As filed with the Securities and Exchange Commission on June 30, 1999.
Registration No. 333-45457
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 2
to
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-----------------------
AMSCAN HOLDINGS, INC.*
(Exact name of Registrant as specified in its charter)
-----------------------
Delaware 5110 13-3911462
-------- ---- ----------
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification
number)
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)
James M. Harrison
President
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
(914) 345-2020
(Name, address, including zip code and telephone number,
including area code, of agent for service)
Copies of all communications to:
Paul G. Hughes, Esq.
Cummings & Lockwood
P. O. Box 120, Four Stamford Plaza
Stamford, Connecticut 06904-0120
(203) 327-1700
-----------------------
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. [ ]
-----------------------
================================================================================
<PAGE>
* 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
Anagram International, Inc..... Minnesota 5110 41-1372523
Anagram International Holdings,
Inc.......................... Minnesota 5110 41-1755837
Anagram International, LLC..... Nevada 5110 41-1794849
SSY Realty Corp................ New York 6519 13-3500756
JCS Realty Corp................ New York 6519 13-3431738
Anagram Eden Prairie Property
Holdings LLC................. Delaware 6519 41-1918309
- - ----------
</TABLE>
* The address of these additional registrants is 80 Grasslands Road, Elmsford,
New York 10523. Their telephone number is (914) 345-2020.
2
<PAGE>
EXPLANATORY NOTE
This Registration Statement originally related to the registration of an
aggregate principal amount of $110,000,000 of 9 7/8% Senior Subordinated Notes
due 2007 of Amscan Holdings, Inc. All of those notes were exchanged for equal
principal amounts of Amscan Holdings' 9 7/8% Senior Subordinated Notes due 2007.
Amscan Holdings filed Amendment No. 1 to this Registration Statement on
September 30, 1998, and is now filing Amendment No. 2 to this Registration
Statement, to continue the registration's effectiveness and thereby enable
Goldman, Sachs & Co. to continue to resell the Notes in market-making
transactions. The complete Prospectus relating to the resale by Goldman Sachs &
Co. of the currently outstanding Notes follows immediately after this
Explanatory Note.
3
<PAGE>
[AMSCAN LOGO]
AMSCAN HOLDINGS, INC.
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
(Guaranteed by certain Amscan Holdings, Inc.'s affiliates as described herein)
---------------
This Prospectus applies to certain of the issued and outstanding 9 7/8%
Senior Subordinated Notes due 2007 (the "Notes") of Amscan Holdings, Inc.
("Amscan Holdings"). The Notes are fully and unconditionally guaranteed on a
senior subordinated basis, jointly and severally, by each of Amscan Holdings'
domestic subsidiaries. Interest on the Notes is payable semiannually on June 15
and December 15 of each year. See "Description of Notes."
The Notes are general, unsecured obligations ranking pari passu with all
senior subordinated debt of Amscan Holdings and each of the subsidiary
guarantors. The Notes are senior in right of payment to all and future
subordinated indebtedness, if any, of Amscan Holdings and the subsidiary
guarantors. As of March 31, 1999, the senior debt of Amscan Holdings and all of
its subsidiaries was approximately $180.6 million. See "Risk Factors --
Substantial Leverage; Ability to Service Indebtedness."
Subject to various conditions, Amscan Holdings may redeem 35% of the
aggregate principal amount of the Notes, at its sole option, on or after
December 15, 2000. Subject to certain other conditions, Amscan Holdings also may
redeem the Notes in whole or part on or after December 15, 2002. Upon certain
types of changes of control of Amscan Holdings, it must redeem the Notes in
accordance with certain terms set forth herein. See "Prospectus Summary --
Summary of Terms of Notes" and "Description of Notes."
See "Risk Factors," commencing on page 11, for a discussion of certain
factors that should be considered before investing in the Notes. ---------------
Neither the SEC nor any state securities commission has approved these
securities or determined that this Prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
---------------
This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. ("Goldman Sachs") in connection with offers and sales in market-making
transactions of the Notes. Amscan Holdings will not receive any of the proceeds
of such sales. Goldman Sachs may act as a principal or agent in such
transactions. The Notes may be offered in negotiated transactions or otherwise.
Goldman, Sachs & Co.
---------------
The date of this Prospectus is [ ], 1999.
You must rely only on this Prospectus or other information Amscan Holdings
directly refers you to. Amscan Holdings has not authorized anyone to provide you
with any other information. You may assume the accuracy of the contents of this
Prospectus only through the date hereof. If you live in a jurisdiction that
prohibits the offering or sale of the Notes, you may not purchase the Notes.
<PAGE>
AVAILABLE INFORMATION
Amscan Holdings and all of its subsidiaries that guarantee the Notes filed
with the Securities and Exchange Commission (the "SEC") a Registration Statement
on Form S-4 under the Securities Act of 1933 with respect to the Notes. This
Prospectus is a part of that Registration Statement but does not contain certain
exhibits and financial statement schedules to the Registration Statement. For a
more complete description of the Notes, the business and financial prospects of
Amscan Holdings, you can refer to the Registration Statement and its exhibits
and schedules.
Amscan Holdings is presently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, Amscan Holdings files periodic reports with the SEC that
include information about itself and the guarantor subsidiaries. In addition,
Amscan Holdings will send to each holder of Notes copies of annual reports and
quarterly reports containing the information required to be filed under the
Securities Exchange Act of 1934 (the "Exchange Act"). So long as Amscan Holdings
files periodic reports under the Exchange Act, it will furnish the information
filed with the SEC to IBJ Schroder Bank & Trust Company, which is the trustee
representing the Note holders, and to each Note holder. Amscan Holdings has
agreed that, even if it is not required under the Exchange Act to furnish such
information to the SEC, it will nonetheless continue to furnish the information
required by Section 13 of the Exchange Act to the trustee and the Note holders.
Amscan Holdings files reports and other information electronically with the
SEC. The SEC maintains an Internet site (http://www.sec.gov) that enables you to
obtain and review such materials regarding Amscan Holdings and all other
registrants that file electronically. You also can inspect and copy such
materials at the SEC's public reference facilities at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the SEC located at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Additionally, you may obtain and copy such materials
from the Public Reference Section of the SEC, 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. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
ii
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary in conjunction with the more detailed
information, financial statements and notes to the financial statements
appearing elsewhere in this Prospectus. "We", "our" and "us" when used in this
Prospectus refer collectively to Amscan Holdings and its consolidated
subsidiaries. The Summary is qualified in its entirety by such materials.
THE COMPANY
- - -----------
Amscan Holdings designs, manufactures and distributes decorative party
goods, offering one of the broadest and deepest product lines in the industry.
Our 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, wedding cake tops and balloons) and novelties
(such as games and party favors). We sell our products to party goods
superstores, independent card and gift retailers, mass merchandisers and other
distributors which market our products in more than 20,000 retail outlets
throughout the world, including North America, South America, Europe, Asia and
Australia.
Amscan Holdings is a leading supplier to the party superstore distribution
channel. Our sales to superstores represented approximately 47% of total sales
in 1998 and have grown at a compound annual growth rate of 21% from 1995 to
1998. According to industry analysts, sales since 1990 have shifted
significantly to the party goods superstore channel from independent stores and
drug, discount or department store chains. See "Risk Factors."
The current management of Amscan Holdings has established a strong industry
position and is committed to the company's future success. The management team
and other key employees committed $6.4 million (including restricted stock
grants) to Amscan Holdings' recapitalization, which was effected through a
merger with Confetti Acquisition, Inc. ("Confetti"), a Goldman Sachs affiliate,
in December of 1997. In addition, Garry Kieves, who was the beneficial owner of
all of the capital stock of Anagram International, Inc. ("Anagram") prior to its
acquisition by Amscan Holdings in September 1998, effectively invested $13.0
million in Amscan Holdings Common Stock when Amscan Holdings acquired Anagram.
Growth Trends
-------------
Amscan Holdings' sales and cash flows have grown substantially over the
past five years. From 1993 to 1998, our sales and adjusted earnings before
interest, income taxes, depreciation and amortization (adjusted for
non-recurring items, other income or expenses, and minority interests), also
known as adjusted EBITDA, have grown at compound annual rates of 17% and 24%,
respectively. During the same period, Amscan Holdings' adjusted EBITDA margins
increased from approximately 15% to 19%, largely because it achieved greater
economies of scale in manufacturing and distribution and significantly reduced
selling expenses as a percentage of sales. Sales and adjusted EBITDA for the
twelve-month period ended March 31, 1999 were approximately $256 million and $44
million, respectively, representing an adjusted EBITDA margin of approximately
17%.
Competitive Strengths
---------------------
We believe we maintain competitive advantages in the following areas:
o Strong Customer Relationships. We involve retailers in product
development and marketing. This cooperative effort enables us to be a
more responsive and involved supplier to our customers and thus
achieve a high level of customer satisfaction.
o Product Design Leadership. We seek to be an industry leader in
creating innovative designs and party items. Unlike our competitors,
we design many of our own products. We believe our products exhibit a
level of color, complexity and style that are unusually attractive to
consumers and difficult to replicate. Also, our coordinated
accessories and novelties enhance the appeal of our tableware products
and encourage "add on" impulse purchases.
o Manufactured Products. Rather than relying solely on outside suppliers
for our products, we are a vertically integrated manufacturer. As a
result, we believe that we better control costs, monitor quality, and
manage inventory than other competitors. In addition, we have
state-of-the-art facilities that manufacture paper and plastic plates,
napkins, cups, metallic balloons and other products. Over 55% of our
net sales are of products we manufacture ourselves.
o Readiness for Future Growth. Over the past five years, we have
purchased or leased new plant and equipment having an aggregate cost
or carrying value of approximately $84 million to support expansion
and to provide for future growth
<PAGE>
including the metallic balloon manufacturing and distribution
facilities acquired in connection with the acquisition of Anagram,
which should enable us to expand production and accommodate
anticipated sales for the foreseeable future.
o Purchased Products. We obtain approximately 45% of our products from
independently-owned manufacturers, many of whom are located in the Far
East and with whom we have long-standing relationships. Our two
largest such suppliers supply us exclusively and have served us for
more than ten years. Amscan Holdings believes that the quality and
prices of these suppliers' products provide a significant competitive
advantage. Our business, however, does not depend on any single third
party supplier for any manufactured product.
o Sales and Distribution. Our sales and distribution capabilities
provide a uniquely high level of customer service. We use a seasoned
sales team and a select group of manufacturers' representatives to
handle specific accounts for domestic business. Our international
subsidiaries directly service our international customers. Amscan
Holdings ships its products using computer assisted systems that
receive and fill customer orders more efficiently and quickly than
most competitors.
THE MAJORITY SHAREHOLDER, GS CAPITAL PARTNERS II, L.P. AND
- - ----------------------------------------------------------
AFFILIATED INVESTMENT FUNDS
- - ---------------------------
GS Capital Partners II, L.P. and its affiliated investment funds are the
primary vehicles The Goldman Sachs Group, L.P. uses to make privately negotiated
equity and equity-related investments in non-real estate transactions. GS
Capital Partners II was formed in May 1995 with total committed capital of $1.75
billion, $300 million of which was committed by The Goldman Sachs Group, with
the remainder committed by institutional and individual investors.
GS Capital Partners II, L.P. and its affiliates have invested approximately
$61.9 million in connection with Amscan Holdings' merger with Confetti in
December of 1997. GS Capital Partners II, L.P. currently holds approximately
72.9% of the total equity investment in Amscan Holdings. See "CAPITALIZATION"
and "OWNERSHIP OF CAPITAL STOCK."
2
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Amscan Holdings as of
March 31, 1999. The information set forth below should be read in conjunction
with Amscan Holdings' 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.
As of March 31, 1999
--------------------
(Dollars in thousands)
----------------------
Cash and cash equivalents ..................... $ 934
Total debt (including current portion):
Revolving Credit Facility(1) ................ 16,695
Term Loan ................................... 155,236
Notes ....................................... 110,000
Mortgages ................................... 3,259
Capital leases and other .................... 5,405
---------
Total debt ............................... 290,595
Redeemable Common Stock ....................... 19,547
Stockholders' deficit(2) ...................... (95,315)
---------
Total capitalization ........................ 215,761
=========
- - ----------
(1) Amscan Holdings has the ability to borrow up to $50 million pursuant to its
Revolving Credit Facility (as defined below). 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 in 1997, Amscan Holdings had a negative
net worth for accounting purposes. In the merger, GS Capital Partners II,
L.P. and its affiliates paid $61.9 million for approximately 82.5% of
Amscan Holdings' Common Stock. In addition, certain employees of the
company acquired, and the Estate retained, approximately 7.5% and almost
10%, respectively, of Amscan Holdings' Common Stock which, based upon the
price per share paid by GS Capital Partners II, L.P. and its affiliates,
had an aggregate value of approximately $13.1 million. Combined with GS
Capital Partners II, L.P.'s and its affiliates' payment of $61.9 million,
these holdings had an aggregate value of approximately $75.0 million at
December 19, 1997.
3
<PAGE>
SUMMARY OF TERMS OF NOTES
Issuer....................... Amscan Holdings, Inc.
Securities Outstanding....... $110.0 million principal amount of 9 7/8% Senior
Subordinated Notes due December 15, 2007.
Maturity Date................ December 15, 2007.
Guarantees................... Amscan Holdings' payment obligation under the
Notes is jointly and severally guaranteed on a
senior subordinated basis by all of Amscan
Holdings' domestic subsidiaries. These
guarantees are subordinated to the guarantees of
senior debt these subsidiaries issued under
Amscan Holdings' bank credit agreement. See
"Description of Notes -- Senior Subordinated
Guarantees."
Interest Payment Dates....... Interest accrues at an annual rate of 9 7/8% and
is payable in cash semi-annually in arrears on
June 15 and December 15 of each year.
Optional Redemption.......... Except as described below, Amscan Holdings may
not redeem the Notes prior to December 15, 2002.
From and after December 15, 2002, Amscan
Holdings may redeem the Notes, 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, Amscan Holdings may redeem up to an
aggregate of 35% of the principal amount of the
Notes, 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 Amscan Holdings. Amscan Holdings
would pay 109.875% of the principal amount of
the Notes redeemed, together with accrued and
unpaid interest, if any, to the date of
redemption. Amscan Holdings may not make any
such redemption unless, immediately after the
redemption at least $65.0 million in aggregate
principal amount of Notes remains outstanding.
Mandatory Redemption; At any time on or prior to December 15, 2002,
Change of Control............ Amscan Holdings may redeem the Notes as a whole
but not in part upon the occurrence of a Change
of Control (as defined in the Indenture under
which the Notes were issued). Any such
redemption would be 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 Amscan Holdings does not redeem the Notes
upon a Change of Control, then it must offer to
purchase the Notes. The purchase price for the
Notes would be 101% of the aggregate principal
amount of the Notes, plus accrued and unpaid
interest, if any, to the date of purchase. If a
Change of Control were to occur, Amscan Holdings
may not have the financial resources to repay
all of its obligations under its bank credit
agreement, the Indenture under which the Notes
were issued (the "Indenture") and the other
indebtedness that would become payable upon the
Change of Control. See "Risk Factors -- Payment
Upon a Change of Control" and "Description of
Notes."
4
<PAGE>
Ranking...................... The Notes are general, unsecured obligations of
Amscan Holdings. They are subordinated in right
of payment to all of its senior debt, rank pari
passu with all of its senior subordinated debt
and are senior in right of payment to all of its
existing and future subordinated debt. The
claims of holders of the Notes are subordinated
to the senior debt of the Amscan Holdings and
the guarantor subsidiaries. The aggregate of
such senior debt as of March 31, 1999 was
approximately $180.6 million. $155.2 million of
the senior debt was fully secured borrowings
under Amscan Holdings' bank credit agreement.
See "Capitalization" and "Description of Notes
-- Subordination."
Certain Restrictive Covenants The Indenture contains certain restrictive
covenants that, among other things, limit the
ability of Amscan Holdings and its Restricted
Subsidiaries (as defined on page 68) to incur
additional indebtedness and issue Disqualified
Stock (as defined on page 63), to pay dividends
or distributions or to make investments or
certain other Restricted Payments (as defined on
page 51), to enter into certain transactions
with affiliates, to dispose of assets, to incur
liens securing pari passu and subordinated
indebtedness of Amscan Holdings and to engage in
mergers and consolidations. See "Description of
Notes."
RISK FACTORS
See "Risk Factors" beginning on page 11 for a discussion of certain factors
that should be considered before investing in the Notes.
5
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated and
combined financial and other data for Amscan Holdings. The historical
consolidated and combined financial statements for Amscan Holdings' five most
recent fiscal years have been audited. The selected historical income statement
data for each of the years in the three-year period ended December 31, 1998 and
balance sheet data as of December 31, 1998 and 1997 have been derived from, and
should be read in conjunction with, the audited consolidated and combined
financial statements of Amscan Holdings and the related notes thereto appearing
elsewhere in this Prospectus. The selected unaudited historical financial data
for the three-month periods ended March 31, 1999 and 1998 and for the twelve
months ended March 31, 1999 have been derived from, and should be read in
conjunction with, the consolidated financial statements of Amscan Holdings 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 financial statements of Amscan Holdings. Results for the
three-month period ended March 31, 1999 and for the twelve months ended March
31, 1999 are not necessarily indicative of results that can be expected for all
of 1999. See "Index to Financial Statements."
The historical consolidated and combined data should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information contained
elsewhere in this Prospectus.
6
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
(Dollars in millions)
<TABLE>
<CAPTION>
Twelve
Months
Ended Three Months
March Ended
Years Ended December 31, 31, March 31,
---------------------------------------------- ------ ---------------
1994 1995 1996 1997 1998 1999 1998 1999
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
- - ----------------------
Net sales.................. $132.0 $167.4 $192.7 $209.9 $235.3 $256.2 $55.6 $76.4
Cost of sales.............. 86.7 108.7 123.9 136.5 150.5 162.6 36.0 48.1
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............... 45.3 58.7 68.8 73.4 84.8 93.6 19.6 28.3
Selling expenses........... 11.3 12.2 11.8 13.7 17.0 19.2 3.7 5.9
General and administrative
expenses................. 11.8 13.4 16.9 17.0 20.1 22.9 4.3 7.0
Provision for doubtful
accounts(1).............. 2.7 1.6 2.4 3.8 3.3 9.0 0.8 6.4
Art and development
costs.................... 2.8 4.3 5.2 5.3 7.5 8.5 1.6 2.7
Restructuring charges(2)... - - - - 2.4 2.4 - -
Non-recurring expenses
in connection with the
Transaction(3)........... - - - 22.1 - - - -
Non-recurring compen-
sation in connection
with the IPO(4)........... - - 15.5 - - - - -
Special bonuses(5)......... 2.2 2.5 4.2 - - - - -
------ ------ ------ ------ ------ ------ ------ ------
Income from operations..... 14.5 24.7 12.8 11.5 34.5 31.6 9.2 6.3
Interest expense, net...... 3.8 5.8 6.7 3.9 23.0 24.1 5.3 6.4
Other expense (income),
net...................... 0.1 (0.3) 0.4 (0.1) (0.1) - (0.1) -
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interests....... 10.6 19.2 5.7 7.7 11.6 7.5 4.0 (0.1)
Income tax expense
(benefit)................ 0.4 0.7 2.0 7.7 4.8 3.1 1.6 -
Minority interests......... 0.2 1.1 1.6 0.2 0.1 - 0.1 -
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).......... $10.0 $17.4 $2.1 $(0.2) $6.7 $4.4 $ 2.3 $(0.1)
====== ====== ====== ====== ====== ====== ====== ======
Pro Forma Data
- - --------------
relating to change
------------------
in tax status:
--------------
Income before income
taxes.................... $10.4 $18.2 $4.1
Pro forma income taxes(6).. 4.2 7.4 1.8
------ ------ ------
Pro forma net
income(6)................ $ 6.2 $10.8 $2.3
====== ====== ======
Non-GAAP Financial Data:
- - ------------------------
Adjusted EBITDA(7)......... $20.4 $31.6 $37.7 $39.8 $45.3 $44.0 $11.0 $9.6
Adjusted EBITDA
margin(1)................ 15.4% 18.9% 19.5% 19.0% 19.3% 17.2% 19.7% 12.5%
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Twelve
Months
Ended Three Months
March Ended
Years Ended December 31, 31, March 31,
---------------------------------------------- ------ ---------------
1994 1995 1996 1997 1998 1999 1998 1999
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjusted EBITDA to
cash interest
expense.................. 2.0x 1.9x 2.1x 1.5x
Adjusted EBITDA minus
cash capital expenditures
to cash interest expense. 1.7x 1.5x 1.9x 1.2x
Total debt to Adjusted
EBITDA................... 6.2x 6.6x - -
Other Financial
- - ---------------
Data:
-----
Gross margin............... 34.3% 35.1% 35.7% 34.9% 36.1% 36.5% 35.2% 37.0%
Depreciation and
amortization............. $3.7 $4.3 $5.1 $6.3 $8.5 $10.0 $1.7 $3.2
Cash capital
expenditures............. 7.4 4.5 7.6 10.2 7.5 8.6 1.1 2.2
Ratio of earnings to
fixed charges(8)......... 3.2x 3.8x 1.7x 2.2x 1.4x 1.3x 1.6x 1.0x
Cash Flow Statement
- - -------------------
Data:
-----
Cash flows from
operations................ $5.1 $4.7 $12.3 $4.2 $22.8 $19.5 $(1.4) $(4.7)
Cash flows from
investing................. (7.3) (4.5) (7.6) (10.1) (83.1) (84.2) (1.1) (2.1)
Cash flows from
financing................. 2.8 0.1 (6.0) 116.0 (49.8) 50.8 (93.8) 6.7
</TABLE>
<TABLE>
<CAPTION>
At December 31, At March 31,
--------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
- - -------------
Data:
-----
Working capital........ $(0.4) $8.4 $45.4 $96.8 $71.5 $98.4 $71.2
Total assets........... 93.9 114.6 140.3 269.3 248.9 176.8 260.8
Total debt............. 59.7 70.8 48.3 237.3 283.3 236.6 290.6
Redeemable Common
Stock................ 19.5 19.5
Stockholders' equity
(deficit)............ 20.8 27.2 67.9 (95.2) (95.3) (92.9) (95.3)
</TABLE>
8
<PAGE>
Notes to Selected Historical Consolidated
and Combined Financial and Other Data
(Dollars in millions)
(1) At March 31, 1999, Amscan Holdings established reserves approximating
50% of the $13.2 accounts receivable balance due from Party City
Corporation's corporate stores at March 31, 1999, including $6.0
charged to the provision for doubtful accounts during the first
quarter of 1999. See "Risk Factors" and Amscan Holdings' financial
statements contained elsewhere in this Prospectus.
(2) Amscan Holdings recorded charges of approximately $2.4 in 1998 in
connection with the restructuring of its distribution operations.
Amscan Holdings closed two facilities located in California and
Canada. The restructuring charges include the non-cash write-down of
$1.3 relating to property, plant and equipment, the accrual of future
lease obligations of $0.7 and severance and other costs of $0.4.
(3) In connection with Amscan Holdings' merger in 1997, it recorded
non-recurring charges of approximately $22.1 comprised of $11.7 in
transaction costs, $7.5 compensation payment to an officer, $1.9 for
the redemption of Amscan Holdings' stock options and $1.0 of debt
retirement costs.
(4) In conjunction with the initial public offering ("IPO") in 1996,
Amscan Holdings recorded non-recurring compensation expense of $15.5
related to 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 Amscan Holdings' domestic employees and the payment of
stock bonuses to certain of such employees.
(5) In each of the years in the three-year period ended December 31, 1996,
special bonus arrangements existed with certain members of management.
In connection with the IPO, such special bonus arrangements were
substantially modified and replaced by incentives tied to the value of
Amscan Holdings Common Stock.
(6) Prior to the consummation of the IPO in 1996, Amscan Inc. and certain
of its affiliates elected to be taxed as S corporations under the
Internal Revenue Code. The pro forma net income amounts give effect to
pro forma income tax amounts for each of the periods shown at
statutory rates (40.5%) assuming these entities had not elected S
corporation status.
(7) "EBITDA" represents earnings before interest, income taxes,
depreciation and amortization. "Adjusted EBITDA" represents EBITDA
adjusted for certain non-recurring items, other income or expenses,
and minority interests 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 Amscan Holdings' 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 Amscan Holdings' ability to generate cash without regard to Amscan
Holdings' 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 measures 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 Amscan
Holdings' operating performance, financial position or cash flows and
(iv) should not be used as an indicator of Amscan Holdings' operating
performance or as a measure of its liquidity.
9
<PAGE>
<TABLE>
<CAPTION>
Twelve
Months Three Months
December 31, Ended March 31, Ended March 31,
------------------------------------------------ ----------------- -------------------
1994 1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $17.9 $28.3 $15.9 $17.6 $42.9 $41.6 $10.9 $9.5
Adjustments-increase
(decrease): Non-
recurring items and
special bonuses..........
2.2 2.5 19.8 22.1 2.4 2.4 - -
Other expense
(income), net............ 0.1 (0.3) 0.4 (0.1) (0.1) (0.1) - 0.1
Minority interests....... 0.2 1.1 1.6 0.2 0.1 0.1 0.1 -
----- ----- ----- ----- ----- ----- ----- ----
Adjusted EBITDA.......... $20.4 $31.6 $37.7 $39.8 $45.3 $44.0 $11.0 $9.6
===== ===== ===== ===== ===== ===== ===== ====
</TABLE>
(8) 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 Amscan Holdings deems attributable to
interest.
10
<PAGE>
RISK FACTORS
Substantial Leverage; Ability to Service Indebtedness
- - -----------------------------------------------------
Amscan Holdings has, and will continue to have, a high level of
indebtedness. As of March 31, 1999, Amscan Holdings (i) had approximately $290.6
million of consolidated indebtedness, (ii) had Redeemable Common Stock of
approximately $19.5 million, and (iii) had a deficit of approximately $95.3
million of consolidated stockholders' equity. Of the total of approximately $289
million Amscan Holdings paid in connection with its December 1997 merger,
approximately $227 million (79%) was funded with debt. Amscan Holdings' ratio of
earnings to fixed charges was 1.3x for the twelve month period ended March 31,
1999. Its interest expense, net, for the twelve-month period ended March 31,
1999 was approximately $24.1 million. In addition, Amscan Holdings borrowed $60
million to acquire Anagram. Moreover, Amscan Holdings may increase its
indebtedness in the future, subject to limitations imposed by the Indenture and
the Amscan Holdings' bank credit agreement. See "Capitalization."
Amscan Holdings may need to refinance a portion of the principal payments
at the maturity of the Notes. In addition, Amscan Holdings' high indebtedness
could prevent it from repurchasing all of the Notes tendered to it as required
upon the occurrences of certain changes of control of Amscan Holdings. See
"Description of Senior Debt" and "Description of Notes."
Based upon the current level of operations and anticipated growth, Amscan
Holdings believes that available cash flow, together with available borrowings
under its 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,
Amscan Holdings' business may not generate sufficient cash flow from operations
or future borrowings may not be available in an amount sufficient to enable
Amscan Holdings to service its indebtedness, including the Notes, or to make
necessary or desirable capital expenditures or acquisitions, and any refinancing
may not 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." Amscan Holdings' debt service
obligations could cause important consequences, including the following:
(a) impairing Amscan Holdings' ability to obtain additional financing for
acquisitions, working capital, capital expenditures or other purposes
on favorable terms;
(b) reducing the access to obtain loans at competitive long-term rates
that would otherwise be available for operations and future business
opportunities; and
(c) being unduly susceptible to decreases in cash flow, increases in
expenses and downturns in the economy generally.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In addition, Amscan Holdings' bank credit agreement and the Indenture limit
the ability of Amscan Holdings, among other things, to borrow additional funds
and to dispose of assets, and require that Amscan Holdings to maintain certain
financial ratios. Amscan Holdings' failure to comply with these covenants could
cause an event of default that could have a material adverse effect on Amscan
Holdings.
Subordination; Asset Encumbrances
- - ---------------------------------
The Notes are subordinated in right of payment to all senior debt of Amscan
Holdings. At March 31, 1999, Amscan Holdings had approximately $180.6 million of
senior debt, $155.2 million of which was secured borrowings. In addition, the
Notes are effectively subordinated to indebtedness and other liabilities of
Amscan Holdings' foreign subsidiaries. The indebtedness and other liabilities of
Amscan Holdings' foreign subsidiaries were approximately $5.9 million as of
March 31, 1999.
Accordingly, in the event of Amscan Holdings' insolvency, liquidation, or
other winding-up or upon a default or acceleration of any senior debt, Amscan
Holdings will be required to repay in full the holders of all such senior debt
and all creditors of its subsidiaries before making any payments to holders of
the Notes. In addition, if there is a default under senior debt, Amscan Holdings
would not be able to make any payments on the Notes for a period which could
last as long as 179 days after the default is cured or waived. In addition, any
debt that Amscan Holdings' domestic subsidiaries are permitted to incur under
the Indenture will be structurally senior to the Notes. See "Description of
Notes."
11
<PAGE>
Amscan Holdings also has granted to its bank lenders security interests in
substantially all of its current and future assets, including a pledge of all of
the issued and outstanding shares of capital stock of its domestic subsidiaries.
The domestic subsidiaries also have granted to such lenders security interests
in substantially all of their current and future assets. In the event Amscan
Holdings or one of the subsidiary guarantors defaults on the secured
indebtedness, the secured lenders could foreclose on their collateral. Such a
foreclosure would materially adversely affect the financial condition of Amscan
Holdings and the value of the Notes. See "Description of Senior Debt."
Holding Company Structure
- - -------------------------
Amscan Holdings conducts all of its business through subsidiaries and has
no operations or significant assets other than the stock of its subsidiaries. To
meet its debt service obligations, Amscan Holdings depends solely on its
subsidiaries' cash flow and distributions.
As a result of Amscan Holdings' holding company structure, holders of the
Notes will be structurally junior to all creditors of the Amscan Holdings
subsidiaries that have not guaranteed the Notes. In the event of the insolvency,
liquidation, or other winding-up of the non-guarantor subsidiaries, Amscan
Holdings will not receive funds until the payment in full of the claims of the
creditors of the non-guarantor subsidiaries. Any such event could result in
Amscan Holdings' being unable to meet its obligations under the Notes.
Dependence on Key Personnel
- - ---------------------------
Our success will continue to depend to a significant extent on our
executives, managers and other key personnel. Although Amscan Holdings has
entered into employment agreements with certain employees, we may not 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; James M. Harrison, President,
Chief Financial Officer and Treasurer; or William S. Wilkey, Senior Vice
President -- Sales and Marketing; could have an adverse effect on our financial
condition or results of operations. We do not maintain key-man life insurance on
any of these executives.
Affiliation with Goldman Sachs May Result in Conflicts of Interests With Holders
- - --------------------------------------------------------------------------------
of the Notes
- - ------------
GSCP currently holds approximately 72.9% of the outstanding shares of
Amscan Holdings' Common Stock. As a result, GSCP controls Amscan Holdings and
may elect all of its directors, appoint new management and approve any action
requiring the approval of its common stockholders. Furthermore, GSCP is
controlled indirectly by GS Group and, as a result, GS Group and Goldman Sachs
each may be deemed to be affilates of Amscan Holdings. There can be no assurance
that the interests of GS Group and Goldman Sachs will not conflict with the
interests of the holders of the Notes. See "Managment," and "Ownership of
Capital Stock."
Payment Upon a Change of Control
- - --------------------------------
Upon the occurrence of a Change of Control (as defined in the Indenture
under which the Notes were issued) of Amscan Holdings, each holder of Notes may
require Amscan Holdings to repurchase all or a portion of such holder's Notes at
101% of their principal amount, together with accrued and unpaid interest, if
any, to the date of repurchase. If a Change of Control were to occur, Amscan
Holdings' may not have the financial resources to repay all of its obligations
under its bank credit agreement, the Indenture and the other indebtedness that
would become payable upon the occurrence of such Change of Control.
Risks Relating to Our Business
- - ------------------------------
Concentration of Customer Sales and Credit Risk. The level of our sales to
party goods superstores has resulted in a significant concentration of sales and
unsecured trade receivables with such customers. While we believe that adequate
provisions for bad debts have been made in our financial statements, should we
be unable to collect receivables from our party superstore customers to any
significant extent our financial condition and results of operations could be
adversely affected. From time to time, we have provided additional reserves or
restructured accounts receivables because of the credit condition of certain
customers.
