalty on the part of
any party or its directors, officers, fiduciaries, employees and stockholders or
general and limited partners (and the directors, officers, fiduciaries,
employees and stockholders or general and limited partners thereof) to any other
party or such
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<PAGE> 33
other party's Affiliates upon the termination of the Merger Agreement pursuant
to its terms.
(b) Unless theretofore terminated pursuant to the preceding
paragraph, the rights and obligations of, and restrictions on, the Stockholders
under Article II of this Agreement shall terminate when GSCP and its Affiliates
no longer hold in the aggregate at least 40% of the fully diluted shares of
Common Stock then outstanding. Notwithstanding the foregoing, in the event the
Company enters into any agreement to merge with or into any other Person or
adopts any other plan of recapitalization, consolidation, reorganization or
other restructuring transaction as a result of which the Stockholders and their
respective Permitted Transferees (including GSCP and any Affiliates thereof)
shall own less than a majority of the outstanding voting power of the entity
surviving such transaction, this Agreement shall terminate.
(c) Unless theretofore terminated pursuant to Section 5.1(a), and
notwithstanding anything in Section 5.1(b) to the contrary, the provisions
contained in Article III hereof shall continue to remain in full force and
effect until the earlier to occur of the twentieth anniversary of the date
hereof and the date on which there are no longer any Registrable Securities
outstanding or issuable or thereafter available for or subject to issuance to
any Stockholder upon exercise or conversion of any options, warrants, rights or
other convertible securities; provided, however, that the provisions of Section
3.3 hereof shall survive termination pursuant to Section 5.1(b) or (c) of this
Agreement.
5.2 No Voting or Conflicting Agreements. Prior to an IPO, no Management
Investor shall grant any proxy or enter into or agree to be bound by any voting
trust with respect to the Common Stock nor, at any time, shall any Management
Investor enter into any stockholder agreements or arrangements of any kind with
any Person with respect to the Common Stock inconsistent with the provisions of
this Agreement (whether or not such agreements and arrangements are with other
Management Investors or holders of Common Stock that are not parties to this
Agreement). The foregoing prohibition includes, but is not limited to,
agreements or arrangements with respect to the acquisition, disposition or
voting of shares of Common Stock inconsistent with the provisions of this
Agreement. No Management Investor shall act, at any time, for any reason, as a
member of a group or in concert with any other Persons in connection with the
acquisition, disposition or voting of shares of Common Stock in any manner which
is inconsistent with the provisions of this Agreement.
-29-
<PAGE> 34
5.3 Approval of Stock Incentive Plan by Stockholders.
The Stockholders by their execution of this Agreement, hereby
approve the Stock Incentive Plan, a copy of which is attached hereto as Exhibit
A.
5.4 Specific Performance. The parties hereto acknowledge that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement. Any
remedy under this Section 5.4 is subject to certain equitable defenses and to
the discretion of the court before which any proceedings therefor may be
brought.
5.5 Notices. All notices, statements, instructions or other documents
required to be given hereunder shall be in writing and shall be given either
personally or by mailing the same in a sealed envelope, by overnight courier or
by first-class mail, postage prepaid and either certified or registered, in
either case, return receipt requested, or by telecopy, addressed to the Company
at its principal offices and to the other parties at their addresses reflected
on the signature pages hereto. Each party hereto, by written notice given to the
other parties hereto in accordance with this Section 5.5, may change the address
to which notices, statements, instructions or other documents are to be sent to
such party. All notices, statements, instructions and other documents hereunder
that are mailed or telecopied shall be deemed to have been given on the date of
mailing or, in the case of telecopying, upon confirmation of receipt.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties, and their respective successors and
assigns. If any Stockholder or any Affiliate thereof or any Transferee of any
Stockholder shall acquire any shares of Common Stock in any manner, whether by
operation of law or otherwise, such shares shall be held subject to all of the
terms of this Agreement, and by taking and holding such shares such Person shall
be conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
5.7 Recapitalizations and Exchanges Affecting Common Stock. The provisions
of this Agreement shall apply, to the full extent set forth herein with respect
to Common Stock, to any and all shares of capital stock or equity securities of
the
-30-
<PAGE> 35
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of, the Common Stock, or which may be issued
by reason of any stock dividend, stock split, reverse stock split, combination,
recapitalization, reclassification or otherwise. Upon the occurrence of any of
such events, numbers of shares and amounts hereunder shall be appropriately
adjusted, as determined in good faith by the Board of Directors of the Company.
5.8 Governing Law. This Agreement shall be governed and construed and
enforced in accordance with the laws of the State of New York, without regard to
the principles of conflicts of law thereof.
5.9 Descriptive Headings, Etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, references to "hereof," "herein," "hereby," "hereunder" and
similar terms shall refer to this entire Agreement.
5.10 Amendment; Waiver; Bylaws. This Agreement may not be amended or
supplemented except by an instrument in writing signed by the Company and by
Stockholders holding a majority of the then outstanding shares of Common Stock
held by all Stockholders; provided that any amendment, supplement or
modification of this Agreement which adversely affects the rights and
obligations of any Stockholder (an "Affected Holder") differently than those of
any other Stockholder shall also require the approval of such Affected Holder;
provided further, the foregoing proviso notwithstanding, any amendment,
supplement or modification of this Agreement that adversely affects the
Management Investors (or a group thereof) as a class may be approved by
Management Investors (or members of such group, as the case may be) holding
Common Stock or Options to purchase Common Stock, which together represent a
majority of the sum of the total number of (x) the shares of such Common Stock
and (y) the shares of Common Stock issuable upon exercise of such Options held
by all the Management Investors (or such group, as the case may be). The
foregoing notwithstanding, (i) the Company, without the consent of any other
party hereto, may amend Schedule I and the signature pages hereto, in order to
add any Management Investor or any other party that becomes a holder of Common
Stock or securities convertible into or exercisable for Common Stock and (ii)
GSCP and the Company may amend Article III of this Agreement (other than in a
manner that would materially reduce the Management Investor's rights or
materially increase the Management Investor's obligations with respect to
-31-
<PAGE> 36
Piggyback Registrations) without the agreement or consent of any Management
Investor.
5.11 Severability. If any term or provision of this Agreement shall to any
extent be invalid or unenforceable, the remainder of this Agreement shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. Upon the determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect their original intent as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
5.12 Further Assurances. The parties hereto shall from time to time
execute and deliver all such further documents and do all acts and things as the
other party may reasonably require to effectively carry out or better evidence
or perfect the full intent and meaning of this Agreement, including, to the
extent necessary or appropriate, using all reasonable efforts to cause the
amendment of the Amended Certificate or the By-Laws in order to provide for the
enforcement of this Agreement in accordance with its terms. In furtherance and
not in limitation of the foregoing, in the event of any amendment, modification
or termination of this Agreement in accordance with its terms, the Stockholders
shall cause the Board to meet within thirty (30) days following such amendment,
modification or termination or as soon thereafter as is practicable for the
purpose of amending the Amended Certificate and By-Laws, as may be required as a
result of such amendment, modification or termination, and, to the extent
required by law, proposing such amendments to the stockholders of the Company
entitled to vote thereon, and such action shall be the first action to be taken
at such meeting.
5.13 Complete Agreement; Counterparts. This Agreement (together with the
Merger Agreement, the Voting Agreement, the Stock Incentive Plan, the Employment
Agreements and the other agreements referred to herein and therein) constitutes
the entire agreement and supersedes all other agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
5.14 Certain Transactions. The parties hereto agree that Goldman Sachs
shall have the exclusive right to perform all
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<PAGE> 37
consulting, financing, investment banking and similar services for the Company
and its subsidiaries (including as lead underwriter or in any analogous role in
connection with any public or private offering of securities or debt, and
including in connection with the Merger), for customary compensation and on
other terms that are customary for similar engagements with unaffiliated third
parties, and neither the Company nor its subsidiaries shall engage any other
Person to perform such services during the term of this Agreement except to the
extent Goldman Sachs shall consent thereto or shall decline, at its sole
election, to perform such services.
5.15 No Third Party Beneficiaries. The provisions of this Agreement shall
be only for the benefit of the parties to this Agreement, and no other Person
(other than Goldman Sachs with respect to Section 5.14) shall have any third
party beneficiary or other right hereunder.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed on the date first written above.
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
-------------------------------------
Name: Gerald C. Rittenberg
Title: Chief Executive Officer
Address: 80 Grasslands Road
Elmsford, New York 10523
Attn: Secretary
Telecopier No.: (914) 345-2056
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.
General Partner
By: GS Advisors Inc., its
General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title: President
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 39
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
General Partner
By: GS Advisors II, Inc., its
General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title: President
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
GOLDMAN, SACHS & CO. VERWALTUNGS GMBH
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title: Managing Agent
By: /s/ EVE GERRIETS
-------------------------------------
Name: Eve Gerriets
Title: Registered Agent
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 40
STONE STREET FUND 1997, L.P.
By: Stone Street Asset Corp.
General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
BRIDGE STREET FUND 1997, L.P.
By: Stone Street Asset Corp.
Managing General Partner
By: /s/ RICHARD A. FRIEDMAN
-------------------------------------
Name: Richard A. Friedman
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 41
THE ESTATE OF JOHN A. SVENNINGSEN
By: /s/ CHRISTINE SVENNINGSEN
------------------------------------
Name: Christine Svenningsen
Title: Executrix
Address:
The following individuals, in their capacities as trustees or other fiduciaries
(whether on the date hereof or at any point in the future) of any trust or
similar instrument created by or at the instruction of, or under the last will
and testament of, John A. Svenningsen or the Estate, acknowledge this Agreement
and agree to be bound by the terms hereof in each such capacity, such agreement
being for the benefit of each of the parties hereto, and such individuals
further agree to cause any such trust or similar instrument upon its formation
to become a party to this Agreement as a Permitted Transferee pursuant to
Section 2.3.3 hereof (and as if a Management Investor hereunder) and in
accordance herewith have agreed to and acknowledged this Agreement:
By: /s/ LEE HARRISON CORBIN Dated: December 19, 1997
-------------------------- -----------------------
Name: Lee Harrison Corbin
Title: Attorney-In-Fact for Trustee
Address: 1 North Broadway
White Plains, NY 10801
By: /s/ FANNY S. WARREN Dated: December 19, 1997
-------------------------- -----------------------
Name: Fanny S. Warren
Title: Trustee
Address: 1 North Broadway
White Plains, NY 10801
<PAGE> 42
/s/ GERALD C. RITTENBERG Dated: December 19, 1997
- -------------------------- -----------------------
Gerald C. Rittenberg
Management Investor
Address:
<PAGE> 43
/s/ JAMES M. HARRISON Dated: December 19, 1997
- -------------------------- -----------------------
James M. Harrison
Management Investor
Address:
<PAGE> 44
/s/ WILLIAM WILKEY Dated: December 19, 1997
- -------------------------- -----------------------
William Wilkey
Management Investor
Address:
<PAGE> 45
/s/ DIANE D. SPAAR Dated: December 19, 1997
- -------------------------- -----------------------
Diane D. Spaar
Management Investor
Address:
<PAGE> 46
/s/ KATHERINE A. KUSNIERZ Dated: December 19, 1997
- -------------------------- -----------------------
Katherine A. Kusnierz
Management Investor
Address:
<PAGE> 47
/s/ ARTHUR KAUFMAN Dated: December 19, 1997
- -------------------------- -----------------------
Arthur Kaufman
Management Investor
Address:
<PAGE> 48
/s/ WILLIAM MARK Dated: December 19, 1997
- -------------------------- -----------------------
William Mark
Management Investor
Address:
<PAGE> 49
/s/ KAREN MCKENZIE Dated: December 19, 1997
- -------------------------- -----------------------
Karen McKenzie
Management Investor
Address:
<PAGE> 50
/s/ HOWARD HARDING Dated: December 19, 1997
- -------------------------- -----------------------
Howard Harding
Management Investor
Address:
<PAGE> 51
/s/ ROSE GIAGRANDE Dated: December 19, 1997
- -------------------------- -----------------------
Rose Giagrande
Management Investor
Address:
<PAGE> 52
/s/ ERIC STOLLMAN Dated: December 19, 1997
- -------------------------- -----------------------
Eric Stollman
Management Investor
Address:
<PAGE> 53
/s/ VINCENT ANASTASI Dated: December 19, 1997
- -------------------------- -----------------------
Vincent Anastasi
Management Investor
Address:
<PAGE> 54
/s/ MARK IRVINE Dated: December 19, 1997
- -------------------------- -----------------------
Mark Irvine
Management Investor
Address:
<PAGE> 55
/s/ CHERYL CONSIDINE Dated: December 19, 1997
- -------------------------- -----------------------
Cheryl Considine
Management Investor
Address:
<PAGE> 56
/s/ ROBERT YEDOWITZ Dated: December 19, 1997
- -------------------------- -----------------------
Robert Yedowitz
Management Investor
Address:
<PAGE> 57
/s/ MICHAEL HODGES Dated: December 19, 1997
- -------------------------- -----------------------
Michael Hodges
Management Investor
Address:
<PAGE> 58
/s/ ANGELO GIUMMARRA Dated: December 19, 1997
- -------------------------- -----------------------
Angelo Giummarra
Management Investor
Address:
<PAGE> 59
/s/ KEITH JOHNSON Dated: December 19, 1997
- -------------------------- -----------------------
Keith Johnson
Management Investor
Address:
<PAGE> 60
/s/ CHARLES PHILLIPS Dated: December 19, 1997
- -------------------------- -----------------------
Charles Phillips
Management Investor
Address:
<PAGE> 61
/s/ EDGAR SHOOK Dated: December 19, 1997
- -------------------------- -----------------------
Edgar Shook
Management Investor
Address:
<PAGE> 62
/s/ KATHLEEN ROONEY Dated: December 19, 1997
- -------------------------- -----------------------
Kathleen Rooney
Management Investor
Address:
<PAGE> 63
/s/ AOIFE QUINN Dated: December 19, 1997
- -------------------------- -----------------------
Aoife Quinn
Management Investor
Address:
<PAGE> 64
/s/ SCOTT LAMETTO Dated: December 19, 1997
- -------------------------- -----------------------
Scott Lametto
Management Investor
Address:
<PAGE> 65
/s/ PATRICK VENUTI Dated: December 19, 1997
- -------------------------- -----------------------
Patrick Venuti
Management Investor
Address:
<PAGE> 66
/s/ NIGEL KEANE Dated: December 19, 1997
- -------------------------- -----------------------
Nigel Keane
Management Investor
Address:
<PAGE> 67
/s/ MORTON FISHER Dated: December 19, 1997
- -------------------------- -----------------------
Morton Fisher
Management Investor
Address:
<PAGE> 68
/s/ KEITH SPAAR Dated: December 19, 1997
- -------------------------- -----------------------
Keith Spaar
Management Investor
Address:
<PAGE> 69
/s/ WALTER THOMPSON Dated: December 19, 1997
- -------------------------- -----------------------
Walter Thompson
Management Investor
Address:
<PAGE> 70
/s/ SUSAN SCOTT Dated: December 19, 1997
- -------------------------- -----------------------
Susan Scott
Management Investor
Address:
<PAGE> 71
/s/ RANDY HARRIS Dated: December 19, 1997
- -------------------------- -----------------------
Randy Harris
Management Investor
Address:
<PAGE> 72
/s/ JAMES DOTTI Dated: December 19, 1997
- -------------------------- -----------------------
James Dotti
Management Investor
Address:
<PAGE> 73
/s/ MICHAEL A. CORREALE Dated: December 19, 1997
- -------------------------- -----------------------
Michael A. Correale
Management Investor
Address:
<PAGE> 74
/s/ JOSEPH WALTER Dated: December 19, 1997
- -------------------------- -----------------------
Joseph Walter
Management Investor
Address:
<PAGE> 75
/s/ DALLAS HARTMAN Dated: December 19, 1997
- -------------------------- -----------------------
Dallas Hartman
Management Investor
Address:
<PAGE> 76
/s/ CONNIE WECKMAN Dated: December 19, 1997
- -------------------------- -----------------------
Connie Weckman
Management Investor
Address:
<PAGE> 77
/s/ KEN DANFORTH Dated: December 19, 1997
- -------------------------- -----------------------
Ken Danforth
Management Investor
Address:
<PAGE> 78
EXHIBIT A
[STOCK INCENTIVE PLAN]
<PAGE> 79
AMSCAN HOLDINGS, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give Amscan Holdings, Inc. (the "Company")
and its Affiliates (each as defined below) a competitive advantage in
attracting, retaining and motivating officers, employees, consultants and
directors, and to provide the Company and its subsidiaries with a stock plan
providing incentives linked to the financial results of the Company's
businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" of a Person means a Person directly or indirectly controlled
by, controlling or under common control with such Person.
