As filed with the Securities and Exchange Commission on May 12, 2000.
Registration No. 333-45457
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 3
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 identification
Number) 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
State or Other Standard
Jurisdiction of Industry I.R.S Employer
Name, Address and Incorporation or Classification Identification
Telephone Number 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.
<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 Inc.'s 9 7/8% Senior Subordinated Notes due
2007. Amscan Holdings Inc. filed Amendment No. 1 to this Registration Statement
on September 30, 1998, Amendment No. 2 to this Registration Statement on August
4, 1999 and is now filing Amendment No. 3 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.
<PAGE>
[AMSCAN LOGO]
AMSCAN HOLDINGS, INC.
9 7/8% Senior Subordinated Notes due 2007 (Guaranteed by certain Amscan
Holdings, Inc.'s subsidiaries 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 present and future
subordinated indebtedness, if any, of Amscan Holdings and the subsidiary
guarantors. As of December 31, 1999, the senior debt of Amscan Holdings and all
of its subsidiaries was approximately $165.1 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 9, for a discussion of certain
factors that should be considered before investing in the Notes.
---------------
Neither the Securities and Exchange Commission (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 May [ ], 2000.
---
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 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 presently files reports as if it were 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 Exchange Act. So long as Amscan Holdings files
periodic reports under the Exchange Act, it will furnish the information filed
with the SEC to The Bank of New York (successor to IBJ Schroder Bank & Trust
Company), which is the trustee representing the Note holders, and to each Note
holder.
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). During 1999, we introduced new product lines
encompassing home, baby and wedding products for general gift giving or
self-purchase. 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 40% of total sales
in 1999 and have grown at a compound annual growth rate of 14% from 1996 to
1999. 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 1994 to 1999, our sales and adjusted earnings before interest,
income taxes, depreciation and amortization (adjusted for non-recurring items,
other income or expenses, and minority interests) (see Note 7 in "Selected
Historical Consolidated and Combined Financial and Other Data"), also known as
adjusted EBITDA, have grown at compound annual rates of 18% and 23%,
respectively. During the same period, Amscan Holdings' adjusted EBITDA margins
increased from approximately 15% to 19%, in part because it achieved greater
economies of scale in manufacturing and distribution.
Competitive Strengths
We believe we maintain competitive advantages in the following areas:
o Strengthen Position as a Leading Provider to Party
Goods Superstores. The Company offers convenient "one-stop
shopping" for large superstore buyers and seeks to increase
its proportionate share of sales volume and shelf space in the
superstores.
o Offer the Broadest and Deepest Product Line in the
Industry. The Company strives to offer the broadest and
deepest product line in the industry. The Company helps
retailers boost average purchase volume per consumer through
coordinated ensembles that promote "add on" purchases.
o Diversify Distribution Channels, Product Offering and
Geographic Presence. The Company seeks, through internal
growth and acquisitions, to expand its distribution
capabilities internationally, increase its presence in
additional retail channels and further broaden and deepen its
product line.
o Provide Superior Customer Service. The Company strives
to achieve high average fill rates in excess of 95% and to
ensure short turnaround times.
<PAGE>
o Maintain Product Design Leadership. The Company will
continue investing in art and design to support a steady
supply of fresh ideas and create complex, unique ensembles
that appeal to consumers and are difficult to replicate.
o Maintain State-of-the-Art Manufacturing and Distribution
Technology. The Company intends to maintain technologically
advanced production and distribution systems in order to
enhance product quality, manufacturing efficiency, cost
control and customer satisfaction.
o Pursue Attractive Acquisitions. The Company believes
that opportunities exist to make acquisitions of complementary
businesses to leverage the Company's existing marketing,
distribution and production capabilities, expand its presence
in the various retail channels, further broaden and deepen
its product line and penetrate international markets. The
Company receives inquiries from time to time with respect to
the possible acquisition by the Company of other entities
and the Company intends to pursue acquisition opportunities
aggressively.
The Majority Shareholder, GS Capital Partners II, L.P. and Affiliated Investment
Funds
The GS Capital Partners family of funds is the primary vehicle that The
Goldman Sachs Group, Inc. ("GS Group") uses to make privately negotiated equity
and equity-related investments in non-real estate transactions. GS Capital
Partners II, L.P. and its affiliated offshore investment funds were formed in
May 1995 with total committed capital of $1.75 billion, $300 million of which
was committed by GS Group, with the remainder committed by institutional and
individual investors.
GS Capital Partners II, L.P. and affiliated funds (collectively, "GSCP")
have investIed approximately $61.9 million in connection with Amscan Holdings'
merger with Confetti Acquisition Corp. in December of 1997. GSCP currently holds
approximately 72.9% of the outstanding shares of Amscan Holdings' Common Stock.
See "CAPITALIZATION" and "OWNERSHIP OF CAPITAL STOCK."
CAPITALIZATION
The following table sets forth the capitalization of Amscan Holdings as of
December 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 December 31, 1999
-----------------------
(Dollars in thousands)
Cash and cash equivalents........................ $ 849
=========
Total debt (including current portion):
Revolving Credit Facility (1).................. 4,210
Term Loan...................................... 154,057
Notes.......................................... 110,000
Mortgage obligation............................ 2,814
Capital leases and other....................... 4,060
---------
Total debt.................................. 275,141
Redeemable Common Stock.......................... 23,582
Stockholders' deficit (2)........................ (88,529)
---------
Total capitalization........................ $210,194
=========
- ----------
(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 (as defined herein) in December 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 Amscan Holdings 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.
2
<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,
Change of Control................... 2002, 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."
3
<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 December 31, 1999 was
approximately $165.1 million. $158.3
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 59) to incur
additional indebtedness and issue
Disqualified Stock (as defined on page
57), to pay dividends or distributions
or to make investments in certain other
Restricted Payments (as defined on page
44), 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 9 for a discussion of certain factors
that should be considered before investing in the Notes.
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 statement of operations data for each
of the years in the three-year period ended December 31, 1999 and balance sheet
data as of December 31, 1998 and 1999 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. 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.
4
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
(Dollars in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
Statement of Operations
Data (1):
<S> <C> <C> <C> <C> <C>
Net sales ................................... $ 167.4 $ 192.7 $ 209.9 $ 235.3 $ 306.1
Cost of sales ............................... 108.7 123.9 136.5 150.5 193.6
------- ------- ------- ------- -------
Gross profit ................................ 58.7 68.8 73.4 84.8 112.5
Selling expenses ............................ 12.2 11.8 13.7 17.2 24.5
General and administrative
expenses .................................. 15.0 19.3 20.8 23.4 33.2
Art and development
costs ..................................... 4.3 5.2 5.3 7.3 10.0
Non-recurring charges (2) ................... 1.0
Restructuring charges (3) ................... 2.4
Non-recurring charges in
connection with the
Transaction (4) .......................... 22.1
Non-recurring
compensation in
connection with
the IPO (5) ................................. 15.5
Special bonuses (5) ......................... 2.5 4.2
------- ------- ------- ------- -------
Income from operations ...................... 24.7 12.8 11.5 34.5 43.8
Interest expense, net ....................... 5.8 6.7 3.9 23.0 26.4
Other (income) expense,
net ....................................... (0.3) 0.4 (0.1) (0.1) -
------- ------- ------- ------- -------
Income before income
taxes and minority
interests ................................. 19.2 5.7 7.7 11.6 17.4
Income tax expense .......................... 0.7 2.0 7.7 4.8 7.1
Minority interests .......................... 1.1 1.6 0.2 0.1 0.1
------- ------- ------- ------- -------
Net income (loss) ........................... $ 17.4 $ 2.1 $ (0.2) $ 6.7 $ 10.2
======= ======= ======= ======= =======
Pro Forma Data
relating to change
in tax status:
Income before income
taxes ..................................... $ 18.2 $ 4.1
Pro forma income taxes (6)................... 7.4 1.8
------- -------
Pro forma net
income (6) ................................ $ 10.8 $ 2.3
======= =======
Non-GAAP Financial
Data:
Adjusted EBITDA (7) ......................... $ 31.6 $ 37.7 $ 40.1 $ 45.6 $ 56.9
Adjusted EBITDA
margin .................................... 18.9% 19.5% 19.1% 19.4% 18.6%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> ......................................... <C> <C> <C> <C> <C>
Adjusted EBITDA to
cash interest expense ..................... 2.0x 2.2x
Adjusted EBITDA minus
cash capital
expenditures to cash
interest expense .......................... 1.7x 1.8x
Total debt to Adjusted
EBITDA .................................... 6.2x 4.8x
Other Financial Data:
Gross margin ................................ 35.1% 35.7% 34.9% 36.1% 36.8%
Depreciation and
amortization .............................. $ 4.3 $ 5.1 $ 6.3 $ 8.5 $ 12.9
Cash capital
expenditures .............................. 4.5 7.6 10.2 7.5 12.3
Ratio of earnings to
fixed charges(8) ............................ 3.8x 1.7x 2.2x 1.4x 1.6x
Cash Flow Statement
Data:
Cash flows from
operations ................................ $ 4.7 $ 12.3 $ 4.2 $ 22.8 $ 19.4
Cash flows from
investing ................................. (4.5) (7.6) (10.1) (83.1) (11.4)
Cash flows from
financing ................................. 0.1 (6.0) 116.0 (49.8) (8.8)
At December 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
Balance Sheet Data:
Working capital ............................. $ 8.4 $ 45.4 $ 96.8 $ 71.5 $ 82.2
Total assets ................................ 114.6 140.3 269.3 248.9 263.5
Total debt .................................. 70.8 48.3 237.8 283.3 275.1
Redeemable Common
Stock (9) ................................. 19.5 23.6
Stockholders' equity
(deficit) ................................. 27.2 67.9 (95.2) (95.3) (88.5)
</TABLE>
6
<PAGE>
Notes to Selected Historical Consolidated
and Combined Financial and Other Data
(Dollars in millions)
(1) In connection with the preparation of the Selected Historical
Consolidated and Combined Financial and Other Data, Amscan Holdings
has reclassified certain amounts in prior years to conform to the
current year presentation.
(2) During the fourth quarter of 1999, Amscan Holdings recorded
non-recurring charges of $1.0 associated with the proposed
construction of a new distribution facility. The non-recurring charges
represented building costs written-off due to the relocation of the
proposed site.
(3) 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 $0.5 and severance and other costs of $0.6.
(4) 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.
(5) 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.
In addition, in each of the years in the two-year period ended
December 31, 1996, special bonus arrangements existed with certain
members of management. In connection with the IPO, such profit sharing
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 Subchapter S corporations
under the Internal Revenue Code. The pro forma net income amounts give
effect to pro forma income tax amounts for each of the periods shown
at statutory rates (40.5%) assuming these entities had not elected
Subchapter 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,
amortization of the restricted Common Stock award, and minority
interests reflected in the following table. Neither EBITDA nor
Adjusted EBITDA is intended to represent cash flow from operations as
defined by accounting principles generally accepted in the United
States 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 accounting principles generally accepted in the United
States, (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.
7
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA $ 28.3 $ 15.9 $ 17.6 $ 42.9 $ 56.6
Adjustments -increase
(decrease):
Certain non-recurring
items and special bonuses . 2.5 19.8 22.1 2.4
Amortization of
restricted Common
Stock award ............... 0.3 0.3 0.2
Other (income) expense,
net ....................... (0.3) 0.4 (0.1) (0.1)
Minority interests ........... 1.1 1.6 0.2 0.1 0.1
------- ------- ------- ------- -------
Adjusted EBITDA .............. $ 31.6 $ 37.7 $ 40.1 $ 45.6 $ 56.9
======= ======== ======== ======= =======
</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 deemed by Amscan Holdings to be
attributable to interest.
(9) Under the terms of a stockholders' agreement (the "Stockholders'
Agreement"), Amscan Holdings can purchase all of the shares held by
the employee stockholders, and the employees can require Amscan
Holdings to purchase all of the shares held by the employee
stockholders, under certain circumstances. 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. The aggregate amount that may be payable
by Amscan Holdings to employee stockholders based on fully paid and
vested shares has been classified as redeemable common stock
("Redeemable Common Stock"). At December 31, 1997, the obligation to
purchase employee shares was assignable to GSCP at a cost of up to
$15.
8
<PAGE>
RISK FACTORS
Substantial Leverage; Ability to Service Indebtedness
Amscan Holdings has, and will continue to have, a high level of
indebtedness. As of December 31, 1999, Amscan Holdings (i) had approximately
$275.1 million of consolidated indebtedness (ii) had Redeemable Common Stock of
approximately $23.6 million, and (iii) had a deficit of approximately $88.5
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. 6x for the year ended December 31, 1999. Its
interest expense, net, for the year ended December 31, 1999 was approximately
$26.4 million. 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 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 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 December 31, 1999, Amscan Holdings had approximately $165.1 million
of senior debt, $158.3 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 $7.6 million at
December 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."
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
9
<PAGE>
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, or James M. Harrison, President,
Chief Financial Officer and Treasurer, could have an adverse effect on our
financial condition or results of operations. We do not maintain key-man life
insurance on either 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 affiliates 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 "Management" and "Ownership of Capital Stock."
Payment Upon a Change of Control
Upon the occurrence of a Change of Control (as defined in the Indenture) 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.