During the first quarter of 1999, our largest customer, Party City
Corporation ("Party City") announced that, due to difficulties implementing new
financial reporting and accounting systems, it would not be able to complete its
year-end audit and that it would be in default of certain covenants of its
credit facility as of December 31, 1998. We understand that Party City is
negotiating with its lenders to amend its credit facility and with its vendors
to amend existing credit terms on certain
12
<PAGE>
inventory. We also understand that Party City is considering various
alternatives to improve its current financial condition. Based on the current
financial condition of Party City, we have established reserves approximating
50% of the $13,200,000 accounts receivable balance due from Party City corporate
stores at March 31, 1999, including $5,950,000 charged to the provision for
doubtful accounts during the first quarter of 1999.
For the year ended December 31, 1998, sales to Party City's corporate and
franchise stores represented 13% and 10%, respectively, of consolidated net
sales. If Party City were to significantly reduce their volume of purchases from
us for any reason, our financial condition and results of operations could be
adversely affected. 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, Amscan Holdings' success depends in
part on its ability to anticipate the tastes and preferences of party goods
retailers and consumers. Amscan Holdings' strategy has depended to a significant
extent on the regular introduction of new designs which are attractive and
distinctive. Amscan Holdings' 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 Amscan Holdings'
financial condition or results of operations.
Competition. The party goods industry is highly competitive. We compete
with many other companies, including smaller, independent specialty
manufacturers and divisions or subsidiaries of larger companies with greater
financial and other resources than we have. 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. Generally we
have developed our own designs rather than pursuing licensing opportunities.
Anagram, however, controls various licenses which are used in the production of
balloons.
Impact of Changing Raw Material Costs. Paper is the principal raw material
in our products. Paper accounts for approximately 35-40% of the annual cost of
production of our paper plates, cups and napkins. Any significant increase in
the cost of paper would increase our 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 we have been able to pass on raw
material cost increases to our customers, if we cannot pass future raw materials
cost increases to the party goods retailers, our financial condition and results
of operations would be adversely affected.
Risks Associated with Further Expansion Through Acquisitions. Although no
acquisitions are now pending, Amscan Holdings intends to pursue acquisition
opportunities aggressively. Various risks accompany acquisitions. The risks
include problems inherent in integrating new businesses, including potential
loss of customers and key personnel and potential disruption of operations.
Businesses acquired by Amscan Holdings also may not generate sufficient revenues
or profits or satisfy strategic objectives. If Amscan Holdings incurs additional
debt to finance an acquisition, it would become more leveraged. Additional
leverage could make it more difficult for Amscan Holdings to meet its
obligations under the Notes. See "Business -- Company Strategy."
Seasonality
- - -----------
Because so many holidays fall in the fourth quarter, our 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 generally are
significantly higher than sales for the rest of the year. Conversely, fourth
quarter sales are generally lower because retailers sell through inventories
purchased during the third quarter. The overall growth rate of our sales in
recent years has, in part, offset this sales variability. However, given Amscan
Holdings' highly leveraged position, this seasonality poses a somewhat
heightened risk to its financial condition and the value of the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
Trading Market for the Notes
- - ----------------------------
The trading market for the Notes has been limited. This could prevent the
Note holders from selling their Notes or decrease the price of sale of the
Notes. Goldman Sachs makes a market in the Notes but may discontinue such
activity in its sole discretion at any time, for any reason and without notice.
Fraudulent Conveyance
- - ---------------------
Management of Amscan Holdings believes that the indebtedness represented by
the Senior Subordinated Guarantees and the Notes was incurred for proper
purposes and in good faith, and that as a result of, and after giving effect to,
the offerings of the
13
<PAGE>
Original Notes and of the Notes in exchange for the
Original Notes, based on forecasts, asset valuations and other financial
information, Amscan Holdings 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 were to find that, at the time of the incurrence of such indebtedness,
Amscan Holdings 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 Amscan
Holdings' or the Guarantors' obligations to holders of the Notes, the effect of
which would be that holders of the Notes may not be repaid in full and/or (b)
subordinate Amscan Holdings' or the Guarantors' obligations to holders of the
Notes to other existing and future indebtedness of Amscan Holdings 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
Notes or the Senior Subordinated Guarantees.
Note Resale Procedures
- - ----------------------
Each broker-dealer that holds Notes for its own account 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 Notes.
Resale of Notes
- - ---------------
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, Amscan Holdings believes that the Notes may be
offered for resale, resold and otherwise transferred in the ordinary course of
business by any holder of such Notes (other than any such holder which is an
"affiliate" of Amscan Holdings 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 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 Notes. However, any holder who acquired
Notes in exchange for the originally issued Notes intending to participate in a
distribution of the Notes may not rely on the position the SEC enunciated in
Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley &
Co., Incorporated (available June 5, 1991) or similar no-action letters
regarding private placements of debt. Rather, such a Note holder must comply
with the registration and prospectus delivery requirements of the Securities Act
before offering to sell the Notes. In addition, before reselling the Notes a
Note holder should file an effective registration statement containing the
information required by Item 507 of Regulation S-K of the SEC.
THE TRANSACTION
Certain Agreements
- - ------------------
On December 19, 1997 Confetti was merged with and into Amscan Holdings,
with Amscan Holdings as the surviving corporation, pursuant to that certain
Agreement and Plan of Merger dated August 10, 1997. The primary purpose of the
merger was the recapitalization of Amscan Holdings. However, the merger also
entailed a series of related transactions and the execution and delivery of
various other documents including certain employment agreements with Amscan
Holdings officers, a stockholders' agreement among the stockholders of Amscan
Holdings, a tax indemnification agreement among Amscan Holdings, the Estate of
John A. Svenningsen and Ms. Christine Svenningsen, and various bank credit
facilities (the merger, together with all of such related transactions and
agreements, the "Transaction"). The Transaction was financed with an equity
contribution of approximately $67.5 million (including contributions of Amscan
Holdings Common Stock by certain employee stockholders and issuances of
restricted Common Stock), $117 million from a senior term loan (the "Term Loan")
provided under a bank credit agreement and $110 million from the issuance of 9
7/8% senior subordinated notes.
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of Notes by
Goldman Sachs in market-making transactions. Amscan Holdings will not receive
any of the proceeds from such transactions.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Amscan Holdings as of
March 31, 1999. The information set forth below should be read in conjunction
with the 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.
As of March 31, 1999
----------------------
(Dollars in thousands)
Cash and cash equivalents ................... $ 934
Total debt (including current portion):
Revolving Credit Facility(1)............... 16,695
Term Loan ................................. 155,236
Notes ..................................... 110,000
Mortgages ................................. 3,259
Capital leases and other .................. 5,405
---------
Total debt ............................. 290,595
Redeemable Common Stock ..................... 19,547
Stockholders' deficit(2)..................... (95,315)
---------
Total capitalization ................... $ 215,761
=========
(1) Amscan Holdings has the ability to borrow up to $50 million pursuant to its
Revolving Credit Facility (as defined below). 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 in 1997, Amscan Holdings had a negative
net worth for accounting purposes. In the merger, GS Capital Partners II,
L.P. and its affiliates paid $61.9 million for approximately 82.5% of
Amscan Holdings' Common Stock. In addition, certain employees of the
company acquired, and the Estate retained, approximately 7.5% and almost
10%, respectively, of Amscan Holdings' Common Stock which, based upon the
price per share paid by GS Capital Partners II, L.P. and its affiliates had
an aggregate value of approximately $13.1 million. Combined with GS Capital
Partners II, L.P. and its affiliates' payment of $61.9 million, these
holdings had an aggregate value of approximately $75.0 million at December
19, 1997.
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 continues to shift from smaller independent
stores and designated departments within drug, discount or department store
chains to superstores dedicated to retailing party goods. Despite a
consolidation of party goods superstores in the past three years, the superstore
channel has continued to grow at a faster pace than the reduction in independent
stores. Party goods manufacturers broadened their product lines, in part due to
the success of the superstore channel, to support the celebration of a greater
number of occasions. The industry's growth has been directly affected by these
changes.
Amscan Holdings' revenues have increased from $192.7 million in 1996 to
$235.3 million in 1998, a compound annual growth rate of over 10%. Amscan
Holdings 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.
Our revenues are generated from sales of approximately 23,000 SKUs
consisting of paper and plastic tableware, accessories and novelties for all
occasions. Tableware (plates, cups, cutlery, napkins and tablecovers) is our
core product category, generating approximately 57% of revenues in 1998.
Coordinated accessories (e.g., balloons and banners) and novelties (e.g., party
favors) are offered to complement our tableware products. To serve our customers
better, we have made significant additions to our product line. Through
increased spending on internal product development as well as through
acquisitions, we have had a net increase of approximately 15,300 SKUs since
1991. Revenue growth primarily has been the result of increased
15
<PAGE>
orders from our party goods superstore customers (new stores and increased
same-store sales), increased international sales and price increases.
Our gross profit is influenced by product mix and paper costs. Products
manufactured by Amscan, primarily tableware and metallic balloons, represented
over 55% of our 1998 sales. As a result of the Anagram acquisition, we expect
our manufactured products to grow to approximately 65% of sales. We have made
significant additions to our manufacturing capacity which have allowed us to
improve gross margins. We believe that our manufacturing capabilities enable us
to lower product cost, ensure product quality and be more responsive to customer
demands. We have historically been able to adjust our prices in response to
changes in paper prices.
Results of Operations
- - ---------------------
Three Months Ended March 31,
---------------------------
1999 1998
------------ ------------
Net sales............................. 100.0% 100.0%
Cost of sales ........................ 63.0 64.8
------ ------
Gross profit.................... 37.0 35.2
Operating expenses:...................
Selling expenses................... 7.7 6.5
General and administrative expenses 9.2 7.8
Provision for doubtful accounts
(7.8% in 1999 related to Party
City)............................ 8.4 1.4
Art and development costs.......... 3.5 2.9
------ ------
Total operating expenses........ 28.8 18.6
------ ------
Income from operations.......... 8.2 16.6
Interest expense, net................. 8.4 9.5
Other expense (income), net........... - (0.1)
------ ------
(Loss) income before income
taxes and minority interests (0.2) 7.2
Income tax (benefit) expense.......... (0.1) 3.0
Minority interests.................... - 0.1
------ ------
Net (loss) income.................. (0.1)% 4.1%
====== ======
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
- - -------------------------------------------------------------------------------
Net sales for the three months ended March 31, 1999 were $76.4 million as
compared to $55.6 million for the three months ended March 31, 1998. Net sales
for the three months ended March 31, 1999 increased by 37.6%, reflecting the
September 1998 acquisition of Anagram, a manufacturer and distributor of
metallic balloons, and strong growth in sales to both party goods superstores
and smaller independent stores. The Company attributes its sales growth to the
growth in party goods superstores, a realignment of its independent sales force,
and its marketing strategy of continually offering new products and new designs
and themes for existing products.
Gross profit for the three months ended March 31, 1999 was $28.3 million,
or 37.0% of net sales, as compared to 35.2% for the three months ended March 31,
1998. The increase in gross profit margin principally reflects the savings
associated with the restructuring of the Company's distribution operations begun
in the second quarter of 1998 as well as initial synergies arising from the
acquisition of Anagram.
Selling expenses of $5.9 million for the three months ended March 31, 1999
were $2.2 million higher than those of the corresponding quarter in 1998.
Selling expenses increased as a percentage of net sales from 6.5% to 7.7%
principally due to the inclusion of the results of Anagram, which historically
operates at a higher level of expense as a percentage of sales, additional
catalogues and advertising and the realignment of the independent sales force.
General and administrative expenses of $7.0 million increased by $2.7
million for the three months ended March 31, 1999 as compared to the
corresponding quarter in 1998. General and administrative expenses increased as
a percentage of net sales from 7.8% to 9.2%. The increase primarily results from
the additional amortization of goodwill and other intangible assets
16
<PAGE>
arising from the acquisition of Anagram as well as the inclusion of Anagram
results, which historically operates at a higher level of expense as a
percentage of sales.
During the first quarter of 1999, the Company's largest customer, Party
City, announced that, due to difficulties implementing new financial reporting
and accounting systems, it would not be able to complete its year-end audit and
that it would be in default of certain covenants of its credit facility as of
December 31, 1998. The Company understands that Party City is negotiating with
its lenders to amend its credit facility and with its vendors to amend existing
credit terms on certain inventory. The Company also understands that Party City
is considering various alternatives to improve its current financial condition.
Based on Party City's current financial condition, the Company has established
reserves approximating 50% of the $13.2 million accounts receivable balance due
from Party City corporate stores at March 31, 1999, including $6.0 million
charged to the provision for doubtful accounts during the first quarter of 1999.
Art and development costs of $2.7 million for the three months ended March
31, 1999, increased by $1.0 million compared to the corresponding quarter in
1998. As a percentage of net sales, art and development costs increased from
2.9% to 3.5%, and reflect the Company's investment in additional staff
associated with the development of new product lines.
Interest expense of $6.4 million for the three months ended March 31, 1999
increased by $1.2 million as compared to the corresponding period in 1998
principally due to the Company's increased borrowings in connection with the
acquisition of Anagram (see "Liquidity and Capital Resources").
Income taxes for the three months ended March 31, 1999 and 1998 were based
upon estimated consolidated effective income tax rates of 40.85% and 41.5% for
the years ended December 31, 1999 and 1998, respectively.
Minority interests represent the portion of income of Amscan Holdings'
subsidiaries attributable to equity ownership not held by Amscan Holdings.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
- - ---------------------------------------------------------------------
Percentage of Net Sales
- - -----------------------
Years Ended December 31,
------------------------
1998 1997
---- ----
Net sales................................ 100.0% 100.0%
Cost of sales............................ 63.9 65.1
------ ------
Gross profit.......................... 36.1 34.9
Operating expenses.......................
Selling expenses...................... 7.2 6.5
General and administrative expenses... 10.0 9.9
Art and development costs............. 3.2 2.5
Restructuring charges................. 1.0
Non-recurring charges in connection
with the Transaction................ - 10.5
------ ------
Total operating expenses.............. 21.4 29.4
------ ------
Income from operations................... 14.7 5.5
Interest expense, net.................... 9.8 1.9
Other income, net........................ - (0.1)
------ ------
Income before income taxes and
minority interests.................. 4.9 3.7
Income tax expense....................... 2.0 3.7
Minority interests....................... - 0.1
------ ------
Net income (loss)..................... 2.9% (0.1)%
====== ======
Net sales for the year ended December 31, 1998 of $235.3 million, were
$25.4 million or 12.1% higher than for the year ended December 31, 1997. The
increase in net sales in 1998 over 1997 reflects additional sales from the
acquisition of Anagram as well as increased sales to party goods superstores
which was partially offset by a decline in sales to smaller independent stores.
Our marketing strategy of continually offering new products, new designs and
themes for existing products also contributed to the increase in sales. During
the year ended December 31, 1998, we added approximately 6,000 SKUs to our
product line, including approximately 4,500 SKUs as a result of the acquisition
of Anagram.
17
<PAGE>
Gross profit for the year ended December 31, 1998 was $84.8 million, or
36.1% of net sales, as compared to 34.9% for the year ended December 31, 1997.
The increase in current year gross profit margin principally results from
savings associated with a restructuring our distribution operations begun in the
second quarter of 1998 partially offset by higher freight costs incurred in the
latter half of 1998.
Selling expenses for the year ended December 31, 1998 increased by $3.3
million to $17.0 million and, as a percentage of net sales, to 7.2% from 6.5%,
principally due to the addition of a new seasonal catalogue, expansion of the
"everyday" catalogue, the inclusion of the results of Anagram and higher
advertising costs.
General and administrative expenses of $23.5 million for the year ended
December 31, 1998 increased by $2.7 million as compared to the year ended
December 31, 1997. The increase results from additional amortization of goodwill
and other intangible assets arising from the September 1998 acquisition of
Anagram.
Art and development costs of $7.5 million for the year ended December 31,
1998 were $2.2 million higher than the prior year. As a percentage of sales, art
and development costs increased to 3.2% in 1998 from 2.5% in 1997. The increase
in costs reflects our investment in additional art and product development staff
associated with the development of new product lines.
In the second quarter of 1998, we commenced a restructuring of our
distribution operations to reduce costs and improve operating efficiencies. We
closed two distribution facilities located in California and Canada which
resulted in the elimination of approximately 100 positions. The restructuring
was substantially completed by December 1998. We recorded restructuring charges
of approximately $2.4 million, or 1.0% of sales for the year ended December 31,
1998. The restructuring charges include the non-cash write-down of $1.3 million
relating to property, plant and equipment, the accrual of future lease
obligations of $0.7 million and severance and other costs of $0.4 million.
Management is currently evaluating the further consolidation of our domestic
distribution facilities which may result in additional restructuring charges in
subsequent periods.
Interest expense, net, of $23.0 million for the year ended December 31,
1998 increased by $19.1 million as compared to the corresponding period in 1997
due to our increased borrowings in connection with Amscan Holdings' merger with
Confetti, a Goldman Sachs affiliate, and the Anagram acquisition (see "Liquidity
and Capital Resources"), offset, in part, by reduced levels of working capital.
Income taxes for the years ended December 31, 1998 and 1997 were provided
for at consolidated effective income tax rates of 41.5% and 99.9%, respectively.
The effective income tax rates exceed the federal statutory income tax rate
primarily due to state income taxes and, for the year ended December 31, 1997,
non-deductible charges related to Amscan Holdings' merger with Confetti.
18
<PAGE>
Minority interests represent the portion of income of Amscan Holdings'
subsidiaries attributable to equity ownership that Amscan Holdings does not
hold.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
- - ---------------------------------------------------------------------
Percentage of Net Sales
- - -----------------------
Years Ended December 31,
------------------------
1997 1996
------ ------
Net sales................................... 100.0% 100.0%
Cost of sales............................... 65.1 64.3
------ ------
Gross profit............................. 34.9 35.7
Operating expenses:
Selling expenses......................... 6.5 6.1
General and administrative expenses...... 9.9 10.0
Art and development costs................ 2.5 2.7
Non-recurring charges in connection with
the Transaction...................... 10.5 -
Non-recurring compensation in connection
with the IPO......................... - 8.1
Special bonuses.......................... - 2.2
------ ------
Total operating expenses.................... 29.4 29.1
------ ------
Income from operations................... 5.5 6.6
Interest expense, net....................... 1.9 3.4
Other (income) expense, net................. (0.1) 0.2
------ ------
Income before income taxes and
minority interests..................... 3.7 3.0
Income tax expense.......................... 3.7 1.0
Minority interests.......................... 0.1 0.9
------ ------
Net (loss) income........................ (0.1)% 1.1%
====== ======
Net sales for the year ended December 31, 1997 were $209.9 million, an
increase of 8.9% over the year ended December 31, 1996. Sales to national
accounts totaled $106.3 million, or 15.9% 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 $1.9 million, accounting for
1.0% of the increase in net sales. Also contributing to the increase in sales
was our marketing strategy of continually offering new products, as well as new
designs and themes for existing products. During the year ended December 31,
1997, we added approximately 600 SKUs to its product line.
Gross profit for the year ended December 31, 1997 was $73.4 million, an
increase of $4.6 million over 1996. As a percent of net sales, gross profit
decreased for the year ended December 31, 1997 to 34.9% from 35.7% for the year
ended December 31, 1996 as a result of excess capacity due to increases in
manufacturing capacity and the addition of a new distribution facility during
the first half of 1997.
Selling expenses for the year ended December 31, 1997 increased by $1.9
million to $13.7 million and, as a percentage of net sales, to 6.5% from 6.1%,
primarily due to the expansion of foreign operations.
General and administrative expenses of $20.8 million for the year ended
December 31, 1997 increased $1.5 million as compared to the year ended December
31, 1996. General and administrative expenses for 1997 included a $3.8 million
or 61.0% increase in bad debt expense as two national customers (Party Stores
Holdings, Inc. and Party America, Inc.) filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code during the year. General
and administrative expenses for 1996 were 10.0% of net sales and included
non-recurring costs associated with our move to new corporate offices and
additional personnel costs, including relocation and recruitment.
Art and development costs of $5.3 million for the year ended December 31,
1997 were comparable to those of 1996 and decreased slightly, to 2.5% of net
sales from 2.7%, reflecting the 8.9% increase in 1997 net sales over the prior
year. In 1996, we significantly expanded our creative and new product
development staff and internal development capabilities. The continued
investment in art and development expenditures in 1997 reflects our strategy to
remain a leader in product quality and development.
19
<PAGE>
In connection with the Transaction, we recorded non-recurring charges of
$22.1 million, comprised of $11.7 million in transaction costs, $7.5 million of
compensation to an officer, $1.9 million for the redemption of Company Stock
Options (as defined below) and $1.0 million of debt retirement costs.
The employment agreements which gave rise to special bonuses during the
first eleven 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 $4.2 million or 2.2% of net sales for the year ended December
31, 1996.
Interest expense, net, of $3.9 million for the year ended December 31, 1997
decreased by $2.8 million as compared to 1996, as the net proceeds received from
the issuance of Common Stock in December 1996 and January 1997 were used to
reduce indebtedness under our line of credit and to repay subordinated debt,
prior to the Transaction. In addition to the lower debt, we experienced
generally lower interest rates during 1997 as compared to 1996. See "Liquidity
and Capital Resources."
Income tax expense for the year ended December 31, 1997 was $7.7 million or
nearly 100% of income before income taxes and minority interests. Non-deductible
charges related to the Transaction had the effect of increasing the 1997
effective income tax rate by 51.2% of income before income taxes and minority
interests.
During 1996, prior to the IPO, Amscan Inc. and certain of its affiliates
were taxed as Subchapter S corporations for federal and, where available, state
income tax purposes. Accordingly, these entities were not subject to federal and
state income taxes, except in states which do not recognize Subchapter S
corporation status. In connection with the IPO, these subsidiaries became
subject to federal and state income taxes. The amounts shown as income taxes for
the year ended December 31, 1996 consisted principally of foreign income taxes
and a one-time charge of $0.8 million related to the establishment of deferred
income taxes in connection with the change in tax status.
Minority interests of $0.2 million and $1.7 million for the years ended
December 31, 1997 and 1996, respectively, represent the portion of income of
Amscan Holdings' subsidiaries attributable to equity ownership not held by
Amscan Holdings. In addition to the minority interests of certain foreign
entities, the minority interest amount for the year ended December 31, 1996
includes a 50% minority interest in Am-Source, Inc. through December 18, 1996,
the date Amscan Holdings acquired the 50% not previously owned.
Liquidity and Capital Resources
- - -------------------------------
On December 19, 1997, Amscan Holdings and Confetti consummated the
Transaction, providing for a recapitalization of Amscan Holdings in which
Confetti was merged with and into Amscan Holdings with Amscan Holdings as the
surviving corporation. The Transaction was financed with an equity contribution
of approximately $67.5 million (including contributions of Amscan Holdings
Common Stock by certain employee stockholders and issuances of restricted Common
Stock), $117 million from a senior term loan (the "Term Loan") provided under a
bank credit agreement and $110 million from the issuance of 9 7/8% senior
subordinated notes (all of which were thereafter exchanged for the Notes in an
equal principal amount) (collectively, the "Transaction Financings"). The
Transaction has been accounted for as a recapitalization and, accordingly, the
historical basis of our assets and liabilities has not been affected by the
Transaction.
Amscan Holdings 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, which protection must remain
in effect for not less than three years. The interest rate swap contracts
require Amscan Holdings to settle the difference in interest obligations
quarterly. Amscan Holdings had two interest rate swap contracts outstanding with
a financial institution and Goldman Sachs Capital Markets, L.P. covering $93.5
million of the Term Loan at effective interest rates ranging from 7.18% to 8.36%
at March 31, 1999.
In addition to the Term Loan, the Revolving Credit Facilities, as amended,
also provide for revolving loan borrowings of up to $50 million (the "Revolving
Credit Facility"). The Revolving Credit Facility has a term of five years and
bears interest, at the option of Amscan Holdings, 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 outstanding under the
Revolving Credit Facility are subject to adjustment in the future based on
Amscan Holdings' leverage ratios as defined herein. At March 31, 1999, Amscan
Holdings had borrowing capacity of approximately $28.0 million under the
Revolving Credit Facility.
20
<PAGE>
Amscan Holdings financed the September 1998 acquisition of Anagram with $40
million of senior term debt, approximately $20 million of additional revolving
credit borrowings, cash on hand, the issuance of 120 shares of the Company's
Redeemable Common Stock valued at $12.6 million and warrants to purchase 10
shares of the Company's Common Stock valued at $0.2 million. In connection with
and upon consummation of the acquisition, the Company amended and restated the
Revolving Credit Facility to provide for, among other things, the additional
senior term debt.
Based upon the current level of operations and anticipated growth,
including giving effect to the Anagram acquisition, and the amendments to its
credit agreements, Amscan Holdings 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, Amscan Holdings' ability to make
scheduled payments of principal on, or to pay interest on, or to refinance its
indebtedness 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.
The Transaction Financings, the Anagram acquisition, and the amendments to
Amscan Holdings' credit agreements may affect its ability to make future capital
expenditures. However, management believes that additions to plant and equipment
during the past three years provide adequate capacity to support our operations
for at least the next 12 months. As of March 31, 1999, we did not have material
commitments for capital expenditures.
Cash Flow Data -- Three Months Ended March 31, 1999, compared to Three Months
- - -----------------------------------------------------------------------------
Ended March 31, 1998
- - --------------------
During the three months ended March 31, 1999, net cash used in operating
activities totaled $4.7 million as compared to $1.4 million during the same
quarter in 1998. The increase in net cash used in operating activities reflects
growth in Amscan Holdings' net accounts receivable balance, as a result of
increased sales which have extended terms given to customers in association with
new promotions, partially offset by the changes in other operating assets and
liabilities.
Net cash used in investing activities during the first quarter of 1999 of
$2.1 million increased by $1.0 million from the same period in 1998 and
principally reflects an upgrade of Amscan Holdings' data processing systems as
well as inclusion of the capital expenditures of Anagram in the first quarter of
1999.
During the first quarter of 1999, net cash provided for financing
activities of $6.7 million consisted principally of proceeds from short-term
working capital borrowings, partially offset by the scheduled maturity of
long-term obligations. During the comparable period in 1998, net cash used in
financing activities of $93.8 million consisted principally of payments to
former shareholders whose investment in Company Common Stock were converted into
the right to receive cash in connection with the Transaction in 1997.
Cash Flow Data -- Year Ended December 31, 1998 Compared to Year
- - ---------------------------------------------------------------
Ended December 31, 1997
- - -----------------------
Net cash provided by operating activities increased by $18.6 million to
$22.8 million during the year ended December 31, 1998 from $4.2 million during
the year ended December 31, 1997, principally as a result of increased earnings
and lower accounts receivable and inventory levels (excluding the effects of the
Anagram acquisition) attributable to management's efforts to reduce working
capital. The impact of lower accounts receivable and inventory levels was
partially offset by lower accounts payable balances at December 31, 1997.
Net cash used in investing activities during the year ended December 31,
1998 increased by $73.0 million to $83.1 million due to the acquisitions of
Anagram and the remaining 25% interest in Amscan Holdings' U.K. based
subsidiary, which were partially offset by lower levels of capital expenditures
and proceeds received from the sale of Amscan Holdings' Canadian distribution
facility and other assets in connection with its restructuring of its
distribution facilities.
During the year ended December 31, 1998, net cash used in financing
activities of $49.8 million consisted of payments of $93.2 million to former
shareholders whose investment in Amscan Holdings' Common Stock was converted
into the right to receive cash in connection with the Transaction and the
scheduled repayment of debt, offset by net proceeds of $59.1 million from
additional borrowings in connection with the acquisition of Anagram and the
issuance of Redeemable Common Stock to employees as well as net payments
received applicable to notes receivable from officers. During the year ended
December 31, 1997, net cash provided by financing activities of $116.0 million
included: net proceeds of $4.5 million from the issuance of Common Stock to
cover the over-allotments provided for in the IPO underwriting agreement; a
contribution to capital by the Estate of John A. Svenningsen of $7.5 million;
proceeds of $61.9 million from the issuance of Common Stock in connection
21
<PAGE>
with the Transaction; and proceeds of the Transaction Financings of $237.1
million and related payments to repurchase Amscan Holdings' Common Stock of
$142.7 million. In addition, during 1997, Amscan Holdings repaid indebtedness of
$51.8 million.
Cash Flow Data -- Year Ended December 31, 1997 Compared to Year
---------------------------------------------------------------
Ended December 31, 1996
-----------------------
Net cash provided by operating activities decreased by $8.1 million to $4.2
million during the year ended December 31, 1997 from $12.3 million during the
year ended December 31, 1996 as a result of charges incurred in connection with
the 1997 recapitalization of Amscan Holdings, the change in Amscan Inc.'s tax
status in December 1996 and growth in our inventories and accounts receivable.
Net cash used in investing activities of $10.1 million increased by $2.5 million
from 1996, reflecting increased capital expenditures. During the year ended
December 31, 1997, net cash provided by financing activities of $116.0 million
included net proceeds of $4.5 million from the issuance of Amscan Holdings'
Common Stock to cover the over-allotments provided for in the IPO underwriting
agreement, a contribution to capital by the John A. Svenningsen Estate of $7.5
million and proceeds of $61.9 million from the issuance of Amscan Holdings'
Common Stock in connection with the Transaction, proceeds of the Transaction
Financings of $237.1 million and related payments to repurchase Amscan Holdings
Common Stock of $142.7 million. In addition, during 1997, Amscan Holdings repaid
indebtedness of $51.8 million. During the year ended December 31, 1996, net cash
used in financing activities of $6.0 million included increased distributions to
stockholders of $23.4 million, repayment of bank debt and indebtedness to the
then principal stockholder of $29.1 million, partially offset by net proceeds of
$43.3 million from the IPO.
During 1996, Amscan Holdings used net proceeds from the IPO to repay debt
owed to the banks and to Mr. Svenningsen. We used $8.9 million of the cash in
1996 to fund our working capital needs, which consisted primarily of increases
in accounts receivable and deposits on machinery and equipment.
During 1996, Amscan Holdings distributed $23.4 million to Mr. Svenningsen.
Approximately $1.4 million of the distributions in 1996 were reinvested in
Amscan Holdings 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 1997 and 1996, we acquired machinery and equipment totaling $10.3
million and $11.0 million, respectively. Amscan Holdings financed the
acquisitions using long-term debt borrowings under its revolving credit facility
and capital leases.
Recently Issued Accounting Standards
- - ------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The statement requires all derivatives to be
recognized on the balance sheet at fair value and establishes standards for the
recognition of changes in such fair value. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. Amscan Holdings expects to adopt SFAS No.
133 effective January 1, 2000. Because of Amscan Holdings' limited use of
derivatives, management does not anticipate the adoption of SFAS No. 133 will
have a significant effect on Amscan Holdings' earnings or financial position.
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or not
significant to Amscan Holdings' financial statements.
Impact of Year 2000
- - -------------------
Several of our older computer programs have date sensitive software that
will not recognize the year 2000 and, if not addressed, could cause disruptions
to our normal business operations. We have completed an assessment of our
software and have begun to upgrade our date-sensitive software to be Year 2000
compliant. The completed assessment indicated that most of our significant
information technology systems could be affected, particularly the general
ledger, billing, and inventory systems. That assessment also indicated that the
software and hardware (embedded chips) used in manufacturing and distribution
systems do not require any remediation to be Year 2000 compliant. To date, we
have not incurred significant expenses associated with the Year 2000 issue and
management expects that the historical and anticipated remaining costs to
upgrade our software will not be material.
We are in the process of querying our significant suppliers and
subcontractors that do not share information systems with us (external agents).
To date, we are not aware of any external agent with a Year 2000 issue that
would materially impact
22
<PAGE>
our results of operations, liquidity, or capital resources. However, we have no
means of ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact us. The effect of non-compliance by external
agents is not determinable.
We are currently working on contingency plans for certain critical
applications. These contingency plans are expected to be completed by August
1999 and involve, among other actions, manual workarounds, increasing
inventories, and adjusting staffing strategies.