"Award" means a Stock Appreciation Right, Stock Option or Restricted
Stock.
"Award Agreement" means a Restricted Stock Agreement or Option Agreement.
An Award Agreement may consist of provisions of an employment agreement.
"Board" means the Board of Directors of the Company.
"Change in Control" shall mean (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) other than GSCP (as defined in the Stockholders' Agreement) and
their Affiliates of a majority of the outstanding voting stock of the Company
or (2) the sale of or other disposition (other than by way of merger or
consolidation) of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole to any Person or group of Persons, other than to
a Person (or group of Persons) a majority of the outstanding voting stock (or
other voting interests) of which are beneficially owned by GSCP and their
Affiliates.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
"Committee" means (a) before an IPO, the Executive Committee of the Board,
or such other committee of the Board as the Board may designate for such
purpose under the Plan, and (b)
<PAGE> 80
after an IPO, such committee of the Board as the Board may designate, which
shall be composed of not less than two Non-Employee Directors, each of whom
shall be appointed by and serve at the pleasure of the Board.
"Common Stock" means the Common Stock, par value $0.10 per share, of the
Company.
"Company" means Amscan Holdings, Inc., a Delaware corporation.
"Employment" means, unless otherwise defined in an applicable Restricted
Stock Agreement, Option Agreement or Employment Agreement, employment with, or
service as a director of or as a consultant to, the Company or any of its
Affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.
"Fair Market Value" of the Common Stock means, as of any given date, the
mean between the highest and lowest reported sales prices of the Common Stock
on the New York Stock Exchange or, if not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or, if not so
listed, on the Nasdaq National Market. If such sales prices are not so
available, the Fair Market Value of the Common Stock shall be determined by the
Committee in good faith.
"IPO" means the consummation of a registered underwritten public offering
or offerings of Common Stock with gross proceeds to the Company in the
aggregate of at least $50 million.
"Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b--3(b)(3), as promulgated by the
SEC under the Exchange Act, or any successor definition adopted by the SEC.
"Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option Agreement" means an agreement setting forth the terms and
conditions of an Award of Stock Options and, if applicable, Stock Appreciation
Rights.
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"Participant" has the meaning set forth in Section 4.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization, government (or any
department or agency thereof) or other entity.
"Plan" means the Amscan Holdings, Inc. 1997 Stock Incentive Plan, as set
forth herein and as hereinafter amended from time to time.
"Plan Shares" has the meaning set forth in Section 12(b).
"Restricted Stock" means an Award granted under Section 7.
"Restricted Stock Agreement" means an agreement setting forth the terms
and conditions of an Award of Restricted Stock.
"Rule 13d-3" means Rule 13d-3, as promulgated by the SEC under the
Exchange Act, as amended from time to time.
"SEC" means the Securities and Exchange Commission or any successor
agency.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor thereto.
"Stock Appreciation Right" means a right granted under Section 6.
"Stock Option" means an option granted under Section 5.
"Stockholders' Agreement" has the meaning as set forth in Section 12(a).
In addition, certain other terms used herein have definitions otherwise
ascribed to them herein.
SECTION 2. Administration
The Plan shall be administered by the Committee, or, if no Committee has
been designated or appointed, by the Board (in which case all references herein
to the Committee shall include the Board).
Among other things, the Committee shall have the authority, subject to the
terms of the Plan, to:
3
<PAGE> 82
(a) select the Participants to whom Awards may from time to time be
granted;
(b) determine whether and to what extent Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price, any vesting conditions,
restrictions or limitations (which may be related to the performance of the
Participant, the Company or any of its Affiliates)) and any acceleration of
vesting or waiver of forfeiture regarding any Award and the shares of Common
Stock relating thereto, based on such factors as the Committee shall determine;
(e) modify, amend or adjust the terms and conditions of any Award, at any
time or from time to time;
(f) determine to what extent and under what circumstances Common Stock and
other amounts payable with respect to an Award shall be deferred;
(g) determine under what circumstances an Award may be settled in cash or
Common Stock under Section 5(g);
(h) adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable;
(i) interpret the terms and provisions of the Plan and any Award issued
under the Plan (and any agreement relating thereto); and
(j) otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their number
or any officer of the Company to execute and deliver documents on behalf of the
Committee.
Any dispute or disagreement which may arise under, or as a result of, or
in any way relate to, the interpretation, construction or application of the
Plan or an Award (or related Award Agreement) granted hereunder shall be
determined by the Committee. Any determination made by the Committee pursuant
to
4
<PAGE> 83
the provisions of the Plan with respect to the Plan, any Award or Award
Agreement shall be made in the sole discretion of the Committee and, with
respect to an Award, at the time of the grant of the Award or, unless in
contravention of any express term of the Plan, at any time thereafter. All
decisions made by the Committee shall be final and binding on all persons,
including the Company and the Participants.
SECTION 3. Common Stock Subject to Plan
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 120. Shares subject to an Award under the Plan
may be authorized and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited or if any Stock Option
(and related Stock Appreciation Right, if any) terminates without being
exercised, or if any Stock Appreciation Right is exercised for cash, the shares
subject to such Awards shall again be available for distribution in connection
with Awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, spinoff, stock dividend, stock split, reverse stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock, the Committee or the Board may
make such substitution or adjustment in the aggregate number and kind of shares
or other property reserved for issuance under the Plan, in the number, kind and
Exercise Price (as defined herein) of shares or other property subject to
outstanding Stock Options and Stock Appreciation Rights, in the number and kind
of shares or other property subject to Restricted Stock Awards, and/or such
other equitable substitution or adjustments as it may determine to be fair and
appropriate in its sole discretion. Any such adjusted Exercise Price shall also
be used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right associated with any Stock Option.
SECTION 4. Participants
Officers, employees, consultants and non-employee directors of the Company
and its Affiliates who are responsible for or contribute to the management,
growth and profitability of the business of the Company and its Affiliates
shall be "Participants" eligible to be granted Awards under the Plan.
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<PAGE> 84
SECTION 5. Stock Options
The Committee shall have the authority to grant any Participant Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within
the meaning of Section 424(f) of the Code). To the extent that any Stock Option
is not designated as an Incentive Stock Option or even if so designated does
not qualify as an Incentive Stock Option, it shall constitute a Nonqualified
Stock Option.
Stock Options shall be evidenced by Option Agreements, which shall include
such terms and provisions as the Committee may determine from time to time. An
Option Agreement shall expressly indicate whether it is intended to be an
agreement for an Incentive Stock Option or a Nonqualified Stock Option. The
grant of a Stock Option shall occur on the date the Committee by resolution
selects an individual to be a Participant in any grant of a Stock Option,
determines the number of shares of Common Stock to be subject to such Stock
Option to be granted to such individual and specifies the terms and provisions
of the Stock Option, or on such other date as the Committee may determine. The
Company shall notify a Participant of any grant of a Stock Option, and a
written Option Agreement shall be duly executed and delivered by the Company to
the Participant. Subject to Section 12(a), such agreement shall become
effective upon execution by the Company and the Participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so
as to disqualify the Plan under Section 422 of the Code or, without the consent
of the Participant affected, to disqualify any Incentive Stock Option under
such Section 422.
Stock Options shall be subject to the following terms and conditions and
shall contain such additional terms and conditions as the Committee shall deem
desirable:
(a) Exercise Price. The price per share of Common Stock purchasable under
a Stock Option shall be determined by the Committee and set forth in the Option
Agreement (the "Exercise Price").
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee. Absent any such term being fixed by the Committee, pursuant to an
Option Agreement or otherwise, such term shall be ten years.
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<PAGE> 85
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
vested Stock Options may be exercised, in whole or in part, at any time during
the option term by giving written notice of exercise to the Company specifying
the number of shares of Common Stock subject to the Stock Option to be
purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Company may accept.
If approved by the Committee, payment, in full or in part, may also be made in
the form of unrestricted Common Stock already owned by the Participant of the
same class as the Common Stock subject to the Stock Option (based on the Fair
Market Value of the Common Stock on the date the Stock Option is exercised);
provided, however, that, in the case of an Incentive Stock Option the right to
make a payment in the form of already owned shares of Common Stock of the same
class as the Common Stock subject to the Stock Option may be authorized only at
the time the Stock Option is granted.
In the discretion of the Committee, after an IPO, payment for any shares
subject to a Stock Option may also be made by delivering a properly executed
exercise notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the purchase price, and, if requested by the Company,
the amount of any federal, state, local or foreign withholding taxes. To
facilitate the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in
7
<PAGE> 86
the Stockholders' Agreement or the applicable Option Agreement, subject to a
Participant's compliance with Section 12(a) hereof, a Participant shall have
all of the rights of a stockholder of the Company holding the class or series
of Common Stock that is subject to such Stock Option (including, if applicable,
the right to vote the shares and the right to receive dividends and
distributions), when the Participant has given written notice of exercise, has
paid in full for such shares and, if requested, has given the representations
referred to in Section 12(c).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the Participant other than (i) by will or by the laws of
descent and distribution or (ii) in the case of a Nonqualified Stock Option, as
otherwise expressly permitted under the applicable Option Agreement including,
if so permitted, pursuant to a qualified domestic relations order (as defined
in the Code) or pursuant to a gift to such Participant's spouse, children,
grandchildren or other living descendants, whether directly or indirectly or by
means of a trust, partnership, limited liability company or otherwise. All
Stock Options shall be exercisable, subject to the terms of this Plan, during
the Participant's lifetime, only by the Participant or any person to whom such
Stock Option is transferred pursuant to the preceding sentence, including such
Participant's guardian, legal representative and other transferee. The term
"Participant" includes the estate of the Participant or the legal
representative of the Participant named in the Option Agreement and any person
to whom an Option is otherwise transferred in accordance with this Section
5(e), by will or the laws of descent and distribution; provided, however, that
references herein to Employment of a Participant or termination of Employment
of a Participant shall continue to refer to the Employment or termination of
Employment of the applicable grantee of an Award hereunder.
(f) Termination of Employment. Except as otherwise provided by the
Committee or in the applicable Option Agreement, upon the Participant's death
or when the Participant's Employment is terminated for any reason, the
Participant:
a. shall forfeit all Stock Options that have not previously
vested;
b. shall have three months to exercise the Participant's vested
Stock Options that are vested on the date of the Participant's
termination of Employment if such termination is for any reason
other than the Participant's death; and
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<PAGE> 87
c. shall have one year to exercise the Participant's vested
Stock Options that are vested on the date of death if the
Participant's termination of Employment is due to the Participant's
death.
Any vested Stock Options not exercised within the permissible period of time
shall be forfeited by the Participant. Notwithstanding any of the foregoing,
the Participant shall not be permitted to exercise any Stock Option at a time
beyond the initial option term.
(g) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or any portion of the shares of Common
Stock for which a Stock Option is being exercised by paying the Participant an
amount, in cash or Common Stock, equal to the excess of the Fair Market Value
of one share of Common Stock over the Exercise Price per share times the number
of shares of Common Stock for which the Option is being exercised on the
effective date of such cashout.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Nonqualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option. In either case,
the terms and conditions of a Stock Appreciation Right shall be set forth in
the Option Agreement for the related Stock Option or an amendment thereto.
A Stock Appreciation Right may be exercised by a Participant in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the Participant shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
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<PAGE> 88
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they
relate are exercisable in accordance with the provisions of Section 5
and this Section 6;
(ii) upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount equal to the
product of (a) the excess of the Fair Market Value of one share of
Common Stock over the Exercise Price per share specified in the
related Stock Option times (b) the number of shares in respect of
which the Stock Appreciation Right shall have been exercised, in
cash, shares of Common Stock or both, with the Committee having the
right to determine the form of payment;
(iii) Stock Appreciation Rights shall be transferable only with
the related Stock Option in accordance with Section 5(e); and
(iv) upon the exercise of a Stock Appreciation Right (other than
an exercise for cash), the Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in Section 3 on
the number of shares of Common Stock to be issued under the Plan, but
only to the extent of the number of shares covered by the Stock
Appreciation Right at the time of exercise.
SECTION 7. Restricted Stock
The Committee shall determine the Participants to whom and the time or
times at which grants of Restricted Stock will be awarded, the number of shares
to be awarded to any Participant, the conditions for vesting, the time or times
within which such Awards may be subject to forfeiture and restrictions on
transfer and any other terms and conditions of the Awards (including provisions
(i) relating to placing legends on certificates representing shares of
Restricted Stock, (ii) permitting the Company to require that shares of
Restricted Stock be held in custody by the Company with a stock power from the
owner thereof until restrictions lapse and (iii) relating to any rights to
purchase the Restricted Stock on the part of the Company and
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<PAGE> 89
its Affiliates), in addition to those contained in the Stockholders'
Agreement. The terms and conditions of Restricted Stock Awards shall be set
forth in a Restricted Stock Agreement, which shall include such terms and
provisions as the Committee may determine from time to time. Except as provided
in this Section 7, the Restricted Stock Agreement, the Stockholders' Agreement
and any other relevant agreements, the Participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a stockholder of the
Company holding the class or series of Common Stock that is the subject of the
Restricted Stock Award, including, if applicable, the right to vote the shares
and, subject to the following sentence, the right to receive any cash dividends
or distributions (but, subject to the third paragraph of Section 3, not the
right to receive non-cash dividends or distributions). If so determined by the
Committee in the applicable Restricted Stock Agreement, cash dividends and
distributions on the class or series of Common Stock that is the subject of the
Restricted Stock Award shall be automatically deferred and reinvested in
additional Restricted Stock, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting conditions applicable only to
dividends and distributions.
SECTION 8. Tax Offset Bonuses
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the Participant receiving such Award the right to
receive a cash payment in an amount specified by the Committee, to be paid at
such time or times (if ever) as the Award results in compensation income to the
Participant, for the purpose of assisting the Participant to pay the resulting
taxes, all as determined by the Committee, and on such other terms and
conditions as the Committee shall determine.
SECTION 9. Change in Control Provisions
Notwithstanding any other provision of the Plan to the contrary, unless
otherwise provided in the applicable Award Agreement or the Stockholders'
Agreement, in the event of a Change in Control:
(a) immediately prior to the occurrence of a Change in Control, all
Stock Options and Stock Appreciation Rights outstanding as of such date,
and which are not then exercisable and vested, shall become fully
exercisable and vested to the full extent of the original grant; and
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<PAGE> 90
(b) the restrictions and deferral limitations applicable to any
Restricted Stock (and any dividends or distributions in respect of
Restricted Stock) shall lapse, and such Restricted Stock (and any
dividends or distributions in respect of Restricted Stock) shall become
free of all restrictions, fully vested and transferable to the full extent
of the not theretofore forfeited portion of the original grant.