For the year ended December 31, 1999, sales to the corporate and franchise
stores of Party City Corporation ("Party City") represented 10% and 9%,
respectively, of consolidated net sales. During the first quarter of 1999, Party
City experienced financial difficulties which they appear to have resolved
through new financing arrangements. 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.
10
<PAGE>
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. Through its acquisition of
Anagram, however, the Company 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 notes (the "Original Notes") for which the Notes were
exchanged in 1998 and the 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
11
<PAGE>
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 Original 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 (the "Estate") 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 the
Original 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.
CAPITALIZATION
The following table sets forth the capitalization of Amscan Holdings as of
December 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.
12
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------
(Dollars in thousands)
<S> <C>
Cash and cash equivalents........................ $ 849
========
Total debt (including current portion):
Revolving Credit Facility (1).................. 4,210
Term Loan...................................... 154,057
Notes.......................................... 110,000
Mortgage obligation............................ 2,814
Capital leases and other....................... 4,060
--------
Total debt.................................. 275,141
--------
Redeemable Common Stock ......................... 23,582
Stockholders' deficit (2)........................ (88,529)
---------
Total capitalization........................ $210,194
========
</TABLE>
(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 Amscan Holdings
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
Over the past several years, the party goods industry has experienced
significant changes in both distribution channels and product offerings. Despite
the recent consolidation in the party goods superstore channel, 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. In part due to the success of
the superstore channel, party goods manufacturers broadened their product lines
to support the celebration of a greater number of occasions. The industry's
growth has been directly affected by these changes.
Amscan Holdings' revenues have increased from $209.9 million in 1997 to
$306.1 million in 1999, a compound annual growth rate of over 20%. 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 approximately30,000 SKU's
consisting of paper and plastic tableware, accessories and novelties for all
occasions and, in 1999, gifts. Tableware (plates, cups, cutlery, napkins and
tablecovers) is our core product category, generating approximately 45% of
revenues in 1999. 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 as well as introducing new gift lines. Our new gift line encompasses home,
baby and wedding products for general gift giving or self-purchase and are being
distributed through a newly aligned salesforce. Through increased spending on
internal product development as well as through acquisitions, we have had a net
increase of approximately22,300 SKU's since 1991. Revenue growth primarily has
been the result of increased orders from our party goods superstore customers
(new stores and increased same-store sales), increased international sales and
price increases.
Our gross profit is principally influenced by product mix and paper costs.
Products manufactured by Amscan, primarily tableware and metallic balloons,
represented nearly 65% of our 1999 sales. We have made significant additions to
our
13
<PAGE>
manufacturing capacity which have allowed us to increase manufacturing
efficiencies and 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
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Percentage of Net Sales
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales..................................................... 100.0% 100.0%
Cost of sales................................................. 63.2 63.9
------ ------
Gross profit............................................. 36.8 36.1
Operating expenses:
Selling expenses.......................................... 8.0 7.3
General and administrative expenses....................... 10.9 10.0
Art and development costs................................. 3.3 3.1
Non-recurring charges..................................... 0.3
Restructuring charges..................................... 1.0
------ ------
Total operating expenses...................................... 22.5 21.4
------ ------
Income from operations................................... 14.3 14.7
Interest expense, net......................................... 8.6 9.8
Other income, net............................................. ------ ------
Income before income taxes and minority interests........ 5.7 4.9
Income tax expense............................................ 2.4 2.0
Minority interests............................................ ------ ------
Net income................................................ 3.3% 2.9%
======= ======
</TABLE>
Net sales for the year ended December 31, 1999 of $306.1 million, were
$70.8 million or 30.1% higher than for the year ended December 31, 1998. The
increase in net sales includes approximately $44.2 million of incremental sales
from Anagram, which was acquired in mid September of 1998, as well as increased
sales to superstores and independent party goods stores. The increased sales to
superstores and independent party goods stores are principally attributable to a
realignment of our independent sales force in 1999 in connection with the
introduction of our new gift lines, a strong solid color tableware program and
stronger than usual seasonal sales as a result of the celebration of the
Millennium. During the year ended December 31, 1999, we added approximately
10,000 SKU's to our product line, of which approximately 1,000 related to the
newly introduced gift lines.
Gross profit for the year ended December 31, 1999 was $112.5 million, or
36.8% of net sales, as compared to 36.1% for the year ended December 31, 1998.
The improvement in gross profit margin principally resulted from increased
efficiencies gained at the manufacturing level.
Selling expenses for the year ended December 31, 1999 increased by $7.3
million to $24.5 million and, as a percentage of net sales from 7.3% to 8.0%.
The increase in selling expenses reflected the inclusion of approximately $5.0
million of incremental selling expenses from Anagram, which historically
operates at a higher level of expense as a percentage of sales. The remaining
increase in selling expenses principally resulted from the addition of several
new product catalogues and the realignment of the independent sales force in
1999.
General and administrative expenses of $33.2 million for the year ended
December 31, 1999 increased by $9.8 million as compared to the year ended
December 31, 1998. The increase reflected the additional amortization of
goodwill and other intangible assets 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. The provision for doubtful
accounts for the year ended December 31, 1999 decreased by $0.4 million to $2.9
million and as a percentage of net sales from 1.4% to 1.0%. During the first
quarter of 1999, Party City experienced financial difficulties which were
addressed during the fourth quarter of 1999 through new financing arrangements.
Art and development costs of $10.0 million for the year ended December 31,
1999 were $2.7 million higher than the prior year. As a percentage of sales, art
and development costs increased to 3.3% in 1999 from 3.1% in 1998. The increase
in costs reflected our investment in additional art and product development
staff associated with the development of the new gift lines.
14
<PAGE>
During the fourth quarter of 1999, we recorded non-recurring charges of
$1.0 million in association with the proposed construction of a new distribution
facility. The non-recurring charges represented building costs written-off due
to the relocation of the proposed site.
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 a total 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 included the non-cash
write-down of $1.3 million relating to property, plant and equipment, the
accrual of future lease obligations of $0.5 million and severance and other
costs of $0.6 million. Management is currently evaluating the further
consolidation of its domestic distribution facilities which may result in
additional restructuring charges in subsequent periods.
Interest expense, net, of $26.4 million for the year ended December 31,
1999 increased by $3.4 million as compared to 1998 mainly due to higher average
borrowings principally as a result of the acquisition of Anagram (see "Liquidity
and Capital Resources").
Income taxes for the years ended December 31, 1999 and 1998 were provided
for at consolidated effective income tax rates of 40.85% and 41.5%,
respectively. The effective income tax rates exceed the federal statutory income
tax rate primarily due to state income taxes.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Percentage of Net Sales
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales....................................... 100.0% 100.0%
Cost of sales................................... 63.9 65.1
------ -----
Gross profit................................ 36.1 34.9
Operating expenses..............................
Selling expenses............................ 7.3 6.5
General and administrative expenses.......... 10.0 9.9
Art and development costs.................... 3.1 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)%
====== ======
</TABLE>
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 SKU's to our
product line, including approximately 4,500 SKU's as a result of the acquisition
of Anagram.
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 gross profit margin for 1998 principally resulted from savings
associated with a restructuring of 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 $3.5
million to $17.2 million and, as a percentage of net sales, to 7. 3% 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.
15
<PAGE>
General and administrative expenses of $23.4 million for the year ended
December 31, 1998 increased by $2.7 million as compared to the year ended
December 31, 1997. The increase resulted from additional amortization of
goodwill and other intangible assets arising from the September 1998 acquisition
of Anagram.
Art and development costs of $7.4 million for the year ended December 31,
1998 were $2.1 million higher than the prior year. As a percentage of sales, art
and development costs increased to 3. 1% 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 $0.5 million and severance and other costs of $0.6 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 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.
Minority interests represent the portion of income of Amscan Holdings'
subsidiaries attributable to equity ownership that Amscan Holdings does not
hold.
Liquidity and Capital Resources
In connection with our recapitalization in December 1997, we received
approximately $67.5 million from contributed capital (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 (the "Bank Credit Facilities") and $110
million from the issuance of the Original Notes (collectively, the "Transaction
Financings").
In addition to the Term Loan, the Bank Credit Facilities, as amended, also
provide for revolving loan borrowings of up to $50 million (the "Revolving
Credit Facility"). The Revolving Credit Facility, expiring on December 31, 2002,
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 onour
performance. At December 31, 1999, Amscan Holdings had borrowing capacity of
approximately $40.5 million under the Revolving Credit Facility.
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.
At December 31, 1999, Amscan Holdings had three interest rate swap
contracts outstanding with a financial institution and Goldman Sachs Capital
Markets, L.P. ("GSCM") covering $123.3 million of its Term Loan at fixed
effective interest rates ranging from 7.18% to 8.80%.
Based upon the current level of operations and anticipated growth, we
anticipate that our operating cash flow, together with available borrowings
under the Revolving Credit Facility, will be adequate to meet our anticipated
future requirements for working capital and operating expenses and to service
our 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.
16
<PAGE>
The Transaction Financings and the amendments to Amscan Holdings' credit
agreements may affect its ability to make future capital expenditures and
potential acquisitions. However, management believes that current asset levels
provide adequate capacity to support our operations for at least the next 12
months. As of December 31, 1999, we did not have material commitments for
capital expenditures.
Cash Flow Data - Year Ended December 31, 1999 Compared to Year Ended December
31, 1998
For the year ended December 31, 1999, net cash provided by operating
activities totaled $19.4 million, or $3.3 million lower than for the year ended
December 31, 1998. The lower cash flow from operations reflected an increase in
our net accounts receivable balance as a result of higher sales and increased
sales with extended terms and higher levels of inventory to support the
introduction of new gift lines and new sales programs, partially offset by
higher earnings and an increase in trade accounts payable.
Net cash used in investing activities during the year ended December 31,
1999 consisted of $11.4 million of capital expenditures including an upgrade of
our data processing systems and investment in additional manufacturing
equipment. Net cash used in investing activities during the year ended December
31, 1998 totaled $83.1 million and was comprised of $78.4 million of cash paid
for the acquisitions of Anagram and the remaining 25% interest in our U.K. based
subsidiary, and $7.5 million for capital expenditures partially offset by
proceeds received from the sale of our Canadian distribution facility and other
assets in connection with its restructuring plan.
During the year ended December 31, 1999, net cash used in financing
activities of $8.8 million principally consisted of scheduled payments of
long-term obligations partially offset by the proceeds from short-term working
capital borrowings. 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 Merger in
December of 1997 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 Amscan Holdings' Common Stock to employees.
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
acquisition of Anagram) 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 our Canadian distribution facility and
other assets in connection with the restructuring plan.
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 $7.5 million; proceeds of $61.9 million
from the issuance of 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.
Legal Proceedings
We are a party to certain claims and litigation in the ordinary course of
business. We do not believe any of these proceedings will result, individually
or in the aggregate, in a material adverse effect upon our financial condition
or results of operations.
17
<PAGE>
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, 2000. Amscan Holdings expects to adopt SFAS No.
133 effective January 1, 2001. 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
During 1999, we discussed the nature and progress of our plans to become
Year 2000 ready. In the latter half of 1999, we completed our remediation and
testing of our computer systems. As a result of those planning and
implementation efforts, the Year 2000 issue did not pose significant operational
problems for our computer systems and we experienced no disruptions with our
significant suppliers and subcontractors and believe those systems successfully
responded to the Year 2000 date change. We did not incur significant expenses in
connection with remediating our systems. We are not aware of any material
problems resulting from Year 2000 issues, either with our products, our internal
systems, or the products and services of third parties. We will continue to
monitor our critical computer applications and those of our suppliers and
vendors throughout the Year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
"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, 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) our introduction of new product lines,
(5) the introduction of new products by our competitors, (6) our inability to
increase prices to recover fully future increases in raw material prices,
especially increases in paper prices, (7) the loss of key employees, (8) changes
in general business conditions, (9) other factors which might be described from
time to time in Amscan Holdings' filings with the SEC, and (10) 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
1999 were higher than prior quarters in 1999 and was primarily attributable to
stronger than usual sales as a result of the celebration of the Millennium.
Additionally, fourth quarter sales in 1998 were higher than the prior quarters
in 1998 due to 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
18
<PAGE>
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 from operations
and net income (loss) of Amscan Holdings for 1998 and 1999 by quarter.
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------------------------------
(in thousands)
--------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1999
<S> <C> <C> <C> <C>
Net sales.............................. $76,440 $73,203 $74,853 $81,616
Gross profit........................... 28,320 26,508 27,367 30,331
Income from operations (a)............. 6,344 9,866 11,801 15,769(b)
Net (loss) income (a) ................. (85) 1,929 3,090 5,273(b)
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(c) 11,250 8,509
Net income............................. 2,271 30(c) 3,425 983
</TABLE>
(a) During the first quarter of 1999, our largest customer, Party
City announced that it would be in default of certain covenants
of its credit facility and, as a result, we maintained a related
allowance for doubtful accounts and sales allowances which
approximated one half of the account and note receivable balance
of $15.8 million due from Party City, including $6.0 million
charged to the provision for doubtful accounts during the first
quarter of 1999. Reflecting Party City's improved financial
condition, the provision was decreased by $1.9 million during the
third quarter and the remainder of the provision of $4.1 million
was reversed during the fourth quarter of 1999.
(b) During the fourth quarter of 1999, we recorded non-recurring
charges of $1.0 million in association with the proposed
construction of a new distribution facility. The non-recurring
charges represented building costs written-off due to the
relocation of the proposed site.