To date, we are 80% complete in this process, expect to complete the
upgrade of our principal software during July 1999, and we believe that the Year
2000 issue will not pose significant operational problems for our computer
systems. However, there can be no guarantee that the estimated cost and
completion will be achieved and the actual results could differ materially from
those anticipated.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
- - ------------------------------------------------------------------------------
This report 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 report
that address activities, events or developments that we expect or anticipate
will or may occur in the future, the impact of the Year 2000 issue, future
capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, including any changes to
operations, goals, expansion and growth of our 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 us in light of our experience and perception of historical trends, current
conditions and expected future developments as well as other factors we believe
are appropriate in the circumstances. Actual results may differ materially from
those discussed. Whether actual results and developments will conform with our
expectations and predictions is subject to a number of risks and uncertainties,
including, but not limited to (1) the concentration of our sales to party goods
superstores where the reduction of purchases by a small number of customers
could materially reduce our sales and profitability, (2) the concentration of
our credit risk in party goods superstores, several of which are privately held
and have expanded rapidly in recent years, (3) our failure to anticipate changes
in tastes and preferences of party goods retailers and consumers, (4) the
introduction of new products by our competitors, (5) our inability to increase
prices to recover fully future increases in raw material prices, especially
increases in paper prices, (6) the loss of key employees, (7) changes in general
business conditions, (8) other factors which might be described from time to
time in Amscan Holdings' filings with the SEC, and (9) other factors which are
beyond our control. Consequently, all of the forward-looking statements made in
this report are qualified by these cautionary statements, and the actual results
or developments anticipated may not be realized or, even if substantially
realized, may not have the expected consequences to or effects on our business
or operations. Although we believe that we have 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
us to adjust our operations in the future. Because of the foregoing and other
factors, recent trends should not be considered reliable indicators of future
financial results. In addition, our highly leveraged nature may impair our
ability to finance future operations and capital needs and our flexibility to
respond to changing business and economic conditions and business opportunities.
Quarterly Results
- - -----------------
As a result of the seasonal nature of certain of our products, the
quarterly results of operations may not be indicative of those for a full year.
Third quarter sales are generally the highest of the year due to a combination
of increased sales to consumers of our 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. However, fourth quarter sales in
1998 were higher than prior quarters as a result of the acquisition of Anagram.
The overall growth rate of sales in recent years has offset, in part, this sales
variability. Promotional activities, including special dating terms,
particularly with respect to Halloween and Christmas products sold in the third
quarter, result in generally lower profitability in the fourth quarter, due to
higher accounts receivables balances and associated higher interest costs to
support these balances. The following table sets forth the historical net sales,
gross profit, income (loss) from operations and net income (loss) of Amscan
Holdings for 1997, 1998 and 1999 by quarter.
23
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
1997
- - ----
Net sales ...................... $53,176 $49,225 $58,885 $48,645
Gross profit ................... 18,766 17,671 21,389 15,534
Income (loss) from operations... 10,029 9,306 11,777 (19,615)(a)
Net income (loss) .............. 5,302 4,976 6,623 (17,083)(a)
1998
- - ----
Net sales ...................... $55,561 $48,686 $62,252 $68,795
Gross profit ................... 19,572 17,663 22,704 24,899
Income from operations ......... 9,235 5,454(b) 11,250 8,509
Net income ..................... 2,271 30(b) 3,425 983
1999
- - ----
Net sales ...................... $76,440
Gross profit ................... 28,320
Income from operations ......... 6,344(c)
Net loss ....................... (85)(c)
</TABLE>
(a) Included in fourth quarter results in 1997 are non-recurring charges
relating to the Transaction of $22.1 million comprised of $11.7
million in transaction costs, $7.5 million compensation payment to an
officer, $1.9 million for the redemption of Amscan Holdings stock
options and $1.0 million of debt retirement costs.
(b) Included in second quarter results in 1998 are non-recurring
restructuring charges of $2.4 million which related to the closure of
two distribution facilities located in California and Canada. The
restructuring charges consisted of the non-cash write-down of $1.3
million relating to property, plant and equipment, the accrual of
future lease obligations of $0.7 million, and severance and other
costs of $0.4 million.
(c) At March 31, 1999, Amscan Holdings established reserves approximating
50% of the $13.2 million accounts receivable balance due from Party
City's corporate stores at March 31, 1999, including $6.0 million
charged to the provision for doubtful accounts during the first
quarter of 1999.
Quantitative and Qualitative Disclosures About Market Risk
- - ----------------------------------------------------------
Amscan Holdings' earnings are affected by changes in interest rates as a
result of its issuance of variable rate indebtedness. However, Amscan Holdings
utilizes interest rate swap agreements and other off-balance sheet financial
instruments to manage the market risk associated with fluctuations in interest
rates. If market interest rates for Amscan Holdings' variable rate indebtedness
averaged 2% more for the three months ended March 31, 1999 above the interest
rate actually paid, the company's interest expense, after considering the
effects of its interest rate swap agreements, would increase, and income before
taxes would decrease by $0.4 million. This amount is determined by considering
the impact of the hypothetical interest rates on Amscan Holdings' borrowing
cost, short-term investment balances, and interest rate swap agreements. This
analysis does not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in Amscan Holdings' financial structure.
Amscan Holdings' earnings are also affected by fluctuations in the value of
the U.S. dollar as compared to foreign currencies, predominantly in European
countries, as a result of the sales of its products in foreign markets. Foreign
currency forward contracts are used periodically to hedge against the earnings
effects of such fluctuations. A uniform 10% strengthening in the value of the
dollar relative to the currencies in which Amscan Holdings' foreign sales are
denominated would have resulted in a decrease in gross profit of $0.3 million
for the three months ended March 31, 1999. This calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates, which are a changed
dollar value of the resulting sales, changes in exchange rates also affect the
volume of sales or the foreign currency sales price as competitors' products
become more or less attractive. Amscan Holdings' sensitivity
24
<PAGE>
analysis of the effects of changes in foreign currency exchange rates does not
factor in a potential change in sales levels or local currency prices.
BUSINESS
General
- - -------
We design, manufacture and distribute decorative party goods, offering one
of the broadest and deepest product lines in the industry. Our 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, wedding cake tops, and balloons) and novelties (such as games and
party favors). Our products are sold to party goods superstores, independent
card and gift retailers, mass merchandisers and other distributors which sell
our products in more than 20,000 retail outlets throughout the world, including
North America, South America, Europe, Asia and Australia.
We currently offer over 350 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. We design, manufacture and market party goods
for a wide variety of occasions including seasonal holidays, special events and
theme celebrations. Our 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. Our
special event ensembles include birthdays, christenings, first communions, bar
mitzvahs, confirmations, graduations, baby and bridal showers and anniversaries,
while our theme-oriented ensembles include Hawaiian luaus, Mardi Gras and '50's
rock-and-roll parties.
In September 1998, the Amscan Holdings completed the acquisition of all the
capital stock of Anagram, a Minneapolis-based metallic balloon manufacturer and
distributor, pursuant to a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated August 6, 1998, in a transaction valued at approximately
$87,225,000, plus certain other related costs. Anagram primarily markets its
products through a network of distributors and supermarkets.
In addition to our long-standing relationships with independent card and
gift retailers, we are a leading supplier to the party superstore distribution
channel. Despite a consolidation of party goods superstores during the past
three years, party goods superstores are continuing to grow 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.
Our sales to superstores represented approximately 47% of total sales in
1998. While the number of party superstores that we supply has grown at a
compound annual growth rate in excess of 14% from 1995 to 1998, our sales to
superstores have grown by a 21% compound annual growth rate during the same
period. With Amscan products occupying an increasing share of superstore shelf
space in many product categories, we believe we are well positioned to take
advantage of continued growth in the party superstore channel. In addition, as a
result of the acquisition of Anagram, we believe we are also well positioned to
expand our presence in the gift shop, supermarket and other channels where
Anagram has developed a strong network base.
Our sales and cash flows have grown substantially over the past five years.
From 1993 to 1998, sales and Adjusted EBITDA (adjusted for non-recurring items,
other income or expenses, and minority interests) have grown at compound annual
rates of 17% and 24%, respectively. During the same period, Adjusted EBITDA
margins increased from approximately 15% to 19% due in part to our 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-month period ended March 31, 1999 were approximately $256 million
and $44 million, respectively, representing an Adjusted EBITDA margin of
approximately 17%.
25
<PAGE>
Revenues and Adjusted EBITDA Growth
[GRAPHIC OMITTED]
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. We believe 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.
We believe that demographic trends favor continued growth in decorative
party goods sales. According to the United States Bureau of the Census, between
1997 and 2005, the 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. We believe 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 further expansion as national penetration
continues. We believe 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.
We believe that party goods sales volumes have also increased, in part, as
a result of:
o the creation of new product ensembles both in response to consumer
demand and as a means of stimulating customer purchases;
o the broadening of product lines through the addition of new items and
new accessories within ensembles;
o larger retail environments allowing retailers to employ marketing
techniques which result in increased average sales per customer; and
o the celebration of an increased number of party themes and events,
such as Hawaiian luaus, Mardi Gras and '50's rock-and-roll parties.
We believe 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.
26
<PAGE>
Competitive Strengths
- - ---------------------
o Leading Supplier to the High Growth and High Volume Party Goods
Superstore Channel. In addition to our long-standing base of business
with independent card and party retailers, we believe that our
products account for an increasing portion of the retail sales by
major superstore chains, including Party City, Big Party Corporation,
The Paper Factory, The Half-Off Card Shop, and Paper Warehouse Inc.
Approximately 47% of our sales were generated from superstores in
1998. Despite some consolidation in the party goods superstore channel
during the past two years, superstores continue to expand nationwide,
and we expect that sales to this segment will continue to grow
significantly.
o Single Source Supplier of Decorative Party Goods. We provide one of
the most extensive product lines of decorative party goods in the
industry, serving a wide variety of occasions. We produce over 350
different ensembles, generally containing 30 to 150 coordinated SKUs
within each ensemble. With 23,000 SKUs, we are a one-stop shopping,
single-source supplier to retailers of decorative party goods. We
believe this breadth of product line provides enough variety that
competing retailers can each purchase our products and still
differentiate themselves by the product they market to the end
consumer.
o Strong Customer Relationships. We have built strong relationships with
our customer base which operate more than 20,000 retail outlets. We
strive to provide superior service and, by involving retailers in
product development and marketing, seek to become a strategic partner
to our customers.
o Product Design Leadership. We believe one of our strengths is our
leadership in creating innovative designs and party items. We believe
our product designs have a level of color, complexity and style that
are attractive to consumers and difficult to replicate. We offer
coordinated accessories and novelties which, we believe, complement
our tableware designs, enhancing the appeal of our tableware products
and encouraging "add on" impulse purchases.
o Strong and Committed Management Team. Our management team has built
the business into an industry leader with integrated design,
manufacturing, and distribution capabilities. Current management has
been instrumental in building our strong industry position and 24%
compound annual growth rate in Adjusted EBITDA since 1992. The
management team and other key employees committed $6.4 million
(including restricted stock grants) to the Transaction. In addition,
Garry Kieves, the chief executive officer of Anagram, effectively
invested $13 million in Amscan Holdings' Common Stock when the company
acquired Anagram. Amscan Holdings paid a portion of the purchase price
for Anagram in Common Stock.
Strategy
- - --------
We seek to become the primary source for consumers' party goods
requirements. The key elements of our strategy are as follows:
o Strengthen Position as a Leading Provider to Party Superstores. We
offer convenient "one-stop shopping" for large superstore buyers and
seek to increase our proportionate share of sales volume and shelf
space in the superstores.
o Offer the Broadest and Deepest Product Line in the Industry. We strive
to offer the broadest and deepest product line in the industry. We
help retailers boost average purchase volume per consumer through
coordinated ensembles that promote "add on" purchases.
o Diversify Distribution Channels, Product Offering and Geographic
Presence. We will seek, through internal growth and acquisitions, to
expand our distribution capabilities internationally, increase our
presence in additional retail channels and further broaden and deepen
our product line.
o Provide Superior Customer Service. We strive to achieve high average
fill rates in excess of 95% and ensure short turnaround times.
o Maintain Product Design Leadership. We 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.
27
<PAGE>
o Maintain State-of-the-Art Manufacturing and Distribution Technology.
We intend to maintain technologically advanced production and
distribution systems in order to enhance product quality,
manufacturing efficiency, cost control and customer satisfaction.
o Pursue Attractive Acquisitions. We believe that opportunities exist to
make acquisitions of complementary businesses to leverage our existing
marketing, distribution and production capabilities, expand our
presence in the various retail channels, further broaden and deepen
our product line and penetrate international markets. We receive
inquiries from time to time with respect to the possible acquisition
of other entities, and we intend to pursue acquisition opportunities
aggressively. Consistent with this strategy, we acquired Anagram in
September 1998. Anagram manufactures and distributes metallic
balloons.
BUSINESS OPERATIONS
- - -------------------
Product Design
- - --------------
Our 100 person in-house design staff produces and manages our party goods.
From the designs and concepts developed by our artists, we select those we
believe best to replace a number of our designed product ensembles each year.
For 1998, we introduced approximately 75 new ensembles.
Product Line
- - ------------
The categories of products which we offer are tableware, accessories and
novelties. The percentages of sales for each product category for, 1996, 1997
and 1998 are set forth in the following table:
1996 1997 1998
---- ---- ----
Tableware........ 59% 59% 57%
Accessories...... 25 26 26
Novelties........ 16 15 17
---- ---- ----
100% 100% 100%
==== ==== ====
Products. The following table sets forth the principal products in each of the
three categories:
Tableware Accessories Novelties
--------- ----------- ---------
Decorated Balloons Buttons
---------
Paper Plates Banners Cocktail Picks
Paper Napkins Caketops Games
Paper Tablecovers Confetti Candles
Paper Cups Cascades Mugs
Crepe Noise Maker
Solid Color
-----------
Paper and Plastic Plates Cutouts Party Favors
Paper Napkins Decorative Tissues Party Hats
Paper and Plastic Flags Pinatas
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
Occasions. We supply party goods for the following types of occasions:
Seasonal Everyday Themes
-------- -------- ------
New Year's Anniversaries Fall
Valentine's Day Bar Mitzvahs Fiesta
St. Patrick's Day Birthdays Fifties Rock-and-Roll
Easter Christenings Hawaiian Luau
28
<PAGE>
Passover Confirmations Mardi Gras
Fourth of July First Communions Patriotic
Halloween Graduations Religious
Thanksgiving Retirements Sports
Hanukkah Showers Summer Fun
Christmas Weddings
Tableware. We believe 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 our tableware from
that of our competitors, we seek to create a broad range of unique designs for
our products. In addition, our tableware products are priced competitively and
affordably, having suggested retail prices (based upon quantity and product)
ranging between $1.10 and $11.25.
Accessories and Novelty Items. We believe that consumers are attracted to
our 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 our tableware and encourage the impulse buying of accessories and
novelties. We believe that by offering a broad product line, we increase the
number of products sold per customer transaction.
Manufactured Products
- - ---------------------
Items we manufacture accounted for over 55% of our sales in 1998.
State-of-the-art printing, forming, folding and packaging equipment support our
manufacturing operations. Our facilities in Kentucky, New York, Rhode Island,
Minnesota and Mexico produce paper and plastic plates, napkins, cups, balloons
and other party and novelty items. This vertically integrated manufacturing
capability for many of our key products allows us the opportunity to control
costs better and to monitor product quality, manage inventory investment and
provide efficiency in order fulfillment.
Given our size and sales volume, we are generally able to operate our
manufacturing equipment on the basis of at least two shifts per day thus
lowering our production costs. In addition, we manufacture products for third
parties allowing us to maintain a satisfactory level of equipment utilization.
Purchased Products
- - ------------------
We source the remainder of our products from independently-owned
manufacturers, many of whom are located in the Far East and with whom we have
long-standing relationships. The two largest such suppliers operate as exclusive
suppliers to us and represent relationships which have been in place for more
than ten years. We believe that the quality and price of the products
manufactured by these suppliers provide a significant competitive advantage. Our
business, however, is not dependent upon any single source of supply for
products manufactured by third parties.
Raw Materials
- - -------------
The principal raw material used by us in our products is paper. We have
historically been able to change our product prices in response to changes in
raw material costs. While we currently purchase such raw material from a
relatively small number of sources, paper is available from a number of sources.
We believe current suppliers could be replaced without adversely affecting our
operations in any material respect.
Sales and Marketing
- - -------------------
Our principal sales and marketing efforts are conducted through a domestic
direct employee sales force of approximately 70 professionals servicing over
5,000 retail accounts. In addition to this seasoned sales team, we utilize a
select group of manufacturers' representatives to handle specific account
situations. International customers are generally serviced by employees of our
foreign subsidiaries. To support our marketing effort, we produce four separate
product catalogues annually, three for seasonal products and one for everyday
products. In addition, we also produce additional catalogues to market our
metallic balloons and other new product lines.
From 1993 to 1998, we significantly reduced selling, general and
administrative expenses (before provision for doubtful accounts) as a percentage
of sales, largely because of a proportionate decrease in selling expenses.
Selling, general and administrative expenses increased slightly for the year
ended December 31, 1998, and for the twelve months ended March 31,
29
<PAGE>
1999, due to inclusion of Anagram results, as Anagram historically operates at a
higher level of expense as a percentage of sales.
SG&A and Adjusted EBITDA as % of Revenues
- - -----------------------------------------
[GRAPHIC OMITTED]
Our practice of including party goods retailers in all facets of product
development is a key element of our sales and marketing efforts. We target
important consumer preferences by integrating our market research with the input
of party goods retailers in the creation of designs and products. In addition,
the sales organization assists customers in the actual set-up and layout of
displays of our products, and, from time to time, also provide customers with
promotional displays.
Distribution and Systems
- - ------------------------
We ship products from distribution warehouses which employ computer
assisted systems. Prior to the second quarter of 1998, nonseasonal products were
shipped throughout North America from distribution warehouses in New York,
California and Canada. During the second quarter of 1998, we commenced a
restructuring of our distribution operations, to reduce costs and improve
operating efficiencies, which included the closure of the distribution
facilities located in California and Canada. In order to better control
inventory investment, seasonal products are shipped out of a central warehouse
located in New York. As a result of the acquisition of Anagram, we distribute
our metallic balloons domestically from facilities in New York and Minnesota.
Products for foreign markets are shipped from our distribution warehouses in
Mexico, England and Australia. We are currently evaluating the further
consolidation of our distribution facilities which may result in additional
restructuring charges in subsequent periods.
Many of our 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 our mainframe computer, where they are processed for shipment. This
electronic order entry expedites the order processing which in turn improves our
ability to fill customer merchandise needs accurately and quickly.
Customers
- - ---------
Our customers are principally party goods superstores, independent card and
party retailers, mass merchandisers and other distributors. In the aggregate, we
supply more than 20,000 retail outlets both domestically and internationally. We
are a leading supplier to the party superstore channel, which has been
experiencing significant growth.
30
<PAGE>
Revenue Breakdown by Retail Channel
- - -----------------------------------
1998 Revenue of $235.3 million
- - ------------------------------
[GRAPHIC OMITTED]
Amscan Holdings has a diverse customer base. Only one customer, Party City,
accounted for more than 10% of the company's sales in 1998. For the years ended
December 31, 1998, 1997 and 1996, sales to Party City's corporate and franchise
stores represented 13%, 7% and 3% and 10%, 12% and 11% respectively of
consolidated net sales. Although Amscan Holdings believes its relationship with
Party City and its franchisees are good, if they were to significantly reduce
their volume of purchases from the company, Amscan Holdings' financial condition
and results of operations could be materially adversely affected. During the
first quarter of 1999, Amscan Holdings', largest customer, Party City announced
that, due to difficulties implementing new financial reporting and accounting
systems, it would not be able to complete its year-end audit and that it would
be in default of certain covenants of its credit facility as of December 31,
1998. Amscan Holdings understands that Party City is negotiating with its
lenders to amend its credit facility and with its vendors to amend existing
credit terms on certain inventory. Amscan Holdings also understands that Party
City is considering various alternatives to improve its current financial
condition. Based on the current financial condition of Party City, Amscan
Holdings has established reserves approximating 50% of the $13,200,000 accounts
receivable balance due from Party City corporate stores at March 31, 1999,
including $5,950,000 charged to the provision for doubtful accounts during the
first quarter of 1999.
Future Acquisitions
- - -------------------
We believe that opportunities exist to make acquisitions of complementary
businesses to leverage our existing marketing, distribution and production
capabilities, expand our presence in various retail channels, further broaden
and deepen our product line and penetrate international markets. We receive
inquiries from time to time with respect to our possible acquisition of other
entities. As of the date of this Prospectus, no acquisitions are pending;
however, Amscan Holdings intends to pursue acquisition opportunities
aggressively.
Competition
- - -----------
We compete on the basis of diversity and quality of product designs,
breadth of product line, product availability, price, reputation and customer
service. We have many competitors with respect to one or more of our products
but believe that there are few competitors which manufacture and distribute
products with the complexity of design and breadth of product offerings that we
do. Furthermore, we believe that our design and manufacturing processes create
an efficiency in manufacturing that few of our 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 ours. Certain of these competitors control licenses for widely
recognized images,
31
<PAGE>
such as cartoon or motion picture characters, which could provide them with a
competitive advantage. We have pursued a strategy of developing our own designs
and generally have not pursued licensing opportunities. Anagram, however,
controls several licenses which it uses for its production of balloons.
Employees
- - ---------
As of March 31, 1999, we had approximately 1,500 employees, none of whom is
represented by a labor union. We consider our relationship with our employees to
be good.
Facilities
- - ----------
We maintain our corporate headquarters in Elmsford, New York and conduct our
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 55,200 square feet Leased (expiration date:
art production of paper party December 31, 2007)
products and decorations
Harriman, New York Manufacture of paper napkins 75,000 square feet Leased (expiration date:
and cups March 31, 2002)
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 189,000 square feet Leased (expiration date:
of paper plates March 31, 2001)
Newburgh, New York Manufacture and distribution 349,000 square feet Leased (expiration date:
of solid color party products October 31, 2002)
Brooklyn, New York Manufacture and distribution 12,200 square feet Leased (expiration date:
of wedding cake tops and July 20, 2003)
accessories
Eden Prairie, Minnesota Manufacture and distribution 115,600 square feet Owned
of balloons and accessories
Tijuana, Mexico Manufacture and distribution of 50,000 square feet Leased (expiration date:
party products May 14, 2001)
Temecula, California (1) Distribution of party 100,000 square feet Leased (expiration date:
products and decorations December 31, 2000)
Goshen, New York Distribution of seasonal party 130,000 square feet Leased (expiration date:
products and decorations December 31, 1999)
Chester, New York (2) Distribution of party 287,000 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
Saint Denis, France Distribution of balloons and 6,800 square feet Leased (expiration date:
accessories March 31, 2005)
Madrid, Spain Distribution of balloons and 6,700 square feet Leased (expiration date:
accessories February 24, 2004)
Silverwater, Australia Distribution of balloons and 4,700 square feet Leased (expiration date:
accessories December 31, 2000)
Granada, Mexico Distribution of balloons and 6,600 square feet Leased (expiration date:
accessories November 10, 1999)
Ontario, Canada Distribution of balloons and 7,200 square feet Leased (expiration date:
accessories May 31, 2000)
</TABLE>
32
<PAGE>
(1) Property leased from the Estate of John A. Svenningsen. See "Management --
Certain Relationships and Related Transactions."
(2) 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
March 31, 1999 was approximately $3,259,000.
We believe that our properties have been adequately maintained, are in
generally good condition and are suitable for business as presently conducted.
We believe our existing facilities provide sufficient production capacity for
our present needs and for our anticipated needs in the foreseeable future. To
the extent such capacity is not needed for the manufacture of our products, we
generally use 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. We also believe that upon the expiration of our current leases,
we either will be able to secure renewal terms or enter into leases for
alternative locations at market terms.
Organization
- - ------------
The business of Amscan Inc. was founded by John Svenningsen and his family
in 1947, and in December 1996, Amscan Holdings completed its IPO. Amscan
Holdings was organized on October 3, 1996 to become the holding company for the
businesses previously conducted by its principal subsidiary, Amscan Inc. and
certain affiliated companies. These affiliated companies include Trisar, Inc.,
which manufactures and distributes certain products, Amscan Distributors
(Canada) Ltd. and Amscan Svenska AB, each of which distributes the products, JCS
Realty Corp. and SSY Realty Corp., each of which owns certain real estate leased
to us, Am-Source, Inc., our supplier of plastic plates, cups and bowls, and
certain companies located in Great Britain, Australia, Germany and Mexico which
distribute products. We operate in a single operating segment.
The principal executive offices of Amscan Holdings are located at 80
Grasslands Road, Elmsford, New York 10523 and its telephone number at such
address is (914) 345-2020.
Intellectual Property and Licenses
- - ----------------------------------
We own copyrights on the designs created by us and used on our products. We
own trademarks in the words and designs used on or in connection with our
products. It is our practice to register our copyrights with the United States
Copyright Office to the extent we deem reasonable. We do not believe that the
loss of copyrights or trademarks with respect to any particular product or
products would have a material adverse effect on our business.
Except for Anagram, We do not depend on licenses to any material degree in
our business. Anagram holds approximately 190 licenses allowing it to use
various cartoon and other characters on its balloons. None of Anagram's licenses
is individually material to its business.
Legal Proceedings
- - -----------------
We are not a party to any material pending legal proceedings.
MANAGEMENT
- - ----------
Directors and Executive Officers
- - --------------------------------
Set forth below are the names, ages and positions with Amscan Holdings of
the persons who are currently serving as directors and executive officers.
Name Age Position
- - -------------------- --- ------------------------------------------------
Terence M. O'Toole 41 Director, Chairman of the Board
Sanjeev K. Mehra 40 Director
Joseph P. DiSabato 33 Director
Gerald C. Rittenberg 47 Chief Executive Officer
James M. Harrison 47 President, Chief Financial Officer and Treasurer
William S. Wilkey 43 Senior Vice President -- Sales and Marketing
Garry Kieves 51 Senior Vice President
33
<PAGE>
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' Principal Investment Area Investment Committee. Mr. O'Toole
serves on the Boards of Directors of AMF Bowling, 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 Boards
of Directors of several 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 a Vice President 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. Mr. DiSabato
serves on the Board of Directors of several privately held companies on behalf
of Goldman Sachs. 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 Amscan Holdings, Amscan Inc., since April 1996, and served as
President of Amscan Holdings 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.
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 Amscan Holdings, Amscan Inc.,
since August 1996 and served as Chief Financial Officer and Secretary of Amscan
Holdings 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.
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.
Garry Kieves became Senior Vice President of Amscan Holdings in September
1998 when Amscan Holdings acquired Anagram. He has served as President of
Anagram International, Inc. for more than five years.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
- - ----------------------------------------------
Summary Compensation Table
- - --------------------------
The following table sets forth information concerning the compensation earned
for the past three years for Amscan Holdings' former and current Chief Executive
Officer and each other executive officer of Amscan Holdings as of December 31,
1998 whose aggregate salary and bonus for 1998 exceeded $100,000. The amounts
shown include compensation for services in all capacities that were provided to
Amscan Holdings or its subsidiaries. Amounts shown were paid by Amscan Holdings'
principal subsidiary, Amscan Inc., except for payments to or on behalf of Garry
Kieves, which were paid by Anagram. Prior to the Transaction, Amscan Holdings
granted stock options on shares of Amscan Holdings' Common Stock ("Company Stock
Options") pursuant to the 1996 Stock Option Plan for Key Employees (the "Prior
Stock Plan"). Following the Transaction, stock options ("New Options") were
granted pursuant to a new stock incentive plan and related option agreement
(together, the "Option Documents") adopted by Amscan Holdings. At the time of
the Transaction, certain employees converted Company Stock Options into options
to purchase shares of Common Stock ("Rollover Options"). Information for 1996
with respect to Common Stock relates to Amscan Holdings Common Stock prior to
the consummation of the Transaction.
34
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
------------
No. of Securities Under- All Other
Name and Principal Position Year Salary Bonus (a) Other lying Options Granted Compensation (b)
- - --------------------------- ---- ------ --------- ----- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John A. Svenningsen 1997 $126,953 $ 4,219
Former Chief Executive 1996 315,609 (c) 5,939
Officer and Chairman
Gerald C. Rittenberg 1998 $295,000 $395,000 16.648(d) $ 6,532
Chief Executive Officer 1997 220,000 3,763
1996 211,000 2,800,000(e) 21,895
James M. Harrison 1998 $275,000 $350,000 $ 6,286
President, Chief 1997 215,000 255,000 $176,041(f) 16.268(g) 3,763
Financial Officer 1996(h) 62,500 50,000 50,000(i)
and Treasurer
William S. Wilkey 1998 $210,000 $50,000 $352,082(j) 16.441(k) $ 6,532
Senior Vice President 1997 200,000 210,000 100,000(i) 3,763
and Marketing 1996 181,000 1,036,000(l) 21,679
Garry Kieves 1998 $72,900(m) 6.648(n) $929
Senior Vice President
</TABLE>
(a) Represents amounts earned with respect to the years indicated, whether paid
or accrued.
(b) Represents contributions under the Profit Sharing & Savings Plan and in
1996, under the ESOP, as well as insurance premiums paid by Amscan Holdings
with respect to term life insurance for the benefit of the named executive
officer.
(c) Prior to the IPO, which was consummated in December 1996, certain entities
which are now subsidiaries of Amscan Holdings elected to be taxed as S
corporations under the Internal Revenue Code. Mr. Svenningsen received
$15,841,000 from such entities in 1996. Such amounts represented
distributions to him as a S corporation stockholder and additional
distributions of accumulated capital and previously-taxed earnings in
conjunction with the IPO.
(d) Represents the New Options granted to Mr. Rittenberg immediately following
the Transaction.
(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 a cash bonus paid to Mr. Harrison at the time of the Transaction
in connection with the conversion by Mr. Harrison of 50,000 Company Stock
Options into Rollover Options to purchase 2.394 shares of Company Common
Stock.
(g) Represents the New Options and Rollover Options granted to Mr. Harrison
immediately following the Transaction.
(h) Mr. Harrison became an employee and Chief Financial Officer of Amscan Inc.
on August 1, 1996.
(i) Reflects Company Stock Options at an exercise price equal to the fair
market value on the date of grant.
(j) Represents a cash bonus paid to Mr. Wilkey at the time of the Transaction
in connection with the conversion by Mr. Wilkey of 100,000 Company Stock
Options into Rollover Options to purchase 4.787 shares of Company Common
Stock.
(k) Represents the New Options and Rollover Options granted to Mr. Wilkey
immediately following the Transaction.
(l) Represents bonuses earned by Mr. Wilkey pursuant to an employment agreement
with Amscan Inc. which expired on December 31, 1996.
(m) Garry Kieves became an employee and Senior Vice President of Amscan
Holdings on September 17, 1998.
35
<PAGE>
(n) Represents the New Options granted to Mr. Kieves in connection with the
Anagram acquisition at an exercise price greater than the fair market value
on the date of grant. In addition, 10 Common Stock warrants valued at
$225,000 were issued to Mr. Kieves in connection with the Anagram
acquisition.
Option Grants Table
- - -------------------
The following table sets forth information concerning stock options which
were granted during 1998 to the executive officers named in the Summary
Compensation Table. Information with respect to options relates to options on
Amscan Holdings Common Stock at December 31, 1998.
<TABLE>
<CAPTION>
% of Potential Realizable Value at
Number of Total Options Assumed Annual Rates of
Securities Granted to Market Stock Price Appreciation for
Underlying Employees in Price at Option Term
Options Fiscal Exercise Date of Expiration -----------
Name Granted (1) Year Price Grant (2) Date 5% 10%
- - ---- ----------- ---- ----- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Garry Kieves 6.648 59.9% $125,000 $105,000 September $438,994 $1,112,497
17, 2008
</TABLE>
(1) All New Options listed in this column become exercisable ratably over five
years beginning one year from the date of grant and expire ten years after
the date of grant. To the extent permitted under the Internal Revenue Code,
such options were incentive stock options.
(2) Assumes a fair market value of Amscan Holdings Common Stock underlying the
New Options of $105,000 based on the valuation of Amscan Holdings Common
Stock issued in connection with the Anagram acquisition.
Fiscal 1998 Year End Option Values
- - ----------------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In the Money
Underlying Unexercised Options Options at Fiscal Year End
------------------------------ --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gerald C. Rittenberg 3.330 13.318 $99,888 $399,552
James M. Harrison 2.775 11.099 83,244 332,976
0.479 1.915 24,158 96,631
William S. Wilkey 2.331 9.323 69,924 279,696
0.957 3.830 48,306 193,222
Garry Kieves -- 6.648 -- --
</TABLE>
The valuation of unexercised in the money options is based on the valuation
of Amscan Holdings Common Stock issued in connection with the September 1998
Anagram acquisition (last valuation date) of $105,000 per share. No New Options
or Rollover Options were exercised in the most recent fiscal year.
For a further description of the New Options and Rollover Options granted
to the executives named in the Summary Compensation Table in connection with the
Transaction, see "Employment Arrangements" below.