SECTION 10. Term, Amendment and Termination
The Plan will terminate ten years after the effective date of the Plan.
Awards outstanding as of such date shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, prospectively or
retroactively, but no amendment, alteration or discontinuation shall be made
which would impair the rights of any Participant under an Award theretofore
granted without the Participant's consent.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall be made which would
impair the rights of any Participant thereunder without the Participant's
consent.
SECTION 11. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 12. General Provisions
(a) Stockholders' Agreement. Notwithstanding anything in this Plan to the
contrary, unless the Committee determines otherwise, it shall be a condition to
receiving any Award under the Plan or transferring any Option in accordance
with Section 5(e) or any other transfer permitted under the terms of an Award
Agreement or otherwise, that a Participant (or transferee in the case of such
transfer) shall become a party to the Stockholders' Agreement, dated as of
December 19, 1997,
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<PAGE> 91
among the Company and certain stockholders of the Company, as amended from time
to time (the "Stockholders' Agreement"), and such Participant (or transferee in
the case of such transfer) shall become a "Management Investor" thereunder (or
such transferee shall become a "Permitted Transferee" of a "Management
Investor" thereunder).
(b) Awards and Certificates. Shares of Restricted Stock and shares of
Common Stock issuable upon the exercise of a Stock Option or Stock Appreciation
Right (together, "Plan Shares") shall be evidenced in such manner as the
Committee may deem appropriate, including book-entry registration or issuance
of one or more stock certificates. Any certificate issued in respect of Plan
Shares shall be registered in the name of such Participant and shall bear
appropriate legends referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms, conditions and
restrictions (including forfeiture) of the Amscan Holdings, Inc. 1997
Stock Incentive Plan and a Restricted Stock Agreement and/or an
Option Agreement, as the case may be, between the issuer and the
registered holder hereof. Copies of such Plan and Agreement are on
file at the offices of Amscan Holdings, Inc., 80 Grasslands Road,
Elmsford, New York 10523."
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state, and may not be sold or otherwise
disposed of except pursuant to an effective registration statement
under said Act and applicable state securities laws or an applicable
exemption to the registration requirements of such Act and laws."
Such shares may bear other legends to the extent the Committee or the Board
determines it to be necessary or appropriate, including any required by the
Stockholders' Agreement or pursuant to any applicable Restricted Stock
Agreement or Option Agreement. If and when all restrictions expire without a
prior forfeiture of the Plan Shares theretofore subject to such restrictions,
new certificates for such shares shall be delivered to the Participant without
the first legend listed above.
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<PAGE> 92
The Committee may require that any certificates evidencing Plan Shares be
held in custody by the Company until the restrictions thereon shall have lapsed
and that the Participant deliver a stock power, endorsed in blank, relating to
the Plan Shares.
(c) Representations and Warranties. The Committee may require each person
purchasing or receiving Plan Shares to (i) represent to and agree with the
Company in writing that such person is acquiring the shares without a view to
the distribution thereof and (ii) make any other representations and warranties
that the Committee deems appropriate.
(d) Additional Compensation. Nothing contained in the Plan shall prevent
the Company or any of its Affiliates from adopting other or additional
compensation arrangements for its employees.
(e) No Right of Employment. Adoption of the Plan or grant of any Award
shall not confer upon any employee any right to continued Employment, nor shall
it interfere in any way with the right of the Company or any of its Affiliate
thereof to terminate the Employment of any employee at any time.
(f) Withholding Taxes. No later than the date as of which an amount first
becomes includible in the gross income of a Participant for federal income tax
purposes with respect to any Award under the Plan, such Participant shall pay
to the Company or, if appropriate, any of its Affiliates, or make arrangements
satisfactory to the Committee regarding the payment of, any federal, state,
local or foreign taxes of any kind required by law to be withheld with respect
to such amount. If approved by the Committee, withholding obligations may be
settled with Common Stock, including Common Stock that is part of the Award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment otherwise due to the
Participant. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(g) Beneficiaries. The Committee shall establish such procedures as it
deems appropriate for a Participant to designate a beneficiary to whom any
amounts payable in the event of the Participant's death are to be paid or by
whom any rights of the Participant, after the Participant's death, may be
exercised.
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<PAGE> 93
(h) Pooling of Interests. Notwithstanding any other provision of this
Plan, if any right (or the exercise of such right) granted pursuant to this
Plan would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 that but for the nature of
such grant or grants would otherwise be eligible for such accounting treatment,
the Committee shall have the ability to substitute for the cash payable
pursuant to such grant or grants Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder, or make any other
appropriate adjustment.
(i) Governing Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed and enforced in accordance with
the laws of the State of New York without regard to the principles of conflicts
of law thereof.
(j) Compliance with Laws. If any law or any regulation of any commission
or agency having jurisdiction shall require the Company or a Participant
seeking to exercise Stock Options or Stock Appreciation Rights to take any
action with respect to the Plan Shares to be issued upon the exercise of Stock
Options or Stock Appreciation Rights then the date upon which the Company shall
issue or cause to be issued the certificate or certificates for the Plan Shares
shall be postponed until full compliance has been made with all such
requirements of law or regulation; provided, that the Company shall use its
reasonable efforts to take all necessary action to comply with such
requirements of law or regulation. Moreover, in the event that the Company
shall determine that, in compliance with the Securities Act or other applicable
statutes or regulations, it is necessary to register any of the Plan Shares
with respect to which an exercise of a Stock Option or Stock Appreciation Right
has been made, or to qualify any such Plan Shares for exemption from any of the
requirements of the Securities Act or any other applicable statute or
regulation, no Stock Options or Stock Appreciation Rights may be exercised and
no Plan Shares shall be issued to the exercising Participant until the required
action has been completed; provided, that the Company shall use its reasonable
efforts to take all necessary action to comply with such requirements of law or
regulation. Notwithstanding anything to the contrary contained herein, neither
the Board nor the members of the Committee owes a fiduciary duty to any
Participant in his or her capacity as such.
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SECTION 13. Effective Date of Plan
The Plan shall be effective as of the date it is approved by the holders
of a majority of the outstanding shares of Common Stock, which approval is
evidenced by Section 5.3 under the Stockholders' Agreement.
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<PAGE> 95
Schedule I
Management Investors
Options
-------
Gerald C. Rittenberg 16.648
James M. Harrison 16.268
William S. Wilkey 16.441
Diane D. Spaar 11.827
Katherine A. Kusnierz 11.577
Morton Fisher 2.383
William Mark 1.280
Angelo Giummarra 2.477
Karen McKenzie 1.477
Keith Johnson 1.280
Howard Harding 1.280
Walter Thompson 1.144
Charles Phillips 0.478
Susan Scott 1.144
Rose Giagrande 1.238
Randy Harris 0.718
Eric Stollman 1.238
Kathleen Rooney 1.238
James Dotti 1.238
Vincent Anastasi 0.794
Michael A. Correale 2.570
Mark Irvine 0.555
Scott Lametto 0.999
Joseph Walter 0.555
Cheryl Considine 0.999
Patrick Venuti 0.555
Dallas Hartman 0.555
Robert Yedowitz 0.555
Nigel Keane 0.555
Connie Weckman 0.555
Ken Danforth 0.555
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement") by and between Confetti Acquisition,
Inc., a Delaware corporation ("Confetti"), and Gerald C. Rittenberg (the
"Executive"), dated as of the 10th day of August, 1997.
WHEREAS, Confetti and Amscan Holdings, Inc., a Delaware corporation
(the "Company"), have, simultaneously with the execution and delivery of this
Agreement, entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), by and between Confetti and the Company
pursuant to which, among other things, Confetti will be merged with and into the
Company (the "Merger") and the Company will be the surviving company in the
Merger (references herein to the Company include, where applicable, the Company
as the surviving company in the Merger);
WHEREAS, Confetti is also entering into a Voting Agreement, dated as
of the date hereof (the "Voting Agreement"), by and among Confetti, the Estate
of John A. Svenningsen and Christine Svenningsen;
WHEREAS, Confetti, the Company, the Executive and certain other
stockholders of the Company will enter into a Stockholders Agreement at or prior
to the Effective Time (as defined in the Merger Agreement), substantially in the
form delivered on the date hereof (the "Stockholders Agreement");
WHEREAS, the Board of Directors of Confetti has determined that it
will be in the best interests of Confetti to retain the employment of the
Executive as Chief Executive Officer of the Company after the Merger and the
Executive desires to serve in that capacity;
WHEREAS, the Executive desires to invest in the Company, as the
surviving company in the Merger, as an equity investor; and
WHEREAS, Confetti and the Executive desire to set forth in a written
agreement the terms and conditions under which the Executive will retain an
equity interest in the Company and will continue to be employed by the Company
after the Merger.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. (a) Initial Term. The Company shall employ
the Executive, and the Executive agrees to,
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and shall, serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on the Closing Date (as defined in the
Merger Agreement) of the Merger and ending on the third anniversary of such date
(the "Initial Term").
(b) Extension of Initial Term. The Initial Term of this Agreement
will be automatically extended after the third anniversary of the Closing Date
for additional successive periods of one year each, each such extension to be
effective immediately after the last day of the term then in effect, with the
first such extension period beginning on the third anniversary of the Closing
Date (each such additional period, an "Additional Term") (the Initial Term and
any Additional Term thereof pursuant to this Section 1(b) being hereinafter
referred to as the "Employment Period"), unless either the Company gives the
Executive or the Executive gives the Company not less than twelve 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 Employment Period.
2. Position and Duties. (a) During the Employment Period, the
Executive shall be Chief Executive Officer of the Company with such duties and
responsibilities as are assigned to him by the Board of Directors of the Company
(the "Board") consistent with his position as Chief Executive Officer of the
Company, including, as the Board may request, without additional compensation,
to serve as an officer or director of certain subsidiaries and other affiliated
entities of the Company.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote his full attention and time during normal business hours to the business
and affairs of the Company and shall perform his services primarily at the
Company's headquarters, wherever the Board may from time to time designate them
to be, but in any case, within a 100-mile radius of Elmsford, New York, and
shall use his reasonable best efforts to carry out the responsibilities assigned
to the Executive faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to (i) serve on civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions or (iii) manage personal investments, so long
as such activities do not compete with and are not provided to or for any entity
that competes with or intends to compete with the Company or any of its
subsidiaries and affiliates and do not interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
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3. Compensation. (a) Base Salary. During the Initial Term, the
Executive shall receive from the Company an annual base salary ("Annual Base
Salary") of $295,000, payable in regular intervals in accordance with the
Company's customary payroll practices in effect during the Employment Period.
Such Annual Base Salary shall be increased by 5% (from the Annual Base Salary
theretofore in effect) at the beginning of each Additional Term and shall be
payable in accordance with the preceding sentence.
(b) Other Compensation. In addition to the Annual Base Salary, the
Executive shall be eligible for an annual bonus for each calendar year of
employment hereunder (the "Bonus"). Any Bonus shall be paid no later than the
March 15th following the end of the calendar year to which such Bonus
corresponds. The exact amount of the Bonus, if any, payable to the Executive
hereunder shall be determined as follows:
(i) A non-discretionary bonus, which shall be awarded, if earned, in
an amount equal to 50% of the Executive's Annual Base Salary if
certain operational and financial targets, determined from time to
time by the Board in consultation with the Executive, are attained;
and
(ii) A discretionary bonus awarded in the sole discretion of the
Board.
For any calendar year during which the Executive is employed by the Company for
less than the entire year, any Bonus shall be payable on a pro rata basis for
the period during which the Executive is employed during such calendar year
(based on the number of days in such calendar year the Executive was so employed
divided by 365), as determined in good faith by the Board; provided, however,
that in no event will the Executive be entitled to a Bonus for any calendar year
during which the Executive's employment is terminated during the Employment
Period other than as provided in Section 6(c) of this Agreement, if applicable.
(c) Other Benefits. During the Employment Period: (i) the Executive
shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs of the Company, and shall be entitled to paid
vacation, to the same extent and on the same terms and conditions as peer
executives; and (ii) the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in, and shall receive all benefits
under, all welfare benefit plans, practices, policies and programs provided by
the Company (including, to the extent provided, without
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limitation, medical, prescription, dental, disability, employee life insurance,
group life insurance, accidental death and travel accident insurance plans and
programs) to the same extent and on the same terms and conditions as peer
executives; provided, however, that nothing in this Agreement shall impose on
the Company any obligation to offer to the Executive participation in any stock,
stock option, bonus or other incentive award, plan, practice, policy or program
other than the awards made pursuant to paragraphs (b) and (e) of this Section 3
and the Options granted in accordance with paragraph (f) of this Section 3. The
term "peer executives" means the President and Senior Vice President in charge
of Sales and Marketing of the Company, if such positions exist.
(d) Expenses. During the Employment Period, the Executive shall be
entitled to receive reimbursement for all reasonable travel and other expenses
incurred by the Executive in carrying out the Executive's duties under this
Agreement, provided that the Executive complies with the policies, practices and
procedures of the Company for submission of expense reports, receipts, or
similar documentation of such expenses.
(e) Stock. (i) The Executive hereby agrees to contribute to Confetti
immediately prior to the Effective Time (as defined in the Merger Agreement),
272,728 shares of the Company's common stock, par value $.10 per share, and
receive in exchange therefor shares of common stock of Confetti having an
aggregate value equal to (x) 272,728 multiplied by (y) the Cash Election Price
(as defined in the Merger Agreement), such Confetti shares to be valued based on
the purchase price for which GS Capital Partners II, L.P. ("GSCP") and its
affiliates purchase common shares of Confetti immediately prior to the Effective
Time (the "New Purchase Price") (the shares so acquired, both before and after
they are converted into shares of the Company's common stock pursuant to the
Merger, are collectively referred to herein as the "Rollover Stock"). (For
example, if the New Purchase Price is $10 per share and the Cash Election Price
is $16.50 per share, then the Executive would receive, prior to the Effective
Time, 450,001 shares of Confetti common stock in exchange for the 272,728 shares
of Company common stock.) At the Effective Time, the Rollover Stock shall be
converted from shares of Confetti into shares of the Company (as the surviving
company in the Merger) pursuant to the Merger on the same basis as all other
common shares of Confetti are converted.
(ii) After the Effective Time, shares of Rollover Stock shall be
evidenced by issuance of one or more stock certificates registered in the name
of the Executive and bearing appropriate legends referring to the terms,
conditions, and
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restrictions applicable to such Rollover Stock, as provided in the Stockholders
Agreement.
(iii) The Executive shall not be permitted to sell, assign,
transfer, pledge or otherwise encumber any Options (as defined below), shares of
Rollover Stock, or shares acquired upon exercise of such Options ("Option
Shares"), except as provided in the Stockholders Agreement and the Option
Documents (as defined below), and the shares of Rollover Stock and Option Shares
shall be subject to the terms of the Stockholders Agreement.
(f) Options. Promptly following the Effective Time, the Executive
shall be granted options (the "Options") to purchase a number of shares of
common stock of the Company (as the surviving company in the Merger) equal to
1.50% of the total number of outstanding shares of common stock of the Company
immediately after the Effective Time on a Fully Diluted Basis For New Options
(including, if necessary, options to purchase fractions of a share), at an
exercise price equal to GSCP's effective cost per share of the Company's common
stock, based on the New Purchase Price adjusted to reflect the change in the
number of shares of the Company's common stock into which GSCP's shares of
Confetti common stock are converted pursuant to the Merger. (For example, if the
New Purchase Price is $10 per share, and, in the Merger, GSCP receives one share
of the Company's common stock for every 100 shares of Confetti common stock it
owned prior to the Merger, GSCP's per share cost of the Company's common stock
would be $1,000.) Such Options shall be granted pursuant to a stock incentive
plan and related option agreement (together, the "Option Documents"), which will
be adopted by the Company at or following the Effective Time. Such Options will
vest in equal annual installments over a five-year period and will be subject to
forfeiture upon termination of the Executive's employment, if not vested and
exercised within the time periods specified in the Option Documents. Unless
sooner exercised or forfeited as provided for in the Option Documents, the
Options shall expire on the tenth anniversary of the Effective Time. For
purposes of this Agreement, the number of shares on a "Fully Diluted Basis For
New Options" immediately after the Effective Time shall mean, the total number
of shares of common stock of the Company that would be outstanding immediately
after the Effective Time if all of the then-outstanding options to purchase
Company common stock granted, or options reserved for future grants (other than
any options converted from options outstanding prior to the Effective Time),
pursuant to the Option Documents were exercised at or immediately following the
Effective Time (regardless of whether such options are actually exercised).