(c) 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 consist of the non-cash
write-down of $1.3 million relating to property, plant and
equipment, the accrual of future lease obligations of $0.5
million, and severance and other costs of $0.6 million.
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 to manage the market risk associated with
fluctuations in interest rates. If market interest rates for Amscan Holdings'
variable rate indebtedness averaged 2% more than the interest rate actually paid
for the years ended December 31, 1999 and 1998, its interest expense, after
considering the effects of its interest rate swap agreements, would have
increased, and income before taxes would have decreased by $1.4 million and $1.3
million, respectively. 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 $1.6 million
and $1.1 million for the years ended December 31, 1999 and 1998, respectively.
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 could change the U.S. 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 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.
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<PAGE>
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 and balloons) and novelties (such as games and party favors). During
1999, we introduced new product lines encompassing home, baby and wedding
products for general gift giving or self-purchase. 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
themed celebrations. Our seasonal ensembles enhance holiday celebrations
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 addition to our long-standing relationships with independent card and
gift retailers, we are a leading supplier to the party goods superstore
distribution channel. Despite recent consolidations in the party goods
superstore channel, party goods superstores continue to grow, 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 party goods superstores represented approximately 40% of total
sales in 1999. While the number of superstores that we supply has grown at a
compound annual growth rate of 7% from 1996 to 1999, our sales to superstores
have grown by a 14% 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, we have continued
to broaden and increase our distribution channels by expanding our presence in
the gift shop, supermarket, and other smaller independent retail channels. This
has been accomplished in part by acquisition via the utilization of the strong
presence in the gift shop, supermarket and other channels of Anagram to bring
party goods to these markets. We also realigned our salesforce in 1999 to focus
more closely on these channels. To further achieve sales growth and expansion,
during the latter half of 1999, we introduced new product lines encompassing
home, baby and wedding gifts which are being distributed through a newly aligned
salesforce. Our recent expansion initiatives have been primarily funded by
current operations.
Our sales and cash flows have grown substantially over the past five years.
From 1994 to 1999, sales and Adjusted EBITDA (adjusted for non-recurring items,
other income or expenses, and minority interests) (see Note 7 in "Selected
Historical Consolidated and Combined Financial and Other Data") have grown at
compound annual rates of 18% and 23%, respectively. During the same period,
Adjusted EBITDA margins (i.e., as a percentage of net sales) increased from
approximately 15% to 19% due in part to our achieving greater economies of scale
in manufacturing and distribution.
20
<PAGE>
Revenues and Adjusted EBITDA Growth
[GRAPHS REPRESENTING REVENUES
AND ADJUSTED EBITDA GROWTH]
Revenues Adjusted EBITDA
-------- ---------------
18% CAGR 23% CAGR
(1994-1999) (1994-1999)
(in millions) (in millions)
1994 $132.0 1994 $20.4
1995 167.4 1995 31.6
1996 192.7 1996 37.7
1997 209.9 1997 39.8
1998 235.3 1998 45.3
1999 306.1 1999 56.9
Party Goods Industry Overview
According to industry analyst reports, the U.S. decorative party goods
industry (including tableware, accessories and novelties) has grown
significantly over the pastdecade. 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. 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.
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<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 40% of our sales were generated from superstores in 1999.
Despite recent consolidations in the party goods superstore channel,
superstores continue to grow, providing consumers with a one-stop source
for all of their party needs, generally at discounted prices.
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 SKU's within each
ensemble. With30,000 SKU's, 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 23% compound annual growth
rate in Adjusted EBITDA since 1994. 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 Goods 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 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.
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
22
<PAGE>
to time with respect to the possible acquisition of other entities, and
we intend to pursue acquisition opportunities aggressively.
Business Operations
Product Design
Our 90 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.During 1999, we introduced approximately 100 new ensembles.
Product Line
The major categories of products which we offer are tableware, accessories
and novelties. The percentages of sales for each product category for, 1997,
1998 and 1999 are set forth in the following table:
1997 1998 1999
---- ---- ----
Tableware........... 59% 57% 45%
Accessories......... 26 26 38
Novelties........... 15 17 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
--------- Banners Cocktail Picks
Paper Plates Cascades Games
Paper Napkins Caketops Candles
Paper Tablecovers Confetti Mugs
Paper Cups Crepe Noise Makers
Solid Color Cutouts Party Favors
----------- Decorative Tissues Party Hats
Paper and Plastic Plates Flags Pinatas
Paper Napkins Gifts Pom Poms
Paper and Plastic Gift Bags T-shirts
Tablecovers Gift Wrap
Paper and Plastic Cups Guest Towels
Plastic Cutlery Honeycomb
Centerpieces
Invitations and Notes
Ribbons and Bows
Signs
Occasions. We supply party goods and gifts 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
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.
23
<PAGE>
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 nearly 65% of our sales in 1999.
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 provides us the opportunity to control costs better and to monitor
product quality, manage inventory investment and provide efficient 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 purchase 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 for us 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 90 professionals servicing over
5,000 retail accounts. These professionals have, on average, been affiliated
with us for nearly five years. 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
main product catalogues annually, three for seasonal products and one for
everyday products. We also produce additional catalogues to market our metallic
balloons andnew gift products.
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. 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 consolidation of our distribution facilities which may
result in 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.
24
<PAGE>
E-Commerce
We have successfully pursued sales opportunities to have our products listed
on the sites of various Internet retailers. We have also developed a website to
enable our key customers to access real time information regarding the status of
existing orders, stock availability, and to place new orders. In addition, we
have also begun making portions of Amscan's catalogue available to retailers
over the Internet.
Customers
Our customers are principally party goods superstores, independent card and
party retailers, mass merchandisers and other distributors. We have also
expanded our presence in the gift shop, supermarket and other smaller
independent retail channels. In the aggregate, we supply more than 20,000 retail
outlets both domestically and internationally. We are a leading supplier to the
party goods superstore channel, which has been experiencing significant growth
in the past decade.
Revenue Breakdown by Retail Channel
1999 Revenue of $306.1 million
[GRAPH REPRESENTING REVENUE BREAKDOWN]
Revenue Breakdown
1999 Revenues of $306.1 million
Party Goods Superstores 40%
Independents 41%
Other Distributors 16%
Mass Market 3%
We have a diverse customer base. Only one customer, Party City, accounted
for more than 10% of our sales in 1999. For the years ended December 31, 1999,
1998 and 1997, sales to Party City's corporate stores represented 10%, 13% and
7% of consolidated net sales, respectively. For the years ended December 31,
1999, 1998 and 1997, sales to Party City's franchise stores represented 9%, 10%
and 12% of consolidated net sales, respectively. During the first quarter of
1999, Party City experienced financial difficulties which they appear to have
resolved through new financing arrangements. Although we believe our
relationships with Party City and its franchisees are good, if they were to
significantly reduce their volume of purchases from us significantly, our
financial condition and results of operations could be materially adversely
affected.
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
25
<PAGE>
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, 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. Through our acquisition of Anagram, however, we control several
licenses which Anagram uses for its production of balloons.
Intellectual Property and Licenses
We own copyrights on the designs we create and use on our products. We own
trademarks on 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 and, therefore, do
not incur any material licensing expenses. Anagram holds approximately 145
licenses allowing it to use various cartoon and other characters on its
balloons. None of Anagram's licenses is individually material to its business.
Employees
As of December 31, 1999, we had approximately 1, 800 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 Executive Offices; 59,000 square feet Leased (expiration date:
design and art December 31, 2007)
production of paper
party products and
decorations
Harriman, New York Manufacture of paper 75,000 square feet Leased (expiration date:
napkins and cups March 31, 2002)
Providence, Rhode Island Manufacture and 51,000 square feet Leased (expiration date:
distribution of June 30, 2008)
of plastic plates,
cups and bowls
Louisville, Kentucky Manufacture and 189,000 square feet Leased (expiration date:
distribution March 31, 2001
of paper plates
Newburgh, New York Manufacture and 457,000 square feet Leased (expiration date:
distribution October 31, 2002)
of solid color party
products
Brooklyn, New York Manufacture and 12,200 square feet Leased (expiration date:
distribution of July 20, 2003)
wedding cake tops
and accessories
Eden Prairie, Minnesota Manufacture and 115,600 square feet Owned
distribution
of balloons and
accessories
Tijuana, Mexico Manufacture and 50,000 square feet Leased (expiration date:
distribution of May 14, 2002)
party products
Chester, New York (1) Distribution of party 287,000 square feet Owned
products and decorations
Goshen, New York Distribution of seasonal 130,000 square feet Leased (expiration date:
party products and December 31, 2000)
decorations
Milton Keynes, England Distribution of party 110,000 square feet Leased (expiration date:
products and decorations June 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 6,800 square feet Leased (expiration date:
and
26
<PAGE>
Owned or Leased
Location Principal Activity Square Feet (with Expiration Date)
-------- ------------------ ----------- ----------------------
accessories March 31, 2005)
Madrid, Spain Distribution of balloons 6,700 square feet Leased (expiration date:
and accessories February 24, 2004)
Silverwater, Australia Distribution of balloons 4,700 square feet Leased (expiration date:
and accessories December 31, 2000)
Granada, Mexico Distribution of balloons 6,600 square feet Leased (expiration date:
and accessories October 31, 2000)
Quebec, Canada Sales and administrative 14,700 square feet Leased (expiration date:
offices March 31, 2002)
</TABLE>
(1)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
December 31, 1999 was approximately $2,814,000.
We believe that our properties have been adequately maintained, are in
generally good condition and are suitable for our 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, SSY
Realty Corp., 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.
Legal Proceedings
We are a party to certain claims and litigation in the ordinary course of
business. We do not believe any of these proceedings will result, individually
or in the aggregate, in a material adverse effect upon our financial condition
or results of operations.
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 41 Director
Joseph P. DiSabato 33 Director
Gerald C. Rittenberg 47 Chief Executive Officer and Director
James M. Harrison 48 President, Chief Financial Officer,
Treasurer and Director
Garry Kieves 51 Senior Vice President
27
<PAGE>
Terence M. O'Toole is a Managing Director of Goldman Sachs in the Principal
Investment Area. He joined Goldman Sachs in 1983. He is a member of Goldman
Sachs' Principal Investment Area Investment Committee and its Stone Street Fund
Investment Committee. Mr. O'Toole serves on the Boards of Directors of AMF
Bowling, Inc., Western Wireless Corporation, VoiceStream 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 in the Principal
Investment Area. He joined Goldman Sachs in 1986. . He is a member of Goldman
Sachs' Principal Investment Area Investment Committee and its Stone Street Fund
Investment Committee. Mr. Mehra serves on the Boards of Directors of Promedco
Management Company, Madison River Telephone Company, L.L.C., and 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 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 Madison River Telephone Company, L.L.C. and 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.
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.
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.
Mr. O'Toole, Mr. Mehra and Mr. DiSabato became directors of Amscan Holdings
in 1997 upon consummation of the Transaction. Mr. Rittenberg and Mr. Harrison
became directors of Amscan Holdings in1998.
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 former and current executive officer of Amscan
Holdings as of December 31, 1999 whose aggregate salary and bonus for 1999
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").
28
<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
Officer and Chairman
Gerald C. Rittenberg 1999 $295,000 $450,000 $ 7,255
Chief Executive Officer 1998 295,000 395,000 6,532
1997 220,000 16.648(c) 3,763
James M. Harrison 1999 $275,000 $400,000 $ 5,399
President, Chief Financial 1998 275,000 350,000 6,286
Officer and Treasurer 1997 215,000 255,000 $176,041(d) 16.268(e) 3,763
Garry Kieves 1999 $240,000 $ 5,289
Senior Vice President 1998 72,900(f) 6.648(g) 929
William S. Wilkey 1999 $172,604 $ 55,125(h) $ 7,118
Former Senior Vice President- 1998 210,000 $ 50,000 6,532
Sales and Marketing 1997 200,000 210,000 $352,082(i) 16.441(j) 3,763
</TABLE>
(a) Represents amounts earned with respect to the years indicated, whether paid
or accrued.
(b) Represents contributions under the Profit Sharing & Savings Plan, as well as
insurance premiums paid by Amscan Holdings with respect to term life
insurance for the benefit of the named executive officer.
(c) Represents the New Options granted to Mr. Rittenberg immediately following
the Transaction.
(d) 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.
(e) Represents the New Options and Rollover Options granted to Mr. Harrison
immediately following the Transaction.
(f) Mr. Kieves became an employee and Senior Vice President of Amscan Holdings
on September 17, 1998.
(g) Represents the New Options granted to Mr. Kieves in connection with the
acquisition of Anagram in 1998. In addition, 10 Common Stock warrants valued
at $225,000 were issued to Mr. Kieves in connection with the Anagram
acquisition.
(h) Effective November 8, 1999, Mr. Wilkey terminated his employment agreement
with Amscan and began serving as a consultant. Amount represents payments
received under a consulting agreement.
(i) 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.
(j) Represents the New Options and Rollover Options granted to Mr. Wilkey
immediately following the Transaction.
Option Grants
No options under the Option Documents were issued to directors and executive
officers of Amscan Holdings during 1999.
29
<PAGE>
Fiscal 1999 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 6.659 9.989 $332,960 $499,440
James M. Harrison 6.508 9.760 344,948 517,422
Garry Kieves 1.3296 5.3184 - -
William S. Wilkey 6.577 9.864 367,987 551,981
</TABLE>
The valuation of unexercised in the money options is based on the valuation
of Amscan Holdings Common Stock of $125,000 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.