36
<PAGE>
Employment Arrangements
- - -----------------------
Employment Agreement with Gerald C. Rittenberg. Under the Employment
Agreement between Amscan Holdings and Gerald C. Rittenberg, dated as of August
10, 1997 (the "Rittenberg Employment Agreement"), Mr. Rittenberg serves as Chief
Executive Officer of Amscan Holdings for a three-year period commencing at the
time of the Transaction (an "Initial Term"), which term will be extended
automatically for successive additional one-year periods (each an "Additional
Term"), unless either Amscan Holdings gives Mr. Rittenberg, or Mr. Rittenberg
gives Amscan Holdings, 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 Amscan Holdings other than for cause, death or
disability, Amscan Holdings 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 Amscan Holdings 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 Amscan Holdings elects as the
Restriction Period (as defined below) in connection with the non-competition
provisions. Upon termination of Mr. Rittenberg's employment by Amscan Holdings
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 Amscan Holdings 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.
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 Amscan Holdings, or any of its subsidiaries or
controlled affiliates, in any country in which Amscan Holdings 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 in such
business (a "Competitor"), provided, however, that if Mr. Rittenberg's
employment is terminated by Amscan Holdings 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 Amscan Holdings. 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 GS Capital Partners II and its affiliates
(collectively, "GSCP"), of a majority of the outstanding voting stock of Amscan
Holdings or (2) the sale or other disposition (other than by way of merger or
consolidation) of all or substantially all of the assets of Amscan Holdings 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 Amscan Holdings 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 Amscan Holdings and (b) inducing any
employee of Amscan Holdings to terminate his or her employment or offering
employment to such persons, in each case subject to certain conditions.
Pursuant to the Rittenberg Employment Agreement, Mr. Rittenberg contributed
to Confetti immediately prior to the Transaction, 272,728 shares of Amscan
Holdings Common Stock in exchange for 60.0 shares of Confetti 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 Confetti Common
Stock were valued at the purchase price for which GSCP purchased common shares
of Confetti immediately prior to the Transaction (the "New Purchase Price"). At
the time of the Transaction, such shares of Confetti Common Stock were converted
into 60.0 shares of Amscan Holdings's Redeemable Common Stock as the surviving
company in the Transaction (as converted, the "Rollover Stock").
37
<PAGE>
Also pursuant to the Rittenberg Employment Agreement, following the
Transaction, Mr. Rittenberg was granted New Options to purchase 16.648 shares of
Amscan Holdings Common Stock at $75,000 per share. 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 Transaction.
Mr. Rittenberg is not permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, shares of Rollover Stock or shares of
Redeemable 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 Redeemable Common Stock acquired upon exercise
of the New Options are subject to the terms of the Stockholders' Agreement.
At the time of the Transaction, the Rittenberg Employment Agreement
replaced and superseded Mr. Rittenberg's former employment agreement with Amscan
Holdings.
Employment Agreement with James M. Harrison. Under the Employment
Agreement, dated August 10, 1997, by and between Amscan Holdings and James M.
Harrison (the "Harrison Employment Agreement"), Mr. Harrison serves as President
of Amscan Holdings 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 Amscan Holdings 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 Harrison Employment
Agreement provided that Mr. Harrison's bonus for the 1997 calendar year was
equal to the bonus that would have been payable to him in accordance with the
relevant terms of his current employment agreement with Amscan Holdings, 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 provided that Mr. Harrison 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 Transaction,
Mr. Harrison was granted New Options to purchase 13.874 shares of Amscan
Holdings Common Stock at $75,000 per share. 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 time of the Transaction, his Company Stock Options to
purchase 50,000 shares of Amscan Holdings Common Stock into Rollover Options to
purchase 2.394 shares of Amscan Holdings 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 time of the Transaction 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 Transaction, 15.0 shares of Confetti 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 Amscan Holdings 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 Amscan
Holdings; and (iii) the termination of Mr. Harrison's employment with Amscan
Holdings, (1) because of his death, (2) by Amscan Holdings without cause, (3) by
Mr. Harrison because of Amscan Holdings' material breach of its obligations
under the Harrison Employment Agreement, (4) by Mr. Harrison if Amscan Holdings
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
38
<PAGE>
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 Amscan Holdings 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 Amscan Holdings' 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 time of the Transaction, the Harrison Employment Agreement replaced
and superseded Mr. Harrison's former employment agreement with Amscan Holdings,
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 are
defined in the Prior Harrison Employment Agreement), Amscan Holdings paid to Mr.
Harrison, immediately after the Transaction, $270,000 in cash. The Harrison
Employment Agreement also provides that none of the Transaction or other
transactions and arrangements contemplated by the Agreement and Plan of Merger
dated August 10, 1997 by and between Amscan Holdings and Confetti, 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's
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 Amscan Holdings
and William S. Wilkey (the "Wilkey Agreement"), Mr. Wilkey contributed to Amscan
Holdings immediately after the Transaction $500,000 in cash in exchange for 6.67
shares of Amscan Holdings Common Stock ("New Stock") valued at the New Cost Per
Share. Mr. Wilkey made payment to Amscan Holdings for the New Stock immediately
after the Transaction and borrowed the funds for such payment from Amscan
Holdings. 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 Amscan Holdings (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 Amscan Holdings.
Also pursuant to the Wilkey Agreement, following the Transaction, Mr.
Wilkey was granted New Options to purchase 11.654 shares of Amscan Holdings
Common Stock at $75,000 per share. Such New Options were granted on terms
similar to those granted pursuant to the Rittenberg Employment Agreement.
Additionally, Mr. Wilkey converted, as of the time of the Transaction, his
Company Stock Options to purchase 100,000 shares of Common Stock into Rollover
Options to purchase 4.787 shares of Amscan Holdings Common Stock. The Rollover
Options have a Rollover Exercise Price equal to $54,545. Mr. Wilkey also
received at the time of the Transaction 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 will 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 Amscan Holdings, 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 time of the Transaction (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 Amscan Holdings 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 Amscan Holdings. The
Wilkey Employment Agreement may be terminated by Amscan Holdings upon the death
or permanent disability of Mr. Wilkey or for "cause."
39
<PAGE>
Employment Agreement with Garry Kieves. Under the Employment Agreement
dated August 6, 1998, by and between Amscan Holdings and Garry Kieves (the
"Kieves Employment Agreement"), Mr. Kieves is employed as Senior Vice President
of Amscan Holdings and President of Anagram for a period of three years at an
annual base salary of $250,000. The Kieves Employment Agreement contains
provisions for Additional Terms, salary increases during any Additional Terms,
discretionary bonus payments, severance and other benefits, and definitions of
disability. The Kieves Employment 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 in competition with Amscan
Holdings. The Kieves Employment Agreement may be terminated by Amscan Holdings
upon the death or permanent disability of Mr. Kieves, or for "cause" or without
"cause."
Mr. Kieves will not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, shares of Common Stock, Redeemable Common
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. Amscan Holdings has agreed in agreements relating
to the Transaction and the Anagram acquisition that, for a period of at least
two years from the then effective dates, subject to applicable law, Amscan
Holdings 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 be, in the aggregate, similar to those they currently provide
to their employees.
Amscan Holdings, Inc. 1997 Stock Incentive Plan
- - -----------------------------------------------
Following consummation of the Transaction, Amscan Holdings adopted the
Amscan Holdings, Inc. 1997 Stock Incentive Plan (the "Stock Incentive Plan")
under which it may grant incentive awards in the form of shares of Amscan
Holdings Common Stock ("Restricted Stock Awards"), options to purchase shares of
Amscan Holdings Common Stock ("Company 1997 Stock Options") and stock
appreciation rights ("Stock Appreciation Rights") to certain directors,
officers, employees and consultants ("Participants") of Amscan Holdings and its
affiliates. The total number of shares of Amscan Holdings Common Stock reserved
and available for grant under the Stock Incentive Plan is 135 shares. A
committee of Amscan Holdings' 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 1997 Stock Option awards under the Stock Incentive Plan may include
incentive stock options, nonqualified stock options, or both types of Company
1997 Stock Options, in each case with or without Stock Appreciation Rights.
Company 1997 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
Amscan Holdings or its applicable affiliate is terminated for any reason, such
Participant's previously unvested Company 1997 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
1997 Stock Options. Stock Appreciation Rights may be granted in conjunction with
all or part of any Company 1997 Stock Option award, and are exercisable, subject
to certain limitations, only in connection with the exercise of the related
Company 1997 Stock Option. Upon termination or exercise of the related Company
1997 Stock Option, Stock Appreciation Rights terminate and are no longer
exercisable. Stock Appreciation Rights are transferable only with the related
Company 1997 Stock Options.
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 1997
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. Amscan Holdings' 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.
40
<PAGE>
Compensation of Directors
- - -------------------------
The Company currently does not compensate its directors other than for
expense reimbursement. During 1997, until the effective time of the Transaction,
Amscan Holdings compensated directors who were not employees of Amscan Holdings
in the amount of $1,000 for each meeting of the Board of Directors attended and
$1,000 for each meeting of the Audit Committee and Nominating Committee
attended.
Stock Performance Graph
- - -----------------------
Amscan Holdings' Common Stock has not traded publicly since December 19,
1997. For this reason a graph indicating the relative performance of Amscan
Holdings Common Stock price to other standard measures has not been included
since it would provide no meaningful information.
Compensation Committee Policies
- - -------------------------------
During 1998, with the exception of compensation paid to Garry Kieves,
compensation of executive officers of Amscan Holdings was paid according to the
terms of existing employment agreements and, accordingly, the Compensation
Committee did not make any decisions in 1998 in connection with compensation
paid to the Chief Executive Officer and other executive officers of Amscan
Holdings named in the Summary Compensation Table. The compensation paid to Garry
Kieves was based on the terms of an employment agreement negotiated in
conjunction with the acquisition of Anagram on September 17, 1998.
Compensation Committee Interlocks and Insider Participation
- - -----------------------------------------------------------
To the knowledge of Amscan Holdings, no relationship of the type described
in Item 402(j)(3) of Regulation S-K existed during 1998 with respect to Amscan
Holdings.
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information concerning ownership of
shares of Amscan Holdings Common Stock by: (i) persons who are known by Amscan
Holdings to own beneficially more than 5% of the outstanding shares of Amscan
Holdings Common Stock; (ii) each director of Amscan Holdings; (iii) each
executive officer of Amscan Holdings; and (iv) all directors and executive
officers of the company as a group.
Shares of Company
Common Stock Percentage
Beneficially of Class
Name of Beneficial Owner Owned Outstanding(a)
- - ------------------------ ----------------- --------------
Gerald C. Rittenberg..................... 60.0 5.3%
James M. Harrison........................ 15.0 1.3
William S. Wilkey........................ 6.7 *
Garry Kieves, Garry Kieves Retained
Annuity Trust and Garry Keives
Irrevocable Trust, in the
aggregate.............................. 120.0 10.6
Terence M. O'Toole(b).................... -- --
Sanjeev K. Mehra(c)...................... -- --
Joseph P. DiSabato(d).................... -- --
Estate of John A. Svenningsen............ 100.0 8.8
c/o Kurzman & Eisenberg LLP
One North Broadway, Suite 1004
White Plains, New York 10601
The Goldman Sachs Group, Inc.(e)......... 825.0 72.9
and affiliated entities
85 Broad Street
New York, New York 10004
All directors and executive officers as
a group (7 persons).................... 201.7 17.8%
41
<PAGE>
- - ----------
(a) The amounts and percentage of Amscan Holdings Common Stock beneficially
owned are reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities. Under the rules of the
SEC, 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
Amscan Holdings Common Stock outstanding is based on the 1,132.41 shares of
Amscan Holdings Common Stock outstanding as of the date hereof.
(b) Mr. O'Toole, who is a Managing Director of Goldman Sachs, disclaims
beneficial ownership of the shares of Amscan Holdings Common Stock that are
owned by GSCP and its affiliates, except to the extent of his pecuniary
interest therein.
(c) Mr. Mehra, who is a Managing Director of Goldman Sachs, disclaims
beneficial ownership of the shares of Amscan Holdings Common Stock that are
owned by GSCP and its affiliates, except to the extent of his pecuniary
interest therein.
(d) Mr. DiSabato, who is a Vice President of Goldman Sachs, disclaims
beneficial ownership of the shares of Amscan Holdings Common Stock that are
owned by GSCP and its affiliates.
(e) Represents 825 shares of Common Stock owned by certain investment
partnerships, of which affiliates of The Goldman Sachs Group, Inc. ("GS
Group") are the general partner, managing general partner or investment
manager. Includes approximately 517.6 shares held of record by GS Capital
Partners II, L.P., approximately 205.8 shares held of record by GS Capital
Partners II Offshore, L.P., approximately 19.1 shares held of record by
Goldman, Sachs & Co. Verwaltungs GmbH, approximately 55.5 shares held of
record by Stone Street Fund 1997, L.P. and approximately 27.0 shares held
of record by Bridge Street Fund 1997, L.P. GS Group disclaims beneficial
ownership of the shares owned by such investment partnerships to the extent
attributable to partnership interests therein held by persons other than GS
Group and its affiliates. Each of such investment partnerships shares
voting and investment power with certain of its respective affiliates.
* Less than 1%
Stockholders' Agreement
- - -----------------------
As of December 19, 1997, Amscan Holdings entered into the Stockholders'
Agreement with GSCP, the John A. Svenningsen Estate and certain Amscan Holdings
employees listed as parties thereto (including the Estate, the "Non-GSCP
Investors"). The following discussion summarizes the terms of the Stockholders'
Agreement which Amscan Holdings believes are material to an investor in Amscan
Holdings' debt or equity securities. This summary is qualified in its entirety
by reference to the full text of the Stockholders' Agreement, a copy of which is
filed with the SEC, and which is incorporated herein by reference. 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 Amscan Holdings Common
Stock by GSCP, (ii) prior to an initial public offering (as defined in the
Stockholders' Agreement) of stock of Amscan Holdings, certain rights of Amscan
Holdings to purchase, and certain rights of the Non-GSCP Investors (other than
the Svenningsen Estate) to require Amscan Holdings 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 Amscan Holdings Common Stock owned by a Non-GSCP
Investor (other than the Svenningsen 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 Amscan Holdings Common Stock.
The Stockholders' Agreement also contains certain provisions granting GSCP and
the Non-GSCP Investors certain rights in connection with registrations of Amscan
Holdings 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
Amscan Holdings Common Stock, when GSCP and its affiliates no longer hold at
least 40% of the outstanding shares of Amscan Holdings Common Stock, on a fully
diluted basis; provided that the Stockholders' Agreement will terminate in such
respect in any event if Amscan Holdings 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 Amscan Holdings Common Stock in certain offerings, with
certain
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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.
DESCRIPTION OF SENIOR DEBT
In order to fund Amscan Holdings' recapitalization and its transaction
costs, to refinance certain existing outstanding indebtedness, and for general
corporate purposes Amscan Holdings (i) originally issued the notes that have
been exchanged for the currently outstanding Notes and (ii) 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 Amscan Holdings' option, 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. Amscan Holdings will be required to make scheduled
amortization payments on the Term Loan as follows:
For the Year Ending: Amortization % Amortized
-------------------- ------------ -----------
December 31, 1999 $ 1,572,000 1.0%
December 31, 2000 1,572,000 1.0
December 31, 2001 1,572,000 1.0
December 31, 2002 1,572,000 1.0
December 31, 2003 50,771,000 32.7
December 31, 2004 98,570,000 63.3
------------ ------
Total $155,629,000 100.0%
============ ======
Amscan Holdings 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, which protection must remain
in effect for not less than three years.
In addition, Amscan Holdings 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.
Amscan Holdings 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 Amscan Holdings' Consolidated Leverage Ratio (as defined in the Bank
Credit Agreements) is less than 3.75 to 1.0) of Amscan Holdings' Excess Cash
Flow (as defined in the Bank Credit Agreements) for each fiscal year, commencing
with the fiscal year ended 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.
Amscan Holdings 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 prepayments from Excess Cash Flow. Amscan
Holdings 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 Amscan Holdings, 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 outstanding under the Revolving
Credit Facility are subject to adjustment in the future based on Amscan
Holdings' 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 each of the domestic
subsidiaries of Amscan Holdings (each, a "Guarantor"; collectively, the
"Guarantors"). Subject to certain exceptions, all extensions of credit to Amscan
Holdings and all guarantees are secured by all existing and after-acquired
personal property of Amscan Holdings and the Guarantors, including, subject to
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certain exceptions, a pledge of all of the stock of all subsidiaries owned by
Amscan Holdings or any of the Guarantors and first priority liens on
after-acquired real property fee and leasehold interests of Amscan Holdings and
the Guarantors.
The Bank Credit Facilities, amended for the acquisition of Anagram, contain
certain financial covenants, as well as additional affirmative and negative
covenants, constraining Amscan Holdings. Amscan Holdings must maintain a minimum
Consolidated Adjusted EBITDA (as defined in the Bank Credit Facilities) of not
less than an amount ranging from $46.8 million for the four Fiscal Quarter (as
defined in the Bank Credit Facilities) period ended March 31, 1999 to $64.1
million for the four Fiscal Quarter period ending March 31, 2002. Amscan
Holdings is required to maintain a Fixed Charge Coverage Ratio (defined in the
Bank Credit Facilities as the ratio of (a) Consolidated Adjusted EBITDA to (b)
Consolidated Fixed Charges (as defined in the Bank Credit Facilities)) of not
less than a ratio of 1.00 to 1.00 for the four Fiscal Quarter period ended March
31, 1999 to a ratio of 1.20 to 1.00 for the four Fiscal Quarter period ending
December 31, 2002. Amscan Holdings must not permit the ratio of Consolidated
Total Debt (as defined in the Bank Credit Facilities) 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 ended 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 Amscan Holdings 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 to 1.0 through the last fiscal quarter of 1999 and lower ratios
thereafter decreasing to 3.7 to 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."
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; 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 Facilities), GSCP II and its affiliates cease to own and control 51%
or more of the voting power of Amscan Holdings' securities, (2) after a
Qualified Public Offering, a person or group acquires beneficial ownership of
Amscan Holdings' 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 Facilities to be amended, modified,
renewed, refunded, refinanced or replaced (in whole or in part) from time to
time.
Other Senior Debt
- - -----------------
As of March 31, 1999, Amscan Holdings has approximately $8.7 million in
outstanding indebtedness and capital lease obligations. Amscan Holdings'
distribution center in Chester, New York, is subject to a ten-year mortgage
securing a loan in the
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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 March 31, 1999 was approximately $3,259,000. The remaining amounts of
indebtedness outstanding relate to capital leases for Amscan Holdings' machinery
and equipment and will be due and payable at scheduled maturities through 2003
as well as notes to former employees and short-term bank borrowings.
DESCRIPTION OF NOTES
General
- - -------
Amscan Holdings issued the Notes pursuant to that certain Indenture among
Amscan Holdings, the Guarantors and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"). The discussion below summarizes the terms of the Notes
that Amscan Holdings believes are material to an investor in the 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."
As of December 19, 1997, all of Amscan Holdings' Subsidiaries were
Restricted Subsidiaries. However, under certain circumstances, Amscan Holdings
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 Notes are general unsecured obligations of Amscan Holdings, limited in
aggregate principal amount, together with any outstanding Notes, to $200
million, of which $110 million is outstanding. Notes issued hereafter
("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 Notes.
The Notes will mature on December 15, 2007. Interest on the 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 to holders of record on the immediately
preceding June 1 and December 1. Interest on the Notes will accrue from the
later of the issue date (in the case of newly issued Notes) or the most recent
date to which interest has been paid. 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 Notes is payable at the
office or agency of Amscan Holdings maintained for such purpose within the City
and State of New York or, at the option of Amscan Holdings, payment of interest
may be made by check mailed to the holders of the Notes at their respective
addresses set forth in the register of holders of Notes; provided, however, that
all payments with respect to Global Notes (as defined below) and definitive
Notes the holders of which have given wire transfer instructions to Amscan
Holdings 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 Amscan
Holdings, its office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes were, and, to the extent applicable,
shall be issued in minimum denominations of $1,000 and integral multiples
thereof.
Settlement and Payment
- - ----------------------
Payments by Amscan Holdings in respect of the Notes (including principal,
premium, if any, and interest) will be made in immediately available funds as
provided above. The Notes are trading in the Depository's settlement system, and
any secondary market trading activity is, therefore, 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
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 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 Note settled during any securities
settlement processing day will be reported to the relevant Member Organization
on the
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same day. Cash received in Euroclear or Cedel Bank as a result of sales of
interests in a Global 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 Notes are unsecured senior subordinated indebtedness of Amscan Holdings
ranking pari passu with all other existing and future senior subordinated
indebtedness of Amscan Holdings. The payment of all Obligations in respect of
the Notes are 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 Amscan
Holdings in a liquidation or dissolution of Amscan Holdings or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
Amscan Holdings or its property, an assignment for the benefit of creditors or
any marshaling of Amscan Holdings' 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 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 Notes
would be entitled will be made to the holders of Senior Debt (except that
holders of Notes may receive payments made from the trust described under " --
Legal Defeasance and Covenant Defeasance").
The Indenture also provides that Amscan Holdings may not make any
Securities Payment (other than payments in Permitted Junior Securities) upon or
in respect of the 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
Amscan Holdings or the holders of any Designated Senior Debt. Securities
Payments on the 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, Amscan Holdings makes any Securities Payment
(other than payments in Permitted Junior Securities) to the Trustee or any
holder of a 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 Amscan Holdings promptly notify holders
of Senior Debt if payment of the 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 Amscan Holdings, holders of Notes may recover
less ratably than creditors of Amscan Holdings who are holders of Senior Debt.
See "Risk Factors." The amount of Senior Debt outstanding at March 31, 1999 was
approximately $180.6 million. The Indenture limits, subject to certain financial
tests, the amount of additional Indebtedness, including Senior Debt, that Amscan
Holdings 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.
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"Bank Hedging Obligations" means all present and future Hedging Obligations
of Amscan Holdings, 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 Amscan Holdings 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 Amscan
Holdings 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 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 Notes) on account of the principal of (and premium, if any) or interest on
the Notes or on account of the purchase or redemption or other acquisition of or
satisfaction of obligations with respect to Notes by Amscan Holdings or any
Subsidiary.
"Senior Debt" means (i) the Bank Debt, (ii) the Bank Hedging Obligations
and (iii) any other Indebtedness Amscan Holdings is permitted to incur 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 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 Amscan Holdings, (2) any Indebtedness of
Amscan Holdings to any of its Restricted Subsidiaries or other Affiliates (other
than Goldman Sachs and its Affiliates, including GS Credit Partners), (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 Amscan Holdings, (6) any Indebtedness, Guarantee or
obligation of Amscan Holdings which is contractually subordinate in right of
payment to any other Indebtedness, Guarantee or obligation of Amscan Holdings;
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 and (8) Capital
Stock.
Senior Subordinated Guarantees
- - ------------------------------
Amscan Holdings' payment obligations under the Notes are jointly and
severally guaranteed on a senior subordinated basis (the "Senior Subordinated
Guarantees") by each Restricted Subsidiary of Amscan Holdings (other than a
Restricted Subsidiary organized under the laws of a country other than the
United States) and each other Subsidiary 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 Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (iii) Amscan Holdings would be permitted by
virtue of its 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 Amscan
Holdings and any Guarantor.
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
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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 Amscan Holdings operations, including a substantial portion of its
operations outside the United States, are conducted through Subsidiaries that
are not Guarantors. Amscan Holdings is dependent upon the cash flow of those
Subsidiaries to meet its obligations, including its obligations under the Notes.
The Notes are effectively subordinated to all indebtedness and other liabilities
(including trade payables and capital lease obligations) of the Subsidiaries
that are not Guarantors, which were approximately $5.9 million (excluding
inter-company payables to Amscan Holdings) at March 31, 1999. Any right of
Amscan Holdings to receive assets of any of such Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) is effectively subordinated to the claims
of such Subsidiary's creditors, except to the extent that Amscan Holdings or a
Guarantor is itself recognized as a creditor of such Subsidiary, in which case
the claims of Amscan Holdings would still be subordinate to any security in the
assets of such Subsidiary and any indebtedness of such Subsidiary senior to that
held by Amscan Holdings or a Guarantor. See "Risk Factors -- Holding Company
Structure."
Optional Redemption
- - -------------------
Except as described below, the Notes are not redeemable at Amscan Holdings'
option prior to December 15, 2002. From and after December 15, 2002, the Notes
will be subject to redemption at the option of Amscan Holdings, 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:
Percentage of
Principal
Year Amount
---- ------
2002 104.937%
2003 103.292
2004 101.646
2005 and thereafter 100.000
Prior to December 15, 2000, Amscan Holdings may, at its option, on any one
or more occasions, redeem up to 35% of the principal amount of 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 Amscan Holdings' Common Stock, or contributions to
the common equity capital of Amscan Holdings; provided that at least $65 million
in aggregate principal amount of Notes (or if Additional Notes have been issued,
a correspondingly higher amount) 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
Amscan Holdings Common Stock, or capital contribution to Amscan Holdings.
In addition, at any time on or prior to December 15, 2002, upon the
occurrence of a Change of Control, Amscan Holdings may redeem the 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 Notes pursuant to this
paragraph shall be mailed to holders of the Notes not more than 30 days
following the occurrence of a Change of Control.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii)(a) the present
value of all remaining required interest and principal payments due on such 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 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
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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 Notes are to be redeemed at any time, selection of
such 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
Notes are listed, or, if the 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 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 Notes to be
redeemed at such holder's registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new 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 Note. On and after the
redemption date, unless Amscan Holdings defaults in payment of the redemption
price, interest ceases to accrue on Notes or portions of them called for
redemption.
Mandatory Redemption; Sinking Fund Payments
- - -------------------------------------------
Except as set below under "-- Repurchase at the Option of Holders," Amscan
Holdings is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Repurchase at the Option of Holders
- - -----------------------------------
Change of Control
- - -----------------
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require Amscan Holdings to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's 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 Notes pursuant to the procedures required by the Indenture and
described in such notice. Amscan Holdings 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 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 Amscan Holdings mails notice of the Change of Control to the holders
(the "Change of Control Payment Date"), Amscan Holdings will, to the extent
lawful, (1) accept for payment all 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 Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee for cancellation the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by Amscan Holdings. The Paying Agent will promptly mail to each
holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any. Amscan Holdings 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 Notes to require that Amscan Holdings
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction. Such a transaction could occur, and could have an effect on
the Notes, without constituting a Change of Control.
Amscan Holdings 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
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Indenture applicable to a Change of Control Offer made by Amscan Holdings and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The existence of a holder's right to require Amscan Holdings to repurchase
such holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire Amscan Holdings in a transaction that would
constitute a Change of Control.
Asset Sales
- - -----------
The Indenture provides that Amscan Holdings will not, and will not permit
any of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset
Sale unless (i) Amscan Holdings (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 Amscan Holdings or such Restricted Subsidiary
is in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on Amscan Holdings' or such Restricted Subsidiary's most
recent balance sheet) of Amscan Holdings or any Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases Amscan
Holdings or such Restricted Subsidiary from further liability, (y) any
Excludable Current Liabilities, and (z) any notes or other obligations received
by Amscan Holdings or any such Restricted Subsidiary from such transferee that
are immediately converted by Amscan Holdings 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 Amscan Holdings' 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) Amscan Holdings 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 Amscan Holdings' option, be
deemed to have been applied pursuant to this clause (iii) to the extent of any
expenditures by Amscan Holdings 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, Amscan Holdings 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, Amscan
Holdings will be required to make offers to all holders of 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
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 Notes and such other Senior Subordinated
Indebtedness in proportion to their relative principal amounts (or accreted
value, as applicable). The Indenture provides that Amscan Holdings 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.
Amscan Holdings 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 Notes (and such other Senior Subordinated
Indebtedness) tendered pursuant to any required Asset Sale Offer is less than
the Excess Proceeds allocated thereto, Amscan Holdings 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
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indenture or other 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 Notes tendered
pursuant to any Asset Sale Offer exceeds the amount of Excess Proceeds allocated
thereto, the 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.
Amscan Holdings 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 as a result of an Asset Sale.
The Bank Credit Agreement prohibits Amscan Holdings from purchasing any
Notes, and also provides that certain change of control events with respect to
Amscan Holdings will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which Amscan Holdings
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 Amscan Holdings is prohibited from purchasing Notes, Amscan Holdings could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If Amscan Holdings does
not obtain such a consent or repay such borrowings, it will remain prohibited
from purchasing Notes. In such case, while Amscan Holdings' failure to purchase
tendered 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 Notes.
Certain Covenants
- - -----------------
Restricted Payments
- - -------------------
The Indenture provides that Amscan Holdings 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 Amscan
Holdings' or any of its Restricted Subsidiaries' Equity Interests (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of Amscan Holdings or dividends or distributions payable to Amscan
Holdings or any Restricted Subsidiary); (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Equity Interests of Amscan Holdings;
(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) Amscan Holdings 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 Amscan Holdings 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 sum of (i) 50% of the Consolidated Net Income of Amscan Holdings
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 Amscan Holdings' 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 Amscan Holdings from the
issue or sale since the date of the Indenture of Equity Interests
(including Retired Capital Stock (as defined below)) of Amscan Holdings or
of debt securities of Amscan Holdings that have been converted into such
Equity Interests (other than Refunding Capital Stock (as defined below) or
Equity Interests or convertible debt securities of Amscan Holdings sold to
a Restricted Subsidiary 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
Amscan Holdings 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
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Restricted Investments made by Amscan Holdings 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 Amscan Holdings or any Subsidiary from the proceeds of
such sale, plus (v) 100% of any dividends received by Amscan Holdings or a
Wholly Owned Restricted Subsidiary after the date of the Indenture from an
Unrestricted Subsidiary, 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 Amscan Holdings 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 Equity Interests of Amscan
Holdings (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 Amscan Holdings' or any Restricted
Subsidiary held by any member of Amscan Holdings' (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 Amscan Holdings during such
twelve-month period from any issuance of Equity Interests by Amscan
Holdings to members of management of Amscan Holdings 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);
(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; 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 March 31, 1999, all of Amscan Holdings' Subsidiaries were Restricted
Subsidiaries. Amscan Holdings 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 Amscan Holdings 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.
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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 Amscan Holdings or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, Amscan Holdings 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 Amscan Holdings' latest available financial statements.
Incurrence of Indebtedness and Issuance of Disqualified Stock
- - -------------------------------------------------------------
The Indenture provides that Amscan Holdings 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 Amscan
Holdings will not issue any Disqualified Stock; provided, however, that Amscan
Holdings may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for Amscan Holdings 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 will not apply to:
(a) the incurrence by Amscan Holdings (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 Amscan Holdings or any of its Restricted
Subsidiaries of any Existing Indebtedness;
(c) the incurrence by Amscan Holdings or any of its Restricted
Subsidiaries of Indebtedness represented by Notes (other than any
Additional Notes);
(d) Indebtedness (including Acquired Debt) incurred by Amscan Holdings
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 Amscan Holdings 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 Amscan Holdings and any
of its Restricted Subsidiaries and Guarantees by Amscan Holdings of
Indebtedness of any Restricted Subsidiary or by a Restricted Subsidiary of
Indebtedness of any other Restricted Subsidiary or Amscan Holdings;
(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 Amscan Holdings or any Restricted
Subsidiary in the ordinary course of business;
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(i) the incurrence by Amscan Holdings 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 Amscan Holdings' 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; and
(k) the incurrence by Amscan Holdings 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 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, Amscan Holdings 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) Amscan Holdings 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 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
Notes.
Liens
- - -----
The Indenture provides that Amscan Holdings 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 Amscan Holdings 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 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
Notes to the same extent that such Subordinated Indebtedness is subordinated to
the Notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
- - --------------------------------------------------------------
The Indenture provides that Amscan Holdings 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 Amscan Holdings 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 Amscan Holdings or any of its Restricted Subsidiaries, (ii) make loans
or advances to Amscan Holdings or any of its Restricted Subsidiaries or (iii)
sell, lease or transfer any of its properties or assets to Amscan Holdings 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
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 Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by
Amscan Holdings or any of its
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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 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 Amscan Holdings may not consolidate or merge
with or into (whether or not Amscan Holdings 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) Amscan Holdings is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than Amscan Holdings) 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 Amscan Holdings) or Person to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of Amscan Holdings under the 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 Amscan
Holdings with or into a Wholly Owned Restricted Subsidiary or, the Person formed
by or surviving any such consolidation or merger (if other than Amscan
Holdings), 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 Amscan Holdings and (b) Amscan Holdings may merge with
an Affiliate incorporated solely for the purpose of reincorporating Amscan
Holdings in another jurisdiction.