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<PAGE> 6
4. Executive's Representations, Warranties and Agreements. The
Executive hereby makes the following representations, warranties and agreements:
(a) Investment Intention; No Resales. The Executive represents and
warrants that such Executive is acquiring the Rollover Stock for investment
purposes only, solely for his own account and not with a view to, or for resale
in connection with, the distribution or other disposition thereof or with any
present intention of distributing or reselling any Rollover Stock thereof,
except for such distributions and dispositions as are both explicitly permitted
under this Agreement and the Stockholders Agreement and effected in compliance
with the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations thereunder, and all applicable state securities or "blue
sky" laws. The Executive agrees and acknowledges that such Executive will not,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of any Rollover Stock, or solicit any offers to purchase or
otherwise acquire or take a pledge of any Rollover Stock, other than transfers,
sales, assignments, pledges, hypothecations or other dispositions explicitly
permitted by the Stockholders Agreement and provided that (x) any such transfer,
sale, assignment, pledge, hypothecation or other disposition is in accordance
with the terms and provisions of the Stockholders Agreement and (y) (i) the
transfer, sale, assignment, pledge, hypothecation or other disposition is
pursuant to an effective registration statement under the Securities Act and has
been registered under all applicable state securities or "blue sky" laws, or
(ii) the Executive shall have furnished the Company with an opinion of counsel
(which counsel and the form and substance of which opinion shall be reasonably
satisfactory to the Company), to the effect that no such registration is
required because of the availability of an exemption from registration under the
Securities Act and the rules and regulations in effect thereunder and under all
applicable state securities or "blue sky" laws.
(b) Stock Unregistered. The Executive acknowledges and represents
that such Executive has been advised that (i) the Rollover Stock, upon issuance,
will not have been registered under the Securities Act; (ii) the Rollover Stock
must be held for an indefinite period and such Executive must continue to bear
the economic risk of the investment in the Rollover Stock unless it is
subsequently registered under the Securities Act or an exemption from such
registration is available; (iii) there is no, and it is not anticipated that
there will be any, public market for the Rollover Stock; (iv) Rule 144
promulgated under the Securities Act ("Rule 144") will not be available
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<PAGE> 7
with respect to the sales of any securities of the Company following the
Effective Time, and the Company has made no covenant to make such Rule 144
available; (v) if and when the Rollover Stock may be disposed of without
registration in reliance on Rule 144, such disposition can be made only in
limited amounts in accordance with the terms and conditions of such Rule 144
and, in any event, any such disposition must be in accordance with the
Stockholders Agreement; (vi) if the Rule 144 exemption is not available, public
offer or sale without registration will require the availability of an exemption
under the Securities Act; (vii) a restrictive legend or legends as provided for
in the Stockholders Agreement shall be placed on the certificates representing
the Rollover Stock; (viii) the Stockholders Agreement restricts the sale or
transfer of shares of Rollover Stock other than at specified times and under
specified circumstances; and (ix) a notation shall be made in the appropriate
records of the Company indicating that the Rollover Stock is subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a securities transfer agent, appropriate stop-transfer
instructions may be issued to such transfer agent with respect to the Rollover
Stock.
(c) Additional Investment Representations. The Executive represents
and warrants that (i) the Executive's financial situation is such that the
Executive can afford to bear the economic risk of holding the Rollover Stock for
an indefinite period of time and suffer complete loss of the Executive's
investment in the Rollover Stock; (ii) the Executive's knowledge and experience
in financial and business matters (and, in particular, with respect to the
Company) are such that the Executive is capable of evaluating the merits and
risks of the Executive's investment in the Rollover Stock; (iii) the Executive
understands that the Rollover Stock is a speculative investment which involves a
high degree of risk of loss of the Executive's investment therein, that there
are substantial restrictions on the transferability of the Rollover Stock and
that on the date of this Agreement and for an indefinite period following such
date there will be no public market for the Rollover Stock and, accordingly, it
may not be possible to liquidate the Executive's investment in the Company at
all, including in case of emergency; (iv) the Executive and the Executive's
representatives, including the Executive's professional, tax and other advisors,
have carefully reviewed the financial and other information with respect to the
Company, and its subsidiaries (including with respect to the Merger) supplied to
them and the Executive understands and has taken cognizance of (or has been
advised by the Executive's representatives as to) all the risks related to an
investment in the
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<PAGE> 8
Rollover Stock; (v) in making the Executive's decision to invest in the Rollover
Stock hereunder, the Executive has relied upon independent investigations made
by the Executive and, to the extent believed by the Executive to be appropriate,
the Executive's representatives, including the Executive's own professional, tax
and other advisors; (vi) the Executive and the Executive's representatives have
received and read this Agreement, the Stockholders Agreement, the Merger
Agreement and all other documents related to and executed or to be executed in
connection with the transactions contemplated hereby and thereby, and have been
given the opportunity to examine for a reasonable time prior to the date hereof
all documents and to ask questions of, and to receive answers from, the Company,
Confetti and their respective representatives concerning the terms and
conditions of the investment in the Rollover Stock and to obtain any additional
information which Confetti and its subsidiaries possess or can acquire without
unreasonable effort or expense, necessary to verify the accuracy of the
information supplied to it, and the Executive and the Executive's
representatives have received all additional information requested by them, and
no representations have been made to the Executive or such representatives
concerning the Rollover Stock, their respective affiliates, their businesses or
prospects or other matters, except as set forth in this Agreement; and (vii) the
Executive is an officer of the Company holding the position of President as of
the date hereof, is familiar with the operations and businesses of the Company,
has access to all material financial and other information available from the
Company, and has significant business experience in the party goods or similar
business and, in any such case, expects, after the Merger, to be an officer of
the Company.
(d) The Executive represents and warrants that such Executive has
read and understands the Merger Agreement and the related agreements and the
Stockholders Agreement, is familiar with and understands the respective terms
thereof and consents and agrees to the treatment of the Executive's shares of
Rollover Stock, Options, and Option Shares pursuant thereto, to whatever extent
each applies respectively. The Executive covenants that he will execute and
become a party to the Stockholders Agreement substantially in the form delivered
as of the date hereof.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that the Executive has been unable, for a
period of (i) 180 consecutive days or (ii)
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<PAGE> 9
an aggregate of 210 days in a period of 365 consecutive days, to perform his
duties under this Agreement, as a result of physical or mental illness or
injury. A termination of the Executive's employment by the Company for
Disability shall be communicated to the Executive by written notice, and shall
be effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), unless the Executive returns to full-time
performance of the Executive's duties in accordance with the provisions of
Section 2 of this Agreement before the Disability Effective Date. In the event
of a dispute as to whether Executive has suffered a Disability, the final
determination shall be made by a licensed physician selected by the Board of
Directors of the Company and acceptable to Executive in Executive's reasonable
judgment.
(b) Not Death or Disability. The Company may terminate the
Executive's employment at any time during the Employment Period with or without
Cause. The Executive may terminate his employment at any time during the
Employment Period for any reason.
(c) Date of Termination. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, or the date on which the
termination of the Executive's employment by the Company, or by the Executive,
is effective, as the case may be.
6. Obligations of the Company Upon Termination. (a) By the Company,
Other Than for Death or Disability. If, during the Employment Period, the
Company terminates the Executive's employment other than due to the Executive's
death or Disability, the Company shall, except as provided in clause (ii) below,
pay the amounts described in subparagraph (i) below to the Executive in a lump
sum in cash within 30 days after the Date of Termination:
(i) The amounts to be paid in a lump sum as described above are:
(A) The Executive's accrued but unpaid cash compensation (the
"Accrued Obligations"), which shall equal the sum of (1) any
portion of the Executive's Annual Base Salary through the Date
of Termination that has not yet been paid; (2) any Bonus that
the Executive has earned for a prior full calendar year that
has ended prior to the Date of Termination but which has not
yet been calculated and paid; (3) any compensation previously
deferred by the Executive (together with any accrued interest
or earnings
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<PAGE> 10
thereon) that has not yet been paid (subject to any applicable
provisions of any deferred compensation plan with respect to
the payment thereof); and (4) any accrued but unpaid vacation
pay; and
(B) Severance pay equal to the Annual Base Salary; provided,
however, that in connection with a termination by the Company
other than for Cause following a Sale Event, such severance
pay shall be equal to the Annual Base Salary multiplied by the
number of years constituting the Post-Termination Restriction
Period (as defined in Section 9(a)(ii)). (For example, if the
Company, pursuant to its Restriction Election (as defined in
Section 9(a)(ii)), elects a two-year Post-Termination
Restriction Period, then severance pay will be equal to two
times the Annual Base Salary.)
(ii) Notwithstanding the foregoing, if the Executive's employment is
terminated for Cause, the Executive shall not be entitled to the
payments contemplated by clause (i)(B) of this Section 6(a) and the
payment to the Executive in connection therewith shall be limited to
payment of the Accrued Obligations and the Company shall have no
further obligations under this Agreement. For purposes of this
Agreement, "Cause" shall mean (1) conviction of the Executive by a
court of competent jurisdiction of a felony (excluding felonies
under the Motor Vehicle Code); (2) any act of intentional fraud
against the Company; (3) any act of gross negligence or wilful
misconduct with respect to the Executive's duties under this
Agreement; and (4) any act of wilful disobedience in violation of
specific reasonable directions of the Board consistent with the
Executive's duties.
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment Period,
the Company shall pay the Accrued Obligations to the Executive or the
Executive's estate or legal representative, as applicable, in a lump sum in cash
within 30 days of the Date of Termination and the Company shall have no further
obligations under this Agreement.
(c) Bonus. If (i) the Executive's employment is terminated during
the Employment Period (1) by the Company other than for Cause or (2) by reason
of the Executive's death
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or Disability, or (ii) the Employment Period is not renewed at the expiration
thereof (other than for Cause), the Company shall pay to the Executive or the
Executive's estate or legal representative, as applicable, an amount equal to
the Bonus which the Executive would otherwise have been entitled to receive for
the calendar year in which the Executive's employment is so terminated or not
renewed, determined on a pro rata basis for the period during which the
Executive is employed during such calendar year (based on the number of days in
such calendar year the Executive was so employed divided by 365). For purposes
of this Section 6(c), the Bonus shall be calculated in accordance with Section
3(b) at the end of the calendar year in which such Bonus would otherwise have
been payable and shall be paid to the Executive no later than March 15th
following the end of the calendar year to which such Bonus corresponds.
(d) By the Executive. If the Executive terminates his employment
with the Company, the Company shall pay the Accrued Obligations to the Executive
in a lump sum in cash within 30 days of the Date of Termination and the Company
shall have no further obligations under this Agreement.
(e) Effect of Employment of Executive by Certain Stock or Asset
Purchasers. If all or substantially all of the stock or assets of the Company is
sold or otherwise disposed of to a third party not affiliated with the Company,
and the Executive is not offered employment on substantially similar terms by
the Company or one of its continuing affiliates immediately thereafter, then,
for all purposes of this Agreement, the Executive's employment shall be deemed
to have been terminated by the Company other than for Cause effective as of the
date of such sale or other disposition; provided, however, that the Company
shall have no obligations to the Executive under this Section 6 of this
Agreement if the Executive is hired or offered employment on substantially
similar terms by the purchaser of the stock or assets of the Company or if the
Executive's employment is continued by the Company.
7. Full Settlement. The Company's obligations to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced, regardless of whether the Executive obtains other employment.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any company affiliated with the
Company and its respective businesses that the Executive obtains during the
Executive's employment by the Company (whether before, during or after the
Employment Term) and that is not public knowledge (other than as a result of the
Executive's violation of this Section 8) ("Confidential Information"). The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Company, except
with the prior written consent of the Company or as otherwise required by law.
9. Noncompetition; Nonsolicitation. (a) (i) During the Employment
Period and during the three-year period (subject to section 9(a)(ii)) following
any termination of the Executive's employment with the Company and any of its
affiliates, including due to expiration of the Employment Period (the
"Restriction Period"), the Executive shall not directly or indirectly
participate in or permit his name directly or indirectly to be used by or become
associated with (including as an advisor, representative, agent, promoter,
independent contractor, provider of personal services or otherwise) any person,
corporation, partnership, firm, association or other enterprise or entity (a
"person") that is, or intends to be, engaged in any business which is in
competition with the business of the Company, or any of its subsidiaries or
controlled affiliates in any country in which the Company or any of its
subsidiaries or controlled affiliates operate, compete or are engaged in such
business or at such time intend so to operate, compete or become engaged in such
business (a "Competitor"). For purposes of this Agreement, the term
"participate" includes any direct or indirect interest, whether as an officer,
director, employee, partner, sole proprietor, trustee, beneficiary, agent,
representative, independent contractor, consultant, advisor, provider of
personal services, creditor, owner (other than by ownership of less than five
percent of the stock of a publicly-held corporation whose stock is traded on a
national securities exchange or in an over-the-counter market).
(ii) In the event the Employment Period is terminated by the Company
other than for Cause following a Sale Event (as defined below), the Company
shall elect (a "Restriction Election"), in its sole and absolute discretion
(subject to the provisions of Section 6(a)(i)(B) of this Agreement), to limit
the remainder of the Restriction Period following such termination to a one, two
or three-year period (the "PostTermination Restriction Period"). If no
Restriction Election
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is made, the Company shall be deemed to have elected a three-year
Post-Termination Restriction Period. For purposes of this Agreement, "Sale
Event" shall mean either (1) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) that is a Competitor, other than
GSCP and its affiliates, of a majority of the outstanding voting stock of the
Company or (2) the sale of or other disposition (other than by way of merger or
consolidation) of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole to any person or group of persons that is a
Competitor; provided, however, that in no event shall an underwritten initial
public offering or public offerings of shares of Company common stock pursuant
to a registration statement under the Securities Act constitute a Sale Event.
For purposes of this paragraph, the assignment to the Executive of any duties
materially inconsistent with the position with the Company that the Executive
held immediately prior to the Sale Event, or a material adverse change in the
status, position or conditions of the Executive's employment or the nature of
the Executive's responsibilities in effect immediately prior to such Sale Event
shall be deemed a termination by the Company without Cause.
(b) During the portion of the Restriction Period following any
termination of the Executive's employment with the Company and any of its
affiliates, the Executive shall not, directly or indirectly, encourage or
solicit, or assist any other person or firm in encouraging or soliciting, any
person that during the three-year period preceding such termination of the
Executive's employment with the Company is or was engaged in a business
relationship with the Company, any of its subsidiaries or controlled affiliates
to terminate its relationship with the Company or any of its subsidiaries or
controlled affiliates or to engage in a business relationship with a Competitor.