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, other than 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
30
<PAGE>
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 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").
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 other than the
exercise price.
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
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<PAGE>
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 as
to 8.33% on each of January 1, 1999 and 2000. With respect to the remaining
Restricted Stock, the Stock Restriction Period terminates on January 1, 2007.
Pursuant to the Harrison Employment Agreement, upon the voluntary or involuntary
termination of Mr. Harrison's employment during the Stock Restricted Period for
any reason other than a reason listed in clause (iii) of the preceding sentence,
all shares of Restricted Stock (with respect to which the Stock Restricted
Period has not then ended) will be forfeited and returned to 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.
Agreement with William S. Wilkey. Effective November 8, 1999, William S.
Wilkey terminated his employment agreement with Amscan Holdings dated October 4,
1996 and began serving as a consultant to Amscan Holdings under an agreement
dated November 8, 1999 and expiring September 30, 2002. Mr. Wilkey will be paid
$220,500 annually for services rendered to Amscan Holdings under this agreement.
Pursuant to a Stock and Option Agreement, dated as of August 10, 1997, by and
between Amscan Holdings and Mr. 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 borrowed the funds for such payment
from Amscan Holdings. Such borrowing is evidenced by a personal full recourse
note, as amended, maturing on March 15, 2009, accruing interest at 6.65%,
compounded annually, and payable in two annual installments of principal and
interest equal to one-quarter of the bonuses Mr. Wilkey received from the
Company corresponding to the years 1998 and 1999, with the remaining portion of
the note and accrued interest payable at maturity. As of the date hereof, the
unpaid principal amount of this note is $568,711. At the time of the
Transaction, 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. Such options
expire on December 17, 2007.
Additionally, Mr. Wilkey converted, as of the time of the Transaction, his
Company Stock Options to purchase 100,000 shares of Amscan Holdings 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. Such options expire on
December 17, 2007.
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.
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
32
<PAGE>
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."
Options were granted to Mr. Kieves on terms similar to those granted
pursuant to the Rittenberg Employment Agreement. 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 Option Shares are subject to the terms of the Stockholders' Agreement.
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 a Company 1997 Stock
Option, any related 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.
Compensation of Directors
The Company currently does not compensate its directors other than for
expense reimbursement.
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 1999, with the exception of consulting fees paid to William S.
Wilkey, 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 1999 in connection with
compensation paid to the Chief Executive Officer and other executive officers of
Amscan Holdings named in the Summary Compensation Table. The consulting fees
paid to Mr. Wilkey were based on the terms of a consulting agreement negotiated
upon termination of his employment agreement with Amscan Holdings.
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<PAGE>
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 1999 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 and former executive officer of Amscan Holdings named in the
Summary Compensation Table; and (iv) all directors and executive officers and
former executive officer of Amscan Holdings named in the Summary Compensation
Table as a group.
<TABLE>
<CAPTION>
Shares of Company Percentage
Common Stock of Class
Name of Beneficial Owner Beneficially Owned Outstanding(a)
- ------------------------ ------------------ --------------
<S> <C> <C>
Gerald C. Rittenberg (b)....................... 66.659 5.9%
James M. Harrison (c).......................... 21.508 1.9
Garry Kieves, Garry Kieves Retained
Annuity Trust and Garry Kieves
Irrevocable Trust, in aggregate (d)......... 131.3296 11.5
Terence M. O'Toole (e)......................... -- --
Sanjeev K. Mehra (f)........................... -- --
Joseph P. DiSabato (g)......................... -- --
William S. Wilkey (h).......................... 13.246 1.2
Estate of John A. Svenningsen.................. 100.0 8.8
c/o Kurzman & Eisenberg LLP
One North Broadway, Suite 1004
White Plains, New York 10601
GS Capital Partners II, L.P. (i)............... 825.0 72.9
and other GSCP funds
85 Broad Street
New York, New York 10004
All directors, executive officers and William
S. Wilkey as a group (7 persons) (j)......... 232.7426 20.0
</TABLE>
(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.
(b) Includes 6.659 shares which could be acquired by Mr. Rittenberg within 60
days upon exercise of options.
(c) Includes 6.508 shares which could be acquired by Mr. Harrison within 60
days upon exercise of options.
(d) Includes 1.3296 shares which could be acquired by Mr. Kieves within 60 days
upon exercise of options and 10 shares that could be acquired upon exercise
of warrants.
(e) Mr. O'Toole, who is a Managing Director of Goldman Sachs, disclaims
beneficial ownership of the shares of Company Common Stock that are owned
by GSCP and its affiliates, except to the extent of his pecuniary interest
therein, if any.
(f) Mr. Mehra, who is a Managing Director of Goldman Sachs, disclaims
beneficial ownership of the shares of Company Common Stock that are owned
by GSCP and its affiliates, except to the extent of his pecuniary interest
therein, if any.
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<PAGE>
(g) Mr. DiSabato, who is a Vice President of Goldman Sachs, disclaims
beneficial ownership of the shares of Company Common Stock that are owned
by GSCP and its affiliates, except to the extent of his pecuniary interest
therein, if any.
(h) Includes 6.577 shares which could be acquired by Mr. Wilkey within 60 days
upon exercise of options.
(i) Of the 825.0 shares of Company Common Stock beneficially owned by GSCP and
its affiliates, approximately 517.6 shares are owned by GSCP II,
approximately 205.8 shares are owned by GS Capital Partners II Offshore,
L.P., approximately 19.1 shares are owned by Goldman, Sachs & Co.
Verwaltungs GmbH as nominee for GS Capital Partners II (Germany) C.L.P.,
approximately 55.5 shares are owned by Stone Street Fund 1997, L.P. and
approximately 27.0 shares are owned by Bridge Street Fund 1997, L.P. Each
of the GSCP funds are investment partnerships that are managed by Goldman
Sachs or its affiliates, which has full dispositive power with respect to
the holdings of such partnerships. Affiliates of the Goldman Sachs Group,
Inc. are the general or managing partners of the "GSCP Fund Partners" and
have full voting power with respect to the holdings of such partnerships.
(j) Includes 21.0726 shares which could be acquired by the executive officers
and Mr. Wilkey within 60 days upon exercise of options and 10 shares which
could be acquired by Mr. Kieves upon exercise of warrants.
Stockholders' Agreement
As of December 19, 1997, Amscan Holdings entered into the Stockholders'
Agreement with GSCP, the 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 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 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 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.
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<PAGE>
The Term Loan will mature seven years after funding and will provide for
amortization (in quarterly installments) of one percent of the original
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 future scheduled amortization payments on the Term Loan as follows:
For the Year Ending: Amortization
-------------------- ------------
December 31, 2000 $1,572,000
December 31, 2001 1,572,000
December 31, 2002 1,572,000
December 31, 2003 50,771,000
December 31, 2004 98,570,000
------------
Total $154,057,000
============
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
CreditFacilities) is less than 3.75 to 1.0) of Amscan Holdings' Excess Cash Flow
(as defined in the Bank CreditFacilities) 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
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 $52.4 million for the four Fiscal Quarter (as
defined in the Bank Credit Facilities) period ended December 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
December 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.
36
<PAGE>
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 December 31, 1999, Amscan Holdings has approximately $6.9 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 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 December 31, 1999 was approximately $2,814,000. 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, which has been succeeded by The Bank of New York, 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.
37
<PAGE>
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 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").
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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 December 31, 1999
was approximately $165.1 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.
"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 the 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
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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 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 $7.6 million (excluding
inter-company payables to Amscan Holdings) at December 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."
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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 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.
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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 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.
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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 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.
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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
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-
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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 December 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.
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
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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 the 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;
(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.
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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 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,
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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 Transaction; (iv) the
payment of reasonable and customary regular fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of Amscan Holdings or
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
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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 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
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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.
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
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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 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
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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 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 Note, 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
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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.
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;
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(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;
(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
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(iii) a majority of the members of the Board of Directors of Amscan
Holdings cease to be Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash operating expenses that
were paid in a prior period) and other non-cash charges of such Person and its
Restricted Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing such
Consolidated Net Income, minus (v) cash outlays that were made by such Person or
any of its Restricted Subsidiaries during such period in respect of any item
that was reflected as a non-cash charge in a prior period, provided that such
non-cash charge was added to Consolidated Net Income in determining Consolidated
Cash Flow for such prior period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) for such period of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted 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.
"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
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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.
"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.
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"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.
"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
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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.
"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
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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.
"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.
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"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, 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, 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
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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 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.
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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 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,
63
<PAGE>
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.
Treasury regulations (the "Withholding Regulations") provide alternative
methods for satisfying the certification requirements described in clause (iv)
above. The Withholding Regulations also 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 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.
64
<PAGE>
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,
Inc., at December 31, 1997 and for the year then ended, appearing in this
Prospectus and Registration Statement have been audited by KPMG LLP, independent
auditors, and at December 31, 1999 and 1998, and for each of the two years in
the period ended December 31, 1999, 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.
65
<PAGE>
AMSCAN HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Year Ended December 31, 1999
Consolidated Financial Statements as of December 31, 1999 and 1998 and for each
of the years in the three-year period ended December 31, 1999:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Auditors.................................................. F-2
Consolidated Balance Sheets .................................................... F-4
Consolidated Statements of Operations ........................................... F-5
Consolidated Statements of Stockholders' (Deficit) Equity ....................... F-6
Consolidated Statements of Cash Flows ........................................... F-7
Notes to Consolidated Financial Statements ...................................... F-9
Financial Statement Schedule for the three years ended December 31, 1999:
Schedule II - Valuation and Qualifying Accounts ................................ F-33
</TABLE>
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 therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors and Stockholders
Amscan Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Amscan
Holdings, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' (deficit) equity and cash flows for each
of the two years in the period ended December 31, 1999. Our audits also included
the financial statement schedule as listed in the accompanying index as of and
for each of the two years in the period ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of Amscan
Holdings, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule as of and for each of the two years in the period ended December 31,
1999, 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 15, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Amscan Holdings, Inc.
We have audited the accompanying consolidated statement of operations,
stockholders' (deficit) equity and cash flows for the year ended December 31,
1997. In connection with our audit 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 the year 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of Amscan Holdings,
Inc. and subsidiaries and their cash flows for the year 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 period
described above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
Stamford, Connecticut
February 13, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
AMSCAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
----------------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 849 $ 1,117
Accounts receivable, net of allowances of $6,172 and $6,875, respectively.............. 56,896 49,339
Inventories............................................................................ 59,193 54,691
Prepaid expenses and other current assets.............................................. 11,802 9,113
---------- -----------
Total current assets............................................................. 128,740 114,260
Property, plant and equipment, net........................................................ 61,709 59,260
Intangible assets, net.................................................................... 63,331 66,500
Other assets, net......................................................................... 9,707 8,832
---------- -----------
Total assets..................................................................... $263,487 $248,852
======== ========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loans and notes payable................................................................ $ 4,688 $ 9,628
Accounts payable....................................................................... 18,967 11,494
Accrued expenses....................................................................... 16,332 17,520
Income taxes payable................................................................... 2,963 593
Current portion of long-term obligations............................................... 3,562 3,549
---------- ----------
Total current liabilities........................................................ 46,512 42,784
Long-term obligations, excluding current portion.......................................... 266,891 270,127
Deferred income tax liabilities........................................................... 12,001 8,128
Other..................................................................................... 3,030 3,553
---------- ----------
Total liabilities................................................................ 328,434 324,592
Redeemable Common Stock................................................................... 23,582 19,547
Commitments and Contingencies.............................................................