Transactions with Affiliates
- - ----------------------------
The Indenture provides that Amscan Holdings 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 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 Amscan
Holdings or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Amscan Holdings or such Restricted
Subsidiary with an unrelated Person and (ii) Amscan Holdings 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 the Notes 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 Amscan Holdings 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
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Transaction; (iv) the payment of reasonable and customary regular fees to, and
indemnity provided on behalf of, officers, directors, employees or consultants
of Amscan Holdingsor any Restricted Subsidiary; (v) the transfer or provision of
Amscan Holdings inventory, goods or services by Amscan Holdings or any
Restricted Subsidiary in the ordinary course of business to any Affiliate 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 Amscan Holdings 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 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 Amscan Holdings' Board of Directors in good faith;
(vii) payments, advances or loans to employees that are approved by a majority
of the disinterested members of Amscan Holdings' Board of Directors 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 Notes in any material respect); (ix) the existence of, or the
performance by Amscan Holdings 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 Amscan Holdings 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 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
Amscan Holdings or its Restricted Subsidiaries, in the reasonable determination
of a majority of the disinterested members of Amscan Holdings' Board of
Directors 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 Amscan Holdings 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 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
Notes are subordinated to Senior Debt. In addition, the Indenture provides that
(x) if Amscan Holdings 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 Amscan Holdings 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 SEC, so long as any Notes are outstanding, Amscan Holdings
will furnish to the Holders of the Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if Amscan Holdings 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 Amscan Holdings' certified independent accountants and (ii)
all current reports that would be required to be filed with the SEC on Form 8-K
if Amscan Holdings were required to file such reports. In addition, whether or
not required by the rules and regulations of the SEC, Amscan Holdings will file
a copy of all
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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. In addition, Amscan
Holdings and the Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the holders of the 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.
Events of Default and Remedies
- - ------------------------------
The Indenture provides that each of the following constitutes an Event of
Default with respect to the Notes: (i) default for 30 days in the payment when
due of interest on the 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 Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure by Amscan Holdings for
30 days after notice from the Trustee or the holders of at least 25% in
principal amount of the then outstanding 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 Amscan Holdings for
60 days after notice from the Trustee or the holders of at least 25% in
principal amount of the then outstanding Notes to comply with any of its other
agreements in the Indenture or the 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 Amscan Holdings or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
Amscan Holdings or any of its Restricted Subsidiaries) whether such Indebtedness
or guarantee now exists or is created hereafter, 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 Amscan Holdings 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
Amscan Holdings 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 Notes may
declare all the Notes to be due and payable immediately. Upon such declaration
the principal, interest and premium, 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 Amscan Holdings, any
Significant Restricted Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Restricted Subsidiary, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
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 Amscan Holdings
with the intention of avoiding payment of the premium that Amscan Holdings would
have had to pay if Amscan Holdings then had elected to redeem the 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 the acceleration of the 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 Amscan Holdings with the intention of avoiding the
prohibition on redemption of the 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 Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
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 Notes.
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Amscan Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and 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 Amscan Holdings or any Guarantor, as such, shall have any
liability for any obligations of Amscan Holdings or the Guarantors under the
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 Notes by accepting a Note waives and releases all such liability.
The waiver and release were part of the consideration for issuance of the Notes.
Legal Defeasance and Covenant Defeasance
- - ----------------------------------------
Amscan Holdings may, at its option and at any time, elect to have all
obligations of itself and the Guarantors discharged with respect to the
outstanding Notes and the Senior Subordinated Guarantees ("Legal Defeasance")
except for (i) the rights of holders of outstanding Notes to receive payments in
respect of the principal of and premium, if any, and interest on such Notes when
such payments are due from the trust referred to below, (ii) Amscan Holdings'
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen 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 Amscan Holdings' obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, Amscan Holdings may,
at its option and at any time, elect to have its obligations and the obligations
of 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 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 Notes and the Senior
Subordinated Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Amscan Holdings or the Guarantors must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the 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 Notes on the stated maturity or on the applicable
redemption date, as the case may be, and Amscan Holdings or the Guarantors must
specify whether the Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, Amscan Holdings 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) Amscan
Holdings 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 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, Amscan Holdings 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 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 Amscan Holdings or any of its Restricted Subsidiaries is
a party or by which Amscan Holdings or any of its Restricted Subsidiaries is
bound; (vi) Amscan Holdings 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) Amscan Holdings or the Guarantors must deliver to the
appropriate Trustee an Officers' Certificate stating that the deposit was not
made by Amscan Holdings or the Guarantors, as applicable, with the intent of
preferring the holders of Notes over the other creditors of Amscan Holdings or
the Guarantors, as applicable, with the intent of defeating, hindering, delaying
or defrauding creditors of Amscan Holdings or the
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Guarantors, as applicable, or others; and (viii) Amscan Holdings 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 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 Amscan Holdings may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. Amscan Holdings is not required to transfer or exchange any Note
selected for redemption. Also, Amscan Holdings is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
Book-Entry, Delivery and Form
- - -----------------------------
The Notes generally are represented by one or more fully-registered global
notes (collectively, the "Global Note"). The Global Note was deposited upon
issuance with the Depository and registered in the name of the Depository or a
nominee of the Depository (the "Global Note Registered Owner"). Except as set
forth below, the Global 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.
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 Goldman Sachs),
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.
Amscan Holdings expects that pursuant to procedures established by the
Depository, ownership of interests in the Global 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 Notes is limited to that extent.
Except as described below, owners of interests in the Global Note will not
have Notes registered in their names, will not receive physical delivery of
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 Notes registered in the name of the Global Note Registered Owner will be
payable by the Trustee to the Global Note Registered Owner in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture,
Amscan Holdings and the Trustee will treat the persons in whose names the Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither Amscan Holdings, the Trustee nor any agent of Amscan
Holdings 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
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 Note or (ii) any other matter relating to the actions
and practices of the Depository or any of its Participants. Amscan Holdings
believes, however, that it is the current practice of the Depository, upon
receipt of any payment in respect of securities such as the 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
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 Amscan Holdings.
Neither Amscan
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Holdings nor the Trustee will be liable for any delay by the Depository or any
of its Participants in identifying the beneficial owners of the Notes, and
Amscan Holdings and the Trustee may conclusively rely on and will be protected
in relying on instruction from the Global Note Registered Owner for all
purposes.
The Global Note is exchangeable for definitive Notes if (i) the Depository
notifies Amscan Holdings that it is unwilling or unable to continue as
Depository of the Global Note and Amscan Holdings thereupon fails to appoint a
successor Depository, (ii) Amscan Holdings, at its option, notifies the Trustee
in writing that it elects to cause the issuance of the 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 Notes or (iv) as provided in the following
paragraph. Such definitive Notes shall be registered in the names of the owners
of the beneficial interests in the Global Note as provided by the Participants.
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 Notes in definitive form, the Trustee is required to register the
Notes in the name of, and cause the Notes to be delivered to, the person or
persons (or the nominee thereof) identified as the beneficial owners as the
Depository shall direct.
A Note in definitive form will be issued upon the resale, pledge or other
transfer of any Note or interest therein to any person or entity that does not
participate in the Depository. Transfers of certificated Notes may be made only
by presentation of 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 Amscan
Holdings believes to be reliable, but Amscan Holdings takes no responsibility
for the accuracy thereof.
Certificated Securities
- - -----------------------
If (i) Amscan Holdings notifies the Trustee in writing that the Depository
is no longer willing or able to act as a depository and Amscan Holdings is
unable to locate a qualified successor within 90 days or (ii) Amscan Holdings,
at its option, notifies the Trustee in writing that it elects to cause the
issuance of Notes evidenced by registered, definitive certificates
("Certificated Securities") under the Indenture, then, upon surrender by the
Global Note Holder of its Global Notes, Notes in such form will be issued to
each person that the Global Note Holder and the Depository identify as being the
beneficial owner of the related Note.
Neither Amscan Holdings nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and Amscan Holdings and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
Amendment, Supplement and Waiver
- - --------------------------------
Except as provided in the next two succeeding paragraphs, the Indenture and
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, such Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for, such Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a nonconsenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the 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 on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the 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 Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of or premium, if any, or interest on the Notes, (vii) waive a
redemption payment with respect to any 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.
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Notwithstanding the foregoing, without the consent of any holder of Notes,
Amscan Holdings and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of Amscan Holdings' obligations to holders of 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 Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the SEC 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 Amscan Holdings, 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 SEC for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding 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.
"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 Amscan Holdings 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 Amscan
Holdings;
(b) the disposition of all or substantially all of the assets of
Amscan Holdings 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;
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(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 Amscan Holdings and the financial institutions party thereto
providing a portion of the financing for the Transaction, as well as financing
for Amscan Holdings' 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.
"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 Amscan Holdings
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) Amscan Holdings 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 Amscan Holdings, 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 Amscan
Holdings cease to be Continuing Directors.
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"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 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 Amscan
Holdings 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 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).
"Excludable Current Liabilities" means, with respect to the consideration
received by Amscan Holdings in connection with any Asset Sale, (i) each trade
payable incurred in the ordinary course of business of Amscan Holdings 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 Amscan Holdings 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.
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"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 Amscan Holdings
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 Amscan
Holdings 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 Amscan Holdings 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 Amscan Holdings' 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 Amscan Holdings but
not yet realized in respect of any acquisition made by Amscan Holdings
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:
(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 Amscan Holdings 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), (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, (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 Amscan Holdings 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.
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"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.
"Guarantors" means each Subsidiary of Amscan Holdings 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.
"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 Amscan Holdings and that is, in the judgment of Amscan Holdings'
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 Amscan Holdings for consideration consisting of common equity
securities of Amscan Holdings shall not be deemed to be an Investment. If Amscan
Holdings or any Subsidiary of Amscan Holdings sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of Amscan Holdings such
that, after giving effect to any such sale or disposition, Amscan Holdings no
longer owns, directly or indirectly, greater than 50% of the outstanding Equity
Interests of such Subsidiary, Amscan Holdings 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.
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"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 Amscan Holdings or one or more of its Restricted
Subsidiaries (or a combination thereof).
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of Amscan Holdings 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).
"Mortgage Financing" means the incurrence by Amscan Holdings or a
Restricted Subsidiary of any Indebtedness secured by a mortgage or other Lien on
real property acquired or improved by Amscan Holdings or any Restricted
Subsidiary of Amscan Holdings after the date of the Indenture.
"Mortgage Refinancing" means the incurrence by Amscan Holdings or a
Restricted Subsidiary 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 Amscan Holdings or any
Restricted Subsidiary of Amscan Holdings.
"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 Amscan
Holdings 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 Amscan Holdings that is
not a Guarantor.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i) as
to which neither Amscan Holdings 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
Amscan Holdings or any of its Restricted Subsidiaries to declare a default on
such other Indebtedness of Amscan Holdings 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 Amscan Holdings or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Officers' Certificate" means a certificate signed on behalf of Amscan
Holdings, by two officers of Amscan Holdings, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of Amscan Holdings, that meets the requirements set
forth in the Indenture.
"Permitted Holders" means Goldman Sachs and any of its Affiliates.
"Permitted Investments" means (a) any Investment in Amscan Holdings or in a
Restricted Subsidiary of Amscan Holdings (including the acquisition of any
Equity Interest in a Restricted Subsidiary); (b) any Investment in cash and Cash
Equivalents; (c) any Investment by Amscan Holdings or any Restricted Subsidiary
of Amscan Holdings in a Person, if as a result of such Investment (A) such
Person becomes a Restricted Subsidiary 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, Amscan Holdings or a Restricted Subsidiary; (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 Amscan Holdings or any of its Restricted Subsidiaries (A) in
exchange for any other Investment or accounts receivable held by Amscan Holdings
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
Amscan Holdings 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 Amscan Holdings; 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 Amscan
Holdings 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 Amscan Holdings 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 Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of the Notes, and is subordinated in right of payment to the
Notes, on terms at least as favorable to the holders of Notes 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 Amscan Holdings 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.
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"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 Amscan Holdings to purchase all
or any portion of the 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 Notes.
"Senior Subordinated Indebtedness" means the Notes and any other
indebtedness which ranks pari passu in right of payment to the 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 Securities Act, as such Regulation
is in effect on the date of the Indenture.
"Specified Real Estate" means the real properties owned by Amscan Holdings
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.
"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 Amscan Holdings 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 Amscan Holdings or any Restricted Subsidiary unless the terms of any such
agreement, contract,
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arrangement or understanding are no less favorable to Amscan Holdings or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates; (c) is a Person with respect to which neither Amscan
Holdings 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
Amscan Holdings 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 Amscan Holdings or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of Amscan Holdings
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 Amscan Holdings 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," Amscan Holdings shall be in default of such covenant). Amscan Holdings'
Board of Directors 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 Amscan Holdings 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 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.
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE NOTES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Notes by
holders who acquire the Notes as an investment. 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 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 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 a 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 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 Notes. Amscan Holdings 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 Notes which are different from those discussed
herein.
Persons considering the purchase, ownership or disposition of 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 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
Amscan Holdings may be entitled to redeem a portion of the Notes. In addition,
under certain circumstances, each holder of Notes will have the right to require
Amscan Holdings to repurchase all or any part of such holder's 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. Amscan Holdings does not believe that these rules should apply to
either Amscan Holdings' right to redeem Notes or to the holders' rights to
require Amscan Holdings to repurchase Notes. Therefore, Amscan Holdings has no
present intention of treating such redemption and repurchase provisions of the
Notes as affecting the computation of the yield to maturity or maturity date of
the Notes.
Sale or other Taxable Disposition of the Notes. The sale, exchange,
redemption, retirement or other taxable disposition of a 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 Note.
A U.S. Holder's basis in a Note acquired in exchange for an originally
issued note that was exchanged for a currently outstanding Note (each such
exchanged note, an "Original Note") should be the same as such U.S. Holder's
basis in the Original
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Notes exchanged therefor. Otherwise, a U.S. Holder's initial tax basis in a Note
purchased by such holder will be equal to the price paid for the Note.
Any gain or loss on the sale or other taxable disposition of a 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 Notes,
Amscan Holdings, 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 Notes of such holder. A "reportable payment" includes, among other things,
amounts paid in respect of interest on a 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 a Note has a tax basis in the 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, a
Note as ordinary income to the extent of any accrued 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 Note (or the Original Note for which the 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.
If a U.S. Holder purchases a Note (or purchased the Original Note for which
the Note was exchanged, as the case may be) for an amount greater than the sum
of all amounts payable on the Note (or Original Note) after the purchase date,
other than stated interest, such holder will be considered to have purchased
such Note (or such Original 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 Note in such year. A U.S. Holder
that elects to amortize bond premium must reduce its tax basis in the 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
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 a 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 a Note will not be subject to
U.S. income or withholding tax if the interest qualifies as "portfolio
interest." Generally, interest on the Notes that is paid by Amscan Holdings 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
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classes of stock of Amscan Holdings entitled to vote; (ii) the Non-U.S. Holder
is not a controlled foreign corporation that is related to Amscan Holdings
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 Note provides Amscan Holdings 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 Note and certifies to Amscan Holdings 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 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 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 Notes. Any gain realized by a Non-U.S.
Holder on the sale, exchange or retirement of the 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 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 a 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 Amscan Holdings or its agent as described above in
"Certain U.S. 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. Amscan Holdings 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
a 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 Notes are paid to
the beneficial owner of a 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.
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PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman Sachs in connection with offers
and sales of the Notes in market-making transactions effected from time to time.
Goldman Sachs may act as a principal or agent in such transactions, including as
agent for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
Affiliates of Goldman Sachs currently own approximately 72.9% of Amscan
Holdings' Common Stock. See "Ownership of Capital Stock." Goldman Sachs has
informed Amscan Holdings that it does not intend to confirm sales of the Notes
to any accounts over which it exercises discretionary authority without the
prior specific written approval of such transactions by the customer.
Amscan Holdings has been advised by Goldman Sachs that, subject to
applicable laws and regulations, Goldman Sachs currently intends to make a
market in the Notes. However, Goldman Sachs is not obligated to do so and any
such market-making may be interrupted or 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. There can be no assurance
that an active trading market will develop or be sustained. See "Risk Factors --
Trading Market for the Notes."
Goldman Sachs has provided investment banking services to Amscan Holdings
in the past and may provide such services and financial advisory services to
Amscan Holdings in the future. Goldman Sachs acted as purchaser in connection
with the initial sale of the Original Notes and received an underwriting
discount of approximately $3.3 million in connection therewith. See "Management
- - -- Certain Relationships and Related Transactions."
Goldman Sachs and Amscan Holdings have entered into a registration rights
agreement with respect to the use by Goldman Sachs of this Prospectus. Pursuant
to such agreement, Amscan Holdings agreed to bear substantially all registration
expenses incurred under such agreement, and Amscan Holdings agreed to indemnify
Goldman Sachs against certain liabilities, including liabilities under the
Securities Act.
EXPERTS
The consolidated financial statements and schedule of Amscan Holdings at
December 31, 1997, and for the years ended December 31, 1996 and 1997, appearing
in this Prospectus and Registration Statement have been audited by KPMG LLP,
independent auditors, and at December 31, 1998, and for the year ended December
31, 1998, by Ernst & Young LLP, independent auditors, as set forth in their
respective reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given on the authority of such firms as experts in
accounting and auditing.
VALIDITY OF THE NOTES
The validity of the Notes was passed upon for Amscan Holdings by Wachtell,
Lipton, Rosen & Katz, New York, New York, counsel to Amscan Holdings in
connection with the offer and sale of the Original Notes and the Notes.
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AMSCAN HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
----
Audited Financial Statements and Schedule:
Reports of Independent Auditors................................ F-2
Consolidated Balance Sheets -- December 31, 1998 and 1997...... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996............................. F-5
Consolidated Statements of Stockholders' (Deficit) Equity for
the Years Ended December 31, 1998, 1997 and 1996............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996............................. F-7
Notes to Consolidated Financial Statements..................... F-9
Schedule II -- Valuation and Qualifying Accounts............... F-36
Unaudited Financial Statements:
Consolidated Balance Sheets - March 31, 1999 and December 31,
1998......................................................... F-37
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998................................ F-38
Consolidated Statement of Stockholders' Deficit for the Three
Months Ended March 31, 1999.................................. F-39
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998................................ F-40
Notes to Consolidated Financial Statements..................... F-41
Supplemental Information....................................... F-46
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefor have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Amscan Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Amscan Holdings,
Inc. as of December 31, 1998, and the related consolidated statements of
operations, stockholders' (deficit) equity and cash flows for the year then
ended. Our audit also included the financial statement schedule as of and for
the year ended December 31, 1998 as listed in the accompanying index to the
financial statements and financial statement schedule. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amscan Holdings,
Inc. at December 31, 1998, and the consolidated results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule as of and for the year ended December 31, 1998, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
March 19, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Amscan Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Amscan
Holdings, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, stockholders' (deficit) equity and cash
flows for each of the years in the two-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the information in the financial statement schedule as listed in
the accompanying index as of December 31, 1997 and for each of the years in the
two-year period ended December 31, 1997. 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, 1997 and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, as of
and for the periods described above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Stamford, Connecticut
February 13, 1998
F-3
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
------ ------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 1,117 $ 111,539
Accounts receivable, net of allowances of
$6,875 and $5,693, respectively .................................... 49,339 44,838
Inventories ............................................................. 54,691 51,742
Prepaid and other current assets ........................................ 9,113 8,073
--------- ---------
Total current assets ............................................... 114,260 216,192
Property, plant and equipment, net ......................................... 59,260 38,860
Intangible assets, net ..................................................... 66,500 7,762
Other assets, net .......................................................... 8,832 6,462
--------- ---------
Total assets ....................................................... $ 248,852 $ 269,276
========= =========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
--------------------------------------------------------------
Current liabilities:
Loans and notes payable ................................................. $ 9,628 $ 424
Due to stockholders ..................................................... 88 93,243
Accounts payable ........................................................ 11,494 12,152
Accrued expenses ........................................................ 17,432 10,502
Income taxes payable .................................................... 593 167
Current portion of long-term obligations ................................ 3,549 2,911
--------- ---------
Total current liabilities .......................................... 42,784 119,399
Long-term obligations, excluding current portion ........................... 270,127 234,422
Deferred income tax liabilities ............................................ 8,128 6,893
Other ...................................................................... 3,553 3,781
--------- ---------
Total liabilities .................................................. 324,592 364,495
Redeemable Common Stock .................................................... 19,547
Stockholders' deficit:
Common Stock ............................................................ -- --
Additional paid-in capital .............................................. 225
Unamortized restricted Common Stock award, net .......................... (575) (835)
Notes receivable from officers .......................................... (718) (750)
Deficit ................................................................. (92,969) (92,912)
Accumulated other comprehensive loss .................................... (1,250) (722)
--------- ---------
Total stockholders' deficit ........................................ (95,287) (95,219)
--------- ---------
Total liabilities, Redeemable Common Stock and stockholders' deficit $ 248,852 $ 269,276
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales ................................................. $ 235,294 $ 209,931 $192,705
Cost of sales ............................................. 150,456 136,571 123,913
--------- --------- --------
Gross profit ..................................... 84,838 73,360 68,792
Operating expenses:
Selling expenses ....................................... 17,049 13,726 11,838
General and administrative expenses .................... 23,471 20,772 19,266
Art and development costs .............................. 7,470 5,282 5,173
Restructuring charges .................................. 2,400
Non-recurring charges in connection with the Merger .... 22,083
Non-recurring compensation in connection with the IPO... 15,535
Special bonuses ........................................ 4,222
--------- --------- --------
Total operating expenses ......................... 50,390 61,863 56,034
--------- --------- --------
Income from operations ........................... 34,448 11,497 12,758
Interest expense, net ..................................... 22,965 3,892 6,691
Other (income) expense, net ............................... (121) (71) 335
--------- --------- --------
Income before income taxes and minority interests ......... 11,604 7,676 5,732
Income tax expense ........................................ 4,816 7,665 1,952
Minority interests ........................................ 79 193 1,653
--------- --------- --------
Net income (loss) ................................ $ 6,709 $ (182) $ 2,127
========= ========= ========
Pro forma data (unaudited) (Note 12):
Income before income taxes.................................. $ 4,079
Pro forma income tax expense................................ 1,827
--------
Pro forma net income................................... $ 2,252
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Unamortized
Restricted Notes Accumulated
Additional Common Receivable Retained Other
Common Paid-in Stock Award, from Earnings Comprehensive Treasury
Stock Capital Net Officers (Deficit) Loss Stock Total
----- ------- ----------- -------- --------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 393 $ 9,090 -- -- $ 18,462 $ (653) $ (87) $ 27,205
Net income ................. -- -- -- -- 2,127 -- -- 2,127
Net change in cumulative
translation adjustment.... -- -- -- -- -- 281 -- 281
--------
Comprehensive income... -- -- -- -- -- -- -- 2,408
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
------- --------- ------- ------- -------- -------- ------ --------
Balance at December 31, 1996.... 2,070 61,503 -- -- 4,748 (372) -- 67,949
Net loss .................. -- -- -- -- (182) -- -- (182)
Net change in cumulative
translation adjustment.... -- -- -- -- -- (350) -- (350)
--------
Comprehensive loss..... -- -- -- -- -- -- -- (532)
Net proceeds from sale of
Common Stock.............. 42 4,482 -- -- -- -- -- 4,524
Purchase of treasury stock... -- -- -- -- -- -- (290) (290)
Capital contribution......... -- 7,500 -- -- -- -- -- 7,500
Distribution to the Estate... -- -- -- -- (619) -- -- (619)
Issuance of Common Stock
in the Merger, net........ -- 63,750 $(1,125) $ (750) -- -- -- 61,875
Repurchase of Common Stock
in the Merger............. (2,112) (137,235) -- -- (96,859) -- 290 (235,916)
Amortization of restricted
Common Stock award........ -- -- 290 -- -- -- -- 290
------- --------- ------- ------- -------- -------- ------ ---------
Balance at December 31, 1997.... -- -- (835) (750) (92,912) (722) -- (95,219)
Net income................... -- -- -- -- 6,709 -- -- 6,709
Net change in cumulative
translation adjustment.... -- -- -- -- -- (528) -- (528)
---------
Comprehensive income... -- -- -- -- -- -- -- 6,181
Reclassification of Common
Stock to Redeemable
Common Stock........... -- -- -- -- (4,781) -- -- (4,781)
Issuance of 10 shares of
Common Stock warrants..... -- 225 -- -- -- -- -- 225
Accretion in Redeemable
Common Stock.............. -- -- -- -- (1,985) -- -- (1,985)
Amortization of restricted
Common Stock award........ -- -- 260 -- -- -- -- 260
Payments received on notes
receivable from officers
and other ............. -- -- -- 32 -- -- -- 32
------- --------- ------- ------- -------- -------- ------ ---------
Balance at December 31, 1998.... $ -- $ 225 $ (575) $ (718) $(92,969) $ (1,250) $ -- $ (95,287)
======= ========= ======= ======= ======== ======== ====== =========
</TABLE>
F-6
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................. $ 6,709 $ (182) $ 2,127
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................... 8,501 6,245 5,137
Amortization of deferred financing costs ........................ 748 13 --
(Gain) loss on disposal of property and equipment ............... (22) (31) 660
Provision for doubtful accounts ................................. 3,336 3,775 2,350
Restructuring charges ........................................... 2,400
Amortization of Restricted Common Stock award ................... 260 290 --
Deferred income tax provision ................................... 2,441 1,565 748
Stock compensation expenses in connection with the IPO .......... -- -- 10,920
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable ............................... (1,124) (15,869) (7,848)
Decrease (increase) in inventories ............................ 6,853 (5,871) (680)
Decrease (increase) in prepaid expenses, other current assets
and other, net ........................................... 2,078 6,276 (3,796)
(Increase) decrease in other assets, net ...................... (490) 2,863 683
(Decrease) increase in accounts payable, accrued expenses
and income taxes payable ................................... (8,928) 5,095 1,972
--------- --------- ---------
Net cash provided by operating activities ................. 22,762 4,169 12,273
Cash flows from investing activities:
Cash paid for acquisitions ........................................ (78,382) -- --
Capital expenditures .............................................. (7,514) (10,237) (7,613)
Proceeds from disposal of property, plant and equipment .......... 2,769 140 --
--------- --------- ---------
Net cash used in investing activities .................... (83,127) (10,097) (7,613)
Cash flows from financing activities:
Net proceeds from sale of Capital Stock .......................... 181 4,524 43,340
Capital contributions ............................................. -- 7,500 --
Issuance of Common Stock in connection with the Merger ............ -- 61,875 --
Payments to acquire treasury stock ................................ -- (290) --
Payments to acquire Common Stock in the Merger .................... (93,155) (142,673) --
Proceeds from loans, notes payable and long-term obligations
net of debt issuance costs of $964 and $5,500 in 1998 and
1997, respectively ............................................. 59,064 237,062 3,273
Repayment of loans, notes payable and long-term obligations ....... (15,917) (51,811) (11,968)
Repayment of indebtedness to Principal Stockholder ................ -- (182) (17,179)
Subchapter S distributions and other .............................. 65 -- (23,424)
--------- --------- ---------
Net cash (used in) provided by financing activities ....... (49,762) 116,005 (5,958)
Effect of exchange rate changes on cash ........................... (295) (127) 395
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ...... (110,422) 109,950 (903)
Cash and cash equivalents at beginning of year ....................... 111,539 1,589 2,492
--------- --------- ---------
Cash and cash equivalents at end of year ............................. $ 1,117 $ 111,539 $ 1,589
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .................................................. $ 23,174 $ 3,598 $ 7,826
Taxes ..................................................... $ 2,558 $ 6,604 $ 1,085
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in thousands)
Supplemental information on noncash activities (dollars in thousands):
In connection with the acquisition of Anagram International, Inc. and certain
related companies in 1998, the Company issued 120 shares of Redeemable Common
Stock (see Note 13) valued at $12,600 and issued warrants to purchase 10 shares
of the Company's Common Stock for $125 per share, valued at $225, to the former
owner of Anagram International, Inc.
Cash consideration due to stockholders as a result of the Merger, totaled
$235,916, of which $88 and $93,243 was payable at December 31, 1998, 1997,
respectively.
In conjunction with the Merger in 1997, 15 shares of Common Stock aggregating
$1,125 were issued to an officer and are subject to future vesting provisions.
In addition, subsequent to the Merger, 10 shares of Common Stock were issued to
certain officers of the Company in exchange for notes aggregating $750.
Capital lease obligations of $200, $59 and $3,395 were incurred in 1998, 1997
and 1996, respectively.
In conjunction with the IPO in 1996, the Principal Stockholder (see Note 1) and
certain of his affiliates exchanged shares in Amscan Inc. and certain affiliated
entities for 15,024,616 and 138,461 shares of Common Stock, respectively.
In conjunction with the IPO in 1996, 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 Common Stock valued at $7,500.
In conjunction with said 1996 IPO, the Company incurred stock compensation
expense of $7,920 for the issuance of Common 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 Common Stock bonuses to certain of such employees.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
- - -------------------------------------------------
Initial Public Offering
- - -----------------------
Amscan Holdings, Inc. ("Amscan Holdings" and, together with its
subsidiaries, "AHI" or the "Company") 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
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 Amscan Holdings
(the "Organization") and, in the case of the Principal Stockholder, $133,000 in
cash. 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.
Prior to the IPO, certain subsidiaries of Amscan Holdings were operated as
Subchapter S corporations for federal and, where available, state income tax
purposes. In connection with the IPO in 1996, 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.
Recapitalization
- - ----------------
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 would be merged with and into Amscan Holdings (the "Merger"),
with Amscan Holdings as the surviving corporation.
On December 19, 1997, the Merger was consummated pursuant to the Merger
Agreement. At the time of the Merger, 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 Merger (other than shares of Company Common
Stock owned, directly or indirectly, by the Company or by Confetti) was
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 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, with fractional shares of
Company Common Stock paid in cash. The Estate of John A. Svenningsen (the
"Estate"), which owned approximately 71.2% of the outstanding Company Common
Stock immediately prior to the Merger, 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 time of
the Merger, 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 the 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 Merger
(see Note 13). Accordingly, in the Merger, the 825 shares of Confetti Common
Stock owned by GSCP immediately prior to the Merger 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 Merger.
F-9
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
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
(see Note 6). The Merger has been accounted for as a recapitalization and,
accordingly, the historical basis of the Company's assets and liabilities has
not been impacted by the Merger.
Amscan Holdings and its subsidiaries design, manufacture, contract for
manufacture and distribute party and novelty goods principally in North America,
South America, Europe, Asia and Australia.
Basis of Presentation
- - ---------------------
The consolidated financial statements include the accounts of Amscan
Holdings and its subsidiaries. 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 certain of its affiliates 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.
Acquisitions
- - ------------
On September 17, 1998, the Company completed the acquisition (the
"Acquisition") of all the capital stock of Anagram International, Inc., a
Minneapolis-based metallic balloon manufacturer and distributor, and certain
related companies (collectively, "Anagram"), pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement") dated August 6, 1998, in a
transaction valued at approximately $87,225,000, plus certain other related
costs.
The Company financed the Acquisition with $40,000,000 of senior term debt,
$20,000,000 of additional revolving credit borrowings, cash on hand, the
issuance of 120 shares of the Company's Redeemable Common Stock (see Note 13)
valued at $12,600,000 and the issuance of 10 warrants to purchase shares of the
Company's Common Stock at $125,000 per share valued at $225,000.
The Acquisition was accounted for under the purchase method of accounting,
and, accordingly, the operating results of Anagram have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase price over the fair market value of net assets
acquired (principally goodwill) approximated $58,858,000 and is being amortized
on a straight-line basis over a range of 3 to 25 years.
The following summarized unaudited pro forma financial information assumes
the Acquisition had occurred on January 1 of each period presented (dollars in
thousands):
Years Ended December 31,
------------------------
1998 1997
---- ----
Net sales.................................. $278,754 $272,729
Net income................................. $4,843 $56
F-10
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
The unaudited pro forma consolidated financial information does not purport
to be indicative of actual results that would have been achieved had the
Acquisition been consummated on the dates or for the periods indicated or
results of operations as of any future date or for any future period.
In May 1998, the Company acquired the remaining 25% interest in its U.K.
based subsidiary, Amscan Holdings Limited, for approximately $1,703,000. In
conjunction with the acquisition, the Company issued a non-interest bearing note
to the former shareholder in the amount of 350,000 pounds sterling
(approximately $589,000) which is payable over five years. The acquisition has
been accounted for as a purchase and the excess purchase price over the fair
value of the net assets acquired of $957,000 is being amortized on a straight
line basis over thirty years.
