-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MANYOOlS9HFkY+JqRDbEHrdLE95Gsye9S/vTa2pLw/ANrxmWiMFmoxi4IjaVx+iJ N5jz6ZhKYP4bdKZlPBCcVQ== 0000950123-96-007095.txt : 19961203 0000950123-96-007095.hdr.sgml : 19961203 ACCESSION NUMBER: 0000950123-96-007095 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19961202 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSCAN HOLDINGS INC CENTRAL INDEX KEY: 0001024729 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-14107 FILM NUMBER: 96674987 BUSINESS ADDRESS: STREET 1: 80 GRASSLANDS ROAD CITY: ELMSFORD STATE: NY ZIP: 10523 BUSINESS PHONE: 9143452020 MAIL ADDRESS: STREET 1: 80 GRASSLANDS ROAD CITY: ELMSFORD STATE: NY ZIP: 10523 S-1/A 1 AMENDMENT #1: AMSCAN HOLDINGS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1996 REGISTRATION NO. 333-14107 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ AMSCAN HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5110 13-3911462 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
80 GRASSLANDS ROAD ELMSFORD, NEW YORK 10523 (914) 345-2020 (ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) JAMES M. HARRISON CHIEF FINANCIAL OFFICER 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, INCLUDING COMMUNICATIONS SENT TO THE AGENT FOR SERVICE OF PROCESS, SHOULD BE SENT TO: PAUL G. HUGHES, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ. CUMMINGS & LOCKWOOD SULLIVAN & CROMWELL FOUR STAMFORD PLAZA, P.O. BOX 120 125 BROAD STREET STAMFORD, CONNECTICUT 06904-0120 NEW YORK, NEW YORK 10004 (203) 327-1700 (212) 558-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly as practicable after the effective date of this Registration Statement. ------------------------ CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE(1) REGISTRATION FEE(2) - ----------------------------------------------------------------------------------------------------------- Common Stock, par value $0.10 per share........... 6,152,500 shares $14 $86,135,000 $26,101.52 - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2) Of the total amount of the registration fee, the amount of $22,727.27 was paid upon the filing of this Registration Statement with the Securities and Exchange Commission on October 15, 1996. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
REGISTRATION STATEMENT ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS ------------------------------------------ ------------------------------------------ 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus.............................. Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus........................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors 4. Use of Proceeds........................... Use of Proceeds 5. Determination of Offering Price........... Underwriting 6. Dilution.................................. Risk Factors; Dilution 7. Selling Security Holders.................. Not applicable 8. Plan of Distribution...................... Outside Front Cover Page of Prospectus; Underwriting 9. Description of Securities to be Registered.............................. Description of the Company's Capital Stock 10. Interest of Named Experts and Counsel..... Validity of Common Stock; Experts 11. Information with Respect to the Registrant.............................. Prospectus Summary; The Company; Organization of the Company; Selected Combined Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Supplemental Pro Forma Combined Financial Statements (unaudited); Business; Management of the Company; Principal Stockholders; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................. Not applicable
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED DECEMBER 2, 1996 5,350,000 SHARES LOGO AMSCAN HOLDINGS, INC. COMMON STOCK (PAR VALUE $0.10 PER SHARE) --------------------- The shares of Common Stock offered hereby are being sold by the Company. A substantial portion of the net proceeds will be used by the Company to pay subordinated indebtedness outstanding to the Company's principal stockholder. See "Use of Proceeds." Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price per share will be between $12 and $14. For factors to be considered in determining the initial public offering price, see "Underwriting." SEE "RISK FACTORS" ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. Application has been made to have the Common Stock approved for quotation on The Nasdaq Stock Market, Inc. under the symbol "AMSN." --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO OFFERING PRICE DISCOUNT(1) COMPANY(2) --------------------------------------------------------- Per Share............................. $ $ $ Total(3).............................. $ $ $
- --------------- (1) The Company, certain of its operating subsidiaries and its principal stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting estimated expenses of $681,500 payable by the Company. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional 802,500 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." --------------------- The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York on or about , 1996, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. ALEX. BROWN & SONS INCORPORATED --------------------- The date of this Prospectus is , 1996. 4 [GRAPHIC MATERIAL: PHOTOGRAPHS OF THE COMPANY'S FACILITIES IN LOUISVILLE, KY, HARRIMAN, NY, CHESTER, NY, ELMSFORD, NY, TEMECULA, CA, CANADA AND EUROPE.] The Company intends to furnish its stockholders with annual reports containing audited financial statements and quarterly reports containing unaudited financial statements for each of the first three quarters of each year. --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, INC., IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 5 [GRAPHIC MATERIAL: PHOTOGRAPHS OF A SELECTION THE COMPANY'S PRODUCTS AND THE COMPANY'S LOGO.] 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the combined financial statements (including the notes thereto) appearing elsewhere in this Prospectus. Unless the context otherwise requires, references herein to the "Company" refer to Amscan Holdings, Inc., a Delaware corporation, and each of its subsidiaries, including those in which the Company owns less than 100% of the capital stock, after the Organization (as defined herein). Except as otherwise noted, the information contained in this Prospectus assumes that the Underwriters' over-allotment option is not exercised. See "Underwriting." The offering of shares of Common Stock described herein is referred to as the "Offering." References herein to fiscal years are to the fiscal years of the Company ended December 31 of the year specified. THE COMPANY The Company believes it is one of the leading designers, manufacturers and distributors of seasonal and everyday party goods. With a product line consisting of approximately 14,000 stock keeping units ("sku's"), the Company, through its principal subsidiary, Amscan Inc. and affiliated companies, is a complete source of paper and plastic party goods, including decorative tableware such as plates, cups, napkins and tablecovers, accessories such as invitations and balloons, and novelties such as games and favors. The Company's products are sold in more than 20,000 retail outlets. The Company is a leading supplier to the emerging party goods superstore distribution channel, where it has been able to position itself as a responsive and comprehensive supplier of proprietary, well designed and high quality products. The Company also distributes its products to discount chains, mass merchandisers and specialty retailers. During 1995, the Company generated net sales, income from operations, net income and pro forma net income of $167.4 million, $24.7 million, $17.4 million and $10.8 million, respectively. Net sales, income from operations, net income and pro forma net income have grown at a compound annual rate of 21%, 26%, 29% and 28%, respectively, from 1991 to 1995. The Company strives to be an industry leader in the creation and design of party goods. An in-house design staff of approximately 60 persons develops and manages the Company's broad line of party goods for all occasions. The Company currently offers approximately 200 coordinated product ensembles which enhance the celebration of seasonal holidays, events such as birthdays and graduations and general social gatherings, including theme-oriented celebrations such as Hawaiian luaus and '50's parties. The Company's design staff keeps the Company's product line contemporary and fresh by introducing new ensembles each year. For example, in 1996 the Company introduced more than 50 new ensembles. The Company is a vertically integrated manufacturer, which enables it to control costs, manage inventory investment and respond quickly to customer orders. The Company maintains state-of-the-art manufacturing facilities in New York, Kentucky, Rhode Island and California which produce paper and plastic plates, napkins and cups. These products account for approximately 50% of the Company's net sales. Over the past five years, the Company has purchased or leased new plant and equipment having an aggregate value of approximately $29 million. Products not manufactured directly by the Company are generally supplied to the Company by independently-owned manufacturers located primarily in China and elsewhere in the Far East. The Company believes that it has developed a dependable group of manufacturers capable of producing products which are consistent with the Company's high standards of quality. The Company's sales and distribution capabilities are designed to provide a high level of customer service. A direct employee sales force of approximately 62 sales professionals services over 5,000 retail accounts. In addition to this seasoned sales team, the Company utilizes a select group of manufacturer representatives to handle specific account situations. The principal sales and marketing tool of the Company is its three separate annual catalogues, two for seasonal products and one for everyday products. Products are distributed from the Company's distribution centers 3 7 located principally in New York and California using computer assisted systems that permit the Company to receive and fill customer orders efficiently and quickly. THE OFFERING Common Stock offered by the Company.......... 5,350,000 shares Common Stock to be outstanding after the Offering................................... 22,000,000 shares(1) Use of Proceeds.............................. To repay subordinated indebtedness outstanding to the principal stockholder and other stockholders of the Company and to repay outstanding indebtedness to unaffiliated lenders under the Company's revolving credit agreement. See "Use of Proceeds." Proposed Nasdaq Stock Market Symbol.......... "AMSN"
- --------------- (1) Does not include 2,000,000 shares of Common Stock reserved for issuance upon exercise of stock options granted or which may be granted under the Company's stock option plan. 4 8 SUMMARY HISTORICAL COMBINED FINANCIAL DATA This table presents historical, pro forma and supplemental pro forma combined financial information of Amscan Inc. and Affiliates. The summary historical information presented below for the years ended December 31, 1991 and 1992 and for the nine months ended September 30, 1995 was derived from the unaudited combined financial statements of Amscan Inc. and Affiliates as of such dates. The summary historical financial information presented below for the years ended December 31, 1993, 1994 and 1995 and for the nine months ended September 30, 1996 were derived from the audited combined financial statements of Amscan Inc. and Affiliates as of such dates. The summary historical financial information should be read in conjunction with the "Selected Historical Combined Financial Data" and related notes included elsewhere in this Prospectus. The pro forma and supplemental pro forma data are unaudited and present the effect of certain events that have occurred or will occur in connection with the consummation of the Offering and the formation of the Company and should be read in conjunction with "Selected Historical Combined Financial Data," "Capitalization," "Supplemental Pro Forma Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------------- ----------------------------------- SUPPLEMENTAL SUPPLEMENTAL PRO FORMA PRO FORMA 1991 1992 1993 1994 1995 1995(3) 1995 1996 1996(3) ----------- ----------- -------- -------- -------- ------------ ----------- -------- ------------ ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales............ $77,263 $86,944 $108,934 $132,029 $167,403 $167,403 $ 128,314 $147,008 $147,008 Gross profit......... 27,086 30,379 36,278 45,281 58,749 58,749 46,595 54,147 54,147 Income from operations(1)...... 9,639 9,892 11,716 14,516 24,669 27,000 21,962 24,372 27,484 Net income........... $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095 ======= ======= ======== ======== ======== ======== ======== Pro forma net income(2).......... $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 10,330 $ 10,974 ======= ======= ======== ======== ======== ======== ======== Supplemental pro forma net income(3).......... $ 14,197 $ 14,678 ======== ======== Supplemental pro forma net income per share.......... $ 0.65 $ 0.67 ======== ======== Supplemental pro forma weighted average common shares outstanding(4)..... 22,000,000 22,000,000 ========== ==========
AT SEPTEMBER 30, 1996 ---------------------- AS HISTORICAL ADJUSTED(6) -------- ------------ BALANCE SHEET DATA: Working capital.......................................................................................... $ 2,096 $ 64,774 ======== ======== Total assets............................................................................................. $145,753 $156,331 ======== ======== Short-term indebtedness(5)............................................................................... $ 86,173 $ 25,573 Long-term indebtedness(5)................................................................................ 12,412 12,412 -------- -------- Total indebtedness(5).................................................................................... $ 98,585 $ 37,985 ======== ======== Stockholders' equity(6).................................................................................. $ 24,639 $ 89,227 ======== ========
5 9 - --------------- (1) In each of the five years ended December 31, 1995 and for the nine months ended September 30, 1995 and 1996, special bonus arrangements totaling $0.1 million, $0.9 million, $1.1 million, $2.2 million, $2.6 million, and $2.4 million and $3.3 million, respectively, existed with certain members of management. Upon consummation of the Offering, such special profit sharing arrangements will be substantially modified and replaced by incentives tied to the value of the Common Stock. See "Management of the Company -- Executive Compensation -- Employment Agreements" and " -- Stock Option Plan." (2) Prior to the consummation of the Offering, Amscan Inc. and affiliates Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S corporations under the Internal Revenue Code. The pro forma net income amounts give effect to pro forma income taxes for each of the periods at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation status. (3) Supplemental pro forma net income for 1995 and for the nine months ended September 30, 1996 is higher than the pro forma net income shown for such periods due to adjustments described in the notes to the Supplemental Pro Forma Combined Statement of Operations. See "Supplemental Pro Forma Combined Financial Statements." (4) Represents shares expected to be issued and outstanding after the Offering. See "Capitalization." (5) Short-term indebtedness consists primarily of the Company's borrowings under bank lines of credit, current installments of long-term debt and subordinated debt due to Mr. Svenningsen and other stockholders. As of September 30, 1996, subordinated debt due to Mr. Svenningsen amounted to $34.2 million. Long-term indebtedness consists primarily of debt to third-parties. (6) As Adjusted balance sheet and stockholders' equity at September 30, 1996 give effect to certain adjustments as described in the notes to the Supplemental Pro Forma Combined Balance Sheet. See "Supplemental Pro Forma Combined Financial Statements." 6 10 THE COMPANY The Company believes it is one of the leading designers, manufacturers and distributors of seasonal and everyday party goods. The business of the Company was founded in 1947 to import and distribute party goods and novelty items. Through internal growth and selective acquisitions, the Company has become a fully integrated designer, manufacturer and multinational distributor of party goods. The Company is a complete source of paper and plastic party goods, including decorative tableware such as plates, cups, napkins and tablecovers, accessories such as invitations and balloons, and novelties such as games and favors. The Company's products are sold in more than 20,000 retail outlets. The Company is a leading supplier to the emerging party goods superstore distribution channel, where it has been able to position itself as a responsive and comprehensive supplier of proprietary, well designed and high quality products. The Company also distributes its products to discount chains, mass merchandisers and specialty retailers. The Company was incorporated on October 3, 1996 for the purpose of becoming the holding company for Amscan Inc. and certain affiliated entities. See "Organization of the Company." The Company's principal executive offices are located at 80 Grasslands Road, Elmsford, New York 10523, and its telephone number is (914) 345-2020. RISK FACTORS Prospective purchasers of shares of Common Stock of the Company being offered hereby should consider carefully the following factors, as well as other information set forth in the Prospectus, prior to making an investment in the Common Stock. IMPORTANCE OF CERTAIN CUSTOMERS In recent years, there have been significant changes in the manner of selling party goods at retail. An increasing percentage of party goods is being sold through party goods superstores rather than through discount chains, mass merchandisers and specialty retailers. The Company believes that the significant role of party goods superstores in the sale of party goods will continue to increase. This concentration of sales could adversely affect sales by the Company to other party goods retailers such as specialty retailers. Combined sales to the Company's two largest customers, Party City Corporation and Party Stores Holdings, Inc., accounted in the aggregate for approximately 7%, 10% and 17% of the Company's net sales in 1993, 1994 and 1995, respectively. At December 31, 1995, these two party superstore retailers also accounted for 12% of the Company's accounts receivable. Although the Company believes its relationships with these customers to be very good, should either of them significantly reduce their volume of purchases from the Company, the Company's financial condition and results of operations could be adversely affected. CONCENTRATION OF CREDIT RISK The concentration of sales of party goods into the party superstore channel of distribution has resulted in a significant concentration of unsecured trade receivables with such customers. These retailers are generally privately held and in recent years have expanded rapidly. While the Company believes that adequate provisions for bad debts have been made in its financial statements, should it be unable to collect these receivables to any significant extent, the Company's financial condition and results of operations would be adversely affected. DEPENDENCE ON KEY PERSONNEL The Company's initial growth and development were largely attributable to the vision of its Chairman of the Board and Chief Executive Officer, John A. Svenningsen, and for the past six years have been dependent upon the services of Gerald C. Rittenberg, President of the Company, and 7 11 William S. Wilkey, Senior Vice President -- Sales of the Company. The loss of the services of Messrs. Svenningsen, Rittenberg or Wilkey could have an adverse effect on the Company's financial condition or results of operations. See "Management of the Company." The Company does not maintain key-man life insurance on any of these officers. In the first quarter of 1996, Mr. Svenningsen was diagnosed with lymphoma. Since that time, Mr. Svenningsen has been undergoing treatment. CONTROL BY CERTAIN STOCKHOLDERS Upon consummation of the Offering, Mr. Svenningsen will be the beneficial owner of approximately 69% (or 66.6% if the Underwriters' over-allotment option is exercised in full) of the outstanding shares of Common Stock. Until such time, if ever, that there is a significant decrease in the percentage of outstanding shares held by Mr. Svenningsen, Mr. Svenningsen will control the Company through his ability to determine the outcome of votes of stockholders regarding, among other things, election of directors and approval of significant transactions. In addition, executive officers, directors and senior management of the Company, including Mr. Svenningsen, will beneficially own an aggregate of approximately 15,842,308 shares or 72.0% (or 69.5% if the Underwriters' over-allotment option is exercised in full) of the Common Stock after the Offering. See "Principal Stockholders." IMPORTANCE OF IDENTIFYING DESIGN TRENDS AND CONSUMER PREFERENCES In manufacturing and distributing party goods, the Company's success depends in part on its ability to anticipate the tastes and preferences of party goods retailers and consumers. The Company's strategy has depended to a significant extent on the regular introduction of new designs which are attractive and distinctive. The Company's failure to anticipate, identify or react appropriately to changes in consumer tastes could, among other things, lead to excess inventories and significant markdowns or to a shortage of products, either of which could have an adverse effect on the Company's financial condition or results of operations. COMPETITION The party goods industry is highly competitive. The Company competes with many other companies, including smaller, independent specialty manufacturers as well as divisions or subsidiaries of larger companies with greater financial and other resources than those of the Company. Certain of these competitors control licenses for widely-recognized images such as cartoon or motion picture characters, which could provide them with a competitive advantage. IMPACT OF CHANGING PAPER PRICES The principal raw material used by the Company in its products is paper, which accounts for approximately 35% of the cost of the production of the Company's paper plates, cups and napkins. The price of paper is subject to change due to numerous factors beyond the control of the Company. Any significant increase in the cost of paper would adversely affect the Company's raw material costs. Competitive conditions will determine how much of paper price increases can be passed on by party goods retailers to the ultimate consumers of the Company's products. If the Company is unable to pass future paper price increases to the party goods retailers, the Company's financial condition and results of operations would be adversely affected. RISKS ASSOCIATED WITH FUTURE EXPANSION THROUGH ACQUISITIONS The Company has, from time to time, expanded its product line as well as further vertically integrated its operations, through strategic acquisitions. The Company may pursue additional acquisitions of complementary businesses which the Company believes may further these strategic objectives. There can be no assurance that the Company will be able to locate suitable acquisition 8 12 candidates, make such acquisitions on acceptable terms or effectively and profitably integrate such acquisitions with its existing operations. Moreover, to the extent Common Stock is issued to effect an acquisition, such issuance could result in dilution to the Company's stockholders, and any additional indebtedness incurred to pay for acquisition costs could adversely affect the Company's liquidity and results of operation. ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock. There can be no assurance that an active public market for the Common Stock will develop or be sustained after the Offering. The initial public offering price will be determined by negotiations between the Company and the representatives of the Underwriters and may bear no relationship to the market price of the Common Stock after the Offering. See "Underwriting." Subsequent to the Offering, prices for the Common Stock will be determined by the market and may be influenced by a number of factors, including the Company's operating results, the depth and liquidity of the market for the Common Stock, investor perceptions of the Company, the party goods industry in general and general economic conditions. ABSENCE OF DIVIDENDS The Company does not intend to pay cash dividends on the Common Stock for the foreseeable future. The Company is a holding company with no business operations of its own. The Company therefore is dependent upon payments, dividends and distributions from its subsidiaries for funds to pay its expenses and to pay future cash dividends or distributions, if any, to holders of the Common Stock. The Company currently intends to retain any earnings for working capital, repayment of indebtedness, capital expenditures and general corporate purposes. The revolving credit agreement to which the Company's principal subsidiary is a party prohibits the payment by such subsidiary of any cash dividends. ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS The Company's Certificate of Incorporation and By-Laws contain certain provisions that may have the effect of substantially deterring a future takeover of the Company. These provisions vest more power in the Company's Board of Directors with respect to takeovers of the Company than applicable state anti-takeover laws and are designed to encourage a potential acquiror to enter into negotiations with the Company's Board of Directors. See "Description of the Company's Capital Stock -- Certain Provisions of Delaware Law and the Company's Certificate of Incorporation and By-Laws." COMMON STOCK ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, 22,000,000 shares of Common Stock will be outstanding. Of these shares, the 5,350,000 shares sold in the Offering will be freely transferable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. In addition, approximately 230,769 shares of the shares of Common Stock (based on the mid-point of the range of public offering prices set forth on the cover page of this Prospectus) outstanding will be owned by the Company's Employee Stock Ownership Plan (the "ESOP") or issued to domestic employees in connection with stock bonuses. See "Shares Eligible for Future Sale." The remaining 16,419,231 outstanding shares of Common Stock held by existing stockholders, in addition to the shares owned by the ESOP, will be "restricted securities" as that term is defined in Rule 144, which are eligible for sale in the public market in compliance with Rule 144 (including limits on the number of shares which may be sold within specified periods). Three months after any such stockholder ceases to be an "affiliate" of the Company, all of such shares held for more than three years would then immediately become eligible for public sale without the limitations of Rule 144. Subject to 9 13 certain exceptions, the Company, John A. Svenningsen (who beneficially owns 15,182,308 shares of Common Stock) and the SSY Trusts (as defined below) have agreed with the representatives of the Underwriters that they will not offer, sell, contract to sell or otherwise dispose of any securities of the Company including, but not limited to any securities that are exercisable or exchangeable for, that represent the right to receive or that are convertible into or whose exercise or settlement price is derivable from the price of, the Common Stock or any substantially similar securities for a period of 180 days after the date of this Prospectus without the prior written consent of the representatives of the Underwriters. See "Principal Stockholders" and "Underwriting." In addition, Mr. Rittenberg has agreed that he will not sell shares of Common Stock received in the Organization for a period of 18 months from the date of receipt of such shares except for transfers to Mr. Svenningsen to repay certain indebtedness. The Company has granted certain stockholders a one-time right to demand registration of the offer and sale of their Common Stock under the Securities Act. Any such demand may not be exercised earlier than one year from the date hereof. See "Shares Eligible for Future Sale." No prediction can be made as to the effect, if any, that future sales of shares of Common Stock or the availability of shares of Common Stock for future sale would have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock in the public market following the Offering, or the perception that such sales could occur, could have an adverse effect on prevailing market prices for the Common Stock. DILUTION Purchasers of Common Stock in the Offering will incur immediate and substantial dilution of $9.29 (based on the mid-point of the range of public offering prices set forth on the cover page of this Prospectus) in the net tangible book value per share of the Common Stock from the initial public offering price as compared to the increase in net tangible book value per share that will accrue to existing stockholders. See "Dilution." ORGANIZATION OF THE COMPANY The Company was organized on October 3, 1996 for the purpose of becoming the holding company for businesses previously conducted by the Company's principal subsidiary Amscan Inc. and certain affiliated companies (Amscan Inc., together with such affiliated companies, the "Operating and Real Estate Companies"). In connection with the Company's formation, John A. Svenningsen, the Company's founder, purchased 1,000 shares of Common Stock from the Company for $100 thereby becoming its sole stockholder. Mr. Svenningsen's purchase of such shares was made solely to facilitate the organization of the Company. The Operating and Real Estate Companies include companies previously owned and independently controlled by Mr. Svenningsen, including Amscan Inc., Trisar, Inc., which manufactures and distributes certain of the Company's products, Amscan Distributors (Canada) Ltd. and Amscan Svenska AB, each of which is engaged in the distribution of the Company's products, and JCS Realty Corp. which is a holding company for certain real estate leased to the Company for use in the operation of its business. The Operating and Real Estate Companies also include companies in which Mr. Svenningsen owned less than 100% of the capital stock, including, Am-Source, Inc., the Company's supplier of plastic plates, cups and bowls, certain companies located in Great Britain, Australia, Germany and Mexico engaged in the distribution of the Company's products and SSY Realty Corp., which is a holding company for certain real estate leased to the Company. The organization of the Company (the "Organization") encompasses consummation of the transactions contemplated by three agreements to which the Company is a party and which are summarized below. The first of these agreements is among the Company, Mr. Svenningsen, Gerald C. Rittenberg and certain trusts established for the benefit of Mr. Svenningsen's children (the "SSY Trusts"). 10 14 Pursuant to this agreement, Mr. Svenningsen, Mr. Rittenberg and the SSY Trusts exchanged all of the outstanding capital stock which they owned in the Operating and Real Estate Companies including Amscan Inc. for shares of Common Stock of the Company. For purposes of this exchange, the value of the Company as a whole was based on the midpoint of the estimated range of the initial public offering price, which was arrived at after discussions between Mr. Svenningsen and the representatives of the Underwriters and reflects Mr. Svenningsen's and the representatives' preliminary assessment of the factors set forth under "Underwriting." The number of shares issued to Mr. Svenningsen took into account the value of Am-Source, Inc. based on the arm's length negotiations with the stockholders of Am-Source, Inc. other than Mr. Svenningsen, the shares issued to Mr. Rittenberg pursuant to the agreement described below, the shares issued to the SSY Trusts and the shares to be issued to the ESOP or in payment of stock bonuses. Based on the aggregate value of the Company as determined by Mr. Svenningsen and the value of the shares of Common Stock issued in exchange therefor being $13 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus), Mr. Svenningsen received an aggregate of 15,053,736 shares of Common Stock of the Company (which number includes the 1,000 shares of Common Stock issued to Mr. Svenningsen in connection with the formation of the Company). An additional 230,769 shares of Common Stock which otherwise would have been issued to Mr. Svenningsen in the Organization will be issued to the ESOP or in payment of stock bonuses based on an aggregate value of $3 million. 128,572 and 660,000 shares of Common Stock were issued to the SSY Trusts and Mr. Rittenberg, respectively. The transactions contemplated by this agreement among the Company, Mr. Svenningsen, Mr. Rittenberg and the SSY Trusts described above were consummated immediately prior to the date hereof. The second of these agreements is between the Company and the stockholders of Am-Source, Inc. other than Mr. Svenningsen pursuant to which such stockholders exchanged all of the outstanding capital stock of Am-Source, Inc. which they owned for shares of Common Stock. The number of shares of Common Stock issued in this exchange was determined by dividing $7.5 million, determined in an arm's-length negotiation among the parties to be the aggregate value of such stockholders' shares of the capital stock of Am-Source, Inc., by the initial public offering price of $13 (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus) for an aggregate of 576,923 shares of Common Stock. The exchange of shares of the capital stock of Am-Source, Inc. by such stockholders occurred immediately prior to the date hereof. The third agreement is among Amscan Inc., John A. Svenningsen and Gerald C. Rittenberg. Pursuant to this agreement, Mr. Rittenberg relinquished certain rights under a previous employment agreement, dated November 27, 1991, entered into between Amscan Inc. and Mr. Rittenberg including, the right to receive (a) a bonus in an amount equal to 10% of the aggregate net profits of Amscan Inc. and certain affiliates (as defined in the agreement), (b) 5% of the net selling price upon the sale of Amscan Inc. or the sale by Mr. Svenningsen of substantially all of his stock in Amscan Inc. and (c) in the event of an initial public offering of the stock of Amscan Inc., shares of the stock of Amscan Inc. equal to 5% of the shares of stock of Amscan Inc. issued and outstanding immediately following the consummation of such initial public offering. In exchange for the relinquishment of such rights, Mr. Rittenberg received a cash payment of $3.4 million and a number of shares of stock of Amscan Inc., which shares he exchanged for 660,000 shares of Common Stock, representing 3% of the shares of Common Stock to be outstanding upon consummation of the Offering (assuming no exercise of the Underwriters' over-allotment option) valued at $8,580,000 based on an initial public offering price of $13 (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus). To the extent that the net proceeds from the Offering (including any net proceeds of the exercise of the Underwriters' over-allotment option) exceeds $69 million, Mr. Rittenberg will be entitled to an additional cash payment equal to 5% of such excess. For a description of the terms of the agreement relating to Mr. Rittenberg's continued 11 15 employment by the Company, see "Management of the Company -- Executive Compensation -- Employment Agreements." The shares of Common Stock of the Company acquired by Mr. Svenningsen, the SSY Trusts, the other stockholders of Am-Source, Inc. and Mr. Rittenberg pursuant to these agreements constitute all of the issued and outstanding Common Stock of the Company prior to consummation of the Offering. Concurrently with the consummation of the transactions contemplated by the agreements described above, the status of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., as Subchapter S corporations under the Internal Revenue Code was terminated. Amscan Inc. has been treated for income tax purposes as a Subchapter S corporation since 1986 and Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. have been treated for income tax purposes as Subchapter S corporations since incorporation. As a result, each of such companies' stockholders prior to the Organization were required to pay taxes based on the earnings of such companies, respectively, whether or not such amounts had been distributed to such stockholders. For a number of years and until the consummation of the Organization, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. made periodic distributions to Mr. Svenningsen, as a stockholder of such companies, in amounts approximately equal to Mr. Svenningsen's tax liabilities associated with such companies' earnings, plus, in the case of Amscan Inc., Mr. Svenningsen's living expenses. The portion of the earnings of Amscan Inc., Am- Source, Inc., JCS Realty Corp. and SSY Realty Corp. owed to but not distributed to Mr. Svenningsen were, with Mr. Svenningsen's consent, retained by Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., respectively, as working capital. Prior to the date hereof, all of such accumulated undistributed earnings as well as dividends of accumulated earnings and capital contributions were converted to subordinated debt owed to Mr. Svenningsen by the Company. Such subordinated debt due to Mr. Svenningsen, in the amount of approximately $37 million, will be paid with a portion of the net proceeds of the Offering. See "Use of Proceeds" and "Capitalization." Am-Source, Inc. also made periodic distributions to each of the stockholders of Am-Source, Inc. other than Mr. Svenningsen until the consummation of the Organization, in amounts approximately equal to such stockholder's tax liabilities associated with Am-Source, Inc.'s earnings. The portion of Am-Source, Inc.'s accumulated earnings owed to but not distributed to such Am-Source, Inc. stockholders were, with their consent, retained by Am-Source, Inc. as working capital. Prior to the date hereof, all of such accumulated undistributed earnings and undistributed earnings since September 30, 1996 were converted to subordinated debt owed to such previous stockholders of Am-Source, Inc. by the Company. The subordinated debt owed to such stockholders other than Mr. Svenningsen (approximately $2.0 million) will be paid with a portion of the net proceeds of the Offering. See "Use of Proceeds" and "Capitalization." Upon the termination of the Subchapter S corporation status of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., such companies became subject to federal and state income taxes. The pro forma net income amounts and the Supplemental Pro Forma Combined Statements of Operations set forth in this Prospectus have been adjusted to include pro forma federal income tax provisions as if Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had been Subchapter C corporations under the Internal Revenue Code during the relevant periods. 12 16 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the shares offered hereby are estimated to be $64,000,000 ($73,702,000 if the Underwriters' over-allotment option is exercised in full), assuming a public offering price of $13 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus) and after deducting estimated underwriting discounts and other expenses of the Offering payable by the Company. Approximately $39 million of the net proceeds to the Company (representing $35.9 million payable as of September 30, 1996 as reflected in Amscan Inc. and Affiliates Combined Balance Sheet and $3.1 million of estimated distributable earnings between September 30, 1996 and the consummation of the Offering), will be used to repay certain subordinated indebtedness owed by the Company to Mr. Svenningsen and the other stockholders of Am-Source, Inc. Such indebtedness represents dividends and distributions declared but not paid by Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. to Mr. Svenningsen and by Am-Source, Inc. to its other stockholders over a number of years while Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. were Subchapter S corporations. The balance of $25 million of the net proceeds will be used by the Company to repay outstanding indebtedness to unaffiliated lenders under the Company's revolving credit agreement, which indebtedness includes amounts borrowed to make a one-time cash payment in the amount of $3.4 million to Mr. Rittenberg under his employment agreement. See "Management of the Company -- Executive Compensation -- Employment Agreements." The Company's subordinated indebtedness to Mr. Svenningsen and the stockholders of Am-Source, Inc. bears interest at prime (which at September 30, 1996 was 8.25%), plus 0.5%, and has no fixed maturity. The Company's indebtedness to unaffiliated lenders under its revolving credit agreement bears interest at an average rate of 6.8% and matures in September 2000. 13 17 CAPITALIZATION The following table sets forth (i) the actual short-term indebtedness and total capitalization of the Company at September 30, 1996, (ii) the adjustments giving effect to the transactions described in "Organization of the Company" as if they had been completed at that date and (iii) the pro forma short-term indebtedness and total capitalization as adjusted to give effect to the Offering at an assumed initial public offering price of $13 per share (the mid-point of the range of initial public offering prices set forth on the cover page of this Prospectus) and the application of the proceeds as set forth under "Use of Proceeds."
ADJUSTMENTS PRIOR TO ADJUSTMENTS THE ADJUSTED TO GIVE EFFECT AS HISTORICAL OFFERING HISTORICAL TO THE OFFERING ADJUSTED ---------- ----------- -------- --------------- ----------- ($ IN THOUSANDS) Short-term and long-term indebtedness: Loans payable.......... $ 47,955 $ 3,400(i) $ 51,355 $ (28,100)(vii) $ 23,255 Long-term indebtedness, including current portion............. 14,730 14,730 14,730 Subordinated and other indebtedness to stockholders........ 35,900 35,900 (35,900)(vii) -- -------- -------- -------- Total indebtedness...... 98,585 101,985 37,985 -------- -------- -------- Stockholders' equity: Common stock........... 393 (393)(ii) 1,665 535(viii) 2,200 1,518(ii) 66(i) 58(iii) 23(iv) Additional paid-in capital............. 1,490 (1,212)(ii) 19,211 63,465(viii) 82,676 8,514(i) 7,442(iii) 2,977(iv) Retained earnings...... 23,490 (11,980)(i) 4,998 4,998 (1,000)(v) (2,512)(vi) (3,000)(iv) Cumulative translation adjustment.......... (647) (647) (647) Treasury stock......... (87) 87(ii) -- -- -------- -------- -------- Total stockholders' equity............ 24,639 25,227 89,227 -------- -------- -------- Total capitalization..... $ 123,224 $127,212 $ 127,212 ======== ======== ========
- --------------- (i) Gives effect to the payments owed to Mr. Rittenberg in connection with the termination of his prior employment agreement. See note (c) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." (ii) Gives effect to the issuance of shares of Common Stock to Mr. Svenningsen and the SSY Trusts in connection with the Organization. See note (e) to the Supplemental Pro Forma Combined Balance sheet in the "Supplemental Pro Forma Combined Financial Statements." 14 18 (iii) Gives effect to the issuance of shares of Common Stock for the acquisition of an additional 50% of Am-Source, Inc. See note (b) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." (iv) Gives effect to the issuance of shares of Common Stock to establish the ESOP and to pay stock bonuses. See note (f) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." (v) Gives effect to the accrual for obligations payable to certain executives in connection with the termination of their prior employment agreements. See note (d) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." (vi) Gives effect to the net deferred tax liability as a result of timing differences. See note (a) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." (vii) Repayment of bank indebtedness and subordinated indebtedness to stockholders. See note (g) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." (viii) Net proceeds from the Offering. See note (h) to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." 15 19 DILUTION At September 30, 1996, the Company's net tangible book value was approximately $24.6 million or $1.48 per share of Common Stock (based upon 16,650,000 shares representing the shares issued in the Organization). See "Organization of the Company." Net tangible book value per share represents the amount of total tangible assets of the Company reduced by the amount of total liabilities, divided by the number of shares of Common Stock. After giving effect to the Offering and the application of proceeds therefrom, the net tangible book value at September 30, 1996 would have been approximately $81.7 million or $3.71 per share, representing an immediate increase in net tangible book value of $57.1 million or $2.59 per share and an immediate dilution of $9.29 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share................... $13.00 Net tangible book value at September 30, 1996..................... $1.48 Increase attributable to price paid by investors in the Offering........................................................ 2.23 ----- Adjusted net tangible book value per share after giving effect to the Offering.................................................... 3.71 ------ Dilution in net tangible book value per share to new investors in the Offering.................................................... $ 9.29 ======
16 20 SELECTED HISTORICAL COMBINED FINANCIAL DATA The selected data presented below under the captions "Income Statement Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the three-year period ended December 31, 1995 and as of and for the nine months ended September 30, 1996, are derived from the combined financial statements of Amscan Inc. and Affiliates which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The combined financial statements as of December 31, 1994 and 1995 and September 30, 1996, and for each of the years in the three-year period ended December 31, 1995 and for the nine months ended September 30, 1996, and the reports thereon, are included elsewhere in this Prospectus. The selected data presented below under the captions "Income Statement Data" and "Balance Sheet Data" for December 31, 1991 and December 31, 1992, and for each of the years then ended, and for the nine-month period ended September 30, 1995, are derived from unaudited combined financial statements of Amscan Inc. and Affiliates and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the combined financial position and results of operations for such periods. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of results to be expected for the year ending December 31, 1996. The selected combined financial data should be read in conjunction with Amscan Inc. and Affiliates' Combined Financial Statements and the related notes thereto included elsewhere in this Prospectus, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma and supplemental pro forma data are unaudited and intended to present the effect of certain events that have occurred or will occur in connection with the consummation of the Offering and the Organization and should be read in conjunction with "Supplemental Pro Forma Combined Financial Statements" and notes thereto contained elsewhere in this Prospectus. 17 21
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------- ------------------------- 1991 1992 1993 1994 1995 1995 1996 ----------- ----------- -------- -------- -------- ----------- ----------- ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales................... $77,263 $86,944 $108,934 $132,029 $167,403 $ 128,314 $ 147,008 Cost of sales............... 50,177 56,565 72,656 86,748 108,654 81,719 92,861 ------- ------- -------- -------- -------- -------- -------- Gross profit................ 27,086 30,379 36,278 45,281 58,749 46,595 54,147 Selling expenses............ 6,967 8,770 9,780 11,309 12,241 8,893 8,691 General and administrative expenses.................. 8,671 9,316 11,080 14,460 15,002 10,395 14,113 Art and development......... 1,709 1,551 2,596 2,796 4,256 2,936 3,671 Special bonuses(1).......... 100 850 1,106 2,200 2,581 2,409 3,300 ------- ------- -------- -------- -------- -------- -------- Income from operations...... 9,639 9,892 11,716 14,516 24,669 21,962 24,372 Interest expense, net....... 2,787 2,092 2,304 3,843 5,772 4,386 4,569 Other (income)/expense, net....................... (141) 16 308 82 (309) (409) (301) ------- ------- -------- -------- -------- -------- -------- Income before income taxes and minority interests.... 6,993 7,784 9,104 10,591 19,206 17,985 20,104 Income taxes................ 617 297 348 464 731 498 767 Minority interests.......... 73 53 301 160 1,041 722 1,242 ------- ------- -------- -------- -------- -------- -------- Net income.................. $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095 ======= ======= ======== ======== ======== ======== ======== PRO FORMA ADJUSTMENTS: Net income, as above...... $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095 Income taxes(2)........... 2,256 2,968 3,218 3,774 6,672 6,435 7,121 ------- ------- -------- -------- -------- -------- -------- Pro forma net income(2)... $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 10,330 $ 10,974 ======= ======= ======== ======== ======== ======== ======== SUPPLEMENTAL PRO FORMA DATA(3): Income from operations.... $ 27,000 $ 27,484 Interest expense, net..... 3,086 2,467 Other (income), net....... (309) (301) -------- -------- Income before income taxes and minority interests............... 24,223 25,318 Income taxes.............. 9,912 10,536 Minority interests........ 114 104 -------- -------- Net income................ $ 14,197 $ 14,678 ======== ======== Supplemental pro forma net income per share(3)....... $ 0.65 $ 0.67 ======== ======== Pro forma weighted average common shares outstanding(4)............ 22,000,000 22,000,000 ---------- ---------- ---------- ----------
AT SEPTEMBER 30, 1996 AT DECEMBER 31, ------------------------- ---------------------------------------------------------- AS 1991 1992 1993 1994 1995 HISTORICAL ADJUSTED(6) ----------- ----------- -------- -------- -------- ----------- ----------- BALANCE SHEET DATA: Working capital.......... $ 5,202 $ 7,765 $ 4,730 $ (438) $ 8,383 $ 2,096 $ 64,774 ========= ========= ======== ======== ======== ========= ========= Total assets............. $56,978 $60,652 $ 80,090 $ 93,884 $114,601 $ 145,753 $ 156,331 ========= ========= ======== ======== ======== ========= ========= Short-term indebtedness(5)........ $22,070 $25,993 $ 37,271 $ 50,869 $ 58,541 $ 86,173 $ 25,573 Long-term indebtedness(5)........ 11,728 11,116 11,852 8,800 12,284 12,412 12,412 ----------- ----------- -------- -------- -------- ----------- ----------- Total indebtedness(5).... $33,798 $37,109 $ 49,123 $ 59,669 $ 70,825 $ 98,585 $ 37,985 ========= ========= ======== ======== ======== ========= ========= Stockholders' equity(6).............. $14,467 $15,550 $ 18,496 $ 20,820 $ 27,205 $ 24,639 $ 89,227 ========= ========= ======== ======== ======== ========= =========
18 22 - --------------- (1) In each of the five years ended December 31, 1995 and for the nine months ended September 30, 1995 and 1996, special bonus arrangements existed with certain members of management. Upon consummation of the Offering, such special profit sharing arrangements will be substantially modified and replaced by incentives tied to the value of the Common Stock. See "Management of the Company -- Executive Compensation -- Employment Agreements" and "-- Stock Option Plan." (2) Prior to the consummation of the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S corporations under the Internal Revenue Code. The pro forma net income amounts give effect to pro forma income tax amounts for each of the periods shown at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation status. (3) Supplemental pro forma adjustments result in supplemental pro forma net income for 1995 and for the nine months ended September 30, 1996 being higher than the pro forma net income shown for such periods due to adjustments described in the notes to the Supplemental Pro Forma Combined Statement of Operations. See "Supplemental Pro Forma Combined Financial Statements." (4) Represents shares expected to be issued and outstanding after the Offering. See "Capitalization." (5) Short-term indebtedness consists primarily of the Company's borrowings under bank lines of credit, current installments of long-term debt and subordinated debt due to Mr. Svenningsen and other stockholders. As of September 30, 1996, subordinated debt due to Mr. Svenningsen amounted to $34.2 million. Long-term indebtedness consists primarily of debt to third parties. (6) As Adjusted balance sheet and stockholders' equity at September 30, 1996 give effect to certain adjustments as described in the notes to the Supplemental Pro Forma Combined Balance Sheet. See "Supplemental Pro Forma Combined Financial Statements." 19 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The party goods industry has experienced significant changes in both distribution channels and product offering over the last several years. The retail distribution of party goods has begun to shift from smaller independent stores and designated departments within drug, discount or department store chains to superstores dedicated to retailing party goods. In part due to the success of the superstore channel, party goods manufacturers broadened their product lines to support the celebration of a greater number of occasions. The industry's growth has been directly affected by these changes. The Company's revenues have increased from approximately $108.9 million in 1993 to $167.4 million in 1995, a compound annual growth rate of approximately 24%. The Company attributes this growth to its ability to create a broad range of unique and innovative designs for its products and to work closely with its customers to market and merchandise its products to consumers. In particular, the Company experienced significant growth with its superstore customers. Between 1993 and 1995, sales to party superstore customers increased from $27.7 million to $63.4 million, a 51% compound annual growth rate. Revenues are generated from the sales of approximately 14,000 sku's consisting of paper and plastic tableware, accessories and novelties for all occasions. Tableware (plates, cups, napkins, tablecovers and cutlery) is the Company's core product category, generating approximately 60% of revenues in 1995. Coordinated accessories (e.g., balloons and banners) and novelties (e.g., party favors) are offered to complement the Company's tableware products. To serve its customers better, the Company has made significant additions to its product line. Through increased spending on internal product development as well as through acquisitions, the Company has had a net increase of approximately 6,300 sku's since 1991. Revenue growth primarily has been the result of increased orders from its superstore customers (new stores and increased same-store sales), increased international sales and price increases. The Company's gross profit is influenced by its product mix and paper costs. Products manufactured by the Company, primarily tableware, represented approximately 50% of the Company's 1995 sales. The Company has made significant additions to its manufacturing capacity which have allowed it to improve gross margins. The Company believes that its manufacturing capabilities enable it to lower product cost, ensure product quality and be more responsive to customer demands. Paper represents approximately 35% of the cost of the Company's paper tableware. The Company has historically been able to adjust its prices in response to changes in paper prices. FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY In connection with the Offering and the Organization certain events have occurred or will occur which will affect the financial position and results of the Company. The following is a discussion of these events and the related financial impact. ORGANIZATION OF FOUNDER'S INTERESTS The Company has been formed for the purpose of becoming the holding company for the businesses previously conducted by Amscan Inc., certain affiliated companies individually owned and independently controlled by Mr. Svenningsen, and certain affiliated companies less than 100% owned by Mr. Svenningsen, including Am-Source, Inc., the Company's supplier of plastic plates, cups and bowls. The transfer of his ownership in these companies in exchange for shares of Common Stock of the Company will be accounted for in a manner similar to a pooling of interests and, as such, the historical cost basis of the accounts will be carried over thereby not giving rise to any goodwill. See "Organization of the Company." 20 24 During the periods presented, a business which was not material to the combined business of the Company was acquired by Mr. Svenningsen and subsequently disposed of. The associated balance sheet, statements of operations and loss on disposition of the business are insignificant and have been excluded from the accompanying combined financial statements. ACQUISITION OF AM-SOURCE, INC. The Company and the stockholders of Am-Source, Inc., other than Mr. Svenningsen, have entered into an agreement pursuant to which such stockholders have agreed to transfer their ownership in Am-Source, Inc. in exchange for shares of Common Stock. The transaction will be accounted for as the purchase of the 50% ownership of Am-Source, Inc. not currently owned and will give rise to approximately $7.5 million of goodwill, which will be amortized over 30 years. TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS Pursuant to an agreement between Amscan Inc. and Gerald C. Rittenberg, the Company's President, Mr. Rittenberg has entered into a new employment agreement, effective upon consummation of the Offering for a period of three years at a base compensation of approximately $220,000 per year to be increased annually by 5%. Mr. Rittenberg has also agreed that his existing employment agreement will terminate upon consummation of the Offering. The agreement which will be terminated provided for Mr. Rittenberg to receive bonuses equal to approximately 10% of the aggregate net profits of Amscan Inc. and certain affiliates (as defined in the agreement) in each of the next three years and an amount equal to 5% of the value of Amscan Inc. in the event of a change in control or an initial public offering. In exchange for relinquishing these rights, Mr. Rittenberg will receive a special one-time payment of approximately $3.4 million in cash and shares of Common Stock of the Company equal to 3% of the total shares outstanding (excluding any shares which might be issued upon exercise of the Underwriters' over-allotment option) immediately following the Offering. The aggregate value to be paid to Mr. Rittenberg in cash and stock is $12.0 million, assuming an initial public offering price of $13 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus). In addition, to the extent that the net proceeds of the Offering (including any net proceeds of the exercise of the Underwriters' over-allotment option) exceeds $69 million, Mr. Rittenberg will be entitled to an amount equal to 5% of such excess. See "Management of the Company -- Executive Compensation -- Employment Agreements." During the periods presented, certain other executives also had employment agreements which entitled them to receive a percentage of the pre-tax profits. These arrangements for Mr. Rittenberg and such other executives between 1993 and 1995 ranged from 18% to 20% of pre-tax profits in the aggregate. In conjunction with the Offering, these agreements have been substantially modified and these bonus arrangements replaced by a combination of specific incentive plans and/or cash payments and stock option grants. The aggregate of the special bonuses to Mr. Rittenberg and the other executives and senior managers were $1.1 million, $2.2 million and $2.6 million for the years ended December 31, 1993, 1994 and 1995, respectively. See "Management of the Company -- Executive Compensation -- Employment Agreements." ESTABLISHMENT OF AN EMPLOYEE STOCK OWNERSHIP PLAN AND PAYMENT OF STOCK BONUSES In conjunction with the Offering, the Company will be establishing the ESOP for the benefit of its domestic employees. At the Offering, there will be a special one-time contribution of 230,769 shares of Common Stock of the Company to the ESOP, subject to reduction as described in the next sentence, to be allocated to participant accounts based upon a formula which is weighted based upon both years of service and compensation. To the extent that application of this formula would result in a contribution to the ESOP on behalf of a participant which would exceed the maximum contribution permitted under applicable law, the contribution to the ESOP for such participant will be reduced to the maximum permitted and the balance determined under the formula will be paid to 21 25 such participant in the form of a stock bonus. The Company does not contemplate making any additional contributions to the ESOP until 1998, and any further contributions will then be dependent upon a number of factors including Company performance. CHANGE IN CORPORATIONS FROM SUBCHAPTER S TO SUBCHAPTER C CORPORATIONS Prior to the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. were operated as Subchapter S corporations for federal income and, where available, for state income tax purposes. As a result, these corporations did not record or pay any federal or state income tax expense. Following the Offering, the Company will be taxed as a Subchapter C corporation. It is anticipated that the Company will have statutory income tax rates of approximately 40.5% following the Offering. The Company has presented pro forma tax provisions and pro forma net income and per share data. These pro forma amounts represent the income tax provision and the net income of the Company had it been a Subchapter C corporation and thus subject to income tax for all periods. See "Amscan Inc. and Affiliates Combined Financial Statements" and "Supplemental Pro Forma Combined Financial Statements." STOCKHOLDER DISTRIBUTIONS As Subchapter S corporations, the accumulated profits of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. will be distributed to the stockholders through the effective date of the Offering. Net profits after the consummation of the Offering will be added to retained earnings of the Company and used to fund the capital requirements of the business. Additionally, prior to the Offering, Amscan Inc. and certain affiliates will declare dividends representing distributions of accumulated profits and a return of capital. These amounts will be reflected as subordinated debt and will be repaid from the net proceeds of the Offering. It is estimated that the total of these amounts, including the pre-existing subordinated debt as of September 30, 1996, will be approximately $39 million. ------------------ The impact of the termination of the prior employment agreements described above and the establishment of the ESOP (or the payment of stock bonuses) will result in a one-time charge to compensation expense of approximately $16.0 million. This expense, which will be recognized during the period that Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. are Subchapter S corporations, will be reflected in the Company's operations in the fiscal quarter which includes the Offering. 22 26 RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER YEARS ENDED DECEMBER 31, 30, ------------------------- --------------- 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........................... 66.7 65.7 64.9 63.7 63.2 ------ ------ ------ ------ ------ Gross profit............................ 33.3 34.3 35.1 36.3 36.8 Operating expenses: Selling................................. 9.0 8.5 7.4 6.9 6.0 General and administrative.............. 10.1 11.0 9.1 8.1 9.6 Art and development..................... 2.4 2.1 2.5 2.3 2.5 Special bonuses......................... 1.0 1.7 1.5 1.9 2.2 ------ ------ ------ ------ ------ Total operating expenses................ 22.5 23.3 20.5 19.2 20.3 ------ ------ ------ ------ ------ Income from operations.................. 10.8 11.0 14.6 17.1 16.5 Interest expense, net................... 2.1 2.9 3.4 3.4 3.1 Other expense (income), net............. 0.3 0.1 (0.2) (0.3) (0.2) ------ ------ ------ ------ ------ Income before income taxes and minority interests.................... 8.4 8.0 11.4 14.0 13.6 Income taxes............................ 0.3 0.4 0.4 0.4 0.5 Minority interests...................... 0.3 0.1 0.6 0.5 0.9 ------ ------ ------ ------ ------ Net income.............................. 7.8% 7.5% 10.4% 13.1% 12.2% ====== ====== ====== ====== ======
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 NET SALES Net sales for the nine months ended September 30, 1996 were $147.0 million, an increase of 14.6% over the nine months ended September 30, 1995 for which net sales were $128.3 million. Increased sales to national accounts, principally superstores, accounted for approximately $15.7 million or 84% of this increase. Also contributing to this sales increase was the impact of the Company's marketing strategy of continually offering new products as well as new designs and themes for existing products. In 1996, the Company's product line included approximately 14,000 sku's compared with approximately 13,400 sku's in 1995. Selling price increases related to core products (paper plates, napkins, cups and tablecovers) in response to higher paper costs accounted for approximately 6 percentage points of the 14.6% increase in net sales between the periods. Increased sales to international customers accounted for approximately $2.1 million of the increase in net sales. GROSS PROFIT Gross profit increased approximately $7.6 million for the nine months ended September 30, 1996 compared to the same period in 1995, and improved as a percentage of net sales from 36.3% to 36.8%. Higher selling prices in response to prior period increases in paper costs as well as lower product costs resulting from the Company's continued vertical integration of certain manufacturing operations, offset in part by the cost of added distribution facilities, were the primary reasons for this improvement in margins. SELLING EXPENSES Selling expenses were lower by approximately $0.2 million for the nine months ended September 30, 1996 compared to the same period in 1995, and declined as a percentage of net sales from 23 27 6.9% to 6.0%. The primary reason for the percentage decline was the Company's ability to increase sales to its party superstore customers while not significantly increasing its sales costs associated with these accounts. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased approximately $3.7 million for the nine months ended September 30, 1996 compared to the same period in 1995. As a percentage of net sales, general and administrative expenses increased from 8.1% to 9.6%. This increase is principally attributable to: an increase in the provisions for bad debts relating to a significant increase in the Company's accounts receivable; increased occupancy costs related to the Company's new corporate offices as well as one-time costs associated with the move to these offices; costs related to the development of a new business management computer system and additional personnel costs including relocation and recruitment. ART AND DEVELOPMENT COSTS Art and development costs increased approximately $0.7 million for the nine months ended September 30, 1996 compared to the same period in 1995. As a percentage of net sales, art and development costs increased from 2.3% to 2.5%. The Company significantly expanded its creative and new product development staff and internal development capabilities in the middle part of 1995 which resulted in a substantial increase in art and development costs. The increase in art and development expenditures reflects the Company's strategy to remain a leader in product quality and development. SPECIAL BONUSES Special bonuses, which were based entirely upon the Company's pre-tax income, increased by approximately $0.9 million for the nine months ended September 30, 1996 compared to the same period in 1995. In connection with the Offering, the employment agreements which gave rise to these bonuses have been substantially modified to eliminate the special bonus payments. See "Management of the Company -- Executive Compensation -- Employment Agreements." INCOME FROM OPERATIONS The factors discussed above contributed to the increase in income from operations of 11.0% to $24.4 million for the nine months ended September 30, 1996 from $22.0 million in the corresponding period in 1995. As a percentage of net sales, income from operations decreased from 17.1% for the nine months ended September 30, 1995 to 16.5% for the same period in 1996. INTEREST EXPENSE, NET Interest expense, net increased by $0.2 million to $4.6 million for the nine months ended September 30, 1996, reflecting slightly higher borrowings associated with increased working capital (primarily for inventory and accounts receivable) needed to support the increased volume of sales, offset in part by a lower effective interest cost associated with the Company's revised revolving credit agreement, which was entered into in September 1995. INCOME TAXES Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S corporations for federal income tax and, where available, for state income tax purposes. Accordingly, these entities have not been subject to federal income taxes. In connection with the completion of the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. will terminate their Subchapter S corporation status and, accordingly, will be subject to federal 24 28 and state income taxes. The amounts shown as income taxes consist principally of foreign taxes. See "Amscan Inc. and Affiliates Combined Financial Statements." MINORITY INTERESTS Minority interests represent the portion of income attributable to equity ownership not held by Mr. Svenningsen. In addition to the minority interests of certain foreign entities, these amounts include the minority interest of Am-Source, Inc., which will be acquired in conjunction with the Offering. See "Organization of the Company." YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 NET SALES Net sales for the year ended December 31, 1995 were $167.4 million, an increase of 26.8% over 1994 when net sales were $132.0 million. Increased sales to superstores accounted for $23.3 million or 66% of this increase. The number of retail outlets represented by these accounts increased to 886 in 1995 from 720 in 1994. Also contributing to this net sales increase was the impact of the Company's marketing strategy of continually offering new products as well as new designs and themes for existing products. In 1995, the Company's product line included over 13,400 sku's compared with approximately 11,000 sku's in 1994. Selling price increases related to core products (paper plates, napkins, tablecovers and cups) in response to higher paper costs, accounted for approximately 5 percentage points of the 26.8% of the year-over-year increase in net sales. Increased sales to international customers accounted for approximately $4.3 million of the increase in net sales in 1995 compared to 1994. GROSS PROFIT Gross profit increased by approximately $13.5 million from 1994 to 1995, and improved as a percentage of net sales from 34.3% to 35.1%. The gross profit margin improvement resulted primarily from the increased vertical integration of the Company's tableware manufacturing operations. During 1995, the Company added several new pieces of equipment including two printing presses which enabled it to expand its manufacturing capacity. In addition, gross margin improved as a result of increased leveraging of existing distribution facilities and improved purchasing of nonmanufactured products. SELLING EXPENSES Selling expenses increased by approximately $0.9 million from 1994 to 1995, but declined as a percentage of net sales from 8.5% to 7.4%. The primary reason for the percentage decline was the Company's ability to increase sales to its superstore customers, while not significantly increasing its sales costs associated with these accounts. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by approximately $0.5 million from 1994 to 1995, primarily as a result of modest wage increases partially offset by decreased provisions for bad debts and write-offs. During 1994, the Company sustained a larger amount of write-offs due to two large accounts which filed for bankruptcy. As a percentage of net sales, general and administrative expenses declined from 11.0% to 9.1%. The Company was able to leverage its administrative resources while supporting the increased sales. ART AND DEVELOPMENT COSTS Art and development costs increased approximately $1.5 million from 1994 to 1995. As a percentage of net sales, art and development costs increased from 2.1% in 1994 to 2.5% in 1995. 25 29 The Company significantly expanded its creative and new product development staff and internal development capabilities in 1995, which resulted in a substantial increase in art and development costs. The increase in such expenses reflects the Company's strategy of remaining a leader in product quality and development. SPECIAL BONUSES Special bonuses, which were based upon the Company's pre-tax income, increased in 1995 over 1994. The special bonus in 1994 included special one-time bonuses of approximately $0.8 million associated with the partial acquisition of Am-Source, Inc. In connection with the Offering, the employment agreements which gave rise to these bonuses have been substantially modified to eliminate the special bonus payments. See "Management of the Company -- Executive Compensation -- Employment Agreements." INCOME FROM OPERATIONS The factors discussed above contributed to the increase in income from operations of 69.9% to $24.7 million in 1995 from $14.5 million in 1994. As a percentage of net sales, income from operations increased from 11.0% in 1994 to 14.6% in 1995. INTEREST EXPENSE, NET Interest expense, net increased by $1.9 million to $5.8 million from 1994 to 1995, reflecting higher borrowings associated with increased working capital (primarily for inventory and accounts receivable) needed to support the increased volume of sales, as well as an increase in the Company's average effective rate for borrowed money from 7.5% to 8.3%. INCOME TAXES Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S corporations for federal income and, where available, for state income tax purposes. Accordingly, these entities have not been subject to federal income taxes. In connection with the consummation of the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. will terminate their Subchapter S corporation status and, accordingly, will be subject to federal and state income taxes. The amounts shown as income taxes consist principally of foreign taxes. See "Amscan Inc. and Affiliates Combined Financial Statements." MINORITY INTERESTS Minority interests represent the portion of income attributable to equity ownership not held by Mr. Svenningsen. In addition to the minority interests of certain foreign entities, these amounts include the minority interest of Am-Source, Inc. which will be acquired in conjunction with the Offering. See "Organization of the Company." YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993 NET SALES Net sales for the year ended December 31, 1994 were $132.0 million, an increase of 21.2% over 1993 when net sales were $108.9 million. Increased sales to superstores accounted for $12.5 million or 54% of this increase. The number of retail outlets represented by these accounts increased to 720 in 1994 from 591 in 1993. The number of items offered by the Company, which increased from 10,000 sku's in 1993 to 11,000 in 1994, also contributed to the improvement in net sales. In addition, sales were favorably affected by the inclusion of a full year of operating results for Am-Source, Inc. and Trisar, Inc. both of which were acquired by the Company during 1993. Average selling prices for the Company's core products (paper plates, napkins, cups and tablecovers) remained relatively flat 26 30 between 1993 and 1994. Increased sales to international customers accounted for approximately $3.0 million of the sales increase. GROSS PROFIT Gross profit increased approximately $9.0 million from 1993 to 1994, and improved as a percentage of net sales from 33.3% to 34.3%. Improved margins resulted from the Company's manufacturing a greater portion of its tableware requirements. In addition, gross margin improved as a result of increased leveraging of existing distribution facilities and improved purchasing of non- manufactured products. SELLING EXPENSES Selling expenses increased approximately $1.5 million between 1993 and 1994, but declined as a percentage of net sales from 9.0% to 8.5%. The primary reason for the percentage decline was the Company's ability to increase sales to its superstore customers while not significantly increasing its sales costs associated with these accounts. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expense increased approximately $3.4 million from 1993 to 1994 as a result of a number of factors including: the full year impact of acquisitions made in 1993, increases in provisions for bad debts, increased consulting and professional fees associated with systems development and wage increases. As a percentage of net sales, general and administrative expenses increased from 10.1% to 11.0% from 1993 to 1994. ART AND DEVELOPMENT COSTS Art and development costs increased approximately $0.2 million between 1993 and 1994. The increase was principally a result of the additional art and development costs associated with the acquisition of Trisar, Inc. which was consummated in 1993. As a percentage of net sales, art and development expenses decreased from 2.4% in 1993 to 2.1% in 1994. SPECIAL BONUSES Special bonuses, which were based upon the Company's pre-tax income, increased in 1994 over 1993. The special bonus in 1994 included special one-time bonuses of approximately $0.8 million associated with the partial acquisition of Am-Source, Inc. In connection with the Offering, the employment agreements which gave rise to these bonuses have been substantially modified to eliminate the special bonus payments. See "Management of the Company -- Executive Compensation - -Employment Agreements." INCOME FROM OPERATIONS Due to the factors discussed above, income from operations increased 23.9% to $14.5 million in 1994 from $11.7 million in 1993. As a percentage of net sales, income from operations increased from 10.8% to 11.0% from 1993 to 1994. INTEREST EXPENSE, NET Interest expense, net in 1994 increased by $1.5 million to $3.8 million, reflecting higher borrowings associated with increased working capital needed to support the increased volume of sales, as well as an increase in the Company's average effective interest rate from 6.9% to 7.5%. 27 31 INCOME TAXES Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S corporations for federal income and, where available, for state tax purposes. Accordingly, these entities have not been subject to federal income taxes. In connection with the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. will terminate their Subchapter S corporation status and, accordingly, will be subject to federal and state income taxes. The amounts shown as income taxes consist principally of foreign taxes. See "Amscan Inc. and Affiliates Combined Financial Statements." MINORITY INTERESTS Minority interests represent the portion of income attributable to equity ownership not held by Mr. Svenningsen. In addition to the minority interests of certain foreign entities, these amounts include the minority interest of Am-Source, Inc. which will be acquired in conjunction with the Offering. See "Organization of the Company." LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth over the past three years principally through cash flow generated from operations, the use of operating leases, increases in its revolving line of credit borrowings and increases in long-term debt, including subordinated debt owed to Mr. Svenningsen. The proceeds from this Offering will be used to reduce indebtedness under the Company's line of credit and to repay subordinated debt. Management believes that the Company's working capital requirements will continue to be met by cash flow from operations and borrowings under its line of credit. On September 20, 1995, the Company amended its revolving line of credit with several banks. This facility provided the Company with a $50.0 million credit line based upon the eligible assets of the Company. The amount available under this facility increased to $55.0 million on September 20, 1996, and will increase to $60.0 million on September 20, 1997. The facility, which expires September 20, 2000, had an outstanding balance as of September 30, 1996 of $45.8 million at an average interest rate of 6.96%. This rate includes the impact of interest rate "swap" contracts which the Company has entered into to fix the interest rate on $25.0 million of its obligation. (See Note (5) of the Notes to Combined Financial Statements of Amscan Inc. and Affiliates.) The Company's revolving line of credit imposes certain restrictions on the ability of the Company and certain of its subsidiaries, including Amscan Inc., to incur additional indebtedness, enter into guarantees or other similar agreements, make loans to or investments in other persons and pay dividends. The Company and its subsidiaries on a combined basis are also subject to financial covenants which require them to maintain a certain threshold tangible net worth, limit capital expenditures and require the Company and its subsidiaries on a combined basis to maintain certain financial ratios pursuant to the credit agreement relating to this facility. The Company may seek to enter into new arrangements to replace this revolving credit facility. Net cash used in operating activities decreased by approximately $9.6 million to $0.3 million in the September 1996 period from $9.9 million in the September 1995 period as a result of increases in net earnings before depreciation and amortization and an increase in accounts payable and accrued liabilities, partially offset by an increase in deposits paid on purchased equipment and a decrease in the rate of growth in inventories and other assets. Net cash used in investing activities of $3.7 million remained nearly level with spending for the nine months ended September 30, 1995. Net cash provided by financing activities decreased by $9.1 million, to $5.0 million in the September 1996 period from $14.1 million in the September 1995 period as a result of net decreases in loans, notes payable and long-term indebtedness. Net cash provided by operating activities decreased by $1.0 million to $2.9 million in 1995 from $3.9 million in 1994. This decrease was primarily attributable to increases in accounts receivable, 28 32 inventories and other assets, offset by increases in accounts payable and accrued expenses and net income before depreciation and amortization. Net cash used in investing activities decreased $3.4 million from $6.1 million to $2.7 million due to reduced capital expenditures. Net cash provided from financing activities decreased $2.6 million from $2.7 million to $0.1 million due to an increase in stockholder distributions partially offset by an increase in loans, notes payable and long-term indebtedness. Net cash provided by operating activities decreased $4.8 million from $8.7 million in 1993 to $3.9 million in 1994 due to decreased growth in accounts payable and accrued expenses and increased inventories and other assets, partially offset by increased net income before depreciation and amortization and decreased growth of accounts receivable. Net cash used in investing activities increased $0.4 million from $5.6 million to $6.0 million in 1994. The increase was attributable to payments made in 1993 for acquisitions, not made in 1994, offset by increases in capital expenditures in 1994 over 1993. Net cash from financing activities increased $4.7 million from $1.9 million used in 1993 to $2.8 million provided by financing activities in 1994, due to an increase in proceeds from loans, notes payable and long-term debt, offset by a decrease in stockholder distributions. Accounts receivable, net increased $19.5 million to $51.4 million on September 30, 1996 from $31.9 million at December 31, 1995. This increase is due principally to the seasonal nature of the business as well as increased sales. Third quarter sales are generally the highest of the year primarily due to initial shipments of seasonal holiday merchandise which has dated terms which result in higher accounts receivable balances relative to year-end levels. For the nine months ended September 30, 1996, the Company had income before interest, taxes and depreciation and amortization of $27.0 million compared to $24.8 million for the same period ended September 30, 1995. The measure, the definition of which might vary from company to company, should not be construed to be an alternative to operating income as an indicator of the Company's performance. Additionally, the Company generated $8.2 million and $13.1 million from third party financings for the nine months ended September 30, 1996 and 1995, respectively. Financings for the nine months ended September 30, 1996 consisted primarily of borrowings under credit facilities, while financings through September 30, 1995 consisted primarily of long-term loans secured by machinery and equipment and borrowings under the credit facilities. The Company used $23.0 million of the cash for the nine months ended September 30, 1996 and $30.4 million of the cash for the nine months ended September 30, 1995 to fund its working capital needs, which consisted primarily of increases in accounts receivable and inventory. In 1995, the Company had income before interest, taxes and depreciation and amortization of $28.3 million compared to $17.9 million in 1994. The measure, the definition of which might vary from company to company, should not be construed to be an alternative to operating income as an indicator of the Company's performance. Additionally, the Company generated $10.0 million and $3.9 million from third party financings and $1.2 million and $6.3 million from financings with Mr. Svenningsen in 1995 and 1994, respectively. Financings in 1995 consisted primarily of long-term loans secured by machinery and equipment and borrowings under revolving credit facilities, while financings in 1994 consisted primarily of bankers acceptances and borrowings under revolving credit facilities. The Company used $20.5 million of the cash in 1995 and $12.5 million of the cash in 1994 to fund its working capital needs, which consisted primarily of increases in accounts receivable and inventory. In 1995, the Company acquired $2.6 million of machinery and equipment, which was financed by long-term debt and borrowings under the Company's revolving credit facility, and entered into operating leases for additional machinery and equipment worth $7.4 million. In 1994, the Company acquired $6.8 million of machinery and equipment which was financed primarily by borrowings under the Company's revolving credit facilities and $4.0 million of which was refinanced through long-term loans early in 1995. The Company is continuing to add to manufacturing capacity and has entered 29 33 into additional operating leases for machinery and equipment worth approximately $10.4 million and has acquired machinery and equipment worth approximately $5.8 million to date in 1996. Management believes that these additions to plant and equipment provide adequate capacity to support its operations for at least the balance of the year ending December 31, 1996 and for the year ending December 31, 1997. As of September 30, 1996 the Company did not have material commitments for capital expenditures other than for machinery and equipment which will be leased under the aforementioned $10.4 million of operating leases. In 1995, the Company distributed $11.0 million, compared to $7.5 million in 1994, to stockholders, of which $4.0 million in 1995 and $6.3 million in 1994 was reinvested in the Company as subordinated debt payable to stockholders. The remainder of these distributions was used principally for the payment of their taxes. See "Organization of the Company." The increase from 1994 to 1995 was due to increased earnings of those corporations, taxable to the stockholders. RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting for Stock-Based Compensation. As allowable by SFAS 123, the Company does not intend to recognize compensation cost for stock-based employee compensation arrangements, but rather, starting with fiscal 1996, will disclose the pro-forma impact on net income and earnings per share as if the fair value stock-based compensation had been recognized starting with fiscal 1995. In March, 1995, the FASB issued SFAS 121 -- Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. When adopted in 1996, the Company does not believe that the impact of SFAS 121 will have a significant impact on its financial position or results of operations. Other pronouncements issued by the FASB or other authoritative accounting standard groups with future effective dates are either not applicable or not significant to the financial statements of the Company. QUARTERLY RESULTS As a result of the seasonal nature of certain of the Company's products, the quarterly results of operations may not be indicative of those for a full year. Third quarter sales are generally the highest of the year due to a combination of increased sales to consumers of the Company's products during summer months as well as initial shipments of seasonal holiday merchandise as retailers build inventory. Conversely, fourth quarter sales are generally lower as retailers sell through inventories purchased during the third quarter. The overall growth rate of the Company's sales in recent years has offset, in part, this sales variability. Promotional activities, including special dating and pricing terms, particularly with respect to Halloween and Christmas products, result in generally lower margins and profitability in the fourth quarter, as well as higher accounts receivable balances and associated higher interest costs to support these balances. The following table sets forth the historical net sales and income from operations of the Company for 1995 and 1996 by quarter.