Stockholders' deficit:
Common Stock........................................................................... - -
Additional paid-in capital............................................................. 225 225
Unamortized restricted Common Stock award, net......................................... (405) (575)
Notes receivable from stockholders..................................................... (664) (718)
Deficit ............................................................................... (86,797) (92,969)
Accumulated other comprehensive loss................................................... (888) (1,250)
----------- ----------
Total stockholders' deficit...................................................... (88,529) (95,287)
--------- ---------
Total liabilities, redeemable Common Stock and stockholders' deficit............. $263,487 $248,852
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales.................................................................. $306,112 $235,294 $209,931
Cost of sales.............................................................. 193,586 150,456 136,571
--------- --------- ---------
Gross profit.................................................... 112,526 84,838 73,360
Operating expenses:
Selling expenses........................................................ 24,455 17,202 13,726
General and administrative expenses..................................... 33,249 23,432 20,772
Art and development costs............................................... 10,047 7,356 5,282
Non-recurring charges................................................... 995
Restructuring charges................................................... 2,400
Non-recurring charges in connection with the Merger..................... 22,083
--------- --------- ----------
Total operating expenses........................................ 68,746 50,390 61,863
--------- --------- ----------
Income from operations.......................................... 43,780 34,448 11,497
Interest expense, net...................................................... 26,365 22,965 3,892
Other expense (income), net................................................ 35 (121) (71)
--------- --------- ----------
Income before income taxes and minority interests.......................... 17,380 11,604 7,676
Income tax expense......................................................... 7,100 4,816 7,665
Minority interests......................................................... 73 79 193
--------- --------- ----------
Net income (loss)................................................. $ 10,207 $ 6,709 $ (182)
========= ========= ==========
</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, 1999, 1998 and 1997
(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 Stockholders (Deficit) Loss Stock Total
----- ------- --- ------------ -------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 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 stockholders 32 32
------ ------ ------ ------ ------ ------ -------- --------
Balance at December 31, 1998 ..... - 225 (575) (718) (92,969) (1,250) - (95,287)
Net income .................... 10,207 10,207
Net change in cumulative
translation adjustment ..... 362 362
--------
Comprehensive income .... 10,569
Accretion in Redeemable
Common Stock ............... (4,035) (4,035)
Amortization of restricted
Common Stock award ......... 170 170
Payments received on notes 54 54
receivable from stockholders ------- ------- -------- ------- -------- ------- -------- --------
Balance at December 31, 1999 ..... $ - $ 225 $ (405) $ (664) $(86,797) $ (888) - $ (88,529)
======= ======= ======== ======= ======== ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMSCAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss)....................................................... $10,207 $6,709 $ (182)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................................... 12,931 8,501 6,245
Amortization of deferred financing costs.............................. 870 748 13
Loss (gain) on disposal of property and equipment..................... 86 (22) (31)
Provision for doubtful accounts....................................... 2,906 3,336 3,775
Restructuring and other non-recurring charges......................... 995 2,400
Amortization of Restricted Common Stock award......................... 170 260 290
Deferred income tax provision......................................... 3,764 2,441 1,565
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable..................................... (14,297) (1,124) (15,869)
(Increase) decrease in inventories.................................. (4,612) 6,853 (5,871)
(Increase) decrease in prepaid expenses and other current assets
and other, net................................................. (639) 2,078 6,276
(Increase) decrease in other assets, net............................ (1,525) (490) 2,863
Increase (decrease) in accounts payable, accrued expenses
and income taxes payable......................................... 8,579 (8,928) 5,095
------- ------ ------
Net cash provided by operating activities....................... 19,435 22,762 4,169
Cash flows from investing activities:
Cash paid for acquisitions.............................................. (78,382)
Capital expenditures.................................................... (11,632) (7,514) (10,237)
Proceeds from disposal of property, plant and equipment................. 216 2,769 140
--------- --------- ---------
Net cash used in investing activities...................................... (11,416) (83,127) (10,097)
Cash flows from financing activities:
Net proceeds from sale of Capital Stock................................. 181 4,524
Capital contributions................................................... 7,500
Issuance of Common Stock in connection with the Merger.................. 61,875
Payments to acquire Common Stock in the Merger and treasury stock....... (29) (93,155) (142,963)
Proceeds from loans, notes payable and long-term obligations
net of debt issuance costs of $964 and $5,500 in 1998 and
1997, respectively................................................... 450 59,064 237,062
Repayment of loans, notes payable and long-term obligations............. (9,242) (15,917) (51,811)
Repayment of indebtedness to Principal Stockholder...................... (182)
Other................................................................... 54 65 .
--------- --------- ---------
Net cash (used in) provided by financing activities............. (8,767) (49,762) 116,005
Effect of exchange rate changes on cash................................. 480 ( 295) (127)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents............ (268) (110,422) 109,950
Cash and cash equivalents at beginning of year............................. 1,117 111,539 1,589
--------- --------- ---------
Cash and cash equivalents at end of year................................... $ 849 $ 1,117 $ 111,539
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................ $ 25,278 $ 23,174 $ 3,598
Income taxes.................................................... $ 950 $ 2,558 $ 6,604
</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):
Capital lease obligations of $651, $200 and $59 were incurred in 1999, 1998 and
1997, respectively.
Cash consideration due to stockholders as a result of the Merger totaled
$235,916 of which $59 and $88 was payable at December 31, 1999 and 1998,
respectively.
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 11) valued at $12,600 and issued warrants to purchase 10 shares
of the Company's Common Stock for $125 per share valued at $225 (expiring on
September 17, 2008) to the former owner of Anagram International, Inc.
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, at that time, in exchange for notes aggregating
$750.
See accompanying notes to consolidatedfinancial statements.
F-8
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 1999
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 agreement between the Company and the underwriters associated with
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,
at that time, purchased an aggregate of 10 shares of Company Common Stock
following the Merger (see Note 11). 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.
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 was accounted for as a
recapitalization and, accordingly, the historical basis of the Company's assets
and liabilities was not 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.
F-9
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Amscan
Holdings and its subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
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 11)
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 principally amortized on a straight-line basis over 25 years.
The following summarized unaudited pro forma financial information
assumes the Acquisition had occurred on January 1, 1998 and 1997 (dollars in
thousands):
Years Ended December 31,
------------------------
1998 1997
---- ----
Net sales .............................. $278,754 $272,729
Net income ........................... $4,843 $56
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 date 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 30 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.
F-10
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
The results of operations for the acquisitions of the additional 25%
interest in Amscan Holdings Limited and Ya Otta 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 (principally on the first-in, first-out method) or market.
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. 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 $63,331,000 and $66,500,000 at December 31, 1999
and 1998, 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 25 to 30
years. Accumulated amortization was $6,362,000 and $2,637,000 at December 31,
1999 and 1998, 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.
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.
F-11
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
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. Payments or
receipts are accrued as interest rates change and are recorded as adjustments to
interest expense.
INCOME TAXES
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 accounts for stock based awards in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". 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 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 disclosures required by SFAS No. 123 (see Note 9).
ACCUMULATIVE OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss at December 31, 1999, 1998 and
1997 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 in comprehensive income (loss) and are included as
a component of accumulated other comprehensive loss.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting
F-12
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
for Derivative Instruments and Hedging Activities." 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, 2000. The Company expects to adopt SFAS No. 133
effective January 1, 2001. Because of the Company's limited use of derivatives,
management does not anticipate the adoption of SFAS No. 133 will have a
significant effect on earnings or the financial position of the Company.
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,
1999 and 1998, Party City Corporation ("Party City") the Company's largest
customer with 391 corporate and franchise stores, accounted for 21% and 22%,
respectively, of consolidated accounts receivable, net. For the years ended
December 31, 1999, 1998 and 1997, sales to Party City's corporate stores
represented 10%, 13% and 7% of consolidated net sales, respectively. For the
years ended December 31, 1999, 1998 and 1997, sales to Party City's franchise
stores represented 9%, 10% and 12% of consolidated net sales, respectively. No
other group or combination of customers subjected the Company to a concentration
of credit risk. During the first quarter of 1999, Party City experienced
financial difficulties which were addressed during the fourth quarter of 1999
through new financing arrangements. Additionally, Party City entered into an
agreement with its trade vendors, including Amscan, whereby, among other things,
the vendors have received promissory notes for one-third of their then existing
accounts receivable balances. The Company has reclassified the amount of the
notes ($2.2 million at December 31, 1999) from accounts receivable to prepaid
expenses and other current assets upon receipt of this promissory note. The
promissory notes have been paid in January 2000. Although the Company believes
its relationships with Party City and its franchisees are good, if they were to
reduce their volume of purchases from the Company significantly, the Company's
financial condition and results of operations could be materially adversely
affected.
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 accounting principles generally accepted in the United States. Actual
results could differ from those estimates.
NOTE 3 - INVENTORIES
Inventories at December 31, 1999 and 1998 consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Finished goods...................................................... $50,278 $48,093
Raw materials....................................................... 6,706 4,845
Work-in process..................................................... 4,238 3,345
-------- --------
61,222 56,283
Less: reserve for slow moving and obsolete inventory............... (2,029) (1,592)
-------- --------
$59,193 $54,691
======== ========
</TABLE>
F-13
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET
Major classifications of property, plant and equipment at December 31,
1999 and 1998 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Lives
-------- -------- ------------
<S> <C> <C> <C>
Machinery and equipment........................................... $63,356 $56,025 3-15
Buildings......................................................... 12,010 11,989 31-40
Data processing equipment......................................... 19,618 15,300 5
Leasehold improvements............................................ 3,786 4,475 2-20
Furniture and fixtures............................................ 3,579 3,510 10
Land.............................................................. 2,237 2,237
-------- --------
104,586 93,536
Less: accumulated depreciation and amortization.................. (42,877) (34,276)
-------- --------
$ 61,709 $ 59,260
======== ========
</TABLE>
Depreciation and amortization expense was $9,271,000, $7,179,000 and
$5,980,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 5 - LOANS AND NOTES PAYABLE
Loans and notes payable outstanding at December 31, 1999 and 1998
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ------
<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%
(9.75% and 9.0% at December 31, 1999 and 1998, respectively)................ 3,500 500
Revolving credit line with interest at the prime rate plus 0.75%
(9.25% and 8.5% at December 31, 1999 and 1998, respectively)................ 710 100
Revolving credit line with interest at LIBOR plus 1.0%
(7.0% at December 31, 1999)................................................ 375
Revolving credit line with interest at the U.K. bank rate plus 1.75%
(7.5% and 9.0% at December 31, 1999 and 1998, respectively)................. 103 28
------- -------
$4,688 $9,628
======= =======
</TABLE>
Upon consummation of the Merger on December 19, 1997, the Company
entered into Bank Credit Facilities (see Note 6) which include a $50,000,000
revolving credit facility (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 Facility's credit agreements to
provide for, among other things, the additional senior term debt.
In addition to the Revolving Credit Facility, the Company has a
$400,000 Canadian dollar denominated revolving credit facility which bears
interest at the Canadian prime rate and expires on August 24, 2000, a $1,000,000
British Pound Sterling denominated revolving credit facility which bears
interest at the U.K. base rate
F-14
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
plus 1.75% and expires on May 26, 2000 and $1,000,000 revolving credit facility
which bears interest at LIBOR plus 1.0% and expires on January 31, 2001. No
borrowings were outstanding under the Canadian dollar denominated revolving
credit facility at December 31, 1999 and 1998.
The weighted average interest rates on loans and notes payable
outstanding at December 31, 1999 and 1998 were 9.40% and 7.98%, respectively.
Prior to the Merger, the Company maintained three interest rate swap
contracts covering $25,000,000 of outstanding obligations 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 year ended December 31, 1997 which have been recorded as additional
interest expense, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Notional Additional Interest
Date of contract Amount Term Fixed Rate Expense
---------------- ------ ---- ---------- -------
<S> <C> <C> <C> <C>
September 28, 1994....... $ 5,000 10 years 7.945% $109
May 12, 1995............. $ 10,000 5 years 6.590% 70
July 20, 1995............ $ 10,000 10 years 6.750% 102
----
$281
====
</TABLE>
NOTE 6 - LONG-TERM INDEBTEDNESS
Long-term indebtedness at December 31, 1999 and 1998 consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior Subordinated Notes (a).............................................. $110,000 $110,000
Term loan (b).............................................................. 154,057 155,629
Mortgage obligation (c).................................................... 2,814 3,407
Note to former shareholder and other (d) .................................. 734 922
Capital lease obligations (e).............................................. 2,848 3,718
--------- ---------
Total long-term obligations........................................ 270,453 273,676
Less: current portion...................................................... (3,562) (3,549)
--------- ---------
Long-term obligations, excluding current portion........................... $266,891 $270,127
========= =========
</TABLE>
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 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. The Company may
prepay, in whole or in part, borrowings under the Term Loan. Call protection
provisions 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
F-15
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
guaranteed by the Company's domestic subsidiaries (the "Guarantors") (see Note
15). 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 Facilities, the note indenture and the other indebtedness that would
become payable upon the occurrence of such Change of Control.
(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, 1999 and 1998, the floating interest rate on the
Term Loan was 8.52% and 7.68%, 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 one-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 is
currently involved in three interest rate swap transactions with Goldman
Sachs Capital Markets, L.P. ("GSCM") and a financial institution covering
$123,330,000 of its outstanding borrowings under the Term Loan. 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 years ended December 31, 1999
and 1998, respectively, which have been recorded as additional
F-16
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
(reduction of) interest expense, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Additional (Reduction of)
Interest Expense
Notional ----------------
Date of contract Amount Term Fixed Rate 1999 1998
---------------- ------ ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
December 31, 1997........ $57,330 3 years 8.36% $868 $677
September 30, 1998....... $35,000 3 years 7.18% (203) (44)
September 17, 1999....... $31,000 2 years 8.80% 74
---- ----
$739 $633
==== ====
</TABLE>
(c) At December 31, 1999 and 1998, the Company had a mortgage obligation
payable to a financial institution relating to a distribution facility due
September 13, 2004. The mortgage was collateralized by the related real
estate asset of the Company and its interest rate was 8.51% at December 31,
1999 and 1998.
(d) In conjunction with the acquisition of Amscan Holdings Limited in 1998, the
Company issued a non-interest bearing note to the former shareholder which
is payable through April 2004 (see Note 1). At December 31, 1999 and 1998,
the note to the former shareholder was $493,000 and $589,000, respectively.
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 9.50%. which
extend to 2003.
At December 31, 1999, principal maturities of long-term obligations
(including interest) consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
Mortgage, Notes Capital
and Loans Lease Obligations Total
--------- ----------------- -----
<S> <C> <C> <C>
2000.......................................... $ 2,603 $ 1,323 $ 3,926
2001.......................................... 2,563 1,571 4,134
2002.......................................... 2,431 154 2,585
2003.......................................... 51,549 37 51,586
2004.......................................... 99,047 - 99,047
Thereafter.................................... 110,000 - 110,000
--------- ------- ---------
268,193 3,085 271,278
Amount representing interest.................. (588) (237) (825)
--------- ------- ---------
Long-term obligations......................... $267,605 $2,848 $270,453
======== ====== ========
</TABLE>
NOTE 7 - NON-RECURRING ITEMS
During the fourth quarter of 1999, the Company recorded non-recurring
charges of $1.0 million in association with the proposed construction of a new
distribution facility. The non-recurring charges represented building costs
written-off due to the relocation of the proposed site.