During 1997, the Company transferred an equity interest in a customer to
the Estate for (i) cash of $1,000,000, (ii) satisfaction of approximately
$2,000,000 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
$1,015,000. Ya Otta manufactures pinatas which historically had been sold by the
Company's sales force with no commissions charged to Ya Otta. The assets
transferred were recorded at a historical cost of $396,000 resulting in a
distribution to the Estate of $619,000.
In conjunction with the IPO in 1996, the Company entered into an agreement
to acquire the remaining 50% interest 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 acquisitions of the additional 25%
interest in Amscan Holdings Limited, Ya Otta and the remaining 50% balance of
Am-Source, Inc. are included in the accompanying financial statements from their
respective dates of acquisition or transfer. The pro forma results of operations
for the aforementioned acquisitions for the periods presented, had the
acquisitions occurred at the beginning of the immediately preceding prior year
from the respective dates of acquisition are not significant, and, accordingly,
pro forma information has not been provided.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
Cash Equivalents
- - ----------------
Highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Inventories
- - -----------
Substantially all inventories of the Company are valued at the lower of
cost or market (principally on the first-in, first-out method).
Long-Lived Assets
- - -----------------
Property, plant and equipment are stated at cost. Machinery and equipment
under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
F-11
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
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 on a straight-line basis over
the shorter of the lease term or estimated useful life of the asset.
Intangible assets of $66,500,000 and $7,762,000 at December 31, 1998 and
1997, respectively, are comprised principally 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 twenty-five to thirty years.
Accumulated amortization was $2,637,000 and $1,315,000 at December 31, 1998 and
1997, respectively. The Company systematically reviews the recoverability of its
long-lived and intangible assets by comparing the unamortized carrying value of
such assets to the 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.
Deferred Financing Costs
- - ------------------------
Deferred financing costs (included in other assets) are amortized to
interest expense using the interest method over the lives of the related debt.
Revenue Recognition
- - -------------------
The Company recognizes revenue from product sales when the goods are
shipped to the customers. Product returns and warranty costs are immaterial.
Royalty Agreements
- - ------------------
Commitments for minimum payments under royalty agreements, a portion of
which may be paid in advance, are charged to expense ratably, based on the
Company's estimate of total sales of related products. If all or a portion of
the minimum guarantee subsequently appears not to be recoverable, the
unrecoverable portion is charged to expense at that time.
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.
Interest Rate Swap Agreements
- - -----------------------------
The Company enters into interest rate swap agreements to limit the effect
of increases in the interest rates on any floating rate debt. The differential
is accrued as interest rates change and is recorded in interest expense.
Income Taxes
- - ------------
Prior to the IPO, Amscan Inc. and certain of its affiliates were operated
as Subchapter S corporations for federal and, where available, state income tax
purposes. As a result, these corporations did not record or pay any federal or
state income taxes except in states which do not recognize Subchapter S
corporation status.
F-12
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
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
("SFAS") No. 109, "Accounting for Income Taxes". Under the asset and liability
method of SFAS No. 109, 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.
Stock-Based Compensation
- - ------------------------
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," effective January 1, 1996. SFAS No. 123 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 Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" which requires the recognition of
compensation expense at the date of grant only if the current market price of
the underlying stock exceeds the exercise price, and to provide pro forma net
income disclosures for employee stock option grants made in 1995 and subsequent
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the recognition provisions of APB No.
25 and has provided the pro forma disclosure provisions of SFAS No. 123 (see
Note 11).
Comprehensive Income (Loss)
- - ---------------------------
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 established new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or stockholders'
deficit. SFAS No. 130 requires the Company's foreign currency translation
adjustment, which prior to adoption was reported separately in stockholders'
(deficit) equity, to be included in other comprehensive income. Amounts reported
in prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
Accumulated other comprehensive loss at December 31, 1998, 1997 and 1996
consisted solely of the Company's foreign currency translation adjustment.
Foreign Currency Transactions and Translation
- - ---------------------------------------------
The functional currencies of the Company's foreign operations are the local
currencies in which they operate. Realized foreign currency exchange gains or
losses, which result from the settlement of receivables or payables in
currencies other than U.S. dollars, are credited or charged to operations.
Unrealized gains or losses on foreign currency exchanges are insignificant.
The balance sheets of foreign subsidiaries are translated into U.S. dollars
at the exchange rates in effect on the balance sheet date. The results of
operations of foreign subsidiaries are translated into U.S. dollars at the
average exchange rates effective for the periods presented. The differences from
historical exchange rates are reflected as a separate component of stockholders'
equity.
F-13
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
Segment information
- - -------------------
For the year ended December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 supercedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes new standards for the way that public
business enterprises report information about operating segments and related
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position (see Note 15).
Concentration of Credit Risk
- - ----------------------------
While the Company's customers are geographically dispersed 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
goods superstore channel of distribution. At December 31, 1998 and 1997, Party
City Corporation ("Party City") the Company's largest customer with
approximately 368 corporate and franchise stores, accounted for 22% and 17%,
respectively, of consolidated accounts receivable, net. For the years ended
December 31, 1998, 1997 and 1996, sales to Party City's corporate and franchise
stores represented 13%, 7% and 3% and 10%, 12% and 11%, respectively of
consolidated net sales. No other group or combination of customers subjected the
Company to a concentration of credit risk. On March 19, 1999, Party City
announced that, due to difficulties implementing new financial reporting and
accounting systems, it would not be able to complete its year end audit by its
deadline and that Party City accordingly would be in default of certain
covenants of its credit facility as of December 31, 1998. The Company
understands that Party City is currently in discussions with its lenders and the
Company does not believe this default by Party City will have a material adverse
effect on the Company's financial condition or results of operations.
Reclassifications
- - -----------------
In connection with the preparation of the accompanying financial
statements, the Company has reclassified certain amounts in prior financial
statements 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.
NOTE 3 - INVENTORIES
- - --------------------
Inventories at December 31, 1998 and 1997 consisted of the following
(dollars in thousands):
1998 1997
------- -------
Finished goods.......................................... $48,093 $47,704
Raw materials........................................... 4,845 3,570
Work-in process......................................... 3,345 1,630
------- -------
56,283 52,904
Less: reserve for slow moving and obsolete inventory... (1,592) (1,162)
------- -------
$54,691 $51,742
======= =======
F-14
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
- - --------------------------------------
Major classifications of property, plant and equipment at December 31, 1998
and 1997 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
Estimated
1998 1997 Useful Lives
---------- ----------- ------------
<S> <C> <C> <C>
Machinery and equipment $ 56,025 $ 38,105 3-15
Buildings............................................. 11,989 12,585 31-40
Data processing equipment............................. 15,300 11,737 5
Leasehold improvements................................ 4,475 1,188 2-20
Furniture and fixtures................................ 3,510 3,547 10
Land.................................................. 2,237 1,917 --
------- --------
93,536 69,079
Less: accumulated depreciation and amortization...... (34,276) (30,219)
------- --------
$ 59,260 $ 38,860
======== ========
</TABLE>
Depreciation and amortization expense was $7,179,000, $5,980,000 and
$4,787,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 5 - LOANS AND NOTES PAYABLE
- - --------------------------------
Loans and notes payable outstanding at December 31, 1998 and 1997 consisted
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Revolving credit line with interest at LIBOR plus 2.25%
(7.91%, at December 31,1998)..................................... $9,000
Revolving credit line with interest at the prime rate plus 1.25%
(9.0% at December 31, 1998)..................................... 500
Revolving credit line with interest at the prime rate plus 0.75%
(8.5% at December 31, 1998)..................................... 100
Revolving credit line with interest at the U.K. bank rate plus 1.75%
(9.0% at December 31, 1998)..................................... 28
Revolving credit line denominated in Canadian dollars with interest
at the Canadian prime rate (6.0% at December 31, 1997)........... $424
------ ----
$9,628 $424
====== ====
</TABLE>
Upon consummation of the Merger on December 19, 1997, the Company's
existing domestic revolving credit arrangements terminated and the Company
entered into Bank Credit Facilities (see Note 6) which include a $50,000,000
revolving credit facility (the "Revolving Credit Facility"). At December 31,
1997, there were no amounts borrowed under the Revolving Credit Facility.
The Revolving Credit Facility has a term of five years and bears interest,
at the option of the Company, at the lenders' customary base rate plus, based on
certain terms, either 0.75% or 1.25% per annum or at the lenders' customary
reserve adjusted Eurodollar rate plus 2.25% per annum. Interest on balances
outstanding 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 guaranteed by the Company's domestic
subsidiaries and are subject to mandatory prepayments upon the occurrence of
certain events (see Note 6). In connection with and upon consummation of the
Acquisition, the Company amended and restated the Revolving Credit Facilities
credit agreements to provide for, among other things, the additional senior term
debt.
F-15
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
In addition to the Revolving Credit Facility, the Company has a $1,000,000
Canadian dollar denominated revolving facility which bears interest at the
Canadian prime rate and expires on April 2, 1999 and a $1,000,000 British Pound
Sterling denominated revolving credit facility which bears interest at the U.K.
base rate plus 1.75% and expires on May 18, 1999. No borrowings were outstanding
under the Canadian dollar denominated revolving credit facility at December 31,
1998 nor under the British Pound Sterling denominated revolving credit facility
at December 31, 1997.
The weighted average interest rates on loans and notes payable outstanding
at December 31, 1998 and 1997 were 7.98% and 6.0%, respectively.
Prior to the Merger, the Company maintained three interest rate swap
contracts covering $25,000,000 of outstanding obligation under its LIBOR based
variable rate revolving credit agreement. The contracts fixed the interest rates
as indicated below and entitled 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 rate differed from the fixed rate. The contracts were
terminated on December 19, 1997, in conjunction with the Merger, at a cost of
$1,030,000, which was reported as a non-recurring charge in connection with the
Merger (see Note 7). Net payments to the counterparty under the swap contracts
for the years ended December 31, 1997 and 1996, which have been recorded as
additional interest expense, were as follows (dollars in thousands):
Additional Interest
Expense
National -------------------
Date of contract Amount Term Fixed Rate 1997 1996
- - ---------------- ------ ---- ---------- ---- ----
September 28, 1994.. $ 5,000 10 years 7.945% $109 $122
May 12, 1995........ $10,000 5 years 6.590% 70 105
July 20, 1995....... $10,000 10 years 6.750% 102 122
---- ----
$281 $349
==== ====
NOTE 6 - LONG-TERM INDEBTEDNESS
- - -------------------------------
Long-term indebtedness at December 31, 1998 and 1997 consisted of the
following (dollars in thousands):
1998 1997
-------- --------
Senior Subordinated Notes (a).......................... $110,000 $110,000
Term loan (b).......................................... 155,629 117,000
Mortgage obligations (c)............................... 3,407 5,869
Note to former shareholder and other (d) .............. 922
Capital lease obligations (e).......................... 3,718 4,464
-------- --------
Total long-term obligations............. 273,676 237,333
Less: current portion.................................. (3,549) (2,911)
-------- --------
Long-term obligations, excluding current portion....... $270,127 $234,422
======== ========
On December 19, 1997, the Company issued $110,000,000 aggregate principal
amount of 9 7/8% Senior Subordinated Notes due in 2007 (the "Notes") and entered
into a bank credit agreement (the "Bank Credit Facilities") providing for
borrowings in the aggregate principal amount of approximately $117,000,000 under
a term loan (the "Term Loan") and revolving loan borrowings of up to $50,000,000
under a revolving credit facility (the "Revolving Credit Facility", see Note 5)
(collectively, the "Merger Financings"). The proceeds of the Merger Financings
were used to fund the payment of the cash portion of the Merger
F-16
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
consideration, to refinance certain existing outstanding indebtedness of the
Company, to pay transaction costs incurred in connection with the Merger, and
for general corporate purposes. The Company is 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. 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 December 19, 1997, the
Company may prepay, in whole or in part, borrowings under the Term Loan. Call
protection provisions also apply to certain mandatory prepayments of borrowings
under the Term Loan. The Company may prepay borrowings under or reduce
commitments for the Revolving Credit Facility, in whole or in part, without
penalty. The Bank Credit Facilities are guaranteed by the Company's domestic
subsidiaries (the "Guarantors" see Note 17). 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 and leasehold interests of the Company and
the Guarantors. The guarantees are joint and several guarantees, irrevocable and
full and unconditional, limited to the largest amount that would not render such
guarantee obligations under the guarantee subject to avoidance under any
applicable federal or state fraudulent conveyance or similar law. In connection
with and upon consummation of the Acquisition, the Company amended and restated
its Bank Credit Facilities, to provide for, among other things, additional
borrowings of $40,000,000, under the Term Loan (see Note 1).
(a) The Senior Subordinated Notes were sold by the Company on December 19, 1997,
and were subsequently resold to qualified institutional buyers in reliance
upon Rule 144A and Regulation S under the Securities Act of 1933 (the "Note
Offering"). In connection with the Note Offering, the Company entered into a
Registration Rights Agreement, which granted holders of the Notes certain
exchange and registration rights. In February 1998, the Company filed with
the Commission a Registration Statement on Form S-4 offering to exchange
registered notes (the "Exchange Notes") for the Notes issued in connection
with the Note Offering. The terms of the Notes and the Exchange Notes are
substantially identical.
The Notes bore and Exchange Notes bear interest at a rate equal to 9 7/8%
per annum. Interest is payable semi-annually on June 15 and December 15 of
each year. 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
redemption prices ranging from 104.937% to 100%, plus accrued and unpaid
interest 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
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 $65,000,000 in aggregate principal amount of 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, as defined in the note indenture, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium, as defined in the note indenture, 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 note indenture and the other indebtedness that would become
payable upon the occurrence of such Change of Control.
F-17
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(b) The Term Loan provides 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 bears 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.
At December 31, 1998 and 1997, the floating interest rate on the Term Loan
was 7.68% and 8.28%, respectively. 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, which protection must remain in effect for not less
than three years from the date of borrowing. The Company entered into a
three year interest rate swap contract dated September 30, 1998 for a
notional amount of $35,000,000 with Goldman Sachs Capital Markets, L.P.
("GSCM") at an interest rate of 4.808% plus a spread based on certain
defined ratios (7.18% at December 31, 1998). At December 31, 1997, the
Company entered into a three year interest rate swap contract with a
financial institution pursuant to which it exchanged its floating interest
obligation on $58,500,000 notional principal amount of the Term Loan for an
effective fixed interest obligation of 8.36%. The interest rate swap
contracts require the Company to settle the difference in interest
obligations quarterly. Net payments (receipts) to (from) the counterparty
under the swap contracts for the year ended December 31, 1998 which have
been recorded as additional (reduction of) interest expense, were as follows
(dollars in thousands):
Additional
National Interest (Reduction of)
Date of Contract Amount Term Rate Interest Expense
---------------- ------ ---- ---- ----------------
December 31, 1997 $58,500 3 8.36% $677
September 30, 1998 $35,000 3 7.18% (44)
----
$633
====
(c) At December 31, 1998, the Company has a mortgage obligation payable to a
financial institution relating to a distribution facility due September 13,
2004. The mortgage is collateralized by the related real estate asset of the
Company and its interest rate was 8.51% at December 31, 1998 and 1997,
respectively. At December 31, 1997, the Company had a $1,820,000 mortgage
obligation relating to its Canadian distribution facility which was
denominated in Canadian dollars and collateralized by the related real
estate asset with the interest rate at the Canadian prime rate plus 0.5%
(6.50% as of December 31, 1997). As part of the Company's restructuring of
its distribution operations, the Company sold its Canadian facility in
December 1998 and repaid the then outstanding mortgage obligation (see Note
7).
(d) In conjunction with the acquisition of Amscan Holdings Limited, the Company
issued a non-interest bearing note to the former shareholder in the amount
of 350,000 pounds sterling (approximately $589,000) which is payable over
five years (see Note 1). The remaining portion relates to a note payable
issued to a former employee of Anagram prior to the Acquisition which is
payable through March 2002 at a fixed interest rate of 10%.
(e) 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% (9.50% at December 31, 1998 and 1997) which extend to 2003.
F-18
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
At December 31, 1998, principal maturities of long-term obligations
consisted of the following (dollars in thousands):
Mortgage, Notes Capital
and Loans Lease Obligations Total
--------------- ----------------- -----
1999 ......................... $ 2,287 $ 1,555 $ 3,842
2000 ......................... 2,382 1,163 3,545
2001 ......................... 2,393 1,380 3,773
2002 ......................... 2,214 110 2,324
2003 ......................... 51,482 37 51,519
Thereafter ................... 209,200 -- 209,200
-------- ------- --------
269,958 4,245 274,203
Amount representing interest.. -- (527) (527)
-------- ------- --------
Long-term obligations ........ $269,958 $ 3,718 $273,676
======== ======= ========
NOTE 7 - NON-RECURRING ITEMS
- - ----------------------------
In the second quarter of 1998, the Company commenced a restructuring of its
distribution operations to reduce costs and improve operating efficiencies. The
Company closed two distribution facilities located in California and Canada
which will result in the elimination of a total of approximately 100 positions,
of which substantially all jobs have already been eliminated. The restructuring
was substantially completed by December 1998. The Company recorded restructuring
charges of approximately $2.4 million, or 1.0% of sales for the year ended
December 31, 1998. The restructuring charges include the non-cash write-down of
$1.3 million relating to property, plant and equipment, the accrual of future
lease obligations of $0.7 million and severance and other costs of $0.4 million.
In December 1998, the Canadian facility was sold and the net proceeds were
used to repay the related mortgage obligation. To date, the Company has paid
approximately $0.4 million in cash related to the restructuring. As of December
31, 1998, the Company believes the accrued restructuring costs of $0.7 million
represents its remaining cash obligations.
In connection with the Merger in 1997, the Company recorded non-recurring
charges of $22,083,000, comprised of $11,652,000 in transaction costs,
$7,500,000 of compensation to an officer, $1,901,000 for the redemption of
Company Stock Options and $1,030,000 of debt retirement costs.
In conjunction with the IPO in 1996, the Company recorded non-recurring
compensation expenses of $15,535,000 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.
NOTE 8 - DUE TO STOCKHOLDERS
- - ----------------------------
At December 31, 1998 and 1997, the Company owed stockholders cash
consideration of $88,000 and $93,243,000, respectively, for their shares of
Company Common Stock in connection with the Merger.
F-19
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
NOTE 9 - EMPLOYEE BENEFIT PLANS
- - -------------------------------
Certain subsidiaries of the Company maintain profit-sharing plans for
eligible employees providing for annual discretionary contributions to a trust.
Eligible employees are full-time domestic employees who have completed a certain
length of service, as defined, and attained a certain age, as defined. The plans
require the subsidiaries to match 25% to 100% of up to the first 6% of an
employee's annual salary voluntarily contributed to the plan. Benefit expense
for the years ended December 31, 1998, 1997 and 1996 totaled $1,822,000,
1,432,000 and $731,000, respectively.
In connection with the IPO in 1996, 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. During
the year ended December 31, 1996, there was a special one-time issuance of
250,000 shares of Company Common Stock valued at $1,898,000 for the
establishment of the ESOP and $1,102,000 for payment of stock bonuses. No shares
of Company Common Stock were issued under the ESOP during the year ended
December 31, 1997. In connection with the Merger, the ESOP shares were converted
to cash and the ESOP plan and assets were merged into the profit-sharing plan.
NOTE 10 - SPECIAL BONUSES
- - -------------------------
During 1996, 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 did not receive such special
bonuses after 1996.
NOTE 11 - STOCK OPTION PLAN
- - ---------------------------
The Company adopted the Amscan Holdings, Inc. Stock Incentive Plan (the
"1997 Stock Incentive Plan") in conjunction with the Merger in 1997. The 1997
Stock Incentive Plan is administered by the Board of Directors. Under the terms
of the 1997 Stock Incentive Plan, the Board may award Company Common Stock,
stock options and stock appreciation rights to certain directors, officers,
employees and consultants of the Company and its affiliates. The vesting periods
for awards are determined by the Board at the time of grant. As of March 19,
1999, there were 135 shares of Company Common Stock reserved for issuance under
the 1997 Stock Incentive Plan. The 1997 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.
On December 19, 1997, the Company converted 89,000 stock options granted in
1997 and 425,000 stock options granted in 1996, under the terms of the 1996
Stock Option Plan for Key Employees (the "1996 Stock Option Plan"), with
exercise prices of $12.00, $13.00 and $13.125, into cash of $1,901,000 and 16.03
stock options ("Rollover Options") issued under the terms of the 1997 Stock
Incentive Plan, with exercise prices of $54,545, $59,091 and $59,659. The cash
paid upon conversion of the stock options is reported as a non-recurring charge
of the Merger (see Note 7).
F-20
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
The options granted under the 1997 Stock Incentive Plan vest in equal
installments on each of the first five anniversaries of the grant date. The
options are non-transferable (except under certain limited circumstances) and
have a term of ten years. The following table summarizes the changes in
outstanding options under the 1997 Stock Incentive Plan for the years ended
December 31, 1998 and 1997:
Average Average Fair Market
Options Exercise Price Value at Grant Date
------- -------------- -------------------
Activity:
Rollover Options Granted .. 16.030 $ 55,916 $39,018
Granted ................... 85.146 75,000 26,737
-------
Outstanding at December 31, 1997 101.176
Granted ................... 4.450 75,000 26,737
Granted ................... 6.648 125,000 24,562
Canceled .................. (0.555) (75,000) 26,737
-------
Outstanding at December 31, 1998 111.719
=======
At December 31, 1998, there were 3.206 options exercisable at an average
price of $55,916 per share and 16.918 options exercisable at $75,000 per share.
There were no options exercisable at December 31, 1997.
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 either stock option plan as all options were granted
with exercise prices either equal to or greater than the estimated fair market
value of the Common Stock on the date of grant. Had the Company determined
stock-based compensation based on the fair value of the options granted at the
grant date, consistent with the method prescribed under SFAS No. 123, the
Company's net income (loss) would have been reduced to the SFAS No. 123 pro
forma amounts indicated below (dollars in thousands):
Years Ended December 31,
------------------------------
1998 1997 1996
---- ---- ----
Net income (loss):
As reported ...................... $6,709 $ (182) $2,127
SFAS No. 123 pro forma ........... $6,355 $ (249) $2,113
It has been assumed that the estimated fair value of the options granted in
1998 and 1997 under the 1997 Stock Incentive Plan is amortized on a straight
line basis to compensation expense, net of taxes, over the vesting period of the
grant, which is approximately five years. The estimated fair value of each
option on the date of grant was determined using the Minimum Value Method with
the following assumptions: dividend yield of 0%; risk-free interest rate of
6.50%, and expected lives of seven years.
It has been assumed that the estimated fair value of the options granted in
1997 and 1996 under the 1996 Stock Option Plan is amortized on a straight line
basis to compensation expense, net of taxes, 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 seven years.
F-21
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
NOTE 12 - INCOME TAXES
- - ----------------------
Prior to the consummation of the IPO in 1996, Amscan Inc. and certain of
its affiliates elected to be taxed as Subchapter S corporations under the
Internal Revenue Code. Accordingly, these companies were not subject to federal
and state income taxes, to the extent that states recognize Subchapter S
corporation status. Upon the termination of the Subchapter S corporation status
in connection with the IPO, the aforementioned companies became subject to
federal and state income taxes. The cumulative effect of such tax status change
relating to the recording of deferred taxes as of December 18, 1996 was $786,000
and has been included in the income tax expense for the year ended December 31,
1996. Pro forma income tax expense for 1996 of $1,827,000 is calculated at a
statutory rate (40.5%) assuming Amscan Inc. and certain of its affiliates had
not elected Subchapter S corporation status for those periods.
A summary of domestic and foreign pre-tax income follows (dollars in
thousands):
Years Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
Domestic .................... $10,945 $ 6,655 $ 3,137
Foreign ..................... 659 1,021 2,595
------- ------- -------
Total ....................... $11,604 $ 7,676 $ 5,732
======= ======= =======
The provision for income taxes consisted of the following (dollars in
thousands):
Years Ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Current:
Federal ......................... $ 1,648 $ 4,222 --
State ........................... 455 1,174 $ 212
Foreign ......................... 272 704 992
------- ------- -------
Total current provision ....... 2,375 6,100 1,204
Deferred:
Federal ......................... 1,911 1,250 (113)
State ........................... 542 375 (25)
Foreign ......................... (12) (60) 100
Change in tax status ............ -- -- 786
------- ------- -------
Total deferred provision ...... 2,441 1,565 748
------- ------- -------
Income tax expense ................... $ 4,816 $ 7,665 $ 1,952
======= ======= =======
F-22
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
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. Deferred income tax
assets and liabilities from domestic jurisdictions consisted of the following at
December 31 (dollars in thousands):
1998 1997
---- ----
Current deferred tax assets:
Provision for doubtful accounts ..................... $ 1,434 $ 2,858
Accrued liabilities ................................. 454 340
Inventories ......................................... 1,052 976
Charitable contributions carryforward ............... 640 --
Other ............................................... 373 365
------- -------
Current deferred tax assets ...................... $ 3,953 $ 4,539
======= =======
Non-current deferred tax liabilities, net:
Property, plant and equipment ....................... $ 8,762 $ 6,275
Future taxable income resulting from a change in
accounting method for tax purposes ............... 438 618
Royalty reserves .................................... (620) --
Other ............................................... (452) --
------- -------
Non-current deferred tax liabilities, net ........ $ 8,128 $ 6,893
======= =======
A non-current foreign deferred tax asset of $780,000 is attributable to
non-current obligations recognized in connection with the Acquisition and is
included in long-term other assets, net. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical income and
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences.
The difference between the Company's effective income tax rate and the
federal statutory income tax rate of 35.0% is reconciled below:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Provision at federal statutory income tax rate..... 35.0% 35.0% 35.0%
Effect of non-deductible charges related
to the Merger.................................. 51.2
Effect of Subchapter S income not subject
to federal income taxes........................ (19.1)
State income tax, net of federal tax benefit....... 6.1 20.2 4.3
Change in tax status............................... 13.7
Other ............................................. 0.4 (6.5) 0.2
---- ---- ----
Effective income tax rate.......................... 41.5% 99.9% 34.1%
==== ==== ====
F-23
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
NOTE 13 - CAPITAL STOCK
- - -----------------------
At December 31, 1998 and 1997, 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. During the third quarter of 1998, the Company
reduced its authorized shares of Common Stock, $0.10 par value, from 50,000,000
shares to 3,000 shares, of which 1,132.41 and 1,010 shares were issued and
outstanding at December 31, 1998 and December 31, 1997, respectively.
At December 31, 1998, there were 207.41 shares of Common Stock held by
employees of which 10 shares were not yet fully paid and 11.25 shares were
subject to future vesting provisions. Under the terms of a stockholders'
agreement ("Stockholders' Agreement"), the Company can purchase all of the
shares held by the employee stockholders, and the employees can require the
Company to purchase all of the shares held by the employee stockholders, under
certain circumstances. Prior to December 31, 1998, the obligation to purchase
employee shares was assignable to GSCP at a cost of up to $15 million. The
purchase price as prescribed in the Stockholders' Agreement is to be determined
through a market valuation of the minority-held shares or, under certain
circumstances, based on cost. At December 31, 1998, the aggregate amount that
may be payable by the Company to employee stockholders based on fully paid and
vested shares, is approximately $19,547,000 and has been classified as
redeemable common stock ("Redeemable Common Stock").
NOTE 14 - COMMITMENTS
- - ---------------------
Lease Agreements
- - ----------------
The Company is obligated under various capital leases for certain machinery
and equipment which expire on various dates through October 1, 2003 (see Note
6). At December 31, 1998 and 1997, 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):
1998 1997
---- ----
Machinery and equipment ................ $ 7,243 $ 6,494
Less: accumulated amortization ........ (2,749) (1,798)
------- -------
$ 4,494 $ 4,696
======= =======
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Company has several noncancelable operating leases with unaffiliated
third parties, principally for office and manufacturing space, showrooms, and
warehouse equipment, that expire on various dates through 2017. These leases
generally contain renewal options and require the Company to pay real estate
taxes, utilities and related insurance.
At December 31, 1998, the Company also has non-cancelable operating leases
with real estate entities owned by an employee and the Estate of the Principal
Stockholder ("Unconsolidated Affiliates") for warehouse space that expire
through July 2003.
F-24
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
At December 31, 1998, future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):
Unconsolidated
Third Parties Affiliates Total
------------- ---------- -----
1999 ......................... $ 7,501 $ 392 $ 7,893
2000 ......................... 5,745 392 6,137
2001 ......................... 5,411 42 5,453
2002 ......................... 4,874 42 4,916
2003 ......................... 4,433 23 4,456
Thereafter ................... 21,698 -- 21,698
------- ----- -------
$49,662 $ 891 $50,553
======= ===== =======
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$7,601,000, $6,844,000, and $5,300,000, respectively, of which $233,000,
$2,089,000 and $2,134,000, respectively, related to leases with Unconsolidated
Affiliates.
Royalty Agreements
- - ------------------
In conjunction with the Acquisition, the Company has entered into royalty
agreements with various licensers of copyrighted and trademarked characters and
designs used on the Company's balloons which require royalty payments based on
sales of the Company's products, or in some cases, annual minimum royalties.
At December 31, 1998 future minimum royalties payable was as follows
(dollars in thousands):
1999............................ $1,331
2000............................ 924
2001............................ 468
2002............................ 15
2003 and thereafter............. -
------
$2,738
======
NOTE 15 - SEGMENT INFORMATION
- - -----------------------------
Industry Segments
- - -----------------
The Company operates in one operating 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. 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.
F-25
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
The Company's geographic area data for each of the three fiscal years ended
December 31, 1998, 1997 and 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1998
- - ----
Sales to unaffiliated customers ....... $ 203,232 $ 32,062 -- $ 235,294
Sales between geographic areas ........ 10,643 146 $ (10,789) --
--------- --------- --------- ---------
Net sales ............................. $ 213,875 $ 32,208 $ (10,789) $ 235,294
========= ========= ========= =========
Income from operations ................ $ 33,332 $ 1,116 -- $ 34,448
========= =========
Interest expense, net ................. -- -- -- 22,965
Other income, net ..................... -- -- -- (121)
---------
Income before income taxes and minority
interests ........................... -- -- -- $ 11,604
=========
Long-lived assets ..................... $ 120,588 $ 14,004 -- $ 134,592
========= ========= =========
1997
- - ----
Sales to unaffiliated customers ....... $ 183,536 $ 26,395 -- $ 209,931
Sales between geographic areas ........ 11,556 308 $ (11,864) --
--------- --------- --------- ---------
Net sales ............................. $ 195,092 $ 26,703 $ (11,864) $ 209,931
========= ========= ========= =========
Income from operations ................ $ 9,575 $ 1,922 -- $ 11,497
========= =========
Interest expense, net ................. -- -- -- 3,892
Other income, net ..................... -- -- -- (71)
---------
Income before income taxes and minority
interests .......................... -- -- -- $ 7,676
=========
Long-lived assets ..................... $ 47,397 $ 5,687 -- $ 53,084
========= ========= =========
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
=========
Long-lived assets ..................... $ 38,998 $ 5,256 -- $ 44,254
========= ========= =========
</TABLE>
F-26
<PAGE>
Amscan Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
NOTE 16 - 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 approximate
fair value at December 31, 1998 because of the short-term maturity of those
instruments or their variable rates of interest.
The carrying amount of the Company's Senior Subordinated Notes approximates
fair value at December 31, 1998, based on the quoted market price of similar
debt instruments. The carrying amounts of the Company's borrowings under its
Bank Credit Facilities and other revolving credit facilities approximate fair
value because such obligations generally bear interest at floating rates. The
carrying amounts for other long- term debt approximates fair value at December
31, 1998, based on the discounted 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
counterparty 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, 1998 would result in a charge to expense of $1.6 million.
NOTE 17 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
- - -------------------------------------------------------------------
The Notes, Exchange Notes and borrowings under the Bank Credit Facilities
are guaranteed jointly and severally, fully and unconditionally, by the
Guarantors (see Notes 5 and 6).
Non-guarantor companies include the following:
o Amscan Distributors (Canada) Ltd.
o Amscan Holdings Limited
o Amscan (Asia-Pacific) Pty. Ltd.
o Amscan Partyartikel GmbH
o Amscan Svenska AB
o Amscan de Mexico, S.A. de C.V.
o Anagram International (Japan) Co., Ltd.
o Anagram Mexico S. de R.L. de C.V.
o Anagram Espana, S.A.
o Anagram France S.C.S.
The following consolidating information presents consolidating balance
sheets as of December 31, 1998 and 1997, and the related consolidating
statements of operations and cash flows for each of the years in the three year
period ended December 31, 1998 for the combined Guarantors and the combined
non-guarantors and elimination entries necessary to consolidate the entities
comprising the combined companies.