(c) During the portion of the Restriction Period following any
termination of the Executive's employment with the Company and any of its
affiliates, the Executive will not, except with the prior written consent of the
Company, directly or indirectly, induce any employee of the Company, or any of
its subsidiaries or controlled affiliates to terminate employment with such
entity, and will not, directly or indirectly, either individually or as owner,
agent, employee, consultant or otherwise, employ, offer employment or cause
employment to be offered to any person (including employment as an independent
contractor) who is or was employed by the Company or any of its respective
subsidiaries or controlled affiliates unless such person shall have ceased to be
employed by such entity for a
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period of at least twelve months. For purposes of this Section 9(c),
"employment" shall be deemed to include rendering services as an independent
contractor and "employees" shall be deemed to include independent contractors.
(d) Promptly following the Executive's termination of employment,
including due to expiration of the Employment Period, the Executive shall return
to the Company all property of the Company and its respective subsidiaries and
affiliates, and all copies thereof in the Executive's possession or under his
control, including, without limitation, all Confidential Information in whatever
media such Confidential Information is maintained.
(e) The Executive acknowledges and agrees that the Restriction
Period and the covenants and obligations of the Executive in Section 8 and this
Section 9 with respect to non-competition, nonsolicitation and confidentiality
and with respect to the property of the Company and its subsidiaries and
controlled affiliates, and the territories covered thereby, are fair and
reasonable and the result of negotiation. The Executive further acknowledges and
agrees that the covenants and obligations of the Executive in Section 8 and this
Section 9 with respect to noncompetition, nonsolicitation and confidentiality
and with respect to the property of the Company and its subsidiaries and
controlled affiliates, and the territories covered thereby, relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such covenants and obligations will cause the Company and its subsidiaries and
affiliates irreparable injury for which adequate remedies are not available at
law. Therefore, the Executive agrees that the Company shall be entitled to an
injunction, restraining order or such other equitable relief as a court of
competent jurisdiction may deem necessary or appropriate to restrain the
Executive from committing any violation of such covenants and obligations. These
injunctive remedies are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity. If, at the time of
enforcement of Section 8 and/or this Section 9, a court holds that the
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum period, scope, or geographical area
legally permissible under such circumstances will be substituted for the period,
scope or area stated herein.
10. Successors. (a) This Agreement is personal to the Executive and
shall not be assignable by the Executive. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
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<PAGE> 15
(b) This Agreement shall inure to the benefit of and be binding upon
Confetti and its successors and assigns, and upon the effectiveness of the
Merger shall inure to the benefit of and be binding upon the Company (as the
surviving company in the Merger) and its successors and assigns, and at the
Effective Time, the Company shall execute a counterpart to this Agreement
acknowledging that it is bound by the terms hereof.
11. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
overnight courier or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Gerald C. Rittenberg
18 Carey Drive
Bedford, NY 10506
If to the Company:
Confetti Acquisition, Inc.
c/o GS Capital Partners II, L.P.
85 Broad Street
New York, NY 10004
Attention: David J. Greenwald
Telecopier No. (212) 357-5505
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of this Section 11. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under
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<PAGE> 16
this Agreement all federal, state, local and foreign taxes that are required to
be withheld by applicable laws or regulations.
(e) Any party's failure to insist upon strict compliance with any
provision of, or to assert any right under, this Agreement shall not be deemed
to be a waiver of such provision or right or of any other provision of or right
under this Agreement.
(f) The Executive acknowledges that this Agreement (together with
the Stockholders Agreement, and the Voting Agreement and the other agreements
referred to herein and therein) supersedes all other agreements and
understandings, both written and oral, between the Executive and Confetti, and
upon the effectiveness of this Agreement between the Executive and the Company
concerning the subject matter hereof, and any prior employment agreement between
the Executive and the Company or any direct or indirect subsidiary of the
Company, shall be terminated as of the Effective Time; provided, however, that
the Employment Agreement, between the Company and the Executive, dated as of
October 9, 1996 (the "Prior Employment Agreement"), is intended to continue to
be in full force and effect in accordance with its terms until the Effective
Time, at which time the Prior Employment Agreement shall be terminated and no
further payments shall be made by the Company to the Executive thereunder. Until
the Effective Time, the Executive will not consent to any amendment or waiver of
the Prior Employment Agreement without the prior written consent of Confetti.
(g) The effectiveness of this Agreement is contingent upon (i) the
Closing and the effectiveness of the Merger and (ii) there being no termination
of the Prior Employment Agreement for any reason prior to the Effective Time. If
(x) the Closing does not occur and the Merger Agreement is terminated or (y) the
Prior Employment Agreement is terminated (and in the case of termination of the
Prior Employment Agreement, upon the election of Confetti), this Agreement shall
have no effect and shall be void ab initio without any party hereto having any
liability to any other party hereto (provided, that the foregoing shall not
limit the rights of Confetti and the Company under the Merger Agreement).
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<PAGE> 17
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, Confetti has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
CONFETTI ACQUISITION, INC.
By: /s/ TERENCE M. O'TOOLE
-----------------------------------
Name: Terence M. O'Toole
Title: Chairman of the Board and
President
/s/ GERALD C. RITTENBERG
-----------------------------------
Gerald C. Rittenberg
IN WITNESS WHEREOF, Amscan Holdings, Inc. as the surviving company
in the Merger, which has been consummated, pursuant to the authorization of its
Board of Directors, has caused this Agreement to be executed in its name on its
behalf, all as of the 19th day of December, 1997.
AMSCAN HOLDINGS, INC.
By: /s/ JAMES M. HARRISON
-----------------------------------
Name: James M. Harrison
Title: President
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<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement") by and between Confetti Acquisition,
Inc., a Delaware corporation ("Confetti"), and James M. Harrison (the
"Executive"), dated as of the 10th day of August, 1997.
WHEREAS, Confetti and Amscan Holdings, Inc., a Delaware corporation
(the "Company"), have, simultaneously with the execution and delivery of this
Agreement, entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), by and between Confetti and the Company
pursuant to which, among other things, Confetti will be merged with and into the
Company (the "Merger") and the Company will be the surviving company in the
Merger (references herein to the Company include, where applicable, the Company
as the surviving company in the Merger);
WHEREAS, Confetti is also entering into a Voting Agreement, dated as
of the date hereof (the "Voting Agreement"), by and among Confetti, the Estate
of John A. Svenningsen and Christine Svenningsen;
WHEREAS, Confetti, the Company, the Executive and certain other
stockholders of the Company will enter into a Stockholders Agreement at or prior
to the Effective Time (as defined in the Merger Agreement), substantially in the
form delivered on the date hereof (the "Stockholders Agreement");
WHEREAS, the Board of Directors of Confetti has determined that it
will be in the best interests of Confetti to retain the employment of the
Executive as President of the Company after the Merger and the Executive desires
to serve in that capacity;
WHEREAS, the Executive desires to invest in the Company, as the
surviving company in the Merger, as an equity investor; and
WHEREAS, Confetti and the Executive desire to set forth in a written
agreement the terms and conditions under which the Executive will acquire an
equity interest in the Company and will continue to be employed by the Company
after the Merger.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. (a) Initial Term. The Company shall employ
the Executive, and the Executive agrees to,
<PAGE> 2
and shall, serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on the Closing Date (as defined in the
Merger Agreement) of the Merger and ending on the third anniversary of such date
(the "Initial Term").
(b) Extension of Initial Term. The Initial Term of this Agreement
will be automatically extended after the third anniversary of the Closing Date
for additional successive periods of one year each, each such extension to be
effective immediately after the last day of the term then in effect, with the
first such extension period beginning on the third anniversary of the Closing
Date (each such additional period, an "Additional Term") (the Initial Term and
any Additional Term thereof pursuant to this Section 1(b) being hereinafter
referred to as the "Employment Period"), unless either the Company gives the
Executive or the Executive gives the Company not less than twelve 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 Employment Period.
2. Position and Duties. (a) During the Employment Period, the
Executive shall be President of the Company with such duties and
responsibilities as are assigned to him by the Board of Directors of the Company
(the "Board") consistent with his position as President of the Company,
including, as the Board may request, without additional compensation, to serve
as an officer or director of certain subsidiaries and other affiliated entities
of the Company.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote his full attention and time during normal business hours to the business
and affairs of the Company and shall perform his services primarily at the
Company's headquarters, wherever the Board may from time to time designate them
to be, but in any case, within a 100-mile radius of Elmsford, New York, and
shall use his reasonable best efforts to carry out the responsibilities assigned
to the Executive faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to (i) serve on civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions, or (iii) manage personal investments, so long
as such activities do not compete with and are not provided to or for any entity
that competes with or intends to compete with the Company or any of its
subsidiaries and affiliates and do not interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
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<PAGE> 3
3. Compensation. (a) Base Salary. During the Initial Term, the
Executive shall receive from the Company an annual base salary ("Annual Base
Salary") of $275,000, payable in regular intervals in accordance with the
Company's customary payroll practices in effect during the Employment Period.
Such Annual Base Salary shall be increased by 5% (from the Annual Base Salary
theretofore in effect) at the beginning of each Additional Term and shall be
payable in accordance with the preceding sentence.
(b) Other Compensation. In addition to the Annual Base Salary, the
Executive shall be eligible for an annual bonus for each calendar year of
employment hereunder (the "Bonus"). Any Bonus shall be paid no later than the
March 15th following the end of the calendar year to which such Bonus
corresponds. The exact amount of the Bonus, if any, payable to the Executive
hereunder shall be determined as follows:
(i) A non-discretionary bonus, which shall be awarded, if earned, in
an amount equal to 50% of the Executive's Annual Base Salary if
certain operational and financial targets, determined from time to
time by the Board in consultation with the Executive, are attained;
and
(ii) A discretionary bonus awarded in the sole discretion of the
Board.
For any calendar year during which the Executive is employed by the
Company for less than the entire year, any Bonus shall be payable on
a pro rata basis for the period during which the Executive is
employed during such calendar year (based on the number of days in
such calendar year the Executive was so employed divided by 365), as
determined in good faith by the Board; provided, however, that in no
event will the Executive be entitled to a Bonus for any calendar
year during which the Executive's employment is terminated during
the Employment Period other than as provided in Section 7(c) of this
Agreement, if applicable. Notwithstanding any of the foregoing with
respect to the calculation of the Bonus, the Bonus for the 1997
calendar year will be equal to the Bonus that would have been
payable to the Executive for the 1997 calendar year in accordance
with the relevant terms of the Prior Employment Agreement (as
defined below) including Schedule A thereto, calculated without
taking into account any incremental financing or transaction costs
attributable to the Merger as determined in good faith by the Board.
In addition to any other bonus payable, on March 15, 1998, the
Executive shall receive a bonus payment of $105,000.
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<PAGE> 4
(c) Other Benefits. During the Employment Period: (i) the Executive
shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs of the Company, and shall be entitled to paid
vacation, to the same extent and on the same terms and conditions as peer
executives; and (ii) the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in, and shall receive all benefits
under, all welfare benefit plans, practices, policies and programs provided by
the Company (including, to the extent provided, without limitation, medical,
prescription, dental, disability, employee life insurance, group life insurance,
accidental death and travel accident insurance plans and programs) to the same
extent and on the same terms and conditions as peer executives; provided,
however, that nothing in this Agreement shall impose on the Company any
obligation to offer to the Executive participation in any stock, stock option,
bonus or other incentive award, plan, practice, policy or program other than the
awards made pursuant to paragraph (b) of this Section 3, the Options granted in
accordance with paragraph (e) of this Section 3 and the Restricted Stock (as
defined below) granted pursuant to Section 4 of this Agreement. The term "peer
executives" means the Chief Executive Officer and Senior Vice President in
charge of Sales and Marketing of the Company, if such positions exist.
(d) Expenses. During the Employment Period, the Executive shall be
entitled to receive reimbursement for all reasonable travel and other expenses
incurred by the Executive in carrying out the Executive's duties under this
Agreement, provided that the Executive complies with the policies, practices and
procedures of the Company for submission of expense reports, receipts, or
similar documentation of such expenses.
(e) Options.
(i) Promptly following the Effective Time (as defined in the Merger
Agreement), the Executive shall be granted options (the "Options")
to purchase a number of shares of common stock of the Company (as
the surviving company in the Merger) equal to 1.25% of the total
number of outstanding shares of common stock of the Company
immediately after the Effective Time on a Fully Diluted Basis For
New Options (including, if necessary, options to purchase fractions
of a share), at an exercise price equal to the effective cost per
share of the Company's common stock paid by GS Capital Partners II,
L.P. ("GSCP") and its affiliates (the "New Cost Per Share"), based
on the purchase price for which GSCP and its affiliates purchase
common shares of Confetti immediately prior to
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<PAGE> 5
the Effective Time (the "New Purchase Price") adjusted to reflect
the change in the number of shares of the Company's common stock
into which GSCP's shares of Confetti common stock are converted
pursuant to the Merger. (For example, if the New Purchase Price is
$10 per share, and, in the Merger, GSCP receives one share of the
Company's common stock for every 100 shares of Confetti common stock
it owned prior to the Merger, the New Cost Per Share would be
$1,000.) Such Options shall be granted pursuant to a stock incentive
plan and related option agreement (together, the "Option
Documents"), which will be adopted by the Company at or following
the Effective Time. Such Options will vest in equal annual
installments over a five-year period and will be subject to
forfeiture upon termination of the Executive's employment, if not
vested and exercised within the time periods specified in the Option
Documents. Unless sooner exercised or forfeited as provided for in
the Option Documents, the Options shall expire on the tenth
anniversary of the Effective Time. For purposes of this Agreement,
the number of shares on a "Fully Diluted Basis For New Options"
immediately after the Effective Time shall mean, the total number of
shares of common stock of the Company that would be outstanding
immediately after the Effective Time if all of the then-outstanding
options to purchase Company common stock granted, or options
reserved for future grants (other than any options converted from
options outstanding prior to the Effective Time), pursuant to the
Option Documents were exercised at or immediately following the
Effective Time (regardless of whether such options are actually
exercised).
(ii) The Executive hereby agrees that, as of the Effective Time, his
options to purchase 50,000 shares of common stock of the Company
(the "Old Options"), which Old Options comprise all such options
held by the Executive as of the date hereof, shall be converted into
Options to purchase 0.233% of the shares of common stock of the
Company (as the surviving company in the Merger) (such Options, the
"Rollover Options") immediately after the Effective Time on a Fully
Diluted Basis For Rollover Options (including, if necessary, options
to purchase fractions of a share). The Rollover Options shall have
an exercise price per share of common stock of the Company subject
to such Rollover Options immediately after the Effective Time equal
to 73% of the New Cost Per Share
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<PAGE> 6
(the "Rollover Exercise Price"). The difference between the New Cost
Per Share and the Rollover Exercise Price is referred to as the "New
Per Share Spread." To the extent (x) the New Per Share Spread
multiplied by (y) the number of shares subject to the Rollover
Options (the result of multiplying (x) and (y) being referred to as
the "Remaining Spread") is less than $225,000 (the "Prior Spread"),
the Executive will receive at the Effective Time a cash bonus equal
to the difference resulting from subtracting the Remaining Spread
from the Prior Spread. (For example, if the New Cost Per Share is
$75,000 and the Executive is granted Rollover Options to purchase 2
shares at $54,750 per share (73% of the New Cost Per Share of
$75,000), the Executive would receive a cash bonus of $184,500.) The
Rollover Options shall be granted pursuant to the Option Documents
and on the same terms as the Options. For purposes of this
Agreement, the number of shares on a "Fully Diluted Basis For
Rollover Options" immediately after the Effective Time shall mean,
the total number of shares of common stock of the Company that would
be outstanding immediately after the Effective Time if all of the
then-outstanding options to purchase Company common stock which were
converted from options outstanding prior to the Effective Time (and
not including any options granted, or options reserved for future
grants, at or immediately after the Effective Time) were exercised
at or immediately following the Effective Time (regardless of
whether such options are actually exercised).