In the second quarter of 1998 the Company recorded a charge of $2.4
million for the restructuring of its distribution operations which included the
closure of distribution facilities in California and Canada. The restructuring
was substantially completed by December 1998 and included the elimination of
approximately 100 positions and the sale of the Canadian facility. The
restructuring charges were comprised of the non-cash write-down of $1.3 million
relating to property, plant and equipment, the accrual of future lease
obligations of $0.5 million and severance and other costs of $0.6 million.
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.
F-17
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
NOTE 8 - 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, 1999, 1998 and 1997 totaled $1,906,000
$1,822,000, and $1,432,000, respectively.
No shares of Company Common Stock were issued under the Employee Stock
Ownership Plan (the "ESOP") during the year ended December 31, 1997. In
connection with the Merger in 1997, the ESOP shares were converted to cash and
the ESOP plan and assets were merged into the profit-sharing plan.
NOTE 9 - 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 December 31,
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 in 1997 (see Note 7).
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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Average Average Fair Market
Options Exercise Price Value at Grant Date
------- -------------- -------------------
Activity:
<S> <C> <C> <C>
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
--------
Outstanding at December 31, 1998............ 111.719
Granted............................... 20.680 125,000 44,562
Canceled.............................. (2.444) 93,387
--------
Outstanding at December 31, 1999............ 129.955
=======
Exercisable at December 31, 1997............ - -
Exercisable at December 31, 1998............ 20.124 71,961
Exercisable at December 31, 1999............ 42.018 73,713
</TABLE>
F-18
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
The average exercise price for options outstanding as of December 31,
1999 was $82,652 with exercise prices ranging from $54,545 to $125,000. The
average remaining contractual life of those options was 8.4 years.
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 (increased) to amounts
indicated below (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Net income (loss):
<S> <C> <C> <C>
As reported....................................................... $10,207 $6,709 $(182)
SFAS No. 123 pro forma............................................ $9,793 $6,355 $(249)
</TABLE>
It has been assumed that the estimated fair value of the options
granted in 1999, 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 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.
NOTE 10- INCOME TAXES
A summary of domestic and foreign pre-tax income follows (dollars in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Domestic ........................................................ $14,035 $10,945 $6,655
Foreign ......................................................... 3,345 659 1,021
------- ------- ------
Total ........................................................... $17,380 $11,604 $7,676
======= ======= ======
</TABLE>
The provision for income taxes consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Current:
<S> <C> <C> <C>
Federal .................................................. $1,734 $ 1,648 $4,222
State..................................................... 490 455 1,174
Foreign................................................... 1,112 272 704
------- ------- -------
Total current provision................................. 3,336 2,375 6,100
Deferred:
Federal................................................... 2,745 1,911 1,250
State..................................................... 772 542 375
Foreign................................................... 247 (12) (60)
------- ------- -------
Total deferred provision................................ 3,764 2,441 1,565
------- ------- -------
Income tax expense............................................... $7,100 $4,816 $7,665
====== ====== ======
</TABLE>
F-19
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
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):
<TABLE>
<CAPTION>
1999 1998
------- ------
Current deferred tax assets:
<S> <C> <C>
Allowance for doubtful accounts.................................................. $1,331 $1,434
Accrued liabilities.............................................................. 312 454
Inventories...................................................................... 1,158 1,052
Charitable contributions carryforward............................................ 1,222 640
Other............................................................................ 286 373
------ ------
Current deferred tax assets (included in
prepaid expenses and other current assets)................................ $4,309 $3,953
====== ======
Non-current deferred tax liabilities, net:
Property, plant and equipment.................................................... $12,275 $8,762
Future taxable income resulting from a change in
accounting method for tax purposes.......................................... 219 438
Royalty reserves................................................................. (462) (620)
Other............................................................................ (31) (452)
------- ------
Non-current deferred tax liabilities, net................................... $12,001 $8,128
======= ======
</TABLE>
A non-current foreign deferred tax asset of $533,000 and $780,000 at
December 31, 1999 and 1998, respectively, is attributable to non-current
obligations recognized in connection with the Acquisition and is included in
non-current 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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Provision at federal statutory income tax rate......................... 35.0% 35.0% 35.0%
Effect of non-deductible charges related
to the Merger .................................................... 51.2
State income tax, net of federal tax benefit ......................... 4.8 6.1 20.2
Other ................................................................. 1.1 0.4 (6.5)
----- --- ------
Effective income tax rate ............................................. 40.9% 41.5% 99.9%
==== ==== ====
</TABLE>
At December 31, 1999, the Company's share of the cumulative undistributed
earnings of foreign subsidiaries was approximately $11,800,000. No provision has
been made for U.S. or additional foreign taxes on the undistributed earnings of
foreign subsidiaries because such earnings are expected to be reinvested
indefinitely in the subsidiaries' operations. It is not practical to estimate
the amount of additional tax that might be payable on these foreign earnings in
the event of distribution or sale; however, under existing law, foreign tax
credits would be available to substantially reduce incremental U.S. taxes
payable on amounts repatriated.
F-20
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
NOTE 11- CAPITAL STOCK
At December 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.
At December 31, 1999 and 1998, the Company held three notes receivable
with balances totaling $664,000 and $718,000, respectively, from two officers
and a former officer of the Company. These notes arose in connection with the
Merger in 1997 whereby the Company lent the officers, at that time, money to
acquire an aggregate of 10 shares of Common Stock at the then fair market value.
The notes from the current officers bear interest at 6.07% and mature in
December 2000. The note from the former officer bears interest at 6.65% and
matures in March 2009. The notes receivable are shown on the balance sheets as a
reduction in stockholders' deficit.
At December 31, 1999, there were 200.74 shares of Common Stock held by
employees of which 3.33 shares were not yet fully paid and 8.75 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, 1999, and 1998, the aggregate
amount that may be payable by the Company to employee stockholders based on
fully paid and vested shares, is approximately $23,582,000 and has been
classified as redeemable common stock ("Redeemable Common Stock").
NOTE 12- COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
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, 1999 and 1998, 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):
1999 1998
------ ------
Machinery and equipment ..................... $7,102 $7,243
Less: accumulated amortization ............. (3,107) (2,749)
------ ------
$3,995 $4,494
====== ======
Amortization of assets held under capitalized leases is included in
depreciation expense.
The Company has several noncancelable operating leases 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, 1999, the Company also has a non-cancelable operating
lease with a real estate entity owned by an employee for warehouse space that
expires in July 2003. Future minimum lease payments under this lease total
$42,000 for each of the years ended December 31, 2000, 2001, and 2002 and
$23,000 for the year ended December 31, 2003.
F-21
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
At December 31, 1999, future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):
2000 ................................................. $ 9,545
2001 ................................................. 8,791
2002 ................................................. 7,163
2003 ................................................. 4,754
2004 ................................................. 3,128
Thereafter ........................................... 19,106
--------
$52,487
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$9,038,000, $7,601,000, and $6,844,000, respectively, of which $166,000,
$233,000, and $2,089,000, respectively, related to leases with related parties.
In addition, during 1999, the Company terminated its operating lease with real
estate entities owned by the Estate for warehouse space that expired on December
31, 2000. As an incentive to terminate the lease prior to its expiration, the
Company received a fee of $200,000.
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, 1999 future minimum royalties payable was as follows
(dollars in thousands):
2000................................... $1,371
2001................................... 841
2002................................... 300
------
$2,512
======
LEGAL PROCEEDINGS
The Company is a party to certain claims and litigation in the ordinary
course of business. The Company does not believe any of these proceedings will
result, individually or in the aggregate, in a material adverse effect upon its
financial condition or results of operations.
RELATED PARTY TRANSACTIONS
On October 1, 1999, the Company issued a $1,000,000 line of credit,
expiring December 31, 2001, to the chief executive officer of the Company.
Amounts borrowed are secured by a lien on the equity interests which the chief
executive officer has in the Company. In addition, amounts borrowed bear
interest at the Company's incremental borrowing rate in effect during the time
such loan is outstanding and interest shall be due and payable on a quarterly
basis. At December 31, 1999, the chief executive officer had borrowings
outstanding of $600,000 under this line of credit (interest at 9.75% at December
31, 1999) and the borrowings have been included in non-current other assets,
net.
NOTE 13 - 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.
F-22
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
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 single foreign operation is significant
to the Company's consolidated operations. Intersegment sales between geographic
areas are made at cost plus a share of operating profit.
The Company's geographic area data for each of the three fiscal years
ended December 31, 1999, 1998 and 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
1999
----
<S> <C> <C> <C> <C>
Sales to unaffiliated customers ................................. $ 258,304 $ 47,808 $ 306,112
Sales between geographic areas .................................. 20,977 - $ (20,977) -
--------- --------- --------- ---------
Net sales ....................................................... $ 279,281 $ 47,808 $ (20,977) $ 306,112
========= ========= ========= =========
Income from operations .......................................... $ 39,609 $ 4,171 $ 43,780
========= =========
Interest expense, net ........................................... 26,365
Other expense, net .............................................. 35
---------
Income before income taxes and minority
interests ................................................... $ 17,380
=========
Long-lived assets ............................................... $ 127,062 $ 7,685 $ 134,747
========= ========= =========
Domestic Foreign Eliminations Consolidated
--------- ------- ------------ ------------
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
========= ========= =========
Domestic Foreign Eliminations Consolidated
--------- --------- ------------ ------------
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
========= ========= =========
</TABLE>
F-23
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts
receivables, deposits and other current assets, loans and notes payable,
accounts payable, accrued expenses (non derivatives) and other current
liabilities approximate fair value at December 31, 1999 and 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, 1999 and 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, 1999 and 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, 1999 and 1998, would result in a gain (loss) of $0.9 million and
$(1.6) million, respectively.
NOTE 15 - 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, 1999 and 1998, and the related consolidating
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 1999 for the combined Guarantors and the combined
non-guarantors and elimination entries necessary to consolidate the entities
comprising the combined companies.
F-24
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ...................................... $ 141 $ 708 $ 849
Accounts receivable, net ....................................... 46,212 10,684 56,896
Inventories .................................................... 53,486 6,207 $ (500) 59,193
Prepaid expenses and other current assets ...................... 10,809 993 11,802
--------- --------- --------- ---------
Total current assets ........................................... 110,648 18,592 (500) 128,740
Property, plant and equipment, net .................................. 60,502 1,207 61,709
Intangible assets, net .............................................. 57,595 5,736 63,331
Other assets, net ................................................... 25,354 965 (16,612) 9,707
--------- --------- --------- ---------
Total assets ................................................... $ 254,099 $ 26,500 $ (17,112) $ 263,487
========= ========= ========= =========
LIABILITIES, REDEEMABLE COMMON STOCK
AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Loans and notes payable ........................................ $ 4,585 $ 103 $ 4,688
Accounts payable ............................................... 17,611 1,356 18,967
Accrued expenses ............................................... 11,685 4,647 16,332
Income taxes payable ........................................... 2,279 684 2,963
Current portion of long-term
obligations .................................................. 3,443 119 3,562
--------- --------- --------- ---------
Total current liabilities ...................................... 39,603 6,909 46,512
Long-term obligations, excluding
current portion ................................................... 266,517 374 266,891
Deferred tax liabilities ............................................ 11,989 12 12,001
Other ............................................................... 437 9,641 $ (7,048) 3,030
--------- --------- --------- ---------
Total liabilities .............................................. 318,546 16,936 (7,048) 328,434
Redeemable Common Stock ............................................. 23,582 23,582
Commitments and Contingencies
Stockholders' (deficit) equity:
Common Stock ................................................... 339 (339) --
Additional paid-in capital ..................................... 225 658 (658) 225
Unamortized restricted Common Stock
Award, net .................................................. (405) (405)
Notes receivable from stockholders ............................. (664) (664)
(Deficit) retained earnings .................................... (86,297) 9,188 (9,688) (86,797)
Accumulated other comprehensive loss ........................... (888) (621) 621 (888)
--------- --------- --------- ---------
Total stockholders' (deficit) equity ....................... (88,029) 9,564 (10,064) (88,529)
--------- --------- --------- ---------
Total liabilities, redeemable Common
Stock and stockholders' (deficit) equity ................ $ 254,099 $ 26,500 $ (17,112) $ 263,487
========= ========= ========= =========
</TABLE>
F-25
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
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
Accounts payable .................................................. 10,671 823 11,494
Accrued expenses .................................................. 13,034 4,486 17,520
Income taxes payable .............................................. 458 135 593
Current portion 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
Commitments and Contingencies ..........................................