F-27
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ................ $ 523 $ 594 -- $ 1,117
Accounts receivable, net ................. 42,636 6,703 -- 49,339
Inventories .............................. 47,948 6,869 $ (126) 54,691
Prepaid and other current assets ......... 8,661 452 -- 9,113
--------- --------- --------- ---------
Total current assets ..................... 99,768 14,618 (126) 114,260
Property, plant and equipment, net ......... 57,729 1,531 -- 59,260
Intangible assets, net ..................... 54,680 11,820 -- 66,500
Other assets, net .......................... 28,781 653 (20,602) 8,832
--------- --------- --------- ---------
Total assets ........................... $ 240,958 $ 28,622 $ (20,728) $ 248,852
========= ========= ========= =========
LIABILITIES, REDEEMABLE COMMON STOCK
AND STOCKHOLDERS' (DEFICIT) EQUITY
----------------------------------
Current liabilities:
Loans and notes payable .................. $ 9,600 $ 28 -- $ 9,628
Due to stockholders ...................... 88 -- -- 88
Accounts payable ......................... 10,671 823 -- 11,494
Accrued expenses ......................... 12,946 4,486 -- 17,432
Income taxes payable ..................... 458 135 -- 593
Current portions of long-term
obligations ............................ 3,506 43 -- 3,549
--------- --------- ---------
Total current liabilities .............. 37,269 5,515 -- 42,784
Long-term obligations, excluding
current portion .......................... 270,118 9 -- 270,127
Deferred tax liabilities ................... 8,116 12 -- 8,128
Other ...................................... 1,069 16,171 $ (13,687) 3,553
--------- --------- --------- ---------
Total liabilities ...................... 316,572 21,707 (13,687) 324,592
Redeemable Common Stock .................... 19,547 -- -- 19,547
Stockholders' (deficit) equity:
Common Stock ............................. -- 339 (339) --
Additional paid-in capital ............... 225 658 (658) 225
Unamortized restricted Common Stock
award ................................. (575) -- -- (575)
Notes receivable from officers ........... (718) -- -- (718)
(Deficit) retained earnings .............. (92,843) 7,413 (7,539) (92,969)
Accumulated other comprehensive loss ..... (1,250) (1,495) 1,495 (1,250)
--------- --------- --------- ---------
Total stockholders' (deficit) equity ... (95,161) 6,915 (7,041) (95,287)
--------- --------- --------- ---------
Total liabilities, Redeemable Common
Stock, stockholders' (deficit) equity $ 240,958 $ 28,622 $ (20,728) $ 248,852
========= ========= ========= =========
</TABLE>
F-28
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .............. $ 110,704 $ 835 -- $ 111,539
Accounts receivable, net ............... 39,457 5,381 -- 44,838
Inventories ............................ 44,052 7,690 -- 51,742
Prepaid and other current assets ....... 7,284 789 -- 8,073
--------- --------- ---------
Total current assets ................... 201,497 14,695 -- 216,192
Property, plant and equipment, net ....... 37,189 1,671 -- 38,860
Intangible assets, net ................... 7,479 283 -- 7,762
Other assets, net ........................ 17,076 1 $ (10,615) 6,462
--------- --------- --------- ---------
Total assets ......................... $ 263,241 $ 16,650 $ (10,615) $ 269,276
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
----------------------------------------------
Current liabilities:
Loans and notes payable ................ -- $ 424 -- $ 424
Due to stockholders .................... $ 93,243 -- -- 93,243
Accounts payable ....................... 11,798 354 -- 12,152
Accrued expenses ....................... 9,162 1,340 -- 10,502
Income taxes payable ................... (150) 317 -- 167
Current portions of long-term
obligations .......................... 2,863 48 -- 2,911
--------- --------- ---------
Total current liabilities ............. 116,916 2,483 -- 119,399
Long-term obligations, excluding
current portion ........................ 234,344 78 -- 234,422
Deferred tax liabilities ................. 6,893 -- -- 6,893
Other .................................... 307 6,711 $ (3,237) 3,781
--------- --------- --------- ---------
Total liabilities .................... 358,460 9,272 (3,237) 364,495
Stockholders' (deficit) equity:
Common Stock ........................... -- 339 (339) --
Additional paid-in capital ............. -- 458 (458) --
Unamortized restricted Common Stock
award ............................... (835) -- -- (835)
Notes receivable from officers ......... (750) -- -- (750)
(Deficit) retained earnings ............ (92,912) 7,232 (7,232) (92,912)
Accumulated other comprehensive loss ... (722) (651) 651 (722)
--------- --------- --------- ---------
Total stockholders' (deficit) equity.. (95,219) 7,378 (7,378) (95,219)
--------- --------- --------- ---------
Total liabilities and
stockholders' (deficit) equity .... $ 263,241 $ 16,650 $ (10,615) $ 269,276
========= ========= ========= =========
</TABLE>
F-29
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................ $ 215,650 $ 31,808 $ (12,164) $ 235,294
Cost of sales ........................ 141,322 21,871 (12,737) 150,456
--------- --------- --------- ---------
Gross profit ................. 74,328 9,937 573 84,838
Operating expenses:
Selling expenses .................. 13,255 3,794 -- 17,049
General and administrative
expenses ........................ 18,827 4,836 (192) 23,471
Art and development costs ......... 7,470 -- -- 7,470
Restructuring charges ............. 2,033 367 -- 2,400
--------- --------- --------- ---------
Income from operations ....... 32,743 940 765 34,448
Interest expense, net ................ 22,684 281 -- 22,965
Other income, net .................... (833) (58) 770 (121)
--------- --------- --------- ---------
Income before income taxes
and minority interests ..... 10,892 717 (5) 11,604
Income taxes ......................... 4,350 466 -- 4,816
Minority interests ................... -- 79 -- 79
--------- --------- --------- ---------
Net income ................... $ 6,542 $ 172 $ (5) $ 6,709
========= ========= ========= =========
</TABLE>
F-30
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................ $ 195,092 $ 26,703 $ (11,864) $ 209,931
Cost of sales ........................ 130,785 18,469 (12,683) 136,571
--------- --------- --------- ---------
Gross profit ................. 64,307 8,234 819 73,360
Operating expenses:
Selling expenses .................. 10,549 3,177 -- 13,726
General and administrative
expenses ........................ 17,298 3,930 (456) 20,772
Art and development costs ......... 5,282 -- -- 5,282
Non-recurring charges in
connection with the Merger ...... 22,083 -- -- 22,083
--------- --------- --------- ---------
Income from operations ....... 9,095 1,127 1,275 11,497
Interest expense, net ................ 3,828 64 -- 3,892
Other (income) expense, net .......... (1,717) 51 1,595 (71)
--------- --------- --------- ---------
Income before income taxes
and minority interests ..... 6,984 1,012 (320) 7,676
Income taxes ......................... 7,166 499 -- 7,665
Minority interests ................... -- 193 -- 193
--------- --------- --------- ---------
Net (loss) income ............ $ (182) $ 320 $ (320) $ (182)
========= ========= ========= =========
</TABLE>
F-31
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Dollars in thousands)
(Unaudited)
<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 ........................... 117,707 15,704 (9,498) 123,913
--------- --------- --------- ---------
Gross profit .................... 59,101 8,952 739 68,792
Operating expenses:
Selling expenses .................... 9,723 2,115 -- 11,838
General and administrative
expenses .......................... 15,424 4,562 (720) 19,266
Art and development costs ........... 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 .......... 9,024 2,275 1,459 12,758
Interest expense, net ................... 6,688 3 -- 6,691
Other (income) expense, net ............. (2,229) 20 2,544 335
--------- --------- --------- ---------
Income before income taxes
and minority interests ....... 4,565 2,252 (1,085) 5,732
Income taxes ............................ 1,035 917 -- 1,952
Minority interests ...................... 1,403 250 -- 1,653
--------- --------- --------- ---------
Net income ...................... $ 2,127 $ 1,085 $ (1,085) $ 2,127
========= ========= ========= =========
Pro forma data (unaudited) (Note 12):
Income before income taxes .......... $ 4,079
Pro forma income tax expense ........ 1,827
---------
Pro forma net income ............ $ 2,252
=========
</TABLE>
F-32
<PAGE>
<TABLE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Dollars in thousands)
(Unaudited)
<CAPTION>
Amscan
Holdings Combined
and Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 6,542 $ 172 $ (5) $ 6,709
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......................... 7,954 547 -- 8,501
Amortization of deferred financing costs ............... 748 -- -- 748
Loss (gain) on disposal of property and equipment ...... 2 (24) -- (22)
Provision for doubtful accounts ........................ 2,767 569 -- 3,336
Restructuring charges .................................. 1,999 401 -- 2,400
Amortization of Restricted Common Stock award .......... 260 -- -- 260
Deferred income tax provision (benefit) ............... 2,469 (28) -- 2,441
Changes in operating assets and liabilities, net of
acquisitions:
(Increase) decrease in accounts receivable ....... (1,138) 14 -- (1,124)
Decrease in inventories .......................... 4,701 2,026 126 6,853
Decrease in prepaid and other current assets,
and other, net ................................... 1,302 604 172 2,078
Increase (decrease) in other assets .............. 2,307 (3,097) 300 (490)
Increase in accounts payable, accrued expenses
and income taxes payable ....................... (8,372) (556) -- (8,928)
--------- --------- --------- ---------
Net cash provided by operating activities ........ 21,541 628 593 22,762
Cash flows from investing activities:
Cash paid for acquisitions ................................ (78,382) -- -- (78,382)
Capital expenditures ...................................... (7,334) (180) -- (7,514)
Proceeds from disposal of property and equipment .......... 2,694 75 -- 2,769
--------- --------- --------- ---------
Net cash used in investing activities ............ (83,022) (105) -- (83,127)
Cash flows from financing activities:
Net proceeds from sale of Capital Stock ................... 181 -- -- 181
Payments to acquire Common Stock in the Merger ............ (93,155) -- -- (93,155)
Proceeds from loans, notes payable and long-term
obligations net of debt issuance costs of $964 .......... 59,036 28 -- 59,064
Repayment of loans, notes payable and long-term
obligations ............................................. (15,432) (485) -- (15,917)
Subchapter S distributions and other ...................... 65 400 (400) 65
--------- --------- --------- ---------
Net cash used in financing activities ............ (49,305) (57) (400) (49,762)
Effect of exchange rate changes on cash ................... 605 (707) (193) (295)
--------- --------- --------- ---------
Net decrease in cash and cash
equivalents .................................... (110,181) (241) -- (110,422)
Cash and cash equivalents at beginning of year ............... 110,704 835 -- 111,539
--------- --------- --------- ---------
Cash and cash equivalents at end of year ..................... $ 523 $ 594 $ -- $ 1,117
========= ========= ========= =========
</TABLE>
F-33
<PAGE>
<TABLE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Dollars in thousands)
(Unaudited)
<CAPTION>
Amscan
Holdings Combined
and Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ......................................... $ (182) $ 320 $ (320) $ (182)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization .......................... 5,864 381 -- 6,245
Amortization of deferred financing costs ............... 13 -- -- 13
Gain on disposal of property and equipment ............. (31) -- -- (31)
Provision for doubtful accounts ........................ 3,419 356 -- 3,775
Amortization of Restricted Common Stock award .......... 290 -- -- 290
Deferred income tax provision .......................... 1,625 (60) -- 1,565
Changes in operating assets and liabilities, net of
acquisitions:
Increase in accounts receivable .................... (14,915) (954) -- (15,869)
Increase in inventories ............................ (3,773) (2,098) -- (5,871)
Decrease in prepaid and other current assets, and
other net ....................................... 4,042 2,234 -- 6,276
Decrease (increase) in other assets, net ........... 2,267 (324) 920 2,863
Increase in accounts payable, accrued expenses
and income taxes payable ......................... 4,944 151 -- 5,095
--------- --------- --------- ---------
Net cash provided by operating activities ........ 3,563 6 600 4,169
Cash flows from investing activities:
Capital expenditures ...................................... (9,390) (847) -- (10,237)
Proceeds from disposal of property and equipment .......... 140 -- -- 140
--------- --------- --------- ---------
Net cash used in investing activities ............ (9,250) (847) -- (10,097)
Cash flows from financing activities:
Net proceeds from sale of Common Stock .................... 4,524 -- -- 4,524
Capital contributions ..................................... 7,500 600 (600) 7,500
Issuance of Common Stock in connection with the Merger .... 61,875 -- -- 61,875
Payments to acquire treasury stock ........................ (290) -- -- (290)
Payments to acquire Common Stock in the Merger ............ (142,673) -- -- (142,673)
Proceeds from loans, notes payable and long-term
obligations net of debt issuance costs of $5,500 ........ 236,981 81 -- 237,062
Repayment of loans, notes payable and long-term
obligations ............................................ (51,743) (68) -- (51,811)
Repayment of indebtedness to Principal Stockholder ........ (181) (1) -- (182)
--------- --------- --------- ---------
Net cash provided by financing activities ........ 115,993 612 (600) 116,005
Effect of exchange rate changes on cash ................... 126 (253) -- (127)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents .................................... 110,432 (482) -- 109,950
Cash and cash equivalents at beginning of year ............... 272 1,317 -- 1,589
--------- --------- --------- ---------
Cash and cash equivalents at end of year ..................... $ 110,704 $ 835 $ -- $ 111,539
========= ========= ========= =========
</TABLE>
F-34
<PAGE>
<TABLE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1996
(Dollars in thousands)
(Unaudited)
<CAPTION>
Amscan
Holdings Combined
and Combine Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 2,127 $ 1,085 $ (1,085) $ 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
Deferred income tax provision ..................... 648 100 -- 748
Changes in operating assets and liabilities,
net of acquisitions:
Increase in accounts receivable ................ (6,684) (1,164) -- (7,848)
Increase in inventories ........................ (458) (222) -- (680)
(Increase) decrease in deposits and other, net.. (4,192) 396 -- (3,796)
(Increase) decrease in other assets, net ....... (187) (215) 1,085 683
Increase in accounts payable and accrued
expenses ..................................... 1,456 516 -- 1,972
-------- -------- -------- --------
Net cash provided by operating activities ... 11,102 1,171 -- 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 ................. 123 272 -- 395
-------- -------- -------- --------
Net (decrease) increase 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-35
<PAGE>
SCHEDULE II
AMSCAN HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
(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, 1996.......................... $2,505 $ 717 $2,350 $4,138
December 31, 1997.......................... 4,138 2,220 3,775 5,693
December 31, 1998.......................... 5,693 5,459 6,641(1) 6,875
<CAPTION>
Beginning Ending
Balance Write-offs Additions Balance
------- ---------- --------- -------
<S> <C> <C> <C> <C>
Inventory Reserves:
For the year ended:
December 31, 1996.......................... $1,228 $ 731 $1,188 $1,685
December 31, 1997.......................... 1,685 1,562 1,039 1,162
December 31, 1998.......................... 1,162 906 1,336 1,592
</TABLE>
(1) Includes approximately $3,305 of an allowance for doubtful accounts in
connection with receivables purchased in the acquisition of Anagram.
F-36
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited) (Note)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 934 $ 1,117
Accounts receivable, net of allowances .................................. 57,954 49,339
Inventories ............................................................. 53,408 54,691
Prepaid expenses and other current assets ............................... 13,942 9,113
--------- ---------
Total current assets ............................................... 126,238 114,260
Property, plant and equipment, net ......................................... 59,585 59,260
Intangible assets, net ..................................................... 65,600 66,500
Other assets, net .......................................................... 9,398 8,832
--------- ---------
Total assets ....................................................... $ 260,821 $ 248,852
========= =========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
--------------------------------------------------------------
Short-term obligations .................................................. $ 17,235 $ 9,628
Accounts payable ........................................................ 11,783 11,494
Accrued expenses ........................................................ 19,095 17,520
Income taxes payable .................................................... 3,455 593
Current portion of long-term obligations ................................ 3,434 3,549
--------- ---------
Total current liabilities .......................................... 55,002 42,784
Long-term obligations, excluding current portion ........................... 269,926 270,127
Deferred income tax liabilities ............................................ 8,320 8,128
Other ...................................................................... 3,341 3,553
--------- ---------
Total liabilities .................................................. 336,589 324,592
Redeemable Common Stock .................................................... 19,547 19,547
Stockholders' deficit:
Common Stock ............................................................ -- --
Additional paid-in capital .............................................. 225 225
Unamortized restricted Common Stock award, net .......................... (532) (575)
Notes receivable from officers .......................................... (698) (718)
Deficit ................................................................. (93,054) (92,969)
Accumulated other comprehensive loss .................................... (1,256) (1,250)
--------- ---------
Total stockholders' deficit ........................................ (95,315) (95,287)
--------- ---------
Total liabilities, Redeemable Common Stock and stockholders' deficit $ 260,821 $ 248,852
========= =========
Note: The balance sheet at December 31, 1998 has been derived from the audited consolidated
financial statements at that date.
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-------- --------
<S> <C> <C>
Net sales .......................................................... $ 76,440 $ 55,561
Cost of sales ...................................................... 48,120 35,989
-------- --------
Gross profit ................................................. 28,320 19,572
Operating expenses:
Selling expenses ................................................ 5,854 3,626
General and administrative ...................................... 7,044 4,319
Provision for doubtful accounts (includes $5,950 in 1999
related to Party City Corporation) ........................... 6,412 772
Art and development costs ....................................... 2,666 1,620
-------- --------
Total operating expenses ..................................... 21,976 10,337
-------- --------
Income from operations ....................................... 6,344 9,235
Interest expense, net .............................................. 6,434 5,265
Other expense (income), net ........................................ 22 (40)
-------- --------
(Loss) income before income taxes and minority interests... (112) 4,010
Income tax (benefit) expense ....................................... (46) 1,664
Minority interests ................................................. 19 75
-------- --------
Net (loss) income ............................................ $ (85) $ 2,271
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For The Three Months Ended March 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unamortized
Restricted Notes Accumulated
Additional Common Receivable Other
Common Paid-in Stock Award, from Comprehensive
Stock Capital Net Officers Deficit Loss Total
------ ---------- ------------ --------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ....... $ -- $ 225 $ (575) $ (718) $(92,969) $ (1,250) $(95,287)
Net loss ........................ -- -- -- -- (85) -- (85)
Net change in cumulative
translation adjustment ....... -- -- -- -- -- (6) (6)
--------
Comprehensive loss ........ -- -- -- -- -- -- (91)
Payments received on notes
receivable from officers ..... -- -- -- 20 -- -- 20
Amortization of restricted
Common Stock award ........... -- -- 43 -- -- -- 43
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1999 .......... $ -- $ 225 $ (532) $ (698) $(93,054) $ (1,256) $(95,315)
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ...................................................... $ (85) $ 2,271
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization ....................................... 3,219 1,723
Amortization of deferred financing costs ............................ 217 162
Amortization of restricted Common Stock award ....................... 43 65
Provision for doubtful accounts ..................................... 6,412 772
Deferred income tax benefit ......................................... (1,891) (135)
Loss on disposal of property and equipment .......................... 71 --
Changes in operating assets and liabilities:
Increase in accounts receivable ................................... (14,954) (9,938)
Decrease in inventories ........................................... 1,283 4,939
(Increase) decrease in prepaid expenses and other current assets... (2,746) 632
Increase (decrease) in accounts payable, accrued expenses and
income taxes payable ........................................... 4,746 (1,249)
Other, net .......................................................... (1,005) (635)
--------- ---------
Net cash used in operating activities ............................. (4,690) (1,393)
Cash flows from investing activities:
Capital expenditures ................................................... (2,205) (1,072)
Proceeds from sale of property and equipment ........................... 100 17
--------- ---------
Net cash used in investing activities ............................. (2,105) (1,055)
Cash flows from financing activities:
Payments to acquire Common Stock in Merger ............................. (18) (92,731)
Proceeds from short-term obligations ................................... 7,607
Repayment of loans, notes payable and long-term obligations ............ (942) (1,116)
Other .................................................................. 20 --
--------- ---------
Net cash provided by (used in) financing activities ................. 6,667 (93,847)
Effect of exchange rate changes on cash and cash equivalents ............... (55) (104)
--------- ---------
Net decrease in cash and cash equivalents ........................... (183) (96,399)
Cash and cash equivalents at beginning of period ........................... 1,117 111,539
--------- ---------
Cash and cash equivalents at end of period ................................. $ 934 $ 15,140
========= =========
Supplemental Disclosures:
Interest paid ..................................................... $ 3,553 $ 2,839
Taxes paid ........................................................ $ 292 $ 188
</TABLE>
Capital lease obligations of $651 were incurred during the three months ended
March 31, 1999. There were no capital lease obligations incurred during the
three months ended March 31, 1998.
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
- - ------- ----------------------------------------
Amscan Holdings, Inc. ("Amscan Holdings" and, together with its
subsidiaries, "AHI" or the "Company") 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.
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 would 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. 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) was 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 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,
with fractional shares of Company Common Stock paid in cash. 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 the
surviving corporation in the Merger. 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 Merger was accounted for as a
recapitalization and, accordingly, the historical basis of the Company's assets
and liabilities were not affected by the Merger.
Amscan Holdings and its subsidiaries design, manufacture, contract for
manufacture and distribute party and novelty goods 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.
The accompanying unaudited consolidated 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 three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. The results of operations may be affected by seasonal
factors
F-41
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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, 1998.
NOTE 3: INVENTORIES
- - ------- -----------
Inventories consisted of the following:
March 31, December 31,
1999 1998
--------- ------------
(In thousands)
Finished goods ...................................... $ 46,474 $ 48,093
Raw materials ....................................... 4,538 4,845
Work-in-process ..................................... 4,406 3,345
-------- --------
55,418 56,283
Less: reserve for slow moving and obsolete inventory (2,010) (1,592)
-------- --------
$ 53,408 $ 54,691
======== ========
Inventories are valued at the lower of cost, determined on a first in -
first out basis, or market.
NOTE 4: INCOME TAXES
- - ------- ------------
The consolidated income tax (benefit) provision for the three months ended
March 31, 1999 and 1998 were determined based upon estimates of the Company's
consolidated effective income tax rates for the years ending December 31, 1999
and 1998, respectively. 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.
NOTE 5: COMPREHENSIVE (LOSS) INCOME
- - ------- ---------------------------
During the first quarter of 1999 and 1998, total comprehensive (loss)
income amounted to $(91,000) and $2,256,000, respectively, consisting of net
(loss) income of $(85,000) and $2,271,000 and foreign currency translation
adjustments of $(6,000) and $(15,000), respectively. Accumulated other
comprehensive loss at March 31, 1999 and December 31, 1998 consisted solely of
the Company's foreign currency translation adjustment.
F-42
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 6: CAPITAL STOCK
- - ------- -------------
At March 31, 1999 and December 31, 1998, respectively, 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 3,000 shares of
common stock, $0.10 par value, of which 1,132.41 shares were issued and
outstanding.
NOTE 7: SEGMENT INFORMATION
- - ------- -------------------
Industry Segments
- - -----------------
The Company operates in one operating 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. No one single foreign operation is significant to the
Company's consolidated operations. Sales between geographic areas are made at
cost plus a share of operating profit.
The Company's geographic area data is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1999
Sales to unaffiliated customers ......... $ 66,534 $ 9,906 -- $ 76,440
Sales between geographic areas .......... 4,496 471 $ (4,967) --
--------- --------- --------- ---------
Net sales ............................... $ 71,030 $ 10,377 $ (4,967) $ 76,440
========= ========= ========= =========
Income from operations .................. $ 6,039 $ 305 -- $ 6,344
========= =========
Interest expense, net ................... -- -- -- 6,434
Other expense, net ...................... -- -- -- 22
---------
Loss before income taxes and minority
interests ............................. -- -- -- $ (112)
=========
Long-lived assets at March 31, 1999 ..... $ 133,121 $ 14,686 $ (13,224) $ 134,583
========= ========= ========= =========
Three Months Ended March 31, 1998
Sales to unaffiliated customers ......... $ 49,287 $ 6,274 -- $ 55,561
Sales between geographic areas .......... 1,793 $ -- $ (1,793) --
--------- --------- --------- ---------
Net sales ............................... $ 51,080 $ 6,274 $ (1,793) $ 55,561
========= ========= ========= =========
Income from operations .................. $ 8,922 $ 313 -- $ 9,235
========= =========
Interest expense, net ................... -- -- -- 5,265
Other income, net ....................... -- -- -- (40)
---------
Income before income taxes and minority
interests ............................. -- -- -- $ 4,010
=========
Long-lived assets at March 31, 1998 ..... $ 53,422 $ 1,799 $ (1,939) $ 53,282
========= ========= ========= =========
</TABLE>
F-43
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 8: PROVISION FOR DOUBTFUL ACCOUNTS
- - ------- -------------------------------
During the first quarter of 1999, the Company's largest customer, Party
City Corporation ("Party City") announced that, due to difficulties implementing
new financial reporting and accounting systems, it would not be able to complete
its year end audit and that it would be in default of certain covenants of its
credit facility as of December 31, 1998. The Company understands that Party City
is negotiating with its lenders to amend its credit facility and with its
vendors to amend existing credit terms on certain inventory. The Company also
understands that Party City is considering various alternatives to improve its
current financial condition. Based on the current financial condition of Party
City, the Company has established reserves approximating 50% of the $13,200,000
accounts receivable balance due from Party City corporate stores at March 31,
1999, including $5,950,000 charged to the provision for doubtful accounts during
the first quarter of 1999.
For the three months ended March 31, 1999 and 1998, sales to Party City's
corporate stores represented 18% and 11%, respectively, of consolidated net
sales. If Party City were to significantly reduce their volume of purchases from
the Company for any reason, the Company's financial condition and results of
operations could be materially adversely affected.
F-44
<PAGE>
SUPPLEMENTAL INFORMATION
------------------------
The senior subordinated notes and borrowings under the bank credit
agreement are guaranteed jointly and severally, fully and unconditionally, by
each of Amscan Holdings' wholly-owned domestic subsidiaries (the "Guarantors").
Non-guarantor companies include the following:
o Amscan Distributors (Canada) Ltd.
o Amscan Holdings Limited
o Amscan (Asia-Pacific) Pty. Ltd.
o Amscan Partyartikel GmbH
o Amscan Svenska AB
o Amscan de Mexico, S.A. de C.V.
o Anagram International (Japan) Co., Ltd.
o Anagram Mexico S. de R.L. de C.V.
o Anagram Espana, S.A.
o Anagram France S.C.S.
The following consolidating information presents unaudited consolidating
balance sheet as of March 31, 1999, and the related unaudited consolidating
statements of operations and cash flows for the three-month periods ended March
31, 1999 and 1998 for the combined Guarantors and the combined non-guarantors
and elimination entries necessary to consolidate the entities comprising the
combined companies.
F-45
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING BALANCE SHEET
March 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
- - ------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ....................... $ 32 $ 902 -- $ 934
Accounts receivable, net ........................ 51,035 6,919 -- 57,954
Inventories ....................................... 47,339 6,069 -- 53,408
Prepaid expenses and other current assets ....... 12,307 1,635 -- 13,942
--------- --------- ---------
Total current assets .......................... 110,713 15,525 -- 126,238
Property, plant and equipment, net ................ 58,200 1,385 -- 59,585
Intangible assets, net ............................ 54,183 11,417 -- 65,600
Other assets, net ................................. 29,251 2,167 $ (22,020) 9,398
--------- --------- --------- ---------
Total assets .................................. $ 252,347 $ 30,494 $ (22,020) $ 260,821
========= ========= ========= =========
LIABILITIES, REDEEMABLE COMMON STOCK
AND STOCKHOLDERS' (DEFICIT) EQUITY
- - ----------------------------------
Current liabilities:
Short-term obligations .......................... $ 17,235 -- -- $ 17,235
Accounts payable ................................ 10,742 $ 1,041 -- 11,783
Accrued expenses ................................ 15,113 3,982 -- 19,095
Income taxes payable ............................ 2,662 793 -- 3,455
Current portions of long-term obligations ......... 3,400 34 -- 3,434
--------- --------- ---------
Total current liabilities ..................... 49,152 5,850 -- 55,002
Long-term obligations, excluding
current portion ................................. 269,918 8 -- 269,926
Deferred income tax liabilities ................... 8,308 12 -- 8,320
Other ............................................. 737 16,796 (14,192) 3,341
--------- --------- --------- ---------
Total liabilities ............................. 328,115 22,666 (14,192) 336,589
Redeemable Common Stock ........................... 19,547 -- -- 19,547
Stockholders' (deficit) equity:
Common Stock .................................. -- 339 (339) --
Additional paid-in capital .................... 225 658 (658) 225
Unamortized restricted Common Stock
award, net ................................. (532) -- -- (532)
Notes receivable from officers ................ (698) -- -- (698)
(Accumulated deficit) retained earnings ....... (93,054) 7,966 (7,966) (93,054)
Accumulated other comprehensive loss .......... (1,256) (1,135) 1,135 (1,256)
--------- --------- --------- ---------
Total stockholders' (deficit) equity .......... (95,315) 7,828 (7,828) (95,315)
--------- --------- --------- ---------
Total liabilities, Redeemable Common
Stock, and stockholders' (deficit) equity... $ 252,347 $ 30,494 $ (22,020) $ 260,821
========= ========= ========= =========
</TABLE>
F-46
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 71,030 $ 10,377 $ (4,967) $ 76,440
Cost of sales ......................................... 45,878 7,209 (4,967) 48,120
-------- -------- -------- --------
Gross profit ................................. 25,152 3,168 -- 28,320
Operating expenses:
Selling expenses .................................. 4,504 1,350 -- 5,854
General and administrative expenses ............... 5,719 1,373 (48) 7,044
Provision for doubtful accounts (includes $5,950
related to Party City Corporation) ............... 6,313 99 -- 6,412
Art and development costs ......................... 2,666 -- -- 2,666
-------- -------- -------- --------
Income from operations ........................... 5,950 346 48 6,344
Interest expense (income) net ......................... 6,456 (22) -- 6,434
Other (income) expense, net ........................... (295) 82 235 22
-------- -------- -------- --------
(Loss) income before income taxes
and minority interests ......................... (211) 286 (187) (112)
Income tax (benefit) expense .......................... (126) 80 -- (46)
Minority interests .................................... -- 19 -- 19
-------- -------- -------- --------
Net (loss) income ......................... $ (85) $ 187 $ (187) $ (85)
======== ======== ======== ========
</TABLE>
F-47
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................... $ 51,080 $ 6,274 $ (1,793) $ 55,561
Cost of sales ........................... 33,864 4,116 (1,991) 35,989
-------- -------- -------- --------
Gross profit .................... 17,216 2,158 198 19,572
Operating expenses:
Selling expenses ..................... 2,832 794 -- 3,626
General and administrative expenses... 3,549 818 (48) 4,319
Provision for doubtful accounts ...... 537 235 -- 772
Art and development costs ............ 1,620 -- -- 1,620
-------- -------- -------- --------
Income from operations .......... 8,678 311 246 9,235
Interest expense, net ................... 5,265 -- -- 5,265
Other income, net ....................... (487) (23) 470 (40)
-------- -------- -------- --------
Income before income taxes
and minority interests ....... 3,900 334 (224) 4,010
Income taxes ............................ 1,629 35 -- 1,664
Minority interests ...................... -- 75 -- 75
-------- -------- -------- --------
Net income ...................... $ 2,271 $ 224 $ (224) $ 2,271
======== ======== ======== ========
</TABLE>
F-48
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1999
(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 (loss) income ...................................... $ (85) $ 187 $ (187) $ (85)
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization ....................... 3,116 103 -- 3,219
Amortization of deferred financing charges .......... 217 -- -- 217
Amortization of restricted Common Stock award ....... 43 -- -- 43
Provision for doubtful accounts ..................... 6,313 99 -- 6,412
Deferred income tax benefit ......................... (1,891) -- -- (1,891)
Loss on disposal of property and equipment .......... 26 45 -- 71
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ....... (14,957) 3 -- (14,954)
Decrease in inventories .......................... 353 930 -- 1,283
Increase in prepaid expenses
and other current assets ....................... (1,568) (1,178) -- (2,746)
Increase (decrease) in accounts payable, accrued
expenses and income taxes payable .............. 9,884 (5,138) -- 4,746
Other, net .......................................... (5,985) 4,793 187 (1,005)
-------- -------- -------- --------
Net cash used in operating activities ......... (4,534) (156) -- (4,690)
Cash flows from investing activities:
Capital expenditures ................................... (2,183) (22) -- (2,205)
Proceeds from sale of property and equipment ........... 100 -- -- 100
-------- -------- -------- --------
Net cash used in investing activities ......... (2,083) (22) -- (2,105)
Cash flows from financing activities:
Payments to acquire Common Stock in Merger ............. (18) -- -- (18)
Proceeds from (repayment of) short-term
obligations .......................................... 7,635 (28) -- 7,607
Repayment of loans, notes payable and long-term
obligations .......................................... (932) (10) -- (942)
Other .................................................. 20 -- -- 20
-------- -------- -------- --------
Net cash provided by (used in)
financing activities ........................ 6,705 (38) -- 6,667
Effect of exchange rate changes on cash and cash
equivalents ............................................. (579) 524 -- (55)
-------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents ................................. (491) 308 -- (183)
Cash and cash equivalents at beginning of period .......... 523 594 -- 1,117
-------- -------- -------- --------
Cash and cash equivalents at end of period ................ $ 32 $ 902 $ -- $ 934
======== ======== ======== ========
</TABLE>
F-49
<PAGE>
AMSCAN HOLDINGS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan Holdings Combined
and Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 2,271 $ 224 $ (224) $ 2,271
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization ........................ 1,624 99 -- 1,723
Amortization of deferred financing charges ........... 162 -- -- 162
Amortization of restricted Common Stock award ........ 65 -- -- 65
Provision for doubtful accounts ...................... 537 235 -- 772
Deferred income tax benefit .......................... (135) -- -- (135)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ........ (9,986) 48 -- (9,938)
Decrease in inventories ........................... 4,542 397 -- 4,939
Decrease (increase) in prepaid expenses and other
current assets .................................. 1,157 (525) -- 632
(Decrease) increase in accounts payable, accrued
expenses and income taxes payable .............. (1,439) 190 -- (1,249)
Other, net ........................................... (255) (604) 224 (635)
--------- --------- --------- ---------
Net cash (used in) provided by operating
activities ................................. (1,457) 64 -- (1,393)
Cash flows from investing activities:
Capital expenditures .................................... (1,028) (44) -- (1,072)
Proceeds from sale of property and equipment ............ -- 17 -- 17
--------- --------- --------- ---------
Net cash used in investing activities .......... (1,028) (27) -- (1,055)
Cash flows from financing activities:
Payments to acquire Common Stock in Merger .............. (92,731) -- -- (92,731)
Repayment of loans, notes payable and long-term
obligations ........................................... (768) (348) -- (1,116)
--------- --------- --------- ---------
Net cash used in financing activities .......... (93,499) (348) -- (93,847)
Effect of exchange rate changes on cash
and cash equivalents .................................. (34) (70) -- (104)
--------- --------- --------- ---------
Net decrease in cash and cash equivalents ...... (96,018) (381) -- (96,399)
Cash and cash equivalents at beginning of period ........... 110,704 835 -- 111,539
--------- --------- --------- ---------
Cash and cash equivalents at end of period ................. $ 14,686 $ 454 $ -- $ 15,140
========= ========= ========= =========
</TABLE>
F-50
<PAGE>
<TABLE>
<S> <C>
===================================================== ===================================================
You must rely only on this Prospectus or other
information Amscan Holdings, Inc. directly refers you
to. Amscan Holdings has not authorized anyone to Amscan Holdings, Inc.
provide you with any other information. You may
assume the accuracy of the contents of this 9 7/8% Senior Subordinated Notes
Prospectus only through the date hereof. If you live due 2007
in a jurisdiction that prohibits the offering or sale ($110,000,000 principal amount outstanding)
of the Notes covered by this Prospectus, you may not
purchase the Notes.