4. Restricted Stock. (a) Effective immediately prior to the
Effective Time of the Merger, Confetti shall grant the Executive a number of
shares (the "Restricted Stock") of common stock of Confetti having an aggregate
value of $1,125,000, based on the New Purchase Price, which shares will be
converted in the Merger into shares of the Company (as the surviving company in
the Merger) on the same basis as all other common shares of Confetti are
converted. During the Restricted Period (as defined below), the Restricted Stock
shall be forfeitable as described below and may not be sold, assigned,
transferred, pledged or otherwise encumbered by the Executive. After the end of
the Restricted Period, the Restricted Stock shall remain subject to any
restrictions on transferability and other restrictions pursuant to the
Stockholders Agreement (to the extent in effect from time to time). The
"Restricted Period" means the period beginning on the date of grant of the
Restricted Stock and ending on the earliest of (i) the occurrence of an IPO (as
defined in the Stockholders Agreement);
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<PAGE> 7
(ii) immediately prior to the consummation of a transaction or series of
transactions, approved by the Board, pursuant to which a person, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended), other than Goldman, Sachs & Co. or any of its
affiliates, acquires a majority of the outstanding voting stock of the Company;
and (iii) the termination of the Executive's employment with the Company, (1)
because of the Executive's death, (2) by the Company without Cause, (3) by the
Executive because of the Company's material breach of its obligations hereunder,
(4) by the Executive if the Company imposes on such Executive duties or work
conditions materially burdensome to the Executive which are inconsistent with
such Executive's prior duties and work conditions or (5) because of the
Executive's Disability (as those terms are defined herein); provided, however,
that the Restricted Period shall end with respect to 25% of the shares of
Restricted Stock so issued on January 1, 1998 and with respect to the remaining
75%, in equal installments on January 1 of each of the years 1999 through 2007.
Upon the voluntary or involuntary termination of the Executive's employment
during the Restricted Period for any reason, other than a reason listed in
clause (iii) of the preceding sentence, all Restricted Stock (with respect to
which the Restricted Period has not then ended) shall be forfeited and returned
to the Company without payment.
(b) As soon as practicable after the Effective Time, the Company
shall issue (or cause to be delivered) to the Executive one or more stock
certificates in respect of the Restricted Stock, which certificates shall be
registered in the name of the Executive and shall bear an appropriate legend
substantially in the following form:
The securities represented by this certificate are subject to the
terms and conditions (including forfeiture) set forth in (i) an
Employment Agreement, dated as of August 10, 1997, between the
issuer and the registered holder hereof and (ii) a Stockholders
Agreement, dated as of _________, 1997, copies of each of which may
be obtained from the issuer or from the holder of this security. No
transfer of such securities will be made on the books of the issuer
unless accompanied by evidence of compliance with the terms of such
agreements.
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
the
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<PAGE> 8
securities laws of any state, and may not be sold or otherwise
disposed of except pursuant to an effective registration statement
under said Act and applicable state securities law or an applicable
exemption to the registration requirements of such Act or laws.
Such certificates may bear other legends to the extent the Board determines it
to be necessary or appropriate or as may be required by the Stockholders
Agreement. The Board may require that the certificates evidencing the Restricted
Stock be held in custody by the Company until the restrictions thereon shall
have lapsed and that the Executive deliver a stock power, endorsed in blank,
relating to the shares of Restricted Stock.
(c) During the Restricted Period the Executive shall be entitled to
vote the Restricted Stock and to receive regular quarterly cash dividends and
cash distributions with respect thereto, but shall have no other rights of a
stockholder with respect thereto.
(d) The number and kind of shares included in the Restricted Stock
(and thereby subject to the terms and conditions set forth in this Agreement
with respect thereto) shall be adjusted to reflect any merger, reorganization,
consolidation, recapitalization, spin-off, stock dividend, stock split,
extraordinary distribution with respect to the Company's common stock or other
change in corporate structure affecting such common stock, as the Board or a
committee thereof shall deem fair and appropriate.
(e) At the end of the Restricted Period (with respect to any shares
of Restricted Stock), if the Restricted Stock has not been forfeited,
certificates for such shares shall be delivered to the Executive.
5. Executive's Representations, Warranties and Agreements. The
Executive hereby makes the following representations, warranties and agreements:
(a) Investment Intention; No Resales. The Executive represents and
warrants that such Executive is acquiring the Restricted Stock for investment
purposes only, solely for his own account and not with a view to, or for resale
in connection with, the distribution or other disposition thereof or with any
present intention of distributing or reselling any Restricted Stock, except for
such distributions and dispositions as are both explicitly permitted under this
Agreement and the Stockholders Agreement and effected in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), and the
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<PAGE> 9
rules and regulations thereunder, and all applicable state securities or "blue
sky" laws. The Executive agrees and acknowledges that such Executive will not,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of any Restricted Stock, or solicit any offers to purchase or
otherwise acquire or take a pledge of any Restricted Stock, other than
transfers, sales, assignments, pledges, hypothecations or other dispositions
explicitly permitted by the Stockholders Agreement and provided that (x) any
such transfer, sale, assignment, pledge, hypothecation or other disposition is
in accordance with the terms and provisions of the Stockholders Agreement and
(y) (i) the transfer, sale, assignment, pledge, hypothecation or other
disposition is pursuant to an effective registration statement under the
Securities Act and has been registered under all applicable state securities or
"blue sky" laws, or (ii) the Executive shall have furnished the Company with an
opinion of counsel (which counsel and the form and substance of which opinion
shall be reasonably satisfactory to the Company), to the effect that no such
registration is required because of the availability of an exemption from
registration under the Securities Act and the rules and regulations in effect
thereunder and under all applicable state securities or "blue sky" laws.
(b) Stock Unregistered. The Executive acknowledges and represents
that such Executive has been advised that (i) the Restricted Stock, upon
issuance, will not have been registered under the Securities Act; (ii) the
Restricted Stock must be held for an indefinite period and such Executive must
continue to bear the economic risk of the investment in the Restricted Stock
unless it is subsequently registered under the Securities Act or an exemption
from such registration is available; (iii) there is no, and it is not
anticipated that there will be any, public market for the Restricted Stock; (iv)
Rule 144 promulgated under the Securities Act ("Rule 144") will not be available
with respect to the sales of any securities of the Company following the
Effective Time, and the Company has made no covenant to make such Rule 144
available; (v) if and when the Restricted Stock may be disposed of without
registration in reliance on Rule 144, such disposition can be made only in
limited amounts in accordance with the terms and conditions of such Rule 144
and, in any event, any such disposition must be in accordance with the
Stockholders Agreement; (vi) if the Rule 144 exemption is not available, public
offer or sale without registration will require the availability of an exemption
under the Securities Act; (vii) a restrictive legend or legends as provided for
in the Stockholders Agreement shall be placed on the certificates representing
the Restricted Stock; (viii) the Stockholders Agreement restricts the sale or
transfer of shares of Restricted Stock other than at specified times and
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<PAGE> 10
under specified circumstances; and (ix) a notation shall be made in the
appropriate records of the Company indicating that the Restricted Stock is
subject to restrictions on transfer and, if the Company should at some time in
the future engage the services of a securities transfer agent, appropriate
stop-transfer instructions may be issued to such transfer agent with respect to
the Restricted Stock.
(c) Additional Investment Representations. The Executive represents
and warrants that (i) the Executive's financial situation is such that the
Executive can afford to bear the economic risk of holding the Restricted Stock
for an indefinite period of time and suffer complete loss of the Executive's
investment in the Restricted Stock; (ii) the Executive's knowledge and
experience in financial and business matters (and, in particular, with respect
to the Company) are such that the Executive is capable of evaluating the merits
and risks of the Executive's investment in the Restricted Stock; (iii) the
Executive understands that the Restricted Stock is a speculative investment
which involves a high degree of risk of loss of the Executive's investment
therein, that there are substantial restrictions on the transferability of the
Restricted Stock and that on the date of this Agreement and for an indefinite
period following such date there will be no public market for the Restricted
Stock and, accordingly, it may not be possible to liquidate the Executive's
investment in the Company at all, including in case of emergency; (iv) the
Executive and the Executive's representatives, including the Executive's
professional, tax and other advisors, have carefully reviewed the financial and
other information with respect to the Company, and its subsidiaries (including
with respect to the Merger) supplied to them and the Executive understands and
has taken cognizance of (or has been advised by the Executive's representatives
as to) all the risks related to an investment in the Restricted Stock; (v) in
making the Executive's decision to invest in the Restricted Stock hereunder, the
Executive has relied upon independent investigations made by the Executive and,
to the extent believed by the Executive to be appropriate, the Executive's
representatives, including the Executive's own professional, tax and other
advisors; (vi) the Executive and the Executive's representatives have received
and read this Agreement, the Stockholders Agreement, the Merger Agreement and
all other documents related to and executed or to be executed in connection with
the transactions contemplated hereby and thereby, and have been given the
opportunity to examine for a reasonable time prior to the date hereof all
documents and to ask questions of, and to receive answers from, the Company,
Confetti and their respective representatives concerning the terms and
conditions of the investment in the Restricted Stock and to
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<PAGE> 11
obtain any additional information which Confetti and its subsidiaries possess or
can acquire without unreasonable effort or expense, necessary to verify the
accuracy of the information supplied to it, and the Executive and the
Executive's representatives have received all additional information requested
by them, and no representations have been made to the Executive or such
representatives concerning the Restricted Stock, their respective affiliates,
their businesses or prospects or other matters, except as set forth in this
Agreement; and (vii) the Executive is an officer of the Company holding the
position of Chief Financial Officer as of the date hereof, is familiar with the
operations and businesses of the Company, has access to all material financial
and other information available from the Company, and has significant business
experience in the party goods or similar business and, in any such case,
expects, after the Merger, to be an officer of the Company.
(d) The Executive represents and warrants that such Executive has
read and understands the Merger Agreement and the related agreements and the
Stockholders Agreement, is familiar with and understands the respective terms
thereof and consents and agrees to the treatment of the Executive's shares of
Restricted Stock, Options and Option Shares pursuant thereto, to whatever extent
each applies respectively. The Executive covenants that he will execute and
become a party to the Stockholders Agreement substantially in the form delivered
as of the date hereof.
6. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that the Executive has been unable, for a
period of (i) 180 consecutive days or (ii) an aggregate of 210 days in a period
of 365 consecutive days, to perform his duties under this Agreement, as a result
of physical or mental illness or injury. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
by written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), unless the Executive
returns to full-time performance of the Executive's duties in accordance with
the provisions of Section 2 of this Agreement before the Disability Effective
Date. In the event of a dispute as to whether Executive has suffered a
Disability, the final determination shall be made by a licensed physician
selected by the Board of Directors of the Company and acceptable to Executive in
Executive's reasonable judgment.
-11-
<PAGE> 12
(b) Not Death or Disability. The Company may terminate the
Executive's employment at any time during the Employment Period with or without
Cause. The Executive may terminate his employment at any time during the
Employment Period for any reason.
(c) Date of Termination. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, or the date on which the
termination of the Executive's employment by the Company, or by the Executive,
is effective, as the case may be.
7. Obligations of the Company Upon Termination. (a) By the Company,
Other Than for Death or Disability. If, during the Employment Period, the
Company terminates the Executive's employment other than due to the Executive's
death or Disability, the Company shall, except as provided in clause (ii) below,
pay the amounts described in subparagraph (i) below to the Executive in a lump
sum in cash within 30 days after the Date of Termination:
(i) The amounts to be paid in a lump sum as described above are:
(A) The Executive's accrued but unpaid cash compensation (the
"Accrued Obligations"), which shall equal the sum of (1) any portion
of the Executive's Annual Base Salary through the Date of
Termination that has not yet been paid; (2) any Bonus that the
Executive has earned for a prior full calendar year that has ended
prior to the Date of Termination but which has not yet been
calculated and paid; (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon)
that has not yet been paid (subject to any applicable provisions of
any deferred compensation plan with respect to the payment thereof);
and (4) any accrued but unpaid vacation pay; and
(B) Severance pay equal to the Annual Base Salary.
(ii) Notwithstanding the foregoing, if the Executive's employment is
terminated for Cause, the Executive shall not be entitled to the
payments contemplated by clause (i)(B) of this Section 7(a) and the
payment to the Executive in connection therewith shall be limited to
payment of the Accrued Obligations and the Company shall have no
further obligations under this Agreement. For purposes of this
Agreement, "Cause" shall mean (1) conviction of the
-12-
<PAGE> 13
Executive by a court of competent jurisdiction of a felony
(excluding felonies under the Motor Vehicle Code); (2) any act of
intentional fraud against the Company; (3) any act of gross
negligence or wilful misconduct with respect to the Executive's
duties under this Agreement; and (4) any act of wilful disobedience
in violation of specific reasonable directions of the Board
consistent with the Executive's duties.
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment Period,
the Company shall pay the Accrued Obligations to the Executive or the
Executive's estate or legal representative, as applicable, in a lump sum in cash
within 30 days of the Date of Termination and the Company shall have no further
obligations under this Agreement.
(c) Bonus. If (i) the Executive's employment is terminated during
the Employment Period (1) by the Company other than for Cause or (2) by reason
of the Executive's death or Disability, or (ii) the Employment Period is not
renewed at the expiration thereof (other than for Cause), the Company shall pay
to the Executive or the Executive's estate or legal representative, as
applicable, an amount equal to the Bonus which the Executive would otherwise
have been entitled to receive for the calendar year in which the Executive's
employment is so terminated or not renewed, determined on a pro rata basis for
the period during which the Executive is employed during such calendar year
(based on the number of days in such calendar year the Executive was so employed
divided by 365). For purposes of this Section 7(c), the Bonus shall be
calculated in accordance with Section 3(b) at the end of the calendar year in
which such Bonus would otherwise have been payable and shall be paid to the
Executive no later than March 15th following the end of the calendar year to
which such Bonus corresponds.
(d) By the Executive. If the Executive terminates his employment
with the Company, the Company shall pay the Accrued Obligations to the Executive
in a lump sum in cash within 30 days of the Date of Termination and the Company
shall have no further obligations under this Agreement.
(e) Effect of Employment of Executive by Certain Stock or Asset
Purchasers. If all or substantially all of the stock or assets of the Company is
sold or otherwise disposed of to a third party not affiliated with the Company,
and the Executive is not offered employment on substantially similar
-13-
<PAGE> 14
terms by the Company or one of its continuing affiliates immediately thereafter,
then, for all purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated by the Company other than for Cause effective as
of the date of such sale or other disposition; provided, however, that the
Company shall have no obligations to the Executive under this Section 7 of this
Agreement if the Executive is hired or offered employment on substantially
similar terms by the purchaser of the stock or assets of the Company or if the
Executive's employment is continued by the Company.
8. Full Settlement. The Company's obligations to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced, regardless of whether the Executive obtains other employment.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any company affiliated with the
Company and its respective businesses that the Executive obtains during the
Executive's employment by the Company (whether before, during or after the
Employment Term) and that is not public knowledge (other than as a result of the
Executive's violation of this Section 9) ("Confidential Information"). The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Company, except
with the prior written consent of the Company or as otherwise required by law.
10. Noncompetition; Nonsolicitation. (a) During the Employment
Period and during the three-year period following any termination of the
Executive's employment with the Company and any of its affiliates, including due
to expiration of the Employment Period (the "Restriction Period"), the Executive
shall not directly or indirectly participate in or permit his name directly or
indirectly to be used by or become associated with (including as an advisor,
representative, agent, promoter, independent contractor, provider of personal
services or otherwise) any person, corporation, partnership, firm, association
or other enterprise or entity (a "person") that is, or intends to be, engaged in
any business which is in competition with the
-14-
<PAGE> 15
business of the Company, or any of its subsidiaries or controlled affiliates in
any country in which the Company or any of its subsidiaries or controlled
affiliates operate, compete or are engaged in such business or at such time
intend so to operate, compete or become engaged in such business (a
"Competitor"). For purposes of this Agreement, the term "participate" includes
any direct or indirect interest, whether as an officer, director, employee,
partner, sole proprietor, trustee, beneficiary, agent, representative,
independent contractor, consultant, advisor, provider of personal services,
creditor, owner (other than by ownership of less than five percent of the stock
of a publicly-held corporation whose stock is traded on a national securities
exchange or in an over-the-counter market).