Stockholders' (deficit) equity:
Common Stock ...................................................... 339 (339) --
Additional paid-in capital ........................................ 225 658 (658) 225
Unamortized restricted Common Stock
Award, net ..................................................... (575) (575)
Notes receivable from stockholders ................................ (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 and stockholders' (deficit) equity ................... $ 240,958 $ 28,622 $ (20,728) $ 248,852
========= ========= ========= =========
</TABLE>
F-26
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 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 .............................................................. $ 279,988 $ 47,477 $ (21,353) $ 306,112
Cost of sales .......................................................... 182,985 31,952 (21,351) 193,586
--------- --------- --------- ---------
Gross profit .................................................. 97,003 15,525 (2) 112,526
Operating expenses:
Selling expenses ................................................... 19,015 5,440 24,455
General and administrative
expenses ......................................................... 27,536 5,905 (192) 33,249
Art and development costs .......................................... 10,047 10,047
Non-recurring charges .............................................. 995 995
--------- --------- --------- ---------
Income from operations ........................................ 39,410 4,180 190 43,780
Interest expense, net .................................................. 25,735 630 26,365
Other (income) expense, net ............................................ (2,513) 193 2,355 35
--------- --------- --------- ---------
Income before income taxes
and minority interests ..................................... 16,188 3,357 (2,165) 17,380
Income taxes ........................................................... 5,979 1,121 7,100
Minority interests ..................................................... 73 73
--------- --------- --------- ---------
Net income .................................................... $ 10,209 $ 2,163 $ (2,165) $ 10,207
========= ========= ========= =========
</TABLE>
F-27
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
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 ................................................... 13,408 3,794 17,202
General and administrative
expenses ......................................................... 18,788 4,836 (192) 23,432
Art and development costs .......................................... 7,356 7,356
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-28
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
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-29
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income .......................................................... $ 10,209 $ 2,163 $ (2,165) $ 10,207
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization .................................... 12,327 604 12,931
Amortization of deferred financing costs ......................... 870 870
(Gain) loss on disposal of property and equipment ................ (2) 88 86
Provision for doubtful accounts .................................. 2,288 618 2,906
Non-recurring charges ............................................ 995 995
Amortization of Restricted Common Stock award .................... 170 170
Deferred income tax provision .................................... 3,517 247 3,764
Changes in operating assets and liabilities:
Increase in accounts receivable ............................ (9,701) (4,596) (14,297)
(Increase) decrease in inventories ......................... (5,270) 656 2 (4,612)
Decrease (increase) in prepaid expenses and other
current assets and other, net ........................... 38 (677) (639)
(Increase) decrease in other assets ........................ (8,293) 4,605 2,163 (1,525)
Increase (decrease) in accounts payable, accrued
expenses and income taxes payable ....................... 12,765 (4,186) 8,579
-------- -------- -------- --------
Net cash provided by (used in) operating activities ........ 19,913 (478) -- 19,435
Cash flows from investing activities:
Capital expenditures ................................................ (11,459) (173) (11,632)
Proceeds from disposal of property and equipment .................... 201 15 216
-------- -------- -------- --------
Net cash used in investing activities ...................... (11,258) (158) (11,416)
Cash flows from financing activities:
Payments to acquire Common Stock in the Merger ...................... (29) (29)
Proceeds from loans, notes payable and long-term obligations ........ 375 75 450
Repayment of loans, notes payable and long-term obligations ......... (9,116) (126) (9,242)
Other ............................................................... 729 (675) 54
-------- -------- -------- --------
Net cash used in financing activities ...................... (8,041) (726) -- (8,767)
Effect of exchange rate changes on cash ............................. (996) 1,476 480
-------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents .............................................. (382) 114 (268)
Cash and cash equivalents at beginning of year ......................... 523 594 1,117
-------- -------- -------- --------
Cash and cash equivalents at end of year................................ $ 141 $ 708 $ -- $ 849
======== ======== ======== ========
</TABLE>
F-30
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
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 expenses 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)
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-31
<PAGE>
AMSCAN HOLDINGS, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan
Holdings and Combined
Combined Non-
Guarantors Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
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-32
<PAGE>
SCHEDULE II
AMSCAN HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998, and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Beginning Ending
Balance Write-offs Additions Balance
------- ---------- --------- -------
Allowance for Doubtful Accounts:
For the year ended:
<S> <C> <C> <C> <C>
December 31, 1997.................................... $4,138 $ 2,220 $3,775 $5,693
December 31, 1998.................................... 5,693 5,459 6,641 (1) 6,875
December 31, 1999.................................... 6,875 3,609 2,906 6,172
Beginning Ending
Balance Write-offs Additions Balance
------- ---------- --------- -------
Inventory Reserves:
For the year ended:
December 31, 1997.................................... $1,685 $1,562 $1,039 $1,162
December 31, 1998.................................... 1,162 906 1,336 1,592
December 31, 1999.................................... 1,592 1,824 2,261 2,029
</TABLE>
(1) Includes approximately $3,305 of an allowance for doubtful accounts in
connection with receivables purchased in the 1998 acquisition of Anagram.
F-33
<PAGE>
========================================== ================================
You must rely only on this Prospectus or
other information Amscan Holdings, Inc.
directly refers you to. Amscan Holdings AMSCAN HOLDINGS, INC.
has not authorized anyone to provide you
with any other information. You may assume 9 7/8% Senior Subordinated Notes
the accuracy of the contents of due 2007
this Prospectus only through the date hereof. ($110,000,000 principal amount
If you live in a jurisdiction that prohibits outstanding)
the offering or sale 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......................... 9
The Transaction...................... 12
Use of Proceeds...................... 12
Capitalization....................... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 13
Business.................................. 20
Management................................ 27
Ownership of Capital Stock................ 34
Description of Senior Debt................ 35
Description of Notes...................... 37
Description of Certain Federal Income Tax
Consequences of an Investment in the
Notes.................................. 62
Plan of Distribution...................... 65
Experts................................... 65
Validity of the Notes..................... 65
Index to Financial Statements............. F-1
========================================== ================================
<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' 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
(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
II-1
<PAGE>
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,
and Confetti Acquisition, Inc., dated as of August 10, 1997
(incorporated by reference to Exhibit 2.1 to Amscan
Holdings' Registration Statement on Form S-4 ( No.
333-45457))
2.2 Stock Purchase Agreement, dated as of August 6, 1998, by
and among Amscan Holdings and certain stockholders of
Anagram International, Inc. and certain related companies
(incorporated by reference to Exhibit 2.1 to Amscan
Holdings' Current Report on Form 8-K dated August 6, 1998)
(Commission File No. 000-21827)).
3.1 Certificate of Incorporation of Amscan Holdings dated
October 3, 1996 (incorporated by reference to Exhibit 3.1
to Amscan Holdings' Registration Statement on Form S-4 (No.
333-45457)).
3.2 Amended By-Laws of Amscan Holdings (incorporated by
reference to Exhibit 3.2 to Amscan Holdings' Registration
Statement on Form S-4 (No. 333-45457)).
3.3 Certificate of Incorporation of Amscan Inc. (incorporated
by reference to Exhibit 3.3 to Amscan Holdings'
Registration Statement on Form S-4 (No. 333-45457)).
3.4 By-Laws of Amscan Inc. (incorporated by reference to
Exhibit 3.4 to Amscan Holdings' Registration Statement on
Form S-4 (No. 333-45457)).
3.5 Restated Articles of Incorporation of Trisar, Inc.
(incorporated by reference to Exhibit 3.5 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
3.6 By-Laws of Trisar, Inc. (incorporated by reference to
Exhibit 3.6 to Amscan Holdings' Registration Statement on
Form S-4 (No. 333-45457)).
3.7 Original Articles of Incorporation of Am-Source, Inc.
(incorporated by reference to Exhibit 3.7 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
3.8 By-Laws of Am-Source Inc. (incorporated by reference to
Exhibit 3.8 to Amscan Holdings' Registration Statement on
Form S-4 (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' Registration Statement on Form S-4 (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' Registration Statement on Form S-4 (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' Registration Statement on Form S-4 (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' Registration Statement on Form S-4 (No.
333-45457)).
3.13 Amended Articles of Incorporation of Anagram International,
Inc. (incorporated by reference to Exhibit 3.1 to Amscan
Holdings' Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
II-2
<PAGE>
3.14 By-Laws of Anagram International, Inc. (incorporated by
reference to Exhibit 3.2 to Amscan Holdings' Current Report
on Form 8-K dated September 17, 1998 (Commission File No.
000-21827)).
3.15 Articles of Incorporation of Anagram International
Holdings, Inc. (incorporated by reference to Exhibit 3.3 to
Amscan Holdings' Current Report on Form 8-K dated September
17, 1998 (Commission File No. 000-21827)).
3.16 By-Laws of Anagram International Holdings, Inc.
(incorporated by reference to Exhibit 3.4 to Amscan
Holdings' Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
3.17 Articles of Organization of Anagram International, LLC
(incorporated by reference to Exhibit 3.5 to Amscan
Holdings', Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
3.18 Operating Agreement of Anagram International, LLC
(incorporated by reference to Exhibit 3.6 to Amscan
Holdings' Current Report on Form 8-K dated September 17,
1998 (Commission 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' Current Report on Form 8-K dated September
17, 1998 (Commission File No. 000-21827)).
4.1 Indenture, dated as of December 19, 1997, by and among
Amscan Holdings, the Guarantors named therein and IBJ
Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes (incorporated by reference to Exhibit
4.1 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457)).
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' Current
Report on Form 8-K dated September 17, 1998 (Commission
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' Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
4.4 Warrant Agreement, dated as of August 6, 1998, by and
between Amscan Holdings and Garry Kieves Retained Annuity
Trust (incorporated by reference to Exhibit 4.1 to Amscan
Holdings' Current Report on Form 8 - K dated August 6, 1998
(Commission File No. 000-21827)).
4.5 Amended and Restated Revolving Loan Credit Agreement,
dated as of September 17, 1998, among Amscan Holdings, 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' Current Report on Form 8-K dated September 7,
1998 (Commission File No. 000-21827)).
4.6 Amended and Restated AXEL Credit Agreement, dated as of
September 17, 1998, among Amscan Holdings, 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' Current
Report on Form 8-K dated September 25, 1998 (Commission
File No. 000-21827)).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (incorporated by
reference to Exhibit 5.1 to Amscan Holdings' Resgistration
Statement on Form S-4 ( No. 000-333-45475)).
II-3
<PAGE>
9.1 Voting Agreement, dated August 10, 1997 among Confetti
Acquisition, Inc., the Estate of John A. Svenningsen and
Christine Svenningsen (incorporated by reference to Exhibit
2.2 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457)).
10.1 Exchange and Registration Rights Agreement, dated as of
December 19, 1997, by and among Amscan Holdings and
Goldman, Sachs & Co. (incorporated by reference to Exhibit
10.1 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457)).
10.2 Stockholders' Agreement, dated as of December 19, 1997, by
and among Amscan Holdings' and the Stockholders thereto
(incorporated by reference to Exhibit 10.4 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
10.3 Amendment No. 1 to the Stockholders' Agreement, dated as of
August 6, 1998 by and among Amscan Holdings and certain
stockholders of Amscan Holdings (incorporated by reference
to Exhibit 10.1 to Amscan Holdings' Current Report on Form
8-K dated August 6, 1998 (Commission File No. 000-21827)).
10.4 Employment Agreement, dated as of August 10, 1997, by and
between Amscan Holdings and Gerald C. Rittenberg
(incorporated by reference to Exhibit 10.5 to Amscan
Holdings' Registration Statement on Form S-4 (File No
333-45457)).
10.5 Employment Agreement, dated as of August 10, 1997, by and
between Amscan Holdings and James M. Harrison (incorporated
by reference to Exhibit 10.6 to Amscan Holdings'
Registration Statement on Form S-4 (No 333-4128)).
10.6 Employment Agreement between Amscan Holdings and Garry
Kieves dated as of August 6, 1998 (incorporated by
reference to Exhibit 99.1 to Amscan Holdings' Current
Report on Form 8-K dated August 6, 1998) (Commission File
No. 000-21827).
10.7 Amscan Holdings, Inc. 1997 Stock Incentive Plan
((incorporated by reference to Exhibit 10.7 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
10.8 Tax Indemnification Agreement between Amscan Holdings and
John A. Svenningsen, dated as of December 18, 1996
(incorporated by reference to Exhibit 10(j) to Amscan
Holdings' 1996 Annual Report on Form 10-K (Commission File
No. 000-21827)).
10.9 Tax Indemnification Agreement between Amscan Holdings,
Christine Svenningsen and the Estate of John A.
Svenningsen, dated as of August 10, 1997 (incorporated by
reference to Exhibit 10.17 to Amscan Holdings' Registration
Statement on Form S-4 (No. 333-40235)).
10.10 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 Amscan Holdings' Registration Statement on Form
S-1 (No. 333-14107)).
10.11 Form of Indemnification Agreement between Amscan Holdings
and each of the directors of Amscan Holdings (incorporated
by reference to Exhibit 10(o) to Amendment No. 2 to Amscan
Holdings' Registration Statement on Form S-1 (No.
333-14107)).
10.12 Line of Credit Agreement, dated October 1, 1999, by and
among Amscan Holdings and Gerald C. Rittenberg
(incorporated by reference to Exhibit 10(m) to Amscan
Holdings' 1999 Annual Report on Form 10-K (Commission File
No. 000-21827)).
II-4
<PAGE>
10.13 Consulting Agreement dated November 8, 1999, by and among
Amscan Holdings and William S. Wilkey (incorporated by
reference to Exhibit 10(n) to Amscan Holdings' 1999 Annual
Report on Form 10-K (Commission File No. 000-21827)).
10.14 Amended Full Recourse Secured Promissory Note dated
November 8, 1999 by and among Amscan Holdings and William
S. Wilkey (incorporated by reference to Exhibit 10(o) to
Amscan Holdings' 1999 Annual Report on Form 10-K
(Commission File No. 000-21827)).