1996 QUARTERS 1995 QUARTERS ---------------------------- ---------------------------------------- MARCH MARCH 31 JUNE 30 SEPT. 30 DEC. 31 31 JUNE 30 SEPT. 30 -------- ------- -------- -------- ------- ------- -------- ($ IN THOUSANDS) Net sales................ $ 39,376 $41,046 $ 47,892 $ 39,089 $47,258 $45,714 $ 54,036 Income from operations... $ 6,492 $ 6,350 $ 9,120 $ 2,707(a) $ 7,586 $ 7,564 $ 9,222
- --------------- (a) In addition to the seasonal variability described above, income from operations for the fourth quarter of 1995 was adversely affected by the impact of higher paper costs for which selling price adjustments were implemented in the first quarter of 1996. Income from operations for this quarter was also adversely affected by additional bad debt reserves (approximately $0.5 million) and additional computer system expenses (approximately $0.5 million). 30 34 SUPPLEMENTAL PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) The following Supplemental Pro Forma Combined Financial Statements for the year ended December 31, 1995 and as of and for the nine months ended September 30, 1996 reflect the combined results of operations of Amscan Inc. and Affiliates after giving effect to certain events that have occurred or will occur in conjunction with the Organization and the Offering including pro forma adjustments intended to present the historical results as if Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected to be treated as Subchapter S corporations for tax purposes. The unaudited Supplemental Pro Forma Combined Financial Statements have been prepared by management solely to facilitate period to period comparisons and do not represent the actual financial position or results of operations for the periods presented. The Supplemental Pro Forma Combined Balance Sheet and the Supplemental Pro Forma Combined Statements of Operations do not purport to be indicative of future results. The Supplemental Pro Forma Combined Financial Statements should be read in conjunction with the Combined Financial Statements of Amscan Inc. and Affiliates and the notes thereto as of and at December 31, 1995 and the Combined Financial Statements of Amscan Inc. and Affiliates and the notes thereto as of and at September 30, 1996 contained elsewhere in this Prospectus. 31 35 AMSCAN INC. AND AFFILIATES SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
PRO FORMA AND SUPPLEMENTAL PRO FORMA SUPPLEMENTAL HISTORICAL ADJUSTMENTS PRO FORMA ---------- ------------- ------------ Net sales......................................... $ 167,403 $ 167,403 Cost of sales..................................... 108,654 108,654 -------- -------- Gross profit.................................... 58,749 58,749 Selling......................................... 12,241 12,241 General and administrative...................... 15,002 $ 250(a) 15,252 Art and development............................. 4,256 4,256 Special bonuses................................. 2,581 (2,581)(b) -- -------- -------- Income from operations....................... 24,669 27,000 Interest expense, net............................. 5,772 (2,686)(c) 3,086 Other income, net................................. (309) (309) -------- -------- Income before income taxes and minority interests.................................... 19,206 24,223 Income taxes...................................... 731 9,181(d) 9,912 Minority interests................................ 1,041 (927)(a) 114 -------- -------- Supplemental pro forma net income............... $ 17,434 $ 14,197(e) ======== ======== Supplemental pro forma net income per share..... $ 0.65 ======== Supplemental pro forma weighted average common shares outstanding........................... 22,000,000(f) ========
Notes to Supplemental Pro Forma Combined Statement of Operations for the year ended December 31, 1995 ($ in thousands): (a) To reflect $250 amortization of goodwill of $7,500 over thirty years and the elimination of $927 for minority interest related to the acquisition of an additional 50% of Am-Source, Inc. as if it were acquired at the beginning of the period presented; (b) To reflect the elimination of special bonuses beyond performance-based compensation that will not be recurring due to the termination of certain employment agreements in connection with the Offering; (c) To reflect reduced interest expense assuming a repayment of $20,000 of bank loans at the actual rate in effect and an average balance of $13,300 of loans from Mr. Svenningsen at the actual rate in effect; (d) To provide for income taxes at statutory rates of 40.5% on earnings as if Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not been treated as Subchapter S corporations during the period presented ($6,672) and to give effect to the tax effect of these adjustments ($2,509); (e) The above pro forma and supplemental pro forma adjustments do not include anticipated non-recurring expenses of $15,980 relating to compensation expense to be incurred at the consummation of the Offering in connection with cash and stock of $11,980 to be paid to Mr. Rittenberg and $1,000 to be paid to certain other executives in connection with the termination or modification of prior employment agreements and $3,000 for the establishment of the ESOP for the benefit of the Company's domestic employees and the payment of stock bonuses to certain of such employees; (f) Supplemental pro forma weighted average common shares outstanding is calculated as if the shares issued in the Offering as well as those issued in the Organization had been outstanding from the beginning of the period presented. 32 36 AMSCAN INC. AND AFFILIATES SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
PRO FORMA AND SUPPLEMENTAL PRO FORMA SUPPLEMENTAL HISTORICAL ADJUSTMENTS PRO FORMA ---------- ------------- ------------ Net sales.......................................... $ 147,008 $ 147,008 Cost of sales...................................... 92,861 92,861 -------- -------- Gross profit..................................... 54,147 54,147 Selling.......................................... 8,691 8,691 General and administrative....................... 14,113 $ 188(a) 14,301 Art and development.............................. 3,671 3,671 Special bonuses.................................. 3,300 (3,300)(b) -- -------- -------- Income from operations........................... 24,372 27,484 Interest expense, net.............................. 4,569 (2,102)(c) 2,467 Other income, net.................................. (301) (301) -------- -------- Income before income taxes and minority interests..................................... 20,104 25,318 Income taxes....................................... 767 9,769(d) 10,536 Minority interests................................. 1,242 (1,138)(a) 104 -------- -------- Supplemental pro forma net income................ $ 18,095 $ 14,678(e) ======== ======== Supplemental pro forma net income per share...... $ 0.67 ======== Supplemental pro forma weighted average common shares outstanding............................ 22,000,000(f) ========
Notes to Supplemental Pro Forma Combined Statement of Operations for the nine months ended September 30, 1996 ($ in thousands): (a) To reflect $188 for amortization of goodwill of $7,500 over thirty years and the elimination of $1,138 for minority interest related to the acquisition of an additional 50% of Am-Source, Inc. as if it were acquired at the beginning of the period presented; (b) To reflect the elimination of special bonuses beyond the performance-based compensation that will not be recurring due to the termination of certain employment agreements in connection with the Offering; (c) To reflect reduced interest expense assuming a repayment of $20,000 of bank loans at the actual rate in effect and $16,000 of loans from Mr. Svenningsen at the actual rate in effect; (d) To provide for income taxes at statutory rates (40.5%) on earnings as if Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not been treated as Subchapter S corporations during the period presented ($7,121) and to give effect to the tax effect of these adjustments ($2,648); (e) The above pro forma and supplemental pro forma adjustments do not include anticipated non-recurring expenses of $15,980 relating to compensation expense to be incurred at the consummation of the Offering in connection with cash and stock of $11,980 to be paid to Mr. Rittenberg and $1,000 to be paid to certain other executives in connection with the termination or modification of prior employment agreements and $3,000 for the establishment of the ESOP for the benefit of the Company's domestic employees and the payment of stock bonuses to certain of such employees; (f) Supplemental pro forma weighted average common shares outstanding is calculated as if the shares issued in the Offering as well as those issued in the Organization had been outstanding from the beginning of the period presented. 33 37 AMSCAN INC. AND AFFILIATES SUPPLEMENTAL PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 1996 ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
SUPPLEMENTAL PRO FORMA SUPPLEMENTAL ADJUSTMENTS PRO FORMA HISTORICAL TO GIVE EFFECT TO SUPPLEMENTAL HISTORICAL ADJUSTMENTS ADJUSTED THE OFFERING PRO FORMA ---------- ------------ -------- ----------------- ------------ ASSETS Current assets: Cash and cash equivalents......... $ 3,530 $ 3,530 $ 3,530 Accounts receivable, net.......... 51,359 51,359 51,359 Inventories....................... 45,074 45,074 45,074 Deposits and other................ 10,146 $ 3,078(a) 13,224 13,224 -------- -------- -------- Total current assets........... 110,109 113,187 113,187 Property, plant and equipment, net............................ 30,409 30,409 30,409 Other............................. 5,235 7,500(b) 12,735 12,735 -------- -------- -------- Total assets................. $ 145,753 $156,331 $156,331 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans payable..................... $ 47,955 3,400(c) $ 51,355 $ (28,100)(g) $ 23,255 Subordinated and other indebtedness to stockholders... 35,900 35,900 (35,900)(g) -- Accounts payable.................. 4,326 4,326 4,326 Accrued expenses.................. 17,514 1,000(d) 18,514 18,514 Current installments of long-term indebtedness................... 2,318 2,318 2,318 -------- -------- -------- Total current liabilities.... 108,013 112,413 48,413 Long-term indebtedness, excluding current installments........... 12,412 12,412 12,412 Other............................. 689 5,590(a) 6,279 6,279 -------- -------- -------- Total liabilities............ 121,114 131,104 67,104 -------- -------- -------- Stockholders' equity: Preferred stock ($0.10 par value; 5,000,000 shares authorized; none issued and outstanding) Common stock ($0.10 par value; 50,000,000 shares authorized; 22,000,000 shares issued and outstanding, as adjusted)...... 393 (393)(e) 1,665 535(h) 2,200 1,518(e) 66(c) 58(b) 23(f) Additional paid-in capital........ 1,490 (1,212)(e) 19,211 63,465(h) 82,676 8,514(c) 7,442(b) 2,977(f) Retained earnings................. 23,490 (11,980)(c) 4,998 4,998 (1,000)(d) (2,512)(a) (3,000)(f) Cumulative translation adjustment..................... (647) (647) (647) Treasury stock.................... (87) 87(e) -- -- -------- -------- -------- Total stockholders' equity..... 24,639 25,227 89,227 -------- -------- -------- Total liabilities and stockholders' equity.... $ 145,753 $156,331 $156,331 ======== ======== ========
34 38 Notes to Supplemental Pro Forma Balance Sheet ($ in thousands, except share amounts): (a) Reflects a deferred income tax asset and liability of $3,078 and $5,590, respectively, (net reduction of $2,512 to Retained Earnings) resulting from accumulated timing differences as if Amscan Inc., Am-Source, Inc., JCS Realty Corp., and SSY Realty Corp. had not been treated as Subchapter S corporations for income tax purposes. (b) Reflects goodwill of $7,500 related to the acquisition of an additional 50% of Am-Source, Inc. In connection with the Organization, the Company entered into an agreement with the stockholders of Am-Source, Inc., other than Mr. Svenningsen, pursuant to which such stockholders exchanged all of their outstanding capital stock of Am-Source, Inc. for shares of Common Stock. The number of shares of Common Stock issued in this exchange was determined by dividing the $7,500 purchase price by the assumed initial public offering price of $13 per share for an aggregate of 576,923 shares of Common Stock ($58 and $7,442, credited to Common Stock and additional paid-in capital, respectively). (c) Reflects the accrual for obligations of $3,400 to Mr. Rittenberg as partial payment in connection with the termination of his prior agreement. In connection with the Organization, Amscan Inc., Mr. Svenningsen and Mr. Rittenberg entered into an agreement, whereby Mr. Rittenberg relinquished certain rights under a previous employment agreement entered into between Amscan Inc. and Mr. Rittenberg. In exchange for the relinquishment of such rights, Mr. Rittenberg received a cash payment of $3,400 and a number of shares of capital stock of Amscan Inc., which shares he exchanged for 660,000 shares of Common Stock at the assumed initial public offering price of $13 per share. The 660,000 shares issued to Mr. Rittenberg have a fair market value of $8,580 ($66 and $8,514, credited to Common Stock and additional paid-in capital, respectively). Such amount has been reflected as compensation expense thereby reducing retained earnings by $11,980. See "Organization of the Company" and "Management of the Company -- Executive Compensation -- Employment Agreements". (d) Reflects the accrual for obligations payable of $1,000 to certain executives other than Mr. Rittenberg in connection with the termination of their prior employment agreements. Such amount has been reflected as compensation expense thereby reducing retained earnings by $1,000. (e) Gives effect to the issuance of 15,053,736 shares of Common Stock to Mr. Svenningsen and 128,572 shares of Common Stock to the SSY Trusts in connection with the Organization ($1,518 credited to Common Stock). Pursuant to an agreement between the Company and Mr. Svenningsen, Mr. Svenningsen exchanged all of the outstanding capital stock of Amscan Inc. and Affiliates (other than the shares owned by Mr. Rittenberg pursuant to the agreement described in (c) above) for shares of Common Stock of the Company. The exchange resulted in the elimination of $393 in common stock, a reduction of $1,212 in additional paid-in capital, and the retirement of treasury stock of $87. See "Organization of the Company." (f) Gives effect to the issuance of 230,769 shares of Common Stock ($23 and $2,977 credited to Common Stock and additional paid-in capital, respectively) to establish the ESOP for the benefit of the Company's domestic employees and the payments of stock bonuses to certain of such employees. The shares issued are reflected as compensation expense measured at the assumed initial public offering price of $13, aggregating to $3,000 reduction in retained earnings. (g) Repayment of bank indebtedness and subordinated indebtedness to stockholders of $28,100 and $35,900, respectively, as of September 30, 1996 from net proceeds of the Offering. Excludes estimated earnings from September 30, 1996 to the date of the Offering which will be distributed and will result in an increase in subordinated indebtedness. (h) Net proceeds from the Offering, calculated assuming 5,350,000 shares are issued at the assumed initial public offering price of $13, aggregating to a total of $64,000 ($535 and $63,465 credited to Common Stock and additional paid-in capital, respectively). 35 39 BUSINESS The Company believes it is one of the leading designers, manufacturers and distributors of seasonal and everyday party goods. With a product line consisting of approximately 14,000 sku's, the Company is a complete source of paper and plastic party goods, including decorative tableware such as plates, cups, tablecovers and napkins, accessories such as invitations and balloons, and novelties such as games and favors. The Company's products are sold in more than 20,000 retail outlets. The Company is a leading supplier to the emerging party goods superstore distribution channel, where it has been able to position itself as a responsive and comprehensive supplier of proprietary, well designed and high quality products. The Company also distributes its products to discount chains, mass merchandisers and specialty retailers. The Company's in-house design staff produces and manages the broad spectrum of party goods for all occasions. Over the past five years, the Company has continued to grow sales and market share and has increased profitability by offering a broad product line, creating innovative and unique designs, enhancing its customer relationships (particularly in the superstore channel) and using state-of-the-art manufacturing and distribution technology. The Company has sought to further vertically integrate its operations through strategic acquisitions including the acquisition in 1993 of a 50% interest in Am-Source Inc., a manufacturer of plastic plates, cups and bowls, and the acquisition in 1993 of Trisar, Inc., a manufacturer of gift products. In addition, in 1993 the Company acquired a 48% interest in Amscan de Mexico, S.A. de C.V., a distributor of the Company's products in Mexico. All of such entities became subsidiaries of the Company upon consummation of the Organization. See "Organization of the Company." INDUSTRY OVERVIEW According to PARTY AND PAPER RETAILER, a trade publication for the party goods industry, the retail party supplies industry achieved total sales of approximately $8.8 billion in 1995, which includes items such as cards and stationery in addition to the products produced by the Company. Over the past several years, according to the same publication, there has been a significant shift of sales to party goods superstores. The Company believes that several current industry trends offer well-positioned manufacturers opportunities for significant growth including: - The increasing breadth and availability of party merchandise in the marketplace. Principal manufacturers such as the Company have broadened their product offerings to include party goods to celebrate a greater number of events, holidays and themes. At the same time, manufacturers are expanding the number and types of products offered for each sort of occasion to encourage add-on purchases by consumers planning parties. - The recent emergence of the party goods superstore merchandising concept. The retail party goods business has historically been fragmented, with consumers purchasing party goods from independent stores and designated departments within drug, discount or department store chains. Over the past several years, the marketplace has begun to accept a move toward the party goods superstore merchandising concept, similar to earlier merchandising shifts in such product categories as food, toys, office supplies, home furnishings and home improvement needs. These superstores provide consumers with a one-stop source for all of their party needs generally at discounted prices. By displaying an array of integrated and related merchandise in an attractive format, they seek to influence consumers to increase the number of items purchased for each event or occasion. - Consumers' desire to enhance the quality of their leisure time. Another important dynamic in this industry is an increase in home entertaining, as consumers seek to enhance the quality of their leisure time by including party goods in their celebrations. The Company believes that this consumer desire to optimize leisure time is an outgrowth, among other things, of the 36 40 increase in two wage-earner families. Party goods offer a convenient and affordable way to make all types of occasions more festive. BUSINESS STRATEGY The Company's goal is to grow sales and market share and enhance profitability by offering the industry's fullest product line produced using state-of-the-art design processes and manufacturing technology. The key elements in executing the Company's strategy include: PROVIDE THE BROADEST PRODUCT LINE The Company endeavors to provide party goods retailers with the most extensive product line in the industry. Differentiating itself from its competitors, the Company offers approximately 200 design ensembles, each containing 30 to 150 items appealing to a variety of consumer preferences. In total, the Company's product line includes approximately 14,000 sku's. The Company believes that by offering such a full product line, it has created a competitive advantage by becoming a single source for a large portion of the retailers' requirements. In addition, the breadth of products gives the consumer new ideas for making parties festive, colorful and interesting. In this way, the Company seeks to increase the number of products sold per consumer for each transaction and generate consumer loyalty and repeat business. MAINTAIN PRODUCT DESIGN LEADERSHIP The Company's product development process is design driven. The Company believes it is a leader in the creation of innovative and unique designs for its products. The Company looks to create designs which have a level of complexity and style that is compelling to consumers and difficult for competitors to replicate. Approximately 60 of the Company's employees are engaged in the design process. From the large number of designs and concepts developed by these artists, the Company selects those it believes best to replace approximately one-third of its designed product ensembles each year. For example, in 1996 the Company introduced over 50 new ensemble designs. The Company targets a wide variety of events, holidays and themes in the creation of its designs and frequently introduces new designs into the marketplace. The goal of this approach is to heighten consumer awareness of particular events, holidays and themes and to reinforce the concept that party planning is appropriate and enjoyable throughout the year. For example, the Company has introduced on a nationwide scale ensembles for Mardi Gras and Hawaiian luaus, themes not traditionally part of home entertainment parties. Almost all of the Company's designs are developed in-house by a creative and highly skilled design staff using state-of-the-art technology. The Company does not depend on licenses to any material degree. WORK CLOSELY WITH CUSTOMERS The Company strives to build strong relationships with its customer base representing more than 20,000 retail outlets. Key elements of this strategy are providing superior service and involving retailers in the Company's product development and marketing process. In particular, the Company solicits input from retailers on new product concepts and consumer design preferences in determining the types of events, holidays and themes to target. The Company also furnishes to party goods retailers customized planograms for the display of products in their stores with the goal of maximizing sales to consumers. The Company believes that effective display of its products at retail, including coordinated accessories, results in add-on purchases by consumers seeking further to enhance the festive nature of their celebrations. The Company's order taking and fulfillment systems are designed to support its customers by providing customers with high fill rates and short turn-around times. 37 41 Over the past five years, much of the Company's growth has been attributable to its ability to establish strong relationships with the emerging party goods superstore channel of distribution. The Company has been able to develop these relationships in large part due to its customer service efforts while maintaining its market position with its traditional customer base of independent card and party goods retailers. USE STATE-OF-THE-ART MANUFACTURING AND DISTRIBUTION TECHNOLOGY The Company uses state-of-the-art technological processes to design, manufacture and distribute its products. The Company's highly skilled design staff employs computer assisted design ("CAD") systems to develop designs which the Company believes are unmatched in terms of complexity and style. Its state-of-the-art manufacturing equipment includes highly automated printing, forming, folding and packaging equipment. This vertically integrated manufacturing capability, which covers most of its core products and accounted for approximately 50% of 1995 sales, enables the Company to control its costs, manage its inventory investment and respond quickly to customer orders. In order to expedite the order-entry process, the Company has equipped its sales force and certain of its customers with hand held computers. Through the use of standard telephone lines, these devices interface directly with the Company's automated distribution centers. The Company's distribution centers employ computer-assisted systems to receive and fill customer orders efficiently and quickly. GROW THROUGH ACQUISITIONS The Company has, from time to time, sought to expand its product line and market share, as well as further vertically integrate its operations, through strategic acquisitions. The Company may pursue additional acquisitions of complementary businesses which the Company believes may further these strategic objectives. The form of consideration which the Company might use in any particular acquisition could be cash, securities or some combination and would depend on the particular circumstances. Other than its agreement described herein under "Organization of the Company" pursuant to which the Company acquired the remaining 50% of Am-Source, Inc., which is the source of the Company's plastic plates, cups and bowls, the Company does not currently have any agreements with any parties with respect to acquisitions. PRODUCTS AND SERVICES The Company offers products in everyday and seasonal designs. Everyday events and celebrations include birthdays, showers, weddings, christenings, graduations, anniversaries, retirements, first communions, bar mitzvahs, confirmations, summer picnics and barbecues and theme parties (such as Hawaiian luaus, Mardi Gras and '50's parties). Seasonal celebrations and events include New Years, Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of July, Halloween, Thanksgiving, Hanukkah and Christmas. The principal categories of products which the Company offers are tableware, accessories and novelties. The percentages of net sales represented by each product category for each of the past three calendar years are set forth in the following table:
1993 1994 1995 ----- ----- ----- Tableware........................................... 55% 58% 60% Accessories......................................... 27% 26% 24% Novelties........................................... 18% 16% 16%
38 42 The following table sets forth the principal products in each of the three categories:
TABLEWARE ACCESSORIES NOVELTIES - --------------------------------- ----------------------- --------------- Solid Color: Balloons Buttons Paper and Plastic Cups Banners Candles Paper and Plastic Plates Cascades Cocktail Picks Paper and Plastic Tablecovers Confetti Games Plastic Cutlery Crepe Mugs Cutouts Noise Makers Decorated: Decorative Tissues Party Favors Paper Cups Flags Party Hats Paper Napkins Gift Bags Pom Poms Paper Plates Gift Wrap T-shirts Paper Tablecovers Guest Towels Honeycomb Centerpieces Invitations and Notes Ribbons and Bows Signs
TABLEWARE The Company believes that tableware products are the initial focus of a consumer in the planning of a party since these items are necessary in connection with the consumption of food and beverages. To distinguish its tableware from that of its competitors, the Company seeks to create a broad range of unique designs for its products. In addition, the Company's tableware products are priced competitively and affordably. The Company's paper plates, cups, napkins, tablecovers and plastic cutlery are affordable, having suggested retail prices (based upon quantity) ranging between $1.70 and $10.00. ACCESSORIES AND NOVELTY ITEMS The Company believes that a consumer also will choose the Company's tableware over that of its competitors due to the breadth and array of accessory and novelty items available to the consumer in designs coordinated with the Company's tableware designs. By offering coordinated ensembles, the Company seeks to appeal to consumers' imagination and tastes and therefore make the purchase of the Company's ensembles more appealing than purchasing tableware without accessories. The display of its accessory items in retail stores, in unified displays which create a striking visual impact, are designed to encourage the impulse buying of such accessories and novelty items by offering consumers the opportunity to enhance the festive nature of their celebration. The Company believes that the appeal of its full product line thereby increases the number of products sold per customer for each transaction. DESIGN AND PRODUCTION The Company has an active design and new product development program involving approximately 60 of its employees on a full-time basis. These individuals perform a variety of functions, including product development, product management, design layout, art production and catalogue production. The Company looks to create designs which have a level of complexity and style which is compelling to consumers and difficult for competitors to replicate. The design process often begins more than a year in advance of actual commercial production and is intended to keep pace with changing consumer preferences in fashion and design. In addition, senior executives and members of the Company's product development and design staffs regularly meet with customers and attend trade shows and related events to ascertain market and design trends. 39 43 Each year, the Company introduces new products as well as new designs and themes for existing products. New products are introduced not only in its existing lines but also as entirely new product concepts for the party event. New products must meet the Company's quality and pricing criteria and be able to be distributed through the Company's existing marketing and distribution system. State-of-the-art printing, forming, folding and packaging equipment support the Company's manufacturing operations. Company facilities in Kentucky, New York, Rhode Island and California produce paper and plastic plates, napkins, cups and other party and novelty items. This vertically integrated manufacturing capability for many of its key products allows the Company the opportunity to better control costs and improve product quality, manage inventory investment and provide efficiency in order fulfillment. In connection with its manufacturing operations, the principal raw materials used by the Company in its products are paper and plastic. While the Company currently purchases such raw materials from a relatively small number of sources, such raw materials are available generally from a number of sources, and the Company's current suppliers could be replaced by the Company without adversely affecting the Company's operations in any material respect. Over the past five years, the Company has purchased or leased new plant and equipment having an aggregate value of approximately $29 million to expand the manufacturing capabilities of the Company. As a result, approximately 50% of the Company's sales in 1995 were of items manufactured by the Company. The Company generally uses its manufacturing equipment on the basis of at least two shifts per day in order to lower its production costs per item. In addition, the Company manufactures products for third parties, the volume of which can be adjusted by the Company over a relatively short period of time and helps the Company maintain a satisfactory level of equipment utilization. The Company sources the remainder of its products from contract manufacturers, the majority of whom are located in China and elsewhere in the Far East and with whom the Company has long-standing relationships. The two largest such suppliers have exclusive supply arrangements with the Company and represent relationships which have been in place for more than ten years. The Company believes that the quality of craftsmanship and the ability to satisfy the Company's pricing criteria provides a significant competitive advantage. The Company's business, however, is not dependent upon any single source of supply for products manufactured for the Company by third parties. SALES AND MARKETING The Company's practice of including party goods retailers in all facets of the Company's product development is a key element of the Company's sales and marketing efforts. The Company targets important consumer preferences by integrating its own market research with the input of party goods retailers in the creation of its designs and products. The sales organization assists customers in the actual set-up and lay out of displays of the Company's products. From time to time, the Company also provides customers with promotional displays. The principal sales and marketing tool of the Company is its three separate annual catalogues, two for seasonal products and one for everyday products. In 1995, the Company spent $1.1 million on the production of its sales catalogues. The Company's domestic sales force is comprised of 54 seasoned sales professionals who have, on average, been affiliated with the Company for over 5 years. International customers are serviced by experienced individuals who are generally employees of the Company's foreign subsidiaries. This experience provides the Company with individuals who possess thorough knowledge of the industry and the ability to maximize the positioning of the Company's broad product line with respect to the merchandising needs of the retailers. 40 44 DISTRIBUTION AND SYSTEMS The Company ships its products from distribution warehouses which employ computer assisted systems. Everyday products are shipped either from California or New York in order to achieve the most economical freight costs while providing fast delivery of goods to the party goods retailer. In order to control inventory investment, seasonal products are shipped out of a central warehouse located in New York. Products for foreign markets are shipped from the Company's distribution warehouses in Canada, Mexico, England and Australia. Many of the Company's sales orders are generated electronically through hand held units with which the sales force as well as many customers are equipped. Specifically, orders are entered into the hand held units and then transmitted over telephone lines to the Company's mainframe computer where they are processed for shipment. This electronic order entry expedites the order processing which in turn improves the Company's ability to fill customer merchandise needs accurately and quickly. COMPETITION The Company competes on the basis of diversity and quality of its product designs, breadth of product line, product availability, price, reputation and customer service. The Company has many competitors with respect to one or more of its products, including smaller independent specialty manufacturers and other companies, some of which have financial resources which are greater than those of the Company. Certain of these competitors control licenses for widely recognized images, such as cartoon or motion picture characters, which could provide them from time to time with a competitive advantage. The Company believes, however, that there are few competitors which manufacture and distribute products with the complexity of design and breadth of product offerings that the Company does. In addition, the Company knows of no competitor who utilizes design styles across product categories to provide consumers with coordinated products in the variety that the Company offers. Furthermore, the Company believes that its state-of-the-art design and manufacturing processes create an efficiency in manufacturing that few of its competitors achieve in the production of numerous coordinated products in multiple design types. CUSTOMERS The Company's customers are principally party goods superstores, large discount chains, mass merchandisers and independent card and party retailers. Among this group, the Company's primary customers are party goods superstores. Based on information provided to the Company by party goods superstores or gathered by its sales force, the Company supplies on average between 20% and 40% of the merchandise generally stocked in such stores. During 1995 and the first nine months of 1996, sales by the Company to its largest customer, Party City Corporation, were 11% and 14% respectively, of the Company's combined net sales for such periods. Although the Company believes its relationship with Party City Corporation to be good, should such relationship be terminated, the Company's financial condition and results of operations could be adversely affected. PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES The Company owns copyrights on the designs created by the Company and used on its products. The Company owns trademarks in the words and designs used on or in connection with its products. It is the practice of the Company to register its copyrights with the United States Copyright Office to the extent it deems reasonable. The Company does not believe that the loss of copyrights or trademarks with respect to any particular product or products would have a material adverse effect on the business of the Company. The Company does not depend on licenses to any material degree in its business and, therefore, does not incur any material licensing expenses. In 1995, sales of licensed products were $8.1 million or 4.9% of 1995 total net sales. 41 45 EMPLOYEES As of September 30, 1996, the Company had approximately 1,100 employees, none of whom is represented by a labor union. The Company considers its relationship with its employees to be good. FACILITIES The Company maintains its corporate headquarters in Elmsford, New York and conducts its principal design, manufacturing and distribution operations at the following facilities:
OWNED OR LEASED (WITH LOCATION PRINCIPAL ACTIVITY SQUARE FEET EXPIRATION DATE) - ------------------------- --------------------- -------------------- ------------------------- Elmsford, New York(1) Executive Offices; 45,000 square feet Leased (expiration date: design and art February 28, 2001) production of paper party products and decorations Harriman, New York Manufacture of paper 75,000 square feet Leased (expiration date: napkins and cups March 31, 1999) Providence, Rhode Island Manufacture and 51,000 square feet Leased (expiration date: distribution of June 30, 2008) plastic plates, cups and bowls
Louisville, Kentucky Manufacture and 183,000 square feet Leased (expiration date: distribution of paper March 31, 1997) plates Anaheim, California Manufacture of 25,000 square feet Leased (expiration date: novelty items February 28, 1999) Temecula, California(2) Distribution of party 212,000 square feet Leased (expiration date: products and February 28, 2000) decorations Goshen, New York Distribution of party 130,000 square feet Leased (expiration date: products and December 31, 1998) decorations Chester, New York(3) Distribution of party 287,000 square feet Owned products and decorations Montreal, Canada(4) Distribution of party 124,000 square feet Owned products and decorations Milton Keynes, England Distribution of party 30,000 square feet Leased (expiration date: products and March 31, 2016) decorations throughout United Kingdom and Europe Melbourne, Australia Distribution of party 10,000 square feet Owned products and decorations in Australia and Asia
- --------------- (1) Property leased by the Company from a limited liability company which is 79%-owned by a trust established for the benefit of John A. Svenningsen's children, 20%-owned by a trust established for the benefit of Mr. Svenningsen's sister's children and 1%-owned by a corporation owned by Mr. Svenningsen. See "Certain Related Transactions." 42 46 (2) Property leased by the Company from John A. Svenningsen. See "Certain Related Transactions." (3) Property subject to a ten-year mortgage made by the Company securing a loan in the original principal amount of $5,925,000 bearing interest at a rate of 8.51%. Such mortgage commenced on September 14, 1994. (4) Property subject to a mortgage made by the Company securing a loan in the original principal amount of $2,088,000. Such mortgage bears an interest rate at the lower of Hong Kong Bank of Canada's Cost of Funds plus 1.6% or Canadian Prime plus 0.5%. The Company believes that its properties have been adequately maintained, are in generally good condition and are suitable for the Company's business as presently conducted. The Company believes its existing facilities provide sufficient production capacity for its present needs and for its anticipated needs in the foreseeable future. To the extent such capacity is not needed for the manufacture of the Company's products, the Company generally uses such capacity for the manufacture of products for others pursuant to terminable contracts. All properties generally are used on a basis of two shifts per day. The Company also believes that upon the expiration of its current leases, it either will be able to secure renewal terms or enter into leases for alternative locations at market terms. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party to any material pending legal proceedings. 43 47 MANAGEMENT OF THE COMPANY DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company and their respective ages and principal positions with the Company are set forth below. Each director and executive officer has held such positions with the Company set forth below since October, 1996, the month during which the Company was incorporated.