- - -----------------
TABLE OF CONTENTS
Page
----
Available Information............. ii
Prospectus Summary................ 1
Risk Factors...................... 14 -----------------------------
Capitalization....................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................... 15
Business.......................... 24
Management........................ 33
Ownership of Capital Stock........ 41
Description of Senior Debt........ 43
Description of Notes.............. 45
Description of Certain Federal Income
Tax Consequences of an Investment in
the Notes...................... 70
Plan of Distribution.............. 73
Experts........................... 73
Validity of the Notes............. 73
Index to Financial Statements..... F-1
===================================================== ====================================================
</TABLE>
<PAGE>
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, Amscan Holdings"s By-laws
provide that Amscan Holdings 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 Amscan Holdings 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 Amscan Holdings or is or was serving at the request of Amscan Holdings
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.
Amscan Holdings"s By-laws also provide that expenses incurred by an officer
or director in defending an action, suit or proceeding will be paid by Amscan
Holdings 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 Amscan Holdings
by law or pursuant to Amscan Holdings' By-laws. Amscan Holdings' By-laws define
the term "expenses" to include, without limitation, costs of and expenses
incurred in connection with or in preparation for litigation, attorneys' fees,
judgments, fines, penalties, amounts paid in settlement, excise taxes in respect
of any employee benefit plan of Amscan Holdings, 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
II-1
<PAGE>
(regarding certain illegal distributions) or (iv) for any transaction from which
the director derived an improper personal benefit. Amscan Holdings' Certificate
of Incorporation provides that the personal liability of Amscan Holdings'
directors to Amscan Holdings 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.
2.1 Agreement and Plan of Merger, by and among
Amscan Holdings, Inc. and Confetti Acquisition,
Inc., dated as of August 10, 1997 (incorporated
by reference to Exhibit 2.1 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
2.2 Share Exchange Agreement dated as of December
18, 1996, among the Registrant, John A.
Svenningsen, Gerald C. Rittenberg and the
following trusts each created by agreement dated
as of October 29, 1996: Christina Svenningsen
Trust, Jon Svenningsen Trust, Elisabeth
Svenningsen Trust, Melissa Svenningsen Trust,
Emily Svenningsen Trust and Sara Svenningsen
Trust (incorporated by reference to Exhibit 2(a)
to the Registrant's 1996 Annual Report on Form
10-K (Commission File No. 000-21827)).
2.3 Capital Contribution Agreement by and between
the Company and Messrs. Allan J. Kaufman,
Arthur J. Kaufman and Michael F. Hodges, dated
October 9, 1996, as supplemented (incorporated
by reference to Exhibit 2(b) to Amendment No.
1 to the Registrant's Registration Statement
on Form S-1 (SEC File No. 333-14107)).
2.4 Stock Purchase Agreement, dated as of August 6,
1998, by and among Amscan Holdings, Inc. and
certain stockholders of Anagram International,
Inc. and certain related companies (incorporated
by reference to Exhibit 2.1 to Current Report on
Forms 8-K dated August 6, 1998).
3.1 Certificate of Incorporation of Amscan Holdings,
Inc. dated October 3, 1996 (incorporated by
reference to Exhibit 3.1 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.2 Amended By-Laws of Amscan Holdings, Inc.
(incorporated by reference to Exhibit 3.2 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45457)).
3.3 Certificate of Incorporation of Amscan Inc.
(incorporated by reference to Exhibit 3.3 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45457)).
3.4 By-Laws of Amscan Inc. (incorporated by
reference to Exhibit 3.4 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.5 Restated Articles of Incorporation of Trisar,
Inc. (incorporated by reference to Exhibit 3.5
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No.
333-45457)).
3.6 By-Laws of Trisar, Inc. (incorporated by
reference to Exhibit 3.6 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
II-2
<PAGE>
3.7 Original Articles of Incorporation of
Am-Source, Inc. (incorporated by reference to
Exhibit 3.7 to Amscan Holdings, Inc.'s
Registration Statement on Form S-4 (SEC File
No. 333-45457)).
3.8 By-Laws of Am-Source Inc. (incorporated by
reference to Exhibit 3.8 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.9 Certificate of Incorporation of SSY Realty Corp.
dated October 3, 1996 (incorporated by reference
to Exhibit 3.9 to Amscan Holdings, Inc.'s
Registration Statement on Form S-4 (SEC File No.
333-45457)).
3.10 By-Laws of SSY Realty Corp. dated October 3,
1996 (incorporated by reference to Exhibit 3.10
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No. 333-45457)).
3.11 Certificate of Incorporation of JCS Realty Corp.
dated October 3, 1996 (incorporated by reference
to Exhibit 3.11 to Amscan Holdings, Inc.'s
Registration Statement on Form S-4 (SEC File No.
333-45457)).
3.12 By-Laws of JCS Realty Corp. dated October 3,
1996 (incorporated by reference to Exhibit 3.12
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No. 333-45457)).
3.13 Amended Articles of Incorporation of Anagram
International, Inc. (incorporated by reference
to Exhibit 3.1 to Amscan Holdings, Inc.'s
Current Report on 8-K filed September 25, 1998
(SEC File No. 000-21827)).
3.14 By-Laws of Anagram International, Inc.
(incorporated by reference to Exhibit 3.2 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
3.15 Articles of Incorporation of Anagram
International Holdings, Inc. (incorporated by
reference to Exhibit 3.3 to Amscan Holdings,
Inc.'s Current Report on 8-K filed September 25,
1998 (SEC File No. 000-21827)).
3.16 By-Laws of Anagram International Holdings, Inc.
(incorporated by reference to Exhibit 3.4 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
3.17 Articles of Organization of Anagram
International, LLC (incorporated by reference to
Exhibit 3.5 to Amscan Holdings, Inc.'s Current
Report on 8-K filed September 25, 1998 (SEC File
No. 000-21827)).
3.18 Operating Agreement of Anagram International,
LLC (incorporated by reference to Exhibit 3.6 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
3.19 Certificate of Formation of Anagram Eden Prairie
Property Holdings LLC (incorporated by reference
to Exhibit 3.7 to Amscan Holdings, Inc.'s
Current Report on 8-K filed September 25, 1998
(SEC File No. 000-21827)).
4.1 Indenture, dated as of December 19, 1997, by and
among Amscan Holdings, Inc., the Guarantors
named therein and IBJ Schroder Bank & Trust
Company with respect to the Senior Subordinated
Notes.
4.2 Supplemental Indenture, dated as of September
17, 1998, by and among Anagram International,
Inc., Anagram International Holdings, Inc.,
Anagram International LLC and Anagram Eden
Prairie Property Holdings LLC and IBJ Schroder
Bank & Trust Company, as Trustee (incorporated
by reference to Exhibit 4.1 to Amscan Holdings,
Inc.'s Current Report on 8-K filed September 25,
1998 (SEC File No. 000-21827)).
II-3
<PAGE>
4.3 Senior Subordinated Guarantee, dated as of
September 17, 1998, by Anagram International,
Inc., Anagram International Holdings, Inc.,
Anagram International, LLC and Anagram Eden
Prairie Property Holdings LLC (incorporated by
reference to Exhibit 4.2 to Amscan Holdings,
Inc.'s Current Report on 8-K filed September 25,
1998 (SEC File No. 000-21827)).
4.4 Warrant Agreement, dated as of August 6, 1998,
by and between Amscan Holdings, Inc. and Garry
Kieves Retained Annuity Trust (incorporated by
reference to Exhibit 4.1 to Current Report on
Form 8 - K dated August 6, 1998) (SEC File No.
000-21827).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz
(incorporated by reference to Exhibit 5.1 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45475)).
10.1 Exchange and Registration Rights Agreement,
dated as of December 19, 1997, by and among
Amscan Holdings, Inc. and Goldman, Sachs & Co.
(incorporated by reference to Exhibit 10.1 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45457)).
10.2 Amended and Restated Revolving Loan Credit
Agreement, dated as of September 17, 1998, among
Amscan Holdings, Inc., the financial
institutions parties thereto, Goldman, Sachs
Credit Partners L.P., as arranger and
syndication agent, and Fleet National Bank as
administrative agent (incorporated by reference
to Exhibit 10.1 to Amscan Holdings, Inc.'s
Current Report on 8-K filed September 25, 1998
(SEC File No. 000-21827)).
10.3 Amended and Restated AXEL Credit Agreement,
dated as of September 17, 1998, among Amscan
Holdings, Inc., the financial institutions
parties thereto, Goldman, Sachs Credit Partners
L.P., as arranger and syndication agent, and
Fleet National Bank as administrative agent
(incorporated by reference to Exhibit 10.2 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
10.4 Stockholders' Agreement, dated as of December
19, 1997, by and among Amscan Holdings, Inc. and
the Stockholders thereto (incorporated by
reference to Exhibit 10.4 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
10.5 Employment Agreement, dated as of August 10,
1997, by and between Amscan Holdings, Inc. and
Gerald C. Rittenberg (incorporated by reference
to Exhibit 10.5to Amscan Holdings, Inc.'s
Registration Statement on S-4 filed November 14,
1997 (SEC File No 333-4128)).
10.6 Employment Agreement, dated as of August 10,
1997, by and between Amscan Holdings, Inc. and
James M. Harrison (incorporated by reference to
Exhibit 10.6 to Amscan Holdings, Inc.'s
Registration Statement on S-4 filed November 14,
1997 (SEC File No 333-4128)).
10.7 Employment Agreement, dated as of October 4,
1996, by and between Amscan Holdings, Inc. and
William S. Wilkey (incorporated by reference to
Exhibit 10(e) to Amscan Holdings, Inc.'s
Registration Statement on Form S-1 (File No.
333-14107)).
10.8 Employment Agreement between the Company and
Garry Kieves dated as of August 6, 1998
(incorporated by reference to Exhibit 99.1 to
Current Report on Form 8 - K dated August 6,
1998) (SEC File No. 000-21827).
10.9 Amscan Holdings, Inc. 1997 Stock Incentive Plan
(contained in Exhibit 10.4).
10.10 Tax Indemnification Agreement between Amscan
Holdings, Inc. and John A. Svenningsen, dated as
of December 18, 1996 (incorporated by reference
to Exhibit 10(j) to the Registrant's 1996 Annual
Report on Form 10-K (SEC File No. 000-21827)).
II-4
<PAGE>
10.11 Tax Indemnification Agreement between Amscan
Holdings, Inc. Christine Svenningsen and the
Estate of John A. Svenningsen, dated as of
August 10, 1997 (incorporated by reference to
Exhibit 10.17 to the Registrant's Registration
on Form S-4 (SEC File No. 333-40235)).
10.12 The MetLife Capital Corporation Master Lease
Purchase Agreement between MetLife Capital
Corporation and Amscan Inc., Deco Paper
Products, Inc., Kookaburra USA Ltd., and Trisar,
Inc., dated November 21, 1991, as amended
(incorporated by reference to Exhibit 10(n) to
Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (SEC File No.
333-14107)).
Amendment No. 1 to the Stockholders' Agreement,
dated as of August 6, 1998 by and among Amscan
Holdings, Inc. and certain stockholders of
Amscan Holdings, Inc. (incorporated by reference
to Exhibit 10.1 to Current Report on Form 8 - K
dated August 6, 1998) (SEC File No. 000-21827).
12.1 Statement re computation of ratios.
21.1 Subsidiaries of Amscan Holdings, Inc.
23.1 Consent of KPMG LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz
(contained in Exhibit 5.1).
24.1 Powers of Attorney applicable to the
Registration Statement filing (incorporated by
reference to Exhibit 24.1 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
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 (incorporated by reference to Exhibit 25.1
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No.
333-45457)).
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;
(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 post-effective 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.
(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.
II-5
<PAGE>
(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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
AMSCAN HOLDINGS, INC.
By: /s/ JAMES M. HARRISON
-------------------------------
Name: James M. Harrison
Title: President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* Chief Executive Officer and Director
--------------------------
Gerald C. Rittenberg
* President, Chief Financial Officer,
--------------------------- Treasurer and Director
James M. Harrison
* Controller and Secretary
--------------------------
Michael A. Correale
* Chairman of the Board and Director
--------------------------
Terence M. O'Toole
* Director
--------------------------
Sanjeev K. Mehra
* Director
--------------------------
Joseph P. DiSabato
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
AMSCAN INC.
By: /s/ JAMES M. HARRISON
-------------------------------
Name: James M. Harrison
Title: Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President and Director
--------------------------
Gerald C. Rittenberg
* Executive Vice President, Secretary
-------------------------- and Director
James M. Harrison
* Vice President, Treasurer, and
-------------------------- Director
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
TRISAR, INC.
By: /s/ JAMES M. HARRISON
-------------------------------
Name: James M. Harrison
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President and Director
--------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
--------------------------
James M. Harrison
* Assistant Treasurer and Director
--------------------------
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
AM-SOURCE, INC.
By: /s/ JAMES M. HARRISON
-------------------------------
Name: James M. Harrison
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President
--------------------------
Gerald C. Rittenberg
* Treasurer and Secretary
--------------------------
James M. Harrison
* Assistant Treasurer
--------------------------
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
SSY REALTY CORP.
By: /s/ JAMES M. HARRISON
-------------------------------
Name: James M. Harrison
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President and Director
--------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
--------------------------
James M. Harrison
* Assistant Treasurer and Director
--------------------------
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
JCS REALTY CORP.
By: /s/ JAMES M. HARRISON
-------------------------------
Name: James M. Harrison
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President and Director
--------------------------
Gerald C. Rittenberg
* Treasurer, Secretary and Director
--------------------------
James M. Harrison
* Assistant Treasurer and Director
--------------------------
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
ANAGRAM INTERNATIONAL, INC.
By: /s/ JAMES M. HARRISON
---------------------------------------
Name: James M. Harrison
Title: Senior Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President
--------------------------
Gary Kieves
* Senior Vice President, Assistant
Treasurer, Assistant Secretary and
Director
--------------------------
Gerald C. Rittenberg
* Senior Vice President, Treasurer,
-------------------------- Chief Financial Officer and Director
James M. Harrison
* Vice President, Assistant Treasurer,
-------------------------- Secretary and Director
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
ANAGRAM INTERNATIONAL
HOLDINGS, INC.
By: /s/ JAMES M. HARRISON
----------------------------------------
Name: James M. Harrison
Title: Senior Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President, Chief Executive Officer
-------------------------- and Director
Gerald C. Rittenberg
* Senior Vice President, Treasurer,
-------------------------- Chief Financial Officer and Director
James M. Harrison
* Vice President, Assistant Treasurer,
-------------------------- and Secretary
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
ANAGRAM EDEN PRAIRIE PROPERTY
HOLDINGS LLC
By ANAGRAM INTERNATIONAL,
INC., its Sole Member
By: /s/ JAMES M. HARRISON
----------------------------------------
Name: James M. Harrison
Title: Senior Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* President
--------------------------
Gary Kieves
* Senior Vice President, Assistant
Treasurer, Assistant Secretary and
Director
--------------------------
Gerald C. Rittenberg
* Senior Vice President, Treasurer,
-------------------------- Chief Financial Officer and Director
James M. Harrison
* Vice President, Assistant Treasurer,
-------------------------- Secretary, and Director
Michael A. Correale
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Elmsford, New York, on June 30, 1999.
ANAGRAM INTERNATIONAL, LLC
By: /s/ JAMES M. HARRISON
----------------------------------------
Name: James M. Harrison
Title: Manager
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on June 30, 1999.
NAME TITLE
------------------------------ ------------------------------------
* Manager
--------------------------
Gerald C. Rittenberg
* Manager (and principal financial
-------------------------- and accounting officer)
James M. Harrison
* Manager
--------------------------
Michael A. Correale
* Manager
--------------------------
Gary Kieves
* Manager
--------------------------
James Plutt
By: /s/ JAMES M. HARRISON
-----------------------
James M. Harrison
Attorney-In-Fact
II-16
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, by and among
Amscan Holdings, Inc. and Confetti Acquisition,
Inc., dated as of August 10, 1997 (incorporated
by reference to Exhibit 2.1 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
2.2 Share Exchange Agreement dated as of December
18, 1996, among the Registrant, John A.
Svenningsen, Gerald C. Rittenberg and the
following trusts each created by agreement dated
as of October 29, 1996: Christina Svenningsen
Trust, Jon Svenningsen Trust, Elisabeth
Svenningsen Trust, Melissa Svenningsen Trust,
Emily Svenningsen Trust and Sara Svenningsen
Trust (incorporated by reference to Exhibit 2(a)
to the Registrant's 1996 Annual Report on Form
10-K (Commission File No. 000-21827)).
2.3 Capital Contribution Agreement by and between
the Company and Messrs. Allan J. Kaufman,
Arthur J. Kaufman and Michael F. Hodges, dated
October 9, 1996, as supplemented (incorporated
by reference to Exhibit 2(b) to Amendment No.
1 to the Registrant's Registration Statement
on Form S-1 (SEC File No. 333-14107)).
2.4 Stock Purchase Agreement, dated as of August 6,
1998, by and among Amscan Holdings, Inc. and
certain stockholders of Anagram International,
Inc. and certain related companies (incorporated
by reference to Exhibit 2.1 to Current Report on
Forms 8-K dated August 6, 1998).
3.1 Certificate of Incorporation of Amscan Holdings,
Inc. dated October 3, 1996 (incorporated by
reference to Exhibit 3.1 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.2 Amended By-Laws of Amscan Holdings, Inc.
(incorporated by reference to Exhibit 3.2 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45457)).
3.3 Certificate of Incorporation of Amscan Inc.
(incorporated by reference to Exhibit 3.3 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45457)).
3.4 By-Laws of Amscan Inc. (incorporated by
reference to Exhibit 3.4 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.5 Restated Articles of Incorporation of Trisar,
Inc. (incorporated by reference to Exhibit 3.5
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No.
333-45457)).
3.6 By-Laws of Trisar, Inc. (incorporated by
reference to Exhibit 3.6 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.7 Original Articles of Incorporation of
Am-Source, Inc. (incorporated by reference to
Exhibit 3.7 to Amscan Holdings, Inc.'s
Registration Statement on Form S-4 (SEC File
No. 333-45457)).
3.8 By-Laws of Am-Source Inc. (incorporated by
reference to Exhibit 3.8 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
3.9 Certificate of Incorporation of SSY Realty Corp.
dated October 3, 1996 (incorporated by reference
to Exhibit 3.9 to Amscan Holdings, Inc.'s
Registration Statement on Form S-4 (SEC File No.
333-45457)).
<PAGE>
3.10 By-Laws of SSY Realty Corp. dated October 3,
1996 (incorporated by reference to Exhibit 3.10
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No. 333-45457)).
3.11 Certificate of Incorporation of JCS Realty Corp.
dated October 3, 1996 (incorporated by reference
to Exhibit 3.11 to Amscan Holdings, Inc.'s
Registration Statement on Form S-4 (SEC File No.
333-45457)).
3.12 By-Laws of JCS Realty Corp. dated October 3,
1996 (incorporated by reference to Exhibit 3.12
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No. 333-45457)).
3.13 Amended Articles of Incorporation of Anagram
International, Inc. (incorporated by reference
to Exhibit 3.1 to Amscan Holdings, Inc.'s
Current Report on 8-K filed September 25, 1998
(SEC File No. 000-21827)).
3.14 By-Laws of Anagram International, Inc.
(incorporated by reference to Exhibit 3.2 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
3.15 Articles of Incorporation of Anagram
International Holdings, Inc. (incorporated by
reference to Exhibit 3.3 to Amscan Holdings,
Inc.'s Current Report on 8-K filed September
25, 1998 (SEC File No. 000-21827)).
3.16 By-Laws of Anagram International Holdings,
Inc. (incorporated by reference to Exhibit 3.4
to Amscan Holdings, Inc.'s Current Report on
8-K filed September 25, 1998 (SEC File No.
000-21827)).
3.17 Articles of Organization of Anagram
International, LLC (incorporated by reference to
Exhibit 3.5 to Amscan Holdings, Inc.'s Current
Report on 8-K filed September 25, 1998 (SEC File
No. 000-21827)).
3.18 Operating Agreement of Anagram International,
LLC (incorporated by reference to Exhibit 3.6 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
3.19 Certificate of Formation of Anagram Eden Prairie
Property Holdings LLC (incorporated by reference
to Exhibit 3.7 to Amscan Holdings, Inc.'s
Current Report on 8-K filed September 25, 1998
(SEC File No. 000-21827)).
4.1 Indenture, dated as of December 19, 1997, by and
among Amscan Holdings, Inc., the Guarantors
named therein and IBJ Schroder Bank & Trust
Company with respect to the Senior Subordinated
Notes.
4.2 Supplemental Indenture, dated as of September
17, 1998, by and among Anagram International,
Inc., Anagram International Holdings, Inc.,
Anagram International LLC and Anagram Eden
Prairie Property Holdings LLC and IBJ Schroder
Bank & Trust Company, as Trustee (incorporated
by reference to Exhibit 4.1 to Amscan Holdings,
Inc.'s Current Report on 8-K filed September 25,
1998 (SECSEC File No. 000-21827)).
4.3 Senior Subordinated Guarantee, dated as of
September 17, 1998, by Anagram International,
Inc., Anagram International Holdings, Inc.,
Anagram International, LLC and Anagram Eden
Prairie Property Holdings LLC (incorporated by
reference to Exhibit 4.2 to Amscan Holdings,
Inc.'s Current Report on 8-K filed September 25,
1998 (SEC File No. 000-21827)).
4.4 Warrant Agreement, dated as of August 6, 1998,
by and between Amscan Holdings, Inc. and Garry
Kieves Retained Annuity Trust (incorporated by
reference to Exhibit 4.1 to Current Report on
Form 8 - K dated August 6, 1998) (SEC File No.
000-21827).
<PAGE>
5.1 Opinion of Wachtell, Lipton, Rosen & Katz
(incorporated by reference to Exhibit 5.1 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45475)).
10.1 Exchange and Registration Rights Agreement,
dated as of December 19, 1997, by and among
Amscan Holdings, Inc. and Goldman, Sachs & Co.
(incorporated by reference to Exhibit 10.1 to
Amscan Holdings, Inc.'s Registration Statement
on Form S-4 (SEC File No. 333-45457)).
10.2 Amended and Restated Revolving Loan Credit
Agreement, dated as of September 17, 1998, among
Amscan Holdings, Inc., the financial
institutions parties thereto, Goldman, Sachs
Credit Partners L.P., as arranger and
syndication agent, and Fleet National Bank as
administrative agent (incorporated by reference
to Exhibit 10.1 to Amscan Holdings, Inc.'s
Current Report on 8-K filed September 25, 1998
(SEC File No. 000-21827)).
10.3 Amended and Restated AXEL Credit Agreement,
dated as of September 17, 1998, among Amscan
Holdings, Inc., the financial institutions
parties thereto, Goldman, Sachs Credit Partners
L.P., as arranger and syndication agent, and
Fleet National Bank as administrative agent
(incorporated by reference to Exhibit 10.2 to
Amscan Holdings, Inc.'s Current Report on 8-K
filed September 25, 1998 (SEC File No.
000-21827)).
10.4 Stockholders' Agreement, dated as of December
19, 1997, by and among Amscan Holdings, Inc. and
the Stockholders thereto (incorporated by
reference to Exhibit 10.4 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
10.5 Employment Agreement, dated as of August 10,
1997, by and between Amscan Holdings, Inc. and
Gerald C. Rittenberg (incorporated by reference
to Exhibit 10.5 to Amscan Holdings, Inc.'s
Registration Statement on S-4 filed November 14,
1997 (SEC File No 333-4128)).
10.6 Employment Agreement, dated as of August 10,
1997, by and between Amscan Holdings, Inc. and
James M. Harrison (incorporated by reference to
Exhibit 10.6 to Amscan Holdings, Inc.'s
Registration Statement on S-4 filed November 14,
1997 (SEC File No 333-4128)).
10.7 Employment Agreement, dated as of October 4,
1996, by and between Amscan Holdings, Inc. and
William S. Wilkey (incorporated by reference
to Exhibit 10(e) to Amscan Holdings, Inc.'s
Registration Statement on Form S-1 (File No.
333-14107)).
10.8 Employment Agreement between the Company and
Garry Kieves dated as of August 6, 1998
(incorporated by reference to Exhibit 99.1 to
Current Report on Form 8 - K dated August 6,
1998) (SEC File No. 000-21827).
10.9 Amscan Holdings, Inc. 1997 Stock Incentive
Plan (contained in Exhibit 10.4).
10.10 Tax Indemnification Agreement between Amscan
Holdings, Inc. and John A. Svenningsen, dated as
of December 18, 1996 (incorporated by reference
to Exhibit 10(j) to the Registrant's 1996 Annual
Report on Form 10-K (SEC File No. 000-21827)).
10.11 Tax Indemnification Agreement between Amscan
Holdings, Inc. Christine Svenningsen and the
Estate of John A. Svenningsen, dated as of
August 10, 1997 (incorporated by reference to
Exhibit 10.17 to the Registrant's Registration
on Form S-4 (SEC File No. 333-40235)).
<PAGE>
10.12 The MetLife Capital Corporation Master Lease
Purchase Agreement between MetLife Capital
Corporation and Amscan Inc., Deco Paper
Products, Inc., Kookaburra USA Ltd., and Trisar,
Inc., dated November 21, 1991, as amended
(incorporated by reference to Exhibit 10(n) to
Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (SEC File No.
333-14107)).
Amendment No. 1 to the Stockholders'
Agreement, dated as of August 6, 1998 by and
among Amscan Holdings, Inc. and certain
stockholders of Amscan Holdings, Inc.
(incorporated by reference to Exhibit 10.1 to
Current Report on Form 8 - K dated August 6,
1998) (SEC File No. 000-21827).
12.1 Statement re computation of ratios.
21.1 Subsidiaries of Amscan Holdings, Inc.
23.1 Consent of KPMG LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz
(contained in Exhibit 5.1).
24.1 Powers of Attorney applicable to the
Registration Statement filing (incorporated by
reference to Exhibit 24.1 to Amscan Holdings,
Inc.'s Registration Statement on Form S-4 (SEC
File No. 333-45457)).
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 (incorporated by reference to Exhibit 25.1
to Amscan Holdings, Inc.'s Registration
Statement on Form S-4 (SEC File No.
333-45457)).
EXHIBIT 12.1
AMSCAN HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands, except ratio data)
<TABLE>
<CAPTION>
Twelve Months
Years Ended December 31, Ended
---------------------------------------------------------------- ---------------
1994 1995 1996 1997 1998 March 31, 1999
--------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes and minority
interests........................... $10,591 $19,206 $ 5,732 $ 7,676 $11,604 $ 7,482
Add: fixed charges ................. 4,719 6,874 8,735 6,512 26,313 27,116
------- ------- ------- ------- ------- -------
Earnings, as adjusted .............. $15,310 $26,080 $14,467 $14,188 $37,917 $34,598
======= ======= ======= ======= ======= =======
Computation of fixed charges:
Interest expense ................. $ 3,971 $ 6,025 $ 6,968 $ 4,231 $23,779 $24,697
Interest portion of rental
expense .......................... 748 849 1,767 2,281 2,534 2,419
------- ------- ------- ------- ------- -------
Total fixed charges ............ $ 4,719 $ 6,874 $ 8,735 $ 6,512 $26,313 $27,116
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges.... 3.2x 3.8x 1.7x 2.2x 1.4x 1.3x
</TABLE>
Three Months Ended March 31,
----------------------------
1998 1999
----------- ----------
Earnings:
Income (loss) before taxes and
minority interests .................... $ 4,010 $ (112)
Add: fixed charges ...................... 6,290 7,093
------- -------
Earnings, as adjusted ................... $10,300 $ 6,981
======= -------
Computation of fixed charges:
Interest expense ...................... $ 5,572 $ 6,490
Interest portion of rental expense .... 718 603
------- -------
Total fixed charges ................. $ 6,290 $ 7,093
======= =======
Ratio of earnings to fixed charges....... 1.6x 1.0x
EXHIBIT 21.1
State or Other
Jurisdiction of
Incorporation or
Name, Address and Telephone Number Organization
---------------------------------- ------------
Amscan Inc..................................... New York
Trisar, Inc.................................... California
Am-Source, Inc................................. Rhode Island
SSY Realty Corp................................ New York
JCS Realty Corp................................ New York
Anagram International, Inc..................... Minnesota
Anagram International Holdings, Inc............ Minnesota
Anagram International, LLC..................... Nevada
Anagram Eden Prairie Property Holdings LLC..... Delaware
- - ----------
* The address of each of these subsidiaries is 80 Grasslands Road, Elmsford,
New York 10523. Their telephone number is (914) 345-2020.
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 19, 1999, with respect to the consolidated
financial statements and Financial Statement Schedule as of December 31, 1998
and for the year then ended included in the Post Effective Amendment No. 2 to
the Registration Statement on Form S-4 (No. 333-45457) and related Prospectus of
Amscan Holdings, Inc.
/s/ Ernst & Young LLP
Stamford, Connecticut
June 25, 1999
Consent of Independent Auditors
The Board of Directors
Amscan Holdings, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus and Registration Statement.
/s/ KPMG LLP
Stamford, Connecticut
June 30, 1999