10.15 Amendment dated December 1, 1999 to the Employment
Agreement between Amscan Holdings and James M. Harrison.
12.1 Statement re: computation of ratio of earnings to fixed
charges (incorporated by reference to Exhibit 12 to Amscan
Holdings' 1999 Annual Report on Form 10-K (Commission File
No. 000-21827)).
21.1 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.1 to Post-Effective Amendement No. 2 to
Amscan Holdings' Registration Statement on Form S-4 (No.
333-45457)).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 5.1).
24.1 Powers of Attorney (incorporated by reference to Exhibit
24.1 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457) and to Exhibit 24.2 to Post-Effective
Amendment No. 1 to Amscan Holdings' Registration Statement
on Form S-4 (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' Registration Statement on
Form S-4 (Commission File No. 333-45457)).
II-5
<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 May 12, 2000.
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 May 12, 2000.
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-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 May 12, 2000.
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 May 12, 2000.
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-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 May 12, 2000.
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 May 12, 2000.
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-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 May 12, 2000.
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 May 12, 2000.
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-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 May 12, 2000.
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 May 12, 2000.
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-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 May 12, 2000.
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 May 12, 2000.
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 May 12, 2000.
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 May 12, 2000.
Name Title
---- -----
* President
--------------------------
Garry 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-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 May 12, 2000.
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 May 12, 2000.
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-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 May 12, 2000.
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 May 12, 2000.
Name Title
---- -----
* President
--------------------------
Garry 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-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 May 12, 2000.
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 May 12, 2000.
Name Title
---- -----
* Manager
--------------------------
Gerald C. Rittenberg
Manager (and principal
* financial and accounting officer)
--------------------------
James M. Harrison
* Manager
--------------------------
Michael A. Correale
* Manager
--------------------------
Garry Kieves
* Manager
--------------------------
James Plutt
By: /s/ James M. Harrison
------------------------
James M. Harrison
Attorney-In-Fact
II-15
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, by and among Amscan Holdings,
and Confetti Acquisition, Inc., dated as of August 10, 1997
(incorporated by reference to Exhibit 2.1 to Amscan
Holdings' Registration Statement on Form S-4 ( No.
333-45457)).
2.2 Stock Purchase Agreement, dated as of August 6, 1998, by
and among Amscan Holdings and certain stockholders of
Anagram International, Inc. and certain related companies
(incorporated by reference to Exhibit 2.1 to Amscan
Holdings' Current Report on Form 8-K dated August 6, 1998)
(Commission File No. 000-21827)).
3.1 Certificate of Incorporation of Amscan Holdings dated
October 3, 1996 (incorporated by reference to Exhibit 3.1
to Amscan Holdings' Registration Statement on Form S-4 (No.
333-45457)).
3.2 Amended By-Laws of Amscan Holdings (incorporated by
reference to Exhibit 3.2 to Amscan Holdings' Registration
Statement on Form S-4 (No. 333-45457)).
3.3 Certificate of Incorporation of Amscan Inc. (incorporated
by reference to Exhibit 3.3 to Amscan Holdings'
Registration Statement on Form S-4 (No. 333-45457)).
3.4 By-Laws of Amscan Inc. (incorporated by reference to
Exhibit 3.4 to Amscan Holdings' Registration Statement on
Form S-4 (No. 333-45457)).
3.5 Restated Articles of Incorporation of Trisar, Inc.
(incorporated by reference to Exhibit 3.5 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
3.6 By-Laws of Trisar, Inc. (incorporated by reference to
Exhibit 3.6 to Amscan Holdings' Registration Statement on
Form S-4 (No. 333-45457)).
3.7 Original Articles of Incorporation of Am-Source, Inc.
(incorporated by reference to Exhibit 3.7 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
3.8 By-Laws of Am-Source Inc. (incorporated by reference to
Exhibit 3.8 to Amscan Holdings' Registration Statement on
Form S-4 (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' Registration Statement on Form S-4 (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' Registration Statement on Form S-4 (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' Registration Statement on Form S-4 (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' Registration Statement on Form S-4 (No.
333-45457)).
3.13 Amended Articles of Incorporation of Anagram International,
Inc. (incorporated by reference to Exhibit 3.1 to Amscan
Holdings' Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
3.14 By-Laws of Anagram International, Inc. (incorporated by
reference to Exhibit 3.2 to Amscan Holdings' Current Report
on Form 8-K dated September 17, 1998 (Commission File No.
000-21827)).
3.15 Articles of Incorporation of Anagram International
Holdings, Inc. (incorporated by reference to Exhibit 3.3 to
Amscan Holdings' Current Report on Form 8-K dated September
17, 1998 (Commission File No. 000-21827)).
<PAGE>
3.16 By-Laws of Anagram International Holdings, Inc.
(incorporated by reference to Exhibit 3.4 to Amscan
Holdings' Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
3.17 Articles of Organization of Anagram International, LLC
(incorporated by reference to Exhibit 3.5 to Amscan
Holdings', Current Report on Form 8-K dated September 17,
1998 (Commission File No. 000-21827)).
3.18 Operating Agreement of Anagram International, LLC
(incorporated by reference to Exhibit 3.6 to Amscan
Holdings' Current Report on Form 8-K dated September 17,
1998 (Commission 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' Current Report on Form 8-K dated September
17, 1998 (Commission File No. 000-21827)).
4.1 Indenture, dated as of December 19, 1997, by and among
Amscan Holdings, the Guarantors named therein and IBJ
Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes (incorporated by reference to Exhibit
4.1 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457)).
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' Current Report on Form
8-K dated September 17, 1998 (Commission 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' Current Report on Form 8-K
dated September 17, 1998 (Commission File No. 000-21827)).
4.4 Warrant Agreement, dated as of August 6, 1998, by and
between Amscan Holdings and Garry Kieves Retained Annuity
Trust (incorporated by reference to Exhibit 4.1 to Amscan
Holdings' Current Report on Form 8 - K dated August 6, 1998
(Commission File No. 000-21827)).
4.5 Amended and Restated Revolving Loan Credit Agreement, dated
as of September 17, 1998, among Amscan Holdings, 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' Current Report on Form 8-K dated September 7,
1998 (Commission File No. 000-21827)).
4.6 Amended and Restated AXEL Credit Agreement, dated as of
September 17, 1998, among Amscan Holdings, 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' Current
Report on Form 8-K dated September 25, 1998 (Commission
File No. 000-21827)).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (incorporated by
reference to Exhibit 5.1 to Amscan Holdings' Resgistration
Statement on Form S-4 ( No. 000-333-45475)).
9.1 Voting Agreement, dated August 10, 1997 among Confetti
Acquisition, Inc., the Estate of John A. Svenningsen and
Christine Svenningsen (incorporated by reference to Exhibit
2.2 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457)).
<PAGE>
10.1 Exchange and Registration Rights Agreement, dated as of
December 19, 1997, by and among Amscan Holdings and
Goldman, Sachs & Co. (incorporated by reference to Exhibit
10.1 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457)).
10.2 Stockholders' Agreement, dated as of December 19, 1997, by
and among Amscan Holdings' and the Stockholders thereto
(incorporated by reference to Exhibit 10.4 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
10.3 Amendment No. 1 to the Stockholders' Agreement, dated as of
August 6, 1998 by and among Amscan Holdings and certain
stockholders of Amscan Holdings (incorporated by reference
to Exhibit 10.1 to Amscan Holdings' Current Report on Form
8-K dated August 6, 1998 (Commission File No. 000-21827)).
10.4 Employment Agreement, dated as of August 10, 1997, by and
between Amscan Holdings and Gerald C. Rittenberg
(incorporated by reference to Exhibit 10.5 to Amscan
Holdings' Registration Statement on Form S-4 (File No
333-45457)).
10.5 Employment Agreement, dated as of August 10, 1997, by and
between Amscan Holdings and James M. Harrison (incorporated
by reference to Exhibit 10.6 to Amscan Holdings'
Registration Statement on Form S-4 (No 333-4128)).
10.6 Employment Agreement between Amscan Holdings and Garry
Kieves dated as of August 6, 1998 (incorporated by
reference to Exhibit 99.1 to Amscan Holdings' Current
Report on Form 8-K dated August 6, 1998) (Commission File
No. 000-21827).
10.7 Amscan Holdings, Inc. 1997 Stock Incentive Plan
((incorporated by reference to Exhibit 10.7 to Amscan
Holdings' Registration Statement on Form S-4 (No.
333-45457)).
10.8 Tax Indemnification Agreement between Amscan Holdings and
John A. Svenningsen, dated as of December 18, 1996
(incorporated by reference to Exhibit 10(j) to Amscan
Holdings' 1996 Annual Report on Form 10-K (Commission File
No. 000-21827)).
10.9 Tax Indemnification Agreement between Amscan Holdings,
Christine Svenningsen and the Estate of John A.
Svenningsen, dated as of August 10, 1997 (incorporated by
reference to Exhibit 10.17 to Amscan Holdings' Registration
Statement on Form S-4 (No. 333-40235)).
10.10 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 Amscan Holdings' Registration Statement on Form
S-1 (No. 333-14107)).
10.11 Form of Indemnification Agreement between Amscan Holdings
and each of the directors of Amscan Holdings (incorporated
by reference to Exhibit 10(o) to Amendment No. 2 to Amscan
Holdings' Registration Statement on Form S-1 (No.
333-14107)).
10.12 Line of Credit Agreement, dated October 1, 1999, by and
among Amscan Holdings and Gerald C. Rittenberg
(incorporated by reference to Exhibit 10(m) to Amscan
Holdings' 1999 Annual Report on Form 10-K (Commission File
No. 000-21827)).
10.13 Consulting Agreement dated November 8, 1999, by and among
Amscan Holdings and William S. Wilkey (incorporated by
reference to Exhibit 10(n) to Amscan Holdings' 1999 Annual
Report on Form 10-K (Commission File No. 000-21827)).
<PAGE>
10.14 Amended Full Recourse Secured Promissory Note dated
November 8, 1999 by and among Amscan Holdings and William
S. Wilkey (incorporated by reference to Exhibit 10(o) to
Amscan Holdings' 1999 Annual Report on Form 10-K
(Commission File No. 000-21827)).
10.15 Amendment dated December 1, 1999 to the Employment
Agreement between Amscan Holdings and James M. Harrison.
12.1 Statement re: computation of ratio of earnings to fixed
charges (incorporated by reference to Exhibit 12 to Amscan
Holdings' 1999 Annual Report on Form 10-K (Commission File
No. 000-21827)).
21.1 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.1 to Post-Effective Amendement No. 2 to
Amscan Holdings' Registration Statement on Form S-4 (No.
333-45457)).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 5.1).
24.1 Powers of Attorney (incorporated by reference to Exhibit
24.1 to Amscan Holdings' Registration Statement on Form S-4
(No. 333-45457) and to Exhibit 24.2 to Post-Effective
Amendment No. 1 to Amscan Holdings' Registration Statement
on Form S-4 (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' Registration Statement on
Form S-4 (Commission File No. 333-45457)).
AMSCAN HOLDINGS, INC.
80 Grasslands Road
Elmsford, NY 10523
December 1, 1999
Mr. James M. Harrison
16 High Street
East Williston, New York 11596
Re: Amendment of Employment Agreement
Dear Jim:
In connection with the employment agreement dated August 10, 1997 (the
"Employment Agreement") between James M. Harrison (the "Executive") and Amscan
Holdings, Inc. (the "Company"), the parties hereto agree that Paragraph 4(a) of
the Employment Agreement is hereby amended to provide that with respect to the
termination of the Restricted Period as to Executive's remaining Restricted
Stock (which was to be released from the Restricted Period in increments
commencing on January 1, 2000), the Restricted Period shall continue until
January 1, 2007, unless the Restricted Period sooner terminates as to all of the
Restricted Stock upon the occurrence of any of the "earlier termination" events
set forth in Paragraph 4(a) (including upon the nonrenewal of the Employment
Agreement by the Company).
Except as specifically set forth herein, all other terms of the Employment
Agreement shall continue in full force and effect.
If the foregoing meets with your understanding, please execute the enclosed
copy of this letter and return same to the undersigned.
Very truly yours,
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
----------------------------
Name:
Title:
ACCEPTED AND AGREED TO AS OF
THIS 1st DAY OF DECEMBER, 1999:
/s/ JAMES M. HARRISON
- ------------------------------
James M. Harrison
Exhibit 23.1
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 15, 2000, in the Post Effective Amendment No. 3 to
the Registration Statement on Form S-4 (No. 333-45457) and related Prospectus of
Amscan Holdings, Inc.
/s/ Ernst & Young LLP
Stamford, Connecticut
May 9, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Amscan Holdings, Inc.
We consent to the incorporation by reference in the registration statements (No.
333-45457) on Form S-4 of Amscan Holdings, Inc. of our report dated February 13,
1998, relating to the consolidated statements of operations, stockholders'
(deficit) equity and cash flows for the year ended December 31, 1997, of Amscan
Holdings, Inc. and subsidiaries and the related information in the financial
statement schedule for the same period, which report appears in the December 31,
1999, annual report on Form 10-K of Amscan Holdings, Inc., and to the reference
to our firm under the heading "Experts" in such registration statement.
/s/ KPMG LLP
Stamford, Connecticut
May 10, 2000