YEAR OF EXPIRATION NAME AGE POSITION OF TERM AS DIRECTOR - ------------------------- --- ------------------------------------ ------------------- John A. Svenningsen...... 65 Chairman of the Board of Directors, 1999 Chief Executive Officer and Secretary Gerald C. Rittenberg..... 44 Director and President 1998 Christine Svenningsen.... 39 Director 1997 William S. Wilkey........ 40 Senior Vice President -- Sales and -- Marketing James M. Harrison........ 44 Chief Financial Officer and -- Assistant Secretary
JOHN A. SVENNINGSEN is the Chairman of the Board of Directors and Chief Executive Officer of Amscan Inc. He has served as Chief Executive Officer of Amscan Inc. since 1958 and served as President from 1958 to April 1996. GERALD C. RITTENBERG has served as the President of Amscan Inc. since April 1996. From 1991 to April 1996, he was Executive Vice President -- Product Development of Amscan Inc. and from 1990 to 1991 he was Vice President -- Product Development of Amscan Inc. From 1988 to 1989, Mr. Rittenberg was Senior Vice President of Different Looks, a division of Berwick Industries which manufactures and distributes gift wrap and related products. Prior thereto, Mr. Rittenberg was the Director of Operations for the packaging division of Philip Morris Companies Inc. CHRISTINE SVENNINGSEN served as product manager in charge of product development of Amscan Inc. from July 1980 to February 1991. It is expected that Mrs. Svenningsen will resign her position as a director of the Company prior to the consummation of the Offering. Mrs. Svenningsen is the wife of John A. Svenningsen. WILLIAM S. WILKEY has served as the Senior Vice President -- Sales of Amscan Inc. since 1992 and as Vice President -- Marketing and Field Sales from 1990 to 1992. From 1988 to 1990, Mr. Wilkey was employed by Paper Art, a manufacturer and distributor of party goods (currently called Creative Expressions Group), where he served as National Sales Manager. JAMES M. HARRISON has served as the Chief Financial Officer of Amscan Inc. since August 1996. From 1993 to 1995, Mr. Harrison was the Executive Vice President and Chief Operating Officer, Secretary and Treasurer and a member of the Board of Directors of The C.R. Gibson Company, a manufacturer and distributor of paper gift products. From 1988 to 1993, Mr. Harrison was the Chief Financial Officer of The C.R. Gibson Company. COMMITTEES OF THE BOARD OF DIRECTORS The Company intends to establish a Compensation Committee and an Audit Committee and has established a Stock Option Committee. The Compensation Committee will be composed of at least two directors, at least a majority of whom will not be officers or employees of the Company. It will approve and recommend to the Board of Directors the compensation arrangements for key management personnel of the Company and its subsidiaries and will be responsible for making recommendations to the Board of Directors regarding the adoption of compensation plans for the benefit of directors, officers and other key employees of the Company and its subsidiaries. The Audit Committee will be composed of at least two directors who are not officers or employees of the Company and will be responsible for recommending to the Board of Directors the 44 48 selection of independent auditors, consulting with the auditors on the plan of audit, reviewing with the auditors the proposed audited financial statements of the Company and reviewing and consulting on the adequacy of the Company's internal controls. The Stock Option Committee is responsible for administering the Company's 1996 Stock Option Plan for Key Employees (the "Stock Option Plan") as more fully described under " -- Stock Option Plan -- Description of Plan." The Stock Option Committee currently consists of Mr. Svenningsen, but, after consummation of the Offering, its membership will be comprised of non-employee directors. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation earned for the year ended December 31, 1995 for the Chief Executive Officer and each of the other executive officers of the Company as of December 31, 1995, whose aggregate salary and bonus exceeded $100,000. The amounts shown include compensation for services in all capacities that were provided to the Company or its subsidiaries. The amounts set forth in the table include payments under arrangements which will terminate prior to the Offering. Mr. Harrison is not listed, since his employment agreement commenced August 1, 1996. In addition, the executive officers of the Company will participate in the ESOP and the special one-time contribution to the ESOP. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Impact of Organization of the Company -- Establishment of an Employee Stock Ownership Plan and Payment of Stock Bonuses." SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ALL OTHER ------------------------- COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) - -------------------------------------------- ---- ---------- ---------- ------------ John A. Svenningsen......................... 1995 289,399 10,000,000(2) 10,614 Chief Executive Officer Gerald C. Rittenberg........................ 1995 200,269 1,682,000(3) 4,317 Executive Vice President William S. Wilkey........................... 1995 172,500 757,000(4) 4,317 Senior Vice President -- Sales
- --------------- (1) Represents contributions by the Company in respect of the named officer under the Profit Sharing and Savings Plan maintained by the Company's principal subsidiary, Amscan Inc., as well as insurance premiums paid by the Company with respect to term life insurance for the benefit of the named executive officer. (2) Prior to the Offering, certain entities which are now subsidiaries of the Company elected to be taxed as Subchapter S corporations under the Internal Revenue Code. This amount represents a distribution to Mr. Svenningsen to enable him to pay personal income taxes on the earnings of those entities and amounts lent back to the Company as subordinated indebtedness. (3) Represents bonuses paid to Mr. Rittenberg pursuant to his prior employment agreement with Amscan Inc. which will terminate upon consummation of the Offering. See " -- Employment Agreements." (4) Represents bonuses paid to Mr. Wilkey pursuant to an employment agreement with Amscan Inc. which will expire on December 31, 1996. EMPLOYMENT AGREEMENTS Set forth below are descriptions of the Company's employment agreements with John A. Svenningsen, Gerald C. Rittenberg, William S. Wilkey and James M. Harrison. 45 49 JOHN A. SVENNINGSEN. In conjunction with the Offering, Mr. Svenningsen has entered into an employment agreement with the Company for a term of three years commencing upon consummation of the Offering. Pursuant to the terms of this Agreement, Mr. Svenningsen will serve as Chief Executive Officer and Chairman of the Board of Directors of the Company. The agreement provides for a base annual salary of $300,000, which will be increased by 5% each successive year during the term of the agreement. The Company may terminate Mr. Svenningsen's employment upon Mr. Svenningsen's death or for "cause." Upon termination of employment, Mr. Svenningsen may not, for a period of three years, be employed by or associated in any manner with any other business which is competitive with the Company. GERALD C. RITTENBERG. Mr. Rittenberg has entered into a new employment agreement with the Company in connection with the Offering, for a term of three years commencing upon consummation of the Offering. Under the terms of this agreement Mr. Rittenberg is employed as President of the Company at a base annual salary of $220,000. Mr. Rittenberg's salary shall be increased by 5% each successive year during the term of the agreement. This agreement may be terminated by the Company upon the death of Mr. Rittenberg or for "cause." The agreement also provides that upon termination of employment, Mr. Rittenberg may not be employed by or be associated in any manner with any other business which is competitive with the Company for a period of three years. This agreement was made in conjunction with an agreement among Amscan Inc., Mr. Svenningsen and Mr. Rittenberg whereby Mr. Rittenberg agreed to terminate his prior employment agreement which provided for Mr. Rittenberg to receive (a) a bonus in an amount equal to 10% of the aggregate net profits of Amscan Inc. and certain affiliates (as defined in the agreement), (b) 5% of the net selling price upon the sale of Amscan Inc. or the sale by Mr. Svenningsen of substantially all of his stock in Amscan Inc. and (c) in the event of an initial public offering of the stock of Amscan Inc., shares of the stock of Amscan Inc. equal to 5% of the shares of stock of Amscan Inc. issued and outstanding immediately following the consummation of the initial public offering. In exchange for the relinquishment of such rights, Mr. Rittenberg received a cash payment of $3.4 million and a number of shares of stock of Amscan Inc., which shares he exchanged for 660,000 shares of Common Stock representing 3% of the Common Stock to be outstanding upon consummation of the Offering (assuming the Underwriters' over-allotment option is not exercised). To the extent that the net proceeds from the Offering (including any net proceeds of the exercise of the Underwriters' over-allotment option) exceeds $69 million, Mr. Rittenberg will be entitled to an additional cash payment equal to 5% of such excess. The Company has granted Mr. Rittenberg certain rights to require the Company to register the offer and sale of Mr. Rittenberg's Common Stock under the Securities Act. See "Shares Eligible for Future Sale." It is estimated that Mr. Rittenberg's salary and bonus for 1996 under his prior employment agreement will be $211,000 and $2,800,000, respectively. WILLIAM S. WILKEY. Mr. Wilkey has entered into an employment agreement dated October 3, 1996, which will commence on January 1, 1997. Under the terms of this agreement Mr. Wilkey will be employed as Senior Vice President -- Sales and Marketing of the Company for a period of five years. Mr. Wilkey will receive an initial base salary of $200,000 for 1997, which will be increased by 5% each successive year during the term of the agreement. In addition, Mr. Wilkey is entitled to receive an annual bonus which will be determined by a formula which takes into account the amount by which sales and profits are increased on a year to year basis. Mr. Wilkey also will receive in conjunction with the Offering an initial grant of stock options in respect of 100,000 shares of Common Stock under the Stock Option Plan. See "-- Stock Option Plan." Mr. Wilkey's agreement also provides that upon termination of employment he may not for a period of three years be employed by or associated in any manner with any business which is competitive with the Company. This agreement may be terminated by the Company upon the death or permanent disability of Mr. Wilkey or for "cause." Mr. Wilkey's current agreement, which expires on December 31, 1996, provides that in addition to a base salary, he is entitled to receive an amount equal to 5% of the aggregate net profits of Amscan Inc. and certain affiliates. It is estimated that Mr. Wilkey's salary 46 50 and bonus for 1996 under the agreement which will expire December 31, 1996 will be $181,000 and $1,400,000, respectively. JAMES M. HARRISON. Mr. Harrison has entered into an agreement with Amscan Inc. whereby he is employed as the Chief Financial Officer of Amscan Inc. The agreement, which commenced August 1, 1996, provides for a base salary of $150,000 and a guaranteed bonus for the first year of $50,000. The agreement has a term of one year to be automatically renewed for successive one year periods in the absence of the termination of the agreement by either of the parties thereto in accordance with its terms. The agreement, which may be terminated by Amscan Inc. at any time upon the payment of one year's salary, provides for termination without any additional compensation upon the death or permanent disability of Mr. Harrison or for "cause." Under the terms of the agreement, upon termination of employment, Mr. Harrison may not, for a period of one year, be employed by or associated in any manner with any business which is competitive with Amscan Inc. Prior to consummation of the Offering, Mr. Harrison will be granted an option to purchase 50,000 shares of Common Stock under the Stock Option Plan. See " -- Stock Option Plan." COMPENSATION OF DIRECTORS Employee directors receive no additional compensation for serving on the Board of Directors or its committees. The Company anticipates that it will compensate directors who are not employees of the Company pursuant to arrangements established once such directors are elected. All directors will be reimbursed for expenses incurred in attending Board of Directors and committee meetings. STOCK OPTION PLAN DESCRIPTION OF PLAN The Stock Option Plan is administered by the Stock Option Committee (the "Stock Option Committee") of the Board of Directors of the Company, a committee which, following consummation of the Offering, will be composed of at least two members appointed by the Board of Directors from among those directors who are Non-Employee Directors (as defined). Prior to consummation of the Offering, the Stock Option Committee was composed of a single director, John A. Svenningsen. None of the members of the Stock Option Committee receives any additional compensation for the administration of the Stock Option Plan. The Stock Option Committee has plenary authority in its discretion, but subject to the express provisions of the Stock Option Plan, to determine the employees to whom, and the time or times at which, stock options are granted, as well as the terms and provisions governing each such option. The Stock Option Committee has further plenary authority at its discretion to interpret the Stock Option Plan, and to prescribe, amend and rescind rules and regulations relating to it. Additionally, the Stock Option Committee is generally responsible for the administration of the Stock Option Plan. The Stock Option Committee's determinations as to the foregoing matters are conclusive. Two million shares of the authorized but unissued Common Stock have been reserved for issuance under the Stock Option Plan. In lieu of such unissued shares, the Company may, in its discretion, transfer to an optionee, upon the exercise of options, reacquired shares or shares bought in the market for the purposes of the Stock Option Plan, provided that (subject to adjustments upon changes in capitalization) the total number of options which may be granted and the number of shares which may be sold pursuant to options granted under the Stock Option Plan shall not exceed 2,000,000. If any options granted under the Stock Option Plan terminate or expire for any reason without having been exercised or vested in full, the Common Stock not delivered under such options will be available again for purposes of the Stock Option Plan. Based on an initial public offering price of $13 (the mid-point of the range of public offering prices set forth on the cover page of this Prospectus), the fair market value of 2,000,000 shares of Common Stock is $26,000,000. No stock options may be granted under the Stock Option Plan after November 27, 2006. 47 51 Under the Stock Option Plan, stock options may be granted only to regular, salaried employees (including officers and directors) of the Company or its subsidiaries whom the Stock Option Committee considers key employees. In determining the employees to whom such options are to be granted, as well as their terms and conditions, the Stock Option Committee takes into account the duties of the respective employees, their present and potential contributions to the success of the Company, and such other factors as the Stock Option Committee deems relevant in connection with accomplishing the purpose of the Stock Option Plan. An existing optionee may be granted and hold an additional option or options if the Stock Option Committee shall so determine. All of the foregoing determinations are within the discretion of the Stock Option Committee. Under the Stock Option Plan, both incentive stock options and non-qualified options may be granted to employees of the Company. The Stock Option Plan requires that the purchase price of the Common Stock covered by stock options granted thereunder be not less than 100% (or pursuant to Section 422 of the Internal Revenue Code, 110% in the case of an incentive stock option granted to a 10% shareholder) of the fair market value of the Common Stock on the date of the grant. The term of each option is for such period as the Stock Option Committee determines but, notwithstanding the foregoing, the term of no option may be more than ten years from the date of grant thereof (or 5 years from the date of grant of the option in the case of an incentive stock option granted to a 10% shareholder). Unless otherwise determined by the Stock Option Committee, one-quarter (25%) of the total number of shares of Common Stock covered by an option granted to an employee of the Company or its subsidiaries becomes exercisable upon such employee's completion of one year of continuous service with the Company or its subsidiary after the grant of the option; thereafter, an additional one-quarter (25%) of the total number of shares of Common Stock covered by the option becomes exercisable upon such employee's completion of two, three and four years of continuous service with the Company or its subsidiaries, respectively. Once an option or part thereof becomes exercisable, it will remain exercisable until expiration of the option, unless otherwise specified by the Stock Option Committee. An option may be exercised during the lifetime of an optionee only by such optionee, and an option granted under the Stock Option Plan is not transferable other than by will or pursuant to the laws of descent and distribution or pursuant to a qualified domestic relations order. No option may be exercised at any time except by an optionee who is then a regular employee of the Company, except as provided in the Stock Option Plan. The holder of an option has none of the rights of a stockholder with respect to the shares subject to option until such shares are registered upon the exercise of the option on the transfer books of the Company in the name of the holder. Unless otherwise provided in an option agreement, a holder of an option may purchase all, or from time to time any part of, the shares which the optionee has become entitled to purchase. An option may not, however, be exercised as to fewer than 50 shares, or the remaining shares covered by the option if fewer than 50, at any one time. The purchase price of the shares as to which an option is exercised must be paid in full at the time of exercise at the election of the holder of an option (a) in cash or currency of the United States of America, (b) by tendering to the Company shares of the Company's Common Stock then owned by the holder, having a fair market value equal to the cash exercise price applicable to the purchase price of the shares as to which the option is being exercised or (c) partly in cash and partly in shares of the Company's Common Stock valued at fair market value. Fractional shares of Common Stock will not be issued. Notwithstanding the foregoing, the Stock Option Committee has the right to modify, amend or cancel the right to pay the option price other than in full in cash by giving prior notice to each holder of an option. Neither the Company, any company with which it is affiliated, nor any of its subsidiaries may directly or indirectly lend money to any person for the purpose of assisting said person to acquire or carry shares of Common Stock issued by the exercise of options. Any outstanding option granted under the Stock Option Plan becomes fully and immediately exercisable upon the occurrence of a tender offer or exchange offer made by any "person" within 48 52 the meaning of Section 14(d) of the Securities Exchange Act of 1934 or a "change in control" (as such term is defined in the Stock Option Plan); provided, however, that if in the opinion of counsel to the Company the immediate exercisability of an option, when taken into consideration with all other "parachute payments," as defined in Section 280G(b) of the Internal Revenue Code, would result in "excess parachute payments," as defined in such Section, an option will not become immediately exercisable, except as and to the extent the Stock Option Committee in its discretion otherwise determines. The Stock Option Committee may provide for the acceleration of vesting of options under such other circumstances as the Stock Option Committee may determine in its sole discretion. The Stock Option Committee may adopt such procedures as to notice and exercise as may be necessary to effectuate the acceleration of the exercisability of options as described above. If an optionee's employment is terminated (other than by retirement, disability or death), options held by the optionee are, subject to certain conditions contained in the Stock Option Plan, exercisable (to the extent that the optionee would be entitled to do so at the termination of his employment) for 30 days after such termination (or for such other period as may be specified by the Committee), but not later than the expiration of the term of the option. Notwithstanding the foregoing, in the event an optionee is discharged for cause (as such term is defined in the Stock Option Plan), the unexercised portion of an option terminates immediately, except as otherwise provided by the Committee. If the optionee has exercised all or part of an option within 15 days of notice of discharge for cause and the Company has not yet delivered Common Stock pursuant to such exercise, such exercise will be deemed invalid and any purchase price tendered by the optionee for Common Stock will be refused or, if previously paid, will be returned to the optionee. If an employee to whom an option has been granted under the Stock Option Plan retires from the Company or its subsidiaries at normal retirement date pursuant to any pension plan provided by the Company or its subsidiaries, or retires earlier than the employee's normal retirement date with the prior consent of the Company, such option may be fully exercised without regard to the period of continuous employment after the option was granted, at any time within 90 days after such retirement (or for such other period as may be specified by the Committee), but in no event after the expiration of the term of the option. If the employment of anyone to whom an option has been granted under the Stock Option Plan terminates by reason of that employee's disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code) and while such employee is entitled to exercise such option as herein provided, such employee shall have the right to exercise such option at any time within 90 days after the date of such termination (or for such other period as may be specified by the Committee) but in no event after the expiration of the term of the option. If an employee to whom an option has been granted under the Stock Option Plan dies while he is employed by the Company or its subsidiaries, or during either the 90-day period following normal retirement or the 90-day period following disability retirement, such option may be exercised to the extent the optionee was entitled to do so at the date of death, by his executor or administrator or other person at the time entitled by law to the employee's rights under the option, at any time within such period (not exceeding one year after death or for such other period as may be specified by the Committee) as is prescribed in the option agreement, but in no event after the expiration of the term of the option. In the event of any change in the outstanding shares of Common Stock through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split-off, spin-off, combination or exchange of shares, or other like change in the capital structure of the Company, an adjustment shall be made to each outstanding option such that each such option shall thereafter be exercisable in respect of the shares of Common Stock subject to such option had such option been exercised in full immediately prior to such change. The Stock Option Committee shall also, in the event of such change, make any further appropriate adjustments to the maximum number of shares of Common Stock which may be acquired under the Plan pursuant to the exercise of Options and 49 53 the number of shares of Common Stock and price per share subject to outstanding options as shall be equitable to prevent dilution or enlargement of rights under such options. In connection with any stock option, the Stock Option Committee may, in its discretion, permit an employee to satisfy any withholding tax obligation which may arise in connection with an option by electing to have the Company withhold Common Stock having a fair market value (calculated as of the date the amount of withholding tax is determined) equal to the amount of the withholding tax. Stock options are not affected by changes of duties or position so long as the optionee continues to be an employee of the Company or one of its subsidiaries. Nothing in the Stock Option Plan or in any option agreement confers upon any employee any right to continue in the employ of the Company or one of its subsidiaries or interferes in any way with any right the Company or its subsidiaries may have to terminate his employment at any time. The Stock Option Plan provides that the Board of Directors may amend or terminate the Stock Option Plan in any respect; provided, however, that except with respect to adjustments upon changes in capitalization, without further approval of the holders of Common Stock, the Board of Directors may not increase the maximum number of shares for which stock options may be granted under the Stock Option Plan, change the manner of determining the minimum option prices, extend the period during which an option may be granted or an option may be exercised, or amend the provisions of the Stock Option Plan as to the class of employees eligible to receive options. No termination, modification or amendment of the Stock Option Plan may, without the consent of the optionee, adversely affect the rights of such optionee. Pursuant to the Stock Option Plan, options will be granted in conjunction with the Offering to Mr. Wilkey and Mr. Harrison for 100,000 and 50,000 shares of Common Stock, respectively. Such options will have an exercise price per share equal to the initial public offering price set forth on the cover page of this Prospectus and a term of 10 years from the date of grant. Options to purchase an additional 250,000 shares of Common Stock will be granted in conjunction with the Offering to employees of the Company or its subsidiaries who are not executive officers of the Company. Such additional options will also have an exercise price per share equal to the initial public offering price set forth on the cover page of this Prospectus and a term of 10 years from the date of grant. (Such options will in no event become exercisable prior to one year after the grant thereof.) To the extent permitted under the Internal Revenue Code, such options will be incentive stock options, and the balance, if any, will be non-qualified stock options. There is no other current agreement to grant additional options pursuant to the Stock Option Plan. FEDERAL TAX CONSEQUENCES OF PLAN Counsel for the Company has advised that the federal income tax consequences of stock options granted under the Stock Option Plan are as follows: INCENTIVE STOCK OPTIONS. Neither the grant nor exercise of an incentive stock option will generally have any federal income tax consequences for an optionee. The amount by which the fair market value of the shares acquired upon the exercise of any incentive stock option exceeds the option price as of the date of exercise, however, is an item of "tax preference" for purposes of computing the alternative minimum tax on individuals. If an optionee has held the shares acquired on the exercise of an incentive stock option for at least two years from the date of the grant of the option and at least one year from the date of exercise, the optionee will recognize taxable long-term capital gain or loss upon a subsequent disposition of the shares. In such circumstances, no deduction would be allowed to the Company for federal income tax purposes in connection with the grant or exercise of the option or the transfer of shares acquired upon such exercise. If, however, the employee disposes of his shares within the holding periods described above, which would include the use of such shares to exercise a second stock option, (i) the employee will 50 54 recognize ordinary income in an amount equal to the difference between the fair market value of such shares on the date of exercise (or such later time as the shares become nontransferable or not subject to a substantial risk of forfeiture) and the option price, provided that, if the disposition is a sale or exchange with respect to which a loss (if sustained) would be recognized by the employee and the amount realized from such sale or exchange is less than the fair market value on the exercise date, then the ordinary income will be limited to the excess of the amount realized upon the sale or exchange of the shares over the option price; (ii) the Company will be entitled to a deduction for such year in the amount of the ordinary income so recognized; (iii) the employee will recognize capital gain or loss, short-term or long-term, as the case may be, in an amount equal to the difference between the amount realized upon such sale or exchange of the shares and the sum of the option price plus the amount of ordinary income, if any, recognized upon such disposition. Any such capital gain or loss will be long-term gain or loss if the shares with respect to which such gain or loss is recognized have been held for more than one year. NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified stock option would have no federal income tax consequences to the Company or to the employee. An optionee would recognize taxable ordinary income at the time of exercise of the option (or at such later time as the shares become nontransferable or not subject to a substantial risk of forfeiture) in an amount equal to the excess of the fair market value of the shares acquired at the time of exercise (or such later time) over the option price, and the Company would be entitled to a deduction in such amount, provided that such compensation is reasonable and the Company withholds any applicable federal income tax. The optionee may be required upon the exercise of a non-qualified option to deposit with the Company an amount equal to the federal income tax required to be withheld. Alternatively, the Company may elect to withhold a number of shares otherwise transferable upon exercise of the option having a fair market value equal to the amount required to be withheld. Any amounts so deposited will be remitted by the Company to the Internal Revenue Service. The holder of shares acquired upon exercise of a non-qualified option will upon a subsequent disposition of such shares generally recognize a short-term or long-term capital gain or loss, depending upon the holding period of the shares, equal to the difference between the amount realized on the sale and the basis in such shares (the sum of the option price and the amount taxed as ordinary income at the time of exercise). ALL OPTIONS. A number of special rules apply to the use of previously acquired stock to exercise incentive or non-qualified stock options or to satisfy any attendant federal income tax withholding obligation. It should be noted that, under the Internal Revenue Code, to the extent that option exercise is accelerated on account of a change in control of the Company, the value of the acceleration of vesting would be treated as a "parachute payment," which may subject the employee to an excise tax and be nondeductible by the employer. Such consequences would only follow, however, if the total "parachute payments" (including the value of the acceleration) were of sufficient magnitude to constitute "excess parachute payments" under the Internal Revenue Code. Furthermore, amounts constituting "reasonable compensation" are not subject to the rules relating to "excess parachute payments," and the Committee Report to the Tax Reform Act of 1984 indicates that the benefit of acceleration of exercise of stock options issued as part of a normal compensation package granted more than one year before the change in control presumptively constitutes reasonable compensation. 51 55 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of Common Stock as of the day prior to the date hereof and after the consummation of the Offering, respectively, by (i) each director and named executive officer and (ii) all directors and executive officers as a group. Unless otherwise indicated, each person or entity has sole voting power and investment power with respect to the shares attributed to such person or entity. No person other than Mr. Svenningsen owns more than 5% of the outstanding shares of Common Stock.
PRIOR TO THE DATE HEREOF AFTER THE OFFERING -------------------------------- -------------------------------- SHARES BENEFICIALLY PERCENT OF SHARES BENEFICIALLY PERCENT OF NAME OWNED CLASS OWNED CLASS(4) ------------------------- ------------------- ---------- ------------------- ---------- John A. Svenningsen...... 15,182,308(1) 92.5% 15,182,308(1) 69.0% Gerald C. Rittenberg..... 660,000(2) 4.0% 660,000(2) 3.0% William S. Wilkey........ 0 -- 0 -- Christine Svenningsen.... 0(3) -- 0(3) -- All directors and executive officers as a group............. 15,842,308 96.5% 15,842,308 72.0%
- --------------- (1) Includes 128,572 shares owned in the aggregate by the SSY Trusts for which Mr. Svenningsen is a co-trustee. (2) Mr. Svenningsen and Mr. Rittenberg have entered into an agreement pursuant to which Mr. Svenningsen has agreed to lend Mr. Rittenberg up to $4 million to enable Mr. Rittenberg to pay taxes on the shares of Common Stock received by Mr. Rittenberg in the Organization. Such loan, if made, would have a term of 30 months and bear interest at the 90-day LIBOR rate plus 0.125%. Mr. Rittenberg would have the right to pay all or any portion of the loan by delivering shares of Common Stock to Mr. Svenningsen based on the fair market value of the Common Stock on the date of repayment. If Mr. Rittenberg were to borrow the money from Mr. Svenningsen and repay it by delivering shares of Common Stock, the number of shares of Common Stock beneficially owned by Mr. Rittenberg would be reduced and the number owned by Mr. Svenningsen would be correspondingly increased. Mr. Svenningsen and Mr. Rittenberg have also entered into an agreement pursuant to which Mr. Rittenberg would be entitled to receive 5% of the net proceeds from any sale of Common Stock by Mr. Svenningsen, his wife, his issue or his estate, which occurs at any time during a period not exceeding six years commencing upon the consummation of the Offering. (3) Christine Svenningsen is the wife of John A. Svenningsen. As the wife of Mr. Svenningsen, Christine Svenningsen may be deemed to own the shares of Common Stock beneficially owned by Mr. Svenningsen. (4) The percentages are calculated on the basis of the number of shares of Common Stock issued in the Organization and the shares offered hereby (assuming no exercise of the Underwriters' over-allotment option) and assuming issuance of shares in connection with the ESOP and the employee stock bonuses. 52 56 CERTAIN RELATED TRANSACTIONS The Company leases certain of its facilities from Mr. Svenningsen or from entities that Mr. Svenningsen either owns directly or in which he has a direct or indirect beneficial interest. The Company pays rent and expenses for those facilities on terms which it believes are at least as favorable to the Company as the terms which would have been available for leases negotiated with unaffiliated persons at the inception of each lease. Mr. Svenningsen has indicated that he will recuse himself from any decision of the Board of Directors of the Company relating to the terms and conditions of any such leases, or any renewals thereof. In March, 1996, the Company began leasing approximately 45,000 square feet for the Company's administrative headquarters in an office building of approximately 90,000 square feet in Elmsford, New York. The building is owned by a limited liability company which is 79%-owned by a trust established for the benefit of Mr. Svenningsen's children, 20%-owned by a trust established for the benefit of Mr. Svenningsen's sister's children and 1%-owned by a corporation owned by Mr. Svenningsen. Rent expense relating to this lease was $502,000 for the nine months ended September 30, 1996. This lease, as amended, provides for annual rent of $1,003,000 and has a term which expires on February 28, 2000. In addition, the Company has options to renew for three five-year periods at market rental. Prior to this, the Company's headquarters had been in a facility owned by Mr. Svenningsen. Rent expense related to that facility was $411,000, $432,000, $453,000 and $196,000 for the years ended December 31, 1993, 1994, 1995, and the nine months ended September 30, 1996, respectively. The Company leases a 212,000 square foot warehouse in Temecula, California from Mr. Svenningsen. Rent expense related to this warehouse was $439,000, $462,000 $483,000 and $889,000 for the years ended December 31, 1993, 1994, 1995, and the nine months ended September 30, 1996, respectively. The expiration date of this lease, as amended, is February 28, 2000; however, the Company has options to renew at market rental for two additional five-year periods. The Company and Mr. Svenningsen have entered into an agreement pursuant to which Mr. Svenningsen may seek reimbursement from the Company for any income tax obligation attributable to any period prior to the Organization (including any gross-up for additional taxes), but only to the extent that such tax is attributable to income that was not distributed to Mr. Svenningsen. Alternatively, in the event that the status of Amscan Inc., Am-Source, Inc., JCS Realty Corp. or SSY Realty Corp. as a Subchapter S corporation is not respected, the Company may seek reimbursement from Mr. Svenningsen, but only to the extent that Mr. Svenningsen is entitled to a tax refund attributable to amounts he previously included in income in his capacity as a shareholder of such corporations. Ya Otta Pinata, a California corporation which is 50% owned by Mr. Svenningsen ("Ya Otta"), manufactures pinatas which historically have been sold by the Company's sales force with no commissions charged to Ya Otta. Mr. Svenningsen will retain his ownership in Ya Otta and Ya Otta will not be part of the Organization. After the Organization, the Company's sales force will continue to sell pinatas manufactured by Ya Otta. On any sales after the Organization, the Company will receive a sales commission in the range of 7% to 10%. For the year ended December 31, 1995, sales by Ya Otta were approximately $2.2 million. The Company has agreed to indemnify each director pursuant to an Indemnification Agreement with such director from and against any and all expenses, losses, claims, damages and liabilities incurred by such director for or as a result of actions taken or not taken while such director was acting in his or her capacity as a director of the Company. See also, "Organization of the Company" and "Management of the Company -- Executive Compensation -- Employment Agreements." 53 57 DESCRIPTION OF THE COMPANY'S CAPITAL STOCK GENERAL The Company's authorized capital stock consists of 5,000,000 shares of Preferred Stock, $0.10 par value, of which no shares are issued and outstanding, and 50,000,000 shares of Common Stock, $0.10 par value, of which 22,000,000 shares will be issued and outstanding upon completion of the Offering (or 22,802,500 shares if the Underwriters' over-allotment option is exercised in full). The following description of the Preferred Stock and Common Stock is qualified in its entirety by reference to the Company's Certificate of Incorporation and By-Laws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. PREFERRED STOCK Pursuant to the Company's Certificate of Incorporation, the Company's Board of Directors may, without further action by the Company's stockholders, from time to time issue shares of Preferred Stock and determine the rights, preferences and limitations of such stock, and may issue such Preferred Stock in series having differing rights, preferences and limitations. The rights, preferences and limitations of any Preferred Stock which might be issued could materially reduce the Company's ability to pay dividends on its shares of Common Stock, the assets available to common stockholders upon any dissolution and liquidation of the Company and the voting power of holders of the Common Stock. Shares of Preferred Stock or rights to purchase such shares could be issued to create voting impediments or otherwise frustrate persons seeking to effect a takeover of the Company. Thus, the potential to issue the Preferred Stock could discourage an attempt by a person to acquire control of the Company by tender offer or other means and could, therefore, deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price of the shares in a tender offer or the temporary increase in market price that such an attempt could cause. The issuance of shares of voting Preferred Stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent management and directors from office, even if such removal would be beneficial to stockholders generally. The Board of Directors believes that the financial flexibility offered by authorized but unissued Preferred Stock outweighs any of its potential disadvantages. To the extent it may have anti-takeover effects, the existence of the Preferred Stock may encourage persons seeking to acquire the Company to negotiate directly with the Board of Directors, enabling the Board of Directors to consider the proposed transaction in a non-disruptive atmosphere, and to discharge effectively its obligation to act on a proposed transaction in a manner that best serves the stockholders' interests. COMMON STOCK Holders of Common Stock are entitled to one vote per share in the election of directors and on all other matters on which stockholders are entitled or permitted to vote. Holders of Common Stock are not entitled to vote cumulatively for the election of directors. Holders of Common Stock have no redemption, preference, exchange, conversion, preemptive or other subscription rights. There are no sinking fund provisions relating to the Common Stock. In the event of the liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all of the assets of the Company, if any, remaining after satisfaction of the debts and liabilities of the Company and the preferential amounts payable to the holders of the Company's Preferred Stock, if any. The outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be, upon payment therefor as contemplated herein, validly issued, fully paid and nonassessable. Holders of Common Stock are entitled to receive dividends when and as declared by the Board of Directors of the Company out of funds legally available therefor, subject to the rights of the 54 58 holders of the Company's Preferred Stock, if any. The Company does not anticipate paying cash dividends on the Common Stock in the foreseeable future. As a holding company, the Company's ability to declare and pay cash dividends on the Common Stock will be substantially dependent on the receipt by the Company of cash dividends from its subsidiaries. The revolving credit agreement to which the Company's principal subsidiary is a party prohibits the payment by such subsidiary of any cash dividends. CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS The Company is subject to Section 203 of the Delaware General Corporation Law (the "DGCL"), which restricts certain transactions and "Business Combinations" (as defined below) between a Delaware corporation and an "Interested Stockholder" (as defined below). Subject to certain limitations, such section restricts a Delaware corporation from engaging in various Business Combination transactions with any Interested Stockholder for a period of three years after the time of the transaction in which the person became an Interested Stockholder, unless (i) the transaction is approved by the Board of Directors prior to the time the Interested Stockholder obtained such status, (ii) upon consummation of the transaction which resulted in the stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding for the purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer), or (iii) at or subsequent to such time the Business Combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the Interested Stockholder. A Business Combination includes mergers, asset dispositions, stock transfers and other transactions resulting in financial benefit to a stockholder. An Interested Stockholder is a person who (a) owns 15 percent or more of a corporation's voting stock, or (b) is an affiliate or associate of a corporation, as defined in the statute, and owned 15 percent or more of a corporation's voting stock within the preceding three years. Section 203 could prohibit or delay mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. The Company's Certificate of Incorporation and By-Laws contain certain provisions which may be deemed to have an anti-takeover effect that could delay or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares of Common Stock held by stockholders. These provisions are intended by the Board of Directors to help assure fair and equitable treatment of the Company's stockholders if a person or group should seek to gain control of the Company in the future. CLASSIFIED BOARD OF DIRECTORS The Certificate of Incorporation provides for the Board of Directors to be divided into three classes of directors serving staggered three-year terms at such time as there are three or more directors. As a result, approximately one-third of the Board of Directors will be elected each year. Moreover, under the DGCL, in the case of a corporation having a classified board, stockholders may remove a director only for cause. This provision, when coupled with the provision of the By-Laws authorizing only the Board of Directors to fill vacant directorships, will preclude a stockholder from removing incumbent directors without cause and simultaneously gaining control of the Board of Directors by filling the vacancies created by such removal with its own nominees, and will make more difficult, and therefore may discourage, a proxy contest to change control of the Company. 55 59 SPECIAL MEETINGS OF STOCKHOLDERS The By-Laws provide that special meetings of stockholders of the Company may be called only by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. This provision will make it more difficult for stockholders to take actions opposed by the Board of Directors. STOCKHOLDER ACTION BY WRITTEN CONSENT The Certificate of Incorporation provides that no action required or permitted to be taken at any annual or special meeting of the stockholders of the Company may be taken without a meeting, and the power of stockholders of the Company to consent in writing, without a meeting, to the taking of any action is specifically denied. ADVANCE NOTICE REQUIREMENT FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS The By-Laws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual or special meeting of stockholders, must provide timely notice thereof, as set forth in the By-Laws, in writing. These notice provisions are in addition to any other notice requirements provided by applicable law or regulation. These provisions may preclude some stockholders from bringing matters before the stockholders at an annual or special meeting or from making nominations for directors at an annual or special meeting. The Company's Certificate of Incorporation contains certain provisions permitted under the DGCL relating to the liability of directors. The Certificate of Incorporation provides that, to the fullest extent permitted by the DGCL, no director of the Company will be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. The By-Laws provide that, subject to applicable law, the Company shall (i) indemnify each person who is or was involved in any legal proceeding because such person is or was a director, officer, employee or agent of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another entity) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection therewith, and (ii) pay the expenses incurred in defending such proceeding in advance of its final disposition upon receipt of an undertaking by such person to repay such expenses in the event it shall be determined that such person is not entitled to indemnification by the Company. In addition, the By-Laws provide that (i) the rights to indemnification and payment of expenses so provided are not exclusive of any other similar right that any person may have or acquire under any statute or otherwise and (ii) the Company may maintain insurance to protect itself or its directors, officers, employees or agents against any liability, whether or not it would have the power to indemnify such person against such liability pursuant to Delaware law. See also, "Certain Related Transactions." In addition to the potential anti-takeover effect, Section 203 and the provisions of the Company's Certificate of Incorporation and By-Laws described above could have the effect of inhibiting attempts to change the membership of the Board of Directors of the Company. In addition, the limitation of liability provisions in the Certificate of Incorporation and the indemnification provisions in the Certificate of Incorporation and By-Laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty (including breaches resulting from grossly negligent conduct) and may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise have benefited the Company and its stockholders. Furthermore, a stockholder's investment in the Company may be adversely affected to the extent the Company pays the costs of settlement and damage awards against directors and officers of the Company pursuant to the indemnification provisions in the Company's By-Laws. The limitation of liability provisions in the Certificate of Incorporation will not limit the liability of directors under federal securities laws. 56 60 SHARES RESERVED FOR ISSUANCE The Company has 2,000,000 shares of Common Stock reserved for issuance upon the exercise of options granted or to be granted under the Stock Option Plan. TRANSFER AGENT The transfer agent and registrar for the Common Stock is ChaseMellon Shareholder Services L.L.C. LISTING Application has been made to have the Common Stock approved for quotation on The Nasdaq Stock Market, Inc. under the symbol "AMSN." SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, the Company will have outstanding a total of 22,000,000 shares of Common Stock, including the 5,350,000 shares offered in the Offering (or 22,802,500 shares if the Underwriters' over-allotment option is exercised in full). The Common Stock sold in the Offering will be transferable without restriction or further registration under the Securities Act, except for any shares acquired by an "affiliate" of the Company that will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. Of the remaining shares of Common Stock outstanding, 230,769 shares will be owned by the ESOP, which the Company intends to establish for the benefit of its domestic employees in connection with the consummation of the Offering, or issued to certain of such employees in connection with stock bonuses. Upon such consummation, the Company will make a special one-time contribution to the ESOP of 230,769 shares of Common Stock, subject to reduction as described in the next sentence, to be allocated to participants' accounts in accordance with a formula based on compensation and years of service. To the extent that application of this formula would result in a contribution to the ESOP on behalf of a participant which would exceed the maximum contribution permitted under applicable law, the contribution to the ESOP for such participant will be reduced to the maximum permitted and the balance determined under the formula will be paid to such participant in the form of a stock bonus. No additional contributions to the ESOP will be made until 1998 and will then be dependent upon a number of factors including the Company's performance. See "Capitalization" and "Dilution." All of the remaining shares outstanding and not issued in the Offering or owned by the ESOP or certain employees upon payment of stock bonuses will be owned respectively by Mr. Svenningsen, the SSY Trusts, Mr. Rittenberg and the other three stockholders of Am-Source, Inc. Such shares, in addition to the shares owned by the ESOP, will be "restricted" securities within the meaning of Rule 144 and may not be sold in the absence of registration other than through Rule 144 described below or another exemption from registration under the Securities Act. In general, under Rule 144, as currently in effect, a stockholder who (together with predecessor holders who were not affiliates of the Company (as such term is defined in Rule 144 under the Securities Act, "Affiliates")) has beneficially owned shares of Common Stock which are treated as "restricted securities" (as defined in Rule 144) for at least two years from the date such restricted securities were acquired from the Company or an Affiliate, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the shares of Common Stock then outstanding or the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144. Sales under Rule 144 are also subject to certain provisions relating to the manner and notice of sale and availability of current public information about the Company. In addition, Affiliates of the Company must comply with the restrictions and requirements of Rule 144 (other than the two-year holding period requirements) in order to sell shares of Common Stock that are not restricted securities. Furthermore, if a period of at least three years has elapsed from the date restricted securities were 57 61 acquired from the Company or an Affiliate, a holder of such restricted securities who is not an Affiliate at the time of the sale and has not been an Affiliate for at least three months prior to such sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. The 15,053,736 shares of Common Stock held by Mr. Svenningsen may be eligible (subject to the 180-day lock-up arrangement described below) for sale after the Offering in the public market pursuant to, and in accordance with the volume, manner of sale and other conditions of, Rule 144 described above. The Company, Mr. Svenningsen and the SSY Trusts have agreed that for 180 days from the date of this Prospectus they will not offer, sell, contract to sell or otherwise dispose of any securities of the Company including, but not limited to, any securities that are exercisable or exchangeable for, that represent the right to receive or that are convertible into or whose exercise or settlement price is derivable from the price of Common Stock or other substantially similar securities without the prior written consent of the representatives of the Underwriters. See "Underwriting." As part of the agreement pursuant to which Mr. Rittenberg exchanged his shares of Amscan Inc. for shares of Common Stock, Mr. Rittenberg agreed not to resell any of such shares of Common Stock for a period of 18 months from the date of such exchange, except for transfers to Mr. Svenningsen to repay indebtedness which Mr. Rittenberg might incur to enable him to pay taxes on the shares of Common Stock received by him in the Organization pursuant to the agreement described in note (2) under "Principal Stockholders." The Company has entered into agreements with two of the three individuals who held 50% of the capital stock of Am-Source, Inc. (see "Organization of the Company") and with Gerald C. Rittenberg. Pursuant to these agreements, such persons have each been granted a one-time right to demand registration of the offer and sale of Common Stock under the Securities Act and the Company has agreed to keep any such registration statement effective for a period as is reasonably necessary to permit the sale of such Common Stock. The Company must pay registration expenses in connection with the demand registration but in no event is the Company responsible for the payment of underwriting discounts and commissions. No such demand may be exercised earlier than one year from consummation of the Offering. The Company intends to file a registration statement on Form S-8 covering the 2,000,000 shares of Common Stock reserved under the Stock Option Plan. Any shares which become outstanding upon exercise of options under the Stock Option Plan, other than shares delivered to Affiliates, will be eligible for sale in the public market beginning on the date of delivery thereof. Prior to consummation of the Offering, there has been no public market for the Common Stock, and no prediction can be made as to the effect, if any, that future sales of shares of Common Stock under Rule 144 or following the exercise of registration rights, or the availability of such shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of a substantial amount of such shares in the public market, or the perception that such sales could occur, could adversely affect the prevailing market prices for the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. 58 62 VALIDITY OF COMMON STOCK The validity of the Common Stock will be passed upon for the Company by Cummings & Lockwood, Stamford, Connecticut, counsel for the Company, and for the Underwriters by Sullivan & Cromwell, New York, New York, counsel for the Underwriters. EXPERTS The special purpose combined financial statements and schedule of Amscan Inc. and Affiliates as of December 31, 1994 and 1995, and as of September 30, 1996, and for each of the years in the three-year period ended December 31, 1995, and for the nine-month period ended September 30, 1996, have been included herein and in the registration statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein and in the registration statement, and upon the authority of said firm as experts in accounting and auditing. OTHER INFORMATION The Company has filed with the Securities and Exchange Commission in Washington, D.C. a Registration Statement under the Securities Act with respect to the Common Stock offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. The Registration Statement and the exhibits and schedules forming a part thereof may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661) and copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at the following address: http://www.sec.gov. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. 59 63 AMSCAN INC. AND AFFILIATES INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE ---- Combined Financial Statements as of December 31, 1994 and 1995 and for each of the years in the three-year period ended December 31, 1995: Independent Auditors' Report....................................................... F-2 Combined Balance Sheets............................................................ F-3 Combined Statements of Operations.................................................. F-4 Combined Statements of Stockholders' Equity........................................ F-5 Combined Statements of Cash Flows.................................................. F-6 Notes to Combined Financial Statements............................................. F-7 Combined Financial Statements as of September 30, 1996 and for the nine month periods ended September 30, 1995 (unaudited) and 1996: Independent Auditors' Report....................................................... F-20 Combined Balance Sheet............................................................. F-21 Combined Statements of Operations.................................................. F-22 Combined Statements of Stockholders' Equity........................................ F-23 Combined Statements of Cash Flows.................................................. F-24 Notes to Combined Financial Statements............................................. F-25
F-1 64 INDEPENDENT AUDITORS' REPORT To the Stockholders of Amscan Inc. and Affiliates: We have audited the accompanying special purpose combined balance sheets of Amscan Inc. and Affiliates as of December 31, 1994 and 1995 and the related special purpose combined statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These special purpose combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these special purpose combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose combined financial statements include the accounts of Amscan Inc. and Affiliates, as defined in note (1). These financial statements present the combined accounts of entities owned by the Principal Stockholder engaged in the design, manufacture, contract for manufacture or distribution of party and novelty goods. In our opinion, the special purpose combined financial statements referred to above present fairly, in all material respects, the combined financial position of Amscan Inc. and Affiliates as of December 31, 1994 and 1995, and the combined results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Stamford, Connecticut April 5, 1996, except as to note (16), which is as of July 31, 1996, and note (7) which is as of September 30, 1996 F-2 65 AMSCAN INC. AND AFFILIATES COMBINED BALANCE SHEETS ($ IN THOUSANDS)
DECEMBER 31, ------------------- 1994 1995 ------- -------- ASSETS Current assets: Cash and cash equivalents............................................. $ 2,229 $ 2,492 Accounts receivable, net of allowances of $1,925 and $2,505, 23,847 respectively....................................................... 31,880 Inventories........................................................... 34,465 45,013 Deposits and other.................................................... 2,457 2,920 ------- -------- Total current assets............................................... 62,998 82,305 Property, plant and equipment, net...................................... 26,925 26,848 Other assets............................................................ 3,961 5,448 ------- -------- Total assets....................................................... $93,884 $114,601 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans and notes payable............................................... $28,665 $ 37,849 Subordinated debt to Principal Stockholder............................ 12,000 16,000 Accounts payable...................................................... 4,849 10,116 Accrued expenses...................................................... 7,718 5,265 Loans and notes payable to Principal Stockholder...................... 5,295 2,453 Current installments of long-term indebtedness........................ 4,909 2,239 ------- -------- Total current liabilities.......................................... 63,436 73,922 Long-term indebtedness, excluding current installments.................. 8,800 12,284 Other................................................................... 828 1,190 ------- -------- Total liabilities.................................................. 73,064 87,396 ------- -------- Stockholders' equity: Common stock.......................................................... 393 393 Additional paid-in capital............................................ 9,090 9,090 Retained earnings..................................................... 12,037 18,462 Cumulative translation adjustment..................................... (613) (653) Treasury stock, at cost............................................... (87) (87) ------- -------- Total stockholders' equity......................................... 20,820 27,205 ------- -------- Total liabilities and stockholders' equity......................... $93,884 $114,601 ======= ========
See accompanying notes to combined financial statements. F-3 66 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1993 1994 1995 -------- -------- ----------- Net sales................................................ $108,934 $132,029 $ 167,403 Cost of sales............................................ 72,656 86,748 108,654 -------- -------- ------------ Gross profit........................................ 36,278 45,281 58,749 -------- -------- ------------ Operating expenses: Selling................................................ 9,780 11,309 12,241 General and administrative............................. 11,080 14,460 15,002 Art and development.................................... 2,596 2,796 4,256 Special bonuses........................................ 1,106 2,200 2,581 -------- -------- ------------ Total operating expenses............................ 24,562 30,765 34,080 -------- -------- ------------ Income from operations.............................. 11,716 14,516 24,669 Interest expense, net.................................... 2,304 3,843 5,772 Other expense (income), net.............................. 308 82 (309) -------- -------- ------------ Income before income taxes and minority interests........ 9,104 10,591 19,206 Income taxes............................................. 348 464 731 Minority interests....................................... 301 160 1,041 -------- -------- ------------ Net income.......................................... $ 8,455 $ 9,967 $ 17,434 ======== ======== ============ Pro forma data (unaudited) (note (15)): Net income before pro forma taxes................... $ 8,455 $ 9,967 $ 17,434 Pro forma additional income tax expense............. 3,218 3,774 6,672 -------- -------- ------------ Pro forma net income.............................. $ 5,237 $ 6,193 $ 10,762 ======== ======== ============ Supplemental pro forma data (unaudited) (note (15)): Supplemental pro forma net income................... $ 14,197 ============ Supplemental pro forma net income per share......... $ 0.65 ============ Supplemental pro forma weighted average shares outstanding....................................... 22,000,000 ============
See accompanying notes to combined financial statements. F-4 67 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 ($ IN THOUSANDS)
ADDITIONAL CUMULATIVE COMMON PAID-IN RETAINED TRANSLATION TREASURY STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL ------ ---------- --------- ---------- -------- -------- Balance, December 31, 1992....... $192 $5,758 $ 9,584 $ 103 $(87) $ 15,550 Capital related to acquisitions................... 201 1,482 -- -- -- 1,683 Net income....................... -- -- 8,455 -- -- 8,455 Subchapter S and other distributions.................. -- -- (8,519) -- -- (8,519) Capital contributions............ -- 1,850 -- -- -- 1,850 Net change in cumulative translation adjustment......... -- -- -- (523) -- (523) ---- ------ ------- ------ ----- --------- Balance, December 31, 1993....... 393 9,090 9,520 (420) (87) 18,496 Net income....................... -- -- 9,967 -- -- 9,967 Subchapter S and other distributions.................. -- -- (7,450) -- -- (7,450) Net change in cumulative translation adjustment......... -- -- -- (193) -- (193) ---- ------ ------- ------ ----- --------- Balance, December 31, 1994....... 393 9,090 12,037 (613) (87) 20,820 Net income....................... -- -- 17,434 -- -- 17,434 Subchapter S and other distributions.................. -- -- (11,009) -- -- (11,009) Net change in cumulative translation adjustment......... -- -- -- (40) -- (40) ---- ------ ------- ------ ----- --------- Balance, December 31, 1995....... $393 $9,090 $ 18,462 $ (653) $(87) $ 27,205 ==== ====== ======= ====== ===== =========
See accompanying notes to combined financial statements. F-5 68 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 -------- ------- -------- Cash flows from operating activities: Net income................................................. $ 8,455 $ 9,967 $ 17,434 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 2,628 3,672 4,332 Loss (gain) on disposal of property and equipment....... 405 35 (5) Provision for doubtful accounts......................... 2,339 2,676 1,581 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable................................... (7,439) (5,041) (9,614) Inventories........................................... (3,450) (5,682) (10,548) Deposits and other.................................... 1,530 (444) (463) Other assets.......................................... (1,413) (2,497) (3,032) Accounts payable and accrued expenses................. 5,294 912 2,814 Other................................................. 351 289 362 --------- -------- --------- Net cash provided by operating activities.......... 8,700 3,887 2,861 --------- -------- --------- Cash flows from investing activities: Cash paid for acquisitions................................. (2,139) -- -- Capital expenditures....................................... (3,511) (6,160) (2,662) Proceeds from disposal of property and equipment........... 14 98 9 --------- -------- --------- Net cash used in investing activities.............. (5,636) (6,062) (2,653) --------- -------- --------- Cash flows from financing activities: Proceeds from loans, notes payable and long-term indebtedness............................................ 39,942 6,324 42,311 Repayment of loans, notes payable and long-term indebtedness............................................ (38,291) (2,434) (32,313) Proceeds from loans, notes payable and subordinated indebtedness to Principal Stockholder................... 4,979 6,316 4,000 Repayment of loans, notes payable and subordinated indebtedness to Principal Stockholder................... -- -- (2,842) Subchapter S and other distributions....................... (8,519) (7,450) (11,009) --------- -------- --------- Net cash (used in) provided by financing activities..... (1,889) 2,756 147 --------- -------- --------- Effect of exchange rate changes on cash.................... (279) 270 (92) --------- -------- --------- Net increase in cash and cash equivalents............... 896 851 263 Cash and cash equivalents at beginning of year............... 482 1,378 2,229 --------- -------- --------- Cash and cash equivalents at end of year..................... $ 1,378 $ 2,229 $ 2,492 ========= ======== ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest................................................ $ 3,168 $ 4,025 $ 4,486 Taxes................................................... $ 152 $ 112 $ 601 Supplemental information on noncash investing activities:
Capital lease obligations of $648 were incurred in 1994. There were no capital lease obligations incurred in 1993 or 1995. See accompanying notes to combined financial statements. F-6 69 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (1) DESCRIPTION OF BUSINESS The accompanying special purpose combined financial statements include the accounts of Amscan Inc. and certain of its affiliates (the "Companies"). The Companies design, manufacture, contract for manufacture and distribute party and novelty goods to retailers and wholesale distributors principally in the United States, Canada and Europe. BASIS OF COMBINATION These combined financial statements present the Companies on a combined basis because of their common ownership by Mr. John A. Svenningsen (the "Principal Stockholder"). The name, the Principal Stockholder's ownership and a brief description of each of the combined entity's principal business activity is presented below.