(b) During the portion of the Restriction Period following any
termination of the Executive's employment with the Company and any of its
affiliates, the Executive shall not, directly or indirectly, encourage or
solicit, or assist any other person or firm in encouraging or soliciting, any
person that during the three-year period preceding such termination of the
Executive's employment with the Company is or was engaged in a business
relationship with the Company, any of its subsidiaries or controlled affiliates
to terminate its relationship with the Company or any of its subsidiaries or
controlled affiliates or to engage in a business relationship with a Competitor.
(c) During the portion of the Restriction Period following any
termination of the Executive's employment with the Company and any of its
affiliates, the Executive will not, except with the prior written consent of the
Company, directly or indirectly, induce any employee of the Company, or any of
its subsidiaries or controlled affiliates to terminate employment with such
entity, and will not, directly or indirectly, either individually or as owner,
agent, employee, consultant or otherwise, employ, offer employment or cause
employment to be offered to any person (including employment as an independent
contractor) who is or was employed by the Company or any of its respective
subsidiaries or controlled affiliates unless such person shall have ceased to be
employed by such entity for a period of at least twelve months. For purposes of
this Section 10(c), "employment" shall be deemed to include rendering services
as an independent contractor and "employees" shall be deemed to include
independent contractors.
(d) Promptly following the Executive's termination of employment,
including due to expiration of the Employment Period, the Executive shall return
to the Company all property of the Company and its respective subsidiaries and
affiliates, and all copies thereof in the Executive's possession or under
-15-
<PAGE> 16
his control, including, without limitation, all Confidential Information in
whatever media such Confidential Information is maintained.
(e) The Executive acknowledges and agrees that the Restriction
Period and the covenants and obligations of the Executive in Section 9 and this
Section 10 with respect to non-competition, nonsolicitation and confidentiality
and with respect to the property of the Company and its subsidiaries and
controlled affiliates, and the territories covered thereby, are fair and
reasonable and the result of negotiation. The Executive further acknowledges and
agrees that the covenants and obligations of the Executive in Section 9 and this
Section 10 with respect to noncompetition, nonsolicitation and confidentiality
and with respect to the property of the Company and its subsidiaries and
controlled affiliates, and the territories covered thereby, relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such covenants and obligations will cause the Company and its subsidiaries and
affiliates irreparable injury for which adequate remedies are not available at
law. Therefore, the Executive agrees that the Company shall be entitled to an
injunction, restraining order or such other equitable relief as a court of
competent jurisdiction may deem necessary or appropriate to restrain the
Executive from committing any violation of such covenants and obligations. These
injunctive remedies are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity. If, at the time of
enforcement of Section 9 and/or this Section 10, a court holds that the
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum period, scope, or geographical area
legally permissible under such circumstances will be substituted for the period,
scope or area stated herein.
11. Successors. (a) This Agreement is personal to the Executive and
shall not be assignable by the Executive. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Confetti and its successors and assigns, and upon the effectiveness of the
Merger shall inure to the benefit of and be binding upon the Company (as the
surviving company in the Merger) and its successors and assigns, and at the
Effective Time, the Company shall execute a counterpart to this Agreement
acknowledging that it is bound by the terms hereof.
12. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the
-16-
<PAGE> 17
State of New York, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect. This Agreement may not be amended or modified except by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
overnight courier or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
James M. Harrison
16 High Street
East Williston, NY 11596
If to the Company:
Confetti Acquisition, Inc.
c/o GS Capital Partners II, L.P.
85 Broad Street
New York, NY 10004
Attention: David J. Greenwald
Telecopier No. (212) 357-5505
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of this Section 12. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations. Without limiting the generality of the foregoing, no later
than the date as of which an amount first becomes includible in the gross income
of the Executive for federal income tax purposes with respect to any Restricted
Stock, the Executive shall pay to the Company, or make arrangements satisfactory
to the Company regarding the payment of, all federal, state, local and foreign
taxes that are required by applicable laws and regulations to be withheld with
respect to such amount. Withholding
-17-
<PAGE> 18
obligations may be (and if the Executive makes no other arrangements, shall be)
settled with common stock of the Company, including the shares underlying the
Options or the Restricted Stock that gives rise to the withholding obligation.
In addition, the obligations of the Company under this Agreement shall be
conditional on compliance with this Section 12(d), and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Executive.
(e) Any party's failure to insist upon strict compliance with any
provision of, or to assert any right under, this Agreement shall not be deemed
to be a waiver of such provision or right or of any other provision of or right
under this Agreement.
(f) The Executive acknowledges that this Agreement (together with
the Stockholders Agreement, and the Voting Agreement and the other agreements
referred to herein and therein) supersedes all other agreements and
understandings, both written and oral, between the Executive and Confetti, and
upon the effectiveness of this Agreement between the Executive and the Company
concerning the subject matter hereof, and any prior employment agreement between
the Executive and the Company or any direct or indirect subsidiary of the
Company (including the Employment Agreement, between Amscan, Inc., a wholly
owned subsidiary of the Company, and the Executive, dated as of June 11, 1996),
shall be terminated as of the Effective Time; provided, however, that the
Employment Agreement, effective as of June 1, 1997, between the Company and the
Executive, dated as of February 1, 1997 (the "Prior Employment Agreement"), is
intended to continue to be in full force and effect in accordance with its terms
until the Effective Time (except that none of the Merger and other transactions
and arrangements contemplated by the Merger Agreement, the Stockholders
Agreement, the Voting Agreement and this Agreement shall be or result in or give
rise to (x) a "Change of Control" or a "Potential Change of Control" or (y) an
occurrence, event or circumstance described in paragraph (v) or (vi) of Section
9(e) of the Prior Employment Agreement or otherwise constitute Good Reason as
defined therein), at which time (i) the Prior Employment Agreement shall be
terminated and no further payments shall be made by the Company to the Executive
thereunder and (ii) in consideration of the termination of the Prior Employment
Agreement, and in full satisfaction thereof, and in lieu of the payment of any
Bonus or Sale Bonus (as such terms are defined in the Prior Employment
Agreement), the Company shall pay to the Executive, immediately after the
Effective Time, $270,000 in cash. Until the Effective Time, the Executive will
-18-
<PAGE> 19
not consent to any amendment or waiver of the Prior Employment Agreement without
the prior written consent of Confetti.
(g) The effectiveness of this Agreement is contingent upon (i) the
Closing and the effectiveness of the Merger and (ii) there being no termination
of the Prior Employment Agreement for any reason prior to the Effective Time. If
(x) the Closing does not occur and the Merger Agreement is terminated or (y) the
Prior Employment Agreement is terminated (and in the case of termination of the
Prior Employment Agreement, upon the election of Confetti), this Agreement shall
have no effect and shall be void ab initio without any party hereto having any
liability to any other party hereto (provided that the foregoing shall not limit
the rights of Confetti and the Company under the Merger Agreement).
-19-
<PAGE> 20
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, Confetti has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
CONFETTI ACQUISITION, INC.
By: /s/ TERENCE M. O'TOOLE
--------------------------------
Name: Terence M. O'Toole
Title: Chairman of the Board and
President
/s/ JAMES M. HARRISON
------------------------------------
James M. Harrison
IN WITNESS WHEREOF, Amscan Holdings, Inc. as the surviving company
in the Merger, which has been consummated, pursuant to the authorization of its
Board of Directors, has caused this Agreement to be executed in its name on its
behalf, all as of the 19th day of December, 1997.
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
--------------------------------
Name: Gerald C. Rittenberg
Title: Chief Executive Officer
-20-
<PAGE> 1
Exhibit 12.1
AMSCAN HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
TRANSACTION
PRO FORMA
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes and minority interests $ 7,784 $ 9,104 $10,591 $19,206 $ 5,732 $ 8,449
Add: Fixed charges 2,556 3,358 4,719 6,874 8,735 25,090
------- ------- ------- ------- ------- -------
Earnings, as adjusted $10,340 $12,462 $15,310 $26,080 $14,467 $33,539
======= ======= ======= ======= ======= =======
Computation of fixed charges:
Interest expense $ 2,135 $ 2,711 $ 3,971 $ 6,025 $ 6,968 $23,323
Interest portion of rent expense 421 647 748 849 1,767 1,767
------- ------- ------- ------- ------- -------
Total fixed charges $ 2,556 $ 3,358 $ 4,719 $ 6,874 $ 8,735 $25,090
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.0x 3.7x 3.2x 3.8x 1.7x 1.3x
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------
TRANSACTION TRANSACTION
PRO FORMA PRO FORMA
1996 1997 1997 1997
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings:
Income before taxes and minority interests $20,104 $28,677 $14,335 $ 9,104
Add: Fixed charges 6,013 4,296 18,534 3,358
------- ------- ------- -------
Earnings, as adjusted $26,117 $32,973 $32,869 $12,462
======= ======= ======= =======
Computation of fixed charges:
Interest expense $ 4,827 $ 2,799 $17,037 $ 2,711
Interest portion of rent expense 1,186 1,497 1,497 647
------- ------- ------- -------
Total fixed charges $ 6,013 $ 4,296 $18,534 $ 3,358
======= ======= ======= =======
Ratio of earnings to fixed charges 4.3x 7.7x 1.8x 1.5x
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF AMSCAN HOLDINGS, INC.
Name Under Which Subsidiary State or Jurisdiction of
Does Business Incorporation
------------- -------------
Amscan Inc. New York
Trisar, Inc. California
Am-Source, Inc. Rhode Island
SSY Realty Corp. New York
JCS Realty Corp. New York
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Amscan Holdings, Inc.
We consent to the use of our report included herein dated February 14, 1997,
except for notes 16 and 18 which are as of December 19, 1997, relating to the
consolidated balance sheets of Amscan Holdings, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1996, and the related schedule, and to the reference
to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Stamford, Connecticut
January 30, 1998
<PAGE> 1
EXHIBIT 24.1
AMSCAN HOLDINGS, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and officer of Amscan
Holdings, Inc. whose signature appears below constitutes and appoints Terence M.
O'Toole, Joseph P. DiSabato and James M. Harrison and each of them, with full
power to act without the other, his true and lawful attorneys-in-fact and
agents, with full and several power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 to be filed initially with the Securities and Exchange
Commission on or about February 2, 1998, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: February 2, 1998
Name Title
/s/ Gerald C. Rittenberg
________________________________ Chief Executive Officer
Gerald C. Rittenberg
/s/ James M. Harrison
________________________________ President, Chief Financial Officer and
James M. Harrison Treasurer
/s/ Michael A. Correale
________________________________ Secretary and Controller
Michael A. Correale
/s/ Terence M. O'Toole
________________________________ Chairman of the Board and Director
Terence M. O'Toole
/s/ Sanjeev K. Mehra
________________________________ Director
Sanjeev K. Mehra
/s/ Joseph P. DiSabato
________________________________ Director
Joseph P. DiSabato
<PAGE> 2
AMSCAN INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and officer of Amscan Inc.
whose signature appears below constitutes and appoints Terence M. O'Toole,
Joseph P. DiSabato and James M. Harrison and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 to be filed initially with the Securities and Exchange Commission on or
about February 2, 1998, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: February 2, 1998
Name Title
/s/ Gerald C. Rittenberg
________________________________ Director and President
Gerald C. Rittenberg
/s/ James M. Harrison
________________________________ Director, Treasurer and Secretary
James M. Harrison
/s/ Michael A. Correale
________________________________ Director
Michael A. Correale
<PAGE> 3
TRISAR, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and officer of Trisar, Inc.
whose signature appears below constitutes and appoints Terence M. O'Toole,
Joseph P. DiSabato and James M. Harrison and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 to be filed initially with the Securities and Exchange Commission on or
about February 2, 1998, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: February 2, 1998
Name Title
/s/ Gerald C. Rittenberg
________________________________ Director and President
Gerald C. Rittenberg
/s/ James M. Harrison
________________________________ Director, Treasurer and Secretary
James M. Harrison
/s/ Michael A. Correale
________________________________ Director
Michael A. Correale
<PAGE> 4
AM-SOURCE, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and officer of Am-Source,
Inc. whose signature appears below constitutes and appoints Terence M. O'Toole,
Joseph P. DiSabato and James M. Harrison and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 to be filed initially with the Securities and Exchange Commission on or
about February 2, 1998, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: February 2, 1998
Name Title
/s/ Gerald C. Rittenberg
___________________________________ Director and President
Gerald C. Rittenberg
/s/ James M. Harrison
___________________________________ Director, Treasurer and Secretary
James M. Harrison
/s/ Michael A. Correale
___________________________________ Director
Michael A. Correale
<PAGE> 5
SSY REALTY CORP.
POWER OF ATTORNEY
Know all men by these presents, that each director and officer of SSY Realty
Corp. whose signature appears below constitutes and appoints Terence M. O'Toole,
Joseph P. DiSabato and James M. Harrison and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 to be filed initially with the Securities and Exchange Commission on or
about February 2, 1998, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: February 2, 1998
Name Title
/s/ Gerald C. Rittenberg
________________________________ Director and President
Gerald C. Rittenberg
/s/ James M. Harrison
________________________________ Director, Treasurer and Secretary
James M. Harrison
/s/ Michael A. Correale
________________________________ Director
Michael A. Correale
<PAGE> 6
JCS REALTY CORP.
POWER OF ATTORNEY
Know all men by these presents, that each director and officer of JCS Realty
Corp. whose signature appears below constitutes and appoints Terence M. O'Toole,
Joseph P. DiSabato and James M. Harrison and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 to be filed initially with the Securities and Exchange Commission on or
about February 2, 1998, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: February 2, 1998
Name Title
/s/ Gerald C. Rittenberg
________________________________ Director and President
Gerald C. Rittenberg
/s/ James M. Harrison
________________________________ Director, Treasurer and Secretary
James M. Harrison
/s/ Michael A. Correale
________________________________ Director
Michael A. Correale
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-6022258
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
LUIS PEREZ, ASSISTANT VICE PRESIDENT
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
Amscan Holdings, Inc.
(Exact names of obligor as specified in its charter)
Delaware 13 - 3911462
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
80 Grasslands Road
Elmsford, NY
10523
(Address of principal executive offices) (Zip code)
9.875% Senior Subordinated Notes Due 2007
----------------
(Title of indenture securities)
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York
Second District,
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to
the securities under this indenture. Explain the nature of any
such default.