PRINCIPAL STOCKHOLDER'S ENTITY OWNERSHIP PRINCIPAL ACTIVITY ----------------------------------- ------------- ----------------------------------- Amscan Inc......................... 100% Manufacturer -- paper tableware; and distributor -- worldwide Am-Source, Inc..................... 50% Manufacturer -- plastic products Trisar, Inc........................ 100% Manufacturer -- gift products Amscan Distributors (Canada) Ltd... 100% Distributor -- Canada Amscan Holdings Limited............ 75% Distributor -- United Kingdom Amscan (Asia Pacific) Pty. Ltd..... 85% Distributor -- Australia and Asia Amscan Partyartikel GmbH........... 95% Distributor -- Germany Amscan Svenska AB.................. 100% Distributor -- Sweden Amscan de Mexico, S.A. de C.V...... 48% Distributor -- Mexico JCS Realty Corp.................... 100% Real estate -- Canada SSY Realty Corp.................... 100% Real estate -- United States
The less than majority-owned entities are combined in the accompanying financial statements because the Principal Stockholder effectively controls the day-to-day operations. All material intercompany balances and transactions have been eliminated in combination. ACQUISITIONS AND DISPOSITIONS On May 24, 1993, the Principal Stockholder acquired 50% of the stock of Am-Source, Inc. Simultaneously, Am-Source, Inc. acquired for $456,000 all of the assets and assumed certain liabilities of Multi-Source, Inc. Both transactions were accounted for as a purchase and the fair value of the assets acquired approximated the fair value of the liabilities assumed. On November 13, 1993, the Principal Stockholder acquired 100% of the stock of Trisar, Inc. for approximately $1,500,000 in cash and notes. The acquisition has been accounted for as a purchase and the excess purchase price over the fair value of the net assets acquired of $1,057,000 is being amortized on a straight-line basis over three years. On September 3, 1993, the Principal Stockholder acquired 48% of the stock of Amscan de Mexico, S.A. de C.V. for $201,000 in cash, which approximated 48% of the fair value of its net assets. The results of operations for each of the above entities are included in the accompanying combined financial statements from their respective dates of acquisition. The individual and F-7 70 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 collective results of operations of the entities for the year ended December 31, 1993 had each of the acquisitions occurred at the beginning of 1993, are not significant. During the periods presented, a business, which was not material to the combined business of the Companies, was acquired by the Principal Stockholder and subsequently disposed of. The associated balance sheet, statements of operation and loss on disposition of the business are insignificant and have been excluded from the accompanying combined financial statements. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. INVENTORIES Substantially all inventories of the Companies are valued at the lower of cost or market (principally on the first-in, first-out method). PROPERTY, PLANT, AND EQUIPMENT Property, plant and equipment are stated at cost. Machinery and equipment under capital leases are stated at the present value of the minimum lease payments at the inception of the lease. Depreciation is calculated principally on the straight-line method over the estimated useful lives of the assets. Machinery and equipment held under capital leases and leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset. OTHER ASSETS Included in other assets are capitalized costs which represent third party costs incurred to manufacture and commercialize designs for production, including the acquisition of printing plates. Accordingly these costs are amortized on a straight line basis over their estimated useful lives of three years. The amortization of such costs is included in cost of sales and was $862,000, $953,000 and $1,195,000, respectively, for the three years ended December 31, 1993, 1994 and 1995. REVENUE RECOGNITION The Companies recognize revenue from product sales when the goods are shipped to the customers. CATALOGUE COSTS The Companies expense costs associated with the production of annual catalogues when incurred. ART AND DEVELOPMENT COSTS Art and development costs are primarily internal costs that are not easily associated with specific designs which may reach commercial production. Accordingly, the Companies expense these costs as incurred. F-8 71 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 INCOME TAXES Certain of the affiliates have elected Subchapter S corporation status for U.S. federal and state income tax purposes. Income taxes, therefore, are principally the responsibility of the stockholders. Income taxes for all other entities, including foreign distributors, are computed in accordance with the tax laws in the jurisdictions in which the entities operate. FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION Realized foreign currency exchange gains or losses, which result from the settlement of receivables or payables in currencies other than U.S. dollars, are credited or charged to operations. Unrealized gains or losses on foreign currency exchanges are insignificant. The balance sheets of foreign affiliates are translated into U.S. dollars at the exchange rates in effect on the balance sheet date. The results of operations of foreign affiliates are translated into U.S. dollars at the average exchange rates effective for the periods presented. The differences from historical exchange rates are reflected as a separate component of stockholders' equity. CONCENTRATION OF CREDIT RISK While the Companies' customers are geographically disbursed throughout North America, South America, Europe, Asia and Australia, there is a concentration of sales made to and accounts receivable from the stores which operate in the party superstore channel of distribution. At December 31, 1994 and 1995, the Companies' two largest customers, with approximately 185 stores, accounted for 8% and 12%, respectively, of combined accounts receivable. For the years ended December 31, 1993, 1994 and 1995, sales to the Companies' two largest customers represented 7%, 10%, and 17%, respectively, of combined net sales. Of such amount, sales to the Companies' largest customer represented 5%, 8% and 11%, respectively. No other group or combination of customers subjected the Companies to a concentration of credit risk. USE OF ESTIMATES Management has made estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting for Stock-Based Compensation. As allowable by SFAS 123, the Companies do not intend to recognize compensation cost for stock-based employee compensation arrangements, but rather, starting with fiscal 1996, will disclose the pro-forma impact on net income and earnings per share as if the fair value stock-based compensation had been recognized starting with fiscal 1995. In March 1995, the FASB issued SFAS 121 -- Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. When adopted in 1996, the Companies do not believe that the impact of SFAS 121 will have a significant impact on their financial position or results of operations. F-9 72 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 Other pronouncements issued by the FASB or other authoritative accounting standard groups with future effective dates are either not applicable or not significant to the financial statements of the Companies. (3) INVENTORIES Inventories at December 31, 1994 and 1995 consisted of the following ($ in thousands):
1994 1995 ------- ------- Finished goods................................................. $31,984 $42,125 Raw materials.................................................. 2,957 2,277 Work-in-process................................................ 358 1,839 ------- ------- 35,299 46,241 Less: Reserve for slow moving and obsolete inventory........... (834) (1,228) ------- ------- $34,465 $45,013 ======= =======
(4) PROPERTY, PLANT AND EQUIPMENT Major classifications of property, plant and equipment at December 31, 1994 and 1995 consisted of the following ($ in thousands):
ESTIMSTED 1994 1995 USEFUL LIVES -------- -------- ------------ Machinery and equipment........................ $ 15,849 $ 18,879 5-15 Data processing equipment...................... 5,536 6,123 5 Leasehold improvements......................... 4,581 4,784 25 Furniture and fixtures......................... 3,929 2,370 10 Buildings...................................... 9,162 9,524 31-40 Land........................................... 1,881 1,917 -- --------- --------- 40,938 43,597 Less: accumulated depreciation and amortization................................. (14,013) (16,749) --------- --------- $ 26,925 $ 26,848 ========= =========
Depreciation and amortization expense was $1,766,000, $2,367,000 and $2,785,000 for the years ended December 31, 1993, 1994 and 1995, respectively. (5) LOANS AND NOTES PAYABLE During 1995, certain of the Companies entered into a revolving credit agreement with several banks which expires on September 20, 2000. Amounts available for borrowing under this agreement, subject to asset availability and other restrictions, are as follows: September 20, 1995 -- September 19, 1996.............................. $50,000,000 September 20, 1996 -- September 19, 1997.............................. $55,000,000 September 20, 1997 -- September 20, 2000.............................. $60,000,000
Such revolving credit agreement is collateralized by a first lien on certain of the assets of the Companies. The revolving credit agreement provides for interest on the borrowings to be based on either a prime borrowing rate or LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit agreement requires the Companies to comply with certain covenants including the mainte- F-10 73 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 nance of financial ratios, as defined. At December 31, 1995, the Companies were in compliance with all such covenants. Loans and notes payable outstanding at December 31, 1994 and 1995 consisted of the following ($ in thousands):
1994 1995 ------- ------- Revolving credit line with interest at LIBOR plus 0.875% (6.41% at December 31, 1995).......................................... $ -- $35,000 Revolving credit line with interest at the prime rate (8.5% at December 31, 1995) and the prime rate plus 0.25% (8.75% at December 31, 1994)............................................. 16,165 2,060 Bankers acceptances payable at various dates through June 26, 1995 with interest at rates ranging from 6.43% to 8.10%........ 12,500 -- Revolving credit line denominated in British Pounds Sterling with interest at the U.K. Base rate plus 2% (8.5% at December 31, 1995).......................................................... -- 789 ------- ------- $28,665 $37,849 ======= =======
The weighted average interest rates on loans and notes payable outstanding at December 31, 1994 and 1995 were 8.08% and 6.57%, respectively. The Companies are currently involved in three interest rate swap transactions covering $25,000,000 of its outstanding obligation under the revolving credit agreement. The transactions fix the interest rates as indicated below and entitle the Companies to settle with the counterparty on a quarterly basis, the product of the notional amount times the amount, if any, by which the ninety day LIBOR exceeds the fixed rate. Net payments to the counterparty under the swap agreements for the years ended December 31, 1994 and 1995, which have been recorded as additional interest expense, have been computed as follows ($ in thousands):
ADDITIONAL INTEREST EXPENSE NOTIONAL ------------- DATE OF CONTRACT AMOUNT TERM FIXED RATE 1994 1995 ---------------------------------- ------- -------- ---------- ---- ---- September 28, 1994................ $ 5,000 10 years 7.945% $34 $ 94 May 12, 1995...................... $10,000 5 years 6.590% -- 42 July 20, 1995..................... $10,000 10 years 6.750% -- 38 --- ---- $34 $174 === ====
F-11 74 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 (6) LONG-TERM INDEBTEDNESS Long-term indebtedness at December 31, 1994 and 1995 consisted of the following ($ in thousands):
1994 1995 ------- ------- Mortgage obligations (a)....................................... $ 7,815 $ 6,956 Term loans (b)................................................. 3,189 5,152 Capital lease obligations (c).................................. 2,705 2,415 ------- ------- Total long-term indebtedness......................... 13,709 14,523 Less: current installments..................................... (4,909) (2,239) ------- ------- Long-term indebtedness, excluding current installments......... $ 8,800 $12,284 ======= =======
- --------------- (a) Certain of the Companies have mortgage obligations payable to financial institutions relating to distribution facilities due through September 13, 2004. The mortgages are collateralized by specific real estate assets of the Companies and carry interest rates ranging from the Canadian prime rate plus 0.5% (8.5% and 8.0% as of December 31, 1994 and 1995, respectively) to 8.51%. At December 31, 1994 and 1995, $2,000,000 and $1,800,000 of mortgage obligations, respectively, are denominated in Canadian dollars. (b) Certain of the Companies have various term loans payable to financial institutions due through April 1, 2002. The loans are collateralized by specific assets of the Companies and carry interest rates which range from 8.01% to 9.5%. (c) Certain of the Companies have entered into various capital leases for machinery and equipment with implicit interest rates ranging from 6.5% to 23.0% and which extend to 2001. At December 31, 1995, principal maturities of long-term indebtedness consisted of the following ($ in thousands):
CAPITAL INDEBTEDNESS LEASE OBLIGATIONS TOTAL ------------ ----------------- ------- 1996...................................... $ 1,951 $ 472 $ 2,423 1997...................................... 1,583 466 2,049 1998...................................... 1,290 464 1,754 1999...................................... 1,264 448 1,712 2000...................................... 1,194 442 1,636 Thereafter................................ 4,826 806 5,632 ------- ------ ------- 12,108 3,098 15,206 Amount representing interest.............. -- (683) (683) ------- ------ ------- Long-term indebtedness.................... $ 12,108 $ 2,415 $14,523 ======= ====== =======
(7) DUE TO PRINCIPAL STOCKHOLDER Certain of the Companies owed $12,000,000 and $16,000,000 to the Principal Stockholder as of December 31, 1994 and 1995, respectively, under a subordinated note with interest payable monthly. This note is subject to a subordination agreement among the Principal Stockholder, Amscan Inc., and the lenders involved with the revolving credit agreement as discussed in note (5). Under the terms of the subordination agreement, the payment of any principal evidenced by the F-12 75 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 subordinated note is generally prohibited. Interest is at the prime rate plus 0.5% (9.0% at both December 31, 1994 and 1995). Further, certain of the Companies had unsecured current loans payable to the Principal Stockholder aggregating $5,295,000 and $2,453,000, respectively, at December 31, 1994 and 1995, at interest rates ranging from 7% to 12%. The loans have different forms of collateral but are generally subordinated to the credit facility discussed in note (5) and are due at various dates through 2003. During 1993, $1,200,000 of notes payable to the Principal Stockholder were converted to subordinated indebtedness and additional paid-in capital in the amounts of $1,000,000 and $200,000, respectively. In addition, $3,000,000 of accrued expenses due to the Principal Stockholder were converted to subordinated indebtedness and additional paid-in capital in the amount of $1,350,000 and $1,650,000, respectively. During 1994 and 1995, $3,650,000 and $4,000,000 of notes payable to the Principal Stockholder were converted to subordinated indebtedness, respectively. In September 1996, certain of the Companies declared the distribution of $7,600,000 of previously provided capital and $13,067,000 of undistributed earnings. It is contemplated that such payment will be made in connection with the Offering (see note (15)). (8) EMPLOYEE BENEFIT PLANS Certain of the Companies maintain a profit-sharing plan for all eligible employees providing for annual discretionary contributions to a trust. As of January 1, 1995, the plan required the Companies to match 25% of the first 6% of an employee's contribution to the plan. Benefit expense for the years ended December 31, 1993, 1994 and 1995 totaled $590,000, $548,000 and $558,000, respectively. (9) SPECIAL BONUS ARRANGEMENTS During the periods presented, Amscan Inc. had employment agreements with certain key executives and senior managers which provided for these individuals to receive annual bonuses based upon the pre-tax income of Amscan Inc. and certain of its affiliates. These bonuses which amounted to approximately 18% to 20% of pre-tax income are reflected in the Combined Statements of Operations in the caption "Special Bonuses." At December 31, 1994 and 1995, respectively, $1,805,000 and $2,581,000 were accrued for such bonuses and included in accrued expenses. (10) INCOME TAXES The entities Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. have elected Subchapter S corporation status. Accordingly, these entities are generally not subject to federal and state income taxes, to the extent that states recognize Subchapter S corporation status. Current income tax expense and deferred taxes generally arise from taxes on income generated by foreign affiliates at the effective rate in effect in each of the taxing jurisdictions. Deferred taxes arising from timing differences are not significant. A summary of the domestic and foreign pre-tax income (loss) for the years ended December 31, 1993, 1994 and 1995 are as follows:
1993 1994 1995 ---------- ----------- ----------- Domestic................................. $9,368,000 $10,009,000 $17,750,000 Foreign.................................. $ (264,000) $ 582,000 $ 1,456,000
F-13 76 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 A summary of the operations subject to tax, their reported tax expense and effective tax rates for the years ended December 31, 1993, 1994 and 1995 are as follows ($ in thousands):
1993 1994 1995 ------------------- ------------------- ------------------- TAX EFFECTIVE TAX EFFECTIVE TAX EFFECTIVE EXPENSE RATE EXPENSE RATE EXPENSE RATE ------- --------- ------- --------- ------- --------- Amscan Distributors (Canada) Ltd...... $ 150 38% $ 190 39% $ 283 39% Amscan Holdings Limited............... 96 53% 118 34% 263 39% Amscan (Asia Pacific) Pty. Ltd........ 67 34% 83 32% 103 32% Other................................. 35 4% 73 6% 82 8% ---- ---- ---- $ 348 $ 464 $ 731 ==== ==== ====
(11) COMMON STOCK Common Stock for each of the combined entities is as follows: Amscan Inc.: No par value; 1,000 shares authorized, 990 shares issued and outstanding (including 330 shares of treasury stock). Am-Source, Inc.: No par value; 1,000 shares authorized, 120 shares issued and outstanding. Trisar, Inc. No par value; 10,000 shares authorized, 267 shares issued and outstanding. Amscan Distributors (Canada) Ltd.: $1 (Canadian) par value; 10,000 shares authorized, 3,000 shares issued and outstanding. Amscan Holdings Limited: One British Pound Sterling par value; 60,000 shares authorized, issued and outstanding. Amscan (Asia Pacific) Pty. Ltd.: Aus. $1 par value; 10,000 shares authorized, 800 shares issued and outstanding. Amscan Partyartikel GmbH: No par value; 50,000 shares authorized, issued and outstanding. Amscan Svenska AB: No par value; 1,500 shares authorized, issued and outstanding. Amscan de Mexico, S.A. de C.V.: Class B Shares: No stated value, minimum capital; 6,060 shares authorized, issued and outstanding. Class B-1 Shares: No stated value, variable capital; 1,200 shares authorized, issued and outstanding. JCS Realty Corp.: No par value; 200 shares authorized, one share issued and outstanding. SSY Realty Corp.: No par value; 200 shares authorized issued and outstanding. F-14 77 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 (12) COMMITMENTS AND CONTINGENCIES LEASES The Companies are obligated under various capital leases for certain machinery and equipment which expire on various dates through June 1, 2001 (see also note (6)). At December 31, 1994 and 1995, the amount of machinery and equipment and related accumulated amortization recorded under capital leases is included with property, plant and equipment and consisted of the following ($ in thousands):
1994 1995 ------ ------ Machinery and equipment.......................................... $3,122 $3,174 Less: accumulated amortization................................... (244) (564) ------ $2,878 $2,610 ======
Amortization of assets held under capitalized leases is included with depreciation expense. The Companies have several noncancelable operating leases with unaffiliated third parties, primarily for office and manufacturing space, showrooms, and warehouse equipment that expire over the next eight years. These leases generally contain renewal options and require the Companies to pay real estate taxes, utilities and related insurance. At December 31, 1995, certain of the Companies also had noncancelable operating leases with the Principal Stockholder and real estate entities owned either directly or indirectly by the Principal Stockholder ("Uncombined Affiliates") for warehouse and office space that expire over the next sixteen years. Rent due to Uncombined Affiliates represents future commitments associated with property leased by the Companies from the Principal Stockholder or such entities owned directly or indirectly by the Principal Stockholder. Subsequent to December 31, 1995, the terms of the leases have been amended (see note (16)). At December 31, 1995 future minimum lease payments under all operating leases consisted of the following ($ in thousands):
UNCOMBINED THIRD PARTIES AFFILIATES TOTAL ------------- ---------- ------- 1996........................................... $ 3,132 $ 2,132 $ 5,264 1997........................................... 2,538 2,246 4,784 1998........................................... 1,989 2,309 4,298 1999........................................... 1,274 2,374 3,648 2000........................................... 1,043 2,442 3,485 Thereafter..................................... 3,209 29,862 33,071 ------- ------- ------- $13,185 $ 41,365 $54,550 ======= ======= =======
Rent expense for the years ended December 31, 1993, 1994 and 1995 was $3,414,000, $4,300,000 and $4,705,000, respectively, of which $2,242,000, $2,468,000 and $2,526,000, respectively, related to leases with Uncombined Affiliates. F-15 78 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 (13) SEGMENT INFORMATION INDUSTRY SEGMENTS The Companies operate in primarily one industry segment which involves the design, manufacture, contract for manufacture and distribution of party and novelty goods to retailers and wholesale distributors. GEOGRAPHIC SEGMENTS The Companies' export sales, other than those intercompany sales reported below as sales between geographic areas, are not material. Sales between geographic areas primarily consist of sales of finished goods for distribution in the foreign markets. The Companies' geographic area data for each of the three fiscal years ended December 31, 1993, 1994 and 1995 are as follows ($ in thousands):
DOMESTIC FOREIGN ELIMINATIONS COMBINED -------- ------- ------------ -------- 1993 Sales to unaffiliated customers............. $ 95,021 $13,913 $108,934 Sales between geographic areas.............. 4,753 19 $ (4,772) -- -------- ------- ------- -------- Net sales................................... $ 99,774 $13,932 $ (4,772) $108,934 ======== ======= ======= ======== Income from operations...................... $ 11,562 $ 154 $ 11,716 ======== ======= Interest expense, net....................... 2,304 Other expense, net.......................... 308 -------- Income before income taxes and minority interests................................. $ 9,104 ======== Identifiable assets......................... $ 68,390 $11,700 $ 80,090 ======== ======= ========
DOMESTIC FOREIGN ELIMINATIONS COMBINED -------- ------- ------------ -------- 1994 Sales to unaffiliated customers............. $115,196 $16,833 $132,029 Sales between geographic areas.............. 5,645 89 $ (5,734) -- -------- ------- ------------ -------- Net sales................................... $120,841 $16,922 $ (5,734) $132,029 ========= ======== ========== ========= Income from operations...................... $ 13,468 $ 1,048 14,516 ========= ======== Interest expense, net....................... 3,843 Other expense, net.......................... 82 -------- Income before income taxes and minority interests................................. $ 10,591 ========= Identifiable assets......................... $ 80,117 $13,767 $ 93,884 ========= ======== =========
F-16 79 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995
DOMESTIC FOREIGN ELIMINATIONS COMBINED -------- ------- ------------ -------- 1995 Sales to unaffiliated customers............. $146,198 $21,205 $167,403 Sales between geographic areas.............. 8,508 60 $ (8,568) -- -------- ------- ------------ -------- Net sales................................... $154,706 $21,265 $ (8,568) $167,403 ========= ======== ========== ========= Income from operations...................... $ 22,782 $ 1,887 $ 24,669 ========= ======== Interest expense, net....................... 5,772 Other income, net........................... (309) -------- Income before income taxes and minority interests................................. $ 19,206 ========= Identifiable assets......................... $ 99,123 $15,478 $114,601 ========= ======== =========
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts for cash and cash equivalents, accounts receivables, deposits and other current assets, loans and notes payable, accounts payable, accrued expenses (non derivatives) and other current liabilities approximates fair value at December 31, 1995 because of the short term maturity of those instruments or their variable rate of interest. The carrying amounts for long term debt approximates fair value at December 31, 1995. Fair value has been estimated by discounting the future cash flow of each instrument at rates currently offered for similar debt instruments of comparable maturity. Fair value amounts for loans and notes payable to Principal Stockholder are not presented due to the related party nature of the indebtedness and the ability of the Principal Stockholder to amend the features of the debt instruments. The fair value of interest rate swaps is the estimated amount that the Bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Termination of the swap agreements at December 31, 1995 would require certain of the Companies to pay the Bank $1,857,000. (15) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED) In connection with a proposed initial public offering of its common stock (the "Offering") Amscan Holdings, Inc. was formed on October 3, 1996 for the purpose of becoming the holding company for the business conducted by the Companies. Such transfer of ownership will be accounted for in a manner similar to a pooling of interests and will result in Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. being taxed as Subchapter C corporations under federal and certain state income tax requirements. Pro forma net income for the years ended December 31, 1993, 1994 and 1995 give effect to pro forma income tax provisions at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation status for those periods. In addition to the pro forma additional income tax expense, there are other events contemplated in connection with the Offering that have been reflected in the supplemental pro forma net income F-17 80 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 for the year ended December 31, 1995 which causes such amount to be higher than the pro forma net income amount. The supplemental pro forma net income for the year ended December 31, 1995 gives effect to (i) reduction in compensation paid to certain employees to the extent such compensation exceeded the compensation payable to such individuals under certain prospective compensation agreements ($2,581,000), (ii) to reflect amortization of goodwill ($250,000) and elimination of minority interest related to the 50% acquisition of Am-Source, Inc. as if it were acquired at the beginning of the period presented ($927,000), (iii) to reflect the reduction of interest expense ($2,686,000) related to the repayment of bank indebtedness and subordinated indebtedness due to the Principal Stockholder from proceeds of the proposed Offering, as if it occurred at the beginning of the period presented, and (iv) to give effect to the tax effects of these adjustments at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation status ($9,181,000). The supplemental pro forma weighted average shares outstanding represent the contemplated number of shares expected to be outstanding immediately after the Offering. (16) SUBSEQUENT EVENTS (a) On April 5, 1996, certain of the Companies entered into an operating lease agreement with a third party whereby the Companies may lease up to $11,000,000 of machinery and equipment. The agreement provides for equal monthly payments over 12 years, including renewal options. The agreement will be classified as an operating lease for financial statement purposes, and accordingly, the related assets and liabilities will not be reflected in the Companies' financial statements. In connection with this agreement, certain of the Companies have entered into commitments for equipment with a fair value of approximately $10,400,000. Assuming the entire lease facility is utilized, future minimum lease payments under the lease will be as follows ($ in thousands): 1997.............................................................. $ 1,305 1998.............................................................. 1,305 1999.............................................................. 1,305 2000.............................................................. 1,305 2001.............................................................. 1,305 Thereafter........................................................ 9,135 ------- $15,660 =======
F-18 81 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 (b) In July 1996, certain operating leases with Uncombined Affiliates which previously had remaining terms of up to sixteen years have been amended to terms of up to six years. As a result of these reduced lease terms, future minimum lease payments under all operating leases with Uncombined Affiliates, at December 31, 1995 consisted of the following ($ in thousands): 1996.............................................................. $ 2,132 1997.............................................................. 2,246 1998.............................................................. 2,309 1999.............................................................. 2,374 2000.............................................................. 1,239 Thereafter........................................................ 167 ------- $10,467 =======
F-19 82 INDEPENDENT AUDITORS' REPORT To the Stockholders of Amscan Inc. and Affiliates: We have audited the accompanying special purpose combined balance sheet of Amscan Inc. and Affiliates as of September 30, 1996 and the related special purpose combined statements of operations, stockholders' equity and cash flows for the nine month period ended September 30, 1996. These special purpose combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these special purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is 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. The accompanying special purpose combined financial statements include the accounts of Amscan Inc. and Affiliates, as defined in note (1). These financial statements present the combined accounts of entities owned by the Principal Stockholder engaged in the design, manufacture, contract for manufacture or distribution of party and novelty goods. In our opinion, the special purpose combined financial statements referred to above present fairly, in all material respects, the combined financial position of Amscan Inc. and Affiliates as of September 30, 1996, and the combined results of their operations and their cash flows for the nine month period ended September 30, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Stamford, Connecticut November 22, 1996 F-20 83 AMSCAN INC. AND AFFILIATES COMBINED BALANCE SHEET ($ IN THOUSANDS)
SEPTEMBER 30, 1996 ------------- ASSETS Current assets: Cash and cash equivalents.................................................... $ 3,530 Accounts receivable, net of allowance of $3,161.............................. 51,359 Inventories.................................................................. 45,074 Deposits and other........................................................... 10,146 -------- Total current assets................................................. 110,109 Property, plant and equipment, net............................................. 30,409 Other assets................................................................... 5,235 -------- Total assets......................................................... $ 145,753 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans payable................................................................ $ 47,955 Subordinated and other indebtedness to stockholders.......................... 35,900 Accounts payable............................................................. 4,326 Accrued expenses............................................................. 17,514 Current installments of long-term indebtedness............................... 2,318 -------- Total current liabilities............................................ 108,013 Long-term indebtedness, less current installments.............................. 12,412 Other.......................................................................... 689 -------- Total liabilities.................................................... 121,114 -------- Stockholders' equity: Common stock................................................................. 393 Additional paid-in capital................................................... 1,490 Retained earnings............................................................ 23,490 Cumulative translation adjustment............................................ (647) Treasury stock, at cost...................................................... (87) -------- Total stockholders' equity........................................... 24,639 -------- Total liabilities and stockholders' equity........................... $ 145,753 ========
See accompanying notes to combined financial statements. F-21 84 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1996 1995 ----------- -------- (UNAUDITED) Net sales......................................................... $128,314 $ 147,008 Cost of sales..................................................... 81,719 92,861 -------- ----------- Gross profit.................................................... 46,595 54,147 -------- ----------- Operating Expenses: Selling......................................................... 8,893 8,691 General and administrative...................................... 10,395 14,113 Art and development............................................. 2,936 3,671 Special bonuses................................................. 2,409 3,300 -------- ----------- Total operating expenses..................................... 24,633 29,775 -------- ----------- Income from operations....................................... 21,962 24,372 Interest expense, net............................................. 4,386 4,569 Other income, net................................................. (409) (301) -------- ----------- Income before income taxes and minority interests................. 17,985 20,104 Income taxes...................................................... 498 767 Minority interests................................................ 722 1,242 -------- ----------- Net income................................................... $ 16,765 $ 18,095 ======== =========== Pro forma data (note (15)): Net income before pro forma income taxes..................... $ 16,765 $ 18,095 Pro forma additional income tax expense...................... 6,435 7,121 -------- ----------- Pro forma net income......................................... $ 10,330 $ 10,974 ======== =========== Supplemental pro forma data (unaudited) (note (15)): Supplemental pro forma net income............................ $ 14,678 =========== Supplemental pro forma net income per share.................. $ 0.67 =========== Supplemental pro forma weighted average shares outstanding... 22,000,000 ===========
See accompanying notes to combined financial statements. F-22 85 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 ($ IN THOUSANDS)
ADDITIONAL CUMULATIVE COMMON PAID-IN RETAINED TRANSLATION TREASURY STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL ------ ---------- -------- ---------- -------- -------- Balance, December 31, 1994.............. $393 $ 9,090 $ 12,037 $ (613) $(87) $ 20,820 Net income for the nine months ended September 30, 1995 (unaudited)........ -- -- 16,765 -- -- 16,765 Subchapter S and other distributions (unaudited)........................... -- -- (377) -- -- (377) Net change in cumulative translation adjustment (unaudited)................ -- -- -- (134) -- (134) ---- ------ ------- ----- ---- ------- Balance, September 30, 1995 (unaudited)........................... $393 $ 9,090 $ 28,425 $ (747) $(87) $ 37,074 ==== ====== ======= ===== ==== ======= Balance, December 31, 1995.............. $393 $ 9,090 $ 18,462 $ (653) $(87) $ 27,205 Net income for the nine months ended September 30, 1996.................... -- -- 18,095 -- -- 18,095 Subchapter S and other distributions.... -- (7,600) (13,067) -- -- (20,667) Net change in cumulative translation adjustment............................ -- -- -- 6 -- 6 ---- ------ ------- ----- ---- ------- Balance, September 30, 1996............. $393 $ 1,490 $ 23,490 $ (647) $(87) $ 24,639 ==== ====== ======= ===== ==== =======
See accompanying notes to combined financial statements. F-23 86 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1996 1995 -------- ------- (UNAUDITED) Cash flows from operating activities: Net income.......................................................... $16,765 $ 18,095 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization.................................... 3,156 3,579 Provision for doubtful accounts.................................. 585 963 Changes in operating assets and liabilities: Accounts receivable............................................ (20,098) (20,442) Inventories.................................................... (5,858) (61) Deposits and other............................................. (2,990) (7,226) Other assets................................................... (2,776) (1,177) Accounts payable and accrued expenses.......................... 672 6,459 Other.......................................................... 631 (511) -------- -------- Net cash used in operating activities.......................... (9,913) (321) -------- -------- Cash flows from investing activities: Capital expenditures................................................ (3,773) (3,691) -------- -------- Net cash used in investing activities............................ (3,773) (3,691) -------- -------- Cash flows from financing activities: Proceeds from loans payable and long term indebtedness........... 15,382 10,242 Repayment of loans payable and long term indebtedness............ (2,289) (2,003) Proceeds from loans, notes payable and subordinated indebtedness from Principal Stockholder...................................... 1,408 -- Repayment of loans and notes payable to Principal Stockholder.... -- (3,220) Subchapter S and other distributions............................. (377) -- -------- -------- Net cash provided by financing activities...................... 14,124 5,019 -------- -------- Effect of exchange rate changes on cash.......................... (151) 31 -------- -------- Net increase in cash and cash equivalents...................... 287 1,038 Cash and cash equivalents at beginning of period...................... 2,229 2,492 -------- -------- Cash and cash equivalents at end of period............................ $ 2,516 $ 3,530 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest....................................................... $ 3,214 $ 4,970 Taxes.......................................................... $ 402 $ 546
Supplemental information on non-cash investing and financing activities: Capital lease obligations of $2,074 were incurred for the nine months ended September 30, 1996. There were no capital lease obligations incurred for the nine months ended September 30, 1995. During September 1996, certain of the Companies declared the distribution of $7,600,000 of previously provided capital and $13,067,000 of previously undistributed earnings. Such amounts are included in subordinated and other indebtedness to stockholders. See accompanying notes to combined financial statements. F-24 87 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (1) DESCRIPTION OF BUSINESS The accompanying special purpose combined financial statements include the accounts of Amscan Inc. and certain of its affiliates (the "Companies"). The Companies design, manufacture, contract for manufacture and distribute party and novelty goods to retailers and wholesale distributors principally in the United States, Canada and Europe. BASIS OF COMBINATION These combined financial statements present the Companies on a combined basis because of their common ownership by Mr. John A. Svenningsen (the "Principal Stockholder"). The name, the Principal Stockholder's ownership and a brief description of each of the combined entity's principal business activity is presented below.
PRINCIPAL STOCKHOLDER'S ENTITY OWNERSHIP PRINCIPAL ACTIVITY ------------------------------------ ------------- -------------------------------- Manufacturer -- paper tableware; Amscan Inc.......................... 100% and distributor -- worldwide Am-Source, Inc...................... 50% Manufacturer -- plastic products Trisar, Inc......................... 100% Manufacturer -- gift products Amscan Distributors (Canada) Ltd.... 100% Distributor -- Canada Amscan Holdings Limited............. 75% Distributor -- United Kingdom Distributor -- Australia and Amscan (Asia Pacific) Pty. Ltd...... 85% Asia Amscan Partyartikel GmbH............ 95% Distributor -- Germany Amscan Svenska AB................... 100% Distributor -- Sweden Amscan de Mexico, S.A. de C.V....... 48% Distributor -- Mexico JCS Realty Corp..................... 100% Real estate -- Canada SSY Realty Corp..................... 100% Real estate -- United States
The less than majority owned entities are combined in the accompanying financial statements because the Principal Stockholder effectively controls the day-to-day operations. All material intercompany balances and transactions have been eliminated in combination. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. INVENTORIES Substantially all inventories of the Companies are valued at the lower of cost or market (principally on the first-in, first-out method). PROPERTY, PLANT, AND EQUIPMENT Property, plant and equipment are stated at cost. Machinery and equipment under capital leases are stated at the present value of the minimum lease payments at the inception of the lease. F-25 88 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 Depreciation is calculated principally on the straight-line method over the estimated useful lives of the assets. Machinery and equipment held under capital leases and leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset. OTHER ASSETS Included in other assets are capitalized costs which represent third party costs incurred to manufacture and commercialize designs for production, including the acquisition of printing plates. Accordingly these costs are amortized on a straight line basis over their estimated useful lives of three years. The amortization of such costs is included in cost of sales and was $864,000 (unaudited) and $1,127,000, respectively, for the nine months ended September 30, 1995 and 1996. REVENUE RECOGNITION The Companies recognize revenue from product sales when the goods are shipped to the customer. CATALOGUE COSTS The Companies expense costs associated with the production of annual catalogues when incurred. ART AND DEVELOPMENT COSTS Art and development costs are primarily internal costs that are not easily associated with specific designs which may reach commercial production. Accordingly, the Companies expense these costs as incurred. INCOME TAXES Certain of the affiliates have elected Subchapter S corporation status for U.S. federal and state income tax purposes. Income taxes, therefore, are principally the responsibility of the stockholders. Income taxes for all other entities, including foreign distributors, are computed in accordance with the tax laws in the jurisdictions in which the entities operate. FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION Realized foreign currency exchange gains or losses, which result from the settlement of receivables or payables in currencies other than U.S. dollars, are credited or charged to operations. Unrealized gains or losses on foreign currency exchanges are insignificant. The balance sheets of foreign affiliates are translated into U.S. dollars at the exchange rates in effect on the balance sheet date. The results of operations of foreign affiliates are translated into U.S. dollars at the average exchange rates effective for the periods presented. The differences from historical exchange rates are reflected as a separate component of stockholders' equity. CONCENTRATION OF CREDIT RISK While the Companies' customers are geographically disbursed throughout North America, South America, Europe, Asia and Australia, there is a concentration of sales made to and accounts receivable from the stores which operate in the party superstore channel of distribution. At September 30, 1996, the Companies' two largest customers, with approximately 185 stores, F-26 89 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 accounted for 14% of combined accounts receivable. For the nine months ended September 30, 1995 and 1996, sales to the Companies' two largest customers represented 16% (unaudited), and 21%, respectively, of combined net sales. Of such amount, sales to the Companies' largest customer represented 11% (unaudited) and 14%, respectively. No other group or combination of customers subjected the Companies to a concentration of credit risk. USE OF ESTIMATES Management has made estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting for Stock-Based Compensation. As allowable by SFAS 123, the Companies do not intend to recognize compensation cost for stock-based employee compensation arrangements, but rather, starting with fiscal 1996, will disclose the pro-forma impact on net income and earnings per share as if the fair value stock-based compensation had been recognized starting with fiscal 1995. In March 1995, the FASB issued SFAS 121 -- Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS 121 did not have a significant impact on the financial position or results of operations of the Companies. Other pronouncements issued by the FASB or other authoritative accounting standard groups with future effective dates are either not applicable or not significant to the financial statements of the Companies. (3) INVENTORIES Inventories at September 30, 1996 consisted of the following ($ in thousands): Finished goods............................................................ $41,210 Raw materials............................................................. 2,977 Work-in-process........................................................... 2,116 ------- 46,303 Less: Reserve for slow moving and obsolete inventory...................... (1,229) ------- $45,074 =======
F-27 90 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 (4) PROPERTY, PLANT AND EQUIPMENT Major classifications of property, plant and equipment at September 30, 1996 consisted of the following ($ in thousands):
ESTIMATED USEFUL LIVES ------------ Machinery and equipment...................................... $ 21,557 5-15 Data processing equipment.................................... 7,762 5 Leasehold improvements....................................... 5,000 25 Furniture and fixtures....................................... 2,756 10 Buildings.................................................... 10,268 31-40 Land......................................................... 1,920 -- ------- 49,263 Less: accumulated depreciation and amortization.............. (18,854) ------- $ 30,409 =======
Depreciation and amortization expense was $2,029,000 (unaudited) and $2,189,000 for the nine months ended September 30, 1995 and 1996, respectively. (5) LOANS PAYABLE In 1995, certain of the Companies, entered into a revolving credit agreement with several banks which expires on September 20, 2000. Amounts available for borrowing under this agreement, subject to asset availability and other restrictions, are as follows: September 20, 1996 -- September 19, 1997.............................. $55,000,000 September 20, 1997 -- September 20, 2000.............................. $60,000,000
Such revolving credit agreement is collateralized by a first lien on certain of the assets of the Companies. The revolving credit agreement provides for interest on the borrowings to be based on either a prime borrowing rate or LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit agreement requires the Companies to comply with certain covenants including the maintenance of financial ratios, as defined. At September 30, 1996, the Companies were in compliance with all such covenants. Loans payable outstanding at September 30, 1996 consisted of the following ($ in thousands): Revolving credit line with interest at LIBOR plus 0.875% (6.59% at September 30, 1996)..................................................... $40,000 Revolving credit line with interest at the prime rate (8.25% at September 30, 1996)............................................................... 5,830 Revolving credit line denominated in Canadian dollars with interest at the Canadian prime rate (5.75% at September 30, 1996)....................... 1,455 Revolving credit line denominated in British Pounds Sterling with interest at the U.K. Base rate plus 2% (7.75% at September 30, 1996)............. 670 ------- $47,955 =======
The weighted average interest rate on loans payable outstanding at September 30, 1996 was 6.78%. F-28 91 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 The Companies are currently involved in three interest rate swap transactions covering $25,000,000 of the outstanding obligation under the revolving credit agreement. The transactions fix the interest rates as indicated below and entitle the Companies to settle with the counterparty on a quarterly basis, the product of the notional amount times the amount, if any, by which the ninety day LIBOR exceeds the fixed rate. Net payments to the counterparty under the swap agreements for the nine months ended September 30, 1995 and 1996, which have been recorded as additional interest expense, consisted of the following ($ in thousands):
ADDITIONAL INTEREST EXPENSE NOTIONAL -------------------- DATE OF CONTRACT AMOUNT TERM FIXED RATE 1995 1996 ----------------------------- -------- -------- ---------- ----------- ---- (UNAUDITED) September 28, 1994........... $ 5,000 10 years 7.945% $ 68 $ 92 May 12, 1995................. $ 10,000 5 years 6.590% 24 79 July 20, 1995................ $ 10,000 10 years 6.750% 16 91 ---- ---- $ 108 $262 ==== ====
(6) LONG-TERM INDEBTEDNESS Long-term indebtedness at September 30, 1996 consisted of the following ($ in thousands): Mortgage obligations(a)................................................... $ 6,422 Term loans(b)............................................................. 4,174 Capital lease obligations(c).............................................. 4,134 ------- Total long-term indebtedness............................................ 14,730 Less: current installments................................................ (2,318) ------- Long-term indebtedness, excluding current installments.................... $12,412 =======
- --------------- (a) Certain of the Companies have mortgage obligations payable to financial institutions relating to distribution facilities due through September 13, 2004. The mortgages are collateralized by specific real estate assets of the Companies and carry interest rates ranging from the Canadian prime rate plus 0.5% (6.25% as of September 30, 1996) to 8.51%. At September 30, 1996, $1,700,000 of mortgage obligations are denominated in Canadian dollars. (b) Certain of the Companies have various term loans payable to financial institutions due through April 1, 2002. The loans are collateralized by specific assets of the Companies and carry interest rates which range from 8.01% to 9.5%. (c) Certain of the Companies have entered into various capital leases for machinery and equipment with implicit interest rates ranging from 6.5% to 23.0% and extend to 2001. F-29 92 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 At September 30, 1996, principal maturities of long-term indebtedness consisted of the following ($ in thousands):
CAPITAL AT SEPTEMBER 30, INDEBTEDNESS LEASE OBLIGATIONS TOTAL ------------------------------------- ------------ ----------------- ------- 1997................................. $ 1,649 $ 907 $ 2,556 1998................................. 1,339 942 2,281 1999................................. 1,263 902 2,165 2000................................. 1,216 834 2,050 2001................................. 1,173 1,235 2,408 Thereafter........................... 3,955 150 4,105 ------- ------ ------- 10,595 4,970 15,565 Amount representing interest......... -- (835) (835) ------- ------ ------- Long-term indebtedness............... $ 10,595 $ 4,135 $14,730 ======= ====== =======
(7) DUE TO PRINCIPAL STOCKHOLDER Certain of the Companies owe $34,150,000 to the Principal Stockholder as of September 30, 1996 under a subordinated note with interest payable monthly. This note is subject to a subordination agreement among the Principal Stockholder, Amscan Inc., and the lenders involved with the revolving credit agreement as discussed in note (5). Under the terms of the subordination agreement, the payment of any principal evidenced by the subordinated note is prohibited. Interest is at the prime rate plus 0.5% (8.75% at September 30, 1996). (8) EMPLOYEE BENEFIT PLANS Certain of the Companies maintain a profit-sharing plan for all eligible employees providing for annual discretionary contributions to a trust. As of January 1, 1995, the plan required the Companies to match 25% of the first 6% of an employee's contribution to the plan. Benefit expense for the nine months ended September 30, 1995 and 1996 totaled $459,000 (unaudited) and $466,000, respectively. (9) SPECIAL BONUS ARRANGEMENTS During the periods presented, Amscan Inc. had employment agreements with certain key executives and senior managers which provided for these individuals to receive annual bonuses based upon the pre-tax income of Amscan Inc. and certain of its affiliates. These bonuses which amounted to approximately 18% to 20% of pre-tax income are reflected in the Combined Statements of Operations in the caption "Special Bonuses." At September 30, 1996, $3,300,000 was accrued for such bonuses and included in accrued expenses. (10) INCOME TAXES The entities Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. have elected Subchapter S corporation status. Accordingly, these entities are generally not subject to federal and state income taxes, to the extent that states recognize Subchapter S corporation status. Current income tax expense and deferred taxes generally arise from taxes on income generated by foreign affiliates at the effective rate in effect in each of the taxing jurisdictions. Deferred taxes arising from timing differences are not significant. Domestic and foreign pre-tax income is $16,358,000 (unaudited) and $1,627,000 (unaudited), and $18,485,000 and $1,619,000, in each of the nine months ended September 30, 1995 and 1996, respectively. F-30 93 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 A summary of the operations subject to tax, their reported tax expense and effective tax rates for the nine months ended September 30, 1995 and 1996, consisted of the following ($ in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------- 1995 1996 --------------------- --------------------- TAX EFFECTIVE TAX EFFECTIVE EXPENSE RATE EXPENSE RATE ------- --------- ------- --------- (UNAUDITED) Amscan Distributors (Canada) Ltd........... $ 294 36% $ 204 38% Amscan Holdings Limited.................... 174 33% 194 34% Amscan (Asia Pacific) Pty. Ltd............. 30 33% 101 34% Other...................................... -- --% 268 1% --- --- $ 498 $ 767 === ===
(11) COMMON STOCK Common Stock for each of the combined entities is as follows: Amscan Inc.: No par value; 1,000 shares authorized, 990 shares issued and outstanding (including 330 shares of treasury stock). Am-Source, Inc.: No par value; 1,000 shares authorized, 120 shares issued and outstanding. Trisar, Inc. No par value; 10,000 shares authorized, 267 shares issued and outstanding. Amscan Distributors (Canada) Ltd.: $1 (Canadian) par value; 10,000 shares authorized, 3,000 shares issued and outstanding. Amscan Holdings Limited: One British Pound Sterling par value; 60,000 shares authorized, issued and outstanding. Amscan (Asia Pacific) Pty. Ltd.: Aus. $1 par value; 10,000 shares authorized, 800 shares issued and outstanding. Amscan Partyartikel GmbH: No par value; 50,000 shares authorized, issued and outstanding. Amscan Svenska AB: No par value; 1,500 shares authorized, issued and outstanding. Amscan de Mexico, S.A. de C.V.: Class B Shares: No stated value, minimum capital; 6,060 shares authorized, issued and outstanding. Class B-1 Shares: No stated value, variable capital; 1,200 shares authorized, issued and outstanding. JCS Realty Corp.: No par value; 200 shares authorized, one share issued and outstanding. SSY Realty Corp.: No par value; 200 shares authorized issued and outstanding. F-31 94 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 (12) COMMITMENTS AND CONTINGENCIES LEASES The Companies are obligated under various capital leases for certain machinery and equipment which expire on various dates through June 1, 2001 (see also note (6)). At September 30, 1996, the amount of machinery and equipment and related accumulated amortization recorded under capital leases is included with property, plant and equipment and consisted of the following ($ in thousands): Machinery and equipment..................................................... $5,146 Less: accumulated amortization.............................................. (767) ------ $4,379 ======
Amortization of assets held under capitalized leases is included with depreciation expense. The Companies have several noncancelable operating leases with unaffiliated third parties, primarily for office and manufacturing space, showrooms, and warehouse equipment that expire over the next eight years. These leases generally contain renewal options and require the Companies to pay real estate taxes, utilities and related insurance. At September 30, 1996, certain of the Companies also had noncancelable operating leases with the Principal Stockholder and real estate entities owned either directly or indirectly by the Principal Stockholder ("Uncombined Affiliates") for warehouse and office space that expire over the next five years. Rent due to Uncombined Affiliates represents future commitments associated with property leased by the Companies from the Principal Stockholder or such entities owned directly or indirectly by the Principal Stockholder. At September 30, 1996 future minimum lease payments under all operating leases consisted of the following ($ in thousands):
FOR THE TWELVE MONTHS ENDED UNCOMBINED SEPTEMBER 30, THIRD PARTIES AFFILIATES TOTAL ------------------------------- ------------- ---------- ------- 1997........................... $ 3,068 $2,231 $ 5,299 1998........................... 2,653 2,293 4,946 1999........................... 1,709 2,357 4,066 2000........................... 1,061 1,585 2,646 2001........................... 1,043 418 1,461 Thereafter..................... 2,426 -- 2,426 ------- ------ ------- $11,960 $8,884 $20,844 ======= ====== =======
Rent expense for the nine months ended September 30, 1995 and 1996 was $1,781,000 (unaudited) and $3,878,000, respectively, of which $698,000 (unaudited) and $1,586,000, respectively, related to leases with Uncombined Affiliates. (13) SEGMENT INFORMATION INDUSTRY SEGMENTS The Companies operate in primarily one industry segment which involves the design, manufacture, contract for manufacture and distribution of party and novelty goods to retailers and wholesale distributors. F-32 95 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 GEOGRAPHIC SEGMENTS The Companies' export sales, other than those intercompany sales reported below as sales between geographic areas, are not material. Sales between geographic areas primarily consist of sales of finished goods for distribution in the foreign markets. The Companies' geographic area data for the nine months ended September 30, 1995 and 1996 consisted of the following ($ in thousands):
DOMESTIC FOREIGN ELIMINATIONS COMBINED -------- ------- ------------ -------- NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) Sales to unaffiliated customers............. $113,102 $15,212 $128,314 Sales between geographic areas.............. 5,629 -- $ (5,629) -- -------- ------- ------- -------- Net sales................................... $118,731 $15,212 $ (5,629) $128,314 ======== ======= ======= ======== Income from operations...................... $ 20,569 $ 1,393 $ 21,962 ======== ======= Interest expense, net....................... 4,386 Other income, net........................... (409) -------- Income before income taxes and minority interests................................. $ 17,985 ======== Identifiable assets......................... $111,328 $14,613 $125,941 ======== ======= ======== DOMESTIC FOREIGN ELIMINATIONS COMBINED -------- ------- ------- -------- NINE MONTHS ENDED SEPTEMBER 30, 1996 Sales to unaffiliated customers............. $129,810 $17,198 $147,008 Sales between geographic areas.............. 7,006 72 $(7,078) -- -------- ------- ------- -------- Net sales................................... $136,816 $17,270 $(7,078) $147,008 ======== ======= ======= ======== Income from operations...................... $23,083 $1,289 $24,372 ======== ======= Interest expense, net....................... 4,569 Other income, net........................... (301) -------- Income before income taxes and minority interests................................. $20,104 ======== Identifiable assets......................... $132,834 $12,919 $145,753 ======== ======= ========
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts for cash and cash equivalents, accounts receivables, deposits and other current assets, loans and notes payable, accounts payable, accrued expenses (non derivatives) and other current liabilities approximates fair value at September 30, 1996 because of the short term maturity of those instruments or their variable rate of interest. The carrying amounts for long term debt approximates fair value at September 30, 1996. Fair value has been estimated by discounting the future cash flow of each instrument at rates currently offered for similar debt instruments of comparable maturity. Fair value amounts for loans and notes payable to Principal Stockholder are not presented due to the related party nature of the indebtedness and the ability of the Principal Stockholder to amend the features of the debt instruments. F-33 96 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 The fair value of interest rate swaps is the estimated amount that the Bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Termination of the swap agreements at September 30, 1996 would require certain of the Companies to pay the Bank $358,000. (15) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED) In connection with a proposed initial public offering of its common stock (the "Offering") Amscan Holdings, Inc. was formed on October 3, 1996 for the purpose of becoming the holding company for the business conducted by the Companies. Such transfer of ownership will be accounted for in a manner similar to a pooling of interests and will result in Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. being taxed as Subchapter C corporations under federal and certain state income tax requirements. Pro forma net income for the nine months ended September 30, 1995 (unaudited) and 1996 give effect to pro forma income tax provisions at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation status for those periods. In addition to the pro forma additional income tax expense, there are other events contemplated in connection with the Offering that have been reflected in the supplemental pro forma net income for the nine months ended September 30, 1996 which causes such amount to be higher than the pro forma net income amount. The supplemental pro forma net income for the nine months ended September 30, 1996 gives effect to (i) reduction in compensation paid to certain employees to the extent such compensation exceeded the compensation payable to such individuals under certain prospective compensation agreements ($3,300,000), (ii) to reflect amortization of goodwill ($188,000) and elimination of minority interest related to the 50% acquisition of Am-Source, Inc. as if it were acquired at the beginning of the period presented ($1,138,000), (iii) to reflect the reduction of interest expense ($2,102,000) related to the repayment of bank indebtedness and subordinated indebtedness due to the Principal Stockholder from proceeds of the proposed Offering, as if it occurred at the beginning of the period presented, and (iv) to give effect to the tax effects of these adjustments at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation status ($9,769,000). The above pro forma and supplemental pro forma adjustments do not include anticipated non-recurring expenses of $12,980,000 and $3,000,000 relating to compensation expense to be incurred at the consummation of the Offering in connection with cash and stock to be paid to certain executives and employees, and the establishment of an ESOP and bonuses payable in shares of Common Stock for the benefit of the Company's domestic employees. The supplemental pro forma weighted average shares outstanding represent the contemplated number of shares expected to be outstanding immediately after the Offering. F-34 97 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co. and Alex. Brown & Sons Incorporated are acting as representatives, has severally agreed to purchase from the Company, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF UNDERWRITER COMMON STOCK ---------------------------------------------------------------------- ------------ Goldman, Sachs & Co................................................... Alex. Brown & Sons Incorporated....................................... ------- Total....................................................... 5,350,000 =======
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Company has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of 802,500 additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 5,350,000 shares of Common Stock offered. The Company, John A. Svenningsen and the SSY Trusts have agreed that, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of the Prospectus, they will not offer, sell, contract to sell or otherwise dispose of any securities of the Company including, but not limited to any securities that are exercisable or exchangeable for, that represent the right to receive or that are convertible into or whose exercise or settlement price is derivable from the price of the Common Stock or any substantially similar securities without the prior written consent of the representatives of the Underwriters, except for the shares of Common Stock offered in connection with the Offering. The representatives of the Underwriters have informed the Company that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed five percent of the total number of shares of Common Stock offered by them. Prior to this Offering, there has been no public market for the shares. The initial public offering price will be negotiated among the Company and the representatives. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's U-1 98 management and the consideration of the above factors in relation to market valuation of companies in related businesses. Application has been made to have the Common Stock approved for quotation on The Nasdaq Stock Market, Inc. under the symbol "AMSN." The Company, certain of its operating subsidiaries and John A. Svenningsen have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. U-2 99 [GRAPHIC MATERIAL PHOTOGRAPHS OF CERTAIN OF THE COMPANY'S MANUFACTURING EQUIPMENT] 100 - ------------------------------------------------------------ - ------------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary......................... 3 The Company................................ 7 Risk Factors............................... 7 Organization of the Company................ 10 Use of Proceeds............................ 13 Capitalization............................. 14 Dilution................................... 16 Selected Historical Combined Financial Data........................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 20 Supplemental Pro Forma Combined Financial Statements (unaudited)................... 31 Business................................... 36 Management of the Company.................. 44 Principal Stockholders..................... 52 Certain Related Transactions............... 53 Description of the Company's Capital Stock.................................... 54 Shares Eligible for Future Sale............ 57 Validity of Common Stock................... 59 Experts.................................... 59 Other Information.......................... 59 Index to Combined Financial Statements..... F-1 Underwriting............................... U-1
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ 5,350,000 SHARES AMSCAN HOLDINGS, INC. COMMON STOCK (PAR VALUE $0.10 PER SHARE) ------------------------ LOGO ------------------------ GOLDMAN, SACHS & CO. ALEX. BROWN & SONS INCORPORATED REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------------ - ------------------------------------------------------------ 101 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth an itemization of all estimated expenses in connection with the issuance and distribution of the securities being registered: Registration Statement Filing Fee....................................... $26,101.52 NASD Filing Fee......................................................... 9,729.00 Legal Fees and Expenses................................................. 200,000 Accounting Fees and Expenses............................................ 325,000 Printing Costs.......................................................... 90,000 Fees and Expenses (including legal fees) for qualifications under State Securities laws....................................................... 20,000 Transfer Agent's Fees and Expenses...................................... 7,500 Miscellaneous........................................................... 3,169.48 ---------- Total......................................................... $ 681,500 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's By-Laws provide for indemnification by the Registrant of its directors and officers to the full extent permitted by the Delaware General Corporation Law (the "DGCL"). The Registrant is empowered by Section 145 of the DGCL, subject to the procedures and limitations stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person was or is made a party by reason of his being or having been a director, officer, employee or agent of the Registrant, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe his conduct was unlawful. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors, or otherwise. The Registrant has also agreed to indemnify each director pursuant to an Indemnification Agreement with such director from and against any and all expenses, losses, claims, damages and liabilities incurred by such director for or as a result of action taken or not taken while such director was acting in his capacity as a director, officer, employee or agent of the Registrant. [The Registrant maintains a liability and indemnification insurance policy in the amount of $ for a period extending from through issued by covering all officers and directors of the Registrant, at an annual expense of approximately $ .] Reference is made to Section of the Underwriting Agreement filed as Exhibit hereto for provisions relating to indemnification of officers and directors of the Company by the Underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In connection with the formation of the Registrant, the Registrant sold 1,000 shares of Common Stock to John A. Svenningsen for $100 in cash. Such shares were sold to Mr. Svenningsen for the purpose of facilitating the Organization and the Offering (as those terms are defined in the Prospectus constituting a part of this Registration Statement (the "Prospectus") by establishing a corporate structure including a stockholder and board of directors necessary for the Registrant to implement the Offering. Additional shares of Common Stock will be issued prior to completion of the Offering in connection with effecting the Organization. See "Organization of the Company" in the Prospectus. All of such shares were or will be issued and sold by the Registrant in reliance on the exemption contained in Section 4(2) of the Securities Act of 1933. II-1 102 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits *** Exhibit 1 -- Form of Underwriting Agreement *** Exhibit 2(a) -- Form of Share Exchange Agreement among the Company and John A. Svenningsen and Gerald C. Rittenberg, dated as of December , 1996 ** Exhibit 2(b) -- Capital Contribution Agreement between the Company and Messrs. Allen J. Kaufman, Arthur J. Kaufman and Michael F. Hodges, dated as of October 9, 1996, as supplemented * Exhibit 3(a) -- Certificate of Incorporation of the Registrant, dated October 3, 1996 * Exhibit 3(b) -- By-Laws of the Registrant ** Exhibit 4(a) -- Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank N.A., dated as of September 20, 1995 *** Exhibit 4(b) -- Amendment No. 1 to Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank N.A., dated as of , 1996 *** Exhibit 4(c) -- Amendment No. 2 to Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank N.A., dated as of , 1996 *** Exhibit 5 -- Opinion of Cummings & Lockwood ** Exhibit 10(a) -- Employment Agreement by and between Amscan Holdings, Inc. and John A. Svenningsen, dated November 1, 1996 ** Exhibit 10(b) -- Employment Agreement by and between the Company and Gerald C. Rittenberg, dated October 9, 1996 ** Exhibit 10(c) -- Stock Agreement among Gerald C. Rittenberg, John Svenningsen and Amscan Inc., dated October 9, 1996 ** Exhibit 10(d) -- Employment Agreement between Amscan Inc. and Gerald C. Rittenberg, dated November 27, 1991 ** Exhibit 10(e) -- Employment Agreement by and between Amscan Inc. or the Company and William Wilkey, dated as of October 4, 1996 ** Exhibit 10(f) -- Employment Agreement between Amscan Inc. and William Wilkey, dated as of December 29, 1992 ** Exhibit 10(g) -- Employment Agreement between Amscan Inc. and James M. Harrison, dated as of June 11, 1996 *** Exhibit 10(h) -- 1996 Stock Option Plan for Key Employees ** Exhibit 10(i) -- Lease between ACP East LLC and Amscan Inc. dated as of December 1, 1995, as amended ** Exhibit 10(j) -- Lease between John Anders Svenningsen and Amscan Inc., dated March 1, 1995, as modified and amended ** Exhibit 10(k) -- Lease between John Anders Svenningsen and Amscan Inc., dated November 9, 1995, as amended *** Exhibit 10(l) -- Form of Tax Indemnification Agreement between Amscan Holdings Inc. and John A. Svenningsen, dated as of December , 1996 ** Exhibit 10(m) -- Loan Agreement by and between John A. Svenningsen, Gerald C. Rittenberg and Kurzman & Eisenberg, LLP, as Escrow Agent, dated October 9, 1996
II-2 103 *** Exhibit 10(n) -- 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, 1995, as amended. ** Exhibit 21 -- Subsidiaries of the Registrant ** Exhibit 23(a) -- Consent of KPMG Peat Marwick LLP *** Exhibit 23(b) -- Consent of Cummings & Lockwood (to be included as part of Exhibit 5) ** Exhibit 24 -- Powers of Attorney ** Exhibit 27 -- Financial Data Schedule
- --------------- * Previously filed. ** Filed herewith. *** To be filed by amendment. (b) Financial Statement Schedule. Schedule 2 -- Valuation and Qualifying Accounts II-3 104 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this amendment to its Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the Town of Elmsford, State of New York, on December 2, 1996. AMSCAN HOLDINGS, INC. By /s/ James M. Harrison ------------------------------------ James M. Harrison Chief Financial Officer and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
NAME TITLE - ------------------------------------- ----------------------- JOHN A. SVENNINGSEN Chairman of the Board of Directors and Chief Executive Officer (principal executive officer) GERALD C. RITTENBERG Director and President CHRISTINE SVENNINGSEN Director JAMES M. HARRISON Chief Financial Officer and Assistant Secretary (principal accounting officer)
By /s/ James M. Harrison ----------------------- James M. Harrison As Attorney-in-Fact December 2, 1996 II-4 105 SCHEDULE 2 AMSCAN INC. AND AFFILIATES VALUATION AND QUALIFYING ACCOUNTS ($ IN THOUSANDS)
BEGINNING ENDING BALANCE WRITE-OFFS ADDITIONS BALANCE ----------- ----------- ----------- --------- Allowance for Doubtful Accounts: For the year ended: December 31, 1993................................ $ 258 $1,493 $ 2,339 $ 1,104 December 31, 1994................................ 1,104 1,855 2,676 1,925 December 31, 1995................................ 1,925 1,001 1,581 2,505
BEGINNING ENDING BALANCE WRITE-OFFS ADDITIONS BALANCE --------- ---------- --------- ------- Inventory Reserves: For the year ended: December 31, 1993................................ $ 450 $ 141 $ 300 $ 609 December 31, 1994................................ 609 375 600 834 December 31, 1995................................ 834 406 800 1,228
S-1 106 EXHIBITS
EXHIBIT DESCRIPTION PAGE -------------- ------------------------------------------------------------------ ---- *** Exhibit 1 -- Form of Underwriting Agreement.................................... *** Exhibit 2(a) -- Form of Share Exchange Agreement among the Company and John A. Svenningsen and Gerald C. Rittenberg, dated as of December , 1996.............................................................. ** Exhibit 2(b) -- Capital Contribution Agreement between the Company and Messrs. Allen J. Kaufman, Arthur J. Kaufman and Michael F. Hodges, dated as of October 9, 1996, as supplemented............................ * Exhibit 3(a) -- Certificate of Incorporation of the Registrant, dated October 3, 1996.............................................................. * Exhibit 3(b) -- By-Laws of the Registrant......................................... ** Exhibit 4(a) -- Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank N.A., dated as of September 20, 1995.............................................................. *** Exhibit 4(b) -- Amendment No. 1 to Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank N.A., dated as of , 1996.................................................. *** Exhibit 4(c) -- Amendment No. 2 to Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank N.A., dated as of , 1996.................................................. *** Exhibit 5 -- Opinion of Cummings & Lockwood.................................... ** Exhibit 10(a) -- Employment Agreement by and between Amscan Holdings, Inc. and John A. Svenningsen, dated November 1, 1996............................ ** Exhibit 10(b) -- Employment Agreement by and between the Company and Gerald C. Rittenberg, dated October 9, 1996................................. ** Exhibit 10(c) -- Stock Agreement among Gerald C. Rittenberg, John Svenningsen and Amscan Inc., dated October 9, 1996................................ ** Exhibit 10(d) -- Employment Agreement between Amscan Inc. and Gerald C. Rittenberg, dated November 27, 1991........................................... ** Exhibit 10(e) -- Employment Agreement by and between Amscan Inc. or the Company and William Wilkey, dated as of October 4, 1996....................... ** Exhibit 10(f) -- Employment Agreement between Amscan Inc. and William Wilkey, dated as of December 29, 1992........................................... ** Exhibit 10(g) -- Employment Agreement between Amscan Inc. and James M. Harrison, dated as of June 11, 1996......................................... *** Exhibit 10(h) -- 1996 Stock Option Plan for Key Employees.......................... ** Exhibit 10(i) -- Lease between ACP East LLC and Amscan Inc. dated as of December 1, 1995, as amended.................................................. ** Exhibit 10(j) -- Lease between John Anders Svenningsen and Amscan Inc., dated March 1, 1995, as modified and amended.................................. ** Exhibit 10(k) -- Lease between John Anders Svenningsen and Amscan Inc., dated November 9, 1995, as amended...................................... *** Exhibit 10(l) -- Form of Tax Indemnification Agreement between Amscan Holdings Inc. and John A. Svenningsen, dated as of December , 1996............
107
EXHIBIT DESCRIPTION PAGE -------------- ------------------------------------------------------------------ ---- ** Exhibit 10(m) -- Loan Agreement by and between John A. Svenningsen, Gerald C. Rittenberg and Kurzman & Eisenberg, LLP, as Escrow Agent, dated October 9, 1996................................................... *** Exhibit 10(n) -- 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, 1995, as amended..................................... ** Exhibit 21 -- Subsidiaries of the Registrant.................................... ** Exhibit 23(a) -- Consent of KPMG Peat Marwick LLP.................................. *** Exhibit 23(b) -- Consent of Cummings & Lockwood (to be included as part of Exhibit 5)................................................................ ** Exhibit 24 -- Powers of Attorney................................................ ** Exhibit 27 -- Financial Data Schedule...........................................