None
2
<PAGE> 3
(b) If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligors are
outstanding, or is trustee for more than one outstanding
series of securities under the indenture, state whether there
has been a default under any such indenture or series,
identify the indenture or series affected, and explain the
nature of any such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise
corporate trust powers, as amended to date (See Exhibit 4 to
Form T-1, Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to
date (See Exhibit 4 to Form T-1, Securities and Exchange
Commission File No. 22- 19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
<PAGE> 4
NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
4
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 29th day of January, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Luis Perez
----------------------------------------
Luis Perez
Assistant Vice President
<PAGE> 6
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the issuance by Amscan
Holdings, Inc., of its $110,000,000 9.875% Senior Subordinated Notes Due 2007,
we hereby consent that reports of examinations by Federal, State, Territorial,
or District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Luis Perez
----------------------------------------
Luis Perez
Assistant Vice President
Dated: January 29, 1998
<PAGE> 7
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of September 30, 1997
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
--------------
ASSETS
<S> <C> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin .....................$ 41,358
Interest-bearing balances.................................................$ 314,171
Securities: Held-to-maturity securities....................................$ 196,749
Available-for-sale securities..................................$ 63,064
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold and Securities purchased under agreements to resell....$ 10,151
Loans and lease financing receivables:
Loans and leases, net of unearned income......................$ 1,920,916
LESS: Allowance for loan and lease losses.....................$ 59,498
LESS: Allocated transfer risk reserve.........................$ -0-
Loans and leases, net of unearned income, allowance, and reserve..........$1,861,418
Trading assets held in trading accounts.......................................$ 452
Premises and fixed assets (including capitalized leases)......................$ 3,381
Other real estate owned.......................................................$ 202
Investments in unconsolidated subsidiaries and associated companies...........$ -0-
Customers' liability to this bank on acceptances outstanding..................$ 122
Intangible assets.............................................................$ -0-
Other assets..................................................................$ 65,280
TOTAL ASSETS..................................................................$2,556,348
</TABLE>
<PAGE> 8
LIABILITIES
<TABLE>
<S> <C> <C>
Deposits:
In domestic offices.......................................................$ 787,592
Noninterest-bearing ......................................$ 239,126
Interest-bearing .........................................$ 548,466
In foreign offices, Edge and Agreement subsidiaries, and IBFs.............$1,125,802
Noninterest-bearing.......................................$ 18,827
Interest-bearing..........................................$1,106,975
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements to
repurchase .............................................................$ 225,000
Demand notes issued to the U.S. Treasury......................................$ 50,000
Trading Liabilities...........................................................$ 61
Other borrowed money:
a) With a remaining maturity of one year or less..........................$ 57,291
b) With a remaining maturity of more than one year........................$ 1,763
c) With a remaining maturity of more than three years.....................$ 2,242
Bank's liability on acceptances executed and outstanding......................$ 122
Subordinated notes and debentures.............................................$ -0-
Other liabilities.............................................................$ 72,909
TOTAL LIABILITIES.............................................................$2,322,782
Limited-life preferred stock and related surplus..............................$ -0-
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................$ -0-
Common stock..................................................................$ 29,649
Surplus (exclude all surplus related to preferred stock)......................$ 217,008
Undivided profits and capital reserves........................................$ (13,211)
Net unrealized gains (losses) on available-for-sale securities................$ 120
Cumulative foreign currency translation adjustments...........................$ -0-
TOTAL EQUITY CAPITAL..........................................................$ 233,566
TOTAL LIABILITIES AND EQUITY CAPITAL..........................................$2,556,348
</TABLE>
<PAGE> 1
FORM OF
LETTER OF TRANSMITTAL
AMSCAN HOLDINGS, INC.
OFFER TO EXCHANGE
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL OF ITS OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED
TO: IBJ SCHRODER BANK & TRUST COMPANY (THE "EXCHANGE AGENT")
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, NY 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Department Subcellar One (SC-I)
</TABLE>
By Facsimile:
(212) 858-2156
Confirm by Telephone:
(212) 858-2103
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the ones listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Amscan Holdings, Inc. (the "Company") and
this Letter of Transmittal, which together constitute the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of its 9 7/8% Senior
Subordinated Notes due 2007 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 9 7/8% Senior Subordinated Notes due 2007
(the "Notes"), respectively. The term "Expiration Date" shall mean 5:00 p.m.,
New York City time, on , 1998, unless the Company, in its reasonable
judgment, extends the Exchange Offer, in which case the term shall mean the
latest date and time to which the Exchange Offer is extended. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the notes to which this Letter of Transmittal relates. If the
space indicated below is inadequate, the Certificate or Registration Numbers and
Principal Amounts should be listed on a separately signed schedule affixed
hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007 TENDERED HEREBY
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
CERTIFICATE OR AMOUNT PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) REGISTRATION REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBERS* BY NOTES TENDERED**
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by Book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Notes. All tenders must
be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
<PAGE> 2
This Letter of Transmittal is to be used (i) if certificates of Notes are
to be forwarded herewith, (ii) if delivery of Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company (the "Depository") pursuant to the procedures set forth in "The Exchange
Offer -- Procedures for Tendering Notes" in the Prospectus or (iii) tender of
the Notes is to be made according to the guaranteed delivery procedures
described in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures." See Instruction 2. Delivery of documents to a book-entry
transfer facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer. Holders who wish to tender their Notes must complete this letter in its
entirety.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY
THE EXCHANGE AGENT WITH THE DEPOSITORY AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------------------------------------------
Account Number
------------------------------------------------------
Transaction Code Number
------------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
---------------------------------------------------------------------------
Name of Eligible Institution that Guaranteed
Delivery
------------------------------------------------
IF DELIVERY BY BOOK-ENTRY TRANSFER:
Account Number
------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name
------------------------------------------------------
Address
------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
2
<PAGE> 3
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Notes as are being tendered hereby, including all rights to accrued
and unpaid interest thereon as of the Expiration Date. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company in connection with the Exchange
Offer) to cause the Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person is engaged or intends to engage in, or has an arrangement or
understanding with any person to participate in, the distribution of such
Exchange Notes. If the undersigned or the person receiving the Exchange Notes
covered hereby is a broker-dealer that is receiving the Exchange Notes for its
own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, the undersigned
acknowledges that it or such other person will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The undersigned
and any such other person acknowledge that, if they are participating in the
Exchange Offer for the purpose of distributing the Exchange Notes, (i) they
cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in Exxon Capital Holdings Corporation (available April 13,
1989), Morgan Stanley & Co., Inc.(available June 5, 1991) or similar no-action
letters and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the resale transaction and (ii) failure to comply with such
requirements in such instance could result in the undersigned or any such other
person incurring liability under the Securities Act for which such persons are
not indemnified by the Company. If the undersigned or the person receiving the
Exchange Notes covered by this letter is an affiliate (as defined under Rule 405
of the Securities Act) of the Company, the undersigned represents to the Company
that the undersigned understands and acknowledges that such Exchange Notes may
not be offered for resale, resold or otherwise transferred by the undersigned or
such other person without registration under the Securities Act or an exemption
therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder for the
registration of the Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Notes may be withdrawn at any time
prior to the Expiration Date.
3
<PAGE> 4
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instruction" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Notes delivered herewith but not exchanged, will be
registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 2).
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be issued in the name of
someone other than the undersigned.
Name:
---------------------------------------------------
Address:
-------------------------------------------------
------------------------------------------------------------
Book-Entry Transfer Facility Account:
------------------------------------------------------------
Employer Identification or Social Security Number:
------------------------------------------------------------
(Please print or type)
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be sent to someone other
than the undersigned, or to the undersigned at an address other than that
shown under "Description of Notes Tendered Hereby."
Name:
---------------------------------------------------
Address:
-------------------------------------------------
------------------------------------------------------------
Employer Identification or Social Security Number:
------------------------------------------------------------
(Please print or type)
4
<PAGE> 5
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Notes or on a security position listing as the owner or the Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(Please print or type):
---------------------------------------------------
Name and Capacity (full title)
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Address (including zip code)
---------------------------------------------------
(Area Code and Telephone Number)
---------------------------------------------------
(Taxpayer Identification or Social Security No.)
Dated:
------------------------------------ , 19
--
SIGNATURE GUARANTEE
(IF REQUIRED -- SEE INSTRUCTION 4)
---------------------------------------------------
(Signature of Representative of Signature Guarantor)
---------------------------------------------------
(Name and Title)
---------------------------------------------------
(Name of Plan)
---------------------------------------------------
(Area Code and Telephone Number)
Dated:
- ------------------------------------ , 19
- --
5
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. All
physically delivered Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at a book-entry transfer facility of Notes tendered by
book-entry transfer, as well as a properly completed and duly executed copy of
this Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date (as defined
in the Prospectus). The method of delivery of this Letter of Transmittal, the
Notes and any other required documents is at the election and risk of the
Holder, and except as otherwise provided below, the delivery will be deemed made
only when actually received by the Exchange Agent. If such delivery is by mail,
it is suggested that registered mail with return receipt requested, properly
insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Notes, but whose Notes are not immediately available and thus cannot deliver
their Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent (or comply with the procedures for book-entry transfer) prior to
the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Notes and the principal amount of Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Depository) and any other documents required by the Letter
of Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into the
Exchange Agent's account at the Depository) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within three New York Stock Exchange trading days after the Expiration
Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above. Any Holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Notes prior to the Expiration Date. Failure to comply with the guaranteed
delivery procedures outlined above will not, of itself, affect the validity or
effect a revocation of any Letter of Transmittal form properly completed and
executed by a Holder who attempted to use the guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of Notes evidenced by a submitted certificate is tendered, the tendering Holder
should fill in the principal amount tendered in the column entitled "Principal
Amount Tendered" of the box entitled "Description of Notes Tendered Hereby." A
newly
6
<PAGE> 7
issued Note for the principal amount of Notes submitted but not tendered will be
sent to such Holder as soon as practicable after the Expiration Date. All Notes
delivered to the Exchange Agent will be deemed to have been tendered in full
unless otherwise indicated.
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date, after which tenders of Notes are irrevocable. To
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Notes to
be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the registration number(s) and principal amount of such Notes, or, in
the case of Notes transferred by book-entry transfer, the name and number of the
account at the Depository to be credited), (iii) be signed by the Holder in the
same manner as the original signature on this Letter of Transmittal (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Notes register the transfer
of such Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange, will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the certificates without
alteration or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Depository, the signature must
correspond with the name as it appears on the security position listing as the
owner of the Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of notes registered in different names are tendered, it will be
necessary to complete, sign and submit as many separate copies of this Letter of
Transmittal as there are different registrations of Notes.
Signatures of this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the Notes) listed and tendered hereby, no endorsements of the tendered
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder (or acting Holder) must either properly
endorse the Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Notes, and, with respect to a participant in the
Depository whose name appears on a security position listing as the owner of
Notes, exactly as the name of the participant appears on such security position
listing), with the signature on the Notes or bond power guaranteed by an
Eligible Institution (except where the Notes are tendered for the account of an
Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
7
<PAGE> 8
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders
should indicate, in the applicable box, the name and address (or account at the
Depository) in which the Exchange Notes or substitute Notes for principal
amounts not tendered or not accepted for exchange are to be issued (or
deposited), if different from the names and addresses or accounts of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated and the tendering Holder should complete the applicable
box.
If no instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes or deposited at such Holder's account at the Depository.
6. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Notes to it or its order pursuant to
the Exchange Offer. If a transfer tax is imposed for any other reason other than
the transfer and exchange of Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered Holder or any other person) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be collected from the
tendering Holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Notes listed in this Letter of Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the right, in its
reasonable judgment, to waive, in whole or in part, any of the conditions to the
Exchange Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Notes
have been mutilated, lost, stolen or destroyed should contact the Exchange Agent
at the address indicated above for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number(s) set forth above. In addition, all
questions relating to the Exchange Offer, as well as requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to Amscan Holdings, Inc., 80 Grasslands Road, Elmsford, New York 10523,
Attention: Corporate Secretary; telephone (914) 345-2020.
10. VALIDITY AND FORM. All questions as to the validity, form,
eligibility (including time of receipt), acceptance of tendered Notes and
withdrawal of tendered Notes will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Notes not properly tendered or any
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right, in its reasonable
judgment, to waive any defects, irregularities or conditions of tender as to
particular Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holder as soon as practicable
following the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the
8
<PAGE> 9
tendering Holder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future. If the Exchange Agent is not
provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such Holder with respect to tendered Notes may be subject to backup withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9. To prevent backup withholding on payments
that are made to a Holder with respect to Notes tendered for exchange, the
Holder is required to notify the Exchange Agent of his or her correct TIN by
completing the form herein certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (i) such Holder
is exempt, (ii) such Holder has not been notified by the Internal Revenue
Service that he or she is subject to backup withholding as a result of failure
to report all interest or dividends or (iii) the Internal Revenue Service has
notified such Holder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT. Each Holder is required to give
the Exchange Agent the social security number or employer identification number
of the record Holder(s) of the Notes. If Notes are in more than one name or are
not in the name of the actual Holder, consult the instructions on Internal
Revenue Service Form W-9, which may be obtained from the Exchange Agent, for
additional guidance on which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER. If the tendering
Holder has not been issued a TIN and has applied for a number or intends to
apply for a number in the near future, write "Applied For" in the space for the
TIN or Substitute Form W-9, sign and date the form and the Certificate of
Awaiting Taxpayer Identification Number and return them to the Exchange Agent.
If such certificate is completed and the Exchange Agent is not provided with the
TIN within 60 days, the Exchange Agent will withhold 31% of all payments made
thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with
Notes or confirmation of book-entry transfer and all other required documents)
or a Notice of Guaranteed Delivery must be received by the Exchange Agent on or
prior to the Expiration Date.
9
<PAGE> 10
PAYOR'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS EXCHANGE AGENT
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN --------------------------------
FORM W-9 THE BOX AT THE RIGHT AND CERTIFY BY Social Security Number
DEPARTMENT OF THE TREASURY SIGNING AND DATING BELOW. OR
INTERNAL REVENUE SERVICE
Employer Identification
Number
--------------------------------
PART 3 --
AWAITING TIN [ ]
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER ("TIN")
- --------------------------------------------------------------------------------------------------------
PART 2 -- CHECK THE BOX IF YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING UNDER THE PROVISIONS OF SECTION
3406(A)(1)(C) OF THE INTERNAL REVENUE CODE BECAUSE (1) YOU ARE EXEMPT FROM BACKUP WITHHOLDING, (2) YOU
HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL
INTEREST OR DIVIDENDS OR (3) THE INTERNAL REVENUE SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING. [ ].
- --------------------------------------------------------------------------------------------------------
The IRS does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
- --------------------------------------------------------------------------------------------------------
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE.
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld until I provide a number, but
will be refunded if I provide a certified taxpayer identification number within
60 days.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Signature Date
</TABLE>
10
<PAGE> 1
FORM OF
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
AMSCAN HOLDINGS, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Amscan Holdings, Inc. (the "Company") made pursuant to the
Prospectus, dated (the "Prospectus"), if certificates for the
outstanding 9 7/8% Senior Subordinated Notes due 2007 of the Company (the "Old
Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date of the Exchange Offer. Such form may be delivered
or transmitted by telegram, telex, facsimile transmission, mail or hand delivery
to IBJ Schroder Bank & Trust Company (the "Exchange Agent") as set forth below.
In addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
IBJ SCHRODER BANK & TRUST COMPANY, EXCHANGE AGENT.
By Mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Department
By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attn: Securities Processing Window -- Subcellar One (SC1)
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103]
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:*
$
- ------------------------------------------
Certificate Nos. (if available):
- ------------------------------------------
Total Principal Amount Represented by
Certificate(s):
$
- ------------------------------------------
<PAGE> 3
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X
- ----------------------------------------------------- -------------------------------------
- ----------------------------------------------------- -------------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
</TABLE>
Area Code and Telephone Number:
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If Old Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide account number.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
NAME(S):
CAPACITY:
ADDRESS(ES):
ACCOUNT NUMBER:
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the undersigned will deliver to the Exchange Agent the certificates
representing the Old Notes being tendered hereby or confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company, in proper form for transfer, together with any other documents
required by the Letter of Transmittal within three New York Stock Exchange
trading days after the Expiration Date.
Name of Firm
---------------------------------------------------------------------
Address ------------------------------------------------------------------------
Area Code & Telephone No.
--------------------------------------------------------
Authorized Signature
--------------------------------------------------------------
Name --------------------------------------------------------------------------
(Please Type or Print)
Title---------------------------------------------------------------------------
Date ----------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD
NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