- --------------- * Previously filed. ** Filed herewith. *** To be filed by amendment. EX-2.B 2 CAPITAL CONTRIBUTION AGREEMENT DATED OCT. 9, 1996 1 Exhibit 2(b) CAPITAL CONTRIBUTION AGREEMENT AGREEMENT dated as of October 9, 1996 between AMSCAN HOLDINGS, INC. a Delaware corporation ("Amscan")and MESSRS. ALLAN J. KAUFMAN, ARTHUR J. KAUFMAN and MICHAEL F. HODGES (collectively referred to herein as the "AM-SOURCE SHAREHOLDERS" and MESSRS. ARTHUR J. KAUFMAN and MICHAEL F. HODGES referred to herein as the "OPERATING SHAREHOLDERS") being the owners of record of fifty (50%) percent of the issued and outstanding stock of AM-SOURCE, INC., a Rhode Island corporation ("Am-Source"). WHEREAS, AMSCAN wishes to acquire and the AM-SOURCE SHAREHOLDERS wish to transfer all of the issued and outstanding stock of AM-SOURCE owned by them in a transaction which with certain other simultaneous transfers is intended to result in the tax-free incorporation of AMSCAN within the meaning of IRC Section 351, as amended; and NOW, THEREFORE, AMSCAN and the AM-SOURCE SHAREHOLDERS agree as follows: SECTION 1 - EXCHANGE OF STOCK 1.1 ESCROW. On the date this Agreement is executed by the parties, each of the AM-SOURCE SHAREHOLDERS shall surrender to the Escrow Agent the certificate or certificates theretofore representing all of the outstanding shares of AM-SOURCE common stock owned by them endorsed in blank or accompanied by stock powers executed in blank, with all signatures guaranteed by a national bank and with all necessary transfer tax and other revenue stamps affixed. The AM-SOURCE SHAREHOLDERS hereby irrevocably instruct the Escrow Agent to deliver the shares of AM-SOURCE held in escrow to AMSCAN on the Closing Date whereupon such shares will be converted by AMSCAN into that number of shares of AMSCAN determined by dividing the price at which the AMSCAN shares will be issued to the public pursuant to the Underwriting Agreement (described below) into Seven Million Five Hundred Thousand and N0/100 ($7,500,000.00) Dollars. For example, if the price at which AMSCAN shares will be offered to the public pursuant to the Underwriting Agreement equals Fifteen and N0/100 ($15.00) Dollars per share, then AMSCAN will on the Closing Date issue Five Hundred Thousand (500,000) shares of AMSCAN stock to the AM-SOURCE SHAREHOLDERS to be divided among such shareholders in proportion to the number of shares of AM- 2 SOURCE delivered by each shareholder to the Escrow Agent as specified in Exhibit A annexed hereto and made a part hereof. Notwithstanding such escrow, the AM-SOURCE SHAREHOLDERS shall retain all voting rights and all rights to all dividends and other distributions with respect to the escrow shares of AM- SOURCE. The parties hereto designate the law firm of Kurzman & Eisenberg to be the Escrow Agent. 1.2 CLOSING DATE. The "Closing Date" or the "Closing" shall occur immediately before the Underwriting Agreement between Goldman Sachs & Co. and Alex. Brown & Sons (the "Underwriters") and AMSCAN to offer shares of AMSCAN in the public market (the "Underwriting Agreement") is executed and becomes effective. 1.3 FRACTIONAL SHARES. No fractional shares of AMSCAN common stock shall be issued to any shareholder of AM-SOURCE hereunder, and any fractional share to which any shareholder would otherwise be entitled shall be rounded off to the nearest whole share. 1.4 FINAL TERMINATION. In the event that the escrow created by this Agreement is not otherwise terminated on or before two hundred seventy (270) days following the date this Agreement is executed, it shall terminate on the two hundred seventy-first (271st) date after the date this Agreement is executed and the escrow shares shall be released from escrow and distributed to the AM-SOURCE SHAREHOLDERS. 1.5 RULES APPLICABLE TO ESCROW. (A) The Escrow Agent shall have the right at any time to place the AM-SOURCE shares with the Clerk of a Court of competent jurisdiction and shall give Notice of such placement to the parties. Upon such placement or other disbursement in accordance with the terms of this Agreement, the Escrow Agent shall be relieved and discharged of all further obligations and responsibilities hereunder. (B) The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience and that the Escrow Agent shall not be liable to either party for any act or omission on its part unless taken or suffered in bad faith or in willful disregard of this Agreement or involving gross negligence on the part of the Escrow Agent. AMSCAN and the AM-SOURCE SHAREHOLDERS jointly and severally agree to defend, indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses (including reasonable attorneys' fees) incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to 2 3 actions or omissions taken or suffered by the Escrow Agent in bad faith or in willful disregard of this Agreement or involving gross negligence on the part of the Escrow Agent. (C) The Escrow Agent may act or refrain from acting in respect of any matter referred to herein in full reliance upon and with the advice of counsel, which may be selected by it (including any member of its firm) and shall be fully protected in so acting or refraining from action upon the advice of such counsel. (D) The Escrow Agent acknowledges receipt of the AM- SOURCE shares and the Escrow Agent's agreement to the provisions of this Paragraph by signing in the place indicated on the signature page of this Agreement. (E) The Escrow Agent or any member of its firm shall be permitted to act as counsel for AMSCAN in any dispute between the parties provided the Escrow Agent places the AM-SOURCE shares with the clerk of a court of competent jurisdiction as provided in subparagraph (A) of this Paragraph 1.5. SECTION 2 - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS The Operating Shareholders represent and warrant that: 2.1 CORPORATE STATUS. AM-SOURCE is a corporation duly organized, validly existing, and in good standing under the laws of the State of Rhode Island and is licensed or qualified as a foreign corporation in all states in which the nature of its business or the character or ownership of its properties makes such licensing or qualification necessary. 2.2 CAPITALIZATION. The authorized capital stock of AM- SOURCE consists of 1,000 shares of no par value common stock, of which 120 shares are issued and outstanding, all fully paid and nonassessable owned by the shareholders listed in Exhibit A.. 2.3 SUBSIDIARIES. AM-SOURCE has no subsidiaries. 2.4 FINANCIAL STATEMENTS. AM-SOURCE'S balance sheets as of December 1993, 1994 and 1995, and the related statements of income and retained earnings for the years then ended, all certified by Sparrow, Johnson & Ursillo, Inc., and the unaudited balance sheet and related statement of income and retained earnings for the period ended June 30, 1996, copies of which have been delivered by AM-SOURCE to AMSCAN, fairly present the financial condition of AM-SOURCE as of said dates and the results of its operations for the periods then ended, in conformity with generally accepted accounting principles consistently applied for the periods covered. 3 4 2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected or reserved against in AM-SOURCE'S balance sheet as of June 30, 1996, AM-SOURCE did not have at that date any liabilities or obligations (secured, unsecured, contingent, or otherwise). 2.6 ABSENCE OF CERTAIN CHANGES. Except as heretofore disclosed in writing by AM-SOURCE to AMSCAN there has been no material adverse change in the business, properties, or financial condition of AM-SOURCE since June 30, 1996. 2.7 LITIGATION, AND SO FORTH. Except as heretofore disclosed in writing by AM-SOURCE to AMSCAN, there is no litigation, proceeding, or investigation pending or, to the knowledge of AM-SOURCE, threatened against AM-SOURCE. 2.8 CONTRACTS. Except as heretofore disclosed in writing by AM-SOURCE to AMSCAN, AM-SOURCE is not a party to any material contract not in the ordinary course of business that is to be performed in whole or in part at or after the date of this Agreement. 2.9 TITLE. AM-SOURCE has good and marketable title to all assets included in the balance sheet of AM-SOURCE as of June 30, 1996, other than property disposed of in the ordinary course of business, after said date. Except as heretofore disclosed in writing by AM-SOURCE to AMSCAN, the properties of AM-SOURCE are not subject to any mortgage, encumbrance, or lien of any kind except minor encumbrances that do not materially interfere with the use of the property in the conduct of the business of AM-SOURCE. 2.10 TAX RETURNS. The provisions for federal and state taxes reflected in the financial statements referred to in Section 8.4 hereof are adequate to cover any such taxes that may be assessed against AM-SOURCE in respect of its business and its operations during the periods covered by said financial statements and all prior periods. AM-SOURCE has filed all required federal, state or local tax returns of any kind or nature by the due date of any applicable tax return except to the extent it has obtained extensions of time for filing authorized by law. There are no pending audits of any of AM-SOURCE'S tax returns and except as heretofore disclosed in writing, there are no outstanding liabilities for taxes of any kind for which the due date of payment has passed. 2.11 NO VIOLATION. Consummation of the merger will not constitute or result in a breach or default under any provision of any charter, bylaw, indenture, mortgage, lease or agreement, or any order, judgment, decree, law, or regulation to which any 4 5 property of AM-SOURCE is subject or by which AM-SOURCE is bound, except for breaches or defaults that in the aggregate would not have a materially adverse effect on AM-SOURCE'S properties, business operations, or financial condition. 2.12 EMPLOYEE PLANS. AM-SOURCE does not maintain for the benefit of its employees any "employee benefit plans" as defined in Section3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or other profit sharing, deferred compensation, bonus, stock option, stock purchase, or employee benefit plans or arrangements, except for a 401(k) and profit sharing plan (the "Am-Source 401(k) Plan"). AM-SOURCE will make available to AMSCAN a true and complete copy of the Am-Source 401(k) Plan and any related funding agreements, including all amendments, supplements and modifications thereto all of which are legally valid and binding and in full force and effect and not in default in any respect. AM-SOURCE will also make available to AMSCAN a true and complete copy of the most recent annual report for the Am-Source 401(k) Plan and the I.R.S. determination letter, if any, for the Am-Source 410(k) Plan and each amendment thereto. All contributions required to be made to the Am-Source 401(k) Plan under the terms of that Plan by ERISA or other applicable law have been timely made. The Am-Source 401(k) Plan complies currently and has complied in the past, in form and in operation with the applicable provisions of ERISA, the Internal Revenue Code of 1986 (the "Code"), and other applicable law in all material respects. AM-SOURCE will make any amendments required to be made to the Am-Source 401(k) Plan to comply with applicable legislation prior to the Effective Date. There have been no "prohibited transactions" (as defined in Code Section 4975(c)(1) that would subject the Am-Source 401(k) Plan, any fiduciary thereof or any party dealing with the Am-Source 401(k) Plan to the tax on prohibited transactions imposed by Code Section 4975 or to a civil penalty imposed by Section 502 of ERISA. No event that constitutes a "Reportable Event" as defined in Section 4043 of ERISA has occurred with respect to the Am-Source 401(k) Plan or any plan maintained by AM-SOURCE. There are no issues or disputes with respect to any AM-SOURCE benefit plan or the administration thereof currently existing between any trustee or other fiduciary thereunder, AMSCAN and any governmental agency, employee, former employee or beneficiary of any employee or former employee of AM-SOURCE. 2.13 ENVIRONMENTAL MATTERS. Except as heretofore disclosed by AM-SOURCE to AMSCAN in writing, to the best of our knowledge there are no hazardous materials (as defined by federal, state or local law) on the premises occupied by AM-SOURCE, except those in compliance with all applicable federal, state or local laws, ordinances, rules and regulations, and neither AM-SOURCE nor any of the AM-SOURCE SHAREHOLDERS has received any notice or advice from any governmental agency or any source whatsoever with respect to Hazardous Materials on, from or affecting the premises occupied by AM-SOURCE. 5 6 2.14 LEASE. The lease dated July 1, 1993 between K.K.H.L.L.C.(formerly K.K.H.Z. Real Estate Corporation) and Am-Source, Inc. with respect to the premises described on Exhibit B attached hereto (the "Lease") is in full force and effect and no event of default has occurred or is continuing with respect to the Lease. SECTION 3 - REPRESENTATIONS AND WARRANTIES OF AMSCAN AMSCAN represents and warrants that: 3.1 CORPORATE ORGANIZATION AND GOOD STANDING. AMSCAN is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 3.2 NO VIOLATION. Consummation of the exchanges contemplated by this Agreement will not constitute or result in breach or default under any provision of any charter, bylaw, indenture, mortgage, lease or agreement or any order, judgment, decree, law or regulation to which any property of AMSCAN is subject or by which AMSCAN is bound, except for breaches or defaults that in the aggregate would not have a materially adverse effect on AMSCAN'S properties, business operations or financial condition. 3.3 INVESTMENT INTENT. AMSCAN is acquiring the AM-SOURCE shares to be transferred to and under this Agreement for investment and not with a view to the sale or distribution thereof, and AMSCAN has no commitment or present intention to liquidate AM-SOURCE or to sell or otherwise dispose of its stock. SECTION 4 - CONDUCT OF AM-SOURCE PENDING EXCHANGE OF STOCK The Operating Shareholders covenant that between the date of this Agreement and the Closing Date: 4.1 CERTIFICATE OF INCORPORATION AND BYLAWS. No change will be made in AM-SOURCE'S certificate of incorporation or bylaws. 4.2 CAPITALIZATION AND SO FORTH. AM-SOURCE will not make any change in its authorized or issued capital stock, declare or pay any dividend or other distribution (other than distributions of any and all previously undistributed S corporation income from AM-SOURCE'S inception through and including the Closing Date provided any such distribution does not violate the terms of any agreement to which AM-SOURCE is a party) or issue, encumber, purchase, or otherwise acquire any of its capital stock. 6 7 4.3 CONDUCT OF BUSINESS. AM-SOURCE will use its best efforts to maintain and preserve its business organization, employee relationships, and goodwill intact, and will not, without the written consent of AMSCAN, enter into any material commitment except in the ordinary course of business or increase, directly or indirectly, the compensation of any officer or employee whose annual rate of compensation after the increase will exceed Fifty Thousand and N0/100 ($50,000.00) Dollars. SECTION 5 - CONDUCT OF AMSCAN PENDING EXCHANGE OF STOCK AMSCAN agrees that it will conduct itself in the following manner pending the closing. 5.1 CERTIFICATE OF INCORPORATION AND BYLAWS. No change will be made in AMSCAN'S certificate of incorporation or bylaws. SECTION 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF AMSCAN All obligations of AMSCAN under this Agreement are subject, at AMSCAN'S option, to the fulfillment, before or at the Closing Date, of each of the following conditions: 6.1 REPRESENTATIONS AND WARRANTIES. The Operating Shareholder's representations and warranties contained in this Agreement shall be deemed to have been made again at and as of the Closing Date and shall then be true in all material respects and shall survive after the Effective Date. 6.2 DUE PERFORMANCE. The AM-SOURCE SHAREHOLDERS shall have performed and complied with all the terms and conditions required by this Agreement to be performed or complied with by them before the Closing Date. 6.3 OPINION OF COUNSEL. The AM-SOURCE SHAREHOLDERS shall have delivered to AMSCAN an opinion of AM-SOURCE'S counsel, Peabody & Brown, dated as of the Closing, to the effect that (1) the representations in Sections 2.1 and 2.2 are correct; (2) except as specified in the opinion, counsel knows of no inaccuracy in the representations of Sections 2.5, 2.6, 2.7 or 2.13; and (3) the stock certificates, stock powers, and other instruments delivered to the Escrow Agent as provided in Section 1.1 hereof are proper in form and substance and will vest in AMSCAN good title to all of the AM-SOURCE Shareholder's shares of capital stock of AM-SOURCE, free and clear of all liens, charges, and encumbrances, and not subject to any adverse claims. 6.4 BOOKS AND RECORDS. The AM-SOURCE SHAREHOLDERS shall have caused AM-SOURCE to make available to AMSCAN all books and records of AM-SOURCE, including minute books and stock transfer records. 7 8 6.5 REVOCATION OF PRIOR AUTHORIZATIONS. The AM-SOURCE Shareholders hereby revoke as of the Closing Date all shareholders' agreements, prior authorizations, powers of attorney, employment agreements, consulting agreements, designations, and appointments relating to the signing of checks, borrowing of funds, access to corporate safe-deposit boxes and other similar matters, to the extent requested by AMSCAN. In addition, the AM-SOURCE Shareholders hereby agree to terminate as of the Closing, the Pledge Agreement dated July 1, 1993 between Arthur J. Kaufman, Allan J. Kaufman, Mike F. Hodges and John Svenningsen. 6.6 EMPLOYMENT AGREEMENTS. The Operating Shareholders shall have each executed Employment Agreements in the form set forth in Exhibits B and C annexed hereto. SECTION 7 - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE AM-SOURCE SHAREHOLDERS All obligations of the AM-SOURCE SHAREHOLDERS under this Agreement are subject, at their option, to the fulfillment, before or at the Closing Date, of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and warranties of AMSCAN contained in this Agreement shall be deemed to have been made again at and as of the Closing Date and shall then be true in all material respects. 7.2 DUE PERFORMANCE. AMSCAN shall have performed and complied with all the terms and conditions required by this Agreement to be performed or complied with by it before the Effective Date. 7.3 OPINION OF AMSCAN'S COUNSEL. The AM-SOURCE SHAREHOLDERS shall have received an opinion of Kurzman & Eisenberg Counsel for AMSCAN, dated as of the Closing Date, to the effect that (1) the representations of AMSCAN are correct; (2) except as specified in the opinion, counsel knows of no inaccuracy in the representations in AMSCAN, and (3) the shares of AMSCAN to be issued to the AM-SOURCE SHAREHOLDERS under this Agreement will, when so issued, be validly issued, fully paid and nonassessable. 7.4 TRANSFER OF SHARES. All of the shares of common stock of AM-SOURCE, INC. owned by any person or persons other than the AM-SOURCE SHAREHOLDERS shall be transferred to AMSCAN on or before the Closing Date. 8 9 SECTION 8 - INDEMNIFICATION 8.1 INDEMNIFICATION OF AMSCAN. (a) The Operating Shareholders severally (and not jointly) do hereby indemnify and agree to keep indemnified, AMSCAN against any loss, damage, or expense (including reasonable attorneys' fees) suffered by AMSCAN from (a) any breach by AM- SOURCE of this Agreement or (2) any inaccuracy in or breach of any of the representations, warranties, or covenants by the Operating Shareholders or AM-SOURCE herein; provided, however, that AMSCAN shall be entitled to assert rights of indemnification hereunder only if and to the extent that it suffers loss, damages, and expenses (including reasonable attorney fees) exceeding Twenty Thousand and N0/100 ($20,000.00) Dollars in the aggregate. Subject to the limitations set forth in the preceding sentence, if any one of the AM-SOURCE SHAREHOLDERS takes any action, individually, which will have a material adverse effect on the transactions contemplated by this Agreement, such shareholder shall be solely responsible to indemnify AMSCAN and its other shareholders against any loss, damage or expense (including reasonable attorneys' fees) suffered by AMSCAN and its other shareholders on account of such action. No loss, damage, or expense shall be deemed to have been sustained by AMSCAN to the extent of insurance proceeds paid to, or tax benefits realizable by AMSCAN as a result of the event giving rise to such right to indemnification. 8.2 INDEMNIFICATION OF AM-SOURCE SHAREHOLDERS. AMSCAN agrees to indemnify the AM-SOURCE SHAREHOLDERS against any loss, damage, or expense (including reasonable attorney fees) suffered by any of the AM-SOURCE SHAREHOLDERS from (1) any breach by AMSCAN of this Agreement or (2) any inaccuracy in or breach of any of AMSCAN'S representations, warranties, or covenants herein. 8.3 DEFENSE OF CLAIMS. Upon obtaining knowledge thereof, the indemnified party shall promptly notify the indemnifying party of any claim which has given or could give rise to a right of indemnification under this Agreement. If the right of indemnification relates to a claim asserted by a third party against the indemnified party, the indemnifying party shall have the right to employ counsel acceptable to the indemnified party to cooperate in the defense of any such claim. As long as the indemnifying party is defending any such claim in good faith, the indemnified party will not settle such claim. If the indemnifying party does not elect to defend any such claim, the indemnified party shall have no obligation to do so. 9 10 SECTION 9 - LEASE CONTINUATION (a) At the same time that this agreement is executed by the parties hereto, K.K.H.L.L.C., the Landlord under the Lease shall deliver a letter (the "Landlord's Letter") to Amscan containing certain warranties, representations and covenants. A copy of the Landlord's Letter is annexed to this agreement as Exhibit C. (b) The Operating Shareholders recognize and acknowledge that Amscan is relying upon the warranties, representations and covenants contained in the Landlord's Letter, and Am-Source and the Operating Shareholders agree that any material breach of any of the warranties, representations or covenants contained in the Landlord's Letter will constitute a default under this Agreement subject to the indemnification provisions of this Agreement. SECTION 10 - TERMINATION This Agreement may be terminated (1) by mutual consent in writing; or (2) by either the AM-SOURCE SHAREHOLDERS or AMSCAN if there has been a material misrepresentation or material breach of any warranty or covenant by the other party; or (3) by any party, acting alone or in unison with another party, if the Underwriting Agreement has not been executed or the Closing shall not have taken place, unless adjourned to a later date by mutual consent in writing, within two hundred seventy (270) days of the date this Agreement is executed. SECTION 11 - GENERAL PROVISIONS 11.1 FURTHER ASSURANCES. At any time, and from time, after the Effective Date, each party will execute such additional instruments and take such action as may be reasonably requested by any other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement. 11.2 WAIVER. Any failure on the part of any party hereto to comply with any of its obligations, agreements, or conditions hereunder may be waived in writing by the party to whom such compliance is owed. 11.3 BROKERS. Except as heretofore disclosed in writing by Am-Source to Amscan, each party represents to the other parties that no broker or finder has acted for it in connection with this Agreement, and agrees to indemnify and hold harmless the other parties against any fee, loss, or expense arising out of claims by brokers or finders employed or alleged to have been employed by it. 10 11 11.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered in person or sent by prepaid first-class registered or certified mail, return receipt requested, as follows: IF TO AMSCAN: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Fax: (914) 345-8145 Attention: John P. Jordan WITH A COPY TO: Kurzman & Eisenberg One North Broadway White Plains, N.Y. 10601 Attn: Sam Eisenberg, Esq. IF TO AM-SOURCE: Am-Source, Inc. 261 Narragansett Park Drive East Providence, Rhode Island 02916 Attn: John Madden Comptroller IF TO ARTHUR J. KAUFMAN ALLAN J. KAUFMAN OR MICHAEL F. HODGES: Am-Source, Inc. 261 Narragansett Park Drive East Providence, Rhode Island 02916 Attn: Arthur J. Kaufman WITH A COPY TO: Peabody & Brown 1 Citizens Plaza Providence, Rhode Island 02903 Attn: Peter Furness, Esq. 11.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties and supersedes and cancels any other agreements, representations, or communication, whether oral or written, among the parties hereto relating to the transactions contemplated herein or the subject matter hereof. 11.6 HEADINGS. The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 11 12 11.7 ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors, heirs and assigns; provided, however, that any assignment by any party of its rights under this Agreement without the written consent of the other parties shall be void. 11.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Escrow Agent AMSCAN HOLDINGS, INC. By: /S/ JOEL LEVER By: /S/ JOHN SVENNINGSEN ------------------------ ---------------------------------- Kurzman & Eisenberg /S/ ARTHUR J. KAUFMAN ---------------------------------- ARTHUR J. KAUFMAN /S/ MICHAEL F. HODGES ---------------------------------- MICHAEL F. HODGES /S/ ALLAN J. KAUFMAN ---------------------------------- ALLAN J. KAUFMAN 12 13 ACKNOWLEDGEMENTS STATE OF NEW YORK ] COUNTY OF WESTCHESTER ] ss.: On the 9th day of October, 1996 before me personally came John Svenningsen to me known, who, being by me duly sworn, did depose and say that he resides at No.3 Frederick Ct., Harrison, New York 10528 that he is the President of AMSCAN HOLDINGS, INC., the corporation described in and which executed the foregoing instrument, and that he signed his name thereto by order of the board of directors of said corporation. /S/ DOROTHY IAMICELI ---------------------------- Notary Public STATE OF RHODE ISLAND) )ss.: COUNTY OF PROVIDENCE ) On the 9th day of October, 1996, before me personally came ARTHUR J. KAUFMAN to me known to be the individual described in and who executed the foregoing instrument, and acknowledged that he executed the same. /S/ NORMAN J. MCCARTER -------------------------- Notary Public 13 14 STATE OF RHODE ISLAND) )ss.: COUNTY OF PROVIDENCE ) On the 9th day of October, 1996, before me personally came MICHAEL F. HODGES to me known to be the individual described in and who executed the foregoing instrument, and acknowledged that he executed the same. /s/ NORMAN J. MCCARTER -------------------------- Notary Public STATE OF RHODE ISLAND) )ss.: COUNTY OF PROVIDENCE ) On the 9th day of October, 1996, before me personally came ALLAN J. KAUFMAN to me known to be the individual described in and who executed the foregoing instrument, and acknowledged that he executed the same. /s/ Norman J. McCarter -------------------------- Notary Public 14 15 EXHIBIT A Shares of AM-SOURCE, INC. held by AM-SOURCE SHAREHOLDERS and Delivered to Escrow Agent: Allan J. Kaufman 19 Arthur J. Kaufman 22 Michael F. Hodges 19 --- TOTAL 60 === 15 EX-4.A 3 CREDIT AGREEMENT DATED AS OF SEPTEMBER 20,1995 1 Exhibit 4(a) CREDIT AGREEMENT dated as of September 20, 1995 among AMSCAN INC. KOOKABURRA USA, LTD. DECO PAPER PRODUCTS, INC. TRISAR, INC. the Banks signatory hereto and THE CHASE MANHATTAN BANK, N.A. as Agent 2 Table of Contents ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS. Section 1.1 Definitions Section 1.2 Accounting Terms Section 1.3 Rules of Interpretation ARTICLE 2 THE CREDIT. Section 2.1 Loans; Letters of Credit Section 2.2 The Notes Section 2.3 Purpose Section 2.4 Borrowing Procedures Section 2.5 Prepayments and Conversions Section 2.6 Interest Periods; Renewals Section 2.7 Lockbox, Cash Collateral Account Section 2.8 Changes of Commitment Section 2.9 Certain Notices Section 2.10 Minimum Amounts Section 2.11 Interest Section 2.12 Fees Section 2.13 Payments Generally Section 2.14 Margin Section 2.15 Interest Rate Protection Section 2.16 Payment of Reimbursement Obligations ARTICLE 3 YIELD PROTECTION; ILLEGALITY; ETC. Section 3.1 Additional Costs Section 3.2 Limitation on Types of Loans Section 3.3 Illegality Section 3.4 Certain Conversions Section 3.5 Certain Compensation ARTICLE 4 CONDITIONS PRECEDENT. Section 4.1 Documentary Conditions Precedent Section 4.2 Satisfactory Review Section 4.3 Additional Conditions Precedent Section 4.4 Deemed Representations 3 ARTICLE 5 REPRESENTATIONS AND WARRANTIES. Section 5.1 Incorporation, Good Standing and Due Qualification Section 5.2 Corporate Power and Authority; No Conflicts Section 5.3 Legally Enforceable Agreements Section 5.4 Litigation Section 5.5 Financial Statements Section 5.6 Ownership and Liens Section 5.7 Taxes Section 5.8 ERISA Section 5.9 Subsidiaries and Affiliates and Ownership of Stock Section 5.10 Credit Arrangements Section 5.11 Operation of Business Section 5.12 Hazardous Materials Section 5.13 No Default on Outstanding Judgments or Orders Section 5.14 No Defaults on Other Agreements Section 5.15 Labor Disputes and Acts of God Section 5.16 Governmental Regulation Section 5.17 Partnerships Section 5.18 No Forfeiture Section 5.19 Solvency Section 5.20 Subordinated Debt Section 5.21 Material Contracts ARTICLE 6 AFFIRMATIVE COVENANTS. Section 6.1 Maintenance of Existence Section 6.2 Conduct of Business Section 6.3 Maintenance of Properties Section 6.4 Maintenance of Records Section 6.5 Maintenance of Insurance Section 6.6 Compliance with Laws Section 6.7 Right of Inspection Section 6.8 Reporting Requirements Section 6.9 Establishment and Maintenance of Estate Plan Section 6.10 Additional Guarantors Section 6.11 Additional Pledged Shares ARTICLE 7 NEGATIVE COVENANTS. Section 7.1 Debt Section 7.2 Guaranties, Etc. Section 7.3 Liens Section 7.4 Leases ii 4 Section 7.5 Investments Section 7.6 Dividends Section 7.7 Sale of Assets Section 7.8 Stock of Subsidiaries, Etc. Section 7.9 Transactions with Affiliates Section 7.10 Mergers, Etc. Section 7.11 Acquisitions Section 7.12 No Activities Leading to Forfeiture ARTICLE 8 FINANCIAL COVENANTS. Section 8.1 Minimum Adjusted Tangible Net Worth Section 8.2 Capital Expenditures Section 8.3 Adjusted Leverage Ratio Section 8.4 Fixed Charge Coverage Ratio ARTICLE 9 EVENTS OF DEFAULT. Section 9.1 Events of Default Section 9.2 Remedies ARTICLE 10 THE AGENT; RELATIONS AMONG BANKS AND BORROWERS. Section 10.1 Appointment, Powers and Immunities of Agent Section 10.2 Reliance by Agent Section 10.3 Defaults Section 10.4 Rights of Agent as a Bank Section 10.5 Indemnification of Agent Section 10.6 Documents Section 10.7 Non-Reliance on Agent and Other Banks Section 10.8 Failure of Agent to Act Section 10.9 Resignation or Removal of Agent Section 10.10 Amendments Concerning Agency Function Section 10.11 Liability of Agent Section 10.12 Transfer of Agency Function Section 10.13 Non-Receipt of Funds by the Agent Section 10.14 Withholding Taxes Section 10.15 Several Obligations and Rights of Banks Section 10.16 Pro Rata Treatment of Loans, Etc. Section 10.17 Sharing of Payments Among Banks Section 10.18 Duties of Issuing Bank iii 5 ARTICLE 11 MISCELLANEOUS Section 11.1 Amendments and Waivers Section 11.2 Usury Section 11.3 Expenses Section 11.4 Survival Section 11.5 Assignment; Participations Section 11.6 Notices Section 11.7 Setoff Section 11.8 Indemnification; Exoneration Section 11.9 Jurisdiction; Immunities Section 11.10 Table of Contents; Headings Section 11.11 Severability Section 11.12 Counterparts Section 11.13 Integration Section 11.14 Governing Law Section 11.15 Confidentiality Section 11.16 Treatment of Certain Information Section 11.17 Independence of Covenants Section 11.18 Multiple Borrowers Section 11.19 Time of the Essence EXHIBITS Exhibit A Promissory Note Exhibit B Authorization Letter Exhibit C Environmental Indemnification Exhibit D Guaranty Exhibit E-1 Borrower Pledge Agreement Exhibit E-2 Stockholder Pledge Agreement Exhibit F Security Agreement Exhibit G Opinion of Counsel for Borrowers, Stockholder and Guarantors Exhibit H Notice of Borrowing Exhibit I Financial Covenants Compliance Report Exhibit J Confidentiality Agreement Exhibit K Subordination Agreement Exhibit L Borrowing Base Certificate Exhibit M Collateral Assignment of Leases Exhibit N Cash Collateral Account Agreement Exhibit O Commercial Letter of Credit Application Exhibit P Standby Letter of Credit Application Exhibit Q Assignment of Deposit Accounts iv 6 SCHEDULES Schedule 5.6 Liens Schedule 5.9 Subsidiaries and Affiliates of Borrowers Schedule 5.10 Credit Arrangements Schedule 5.12 Hazardous Materials Schedule 5.21 Material Contracts Schedule 7.4 Leases v 7 CREDIT AGREEMENT dated as of September 20, 1995 among AMSCAN, INC., a corporation organized under the laws of the State of New York, KOOKABURRA USA, LTD., a corporation organized under the laws of the State of New York, DECO PAPER PRODUCTS, INC. a corporation organized under the laws of the State of Kentucky and TRISAR, INC., a corporation organized under the laws of the State of California (collectively, all such corporations being the "Borrowers" and each, individually, a "Borrower"), each of the banks which is a signatory hereto (individually a "Bank" and collectively the "Banks") and THE CHASE MANHATTAN BANK, N.A., a national banking association organized under the laws of the United States of America, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). The Borrowers desire that the Banks extend credit as provided herein and the Banks are prepared to extend such credit. Accordingly, the Borrowers, the Banks and the Agent agree as follows: ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. Section 1.1. Definitions. As used in this Agreement the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa): "Acceptable Acquisition" means an Acquisition in which the Total Consideration expended in the aggregate by the Borrowers is within the Restricted Payment Allowance and so long as the following conditions are satisfied: (a) no Default or Event of Default exists or would result from such Acquisition; (b) the company or assets acquired involve substantially the same or similar line of business as the Borrowers; (c) the Agent, for the benefit of the Banks, obtains a first priority security interest in the acquired assets or the assets of the acquired company; and (d) the Borrowers demonstrate that, on a combined basis with the acquired assets and/or company, in accordance with GAAP, they would have been in compliance with the financial covenants contained in Article 8 on a trailing four quarters pro forma basis as of the end of the immediately preceding fiscal quarter; and (e) a Borrower remains as the surviving entity; provided, however, that in every case, 100% Bank approval will be required for any hostile Acquisition. 8 "Acquisition" means any transaction pursuant to which any Borrower or any of its Subsidiaries (a) acquires equity securities (or warrants, options or other rights to acquire such securities) of any corporation other than such Borrower or any corporation which is not then a Subsidiary of such Borrower, pursuant to a solicitation of tenders therefor, or in one or more negotiated block, market or other transactions not involving a tender offer, or a combination of any of the foregoing, or (b) makes any corporation a Subsidiary of such Borrower, or causes any such corporation to be merged into such Borrower or any of its Subsidiaries, in any case pursuant to a merger, purchase of assets or any reorganization providing for the delivery or issuance to the holders of such corporation's then outstanding securities, in exchange for such securities, of cash or securities of such Borrower or any of its Subsidiaries, or a combination thereof, or (c) purchases all or substantially all of the business or assets of any corporation. "Adjusted Leverage Ratio" means, for any Person as at any date, on a combined basis in accordance with GAAP, the ratio of (a) Combined Adjusted Senior Debt of such Person to (b) EBIT of such Person, calculated as of the end of each fiscal quarter for the twelve month period then ended (a rolling twelve month calculation measured as of the end of each fiscal quarter. "Adjusted Subordinated Debt" means all Subordinated Debt owed by Amscan, Inc. after subtracting therefrom the aggregate amount of payments that Amscan is permitted (assuming no Event of Default has occurred) to make to the Stockholder under Clause (ii) of Section 1.2 of the Subordination Agreement. "Adjusted Tangible Net Worth" of a Person means such Person's Tangible Net Worth plus Adjusted Subordinated Debt. "Affiliate" means any Person: (a) which directly or indirectly controls, or is controlled by, or is under common control with, the Stockholder, any Borrower or any of its Subsidiaries; (b) which directly or indirectly beneficially owns or holds 5% or more of any class of voting stock of any Borrower or any such Subsidiary; (c) 25% or more of the voting stock of which is directly or indirectly beneficially owned or held by the Stockholder, any Borrower or such Subsidiary; or (d) which is a partnership in which the Stockholder, any Borrower or any of its Subsidiaries is a general partner. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" means this Credit Agreement, as amended or supplemented from time to time. References to Articles, Sections, Exhibits, Schedules and the like refer to the Articles, Sections, Exhibits, Schedules and the like of this Agreement unless otherwise indicated. -2- 9 "Assignment of Deposit Accounts" means the assignment from the Borrowers to the Agent, for the ratable benefit of the Banks, consented to by the financial institution, substantially in the form of Exhibit Q. "Authorization Letter" means the letter agreement executed by the Borrowers in the form of Exhibit B. "Banking Day" means any day on which commercial banks are not authorized or required to close in New York, New York and whenever such day relates to a Fixed Rate Loan or notice with respect to any Fixed Rate Loan, a day on which dealings in Dollar deposits are also carried out in the London interbank market. "Borrowing Base" means, as of any date of determination thereof, an amount equal to the sum of (a) 85% of Eligible Receivables, except as otherwise provided by the last two sentences of this definition, and (b) 60% of Eligible Inventory. Unless the Agent shall otherwise reasonably determine, the Borrowing Base as of any date shall be the Borrowing Base set forth on the most current Borrowing Base Certificate certified and delivered by the Borrowers pursuant to either Section 6.8 or Section 4.2. If, at any time, the Borrowing Base shall exceed the aggregate of all of the Commitments of the Banks, for purposes of this Agreement, the Borrowing Base shall be deemed to be equal to such Commitments. With respect to an Eligible Receivable to which Party Experience or an affiliate thereof is the account debtor, the advance rate of 85% will apply to such receivable for so long as Party Experience has made, in the aggregate, at least 90% of each required monthly payment set forth by the Party Experience Agreement. If Party Experience has failed to make, in the aggregate, at least 90% of any monthly payment, then the advance rate for each Eligible Receivable for which Party Experience or an affiliate is the account debtor shall be reduced to 50% for so long as Party Experience has not made, in the aggregate, 90% of each required monthly payment. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit L hereto or such other form agreed to in writing by the Banks and the Borrowers. "Capital Expenditures" means for any period, for any Person, the Dollar amount of gross expenditures (including obligations under Capital Leases) made for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto (but not repairs thereof) incurred during such period. "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "Cash Collateral Account" means Account #4521-037-210 (or any subsequent account) of the Borrowers maintained at the Agent as a cash collateral account pursuant to and under the Cash Collateral Account Agreement. -3- 10 "Cash Collateral Account Agreement" means the Cash Collateral Account Agreement, in the form of Exhibit N, between the Borrowers and the Agent to be delivered under the terms of this Agreement. "Change of Ownership" means a conveyance of or Lien upon (other than in favor of the Agent for the ratable benefit of the Banks), by operation of law or otherwise, the stock issued by any Borrower following which conveyance or Lien the Stockholder no longer owns an unencumbered interest in 60% or more of each class of capital stock outstanding of such Borrower. "Closing Date" means the date this Agreement has been executed by the Borrowers, the Banks and the Agent. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral Assignment of Leases" means the collateral assignment of leases executed by the Borrowers, substantially in the form of Exhibit M. "Combined Adjusted Senior Debt" means the sum of (i) Combined Senior Debt, plus (ii) 70% of all Debt guaranteed by one or more Borrowers which is secured by real property, plus (iii) 100% of all other Debt guaranteed by one or more Borrowers. "Combined Adjusted Tangible Net Worth" means Adjusted Tangible Net Worth of the Borrowers and their Consolidated Subsidiaries, as determined on a combined basis in accordance with GAAP. "Combined Capital Expenditures" means Capital Expenditures of the Borrowers and their Consolidated Subsidiaries, as determined on a combined basis in accordance with GAAP. "Combined Senior Debt" means Loans and Debt of the Borrowers and their Consolidated Subsidiaries, as determined on a combined basis in accordance with GAAP, other than Subordinated Debt and guarantees made by the Borrowers. "Commitment" means, with respect to each Bank, the obligation of such Bank to make its Loans and participate in Letters of Credit under this Agreement in the aggregate principal amount following, as such amount may be reduced or otherwise modified from time to time as provided herein: For the period through and including the first anniversary of the Closing Date: The Chase Manhattan Bank, N.A.: $18,750,000; NatWest Bank N.A.: $10,416,667;
-4- 11 First Fidelity Bank, N.A.: $10,416,667; Fleet Bank: $10,416,666; TOTAL: $50,000,000;
For the period from the day following the first anniversary of the Closing Date to and including the second anniversary of the Closing Date: The Chase Manhattan Bank, N.A.: $20,625,000; NatWest Bank N.A.: $11,458,333; First Fidelity Bank, N.A.: $11,458,333; Fleet Bank: $11,458,334; TOTAL: $55,000,000;
For the period from the day following the second anniversary of the Closing Date through the Termination Date: The Chase Manhattan Bank, N.A.: $22,500,000; NatWest Bank N.A.: $12,500,000; First Fidelity Bank, N.A.: $12,500,000; Fleet Bank: $12,500,000; TOTAL: $60,000,000;
"Commitment Percentage" means, as to any Bank, the percentage equivalent of a fraction, the numerator of which is the Commitment of such Bank and the denominator of which is the aggregate Commitments of all Banks. "Consolidated Subsidiary" means any Subsidiary of a Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with GAAP. "Debt" means, with respect to any Person: (a) indebtedness of such Person for borrowed money; (b) indebtedness for the deferred purchase price of property or services (except trade payables in the ordinary course of business); (c) Unfunded Benefit Liabilities of such Person; (d) the face amount of any outstanding letters of credit issued for the account of such Person; (e) obligations arising under acceptance facilities; (f) guaranties, endorsements (other than for collection in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss, including any contingent obligations under swaps, derivatives, currency exchanges and similar transactions; (g) obligations secured by any Lien on property of such Person; and (h) obligations of such Person as lessee under Capital Leases. -5- 12 "Default" means any event which with the giving of notice or lapse of time, or both, would become an Event of Default. "Default Rate" means, with respect to the principal of any Loan and, to the extent permitted by law, any other amount payable by any Borrower under this Agreement or any Note that is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period from and including the due date, to, but excluding the date on which such amount is paid in full equal to 3% above the Variable Rate as in effect from time to time plus the Margin (if any) (provided that, if the amount so in default is principal of a Fixed Rate Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Default Rate" for such principal shall be, for the period from and including the due date and to but excluding the last day of the Interest Period therefor, 3% above the interest rate for such Loan as provided in Section 2.10 hereof and, thereafter, the rate provided for above in this definition). "Dollars" and the sign "$" mean lawful money of the United States of America. "EBIT" means, for any Person, for any period, (i) operating earnings before Interest Expense, taxes and extraordinary items for such Person, plus (ii) administrative fee income received from Amscan Distributors Canada Ltd., less (iii) such Person's Monthly Accruals, determined in accordance with GAAP. "EBITDA" means, for any Person, for any period, (i) operating earnings before Interest Expense, taxes, depreciation, amortization and extraordinary items for such Person, plus (ii) administrative fee income received from Amscan Distributors Canada Ltd., less (iii) such Person's Monthly Accruals, determined in accordance with GAAP. "Eligible Inventory" means, as of any date of determination thereof, all Inventory (valued at the lower of the cost or fair market value on a first-in-first-out basis), but excluding (a) the greater of (i) the market reserve against Inventory established by the Borrowers from time to time and (ii) the market reserve approved by the Borrowers' independent auditors as of the end of the prior fiscal year, (b) all Inventory in which the Agent (on behalf of the Banks) does not have a first perfected security interest, subject to no other Lien prior to or on a parity with such security interest, (c) packaging material, (d) work-in-process and (e) all other Inventory deemed ineligible by the Agent because of any circumstance that could, in the Agent's reasonable judgment, adversely affect the quality of such Inventory as collateral security. Notwithstanding the preceding sentence, "Eligible Inventory" shall not include any Inventory not located at premises owned by or leased to a Borrower unless such Inventory is in transit (and insured). "Eligible Receivable" means, as of any date of determination thereof, all Receivables net of the Borrowers' customary reserves (to the extent that such reserves are -6- 13 not otherwise duplicative of the exclusions listed below), unearned customer deposits, taxes, trade or other documents, discounts, claims, credits, returns, rebates, allowances or set-offs, excluding the following: (i) any Receivable unpaid for more than 60 days from the due date set forth in the original invoice; (ii) any Receivable where the due date set forth in the invoice therefor is greater than 190 days of the date the goods were sold or the services rendered with respect to such Receivable; (iii) any goods the sale of which gave rise to such Receivable not shipped or delivered to the account debtor on an absolute sale basis or goods shipped on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on the basis of any other similar understanding, or any part of such goods has been returned or rejected; (iv) any Receivable evidenced by chattel paper or an instrument of any kind; (v) any Receivable which is owed by an account debtor which (A) is insolvent or the subject of any bankruptcy or insolvency proceedings of any kind or of any other pending proceeding or action which might have an adverse effect on the business of such account debtor or (B) is, in the sole discretion of the Agent, deemed ineligible for credit or other reasons; (vi) all Receivables deemed uncollectable by the Borrowers or turned over to collection agencies or attorneys; (vii) any Receivable arising from the shipment of goods or the performance of services, such shipment or performance having not been fully completed or rendered; (viii) any Receivable which is not a valid, legally enforceable obligation of the account debtor or is subject to any present or contingent, or any fact exists which is the basis for any future, offset or counterclaim or other defense on the part of such account debtor; (ix) any Receivable not evidenced by an invoice or other documentation in form acceptable to the Agent; (x) any Receivable which arises out of any transaction between (A) a Borrower and (B) any other Borrower or a Subsidiary of any other Borrower or any Affiliate; -7- 14 (xi) any Receivable which is subject to any provision prohibiting its assignment or requiring notice of or consent to such assignment; (xii) all Receivables from customers having their place of business outside of the United States of America, except for such Receivables backed by either (A) letters of credit denominated in Dollars issued to a Borrower by banks acceptable to the Agent or (B) credit insurance policies acceptable to the Agent; (xiii) all Receivables from a Governmental Authority; (xiv) all Receivables arising out of or in connection with advance billings of a customer's requirements of supplies over a period of time; (xv) all Receivables that do not conform to the representations and warranties contained in Article 2 of the Security Agreement; (xvi) all Receivables in which the Agent does not have a first perfected security interest, subject to no other Lien prior to or on a parity with such security interest; (xvii) all Receivables not denominated in Dollars; (xviii) all Receivables from an account debtor if more than 50% of the aggregate Dollar amount of invoices billed with respect to such account debtor is more than 60 days past due according to the original terms of payment and such Receivables exceed, in the aggregate, $20,000; (xix) any Receivable which is owed by an account debtor who has disputed liability or made any claim with respect to any other account due from such account debtor to a Borrower, except the foregoing exclusion shall not apply to any account debtor unless and until such disputed amounts equal or exceed twenty percent (20%) of the aggregate Dollar amount of accounts due from such account debtor; and (xx) any Receivable which is determined by the Agent to be ineligible for any other reason generally accepted in the commercial finance business as a reason for ineligibility. "Environmental Indemnification" means the environmental indemnification agreement of the Borrowers in the form of Exhibit C hereto. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other restrictions of any Governmental -8- 15 Authority relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "ERISA Affiliate" means any corporation or trade or business which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which a Borrower is a member, or (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which a Borrower is a member. "Event of Default" has the meaning given such term in Section 9.1. "Facility Documents" means this Agreement, the Notes, the Authorization Letter, the L/C Documents, the Environmental Indemnification Agreement, the Subordination Agreement, the Guaranty, the Pledge Agreements, the Security Agreement, the Collateral Assignment of Leases, the Cash Collateral Account Agreement, the Assignment of Deposit Accounts, any lockbox agreement in favor of any Bank or the Agent and each of the documents, certificates or other instruments referred to in Article 4 hereof as well as any other documents, instrument or certificate to be delivered by any Borrower, any Guarantor or the Stockholder in connection with this Agreement or in connection with the documents, certificates or instruments referred to in Article 4, including documents delivered in connection with any borrowing or issuance of any Letter of Credit. "Federal Funds Rate" means, for any day, the rate per annum (expressed on a 360 day basis of calculation, if the rate on Variable Rate Loans is so calculated) equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day (or for any day that is not a Banking Day, for the immediately preceding Banking Day). "Fixed Base Rate" means, with respect to any Interest Period for a Fixed Rate Loan, the arithmetic mean, as calculated by the Agent, of the respective rates per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted at approximately 11:00 a.m. London time by the principal London branch of the Reference Bank two Banking Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of Dollar deposits in immediately available funds, for a period, and in an amount, comparable to the Interest Period and principal amount of the Fixed Rate Loan which shall be made by the Reference Bank and outstanding during such Interest Period. -9- 16 "Fixed Charge Coverage Ratio" means, for any Person as at any date, on a combined basis, the ratio of (a) the sum of (i) EBIT, plus (ii) Rent to (b) the sum of (i) Interest Expense, plus (ii) Rent. "Fixed Rate Loan" means any Loan when and to the extent the interest rate therefor is determined on the basis of the definition "Fixed Base Rate." "Forfeiture Proceeding" means any action, proceeding or investigation affecting any Borrower or any of its Subsidiaries or domestic Affiliates before any Governmental Authority, or the receipt of notice by any such party that any of them is a suspect in or a target of any governmental inquiry or investigation, which may reasonably result in an indictment of any of them or the seizure or forfeiture of any of their property having a value in excess of $250,000. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 5.5 (except for changes concurred with by the Borrowers' independent public accountants). "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any agency, court or body of any nation or government, or any state or other political subdivision thereof, or any quasi-governmental agency or authority exercising executive, legislative, judicial, regulatory or administrative functions. "Guarantors" means each current and future Person incorporated or doing business in the United States of America, of which 75% or more of the outstanding capital stock is owned by the Stockholder and/or one or more Borrowers; excluding, however, any such Person: (a) whose business is not substantially the same or similar line of business as that carried out by any Borrower or (b) whose products and services are not intended for use by substantially the same or similar marketplace as those products and services of any Borrower, and any other entity that delivers a Guaranty pursuant to Section 6.10. "Guaranty" means the guaranty substantially in the form of Exhibit D be delivered by the Guarantors under the terms of this Agreement. "Interest Expense" means, with respect to any Person, for any period, the sum, for such Person in accordance with GAAP, of (a) all interest on Debt that is accrued as an expense during such period (including, without limitation, imputed interest on Capital Lease obligations), plus (b) all amounts paid, accrued or amortized as an expense during such period in respect of interest rate protection agreements, minus (c) all amounts received or accrued as income during such period in respect of interest rate protection agreements. -10- 17 "Interest Period" means, with respect to any Fixed Rate Loan, the period commencing on the date such Loan is made, converted from another type of Loan or renewed, as the case may be, and ending on the numerically corresponding day in the first, second, third or (as available) sixth calendar month thereafter, provided that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate calendar month. "Interest Rate Protection Agreement" means any interest rate protection agreement heretofore or hereafter entered into with any Bank whereby any Borrower obtains a hedge or cap for the interest rate that will be payable by such Borrower on the Loans under this Agreement. "Issuing Bank" means The Chase Manhattan Bank, N.A. "Inventory" means all inventory, now or hereafter owned and wherever located, of the Borrowers, including (without limitation) raw materials, work-in-process, finished goods, supplies and packaging materials. "L/C Credit" means, at any date of determination, the aggregate undrawn balance of all outstanding Letters of Credit plus the aggregate amount of each payment or disbursement made by the Issuing Bank under a Letter of Credit honoring any drawing under a Letter of Credit to the extent not reimbursed by the Borrowers. "L/C Documents" means any application and agreement or other documents or other instruments executed or delivered by any Borrower in connection with Letters of Credit. "Lending Office" means, for each Bank and for each type of Loan, the lending office of such Bank (or of an affiliate of such Bank) designated as such for such type of Loan on its signature page hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Agent and the Borrowers as the office by which its Loans of such type are to be made and maintained. "Letter of Credit Payment" shall have the meaning given such term in Section 10.16. "Letters of Credit" means one or more commercial letters of credit, each with an expiration date of up to six (6) months from the date of issue, or one or more standby letters of credit, each with an expiration date of up to twelve (12) months from the date of issue, issued by the Issuing Bank for the account of any Borrower as more particularly set forth in Section 2.1(b) hereof. -11- 18 "Leverage Ratio" means, for any Person, as at any date, a ratio on a combined basis in accordance with GAAP, of (a) Combined Senior Debt of such Person to (b) EBIT of such Person, calculated as of the end of each fiscal quarter for the twelve month period then ended (a rolling twelve month calculation measured as of the end of each fiscal quarter.) "Lien" means any lien (statutory or otherwise), security interest, mortgage, deed of trust, priority, pledge, negative pledge, charge, conditional sale, title retention agreement, financing lease or other encumbrance or similar right of others, or any agreement to give or refrain from giving any of the foregoing. "Loan" means any loan made by a Bank pursuant to Section 2.1. "Margin" means, for any Loan, the Margin for such type of Loan that would apply under Section 2.14. "Monthly Accruals" means, for any period, the sum of (i) a Person's monthly accruals for contractual bonuses payable by such Person (as determined by taking the greater of (x) the actual monthly accruals set forth on such Person's books or (y) the amount obtained by dividing actual contractual bonuses paid in the previous fiscal year by twelve), plus (ii) a Person's monthly accruals for base salaries. "Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by any Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Note" means a promissory note of the Borrowers substantially in the form of Exhibit A hereto evidencing the Loans made by a Bank hereunder. "Notice of Borrowing" shall mean the notice of each borrowing required by Section 4.3. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Party Experience Agreement" means the understanding between Amscan, Inc. and Party Experience, Inc. providing for payments by Party Experience to Amscan, Inc. of (i) $700,000 on September 30, 1995, (ii) $800,000 on October 31, 1995, (iii) $600,000 on November 30, 1995 and (iv) $900,000 on December 31, 1995. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. -12- 19 "Plan" means any employee benefit or other plan established or maintained, or to which contributions have been made, by any Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Pledge Agreements" means the pledge agreements in the form of Exhibit E-1 and E-2 to be delivered, respectively, by the Borrowers named therein and the Stockholder under the terms of this Agreement. "Prime Rate" means that rate of interest from time to time announced by the Reference Bank at its principal office as its prime commercial lending rate. The Borrowers hereby acknowledge that the Prime Rate is not necessarily the lowest rate of interest charged by the Reference Bank or any Bank to its most preferred customers. "Principal Office" means the principal office of the Agent, presently located at One Chase Manhattan Plaza, New York, New York 10082. "Receivable" means all accounts owing to any Borrower arising out of or in connection with the bona fide sale or lease of goods or services in the ordinary course of business. "Reference Bank" means The Chase Manhattan Bank, N.A. "Reference Period" shall have the meaning given such term in Section 7.4. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulatory Change" means, with respect to any Bank, any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including without limitation Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States, federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or Governmental Authority or monetary authority charged with the interpretation or administration thereof. "Rent" means all payments that any Borrower is contractually obligated to make on operating leases, whether for real property or personal property. "Required Banks" means, at any time while no Loans are outstanding and no L/C Credits exist, Banks having at least 66 2/3% of the aggregate amount of the Commitments and, at any time while Loans are outstanding and L/C Credits exist, Banks -13- 20 holding at least 66 2/3% of the aggregate principal amount of the Loans and (directly or by participation) the L/C Credits. "Restricted Payment Allowance" means, at any date of determination thereof, for the Borrowers, on a combined basis in accordance with GAAP, (a) 50% of net profit for the immediately preceding fiscal year of the Borrowers, reduced by an amount equal to federal and state income taxes utilizing the highest marginal tax rates for individuals, plus (b) provided that the Borrowers have not incurred a loss on a combined basis in the immediately preceding four fiscal quarters, the unused amount of the Restricted Payment Allowance for the immediately preceding fiscal year (calculated without giving effect to carryovers from fiscal years prior to the immediately prior fiscal year), minus (c) dividends already paid in such fiscal year by the Borrowers pursuant to Section 7.6, minus (d) the cost of any stock repurchases already made in such fiscal year by the Borrowers pursuant to Section 7.6, minus (e) monies already paid in such fiscal year by the Borrowers for investments pursuant to subsection (h) of Section 7.5, minus (f) Total Consideration already paid by the Borrowers in such fiscal year on account of any Acceptable Acquisition pursuant to Section 7.11. "Security Agreement" means the security agreement in the form of Exhibit F to be delivered by the Borrowers under the terms of this Agreement. "Shareholder Payments" shall have the meaning given to such term in Section 7.6. "Stockholder" means John Svenningsen, an individual. "Subordinated Debt" means Debt of the Borrowers to the Stockholder now or hereafter incurred and subordinated under the Subordination Agreement to the Borrowers' obligations under this Agreement and the Notes. "Subordination Agreement" shall mean the subordination agreement in the form of Exhibit K to be delivered by the holders of the Subordinated Debt and the Borrowers. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by such Person. "Tangible Net Worth" means, at any date of determination thereof, the excess of total assets of a Person over total liabilities of such Person, excluding, however, from the determination of total assets: goodwill, trademarks, patents, organizational costs and other like intangible assets as defined by GAAP. -14- 21 "Termination Date" means (a) September 30, 2000; provided that if such date is not a Banking Day, the Termination Date shall be the next succeeding Banking Day (or, if such next succeeding Banking Day falls in the next calendar month, the next preceding Banking Day) or (b) the earlier date of the termination in whole of the Commitments pursuant to Section 9.2 or otherwise. "Total Consideration" means the total consideration expended to acquire any Person or any assets (including, but not limited to, liabilities assumed, future payments (contingent or otherwise) and other cash consideration); provided, however, that for purposes of calculating liabilities assumed in connection with any determination of Total Consideration, the sum of acquired (i) trade accounts payable, plus (ii) accrued liabilities, plus (iii) customer billings in excess of revenues earned, shall only be included in the amount (if any) by which such sum exceeds acquired trade accounts receivable net of reserves. "Unfunded Benefit Liabilities" means, with respect to any Plan, the amount (if any) by which the present value of all benefit liabilities (within the meaning of Section 4001(a)(16) of ERISA) under the Plan exceeds the fair market value of all Plan assets allocable to such benefit liabilities, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA for calculating the potential liability of any Borrower or any ERISA Affiliate under Title IV of ERISA. "Variable Rate" means, for any day, the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day. "Variable Rate Loan" means any Loan when and to the extent the interest rate for such Loan is determined in relation to the Variable Rate. Section 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP. Section 1.3. Rules of Interpretation. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. -15- 22 (d) A reference to any Person includes its permitted successors and permitted assigns. (e) The words "include", "includes" and "including" are not limiting. (f) All terms not specifically defined herein or by GAAP, which terms are defined in the Uniform Commercial Code as in effect in the State of New York, have the meanings assigned to them therein. (g) Reference to a particular "Section " refers to that section of this Agreement unless otherwise indicated. (h) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement. ARTICLE 2. THE CREDIT. Section 2.1. Loans; Letters of Credit. (a) Subject to the terms and conditions of this Agreement, each of the Banks severally agrees to make loans (the "Loans") to the Borrowers from time to time from and including the date hereof to and including the Banking Day immediately prior to the Termination Date, up to but not exceeding in the aggregate principal amount at any one time outstanding, the amount obtained by multiplying its Commitment Percentage by the amount by which (i) the Borrowing Base exceeds (ii) the aggregate amount of L/C Credits. The Loans may be outstanding as Variable Rate Loans or Fixed Rate Loans (each a "type" of Loans). Each type of Loans of each Bank shall be made and maintained at such Bank's Lending Office for such type of Loans. The Loans shall be due and payable on the Termination Date. (b) Subject to the terms and conditions of this Agreement, the Issuing Bank, on behalf of the Banks, agrees for the account of any Borrower from time to time during the period from the date hereof until the Termination Date, to issue Letters of Credit, provided, however, that the aggregate amount of all L/C Credits may not exceed at any time the lesser of (i) $10,000,000 (only $3,000,000 of which may be standby letters of credit) or (ii) the amount by which the Borrowing Base exceeds the aggregate principal amount of all outstanding Loans. The Banks shall participate in each such issuance consistent with Section 10.16. All payments in respect of a Letter of Credit issued by the Issuing Bank will be due and payable in accordance with the terms of this Agreement and the L/C Documents relating to such issuance. -16- 23 Notwithstanding anything to the contrary herein, no Letter of Credit shall have an expiry date later than five (5) days prior to the Termination Date. Section 2.2. The Notes. The Loans of each Bank shall be evidenced by a single promissory note in favor of such Bank substantially in the form of Exhibit A, dated the date of this Agreement, duly completed and executed by the Borrowers. Section 2.3. Purpose. The Borrowers shall use the proceeds of the Loans to repay all amounts outstanding under that certain Amended and Restated Credit Agreement and Guaranty dated as of April 30, 1992, as amended, by and between the Borrowers and The Chase Manhattan Bank, N.A., to finance projected seasonal and incremental working capital requirements, to finance the purchase of equipment, fixtures and vehicles for their own account and for general corporate purposes. The Borrowers shall use the Letters of Credit in connection with the importation of goods, the purchase of equipment for their own account and for general corporate purposes. Such proceeds shall not be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying "margin stock" within the meaning of Regulation U. Section 2.4. Borrowing Procedures. The Borrowers shall give the Agent notice of each Loan to be made or each Letter of Credit to be issued hereunder as provided in Section 2.9. Not later than 1:00 p.m. New York City time on the date of such Loan, each Bank shall, through its Lending Office and subject to the conditions of this Agreement, make the amount of the Loan to be made by it on such day available to the Agent at the Principal Office and in immediately available funds for the account of the Borrowers. The amount so received by the Agent shall, subject to the conditions of this Agreement, be made available to the Borrowers, in immediately available funds, by the Agent crediting an account of the Borrowers designated by the Borrowers and maintained with the Agent at the Principal Office. Each Letter of Credit shall be issued by the Issuing Bank upon completion of an application and agreement substantially in the form of Exhibit O for commercial Letters of Credit and Exhibit P for standby Letters of Credit, together with any additional documentation necessary or desirable to the Issuing Bank, on the third Business Day after the completion and receipt by the Issuing Bank of such documentation. Each Letter of Credit shall be in a form approved by the Issuing Bank. To the extent the provisions of this Agreement are inconsistent with any of the provisions contained in any such Letter of Credit application and agreement or such additional documentation, the provisions of this Agreement shall govern the relationship between the Borrowers and the Issuing Bank. Section 2.5. Prepayments and Conversions. (a) Optional Prepayments. The Borrowers shall have the right to make prepayments of principal, together with accrued interest to the date of such prepayment on the principal amount prepaid, or to convert one type of Loans into another type of Loans, at any time or from time to time; provided that: (a) the Borrowers shall give the Agent notice of each such prepayment or conversion as provided in Section 2.9 and (b) -17- 24 Fixed Rate Loans may be prepaid or converted only on the last day of an Interest Period for such Loans. (a) Mandatory Prepayments. (i) The Borrowers must prepay no later than one Banking Day after delivery of any Borrowing Base Certificate an amount by which the aggregate principal amount of all outstanding Loans and L/C Credits exceeds the Borrowing Base, together with accrued interest to the date of such prepayment on the principal amount prepaid. Furthermore, if the Borrowers become aware at any other time that the aggregate principal amount of all outstanding Loans and L/C Credits exceeds the Borrowing Base, the Borrowers must make a prepayment in such an amount together with accrued interest to the date of such prepayment on the principal amount prepaid, no later than one Banking Day after they have become aware of such facts. Similarly, if, at any time, the Agent reasonably determines that the sum of the aggregate principal amount of outstanding Loans and L/C Credits exceeds the Borrowing Base, the Borrowers shall, upon demand, immediately prepay an amount equal to such excess, together with accrued interest to the date of such prepayment on the principal amount prepaid. (ii) Each such prepayment in accordance with paragraph (i) above shall be applied first to any interest due on the amount prepaid, and second to the outstanding principal amount of the Loans prepaid, in each case in such manner as the Agent in its discretion shall determine. If any such mandatory prepayment is made in respect of a Fixed Rate Loan, and such prepayment is made on other than the last day of an Interest Period, the Borrowers shall compensate the Banks in accordance with Section 3.5. Section 2.6. Interest Periods; Renewals. (a) In the case of each Fixed Rate Loan, the Borrowers shall select an Interest Period of any duration in accordance with the definition of Interest Period in Section 1.1, subject to the following limitations: (i) no Interest Period may extend beyond the Termination Date; (ii) notwithstanding clause (i) above, no Interest Period shall have a duration less than one month, and if any such proposed Interest Period would otherwise be for a shorter period, such Interest Period shall not be available; (iii) if an Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next Banking Day, unless such Banking Day would fall in the next calendar month in which event such Interest Period shall end on the immediately preceding Banking Day; (iv) no more than five Fixed Rate Loans with each Bank may be outstanding at any one time. (b) Upon notice to the Agent as provided in Section 2.9, the Borrowers may renew any Fixed Rate Loan on the last day of the Interest Period therefor as the same type of Loans with an Interest Period of the same or different duration in accordance with the limitations provided above. If the Borrowers shall fail to give notice to -18- 25 the Agent of such a renewal, such Fixed Rate Loan shall automatically be converted to a Variable Rate Loan on the last day of the current Interest Period. Section 2.7. Lockbox; Cash Collateral Account. (a) Maintenance of Lockbox and Cash Collateral Accounts. The Borrowers shall maintain the lockbox and lockbox account presently maintained at Harris Bank and Trust and shall maintain the Cash Collateral Account with the Agent pursuant to the terms of this Agreement and the Cash Collateral Account Agreement. If the lockbox and lockbox account presently maintained at Harris Bank and Trust shall for any reason cease to be in existence, then such lockbox and lockbox account shall be transferred to the Agent. The Borrowers shall perform all such actions that are necessary to ensure that the proceeds of all Receivables are sent by the account debtors directly to the lockbox and such proceeds shall continue to be sent to the lockbox at all times during the term of this Agreement. (b) Transfers from Lockbox Account to Cash Collateral Account. The Agent (for the benefit of the Banks) shall maintain a first priority Lien on all Receivables and proceeds therefrom, whether or not the proceeds of such Receivable are sent to the lockbox presently maintained at Harris Bank and Trust. The financial institution maintaining such lockbox and any accounts related thereto shall be required to hold such Receivables and the proceeds therefrom as an agent for the Agent and to transfer the proceeds of such Receivables to the Cash Collateral Account, all pursuant to such financial institution's consent to the Assignment of Deposit Accounts. In the event that the lockbox and lockbox account presently maintained at Harris Bank and Trust is transferred to the Agent and replaced by a lockbox and lockbox account with the Agent, the monies deposited shall be credited to the Cash Collateral Account. Section 2.8. Changes of Commitments. (a) The Borrowers shall have the right to reduce or terminate the amount of unused Commitments at any time or from time to time, provided that: (i) the Borrowers shall give notice of each such reduction or termination to the Agent as provided in Section 2.9; and (ii) each partial reduction shall be in integral multiples of $100,000 and an aggregate amount at least equal to $500,000. The Commitments once reduced or terminated may not be reinstated. (b) At any time the Commitments are reduced or terminated pursuant to subsection (a) of this Section 2.8, by Section 9.2, or otherwise, the Borrowers shall furnish the Agent for deposit in the Cash Collateral Account adequate cash reserves for the benefit of the Banks on the reduction date or the Termination Date, as the case may be, (i) with regard to termination in whole, in the amount of any Letters of Credit then outstanding which have a tenor which -19- 26 extends beyond the Termination Date, and (ii) with regard to reductions pursuant to subsection (a) of this Section 2.8, in the amount by which (A) the aggregate amount of Letters of Credit then outstanding which have a tenor which extends beyond such reduction date exceeds (B) the aggregate amount of the Commitments after giving effect to such reduction or, in either case, must otherwise provide for a financial institution acceptable to the Banks to (x) issue a letter of credit in form and substance satisfactory to the Banks naming the Banks as "beneficiary" therein, or, at the option of the Banks, (y) otherwise indemnify the Banks against loss in connection with outstanding Letters of Credit, pursuant to indemnification documentation in form and substance satisfactory to the Banks. Section 2.9. Certain Notices. Notices by the Borrowers to the Agent of each Loan or issuance of a Letter of Credit pursuant to Section 2.4, and each prepayment or conversion pursuant to Section 2.5 and each renewal pursuant to Section 2.6(b), and each reduction or termination of the Commitments pursuant to Section 2.8 shall be irrevocable and shall be effective only if received by the Agent not later than 11:00 A.M. New York, New York time, and (a) in the case of borrowings and prepayments of and conversions into Variable Rate Loans, given the same Banking Day; (b) in the case of borrowings and prepayments of, conversions into and renewals of Fixed Rate Loans, given three Banking Days prior thereto; or (c) in the case of reductions or termination of the Commitments, given three Banking Days prior thereto. Each such notice shall specify the Loans to be borrowed, prepaid, converted or renewed and the amount (subject to Section 2.10) and type of the Loans to be borrowed, or converted, or prepaid or renewed (and, in the case of a conversion, the type of Loans to result from such conversion and, in the case of a Fixed Rate Loan, the Interest Period therefor) and the date of the borrowing or prepayment, or conversion or renewal (which shall be a Banking Day). Each such notice of reduction or termination shall specify the amount of the Commitments to be reduced or terminated. The Agent shall promptly notify the Banks of the contents of each such notice. Section 2.10. Minimum Amounts. Except for borrowings which exhaust the full remaining amount of the Commitments, prepayments or conversions which result in the prepayment or conversion of all Loans of a particular type or conversions made pursuant to Section 3.4, each borrowing, prepayment, conversion and renewal of principal of Loans of a particular type shall be in an amount at least equal to $200,000 in the aggregate for all Banks (borrowings, prepayments, conversions or renewals of or into Loans of different types or, in the case of Fixed Rate Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, prepayments, conversions and renewals for the purposes of the foregoing, one for each type of Interest Period). Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of Fixed Rate Loans having concurrent Interest Periods shall be at least equal to $2,500,000 in the aggregate. Section 2.11. Interest. (a) Interest shall accrue on the outstanding and unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan is due at the following rates per annum: (i) for a Variable Rate -20- 27 Loan, at a variable rate per annum equal to the Variable Rate plus any Margin and (ii) for a Fixed Rate Loan, at a fixed rate equal to the Fixed Rate plus the Margin. If the principal amount of any Loan and any other amount payable by the Borrowers hereunder or under any Note shall not be paid when due (at stated maturity, by acceleration or otherwise), interest shall accrue on such amount from and including such due date to but excluding the date such amount is paid in full at the Default Rate. (b) The interest rate on each Variable Rate Loan shall change when the Variable Rate changes and interest on each such Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Interest on each Fixed Rate Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall notify the Borrowers and the Banks. (c) Accrued interest shall be due and payable in arrears upon any payment of principal or conversion and (i) for each Variable Rate Loan, on the last day of each March, June, September and December, commencing the first such date after such Loan; (ii) for each Fixed Rate Loan, on the last day of the Interest Period with respect thereto and, in the case of an Interest Period greater than three months, at three-month intervals after the first day of such Interest Period; provided that interest accruing at the Default Rate shall be due and payable from time to time on demand of the Agent. Section 2.12. Fees. (a) Commitment Fee. The Borrowers shall pay to the Agent for the account of each Bank a commitment fee on the daily average unused Commitment of such Bank for the period from and including the date hereof to the earlier of the date the Commitments are terminated or the Termination Date at a rate per annum equal to 1/4 of 1% (the "Commitment Fee"), calculated on the basis of a year of 360 days for the actual number of days elapsed; provided, however, that if the Leverage Ratio as of the end of the most recent fiscal quarter is 3.75 or greater, the Commitment Fee shall increase to 3/8 of 1% effective with the fiscal quarter succeeding the quarter in which such Leverage Ratio is attained; provided, further, that if the Leverage Ratio, having been 3.75 or greater, falls below 3.75 as of the end of any subsequent fiscal quarter, the Commitment Fee shall revert to 1/4 of 1% thereafter. The accrued commitment fee shall be due and payable in arrears upon any termination of the Commitments and on the last day of each March, June, September and December, commencing on the first such date after the Closing Date. (b) Letters of Credit. For each Letter of Credit, the Borrowers shall: (i) pay to the Issuing Bank for the account of the Issuing Bank a fronting fee in respect of each Letter of Credit in an amount equal to 1/4 of 1% per annum (based upon a year of three hundred sixty (360) days elapsed) of the daily average undrawn face amount of each Letter of Credit for the period from and including the date of issuance, to be paid quarterly in arrears; (ii) pay to the Agent for the account of the Banks for (x) Commercial Letters of -21- 28 Credit, an amount equal to 1/4 of 1% based upon the amount of each payment made against documents, such amount to be no less than $100 for each payment and (y) Standby Letters of Credit, an amount equal to 1% per annum (based upon a year of three hundred sixty (360) days elapsed) based upon the maximum aggregate amount available to be drawn, to be paid quarterly in arrears. The Borrowers will further pay to the Issuing Bank, on demand, all other charges, costs and expenses paid or incurred by the Issuing Bank in connection with any Letter of Credit, and interest where chargeable, including fees and charges of counsel and costs allocated by the Issuing Bank's internal legal department in connection with the preparation, performance or enforcement of any Letter of Credit. The Borrowers hereby acknowledge that any payments due the Issuing Bank, for its own account, or to the Agent for the account of the Banks, shall be the joint and several obligations of the Borrowers, even if such payments are in respect of a Letter of Credit issued for the benefit of fewer than all of the Borrowers and even if the L/C Documents executed in connection with such Letter of Credit are executed by fewer than all of the Borrowers. Section 2.13. Payments Generally. All payments under this Agreement or the Notes shall be made in Dollars in immediately available funds not later than 1:00 p.m. New York, New York time on the relevant dates specified above (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Banking Day) to the Agent's account number 900-9-000002 maintained at the Principal Office of the Agent for the account of the applicable Lending Office of each Bank. The Agent, or any Bank for whose account any such payment is to be made, may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of any Borrower with the Agent or such Bank, as the case may be, and any Bank so doing shall promptly notify the Agent. The Borrowers shall, at the time of making each payment under this Agreement or the Notes, specify to the Agent the principal or other amount payable by the Borrowers under this Agreement or the Notes to which such payment is to be applied (and in the event that it fails to so specify, or if a Default or Event of Default has occurred and is continuing, the Agent may apply such payment as it may elect in its sole discretion (subject to Section 10.16)). If the due date of any payment under this Agreement or the Notes would otherwise fall on a day which is not a Banking Day, such date shall be extended to the next succeeding Banking Day and interest shall be payable for any principal so extended for the period of such extension. Each payment received by the Agent hereunder or under any Note for the account of a Bank shall be paid promptly to such Bank, in immediately available funds, for the account of such Bank's Lending Office. Section 2.14. Margin. The Margin that will apply to each type of Loan is set forth below and is based upon the Borrowers' Leverage Ratio as at the end of the Borrowers' most recent fiscal quarter: -22- 29
Margin Margin Fixed Rate Loans Variable Rate Loans Leverage Ratio (Percentage Points) (Percentage Points) Greater than or equal to 3.75 1.50 0.50 Greater than or equal to 3.50, but less than 3.75 1.25 0.25 Greater than or equal to 3.00, but less than 3.50 1.00 0.00 Less than 3.00 0.875 0.00
Margin adjustments resulting from such calculations will become effective on the date such calculations are accepted by the Agent, except for Fixed Rate Loans then outstanding, which will be effective on the date of the next payment of interest pursuant to Section 2.11. Promptly after the determination of any margin adjustment provided for herein, the Agent shall notify the Borrowers and the Banks. Section 2.15. Interest Rate Protection. (a) Existing Agreements. The Agent and the Banks hereby acknowledge the existence of the Interest Rate Protection Agreements set forth on Schedule 5.10. The Agent and the Banks further agree that the obligations of the Borrowers under such Interest Rate Protection Agreements as set forth on Schedule 5.10 shall constitute obligations of the Borrower under this Agreement and are secured by every Lien granted under the Facility Documents pari passu with the other obligations of the Borrowers under this Agreement. The obligations of any bank or other financial institution (including any "Bank" hereunder) to the Borrowers under such Interest Rate Protection Agreements shall automatically constitute "Collateral" under the Borrowers' Security Agreement, subject to the Agent's Lien, for the ratable benefit of the Banks, and each Bank that has entered into an Interest Rate Protection Agreement with the Borrowers hereby consents to such Lien. (b) Future Agreements. The Borrowers may enter into Interest Rate Protection Agreements so long as no Default or Event of Default would result therefrom, including any violation of any of the covenants contained in Article 8 on a pro forma basis based upon the most recent calculations delivered to the Agent and the Banks in accordance with Article 6.8. The Borrowers will provide the Banks with certified photocopies of the documents evidencing any Interest Rate Protection Agreement entered into by the Borrowers promptly following their execution. The obligations of the Borrowers to a Bank (but not to any other bank or financial institution that is not a "Bank" hereunder) under such Interest Rate Protection Agreements will automatically constitute obligations of the Borrower under this Agreement and will be secured by any Lien granted under the Facility Documents pari passu with the other obligations of the Borrowers under this Agreement. The obligations of any bank or other financial institution (including any "Bank" hereunder) to the Borrowers under such Interest Rate Protection Agreements shall automatically constitute "Collateral" under the Borrowers' Security Agreement, subject to -23- 30 the Agent's Lien, for the ratable benefit of the Banks, and each Bank that enters into an Interest Rate Protection Agreement with the Borrowers hereby consents to such Lien. Section 2.16. Payment of Reimbursement Obligations. The Borrowers' obligations to pay to the Issuing Bank the amount of all reimbursement obligations, interest and other amounts payable to the Issuing Bank under this Agreement or any L/C Document in connection with any Letter of Credit issued on behalf of one or more Borrowers shall be absolute and unconditional under any and all circumstances and not subject to any counterclaim, claim, qualification, set-off, defense or other right which any Borrower may have at any time against the Issuing Bank, any Bank or any other Person and shall be made in accordance with the terms and conditions of this Agreement under all circumstances and irrespective of whether or not any Borrower may assert or have any claim for any lack of validity or unenforceability of this Agreement or any of the other Facility Documents; the existence of any Default or Event of Default; any draft, certificate or other document presented under a Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or the existence of any setoff or defense any Borrower, the Stockholder or any Guarantor may have with respect to any Loan, any Letter of Credit or any other advance, debt, liability, obligation, covenant or duty. ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC. Section 3.1. Additional Costs. (a) The Borrowers shall pay directly to each Bank from time to time on demand such amounts as such Bank may determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining any Fixed Rate Loans under this Agreement or its Note or its obligation to make any such Loans hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Note in respect of any of such Loans (other than taxes imposed on the overall net income of such Bank or of its Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Lending Office); or (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "Fixed Base Rate" in Section 1.1); or (iii) imposes any other condition affecting this Agreement or its Note (or any of such extensions of credit or liabilities). Each Bank will notify the Borrowers of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 3.1(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. If any Bank requests compensation from the -24- 31 Borrowers under this Section 3.1(a), or under Section 3.1(c), the Borrowers may, by notice to such Bank (with a copy to the Agent), require that such Bank's Loans of the type with respect to which such compensation is requested be converted in accordance with Section 3.4. (b) Without limiting the effect of the foregoing provisions of this Section 3.1, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Fixed Rate Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Fixed Rate Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Borrowers (with a copy to the Agent), the obligation of such Bank to make or renew, and to convert Loans of any other type into, Loans of such type hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (and all Loans of such type held by such Bank then outstanding shall be converted in accordance with Section 3.4). (c) Without limiting the effect of the foregoing provisions of this Section 3.1 (but without duplication), the Borrowers shall pay directly to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank for any costs which it determines are attributable to the maintenance by it or any of its affiliates pursuant to any law or regulation of any jurisdiction or any interpretation, directive or request (whether or not having the force of law and whether in effect on the date of this Agreement or thereafter) of any court or Governmental Authority or monetary authority of capital in respect of its Loans hereunder or its obligation to make Loans hereunder (such compensation to include, without limitation, an amount equal to any reduction in return on assets or equity of such Bank to a level below that which it could have achieved but for such law, regulation, interpretation, directive or request). Each Bank will notify the Borrowers if it is entitled to compensation pursuant to this Section 3.1(c) as promptly as practicable after it determines to request such compensation. (d) Determinations and allocations by a Bank for purposes of this Section 3.1 of the effect of any Regulatory Change pursuant to subsections (a) or (b), or of the effect of capital maintained pursuant to subsection (c), on its costs of making or maintaining Loans or its obligation to make Loans, or on amounts receivable by, or the rate of return to, it in respect of Loans or such obligation, and of the additional amounts required to compensate such Bank under this Section 3.1, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. Section 3.2. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if: -25- 32 (a) the Agent determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Fixed Base Rate" in Section 1.1 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for any type of Fixed Rate Loans as provided in this Agreement; or (b) the Required Banks determine (which determination shall be conclusive) and notify the Agent that the relevant rates of interest referred to in the definition of "Fixed Base Rate" in Section 1.1 upon the basis of which the rate of interest for any type of Fixed Rate Loans is to be determined do not adequately cover the cost to the Banks of making or maintaining such Loans; then the Agent shall give the Borrowers and each Bank prompt notice thereof, and so long as such condition remains in effect, the Banks shall be under no obligation to make or renew Loans of such type or to convert Loans of any other type into Loans of such type and the Borrowers shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected type, either prepay such Loans or convert such Loans into another type of Loans in accordance with Section 2.5. Section 3.3. Illegality. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for any Bank or its Lending Office to (a) honor its obligation to make or renew Fixed Rate Loans hereunder or convert Loans of any type into Loans of such type, or (b) maintain Fixed Rate Loans hereunder, then such Bank shall promptly notify the Borrowers thereof (with a copy to the Agent) and such Bank's obligation to make or renew Fixed Rate Loans and to convert other types of Loans into Loans of such type hereunder shall be suspended until such time as such Bank may again make, renew, or convert and maintain such affected Loans and such Bank's outstanding Fixed Rate Loans, as the case may be, shall be converted in accordance with Section 3.4. Section 3.4. Certain Conversions pursuant to Sections 3.1 and 3.3. If the Loans of any Bank of a particular type (Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type") are to be converted pursuant to Section 3.1 or 3.3, such Bank's Affected Loans shall be automatically converted into Variable Rate Loans on the last day(s) of the then current Interest Period(s) for the Affected Loans (or, in the case of a conversion required by Section 3.1(b) or 3.3, on such earlier date as such Bank may specify to the Borrowers with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 3.1 or 3.3 which gave rise to such conversion no longer exist: (a) to the extent that such Bank's Affected Loans have been so converted, all payments and prepayments of principal which would otherwise be applied to such Bank's Affected Loans shall be applied instead to its Variable Rate Loans; and -26- 33 (b) all Loans which would otherwise be made or renewed by such Bank as Loans of the Affected Type shall be made instead as Variable Rate Loans and all Loans of such Bank which would otherwise be converted into Loans of the Affected Type shall be converted instead into (or shall remain as) Variable Rate Loans. Notwithstanding any conversion pursuant to this Section 3.4, the Borrowers shall nevertheless be liable to pay any Bank the compensation it requests under Section 3.1 for any costs incurred up to the date of conversion. If such Bank gives notice to the Borrowers (with a copy to the Agent) that the circumstances specified in Section 3.1 or 3.3 which gave rise to the conversion of such Bank's Affected Loans pursuant to this Section 3.4 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type are outstanding, such Bank's Variable Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type to the extent necessary so that, after giving effect thereto, all Loans held by the Banks holding Loans of the Affected Type and by such Bank are held pro rata (as to principal amounts, types and Interest Periods) in accordance with their respective Commitments. Section 3.5. Certain Compensation. The Borrowers shall pay to the Agent for the account of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense which such Bank determines is attributable to: (a) any payment, prepayment, conversion or renewal of a Fixed Rate Loan made by such Bank on a date other than the last day of an Interest Period for such Loan (whether by reason of acceleration or otherwise); or (b) any failure by the Borrowers to borrow, convert into or renew a Fixed Rate Loan to be made, converted into or renewed by such Bank on the date specified therefor in the relevant notice under Section 2.4, 2.5 or 2.6, as the case may be. Without limiting the foregoing, such compensation shall include an amount equal to the excess, if any, of: (i) the amount of interest which otherwise would have accrued on the principal amount so paid, prepaid, converted or renewed or not borrowed, converted or renewed for the period from and including the date of such payment, prepayment or conversion or failure to borrow, convert or renew to but excluding the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or renew, to but excluding the last day of the Interest Period for such Loan which would have commenced on the date specified therefor in the relevant notice) at the applicable rate of interest for such Loan provided for herein; over (ii) the amount of interest (as reasonably determined by such Bank) such Bank would have bid in the London interbank market for Dollar deposits for amounts comparable to such principal amount and -27- 34 maturities comparable to such period. A determination of any Bank as to the amounts payable pursuant to this Section 3.5 shall be conclusive absent manifest error. ARTICLE 4. CONDITIONS PRECEDENT. Section 4.1. Documentary Conditions Precedent. The obligations of the Banks to make the Loans or the obligation of the Issuing Bank to issue any Letter of Credit constituting the initial borrowing are subject to the condition precedent that the Agent shall have received on or before the date of such Loans or such issuance of any Letter of Credit each of the following, in form and substance satisfactory to the Agent and its counsel: (a) the Notes duly executed by the Borrowers; (b) the Authorization Letter duly executed by the Borrowers; (c) the Guaranty duly executed by the Guarantors; (d) the Security Agreement duly executed by each Borrower, together with (i) financing statements (UCC-1) duly executed and in proper form for filing under the Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the Agent or any Bank, desirable, to perfect the security interests created by the Security Agreement; and (ii) certified copies of requests for information identifying all of the financing statements on file with respect to the debtors in all jurisdictions referred to under (i), indicating that no party claims an interest in any of the Collateral (as defined in the Security Agreement); (e) the Pledge Agreements duly executed by the Borrowers named therein and the Stockholder together with certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and the original notes or other evidences of indebtedness with respect to the Pledged Debt referred to therein, endorsed in blank; (f) evidence of the continued existence and maintenance of the lockbox maintained at Harris Bank and Trust and satisfactory review and approval of the agreements delivered in connection with such lockbox; (g) the Assignment of Deposit Accounts, duly executed by the Borrowers and consented to by the financial institution; (h) the Cash Collateral Account Agreement duly executed by the Borrowers; -28- 35 (i) a favorable opinion of counsel for the Borrowers, the Stockholder and Guarantors, dated the Closing Date, in substantially the form of Exhibit G and as to such other matters as the Agent or any Bank may reasonably request; (j) a certificate of the Secretary or Assistant Secretary of each of the Borrowers and the Guarantors, dated the Closing Date, attesting to all corporate action taken by each of the Borrowers and the Guarantors, including resolutions of its Board of Directors authorizing the execution, delivery and performance of the Facility Documents to which it is a party and each other document to be delivered pursuant to this Agreement and certifying true copies of the articles of incorporation, by-laws and other organizational documents of each of the Borrowers and the Guarantors; (k) a certificate of the Secretary or Assistant Secretary of each of the Borrowers and the Guarantors, dated the Closing Date, certifying the names and true signatures of the officers of each of the Borrowers and the Guarantors authorized to sign the Facility Documents to which it is a party and the other documents to be delivered by each of the Borrowers and the Guarantors under this Agreement; (l) a certificate of good standing dated within 10 days of the closing date for each of the Borrowers and the Guarantors from the Secretary of State of its jurisdiction of incorporation and each jurisdiction in which it is qualified to do business; (m) a certificate of a duly authorized officer of each of the Borrowers and each Guarantor, dated the Closing Date, stating that the representations and warranties in the Facility Documents to which it is a party are true and correct on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or Event of Default; (n) a certificate of the Stockholder, dated the Closing Date, stating that the representations and warranties in the Facility Documents to which he is a party are true and correct on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or Event of Default; (o) the Environmental Indemnification duly signed by the Borrowers; (p) Federal Reserve Form U-1 provided for in Regulation U issued by the Board of Governors of the Federal Reserve System, the statements made in which shall be such, in the opinion of the Agent, as to permit the transactions contemplated hereby in accordance with said Regulation U; (q) payment by the Borrowers to the Agent of all fees owing to the Agent and other expenses and fees incurred by the Agent; -29- 36 (r) a completed Borrowing Base Certificate; (s) the Subordination Agreement duly executed by the Borrowers and the holders of the Subordinated Debt; (t) a schedule setting forth the amount of the Restricted Payment Allowance and the basis of the calculation thereof for the current calendar year, as if such Restricted Payment Allowance was in effect for such period of time; (u) landlord waivers and consents duly executed by Stockholder and his Affiliates as so required; (v) the Collateral Assignment of Leases, duly executed as so required; (w) a payoff letter and releases from The Chase Manhattan Bank, N.A. in form and substance satisfactory to the Agent and the Banks; and (x) evidence of the absence of any change in market conditions which, in the Agent's opinion, would materially impair a financial institution's ability to fund Loans of this type. Section 4.2. Satisfactory Review. The obligations of the Banks to make the Loans or the Issuing Bank to issue the Letters of Credit constituting the initial borrowing are further subject to the condition precedent that the Agent and the Banks shall have, in the sole discretion of the Banks, the Agent, and their counsel, completed a satisfactory review of each of the following: (a) the status of any litigation affecting any of the Borrowers or their Affiliates; (b) the insurance program of the Borrowers; (c) all necessary (in the opinion of the Borrowers, the Agent or their counsel) governmental and third party approvals; (d) all material leases, supply contracts, employment agreements and other material contracts of the Borrowers and their domestic Affiliates; and (e) any other information or documentation as the Agent or the Banks may, in their sole discretion, consider material to their interests under this Agreement. -30- 37 Section 4.3. Additional Conditions Precedent. The obligations of the Banks to make any Loans and the obligations of the Issuing Bank to issue Letters of Credit which increases the amount outstanding hereunder (including the initial borrowing) shall be subject to the further conditions precedent that on the date of such Loans or the issuance of such Letters of Credit: (a) the following statements shall be true: (i) the representations and warranties contained in Article 5 herein, and in Article 2 of the Security Agreement, Section 7 of the Guaranty, and in each other Facility Document, are true and correct on and as of the date of such Loan or such issuance of a Letter of Credit as though made on and as of such date; and (ii) no Default or Event of Default has occurred and is continuing, or would result from such Loan or issuance of Letter of Credit; and (iii) there has been no material adverse change in the business, management, operations, properties, prospects or condition (financial or otherwise) of the Stockholder or the Borrowers, the Guarantors or any of their respective Subsidiaries since the Closing Date; (b) the Borrowers shall be current in the delivery of the most recent Borrowing Base Certificate required to be delivered pursuant to this Agreement; (c) the Borrowers shall have delivered to the Agent a Notice of Borrowing in substantially the form of Exhibit H; (d) the Agent shall have received such approvals, opinions or documents as the Agent or any Bank may reasonably request; and (e) in the case of the issuance of a Letter of Credit, as of the date of issuance of such Letter of Credit, no order, judgment or decree of any court, arbitrator or Governmental Authority shall purport by its terms to restrain the Issuing Bank from issuing such Letter of Credit and no law, rule or regulation applicable to the Issuing Bank and no request or directive (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit or request the Issuing Bank to refrain from the issuance of letters of credit generally or the issuance of such Letter of Credit. Section 4.4. Deemed Representations. Each Notice of Borrowing hereunder and acceptance by the Borrowers of the proceeds of such borrowing shall constitute a representation and warranty that the statements contained in Section 4.3(a) are true and correct both on the date of such notice and, unless the Borrowers otherwise notify the Agent prior to such borrowing, as of the date of such borrowing. -31- 38 ARTICLE 5. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and warrants that: Section 5.1. Incorporation, Good Standing and Due Qualification. Each of the Borrowers and their respective Subsidiaries is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required. Section 5.2. Corporate Power and Authority; No Conflicts. The execution, delivery and performance by each of the Borrowers of the Facility Documents to which it is a party have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of its stockholders; (b) contravene its charter or by-laws; (c) violate any provision of, or require any filing (other than the filing of the financing statements contemplated by the Security Agreement), registration, consent or approval under, any law, rule, regulation (including, without limitation, Regulation U), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Borrowers or any of their respective Subsidiaries or Affiliates; (d) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower is a party or by which it or its properties may be bound or affected; (e) result in, or require, the creation or imposition of any Lien (other than as created under the Security Agreement and the Collateral Assignment of Leases), upon or with respect to any of the properties now owned or hereafter acquired by any Borrower; or (f) cause any Borrower (or any Subsidiary or Affiliate, as the case may be) to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. Section 5.3. Legally Enforceable Agreements. Each Facility Document to which any Borrower is a party is, or when delivered under this Agreement will be, a legal, valid and binding obligation of such Borrower enforceable against such Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally. Section 5.4. Litigation. There are no actions, suits or proceedings pending or, to the knowledge of any Borrower, threatened, against or affecting any Borrower or any of their respective Subsidiaries before any Governmental Authority or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties or business of any such Borrower or any such -32- 39 Subsidiary or of the ability of such Borrower to perform its obligations under the Facility Documents to which it is a party. Section 5.5. Financial Statements. The combined and combining balance sheet of the Borrowers as at December 31, 1994, and the related combined and combining income statement and statements of cash flows and changes in stockholders' equity of the Borrowers for the fiscal year then ended, and the accompanying footnotes, together with the opinion thereon, of KPMG Peat Marwick, independent certified public accountants, and the interim combined and combining balance sheet of the Borrowers as at June 30, 1995, and the related combined and combining income statement and statements of cash flows and changes in stockholders' equity for the six month period then ended, copies of which have been furnished to each of the Banks, are complete and correct and fairly present the financial condition of the Borrowers as at such dates and the results of the operations of the Borrowers for the periods covered by such statements, all in accordance with GAAP consistently applied (subject to year end adjustments in the case of the interim financial statements). Except as set forth on Schedule 5.10, there are no liabilities of any Borrower, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since December 31, 1994. No information, exhibit or report furnished by any Borrower to the Banks in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not materially misleading. Since December 31, 1994, there has been no material adverse change in the condition (financial or otherwise), business, operations or prospects of any Borrower. Section 5.6. Ownership and Liens. Except as set forth on Schedules 5.6 and 5.10, each of the Borrowers and their Consolidated Subsidiaries has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets, and leasehold interests reflected in the financial statements referred to in Section 5.5 (other than any properties or assets disposed of in the ordinary course of business), and none of the properties and assets owned by any Borrower or any of its Subsidiaries and none of its leasehold interests is subject to any Lien, except as disclosed in such financial statements or as may be permitted hereunder and except for the Lien created by the Security Agreements and the Collateral Assignment of Leases. Section 5.7. Taxes. Each of the Borrowers and their respective Subsidiaries has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. Section 5.8. ERISA. Each Plan, and, to the best knowledge of any Borrower, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other applicable Federal or state law, and no event or condition -33- 40 is occurring or exists concerning which any Borrower would be under an obligation to furnish a report to the Banks in accordance with Section 6.8(h) hereof. As of the most recent valuation date for each Plan, each Plan was "fully funded", which for purposes of this Section 5.8 shall mean that the fair market value of the assets of the Plan is not less than the present value of the accrued benefits of all participants in the Plan, computed on a Plan termination basis. To the best knowledge of any Borrower, no Plan has ceased being fully funded as of the date these representations are made with respect to any Loan or issuance of Letter of Credit under this Agreement. Section 5.9. Subsidiaries and Affiliates and Ownership of Stock. Schedule 5.9 is a complete and accurate list of the Subsidiaries and Affiliates of each Borrower, showing the jurisdiction of incorporation or organization of each Subsidiary or Affiliate and showing the percentage of such Borrower's ownership of the outstanding stock or other interest of each such Subsidiary and Affiliate. All of the outstanding capital stock or other interest of each such Subsidiary or Affiliate has been validly issued, is fully paid and nonassessable and is owned by such Borrower free and clear of all Liens. Section 5.10. Credit Arrangements. Schedule 5.10 is a complete and correct list of all credit agreements, indentures, purchase agreements, guaranties, Capital Leases and other investments, agreements and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which any Borrower or any of its Subsidiaries is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule. Section 5.11. Operation of Business. Each of the Borrowers and their respective Subsidiaries possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted, and none of the Borrowers or their respective Subsidiaries is in violation of any valid rights of others with respect to any of the foregoing. Section 5.12. Hazardous Materials. The Borrowers and each of their respective Subsidiaries have obtained all permits, licenses and other authorizations which are required under all Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a material adverse effect on the consolidated financial condition, operations, business or prospects of any Borrower or its Consolidated Subsidiaries. The Borrowers and each of their respective Subsidiaries are, to the best of each Borrower's or each Subsidiaries' knowledge, after due inquiry, in compliance with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations schedules and timetables contained in any -34- 41 applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply would not have a material adverse effect on the consolidated financial condition, operations, business or prospects of any Borrower and its Consolidated Subsidiaries. In addition, except as set forth in Schedule 5.12 hereto, to the best of each Borrower's knowledge, after due inquiry: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any Governmental Authority or other entity with respect to any alleged failure by any Borrower or any of its Subsidiaries to have any permit, license or authorization required in connection with the conduct of the business of such Borrower or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, release or disposal, or any release as defined in 42 U.S.C. 9601(22) ("Release"), of any substance regulated under Environmental Laws ("Hazardous Materials") generated by such Borrower or any of its Subsidiaries. (b) None of the Borrowers nor any of their respective Subsidiaries has handled any Hazardous Material, other than as a generator, on any property now or previously owned or leased by the Borrowers or any of their respective Subsidiaries to an extent that it has, or may reasonably be expected to have, a material adverse effect on the consolidated financial condition, operations, business or prospects taken as a whole of any Borrower and its Consolidated Subsidiaries; and (i) no PCB is or has been present at any property now or previously owned or leased by any Borrower of any of its Subsidiaries; (ii) no asbestos is or has been present at any property now or previously owned or leased by any Borrower or any of its Subsidiaries; (iii) there are no underground storage tanks for Hazardous Materials, active or abandoned, at any property now or previously owned or leased by any Borrower of any of its Subsidiaries; (iv) no Hazardous Materials have been Released, in a reportable quantity, where such a quantity has been established by statute, ordinance, rule, regulation or order, at, on or under any property now or previously owned by the Borrower or any of its Subsidiaries. (c) None of the Borrowers nor any of their respective Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location which is listed on the National Priorities List under the Comprehensive -35- 42 Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the National Priorities List by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System as provided by 40 C.F.R. 300.5 ("CERCLIS") or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against any Borrower or any of its Subsidiaries for clean-up costs, remedial work, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA. (d) No Hazardous Material generated by any Borrower or any of its Subsidiaries has been recycled, treated, stored, disposed of or Released by such Borrower or any of its Subsidiaries at any location other than those listed in Schedule 5.12 hereto. (e) No oral or written notification of a Release of a Hazardous material has been filed by or on behalf of any Borrower or any of its Subsidiaries and no property now or previously owned or leased by such Borrower or any of its Subsidiaries is listed or proposed for listing on the National Priorities List promulgated pursuant to CERCLA, on CERCLIS or on any similar state list of sites requiring investigation or clean-up. (f) There are no Liens arising under or pursuant to any Environmental Laws on any of the real property or properties owned or leased by any Borrower or any of its Subsidiaries, and no governmental actions have been taken or are in process which could subject any of such properties to such Liens and neither such Borrower nor any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any property owned by it in any deed to such property. (g) There have been no environmental investigations, studies, audits, test, reviews or other analyses conducted by or which are in the possession of any Borrower or any of its Subsidiaries in relation to any property or facility now or previously owned or leased by such Borrower or any of its Subsidiaries which have not been made available to the Banks. Section 5.13. No Default on Outstanding Judgments or Orders. Each of the Borrowers and their respective Subsidiaries has satisfied all judgments and neither such Borrower nor any of its Subsidiaries is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any Governmental Authority. Section 5.14. No Defaults on Other Agreements. None of the Borrowers or their respective Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction which could have a material adverse effect on the business, properties, assets, operations or -36- 43 conditions, financial or otherwise, of any Borrower or any of its Subsidiaries, or the ability of any Borrower to carry out its obligations under the Facility Documents to which it is a party. None of the Borrowers or any of their respective Subsidiaries is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument material to its business to which it is a party. Section 5.15. Labor Disputes and Acts of God. Neither the business nor the properties of any Borrower or its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), materially and adversely affecting such business or properties or the operation of such Borrower or such Subsidiary. Section 5.16. Governmental Regulation. None of the Borrowers nor any of their respective Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce Act, the Federal Power Act or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. Section 5.17. Partnerships. None of the Borrowers or their respective Subsidiaries is a partner in any partnership. Section 5.18. No Forfeiture. None of the Borrowers or their respective Subsidiaries or domestic Affiliates is engaged in or proposes to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding and no Forfeiture Proceeding against any of them is pending or, to their knowledge, threatened. Section 5.19. Solvency. (a) The present fair saleable value of the assets of such Borrower after giving effect to all the transactions contemplated by the Facility Documents and the funding of all Commitments hereunder exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of such Borrower and its Subsidiaries as they mature. (b) The property of such Borrower does not constitute unreasonably small capital for such Borrower to carry out its business as now conducted and as proposed to be conducted including the capital needs of such Borrower. (c) Such Borrower does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by such Borrower, and of amounts to be payable on or in respect of debt of such Borrower). The cash available to such Borrower -37- 44 after taking into account all other anticipated uses of the cash of such Borrower, is anticipated to be sufficient to pay all such amounts on or in respect of debt of such Borrower when such amounts are required to be paid. (d) Such Borrower does not believe that final judgments against it in actions for money damages will be rendered at a time when, or in an amount such that, such Borrower will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum reasonable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to such Borrower after taking into account all other anticipated uses of the cash of such Borrower (including the payments on or in respect of debt referred to in paragraph (c) of this Section 5.19), is anticipated to be sufficient to pay all such judgments promptly in accordance with their terms. Section 5.20 Subordinated Debt. The Subordinated Debt of the Borrowers now outstanding, true and complete copies of instruments evidencing which have been furnished to the Agent, has been duly authorized by each Borrower, has not been amended or otherwise modified, and constitutes the legal, valid and binding obligation of the Borrowers enforceable against the Borrowers in accordance with its terms. There exists no default in respect of any such Subordinated Debt. Section 5.21 Material Contracts. Schedule 5.21 contains a list of all contracts with executives of one or more of the Borrowers, joint venture and other investment agreements and all other contracts exceeding $250,000 in cost or value to which any Borrower is a party as of the Closing Date. Correct and complete copies of each contract requested by the Agent, with all amendments, modifications and supplements thereto, has been or will be provided to the Agent. As of the Closing Date, with respect to the material contracts in existence on the Closing Date: (a) each of such material contracts is valid, subsisting and in full force and effect; no Borrower is in breach or violation of any of the terms, conditions or provisions of any such material contracts; (b) to the best knowledge of the Borrowers, no third party to any of the material contracts is in breach or violation of any of the terms, conditions or provisions thereof. ARTICLE 6. AFFIRMATIVE COVENANTS. So long as any of the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement, each Borrower shall: Section 6.1. Maintenance of Existence. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence and good standing -38- 45 in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each of its Subsidiaries to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is required. Section 6.2. Conduct of Business. Continue, and cause each of its Subsidiaries to continue, to engage in an efficient and economical manner in a business of the same general type as conducted by it on the date of this Agreement. Section 6.3. Maintenance of Properties. Maintain, keep and preserve, and cause each of its Subsidiaries to maintain, keep and preserve, all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 6.4. Maintenance of Records. Keep, and cause each of its Subsidiaries to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of the Borrower and its Subsidiaries. Section 6.5. Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance naming the Agent as beneficiary with insurance companies or associations with a rating of at least "A" by Standard & Poor's Corporation or Moody's Investment Service in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof. Section 6.6. Compliance with Laws. Comply, and cause each of its Subsidiaries to comply, in all respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property. Section 6.7. Right of Inspection. At any reasonable time and from time to time, permit the Agent or any Bank or any agent or representative thereof, to examine and make copies and abstracts from the records and books of account of, and visit the properties of, such Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of such Borrower and any such Subsidiary with any of their respective officers and directors and such Borrower's independent accountants, and to conduct an audit of such Borrower. At least annually, the Agent shall perform a field audit of the Borrowers at the Borrowers' expense; provided, however, that, so long as no Event of Default has occurred or is continuing, the Borrowers shall have no obligation to bear the expense of more than one field audit per year. Section 6.8. Reporting Requirements. Furnish directly to each of the Banks: -39- 46 (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrowers, a combined and combining balance sheet of the Borrowers and their Consolidated Subsidiaries as of the end of such fiscal year and a combined and combining income statement and statements of cash flows and changes in stockholders' equity of the Borrowers and their Consolidated Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective combined and combining figures for the corresponding date and period in the prior fiscal year and all prepared in accordance with GAAP and as to the combined statements accompanied by an opinion thereon acceptable to the Agent and each of the Banks by KPMG Peat Marwick or other independent accountants of national standing selected by the Borrowers; (b) as soon as available and in any event, (i) within 60 days of the end of each of the first three quarters of each fiscal year of the Borrowers for each fiscal quarter through September 30, 1996 and (ii) within 45 days after the end of each of the first three quarters of each fiscal year of the Borrowers thereafter, a combined and combining balance sheet of the Borrowers and their Consolidated Subsidiaries as of the end of such quarter and a combined and combining income statement and statements of cash flows and changes in stockholders' equity, of the Borrowers and their Consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and stating in comparative form the respective combined and combining figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP and certified by the President, Treasurer or Chief Financial Officer of the Borrowers (subject to year-end adjustments); (c) promptly upon receipt thereof, copies of any reports, inclusive of any management letters, submitted to any Borrower or any of its Subsidiaries by independent certified public accountants in connection with examination of the financial statements of any such Borrower or any such Subsidiary made by such accountants; (d) simultaneously with the delivery of the financial statements referred to in Sections 6.8(a) and (b), a certificate substantially in the form of Exhibit I of the President, Treasurer or Chief Financial Officer of each Borrower (i) certifying that to the best of his knowledge no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) with computations demonstrating compliance with the covenants contained in Articles 7 and 8; (e) simultaneously with the delivery of the annual financial statements referred to in Section 6.8(a), a certificate of the independent public accountants who audited such statements to the effect that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which -40- 47 constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (f) promptly after the commencement thereof, notice of all actions, suits, and proceedings before any Governmental Authority, domestic or foreign, affecting the Borrowers or any of their respective Subsidiaries which, if determined adversely to such Borrower or such Subsidiary, could have a material adverse effect on the financial condition, properties, or operations of such Borrower or such Subsidiary; (g) as soon as possible and in any event within 10 days after any Borrower knows or has reason to know of the occurrence of each Default or Event of Default a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Borrower with respect thereto; (h) as soon as possible, and in any event within ten days after any Borrower knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan have occurred or exist, a statement signed by a senior financial officer of such Borrower setting forth details respecting such event or condition and the action, if any, which such Borrower or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by such Borrower or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code) and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by any Borrower or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by any Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; -41- 48 (iv) the complete or partial withdrawal from a Multiemployer Plan by any Borrower or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt of any Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary or any Multiemployer Plan against any Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (vi) the adoption of an amendment to any Plan that pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA would result in the loss of tax-exempt status of the trust of which such Plan is a part if any Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (vii) any event or circumstance exists which may reasonably be expected to constitute grounds for any Borrower or any ERISA Affiliate to incur liability under Title IV of ERISA or under Sections 412(c)(11) or 412(n) of the Code with respect to any Plan; and (viii) the Unfunded Benefit Liabilities of one or more Plans increase after the date of this Agreement in an amount which is material in relation to the financial condition of any Borrower. (i) promptly after the request of any Bank, copies of each annual report filed pursuant to Section 104 of ERISA with respect to each Plan (including, to the extent required by Section 104 of ERISA, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information referred to in Section 103) and each annual report filed with respect to each Plan under Section 4065 of ERISA; provided, however, that in the case of a Multiemployer Plan, such annual reports shall be furnished only if they are available to any Borrower or an ERISA Affiliate; (j) promptly after the furnishing thereof, copies of any statement or report furnished to any other party pursuant to the terms of any Interest Rate Protection Agreement or any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Banks pursuant to any other clause of this Section 6.8; (k) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which any Borrower or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special -42- 49 reports, and all registration statements, which any Borrower or any such Subsidiary files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; (l) as soon as available, and in any event within 10 days of the end of each calendar month, a Borrowing Base Certificate and an aging schedule with respect to Receivables with names of all account debtors, each as of the end of such calendar month and each certified by the President, Treasurer or Chief Financial Officer of each Borrower; (m) promptly after the commencement thereof or promptly after any Borrower knows of the commencement or threat thereof, notice of any Forfeiture Proceeding; (n) promptly after the preparation thereof, but no later than April 30th of each year, copies of any budgets and other financial forecasts prepared by the President, Treasurer or Chief Financial Officer of the Borrowers for the current and subsequent fiscal years; (o) as soon as possible, and in any event within 10 days after any Borrower knows or has reason to know that there has been any noncompliance with the terms of the Party Experience Agreement; and (p) promptly after the request of the Agent or any Bank, such other information respecting the condition or operations, financial or otherwise, of any Borrower or any of its respective Subsidiaries. Section 6.9. Establishment and Maintenance of Estate Plan. To the satisfaction of the Agent, by December 31, 1996, establish an estate plan for the Stockholder and a management succession plan for the Borrowers. Thereafter, each Borrower shall take all actions necessary to carry out such estate and management succession plans. Section 6.10. Additional Guarantors. With respect to each Guarantor coming into existence after the Closing Date, immediately deliver to the Agent the following: (a) a guaranty from such Guarantor substantially in the form of the guaranty attached hereto as Exhibit D; (b) security agreements from such Guarantor substantially in the form of the Security Agreement and the Collateral Assignment of Leases, together with all other items customarily delivered in connection with such a security agreement, as -43- 50 described in Sections 4.1 (d), (e) and (v), and such other documents that were delivered by the Guarantors hereunder; (c) an opinion of counsel to the Borrowers and such Guarantor, addressed to the Agent, in form and substance satisfactory to the Agent, as to such matters as the Agent may require, including, without limitation, the creation and perfection of the Agent's security interests; and (d) such other approvals, opinions or documents as the Agent may reasonably request. Section 6.11. Additional Pledged Shares. With respect to Affiliates incorporated or doing business in the United States of America owned or controlled 75% or more by the Stockholder or any Borrower: (a) having annual sales of more than $1,000,000; (b) whose business is substantially the same or a similar line of business as that carried out by any Borrower; and (c) whose marketplace served is substantially the same or a similar marketplace served by any Borrower, immediately deliver to the Agent the following: (a) a pledge to the Agent of the shares of stock of such Affiliate owned by the Stockholder by executing an amendment to the Stockholder's Pledge Agreement adding such shares as "Pledged Shares" thereunder, together with certificate(s) representing such additional "Pledged Shares" accompanied by undated stock powers executed in blank; (b) an opinion of counsel to the Stockholder, addressed to the Agent, in form and substance satisfactory to the Agent, as to such matters as the Agent may require, including, without limitation, the creation and perfection of the Agent's security interests; and (c) such other approvals, opinions or documents as the Agent may reasonably request. ARTICLE 7. NEGATIVE COVENANTS. So long as any of the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement, each Borrower shall not: Section 7.1. Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist any Debt, except: (a) Debt of such Borrower under this Agreement or the Notes; -44- 51 (b) Debt described in Schedule 5.10, including renewals, extensions or refinancings thereof, provided that the principal amount thereof does not increase; (c) Debt of such Borrower subordinated on terms satisfactory to the Banks to such Borrower's obligations under this Agreement and the Notes; (d) Debt of such Borrower to any other Borrower; (e) Debt of such Borrower to the Stockholder, provided such Debt shall be formally subordinated to the Debt of such Borrower under this Agreement and the Notes pursuant to the Subordination Agreement; (f) Debt of the Borrower or any such Subsidiary secured by purchase money Liens permitted by Section 7.3; and (g) Debt of the Borrowers pursuant to Interest Rate Protection Agreements not to exceed the notational amount of $50,000,000. Section 7.2. Guaranties, Etc. Except as set forth on Schedule 5.10, assume, guarantee, endorse or otherwise be or become directly or contingently responsible or liable, or permit any of its Subsidiaries to assume, guarantee, endorse or otherwise be or become directly or indirectly responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods or services or to supply or advance any funds, asset, goods or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of any Person against loss) for the obligations of any Person, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. Section 7.3. Liens. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien, upon or with respect to any of its properties, now owned or hereafter acquired, except: (a) Liens in favor of the Agent on behalf of the Banks securing the Loans or L/C Credits hereunder and Liens in favor of the Agent on behalf of one or more Banks securing the Borrowers' obligations under Interest Rate Protection Agreements permitted by Section 2.15; (b) Liens for taxes or assessments or other government charges or levies if not yet due and payable or if due and payable if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; -45- 52 (c) Liens imposed by law, such as mechanic's, materialmen's, landlord's, warehousemen's and carrier's Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than 30 days, or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (d) Liens under workmen's compensation, unemployment insurance, social security or similar legislation (other than ERISA); (e) judgment and other similar Liens arising in connection with court proceedings; provided that in the case of such Liens in an amount greater than $50,000, the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (f) easements, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use and enjoyment by such Borrower or any such Subsidiary of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; (g) Liens securing obligations of such a Subsidiary to such Borrower or another such Subsidiary; (h) purchase money Liens on any property hereafter acquired or the assumption of any Lien on property existing at the time of such acquisition, or a Lien incurred in connection with any conditional sale or other title retention agreement or a Capital Lease; provided that: (i) any property subject to any of the foregoing is acquired by such Borrower or any such Subsidiary in the ordinary course of its business and the Lien on any such property is created within six (6) months of such acquisition; (ii) the obligation secured by any Lien so created, assumed or existing shall not exceed 100% of the lesser of cost or fair market value as of the time of acquisition of the property covered thereby to such Borrower or such Subsidiary acquiring the same; (iii) each such Lien shall attach only to the property so acquired and fixed improvements thereon; (iv) the Debt secured by all such Liens shall not exceed $15,000,000 at any time outstanding in the aggregate; -46- 53 (v) the obligations secured by such Lien are permitted by the provisions of Section 7.1 and the related expenditure is permitted under Section 8.3; and (i) Liens described on Schedules 5.6 and 5.10 and any replacement Liens on such property to secure the corresponding Debt described on such Schedules, including renewals, extensions or refinancings thereof, provided that the principal amount thereof does not increase. Section 7.4. Leases. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any obligation as lessee for the rental or hire of any real or personal property, except: (a) leases existing on the date of this Agreement set forth on Schedule 7.4 and any extensions or renewals thereof; (b) leases (other than Capital Leases) which do not result in a violation of the Fixed Charge Coverage Ratio established by Section 8.4, measured as set forth below, provided that, in each case where a lease involves annual payments in excess of $50,000, the bases of each such calculation shall have been provided to the Agent and the Agent shall have issued its written consent to each such lease; (c) leases between such Borrower and any such Subsidiary or between any such Subsidiaries; (d) Capital Leases permitted by Section 7.3. In making any calculation pursuant to Section 7.4(b), (i) the Fixed Charge Coverage Ratio shall be measured, on a combined basis, for the immediately preceding four fiscal quarters (the "Reference Period") and (ii) pro forma effect shall be given to such lease, as if such lease had been incurred on the first day of the Reference Period. Section 7.5. Investments. Make, or permit any of its Subsidiaries to make, any loan or advance to any Person or purchase or otherwise acquire, or permit any such Subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations or other securities of, make any capital contribution to, or otherwise invest in, or acquire any interest in, any Person, except: (a) direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (b) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (c) certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating within the United States of America with a short-term credit rating of at least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc.; (d) for stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to such Borrower or any such Subsidiary; (e) loans to its officers and employees not to exceed $200,000 in the aggregate at any one time; (f) any Acceptable Acquisition permitted by Section 7.11; (g) Interest Rate Protection Agreements permitted by Section 2.15; and (h) other investments not to exceed the Restricted Payment Allowance, provided that the Borrowers have provided the Agent, at least seven (7) days prior to making such an investment, with their calculation (in form and substance satisfactory to the Agent) showing that the proposed investment does not exceed the Restricted Payment Allowance. -47- 54 Section 7.6. Dividends. Declare or pay any dividends, purchase, redeem, retire or otherwise acquire for value any of its capital stock now or hereafter outstanding, or make any distribution of assets to its stockholders as such whether in cash, assets or in obligations of such Borrower, or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption or retirement of any shares of its capital stock, or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock; or permit any of its Subsidiaries to purchase or otherwise acquire for value any stock of such Borrower or another such Subsidiary, except that: (a) if any Borrower is qualified as an S Corporation for Federal and/or state tax purposes, such Borrower may, upon 7 days' advance written notice to the Agent accompanied by the calculations showing compliance (in form and substance satisfactory to the Agent) with the following conditions, declare and pay dividends, make distributions to stockholders of cash or other assets or pay to stockholders directors' fees and bonuses, provided that the following conditions and requirements are met: (i) The aggregate amount of the Shareholder Payments (as defined below) in any fiscal year shall not exceed the sum of the Federal and State estimated income taxes payable by each stockholder during such fiscal year on account of income attributable to him as a stockholder of such Borrower plus any actual taxes payable by each stockholder with any tax return due during such fiscal year on account of income attributable to him as a stockholder of such Borrower for the prior fiscal year, to the extent such actual taxes have not been the basis of earlier Shareholder Payments. The term "Shareholder Payments" shall mean the sum of the amounts of dividends, distributions, directors' fees and bonuses paid or made to stockholders in respect of Federal and State estimated income taxes; (ii) For purposes of subparagraph (i), any refunds paid to a stockholder as a result of income attributable to him as a stockholder of such Borrower shall be applied to reduce his future estimated taxes payable. (iii) Before making Shareholder Payments, such Borrower will require each stockholder to provide to such Borrower a written statement of the amount of estimated income taxes or actual taxes payable by such stockholder on account of income attributable to him as a stockholder of such Borrower; and (iv) such Borrower will furnish to Bank within 120 days after the close of its fiscal year written report of Shareholder Payments made by such Borrower and copies of stockholders' written statements of taxes payable during such fiscal year. -48- 55 (b) such Borrower may declare and deliver dividends and make distributions payable solely in common stock of such Borrower; (c) such Borrower may purchase or otherwise acquire shares of its capital stock by exchange for or out of the proceeds received from a substantially concurrent issue of new shares of its capital stock; (d) such Borrower may pay other dividends not to exceed the Restricted Payment Allowance, provided that the Borrowers have provided the Agent, at least seven (7) days prior to declaring such a dividend, with their calculation (in form and substance satisfactory to the Agent) showing that the proposed dividend does not exceed the Restricted Payment Allowance. (e) Such Borrower may bonus compensation to Stockholder in any fiscal year not to exceed such Borrower's net income for such year reduced by any amounts actually paid to stockholders under Subsection 7.6(a) and (d), provided such bonus is not actually paid to Stockholder and is merely reflected as a non-cash entry on such Borrower's financial statements as an amount due to Stockholder and provided further that said amount is evidenced by a promissory note subordinated pursuant to the Subordination Agreement. Section 7.7. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness of such Subsidiaries, receivables and leasehold interests); except: (a) for inventory disposed of in the ordinary course of business; (b) the sale or other disposition of assets no longer used or useful in the conduct of its business; and (c) that any such Subsidiary may sell, lease, assign, or otherwise transfer its assets to such Borrower. Section 7.8. Stock of Subsidiaries, Etc. Sell or otherwise dispose of any shares of capital stock of any of its Subsidiaries, except in connection with a transaction permitted under Section 7.10, or permit any such Subsidiary to issue any additional shares of its capital stock, except directors' qualifying shares. Section 7.9. Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate or permit any of its Subsidiaries to enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to such Borrower or such Subsidiary than would it obtain in a comparable arm's length transaction with a Person not an Affiliate. -49- 56 Section 7.10. Mergers, Etc. Merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or acquire all or substantially all of the assets or the business of any Person (or enter into any agreement to do any of the foregoing), or permit any of its Subsidiaries to do so, except that: (a) any such Subsidiary may merge into or transfer assets to such Borrower; (b) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary; (c) to the extent of the Restricted Payment Allowance, such Borrower may effect any Acceptable Acquisition permitted by Section 7.11. Section 7.11. Acquisitions. Make any Acquisition other than an Acceptable Acquisition. Section 7.12. No Activities Leading to Forfeiture. Neither such Borrower nor any of its Subsidiaries or domestic Affiliates shall engage in or propose to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding. ARTICLE 8. FINANCIAL COVENANTS. So long as any of the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement: Section 8.1. Minimum Adjusted Tangible Net Worth. The Borrowers shall maintain at all times, as measured at the end of each fiscal quarter, a Combined Adjusted Tangible Net Worth of not less than the following amounts for fiscal quarters ending during the following periods:
Time Period Amount ----------- ------ Through 12/31/95 $24,000,000 12/31/95 - 06/29/96 $25,500,000 06/30/96 - 12/30/96 $28,000,000 12/31/96 - 06/29/97 $31,000,000 06/30/97 - 12/30/97 $33,500,000 12/31/97 - 06/29/98 $36,500,000 06/30/98 - 12/30/98 $39,000,000 12/31/98 - 06/29/99 $42,000,000 06/30/99 - 12/30/99 $44,500,000 12/31/99 - Termination Date $47,500,000
Section 8.2. Capital Expenditures. The Borrowers shall not make or permit to be made Combined Capital Expenditures during any fiscal year of the Borrowers to exceed the following amounts in the aggregate: -50- 57
Fiscal Year Combined Capital ----------- ---------------- Expenditures ------------ 1995 $10,000,000 1996 $10,000,000 1997 and thereafter 25% of EBITDA, not to exceed $10,000,000 annually
Section 8.3. Adjusted Leverage Ratio. The Borrowers shall maintain at all times an Adjusted Leverage Ratio of less than 4.00 to 1.0. Section 8.4. Fixed Charge Coverage Ratio. The Borrowers shall maintain at all times a Fixed Charge Coverage Ratio, calculated as of the end of each fiscal quarter for the twelve month period then ended (a rolling twelve month calculation measured as of the end of each successive fiscal quarter), of not less than 2.00 to 1.0. ARTICLE 9. EVENTS OF DEFAULT. Section 9.1. Events of Default. Any of the following events shall be an "Event of Default": (a) the Borrowers shall: (i) fail to pay the principal of any Note as and when due and payable; or (ii) fail to pay interest on any Note or any fee or other amount due hereunder as and when due and payable and such failure shall continue for two (2) days; (b) any representation or warranty made or deemed made by any Borrower in this Agreement or in any other Facility Document or by the Stockholder or any Guarantor in any Facility Document to which it is a party or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under or in connection with any Facility Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; (c) any Borrower, the Stockholder or any Guarantor shall: (i) fail to perform or observe any term, covenant or agreement contained in Sections 2.3, 6.8 or 6.10 or Articles 7 or 8; or (ii) fail to perform or observe any term, covenant or agreement on its part to be performed or observed (other than the obligations specifically referred to in clause (i) or elsewhere in this Section 9.1) in any Facility Document and such failure shall continue for 30 consecutive days; (d) the Stockholder or any Borrower, any Guarantor or any of their respective Subsidiaries shall: (i) fail to pay (after giving effect to any applicable -51- 58 grace period or notice requirements) any indebtedness under any Interest Rate Protection Agreement or other indebtedness in excess of $500,000, including but not limited to indebtedness for borrowed money (other than the payment obligations described in (a) above), of the Stockholder, such Borrower, such Guarantor or such Subsidiary, as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or (ii) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Interest Rate Protection Agreement or other indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or passage of time, or both, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (e) the Stockholder or any Borrower, any Guarantor or any of their respective Subsidiaries: (i) shall generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding shall have been commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed for a period of 60 days or more; or (v) by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its property; or (vi) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of 60 days or more; (f) one or more judgments, decrees or orders for the payment of money in excess of $50,000 in the aggregate shall be rendered against the Stockholder or any Borrower, any Guarantor or any of their respective Subsidiaries and such judgments, decrees or orders shall continue unsatisfied and in effect for a period of 30 consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (g) any event or condition shall occur or exist with respect to any Plan or Multiemployer Plan concerning which any Borrower is under an obligation to furnish a report to the Banks in accordance with Section 6.8(h) hereof and as a result of such event or condition, together with all other such events or conditions, any Borrower or any ERISA Affiliate has incurred or in the opinion of any Bank is reasonably likely to incur a liability to a Plan, a Multiemployer Plan, the PBGC, or a Section 4042 Trustee (or -52- 59 any combination of the foregoing) which is material in relation to the financial position of any Borrower; (h) the Unfunded Benefit Liabilities of one or more Plans have increased after the date of this Agreement in an amount which is material (as specified in Section 9.1(g) hereof); (i) any Forfeiture Proceeding shall have been commenced or any Borrower shall have given any Bank written notice of the commencement of any Forfeiture Proceeding as provided in Section 6.8(l); (j) any Guaranty shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Guarantor or any Guarantor shall deny it has any further liability or obligation thereunder or shall fail to perform its obligations thereunder; (k) the Security Agreement, the Cash Collateral Account Agreement, the Assignment of Deposit Accounts or the Collateral Assignment of Leases shall at any time after its execution and delivery and for any reason cease: (A) to create a valid and perfected first priority security interest in and to the property purported to be subject to such Agreement; or (B) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Borrower or Guarantor or any Borrower or Guarantor shall deny it has any further liability or obligation under the such agreement or any Borrower or Guarantor shall fail to perform any of its obligations thereunder; (l) there shall be, in the judgment of the Agent, any material adverse change in the condition (financial or otherwise), business, management, operations, properties or prospects of the Borrowers and their respective Subsidiaries since the Closing Date; (m) the lockbox agreement or the consent to the Assignment of Deposit Accounts described in Section 2.7 shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability shall be contested by any party thereto, or any party thereto shall deny that it has any further liability thereunder or shall fail to perform its obligations thereunder; or (n) the Subordination Agreement shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any party thereto or any party thereto shall deny it has any further liability or obligation thereunder or shall fail to perform its obligations thereunder; -53- 60 (o) the Environmental Indemnification Agreement shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any party thereto or any party thereto shall deny it has any further liability or obligation thereunder or shall fail to perform its obligations thereunder; (p) any L/C Document executed by any Borrower shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any party thereto or any party thereto shall deny it has any further liability or obligation thereunder or shall fail to perform its obligations thereunder; (q) any Pledge Agreement shall at any time after its execution and delivery and for any reason cease: (A) to create a valid and perfected first priority security interest in and to the property purported to be subject to such agreement; or (B) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any party thereto, or such party shall deny it has further liability or obligation thereunder or such party shall fail to perform any of its obligations thereunder; (r) there shall be a Change of Ownership of any of the Borrowers; or (s) if the Stockholder shall no longer be employed full-time by the Borrowers in a key management position and actively participate in key management decisions affecting the Borrowers and in the day-to-day affairs of the Borrowers. Section 9.2. Remedies. If any Event of Default shall occur and be continuing, the Agent shall, upon request of the Required Banks, by notice to the Borrowers, (a) declare the Commitments to be terminated, whereupon the same shall forthwith terminate, and (b) declare the outstanding principal of the Notes, all interest thereon and all other amounts payable under this Agreement and the Notes to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided that, in the case of an Event of Default referred to in Section 9.1(e) or Section 9.1(k)(A) above, the Commitments shall be immediately terminated, and the Notes, all interest thereon and all other amounts payable under this Agreement shall be immediately due and payable without notice, presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrowers. -54- 61 ARTICLE 10. THE AGENT; RELATIONS AMONG BANKS AND BORROWERS. Section 10.1. Appointment, Powers and Immunities of Agent. Each Bank hereby irrevocably (but subject to removal by the Required Banks pursuant to Section 10.9) appoints and authorizes the Agent to act as its agent hereunder and under any other Facility Document with such powers as are specifically delegated to the Agent by the terms of this Agreement and any other Facility Document, together with such other powers as are reasonably incidental thereto. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Facility Document, and shall not by reason of this Agreement be a trustee for any Bank. The Agent shall not be responsible to the Banks for any recitals, statements, representations or warranties made by the Borrowers or any officer or official of the Borrowers or any other Person contained in this Agreement or any other Facility Document, or in any certificate or other document or instrument referred to or provided for in, or received by any of them under, this Agreement or any other Facility Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Facility Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any collateral security for the Loans or the L/C Credits or for any failure by the Borrowers to perform any of its obligations hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Facility Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. The Borrowers shall pay any fee agreed to by the Borrowers and the Agent with respect to the Agent's services hereunder. Section 10.2. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent may deem and treat each Bank as the holder of the Loans made by it for all purposes hereof unless and until a notice of the assignment or transfer thereof satisfactory to the Agent signed by such Bank shall have been furnished to the Agent but the Agent shall not be required to deal with any Person who has acquired a participation in any Loan from a Bank. As to any matters not expressly provided for by this Agreement or any other Facility Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Banks, and such instructions of the Required Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks and any other holder of all or any portion of any Loan. -55- 62 Section 10.3. Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default (other than the non-payment of principal of or interest on the Loans to the extent the same is required to be paid to the Agent for the account of the Banks) unless the Agent has received notice from a Bank or the Borrowers specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to Section 10.8) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Required Banks; provided that, unless and until the Agent shall have received such directions, the Agent may take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks; and provided further that the Agent shall not be required to take any such action which it determines to be contrary to law. Section 10.4. Rights of Agent as a Bank. With respect to its Commitment and the Loans made by it, the Agent in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its capacity as a Bank. The Agent and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with, the Borrowers (and any of their respective affiliates) as if it were not acting as the Agent, and the Agent may accept fees and other consideration from the Borrowers for services in connection with this Agreement or otherwise without having to account for the same to the Banks. Although the Agent and its affiliates may in the course of such relationships and relationships with other Persons acquire information about the Borrower, its Affiliates and such other Persons, the Agent shall have no duty to disclose such information to the Banks. Section 10.5. Indemnification of Agent. The Banks agree to indemnify the Agent (to the extent not reimbursed under Section 11.3 or under the applicable provisions of any other Facility Document, but without limiting the obligations of the Borrowers under Section 11.3 or such provisions), ratably in accordance with the aggregate unpaid principal amount of the Loans made by the Banks (without giving effect to any participations, in all or any portion of such Loans, sold by them to any other Person) (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any other Facility Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Borrowers are obligated to pay under Section 11.3 or under the applicable provisions of any other Facility Document but excluding, unless a Default or -56- 63 Event of Default has occurred, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. Section 10.6. Documents. The Agent will forward to each Bank, promptly after the Agent's receipt thereof, a copy of each report, notice or other document required by this Agreement or any other Facility Document to be delivered to the Agent for such Bank. Section 10.7. Non-Reliance on Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrowers and their respective Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Facility Document. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrowers of this Agreement or any other Facility Document or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrowers or any of their respective Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Borrowers or any of their respective Subsidiaries (or any of their Affiliates) which may come into the possession of the Agent or any of its affiliates. Each Bank may inform the Agent if it has good reason to believe that any Borrower is not in compliance with the terms of this Agreement or wishes to advise the Agent as to facts which come to its knowledge relating to the business or affairs of the Borrowers. The Agent shall not be required to file this Agreement, any other Facility Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Facility Document or any document or instrument referred to herein or therein, to anyone. Section 10.8. Failure of Agent to Act. Except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Banks under Section 10.5 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Section 10.9. Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving written notice thereof to the Banks and the Borrowers, and the Agent may be -57- 64 removed at any time with or without cause by the Required Banks; provided that the Borrowers and the other Banks shall be promptly notified thereof. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent which shall be a Bank. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a Bank which has an office in New York, New York. The Required Banks or the retiring Agent, as the case may be, shall upon the appointment of a successor Agent promptly so notify the Borrowers and the other Banks. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. Section 10.10. Amendments Concerning Agency Function. The Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Facility Document which affects its duties hereunder or thereunder unless it shall have given its prior consent thereto. Section 10.11. Liability of Agent. The Agent shall not have any liabilities or responsibilities to the Borrowers on account of the failure of any Bank to perform its obligations hereunder or to any Bank on account of the failure of the Borrower to perform its obligations hereunder or under any other Facility Document. Section 10.12. Transfer of Agency Function. Without the consent of the Borrowers or any Bank, the Agent may at any time or from time to time transfer its functions as Agent hereunder to any of its offices located in the continental United States, provided that the Agent shall promptly notify the Borrowers and the Banks thereof. Section 10.13. Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrowers (either one as appropriate being the "Payor") prior to the date on which such Bank is to make payment hereunder to the Agent of the proceeds of a Loan or the Borrowers are to make payment to the Agent, as the case may be (either such payment being a "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment (and, if such recipient is the Borrower and the Payor Bank fails to pay the amount thereof to the Agent forthwith upon demand, the Borrower) shall, on demand, repay to the Agent the amount made available to it together -58- 65 with interest thereon for the period from the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the average daily Federal Funds Rate for such period. Section 10.14. Withholding Taxes. Each Bank represents that it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish to the Agent such forms, certifications, statements and other documents as the Agent may request from time to time to evidence such Bank's exemption from the withholding of any tax imposed by any jurisdiction or to enable the Agent to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, if any Bank is not created or organized under the laws of the United States of America or any state thereof, in the event that the payment of interest by the Borrower is treated for U.S. income tax purposes as derived in whole or in part from sources from within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms, certifications, statements or documents, duly executed and completed by such Bank as evidence of such Bank's exemption from the withholding of U.S. tax with respect thereto. The Agent shall not be obligated to make any payments hereunder to such Bank in respect of any Loan or L/C Credit until such Bank shall have furnished to the Agent the requested form, certification, statement or document. Section 10.15. Several Obligations and Rights of Banks. The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. Section 10.16. Pro Rata Treatment of Loans, Etc. (a) Except to the extent otherwise provided: (a) each borrowing under Section 2.4 shall be made from the Banks, each reduction or termination of the amount of the Commitments under Section 2.7 shall be applied to the Commitments of the Banks, and each payment of commitment fee accruing under Section 2.11 shall be made for the account of the Banks, pro rata according to the amounts of their respective unused Commitments; (b) each conversion under Section 2.5 of Loans of a particular type (but not conversions provided for by Section 3.4), shall be made pro rata among the Banks holding Loans of such type according to the respective principal amounts of such Loans by such Banks; (c) each prepayment and payment of principal of or interest on Loans of a particular type and a particular Interest Period shall be made to the Agent for the account of the Banks holding Loans of such type and Interest Period pro rata in accordance with the respective unpaid principal amounts of such Loans of such Interest Period held by such Banks. -59- 66 (b) (i) Immediately upon the issuance by the Issuing Bank of any Letter of Credit, each Bank shall be deemed to have irrevocably and unconditionally purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation equal to its Commitment Percentage arising in connection with such Letter of Credit and any security therefor or guaranty pertaining thereto. (ii) If the Issuing Bank makes any payment in respect of any Letter of Credit and the Borrowers do not repay or cause to be repaid the amount of such payment on the date on which the Borrowers are required to make such repayment, the Issuing Bank shall notify the Banks of such payment each Bank shall promptly and unconditionally pay to the Issuing Bank in immediately available funds the amount equal to the Bank's Commitment Percentage multiplied by the amount of such payment by the Issuing Bank (the "Letter of Credit Payment"). If a Bank does not make its Letter of Credit Payment available to the Issuing Bank, such defaulting Bank agrees to pay to the Issuing Bank, forthwith on demand, such amount together with (i) for the first two days for which such amount is outstanding, interest thereon on the Federal Funds Rate and (ii) for each day thereafter, interest thereon at the Variable Rate. The failure of any Bank to make available to the Issuing Bank its Letter of Credit Payment shall not relieve any other Bank of its obligation hereunder to make available to the Issuing Bank its Letter of Credit Payment, but no Bank shall be responsible for the failure of any other Bank to make available to the Issuing Bank its Letter of Credit Payment on the date such payment is made. (iii) Whenever the Issuing Bank receives a payment in respect of the Borrowers' reimbursement obligation under any Letter of Credit, including any interest thereon, the Issuing Bank shall promptly pay to each Bank which has fully funded its participating interest therein, in immediately available funds, an amount equal to such Bank's Commitment Percentage multiplied by the payment so received. (iv) The obligations of each Bank to make payments to the Issuing Bank in connection with the Issuing Bank's payment in respect of any Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, setoff, qualification or exception whatsoever (other than for the Issuing Bank's gross negligence or willful misconduct), and shall be made in accordance with the terms and conditions of this Agreement under all circumstances and irrespective of whether or not any Borrower may assert or have any claim for any lack of validity or unenforceability of this Agreement or any of the other Facility Documents; the existence of any Default or Event of Default; any draft, certificate or other document presented under a Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or the existence of any setoff or defense any Borrower, the Stockholder or any Guarantor may have with respect to any Loan, any Letter of Credit or any other advance, debt, liability, obligation, covenant or duty. Section 10.17. Sharing of Payments Among Banks. If a Bank shall obtain payment of any principal of or interest on any Loan, or any payment in respect of any -60- 67 participation purchased in a Letter of Credit from the Issuing Bank, made by it through the exercise of any right of setoff, banker's lien, counterclaim, or by any other means (including any payment obtained from or charged against any Guarantor), it shall promptly purchase from the other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans or L/C Credits (as the case may be) made by the other Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Banks shall share the benefit of such payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Loans and L/C Credits (as the case may be) held by each of them. To such end the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrowers agree that any Bank so purchasing a participation (or direct interest) in the Loans or L/C Credits made by other Banks may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation (or direct interest). Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness of the Borrowers. Section 10.18. Duties of Issuing Bank. No action taken or omitted to be taken by the Issuing Bank under or in connection with the any Letter of Credit shall put the Issuing Bank under any resulting liability to any Bank or relieve such Bank of its obligations hereunder to the Issuing Bank. In the event this Agreement and any Letter of Credit application and agreement are inconsistent, the terms of this Agreement shall prevail. In determining whether to issue any Letter of Credit, the Issuing Bank shall have no obligation to the Banks to make any inquiry into the transaction secured by the Letter of Credit. In determining whether to pay under any Letter of Credit, the Issuing Bank shall have no obligation to the Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear on their face to comply with the requirements of such Letter of Credit or, in the event there are any discrepancies in such documents, that the Borrowers have waived such discrepancies. ARTICLE 11. MISCELLANEOUS. Section 11.1. Amendments and Waivers. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by the Borrowers, the Agent and the Required Banks, or by the Borrowers and the Agent acting with the consent of the Required Banks and any provision of this Agreement may be waived by the Required Banks or by the Agent acting with the consent of the Required Banks; provided that no amendment, modification or waiver shall, unless by an instrument signed by all of the Banks or by the Agent acting with the consent of all of the Banks: (a) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Commitments, (b) extend the date fixed for the payment of principal of or interest on any Loan or any reimbursement obligation or interest under any L/C Document, (c) reduce the amount of any payment of -61- 68 principal thereof or the rate at which interest is payable thereon or any fee payable hereunder, (d) allow the issuance of one or more Letters of Credit with any expiry date later than five (5) days prior to the Termination Date, (e) release any guarantor from its obligations under any guaranty pertaining to the obligations of the Borrowers under this Agreement, the Notes or any other Facility Document, (f) release any material collateral securing the obligations under this Agreement or any other Facility Document, (g) alter the terms of this Section 11.1, (h) amend the definition of the term "Required Banks" or (i) waive any of the conditions precedent set forth in Article 4 hereof and provided, further, that any amendment of Article 10 hereof or any amendment which increases the obligations of the Agent hereunder shall require the consent of the Agent. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 11.2. Usury. Anything herein to the contrary notwithstanding, the obligations of the Borrowers under this Agreement and the Notes shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to a Bank limiting rates of interest which may be charged or collected by such Bank. Section 11.3. Expenses. Subject to the last sentence of this Section 11.3, the Borrowers shall reimburse the Agent and the Banks on demand for all costs, expenses, and charges (including, without limitation, fees and charges of external legal counsel for the Agent and each Bank and costs allocated by their respective internal legal departments) incurred by the Agent or the Banks in connection with the preparation, performance, or enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement or the Notes, provided that in the Borrowers shall not be liable for costs, expenses and charges incurred by the Agent or the Banks as a direct result of a dispute involving solely one or more of the Agent and the Banks and not involving any Borrower, any Guarantor, the Stockholder, or any other party to any one or more Facility Documents. The obligation of the Borrowers to reimburse (or make direct payment) the Agent for legal fees in connection with the preparation of this Agreement and related documents through the date hereof shall be limited to $55,000 in the aggregate, exclusive of disbursements; provided, that the Borrowers shall not be obligated to pay the legal costs of the Banks in connection with the preparation and review of this Agreement and related documents through the date hereof. Section 11.4. Survival. The obligations of the Borrowers under Sections 3.1, 3.5 and 11.3 shall survive the repayment of the Loans, the satisfaction of reimbursement obligations under any L/C Documents and the termination of the Commitments. -62- 69 Section 11.5. Assignment; Participations. (a) This Agreement shall be binding upon, and shall inure to the benefit of, the Borrowers, the Agent, the Banks and their respective successors and assigns, except that the Borrowers may not assign or transfer its rights or obligations hereunder. Each Bank may, with the prior written consent of the Agent and, except while a Default exists and is continuing, the Borrowers (which consent of the Borrowers may not be unreasonably be withheld) assign, or sell participations in, all or any part of any Loan or Commitment to another bank or other entity, in which event (i) in the case of an assignment, upon notice thereof by the Bank to the Borrowers with a copy to the Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it were a Bank hereunder; and (ii) in the case of a participation, the participant shall have no rights under the Facility Documents and all amounts payable by the Borrowers under Article 3 shall be determined as if such Bank had not sold such participation. Any assignment pursuant to this Section 11.5 shall be in an amount not less than $5,000,000 and shall leave any assigning Bank that remains a "Bank" hereunder with a Commitment of at least $2,000,000, except that (i) no such minimum amount will be required to be transferred or retained if such assignment is necessary or prudent for regulatory purposes, and (ii) no such minimum amount will be required to be transferred if the transferee is already a "Bank" hereunder. The agreement executed by such Bank in favor of the participant shall not give the participant the right to require such Bank to take or omit to take any action hereunder except action directly relating to (i) the extension of a payment date with respect to any portion of the principal of or interest on any amount outstanding hereunder allocated to such participant, (ii) the reduction of the principal amount outstanding hereunder or (iii) the reduction of the rate of interest payable on such amount or any amount of fees payable hereunder to a rate or amount, as the case may be, below that which the participant is entitled to receive under its agreement with such Bank. Such Bank may furnish any information concerning the Borrowers in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants); provided that such Bank shall require any such prospective assignee or such participant (prospective or otherwise) to agree in writing to maintain the confidentiality of such information. Notwithstanding any provision of this Section 11.5 to the contrary, in no event shall any participant have greater rights with respect to any or all of the Borrowers than those held by the Bank from which it obtained its participating interest. In connection with any assignment pursuant to this paragraph (a), the assigning Bank shall pay the Agent an administrative fee for processing such assignment in the amount of $2,500. (b) In addition to the assignments and participations permitted under paragraph (a) above, any Bank may assign and pledge all or any portion of its Loans and Note to (i) any affiliate of such Bank or (ii) any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. -63- 70 Section 11.6. Notices. Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be delivered in person or sent by overnight courier, facsimile, ordinary mail, cable or telex addressed to such party at its "Address for Notices" on the signature page of this Agreement. Notices shall be effective: (a) on the day on which delivered to such party in person, (b) on the first Banking Day after the day on which sent to such party by overnight courier, (c) if given by mail, upon receipt, and (d) if given by facsimile, cable or telex, when the facsimile, cable or telex is transmitted to the facsimile, cable or telex number as aforesaid; provided that notices to the Agent and the Banks shall be effective upon receipt. Section 11.7. Setoff. The Borrowers agree that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of the Borrowers at any of such Bank's offices, in Dollars or in any other currency, against any amount payable by the Borrowers to such Bank under this Agreement or such Bank's Note which is not paid when due (regardless of whether such balances are then due to the Borrowers), in which case it shall promptly notify the Borrowers and the Agent thereof; provided that such Bank's failure to give such notice shall not affect the validity thereof. Payments by the Borrowers hereunder shall be made without setoff or counterclaim. Section 11.8. Indemnification; Exoneration. (a) In consideration of the execution and delivery of this Agreement by the Agent and the Banks, the Borrowers jointly and severally will defend, indemnify, exonerate and hold harmless each Bank (whether acting as a Bank or in any other capacity), the Agent and their Affiliates and each of their respective officers, directors, stockholders, affiliates, trustees, employee and agents, and each other Person, if any, controlling such Bank or any of its Affiliates (herein collectively called the "Indemnitees") from and against any and all actions, causes of action, suits, losses, liabilities and damages, and expenses in connection therewith, including without limitation reasonable counsel fees and disbursements incurred in the investigation and defense of claims and actions (herein collectively called the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of or relating to the execution, delivery, performance or enforcement of this Agreement, the Notes, or any other Facility Document, or any instrument or document contemplated hereby or thereby by any of the Indemnitees, or by any act, event or transaction related or attendant thereto or contemplated hereby or thereby, or any action or inaction by any Indemnitee under or in connection therewith, or the falseness of any representation or warranty made by or on behalf of the Borrowers or the Stockholder, except for any Indemnified Liabilities that are finally judicially determined to have resulted from the any Indemnitee's gross negligence or willful misconduct, and if and to the extent that the foregoing may be unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment and satisfaction of each of the -64- 71 Indemnified Liabilities that is permissible under applicable law. The obligations of the Borrowers under this Section 11.8 shall be in addition to any liability that the Borrowers may otherwise have and shall survive the payment or prepayment in full or transfer of any Note, the termination of the Bank's obligations hereunder and the enforcement of any provision hereof or thereof. (b) (i) In addition to amounts payable as elsewhere provided in this Agreement, the Borrowers hereby agree to jointly and severally protect, indemnify, pay and save the Issuing Bank and each Bank harmless from and against any and all liabilities, claims, losses, damages, costs and expenses which the Issuing Bank or any Bank may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit other than, in the case of the Issuing Bank, as a result of its gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction or (B) the failure of the Issuing Bank to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority. (ii) As between the Borrowers, the Banks and the Issuing Bank, the Borrowers assume all risks of the acts and omissions of, or misuse of such Letter of Credit by, the beneficiary of such Letter of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit application and agreements, the Issuing Bank and the Banks shall not be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted to any party in connection with any party in connection with the application for and issuance of the Letters of Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part; (C) for failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit (other than conditions expressly stated in such Letter of Credit); (D) for errors, omissions, interruptions or delays in transmission or delivery of any message by mail, cable, telegraph, telex, or other similar form of teletransmission or otherwise, whether or not they be in cipher; (E) for errors in interpretation of technical terms; (F) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or in the proceeds thereof; (G) for the misapplication by the beneficiary of any Letter of Credit; and (H) for any consequence arising from any cause beyond the control of the Issuing Bank and the Banks, including, without limitation, any act by a Governmental Authority. None of the above shall affect, impair, or prevent the vesting of any of the Issuing Bank's rights or powers under this Agreement. SECTION 11.9. JURISDICTION; IMMUNITIES. (a) EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES -65- 72 FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES, AND THE BORROWERS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWERS IRREVOCABLY CONSENT TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE BORROWERS AT THEIR ADDRESS SPECIFIED IN SECTION 11.6. THE BORROWERS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWERS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE BORROWERS FURTHER AGREE THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY. EACH BORROWER, THE AGENT AND EACH BANK EACH WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL. (b) Nothing in this Section 11.9 shall affect the right of the Agent or any Bank to serve legal process in any other manner permitted by law or affect the right of the Agent or any Bank to bring any action or proceeding against the Borrowers or their property in the courts of any other jurisdictions. (c) To the extent that the Borrowers have or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Borrowers hereby irrevocably waive such immunity in respect of its obligations under this Agreement and the Notes. Section 11.10. Table of Contents; Headings. Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. Section 11.11. Severability. The provisions of this Agreement are intended to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. -66- 73 Section 11.12. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. Section 11.13. Integration. The Facility Documents set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions. SECTION 11.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. Section 11.15. Confidentiality. Each Bank and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrowers pursuant to this Agreement which is identified by the Borrowers as being confidential at the time the same is delivered to the Banks or the Agent, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) in connection with any litigation to which any one or more of the Banks is a party or (v) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Bank a Confidentiality Agreement in substantially the form of Exhibit J hereto; and provided finally that in no event shall any Bank or the Agent be obligated or required to return any materials furnished by the Borrowers. Section 11.16. Treatment of Certain Information. Each Borrower (a) acknowledges that services may be offered or provided to it (in connection with this Agreement or otherwise) by each Bank or by one or more of their respective subsidiaries or affiliates and (b) acknowledges that information delivered to each Bank by the Borrowers may be provided to each such subsidiary and affiliate. Section 11.17. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. Section 11.18. Multiple Borrowers. -67- 74 (a) It is understood and agreed by each Borrower that the handling of this credit facility on a joint borrowing basis as set forth in this Agreement is solely as an accommodation to the Borrowers and at their request, and that neither the Agent nor any Bank shall incur liability to the Borrowers as a result thereof. To induce the Agent and the Banks to do so and in consideration thereof, each Borrower hereby agrees to jointly and severally indemnify the Agent and the Banks and to hold the Agent and the Banks harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against the Agent or the Banks by any Borrower or by any other Person arising from or incurred by reason of the Agent or any Banks' handling of the financing arrangements of the Borrowers as provided herein, reliance by the Agent or the Banks on any request or instruction from Amscan Inc. or any other Borrower or any other action taken by the Agent or the Banks with respect to this Section 11.18, except for any liabilities, expenses, losses, damages and claims of damage or injury that are finally judicially determined to have resulted from the Agent or any Bank's gross negligence or willful misconduct, and if and to the extent that the foregoing may be unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment and satisfaction of each of the liabilities, expenses, losses, damages and claims of damage or injury that is permissible under applicable law. (b) Each Borrower represents and warrants to the Agent and the Banks that the request for joint handling of the Loans to be made by the Banks hereunder and the Letters of Credit to be issued by the Issuing Bank was made because the Borrowers are engaged in an integrated operation which required financing on a basis permitting the availability of credit from time to time to each Borrower as required for the continued successful operation of each Borrower of the integrated operation of the Borrowers. Each Borrower expects to derive benefit, directly or indirectly, from such availability because the successful operation of the Borrowers is dependent on the continued successful performance of the functions of the integrated group. (c) Each Borrower hereby irrevocably designates Amscan Inc. as its attorney to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of each Borrower, and does hereby authorize the Agent or the Banks to pay over or credit all Loan proceeds hereunder to Amscan Inc. as the Borrowers' attorney in fact, recognizing, however, that the Agent and the Banks are not bound by such authorization and may elect either to disburse loan proceeds to each Borrower directly for its use, to Amscan Inc. as attorney for any Borrower or to Amscan Inc. for its own account, in which case Amscan Inc. may advance or lend such proceeds to the other Borrowers. Each Borrower further agrees that all obligations hereunder or referred to herein or under any other Facility Document shall be joint and several, and that each Borrower shall make payment upon any notes issued pursuant hereto and any and all other obligations hereunder or referred to herein or under any other Facility Document upon their maturity by acceleration or otherwise, and that such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearances granted by the Agent or the Banks to any Borrower, -68- 75 failure of the Agent or the Banks to give any Borrower notice of borrowing or any other notice, any failure of the Agent or the Banks to pursue or preserve its rights against any other Borrower, the release by the Agent or the Banks of any collateral now or hereafter acquired from any Borrower, failure of the Agent or the Banks to realize upon such collateral in a commercially reasonable manner, and that such agreement by each Borrower to pay upon any notice issued pursuant hereto is unconditional and unaffected by prior recourse by the Agent or the Banks to the other Borrowers or any collateral for such Borrowers' obligations or the lack thereof. Each Borrower further agrees that its obligations under this Section 11.18 include, without limitation, the joint and several obligation to repay L/C Credits, even if the Letters of Credit issued in connection with such L/C Credits are issued on account of fewer than all of the Borrowers. (d) Each Borrower hereby grants a right of contribution to each other Borrower for any amount paid by such other Borrower in satisfaction of any obligations under this Agreement, any Note or any other Facility Document; provided, however, that the aggregate of the rights of contribution against any Borrower hereunder shall not exceed such Borrower's net worth, as measured on a fair value balance sheet basis. In calculating the net worth of any Borrower for purposes of this paragraph, such Borrower's obligations under the Facility Documents will not be included in its liabilities and such Borrower's rights of contribution against other Borrowers for amounts paid under the Facility Documents will not be included in its assets. (e) All notices to, or other communications with, the Borrowers or any one of them shall be sufficient if given to any of the Borrowers. Although the Agent and the Banks may require that all of the Borrowers or a particular Borrower execute any document (including any Notice of Borrowing) in any matter pertaining to this Agreement or any of the other Facility Documents, any one of the Borrowers may bind all of the Borrowers and any document (including any Notice of Borrowing) signed by any Borrower, and any and all action taken by any Borrower, is sufficient to represent all of the Borrowers. Without limiting the foregoing, any single Borrower may make representations and warranties on behalf of all the Borrowers or any other Borrower, and such representations and warranties shall be of the same force and effect as if made directly by such other Borrowers. Section 11.19 Time of the Essence. Time and punctuality shall be of the essence with respect to this instrument, but no delay or failure of the Agent or any Bank to enforce any of the provisions herein contained and no conduct or statement of the Agent or any Bank shall waive or affect any of the Agent's or any Bank's rights hereunder. -69- 76 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. AMSCAN INC. By /s/ John A. Svenningsen ------------------------ John A. Svenningsen President KOOKABURRA USA, LTD. By /s/ John A. Svenningsen ------------------------ John A. Svenningsen President DECO PAPER PRODUCTS, INC. By /s/ John A. Svenningsen ------------------------ John A. Svenningsen President TRISAR, INC. By /s/ John A. Svenningsen ------------------------ John A. Svenningsen President Address for Notices for Each Borrower: 2 Macy Road Harrison, New York 10528 Facsimile No.: (914) 835-4239 -70- 77 AGENT: THE CHASE MANHATTAN BANK, N.A. By /s/ Carol A. Kornbluth ---------------------- Carol A. Kornbluth Vice President Address for Notices: 31 Mamaroneck Avenue White Plains, New York 10601 Attn: Carol A. Kornbluth Facsimile No.: (914) 328-8373 BANKS: THE CHASE MANHATTAN BANK, N.A. By /s/ Carol A. Kornbluth ---------------------- Carol A. Kornbluth Vice President Address for Notices: 31 Mamaroneck Avenue White Plains, New York 10601 Attn: Carol A. Kornbluth Facsimile No.: (914) 328-8373 -71- 78 NATWEST BANK N.A. By /s/ Charles F. Houghton, Jr. ---------------------------- Name: Charles F. Houghton, Jr. Title: Vice President Address for Notices: 244 Westchester Avenue White Plains, NY 10604 FAX: (914) 681-5045 Facsimile No.: ------------ FIRST FIDELITY BANK, N.A. By /s/ Toby A. Brandon ----------------------------- Name: Toby A. Brandon Title: Vice President Address for Notices: 3 Skyline Drive Hawthorne, NY 10532 Facsimile No.: 914-247-5274 -72- 79 FLEET BANK By /s/ Michael J. DiSalvo ----------------------------- Name: Michael J. DiSalvo Title: Vice President Address for Notices: FLEET BANK 1051 Union Ave. NY/NB/0200 P.O. Box 911 Newburgh, NY 12550 Facsimile No.: (914) 567-5034 -73- 80 EXHIBIT A PROMISSORY NOTE $[Commitment of Bank X] September 20, 1995 AMSCAN INC., a corporation organized under the laws of the State of New York, KOOKABURRA USA, LTD., a corporation organized under the laws of the State of New York, DECO PAPER PRODUCTS, INC., a corporation organized under the laws of the State of Kentucky and TRISAR, INC., a corporation organized under the laws of the State of California (collectively, the "Borrowers"), for value received, hereby jointly and severally promises to pay to the order of [BANK X] (the "Bank") at the principal office of THE CHASE MANHATTAN BANK, N.A. at One Chase Manhattan Plaza, New York, New York 10082 (the "Agent"), for the account of the appropriate Lending Office of the Bank, the principal sum of [Commitment of Bank X] ($[Commitment of Bank X]) or, if less, the amount loaned by the Bank to the Borrower pursuant to the Credit Agreement referred to below, in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in said Credit Agreement. The Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, at said principal office for the account of said Lending Office, in like money, at the rates of interest as provided in the Credit Agreement described below, on the date(s) and in the manner provided in said Credit Agreement. The date and amount of each type of Loan made by the Bank to the Borrower under the Credit Agreement referred below, and each payment of principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note (or, at the discretion of the Bank, at any other time), endorsed by the Bank on the schedule attached hereto or any continuation thereof. This is one of the Notes referred to in, and is entitled to the benefits of, that certain Credit Agreement (as amended from time to time the "Credit Agreement") dated as of September 20, 1995 among the Borrower, the Banks named therein (including the Bank) and the Agent and evidences the Loans made by the Bank thereunder. All terms not defined herein shall have the meanings given to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of principal upon the occurrence of certain Events of Default and for prepayments on the terms and conditions specified therein. 81 The Borrower waives presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. This Note shall be governed by, and interpreted and construed in accordance with, the laws of the State of New York. AMSCAN INC. By__________________________________________ John A. Svenningsen President KOOKABURRA USA, LTD. By__________________________________________ John A. Svenningsen President DECO PAPER PRODUCTS, INC. By__________________________________________ John A. Svenningsen President TRISAR, INC. By__________________________________________ John A. Svenningsen President -2- 82 AMOUNT OF AMOUNT OF BALANCE DATE LOAN PAYMENT OUTSTANDING NOTATION BY -3- 83 EXHIBIT B __________________, 19__ [Name and Address of Agent] Attn: [_______________] Re: Credit Agreement dated as of September 20, 1995 (the "Credit Agreement") among Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc., the Banks named therein, and The Chase Manhattan Bank, N.A., as Agent for said Banks Ladies and Gentlemen: In connection with the captioned Credit Agreement, we hereby designate any one of the following persons to give to you instructions, including notices required pursuant to the Agreement, orally or by telephone or teleprocess: NAME (Typewritten) SIGNATURE __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ Instructions may be honored on the oral, telephonic or teleprocess instructions of anyone purporting to be any one of the above designated persons (even if the instructions are for the benefit of the person delivering them). We will furnish you with confirmation of each such instruction either by telex (whether tested or untested) or in writing signed by any person designated above (including any facsimile which appears to bear the signature of any person designated above) on the same day that the instruction is provided to you but your responsibility with respect to any instruction shall not be affected by your failure to receive such confirmation or by its contents. You shall be fully protected in, and shall incur no liability to us for, acting upon any instructions which you in good faith believe to have been given by any person designated above, and in no event shall you be liable for special, consequential or punitive damages. In addition, we agree to hold you and your agents harmless from any and all liability, loss and expense arising directly or indirectly out of instructions that we provide 84 to you in connection with the Credit Agreement except for liability, loss or expense occasioned by the gross negligence or willful misconduct of you or your agents. Upon notice to us, you may, at your option, refuse to execute any instruction, or part thereof, without incurring any responsibility for any loss, liability or expense arising out of such refusal if you in good faith believe that the person delivering the instruction is not one of the persons designated above or if the instruction is not accompanied by an authentication method that we have agreed to in writing. We will promptly notify you in writing of any change in the persons designated above and, until you have actually received such written notice and have had a reasonable opportunity to act upon it, you are authorized to act upon instructions, even though the person delivering them may no longer be authorized. Very truly yours, AMSCAN INC. By__________________________________________ Name: Title: By__________________________________________ Name: Title: -2- 85 EXHIBIT C ENVIRONMENTAL INDEMNIFICATION AGREEMENT ENVIRONMENTAL INDEMNIFICATION AGREEMENT, made as of this 20th day of September, 1995, by AMSCAN INC., KOOKABURRA USA, LTD., DECO PAPER PRODUCTS, INC. and TRISAR, INC., corporations having an address at 2 Macy Road, Harrison, New York 10528, (collectively, the "Borrowers"), in favor of THE CHASE MANHATTAN BANK, N.A., a national banking association having an address at 31 Marmaroneck Avenue, White Plains, New York 10606, as Agent (the "Agent") for the banks (the "Banks") parties to the Credit Agreement (as hereinafter defined). WHEREAS, the Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995 (said Agreement, as it may hereafter be amended or otherwise modified from time to time being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with the Borrowers; and WHEREAS, it is a condition precedent to the making of loans by the Banks under the Credit Agreement (the "Loans") that the Borrowers shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to make the Loans under the Credit Agreement, the Borrowers hereby agree, as follows: 1. The Borrowers shall comply in all material respects with present and future Environmental Laws applicable to the business and properties of the Borrowers and the Borrowers shall not handle, use, store, treat, transport or dispose of, at, upon, within or under any property or facility used or to be used by any Borrower any Hazardous Materials, other than in compliance with all Environmental Laws. 2. The Borrowers shall defend and indemnify the Bank and hold the Agent and the Banks harmless from and against all loss, liability, damage, costs and expenses (including, without limitation, reasonable attorneys' fees and costs incurred in the investigation, defense and settlement of claims) that the Agent or any Bank may suffer, incur, be put to, pay or lay out as a result of or in connection with (a) the proving false of any representation of any Borrower concerning Environmental Laws or Hazardous Materials, including the representations set forth in Section 5.12 of the Credit Agreement, (b) non-compliance by any Borrower with the Environmental Laws, and (c) the presence of any discharge, spillage, uncontrolled loss or seepage of, or any Borrower's disposal of or arrangement for disposal of, any Hazardous Materials at, upon, under, within or from any property or facility now or hereafter owned or used by any Borrower or for third party claims for injuries resulting from the onsite or offsite migration of such discharge, spillage, 86 uncontrolled loss or seepage of any Hazardous Materials. The obligations the Borrowers hereunder or referred to herein shall be joint and several. 3. The terms of Section 2 of this Agreement shall survive the payment in full of all obligations of the Borrower under the terms of the Credit Agreement and the other Facility Documents. 4. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the foregoing instrument was executed as of the day and year first above written. AMSCAN INC. By _________________________________________ Sheryl B. Mellin Treasurer KOOKABURRA USA, LTD. By _________________________________________ Sheryl B. Mellin Treasurer DECO PAPER PRODUCTS, INC. By _________________________________________ Sheryl B. Mellin Treasurer TRISAR, INC. By _________________________________________ Sheryl B. Mellin Treasurer -2- 87 EXHIBIT D GUARANTY GUARANTY dated as of ____________, 19__ made by the undersigned (the "Guarantor"), in favor of the banks (the "Banks") parties to the Credit Agreement (as defined below) and The Chase Manhattan Bank, N.A., as agent (the "Agent") for the Banks. PRELIMINARY STATEMENTS: Amscan, Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc. (collectively, the "Borrowers"), the Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995 (said Credit Agreement being hereinafter referred to as the "Credit Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein), regarding a credit facility in the original principal amount of $50,000,000, increasing to $55,000,000 in its second year and $60,000,000 in its third (the "Facility"). The Guarantor is an affiliated company of the Borrowers and is financially interested in its affairs. Pursuant to Section 6.10 of the Credit Agreement, the Borrowers have agreed to deliver to the Agent the guaranty of the Guarantor in the form of this Guaranty. It is a condition precedent to the making of additional Loans by the Banks under the Credit Agreement that the Guarantor shall have executed and delivered this Guaranty. THEREFORE, in consideration of this Guaranty and in order to induce the Banks to make Loans under the Credit Agreement, the Guarantor agrees as follows: Section 1. Guaranty of Payment. (a) The Guarantor unconditionally and irrevocably guarantees to the Agent and the Banks the punctual payment of all sums now owing or which may in the future be owing by the Borrowers under the Facility, when the same are due and payable, whether on demand, at stated maturity, by acceleration or otherwise, and whether for principal, interest, fees, expenses, indemnification or otherwise (all of the foregoing sums being the "Liabilities"). The Liabilities include, without limitation, interest accruing after the commencement of a proceeding under bankruptcy, insolvency or similar laws of any jurisdiction at the rate or rates provided in the Facility Documents. This Guaranty is a guaranty of payment and not of collection only. Neither the Agent nor any Bank shall be required to exhaust any right or remedy or take any action against the Borrower or any other person or entity or any collateral. The Guarantor agrees that, as between the Guarantor and the Agent and the Banks, the Liabilities may be declared to be due and payable for the purposes of this Guaranty notwithstanding any stay, injunction or other prohibition which may prevent, delay or vitiate any declaration as regards the Borrowers and that, in the event of a declaration or attempted declaration, the Liabilities shall immediately become due and payable by the Guarantor for the purposes of this Guaranty. 88 -2- (b) The maximum liability of the Guarantor under this Guaranty and the other Facility Documents shall not exceed an amount which would render the Guarantor insolvent under applicable federal and state laws. Section 2. Guaranty Absolute. The Guarantor guarantees that the Liabilities shall be paid strictly in accordance with the terms of the Credit Agreement, the Notes and the other Facility Documents. The liability of the Guarantor under this Guaranty is absolute and unconditional irrespective of: (a) any change in the time, manner or place of payment of, or in any other term of, all or any of the Facility Documents or Liabilities, or any other amendment or waiver of or any consent to departure from any of the terms of any Facility Document or Liability; (b) any release or amendment or waiver of, or consent to departure from, any other guaranty or support document, or any exchange, release or non-perfection of any collateral, for all or any of the Facility Documents or Liabilities; (c) any present or future law, regulation or order of any jurisdiction (whether of right or in fact) or of any agency thereof purporting to reduce, amend, restructure or otherwise affect any term of any Facility Document or Liability; (d) without being limited by the foregoing, any lack of validity or enforceability of any Facility Document or Liability; (e) any other defense whatsoever which might constitute a defense available to, or discharge of, the Borrowers or a guarantor. Section 3. Guaranty Irrevocable. This Guaranty is a continuing guaranty and shall remain in full force and effect until the indefeasible payment in full of all Liabilities and other amounts payable under this Guaranty and until the Facility is no longer in effect. Section 4. Reinstatement. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Liabilities is rescinded or must otherwise be returned by the Agent or any Bank on the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though the payment had not been made. Section 5. Subrogation. The Guarantor shall not exercise any rights which it may acquire by way of subrogation, by any payment made under this Guaranty or otherwise, until all the Liabilities have been paid in full and the Facility is no longer in effect. If any amount is paid to the Guarantor on account of subrogation rights under this Guaranty at any time when all the Liabilities have not been paid in full, the amount shall be held in trust for the benefit of the Agent and the Banks and shall be promptly paid to the Agent and the Banks to be credited and applied to the Liabilities, whether matured or unmatured or absolute or contingent, in accordance with the terms of the Credit Agreement. If the Guarantor makes payment to the Agent and the Banks of all or any part of the Liabilities and all the Liabilities are paid in full and the Facility is no longer in effect, the Agent and the Banks shall, at the Guarantor's request, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of any interest in the Liabilities resulting from the payment. 89 -3- Section 6. Subordination. Without limiting the Agent's or any Bank's rights under any other agreement, any liabilities owed by any Borrower to the Guarantor in connection with any extension of credit or financial accommodation by the Guarantor to or for the account of such Borrower, including but not limited to interest accruing at the agreed contract rate after the commencement of a bankruptcy or similar proceeding, are hereby subordinated to the Liabilities, and such liabilities of any Borrower to the Guarantor, if the Agent so requests, shall be collected, enforced and received by the Guarantor as trustee for the Agent and the Banks and shall be paid over to the Agent and the Banks on account of the Liabilities but without reducing or affecting in any manner the liability of the Guarantor under the other provisions of this Guaranty. Section 7. Representations and Warranties. The Guarantor hereby represents and warrants that: (a) Incorporation, Good Standing and Due Qualification. The Guarantor and each of its Subsidiaries is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required. (b) Corporate Power and Authority; No Conflicts. The execution, delivery and performance by the Guarantor of the Facility Documents to which it is a party have been duly authorized by all necessary corporate action and do not and will not: (i) require any consent or approval of its stockholders; (ii) contravene its charter or by-laws; (iii) violate any provision of, or require any filing (other than the filing of the financing statements contemplated by the Security Agreement), registration, consent or approval under, any law, rule, regulation (including, without limitation, Regulation U), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Guarantor or any of its Subsidiaries; (iv) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Guarantor is a party or by which it or its properties may be bound or affected; (v) result in, or require, the creation or imposition of any Lien (other than as created under the Security Agreement), upon or with respect to any of the properties now owned or hereafter acquired by the Guarantor; or (vi) cause the Guarantor or any Subsidiary to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. (c) Legally Enforceable Agreements. Each Facility Document to which the Guarantor is a party is, or when delivered under this Agreement will be, a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by equitable principles relating to availability of equitable remedies. 90 -4- (d) Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Guarantor, threatened, against or affecting the Guarantor or any of its Subsidiaries before any court, governmental agency or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties or business of the Guarantor or any such Subsidiary or of the ability of the Guarantor to perform its obligations under the Facility Documents to which it is a party. (e) Solvency. (i) The present fair saleable value of the assets of the Guarantor, before giving effect to all the transactions contemplated by the Facility Documents and the funding of all Commitments under the Credit Agreement, exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Guarantor as they mature. (ii) The property of the Guarantor does not constitute unreasonably small capital for the Guarantor to carry out its business as now conducted and as proposed to be conducted, including the capital needs of the Guarantor. (iii) The Guarantor does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by the Guarantor, and of amounts to be payable on or in respect of debt of the Guarantor). (f) Taxes. The Guarantor has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. (g) No Default. The Guarantor has satisfied all judgments and is not in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign. Section 8. Remedies Generally. The remedies provided in this Guaranty are cumulative and not exclusive of any remedies provided by law. Section 9. Setoff. The Guarantor agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim the Agent or any Bank may otherwise have, the Agent and any Bank shall be entitled, at their option, to offset balances (general or special, time or demand, provisional or final) held by them for the account of the Guarantor at any of the Agent's or such Bank's offices, in U.S. dollars or in any other currency, against any amount payable by the Guarantor under this Guaranty which is not paid when due following any applicable notice and cure periods (regardless of whether such balances are then due to the Guarantor), in which case it shall promptly 91 -5- notify the Guarantor thereof; provided that the Agent's or any Bank's failure to give such notice shall not affect the validity thereof. Section 10. Formalities. The Guarantor waives presentment, notice of dishonor, protest, notice of acceptance of this Guaranty or incurrence of any Liability and any other formality with respect to any of the Liabilities or this Guaranty. Section 11. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor therefrom, shall be effective unless it is in writing and signed by the Agent and the Banks, and then the waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right under this Guaranty shall operate as a waiver or preclude any other or further exercise thereof or the exercise of any other right. Section 12. Expenses. The Guarantor shall reimburse the Agent and the Banks on demand for all costs, expenses and charges (including without limitation fees and charges of external legal counsel for the Agent and the Banks and costs allocated by their internal legal departments) incurred by the Agent and the Banks in connection with the preparation, performance or enforcement of this Guaranty. The obligations of the Guarantor under this Section shall survive the termination of this Guaranty. Section 13. Assignment. This Guaranty shall be binding on, and shall inure to the benefit of, the Guarantor, the Agent, the Banks and their respective successors and assigns; provided that the Guarantor may not assign or transfer its obligations under this Guaranty. Without limiting the generality of the foregoing: (a) the obligations of the Guarantor under this Guaranty shall continue in full force and effect and shall be binding on: (i) the estate of the Guarantor if the Guarantor is an individual; and (ii) any successor partnership and on previous partners and their respective estates if the Guarantor is a partnership, regardless of any change in the partnership as a result of death, retirement or otherwise; and (b) the Agent and any Bank may assign, sell participations in or otherwise transfer their rights under the Facility to any other person or entity, and the other person or entity shall then become vested with all the rights granted to the Agent or such Bank in this Guaranty or otherwise. Section 14. Captions. The headings and captions in this Guaranty are for convenience only and shall not affect the interpretation or construction of this Guaranty. Section 15. Governing Law, Etc. THIS GUARANTY SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE GUARANTOR CONSENTS TO THE NON-EXCLUSIVE JURISDICTION AND VENUE OF THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. SERVICE OF PROCESS BY THE AGENT OR ANY BANK IN CONNECTION WITH ANY SUCH DISPUTE SHALL BE BINDING ON THE GUARANTOR IF SENT TO THE GUARANTOR BY REGISTERED MAIL AT THE ADDRESS SPECIFIED BELOW OR AS OTHERWISE SPECIFIED BY THE GUARANTOR FROM TIME TO 92 -6- TIME. THE GUARANTOR WAIVES ANY RIGHT THE GUARANTOR MAY HAVE TO JURY TRIAL. TO THE EXTENT THAT THE GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER FROM SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OF A JUDGMENT, EXECUTION OR OTHERWISE), THE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY. IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this Guaranty. [NAME OF GUARANTOR] ___________________________________ By: Its: Address: 93 EXHIBIT E-1 PLEDGE AGREEMENT --------- PLEDGE AGREEMENT dated September 20, 1995, made by , a corporation (the "Pledgor"), in favor of ------------ --------- The Chase Manhattan Bank, N.A., as agent (the "Agent") for the banks (the "Banks") parties to the Credit Agreement (as hereinafter defined). PRELIMINARY STATEMENTS: (1) The Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with the Pledgor, , --------------------- ------------------- and (collectively, the "Borrowers"). The Pledgor will receive ------------ a portion of the proceeds of the Loans under the Credit Agreement and will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. (2) The Pledgor is the owner of the indebtedness (the "Pledged Debt") described in Schedule I hereto and issued by the obligors named therein. (3) It is a condition precedent to the making of Loans by the Banks, and issuance of Letters of Credit, under the Credit Agreement that the Pledgor shall have made the pledge contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to make Loans under the Credit Agreement, the Pledgor hereby agrees with the Agent for its benefit and the ratable benefit of the Banks as follows: SECTION 1. Pledge. The Pledgor hereby pledges to the Agent for its benefit and the ratable benefit of the Banks, and grants to the Agent for its benefit and the ratable benefit of the Banks a security interest in, the following (the "Pledged Collateral"): (a) the Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; and (b) all additional indebtedness from time to time owed to the Pledgor by any obligor of the Pledged Debt or by any other Borrower or Affiliate and the 94 2 instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (c) all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described above). SECTION 2. Security for Obligations. This Agreement secures the payment of all obligations of the Borrowers now or hereafter existing under the Credit Agreement, the Notes and the other Facility Documents, whether for principal, interest, fees, expenses or otherwise, and all obligations of the Pledgor now or hereafter existing under this Agreement (all such obligations of the Borrowers and the Pledgor being the "Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by the Borrowers to the Agent or the Banks under the Credit Agreement, the Notes and the other Facility Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving one or more of the Borrowers. SECTION 3. Delivery of Pledged Collateral. All instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). In addition, the Agent shall have the right at any time to exchange instruments representing or evidencing Pledged Collateral for instruments of smaller or larger denominations. SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Pledged Debt has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof, and is not in default. (b) The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement. 95 3 (c) The pledge of the Pledged Debt pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations. (d) No consent of any other person or entity and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest) or (iii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with any disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally). (e) The Pledged Debt is outstanding in the principal amount indicated on Schedule I. (f) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (g) The Pledgor has, independently and without reliance upon the Agent or any Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. SECTION 5. Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. SECTION 6. Voting Rights; Dividends; Etc. (a) So long as no Event of Default or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that the Pledgor shall not 96 4 exercise or refrain from exercising any such right if, in the Agent's reasonable judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof, and, provided, further, that, except with respect to the election of directors, the Pledgor shall give the Agent at least five days' written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right. (ii) The Pledgor shall be entitled to receive and retain any and all interest paid in respect of the Pledged Collateral, provided, however, that any and all (A) interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to the Agent to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (with any necessary endorsement or assignment). (iii) The Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. 97 5 (b) Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default: (i) All rights of the Pledgor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the interest payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments. (ii) All interest payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). SECTION 7. Transfers and Other Liens. The Pledgor agrees that it will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, option or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement. SECTION 8. Future Indebtedness. The Pledgor hereby agrees that it will not advance funds or otherwise permit the creation of indebtedness owing by any Affiliate to the Pledgor unless (i) such indebtedness is expressly permitted by the Credit Agreement, (ii) such indebtedness is evidenced by a promissory note, (iii) such promissory note is endorsed by the Pledgor to the Agent for the ratable benefit of the Banks and (iv) such indebtedness is subjected to the terms of this Agreement through an Amendment to this Agreement. SECTION 9. Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Agent the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Agent's discretion to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Pledgor under Section 6), including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any interest payment 98 6 or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. SECTION 10. Agent May Perform. If the Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgor under Section 13. SECTION 11. The Agent's Duties. The powers conferred on the Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Pledged Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Agent or any Bank has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Pledged Collateral. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property. SECTION 12. Remedies upon Default. If any Event of Default shall have occurred and be continuing: (a) The Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party in default under the Uniform Commercial Code in effect in the State of New York at that time (the "Code") (whether or not the Code applies to the affected Collateral), and may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Agent as Pledged Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other 99 7 realization upon all or any part of the Pledged Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter be applied (after payment of any amounts payable to the Agent pursuant to Section 13) in whole or in part by the Agent for the ratable benefit of the Banks against, all or any part of the Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 13. Expenses. The Pledgor will upon demand pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Agent or the Banks hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 15. Addresses for Notices. Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be delivered in person or sent by overnight courier, facsimile, ordinary mail, cable or telex addressed to such party at its address specified in the Credit Agreement. Notices shall be effective: (a) on the day on which delivered to such party in person, (b) on the first Banking Day after the day on which sent to such party by overnight courier, (c) if given by mail, upon receipt, and (d) if given by facsimile, cable or telex, when the facsimile, cable or telex is transmitted to the facsimile, cable or telex number as aforesaid; provided that notices to the Agent and the Banks shall be effective upon receipt. SECTION 16. Continuing Security Interest; Assignments under Credit Agreement. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the later of (x) the payment in full of the Obligations and all other amounts payable under this Agreement and (y) the expiration or termination of the Commitments, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Agent hereunder, to the benefit of, and be enforceable by, the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Bank may assign or otherwise transfer all or any portion of its 100 8 rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Loans owing to it, its interest in any Letter of Credit and any Note held by it) to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, subject, however, to the provisions of Article X (concerning the Agent) of the Credit Agreement. Upon the later of payment in full of the Obligations and all other amounts payable under this Agreement and the expiration or termination of the Commitments, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor. Upon any such termination, the Agent will, at the Pledgor's expense, return to the Pledgor such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, except as required by mandatory provisions of law and except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Pledged Collateral are governed by the laws of a jurisdiction other than the State of New York. Unless otherwise defined herein or in the Credit Agreement, terms defined in Article 9 of the Code are used herein as therein defined. IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. AMSCAN INC. By ____________________________ Sheryl B. Mellin Treasurer 101 SCHEDULE I Attached to and forming a part of that certain Pledge Agreement dated September 20, 1995, by , as Pledgor, -------------- to The Chase Manhattan Bank, N.A., as Agent
Debt Original Debt Description Certificate Final Principal Issuer of Debt No(s). Maturity Amount ------ ----------- ----------- -------- ---------
102 EXHIBIT E-2 STOCKHOLDER PLEDGE AGREEMENT PLEDGE AGREEMENT dated September 20, 1995, made by John A. Svenningsen, an individual residing at 3 Frederick Court, Harrison, New York 10528 (the "Pledgor"), to The Chase Manhattan Bank, N.A. as agent (the "Agent") for the banks (the "Banks") parties to the Credit Agreement (as hereinafter defined): PRELIMINARY STATEMENTS: (1) The Banks and the Agent have entered into a Credit Agreement dated as of even date herewith (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc. (collectively, the "Borrowers"), corporations wholly owned by the Pledgor. (2) The Pledgor is the owner of the shares (the "Pledged Shares") of stock described in Schedule I hereto and issued by the corporations named therein. (3) It is a condition precedent to the making of Loans by the Banks, and the issuance of Letters of Credit, under the Credit Agreement that the Pledgor shall have made the pledge contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to make Loans under the Credit Agreement, the Pledgor hereby agrees with the Agent for its benefit and the ratable benefit of the Banks as follows: SECTION 1. Pledge. The Pledgor hereby pledges to the Agent for its benefit and the ratable benefit of the Banks, and grants to the Agent for its benefit and the ratable benefit of the Banks a security interest in, the following (the "Pledged Collateral"): (a) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of stock of any issuer of the Pledged Shares from time to time acquired by the Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property 103 2 from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described above). SECTION 2. Security for Obligations. The pledge of the Pledged Shares under this Agreement is given by the Pledgor as security for the payment of all obligations of the Borrowers now or hereafter existing under the Credit Agreement, the Notes and the other Facility Documents, whether for principal, interest, fees, expenses or otherwise, and all obligations of the Pledgor now or hereafter existing under this Agreement (all such obligations of the Pledgor and the Borrowers being the "Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by the Borrowers to the Agent or the Banks under the Credit Agreement, the Notes and the other Facility Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving one or more of the Borrowers. SECTION 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Pledgor hereby agrees that, on the earlier of (i) the termination of that certain Stock Pledge Agreement dated as of November 13, 1993 by and between the Pledgor, E. Allan Shook, L. Randall Harris and Higham, McConnell & Dunning (the "Trisar Pledge") and (ii) November 14, 1996, the Pledgor will (x) cause those Pledged Shares representing the Pledgor's interest in Trisar, Inc. (the "Trisar Shares") to be subject to no pledge or security interest other than that created under this Agreement and (y) deliver the certificate representing the Trisar Shares to the Agent to be held by the Agent for the ratable benefit of the Banks pursuant to this Agreement. The Agent shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. 104 3 (b) The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement and the Trisar Pledge. (c) Except as to the Trisar Shares, the pledge of the Pledged Shares pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations. The pledge of the Trisar Shares creates a valid and perfected second priority security interest in the Trisar Shares. (d) No consent of any other person or entity and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority or, with respect to the Trisar Shares, the second priority, nature of such security interest) or (iii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with any disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally). (e) The Pledged Shares constitute the percentage of the issued and outstanding shares of stock of the respective issuers thereof indicated on Schedule I. (f) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (g) There are no actions, suits or proceedings pending or, to the knowledge of the Pledgor, threatened, against or affecting the Pledgor or any Borrower before any court, governmental agency or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties or business of the Pledgor or any such Borrower or the ability of the Pledgor or such Borrower to perform his/its obligations under this Agreement, the Credit Agreement or any other related document. (h) The Pledgor has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. (i) The Pledgor has satisfied all judgments and is not in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court, 105 4 arbitrator or federal, state, municipal or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign. (j) The Pledgor has, independently and without reliance upon the Agent or any Bank and based on such documents and information as he has deemed appropriate, made his own credit analysis and decision to enter into this Agreement. SECTION 5. Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. SECTION 6. Voting Rights; Dividends; Etc (a) So long as no Default or Event of Default shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in the Agent's reasonable judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof, and, provided, further, that, except with respect to the election of directors, the Pledgor shall give the Agent at least five days' written notice of the manner in which he intends to exercise, or the reasons for refraining from exercising, any such right. (ii) The Pledgor shall be entitled to receive and retain any and all dividends paid in respect of the Pledged Collateral, provided, however, that any and all (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in 106 5 connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to the Agent to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (with any necessary endorsement or assignment). (iii) The Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which he is entitled to exercise pursuant to paragraph (i) above and to receive the dividends which he is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) All rights of the Pledgor to exercise or refrain from exercising the voting and other consensual rights which he would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the dividends which he would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends. (ii) All dividends which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). 107 6 SECTION 7. Transfers and Other Liens; Additional Shares. (a) The Pledgor agrees that he will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, option or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement and the security interest under the Trisar Pledge, but no modification, extension or renewal thereof. (b) The Pledgor agrees that he will (i) cause each issuer of the Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to the Pledgor and (ii) pledge hereunder, immediately upon his acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of the Pledged Shares. SECTION 8. Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Agent the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Agent's discretion to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Pledgor under Section 6), including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. SECTION 9. Agent May Perform. If the Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgor under Section 13. SECTION 10. The Agent's Duties. The powers conferred on the Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Pledged Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Agent or any Bank has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Pledged Collateral. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property. 108 7 SECTION 11. Remedies upon Default. If any Event of Default shall have occurred and be continuing: (a) The Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party in default under the Uniform Commercial Code in effect in the State of New York at that time (the "Code") (whether or not the Code applies to the affected Collateral), and may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Agent as Pledged Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter be applied (after payment of any amounts payable to the Agent pursuant to Section 13) in whole or in part by the Agent for the ratable benefit of the Banks against, all or any part of the Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 12. Registration Rights. If the Agent shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to Section 11, the Pledgor agrees that, upon request of the Agent, the Pledgor will, at his own expense: (a) execute and deliver, and cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Agent, advisable to register such Pledged Collateral under the 109 8 provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use his best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Agent; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earning statement which will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Agent or the Banks by reason of the failure by the Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, he shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Pledged Collateral on the date the Agent shall demand compliance with this Section. SECTION 13. Expenses. The Pledgor will upon demand pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Agent or the Banks hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION 14. Security Interest Absolute. The obligations of the Pledgor under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Pledgor to enforce this Agreement, irrespective of whether any action is brought against one or more Borrowers or whether such Borrower(s) is/are joined in any such action or actions. All rights of the Agent and security 110 9 interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Credit Agreement, the Notes, any other Facility Documents or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the Notes or any other Facility Documents including, without limitation, any increase in the Obligations resulting from the extension of additional credit to the Borrowers or any of their respective subsidiaries or otherwise; (iii) any taking, exchange, release or non-perfection of any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any part of the Obligations or any other assets of the Borrowers or any of their respective subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of the Borrowers or any of their respective subsidiaries; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrowers or a third party pledgor. SECTION 15. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 16. Addresses for Notices. All notices and other communications provided for hereunder shall be sent in the manner set forth in the Credit Agreement and, if to the Pledgor, to his address set forth above, and if to any other party, to its address set forth in the Credit Agreement. 111 10 SECTION 17. Continuing Security Interest; Assignments under Credit Agreement. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the payment in full of the Obligations and all other amounts payable under this Agreement and the termination of the Commitments, (ii) be binding upon the Pledgor, his successors and assigns, and (iii) inure, together with the rights and remedies of the Agent hereunder, to the benefit of, and be enforceable by, the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Bank may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of the Loans owing to it, its interest in any Letter of Credit and any Note held by it) to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, subject, however, to the provisions of Article 10 (concerning the Agent) of the Credit Agreement. Upon the later of payment in full of the Obligations and all other amounts payable under this Agreement and the termination of the Commitments, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor. Upon any such termination, the Agent will, at the Pledgor's expense, return to the Pledgor such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. SECTION 18. Governing Law; Terms. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, except as required by mandatory provisions of law and except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Pledged Collateral are governed by the laws of a jurisdiction other than the State of New York. Unless otherwise defined herein or in the Credit Agreement, terms defined in Article 9 of the Code are used herein as therein defined. IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this Agreement as of the date first above written. ___________________________________ John A. Svenningsen 112 SCHEDULE I ATTACHED TO AND FORMING A PART OF THAT CERTAIN PLEDGE AGREEMENT DATED SEPTEMBER 20, 1995, BY JOHN A. SVENNINGSEN, AS PLEDGOR, TO THE CHASE MANHATTAN BANK, N.A., AS AGENT
PERCENTAGE OF STOCK OUTSTANDING STOCK CLASS OF CERTIFICATE NUMBER OF SHARES ISSUER STOCK NO(S). PAR VALUE SHARES Amscan Inc. 100% Kookaburra USA, Ltd. 100% Deco Paper Products, Inc. 100% Trisar, Inc. 100%
113 EXHIBIT F SECURITY AGREEMENT SECURITY AGREEMENT dated as of September 20, 1995, made by AMSCAN INC., a corporation organized under the laws of the State of New York, KOOKABURRA USA, LTD., a corporation organized under the laws of the State of New York, DECO PAPER PRODUCTS, INC. a corporation organized under the laws of the State of Kentucky, and TRISAR, INC., a corporation organized under the laws of the State of California (collectively, the "Grantors" and each, individually, a "Grantor"), to THE CHASE MANHATTAN BANK, N.A., a national banking association organized under the laws of the United States of America, as Agent (the "Agent") for the banks (the "Banks") parties to the Credit Agreement (as hereinafter defined). PRELIMINARY STATEMENT. The Banks and the Agent have entered into a Credit Agreement dated as of even date herewith (said Credit Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with the Grantors. It is a condition precedent to the making of Loans by the Banks under the Credit Agreement that the Grantors shall have granted the security interest contemplated by this Security Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to make Loans under the Credit Agreement, the Grantors hereby agree with the Agent for its benefit and the ratable benefit of the Banks as follows: ARTICLE 1. THE COLLATERAL Section 1.1. Grant of Security. As security for the Obligations (as defined in Section 1.2 hereof), the Grantors hereby assign and pledge to the Agent for its benefit and the ratable benefit of the Banks and hereby grant to the Agent for its benefit and the ratable benefit of the Banks a security interest in, general lien upon and/or right of setoff of all of the Grantors' right, title and interest in and to all of their property and assets (the "Collateral"), including the following: (a) All equipment in all of its forms, wherever located, now or hereafter existing (including, but not limited to, any items or types of equipment maintained at the locations set forth in the Schedule hereto), and all parts thereof and all accessions thereto (any and all such equipment, parts and accessions being the "Equipment"); 114 2 (b) All inventory in all of its forms, wherever located, now or hereafter existing (including, but not limited to (i) any items or types of inventory maintained at the locations set forth in the Schedule hereto and raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof, (ii) goods in which a Grantor has an interest in mass or a joint or other interest or right of any kind and (iii) goods which are returned to or repossessed by a Grantor), and all accessions thereto and products thereof (any and all such inventory, accessions and products being the "Inventory"); (c) All accounts, contract rights, chattel paper, instruments, general intangibles and other obligations of any kind now or hereafter existing arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights now or hereafter existing in and to all security agreements, leases and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, general intangibles or obligations (any and all such accounts, contract rights, chattel paper, instruments, general intangibles and obligations being the "Receivables," and any and all such leases, security agreements and other contracts being the "Related Contracts"); (d) (i) all United States or other patents and applications for patents, including without limitation those listed on Exhibit A to this Agreement and all licenses thereof (collectively, the "Patents"); (ii) all United States or other trademarks, service marks, trade names, logos, registrations and applications for trademarks and service marks, filed and unfiled, including without limitation those listed on Exhibit B to this Agreement, together with the goodwill of the business connected with the use of, and symbolized by, all such trademarks, service marks, trade names, logos, registrations and applications and all licenses of United States or other trademarks and service marks, including without limitation those listed on said Exhibit B (collectively, the "Trademarks"); (iii) all United States or other copyrights (including without limitation those listed as Exhibit C to this Agreement), registered and unregistered, published and unpublished, under or pursuant to the domestic law of all countries and any applicable convention or treaty, including all rights of reproduction, publication, modification, derivation and the like owned or used by a Grantor (collectively, the "Copyrights"), and good will relating to the same; 115 3 (iv) all reissues, divisions, continuations, renewals, extensions and continuations-in-part of the items referred to in the preceding clauses (i), (ii) and (iii); (v) all licenses, sublicenses or other agreements granted to a Grantor with respect to any of the items referred to in the preceding clauses (i), (ii), (iii) and (iv); (vi) the right to sue for past, present and future infringements and dilutions of the foregoing; and (vii) all rights corresponding to all of the foregoing throughout the world, including utility models, utility patents, patents of addition, confirmation patents, registration patents, petty patents, registered designs, and all priority and convention rights in connection with any of the foregoing; (e) all inventions, processes, production methods, proprietary information, know-how and trade secrets used or useful in the business of a Grantor, all rights in and to any improvements or modifications thereof, and all licenses, sublicenses or other agreements granted to a Grantor with respect to any of the foregoing, in each case whether now or hereafter owned, used, or granted, by any party; all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogues, computer and automatic machinery software and programs, and the like pertaining to present or future operations by a Grantor in, on or about any of its plants, facilities or warehouses; all field repair data, sales data and other information relating to sales or service of products now or hereafter manufactured on or about any of its plants or facilities; and all accounting information pertaining to operations in, on or about any of its plants or facilities and all media in which or on which is now or hereafter recorded or stored any of the foregoing information, knowledge, records or data and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses and sublicenses given, granted or conveyed by a Grantor, to the full extent of and subject to such Grantor's rights therein; and (g) all products and proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds which constitute property of the types described in clauses (a)-(f) of this Section 1.1 and proceeds of infringement suits) and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason 116 4 of loss or damage to or otherwise with respect to any of the foregoing Collateral, (ii) license royalties and (iii) cash. Section 1.2. Security for Obligations. This Agreement secures the payment of all obligations of the Grantors now or hereafter existing under the Facility Documents, whether for principal, interest, fees, expenses or otherwise (all such obligations being the "Obligations"). Section 1.3. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) the Grantors shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Agent of any of the rights hereunder shall not release the Grantors from any of their duties or obligations under the contracts and agreements included in the Collateral, and (c) neither the Agent nor any Bank shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Agent or any Bank be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 1.4. Continuing Agreement. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the indefeasible payment in full of the Obligations and until the Commitments shall no longer be in effect. Upon the indefeasible payment in full of the Obligations and when the Commitments shall no longer be in effect, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantor. Upon any such termination, the Agent shall, at the Grantors' expense, execute and deliver to the Grantors such documents as the Grantors shall reasonably request to evidence such termination. Section 1.5. Security Interest Absolute. All rights of the Agent and the Banks and their security interests hereunder, and all obligations of the Grantors hereunder, shall be absolute and unconditional, irrespective of any defenses whatsoever available to the Grantors, including but not limited to the following: (a) any extension of credit by the Agent or any Bank to or for the account of a Grantor other than under the Credit Agreement and Notes; (b) any lack of validity or enforceability of any Facility Document; 117 5 (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from any Facility Document; (d) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (e) any law, regulation or order of any jurisdiction affecting or purporting to affect any term of any Obligation or any Facility Document or the Agent or any Bank's rights with respect thereto. ARTICLE 2. REPRESENTATIONS AND WARRANTIES The Grantors represent and warrant as follows: Section 2.1. Location of Collateral. All of the Equipment and Inventory are located at the places specified in the Schedule hereto. The chief place of business and chief executive office of the Grantors and the office where the Grantors keep their records concerning the Receivables, and all originals of all chattel paper which evidence Receivables, are located at the address specified for the Grantors in Section 6.3. None of the Receivables is evidenced by a promissory note or other instrument. Section 2.2. Ownership and Liens. The Grantors own the Collateral free and clear of any Lien, except for the security interest created by this Agreement and except for the security interests set forth on Schedule 5.6 of the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Agent relating to this Agreement. Section 2.3. Perfection. This Agreement will create, upon the filing of UCC-1 financing statements in the jurisdictions set forth on the Schedule hereto, a valid and perfected first priority security interest in the Collateral, securing the payment of the Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest will be duly taken after the execution hereof. Section 2.4. No Authorization Required. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (a) for the grant by the Grantors of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantors or (b) for the perfection of or the exercise by the Agent of its rights and remedies hereunder. 118 6 Section 2.5. Solvency of Account Debtors. Each account debtor, to the best of the Grantors' knowledge, as of the date each Receivable is created, is and will be solvent and able to pay all Receivables on which the account debtor is obligated in full when due or, with respect to such account debtors of the Grantors who are not solvent, the Grantors have set up on their books and financial records bad debt reserves adequate to cover such Receivables. Section 2.6. Nature of Receivables. Each of the Receivables shall be a bona fide and valid account representing a bona fide indebtedness incurred by the account debtor therein named, for a fixed sum as set forth in the invoice relating thereto (provided immaterial or unintentional invoice errors shall not be deemed to be a breach hereof) with respect to an absolute sale or lease and delivery of goods upon stated terms of a Grantor, or work, labor and/or services theretofore rendered by a Grantor and as of the date each Receivable is created, shall be due and owing in accordance with a Grantor's standard terms of sale without dispute, setoff or counterclaim except as may be stated on the accounts receivable schedules delivered by such Grantor to the Agent. ARTICLE 3. COVENANTS Section 3.1. Further Assurances. (a) The Grantors agree that from time to time, at the expense of the Grantors, the Grantors shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantors shall: (i) mark conspicuously each item of chattel paper included in the Receivables and each Related Contract and, at the request of the Agent, each of their recordings pertaining to the Collateral with a legend, in form and substance satisfactory to the Agent, indicating that such chattel paper, Related Contract or Collateral is subject to the security interest granted hereby; (ii) if any Receivable shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Agent hereunder such note, instrument or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Agent; and (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Agent may request, in order to perfect and preserve the security interests granted or purported to be granted hereby. 119 7 (b) Each Grantor hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Grantor where permitted by law. (c) The Grantors shall furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. Section 3.2. As to Equipment and Inventory. The Grantors shall: (a) Keep the Equipment and Inventory (other than Inventory sold in the ordinary course of business) at the places therefore specified in Section 2.1 or, upon 30 days' prior written notice to the Agent, at such other places in jurisdictions where all action required by Section 3.1 shall have been taken with respect to the Equipment and Inventory. (b) Cause the Equipment to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with any manufacturer's manual and shall forthwith, or in the case of any loss or damage to any of the Equipment as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable to such end. The Grantors shall promptly furnish to the Agent a statement respecting any loss or damage to any of the Equipment. (c) Pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory except to the extent the validity thereof is being contested in good faith. Section 3.3. Insurance. (a) The Grantors shall, at their own expense, maintain insurance with respect to the Equipment and Inventory to such amounts against such risks, in such form and with such insurers as shall be satisfactory to the Agent from time to time. Each policy for (i) liability insurance shall provide for all losses to be paid to the Agent and the Grantors as their respective interests may appear and (ii) property damage insurance shall provide for all losses (except for losses of less than $100,000 per occurrence) to be paid directly to the Agent. Each such policy shall in addition (i) name the Grantors and the Agent as insured parties thereunder (without any representation or warranty by or obligation upon the Agent) as their interests may appear, (ii) contain the agreement by the 120 8 insurer that any loss thereunder shall be payable to the Agent notwithstanding any action, inaction or breach of representation or warranty by a Grantor, (iii) provide that there shall be no recourse against the Agent for payment of premiums or other amounts with respect thereto and (iv) provide that at least thirty days' prior written notice of cancellation or of lapse shall be given to the Agent by the insurer. The Grantors shall, if so requested by the Agent, deliver to the Agent original or duplicate policies of such insurance and, as often as the Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, the Grantors shall, at the request of the Agent, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 3.1 and cause the respective insurers to acknowledge notice of such assignment. (b) Reimbursement under any liability insurance maintained by a Grantor pursuant to this Section 3.3 may be paid directly to the person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (c) of this Section 3.3 is not applicable, the Grantors shall make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by the Grantors pursuant to this Section 3.3 shall be paid to the Grantors as reimbursement for the costs of such repairs or replacements. (c) Upon the occurrence and during the continuance of any Default, all insurance payments shall be paid to and applied by the Agent as specified in Section 5.1. Section 3.4. As to Receivables. (a) The Grantors shall keep their chief place of business and chief executive office and the office where they keep their records concerning the Receivables, and all originals of all chattel paper which evidence Receivables, at the location therefor specified in Section 2.1 or, upon 30 days' prior written notice to the Agent, at such other locations in a jurisdiction where all action required by Section 3.1 shall have been taken with respect to the Receivables. The Grantors shall hold and preserve such records and chattel paper and shall permit representatives of the Agent at any time during normal business hours to inspect and make abstracts from such records and chattel paper. (b) Except as otherwise provided in this subsection (b), the Grantors shall continue to collect, at their own expense, all amounts due or to become due the Grantors under the Receivables. In connection with such collections, the Grantors may take (and, at the Agent's direction, shall take) such action as the Grantors or the Agent may reasonably deem necessary or advisable to enforce collection of the Receivables; provided, 121 9 however, that the Agent shall have the right at any time upon the occurrence and during the continuance of an Event of Default and upon written notice to the Grantors of its intention to do so, to notify the account debtors or obligors under any Receivables of the assignment of such Receivables to the Agent and to direct such account debtors or obligors to make payment of all amounts due or to become due to a Grantor thereunder directly to the Agent and, upon such notification and at the expense of the Grantors, to enforce collection of any such Receivables, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as a Grantor might have done. After receipt by the Grantors of the notice from the Agent referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including instruments) received by a Grantor in respect of the Receivables shall be received in trust for the benefit of the Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement) to be held as cash collateral and either (A) released to the Grantors so long as no Event of Default shall have occurred and be continuing or (B) if any Event of Default shall have occurred and be continuing, applied as provided by Section 5.1(b), and (ii) no Grantor shall adjust, settle or compromise the amount or payment of any Receivable, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. (c) The Grantors shall take all steps necessary to protect the Agent's interest in the Collateral under the Federal Assignment of Claims Act, the Social Security Act, or other applicable federal, state, or local statutes, ordinances or regulations and deliver to the Agent appropriately endorsed, any instrument or chattel paper connected with any Receivable, arising out of contracts between any Grantor and the United States, any state or any department, agency or instrumentality of any of them. Section 3.5. Transfers and Other Liens. The Grantors shall not: (a) Sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except Inventory in the ordinary course of business or Equipment no longer useful to the Grantors in its operations for its intended purpose. (b) Create or suffer to exist any Lien upon or with respect to any of the Collateral to secure Debt of any Person, except for the security interest created by this Agreement or expressly permitted by Section 7.3 of the Credit Agreement. ARTICLE IV. THE AGENT Section 4.1. Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints the Agent such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Agent's discretion, to take any action and to execute any instrument which the 122 10 Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of such Grantor under Section 3.4), including without limitation: (a) to obtain and adjust insurance required to be paid to the Agent pursuant to Section 3.3, (b) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) or (b) above, and (d) to file any claims or take any action or institute any proceedings which the Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Agent with respect to any of the Collateral. Section 4.2. Agent May Perform. If a Grantor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement and the expenses of the Agent incurred in connection therewith shall be payable by the Grantors under Section 6.2. Section 4.3. The Agent's Duties. The powers conferred on the Agent hereunder are solely to protect the Agent's interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. ARTICLE V. DEFAULT Section 5.1. Remedies. If any Event of Default shall have occurred and be continuing: (a) The Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "UCC") (whether or not the UCC applies to the affected Collateral) and also may (i) require any Grantor to, and each Grantor hereby agrees that it shall at its expense and upon request of the Agent forthwith, assemble all or part of the Collateral as directed by the 123 11 Agent and make it available to the Agent at a place to be designated by the Agent which is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Agent may reasonably deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Agent pursuant to Section 6.2) in whole or in part by the Agent against, all or any part of the Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Grantors or to whomsoever may be lawfully entitled to receive such surplus. ARTICLE VI. MISCELLANEOUS Section 6.1. Amendments; Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent. Section 6.2. Expenses; Etc. The Grantors shall reimburse the Agent on demand for all costs, expenses and charges (including, without limitation, reasonable fees and charges of external legal counsel for the Agent and reasonable costs allocated by its internal legal department) incurred by the Agent in connection with the preparation, performance or enforcement of this Agreement. The Grantors agree to indemnify the Agent from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the Agent's gross negligence or willful misconduct. The obligations of the Grantors under this Section are joint and several and shall survive the termination of this Agreement. Section 6.3. Notices. Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be delivered in person or sent by overnight courier, facsimile, 124 12 ordinary mail, cable or telex addressed to such party at its "Address for Notices" on the signature page of this Agreement. Notices shall be effective: (a) on the day on which delivered to such party in person, (b) on the first Banking Day after the day on which sent to such party by overnight courier, (c) if given by mail, upon receipt, and (d) if given by facsimile, cable or telex, when the facsimile, cable or telex is transmitted to the facsimile, cable or telex number as aforesaid; provided that notices to the Agent and the Banks shall be effective upon receipt. Section 6.4. Transfer of Facility Documents. This Agreement shall (a) be binding upon the Grantors, their respective successors and assigns and (b) inure together with the rights and remedies of the Agent hereunder, to the benefit of the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (b), any Bank may assign or otherwise transfer the Facility Documents held by it, or grant participations therein, to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise. Section 6.5. Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Unless otherwise defined herein or in the Agreement, terms used in Article 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. ARTICLE VII. INTELLECTUAL PROPERTY Section 7.1. Special Provisions Concerning Trademarks. (a) Additional Representations and Warranties. The Grantors represent and warrant that they are the true and lawful exclusive owners of the Trademarks listed in Exhibit B attached hereto and that said listed Trademarks constitute all the trademarks registered in the United States Patent and Trademark Office that the Grantors now own or use in connection with their business. Each Grantor represents and warrants that it owns or is licensed to use all Trademarks that it uses. Each Grantor further warrants that it is aware of no third-party claim that any aspect of such Grantor's present or contemplated business operations infringes or will infringe any Trademark. (b) Licenses and Assignments. Each Grantor hereby agrees not to divest itself of any right under a Trademark absent prior written approval of the Agent, which shall not be unreasonably withheld. (c) Infringements. Each Grantor agrees, promptly upon learning thereof, to notify the Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who may be 125 13 infringing or otherwise violating any of such Grantor's rights in and to any significant Trademark, or with respect to any party claiming that such Grantor's use of any significant Trademark violates any property right of that party. (d) Preservation of Trademarks. To the extent such Trademarks are material to its business, each Grantor agrees to use its significant Trademarks in interstate commerce during the time in which this Agreement is in effect, sufficiently to preserve such Trademarks as trademarks or service marks registered under the laws of the United States. (e) Maintenance of Registration. To the extent such Trademarks are material to its business, each Grantor shall, at its expense, diligently process all documents required by the Trademark Act of 1946, 15 U.S.C. Sections 1051 et seq., to maintain trademark registration, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office for all of its Trademarks pursuant to 15 U.S.C. Sections 1058(a), 1059 and 1065, and shall pay all fees and disbursements in connection therewith, and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Agent which shall not be unreasonably withheld. Each Grantor agrees to notify the Agent six (6) months prior to the dates on which the affidavits of use or the applications for renewal registration are due that the affidavit of use or the renewal is being processed. (f) Future Registered Trademarks. If any trademark registration issues hereafter to a Grantor as a result of any application now or hereafter pending before the United States Patent and Trademark Office, within thirty (30) days of receipt of such certificate such Grantor shall deliver a copy of such certificate and an updated Exhibit B to Annex I and, if Annex I has previously been filed, an agreement in proper form for filing, modifying Annex I to include such Trademark. (g) Remedies. If an Event of Default shall occur and be continuing, the Agent may, by written notice to any Grantor, take any or all of the following actions: (i) declare the entire right, title and interest of such Grantor in and to each of the Trademarks, together with all trademark rights and rights of protection to the same, vested, in which event such rights, title and interest shall immediately vest, in the Agent, in which case such Grantor agrees to execute an assignment in form and substance satisfactory to the Agent, of all its rights, title and interest in and to the Trademarks to the Agent; (ii) take and use or sell the Trademarks and the goodwill of such Grantor's business symbolized by the Trademarks and the right to carry on the business and use the assets of such Grantor in connection with which the Trademarks have been used; and (iii) direct such Grantor to refrain, in which event such Grantor shall refrain, from using the Trademarks in any manner whatsoever, directly or indirectly, and, if requested by the 126 14 Agent, change such Grantor's corporate name to eliminate therefrom any use of any Trademark and execute such other and further documents that the Agent may request to further confirm this and to transfer ownership of the Trademarks and registrations and any pending trademark application in the United States Patent and Trademark Office to the Agent. Section 7.2. Special Provisions Concerning Patents and Copyrights. (a) Additional Representations and Warranties. The Grantors represents and warrants that they are the true and lawful exclusive owner or licensee of all rights in the Patents listed in Exhibit A attached hereto and in the Copyrights listed in Exhibit C attached hereto, that said Patents constitute all the United States patents and applications for United States patents that the Grantors now own and that said Copyrights constitute all the United States copyrights that the Grantors now own. Each Grantor represents and warrants that it owns or is licensed to practice under all Patents and Copyrights that it now owns, uses or practices under. Each Grantor further warrants that it is aware of no third-party claim that any aspect of such Grantor's present or contemplated business operations infringes or will infringe any Patent or any Copyright. (b) Licenses and Assignments. Each Grantor hereby agrees not to divest itself of any right under a Patent or Copyright absent prior written approval of the Agent, which shall not be unreasonably withheld. (c) Infringements. Each Grantor agrees, promptly upon learning thereof, to furnish the Agent in writing with all pertinent information available to such Grantor with respect to any infringement or other violation of such Grantor's rights in any significant Patent or Copyright, or with respect to any claim that practice of any significant Patent or Copyright violates any property right of that party. Each Grantor further agrees, absent direction of the Agent to the contrary, diligently to prosecute any person infringing any significant Patent or Copyright. (d) Maintenance of Patents. At its own expense, to the extent such Patents are material to its business, the Grantors shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. Section 41 to maintain in force rights under each Patent. (e) Prosecution of Patent Application. At its own expense, to the extent such Patents are material to its business, each Grantor shall diligently prosecute all applications for United States patents listed on Exhibit A hereto, and shall not abandon any such application prior to exhaustion of all administrative and judicial remedies, absent written consent of the Agent. 127 15 (f) Other Patents and Copyrights. Within thirty (30) days of acquisition of a United States Patent or Copyright, or of filing of an application for a United States Patent or Copyright, each Grantor shall deliver to the Agent a copy of said Patent or Copyright, as the case may be, and an updated Exhibit A or Exhibit C to Annex I and, if Annex I has previously been filed, an agreement in proper form for filing, modifying Annex I to include such Patent or Copyright, as the case may be. (g) Remedies. If an Event of Default shall occur and be continuing, the Agent may by written notice to any Grantor take any of all of the following actions: (i) declare the entire right, title and interest of such Grantor in each of the Patents and Copyrights vested, in which event such right, title and interest shall immediately vest in the Agent, in which case such Grantor agrees to execute an assignment in form and substance satisfactory to the Agent of all its right, title and interest to such Patents and Copyrights to the Agent; (ii) take and practice or sell the Patents and Copyrights; (iii) direct such Grantor to refrain, in which event such Grantor shall refrain, from practicing the Patents and Copyrights directly or indirectly, and such Grantor shall execute such other and further documents as the Agent may request further to confirm this and to transfer ownership of the Patents and Copyrights to the Agent. 128 16 IN WITNESS WHEREOF, the Grantors have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. AMSCAN INC. By__________________________________ Sheryl B. Mellin Treasurer KOOKABURRA USA, LTD. By__________________________________ Sheryl B. Mellin Treasurer DECO PAPER PRODUCTS, INC. By__________________________________ Sheryl B. Mellin Treasurer TRISAR, INC. By__________________________________ Sheryl B. Mellin Treasurer 129 SCHEDULE TO SECURITY AGREEMENT GRANTOR LOCATIONS OF EQUIPMENT LOCATIONS OF INVENTORY 130 EXHIBIT A PATENTS NAME OF GRANTOR PATENT NO. ITEM REGISTRATION DATE 131 EXHIBIT B TRADEMARKS AND TRADENAMES NAME OF JURISDICTION OF TRADEMARK TRADEMARK REGISTRATION GRANTOR REGISTRATION NUMBERS 132 EXHIBIT C COPYRIGHTS NAME OF GRANTOR JURISDICTION OF COPYRIGHT COPYRIGHT REGISTRATION REGISTRATION NUMBERS 133 ANNEX I PATENT, TRADEMARK, COPYRIGHT AND OTHER INTELLECTUAL PROPERTY SECURITY INTEREST WHEREAS, AMSCAN INC., a corporation organized under the laws of the State of New York, KOOKABURRA USA, LTD., a corporation organized under the laws of the State of New York, DECO PAPER PRODUCTS, INC. a corporation organized under the laws of the State of Kentucky, and TRISAR, INC., a corporation organized under the laws of the State of California, (each, a "Borrower" and collectively, the "Borrowers"), having their principal office at 2 Macy Road, Harrison, New York 10528, are the owners of the United States and foreign patents and patent registrations and applications for patents and patent registrations, and all renewals and extensions thereof, including, without limitation, those set forth on Exhibit A attached hereto, and of United States and foreign trademarks and associated United States and foreign trademark registrations and applications for trademark registrations, and all renewals and extensions thereof, including, without limitation, those set forth in Exhibit B attached hereto and is a party to certain trademark and patent licenses of United States and foreign trade names, trade name registrations and applications for trade name registrations, including, without limitation, those set forth in Exhibit B attached hereto, and of United States and foreign copyrights, copyright registrations, applications for copyright registrations, and all renewals and extensions thereof, including without limitation, those set forth on Exhibit C attached hereto; and WHEREAS, THE CHASE MANHATTAN BANK, N.A., having an office at One Chase Manhattan Plaza, New York, New York 10082, as agent (the "Agent") for the banks (the "Banks") named therein is a party to the Credit Agreement dated as of September 20, 1995 among the Agent, the Banks and the Borrowers, and the Agent desires to acquire a security interest in, and lien on, said patents, patent registrations, trademarks, trademark registrations, copyrights, license agreements, said applications for patent and trademark registrations, the goodwill of the business symbolized by said trademarks, trademark applications and trademark and copyright registrations and all products and proceeds of the foregoing; and WHEREAS, the Borrowers are agreeable to granting the security interests in the patents, patent registrations, trademarks, trademark registrations, trade names, copyrights, copyright registrations, licenses, applications and all products and proceeds thereof described above and as specifically set forth in Exhibits A, B and C hereto, but not limited thereto; 134 2 NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and subject to the terms and conditions of the Security Agreement dated as of September 20, 1995 made by the Borrowers in favor of the Agent (as the same may be from time to time further amended and in effect), the terms and conditions of which are incorporated by reference herein, the Borrowers hereby give, grant, assign and transfer a security interest in said patents, trademarks, trade names, copyrights and license agreements, and said patent, trademark and copyright registrations, said applications for patents and trademarks, the goodwill of the business symbolized by said trademarks, trademark applications and trademark registrations and trade names and all products and proceeds thereof, to the Agent for its benefit and the ratable benefit of the Banks, in each case, now existing or hereafter acquired. The Borrowers hereby acknowledge the sufficiency and completeness of this document to create the security interest in the identified property and to grant the same to the Agent for its benefit and the ratable benefit of the Banks and the Borrowers hereby request the appropriate filing and recording offices, including, but not limited to, the U.S. Patent and Trademark Office and the U.S. Copyright Office, to file and record the same together with the annexed Exhibits A, B and C. 135 3 Executed at Stamford, Connecticut, the 20th day of September, 1995. AMSCAN INC. By_____________________________________ Sheryl B. Mellin Treasurer KOOKABURRA USA, LTD. By______________________________________ Sheryl B. Mellin Treasurer DECO PAPER PRODUCTS, INC. By______________________________________ Sheryl B. Mellin Treasurer TRISAR, INC. By______________________________________ Sheryl B. Mellin Treasurer 136 EXHIBIT H [Date] [name of Agent] [address] ATTN: [name] Ladies and Gentlemen: The undersigned, a duly authorized officer of Amscan Inc., refers to the Credit Agreement dated as of September 20, 1995 (the "Credit Agreement," the terms defined therein being used herein as therein defined), among Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc., and Trisar, Inc., the banks named therein and The Chase Manhattan Bank, N.A., as Agent, and hereby gives you notice pursuant to Section 2.4 of the Credit Agreement that the undersigned hereby requests a Loan, and in that connection sets forth below the information relating to such Loan (the "Proposed Borrowing") as required by the Credit Agreement: (i) The Business Day of the Proposed Borrowing is ____________, 199_. (ii) The aggregate amount of the Proposed Borrowing is $___________________. (iii) The interest rate for the Proposed Borrowing is (check one): _____ Variable Rate _____ Fixed Rate (Eurodollar) (Complete Section iv) (iv) (Eurodollar Loans Only) The initial Interest Period for the Proposed Borrowing is (check one): _____ one (1) month _____ two (2) months _____ three (3) months _____ six (6) months (if available) 137 2 (v) The undersigned hereby certifies and warrants that the Leverage Ratio as at the end of the Borrowers' most recent fiscal quarter was: - ------------------. In accordance with Section 4.3 of the Credit Agreement, the undersigned hereby certifies that all representations and warranties of the Borrowers contained in each Facility Document, including, without limitation, Article 5 of the Credit Agreement, Article 2 of the Security Agreement and Section 4 of the Pledge Agreements, are true and correct on the date hereof, and unless we otherwise notify you in writing, you may rely on the fact that such statements are true and correct on the day of the Proposed Borrowing before and after giving effect to such Proposed Borrowing and the application of the proceeds thereof, as though made on and as of such date. The undersigned also certifies that there has been no material adverse change in the business, management operations, properties, prospects or condition (financial or otherwise) of any Borrower since the Closing Date. The undersigned further certifies and warrants that both before and after giving effect to such Proposed Borrowing, the aggregate principal amount of all outstanding Loans and L/C Credits is equal to or less than the Borrowing Base as calculated [fill in date which is (i) August 31, 1995 for borrowing occurring prior to October 10, 1995 or (ii) the date of the most recent Borrowing Base Certificate submitted pursuant to Section 6.8 of the Credit Agreement, for borrowing occurring on or subsequent to October 10, 1995], and that, to the best of the undersigned's knowledge, were such calculation to be done as of the date hereof, both before and after giving effect to such Proposed Borrowing, the aggregate principal amount of all outstanding Loans and L/C Credits would be equal to or less than the Borrowing Base. The undersigned further certifies and warrants that no Default or Event of Default is existing as of the date of this Certificate and, unless we notify you in writing, as of the day of the Proposed Borrowing. Very truly yours, AMSCAN INC. By -------------------------------- Name: Title: 138 EXHIBIT I [Borrowers' Letterhead] [Date] To each of the Banks parties to the Credit Agreement dated as of September __, 1995 among Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc., said Banks, and The Chase Manhattan Bank, N.A., as Agent for such Banks Pursuant to the terms and conditions of the Credit Agreement, dated as of September __, 1995 among Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc., the Banks parties thereto and The Chase Manhattan Bank, N.A., as Agent for said Banks (the "Credit Agreement") please be advised that: 1. The financial statements for the period ending ___________________ as required by Section 6.8 of the Credit Agreement are enclosed. 2. To the best of the undersigned officer's knowledge, no event has occurred and is continuing which constitutes a Default or an Event of Default. 3. The undersigned certifies that, to the best of the undersigned officer's knowledge, as of [date of end of fiscal period for such financial statements], the following information is true:
Section Permitted/Required Actual - ------- ------------------ ------ 7.1(g) Debt Pursuant to Interest Rate $50,000,000 Protection Agreements 7.3(h) Permitted Purchase Money $15,000,000 Indebtedness 7.5(e) Permitted Loans to Officers $200,000 and Employees 7.5(h), 7.6(d), Restricted Payment 7.10(c) Allowance 7.6(a) Shareholder Payments
139 2
Section Permitted/Required Actual - ------- ------------------ ------ 8.1 Minimum Adjusted Tangible Net Worth 8.2 Capital Expenditures 8.3 Adjusted Leverage Ratio 4.00 to 1.0 8.4 Fixed Charge Coverage Ratio 2.00 to 1.0
[show computations] Very truly yours, AMSCAN INC. By -------------------------------------- Name: Title: [President, Treasurer or CFO] KOOKABURRA USA, LTD. By -------------------------------------- Name: Title: [President, Treasurer or CFO] DECO PAPER PRODUCTS, INC. By -------------------------------------- Name: Title: [President, Treasurer or CFO] TRISAR, INC. By -------------------------------------- Name: Title: [President, Treasurer or CFO] 140 EXHIBIT J CONFIDENTIALITY AGREEMENT [Date] [Insert Name and Address of Prospective Participant or Assignee] Re: Credit Agreement dated as of September 20, 1995 between Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc., the banks party thereto, and The Chase Manhattan Bank, N.A., as Agent. Dear _______________: As a Bank, party to the above-referenced Credit Agreement (the "Credit Agreement"), we have agreed with Amscan Inc., Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc. (collectively, the "Borrowers") pursuant to Section 11.15 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, all non-public information identified by the Borrowers as being confidential at the time the same is delivered to us pursuant to the Credit Agreement. As provided in said Section 11.15, we are permitted to provide you, as a prospective [holder of a participation in the Loans (as defined in the Credit Agreement)] [assignee Bank], with certain of such non-public information subject to the execution and delivery by you, prior to receiving such non-public information, of a Confidentiality Agreement in this form. Such information will not be made available to you until your execution and return to us of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, you agree (on behalf of yourself and each of your affiliates, directors, officers, employees and representatives) that (A) such information will not be used by you except in connection with the proposed [participation] [assignment] mentioned above and (B) you shall use reasonable precautions, in accordance with your customary procedures for handling confidential information and in accordance with safe and sound banking practices, to keep such information confidential, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) in connection with any litigation to which you or any one or more of the Banks is a 141 party; and provided finally that in no event shall you be obligated to return any materials furnished to you pursuant to this Confidentiality Agreement. Would you please indicate your agreement to the foregoing by signing at the place provided below the enclosed copy of this Confidentiality Agreement. Very truly yours, [Insert Name of Bank] By: -------------------------------- The foregoing is agreed to as of the date of this letter. [Insert name of prospective participant or assignee] By: -------------------------------------- -2- 142 EXHIBIT K SUBORDINATION AGREEMENT SUBORDINATION AGREEMENT, dated September 20, 1995, by and among JOHN A. SVENNINGSEN, an individual having a principal residence at 3 Frederick Court, Harrison, New York 10528 (the "Subordinated Creditor") and AMSCAN INC., KOOKABURRA USA, LTD., DECO PAPER PRODUCTS, INC. AND TRISAR, INC., corporations having an address at 2 Macy Road, Harrison, New York 10528 (collectively, the "Borrowers"), in favor of THE CHASE MANHATTAN BANK, N.A., a national banking association having an address at 31 Marmaroneck Avenue, White Plains, New York 10606, as Agent (the "Agent") for the banks (the "Banks") parties to the Credit Agreement (as hereinafter defined). PRELIMINARY STATEMENTS: (1) The Agent and the Banks have entered into a Credit Agreement dated as of September 20, 1995 with the Borrowers (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined). (2) The Borrowers are now indebted to the Subordinated Creditor in the aggregate principal amount of $16,000,000.00, evidenced by the promissory notes identified, together with the name of the maker and the dollar amount of principal outstanding, on Exhibit A, copies of which have previously been provided to the Agent, and may hereafter from time to time become indebted or otherwise obligated to the Subordinated Creditor in further amounts (all such indebtedness and other obligations now or hereafter existing, whether created directly or acquired by assignment or otherwise, and interest and premiums, if any, thereon and other amounts payable in respect thereof, are hereinafter referred to as the "Subordinated Debt"). (3) It is a condition precedent to the making of Loans by the Banks, and the issuance of Letters of Credit, under the Credit Agreement that the Subordinated Creditor, as owner of all of the outstanding capital of stock of each of the Borrowers, shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to make Loans under the Credit Agreement, the Subordinated Creditor and each Borrower hereby agree as follows: 143 2 ARTICLE I. THE SUBORDINATION Section 1.1. Agreement to Subordinate. The Subordinated Creditor and each Borrower agree that the Subordinated Debt is and shall be subordinate, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all indebtedness of the Borrowers now or hereafter existing under the Credit Agreement, the Notes and any other Facility Document (including any indebtedness resulting from a modification, extension or restatement of, or any increase in the principal amount of, the Credit Agreement, the Notes or any other Facility Document) or any indebtedness resulting from any renewal of any such indebtedness, whether for principal, interest (including, without limitation, interest accruing after the filing of a petition initiating any proceeding referred to in Section 1.3 (a)), fees, expenses or otherwise (such indebtedness being the "Senior Debt"). Section 1.2. No Payment of the Subordinated Debt. The Subordinated Creditor agrees not to ask, demand, sue for, take or receive from any Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner (including, without limitation, from or by way of collateral), payment of all or any of the Subordinated Debt unless and until the Senior Debt shall have been paid in full; provided, however, that (i) such Borrower may pay and the Subordinated Creditor may keep and maintain payments of interest on the Subordinated Debt on the stated dates of payment thereof and (ii) Amscan may pay to the Subordinated Creditor any amount reflected on Amscan's balance sheet as due to Subordinated Creditor as compensation so long as such payment is permitted under SubSections 7.6(a) and (d) of the Credit Agreement, unless (x) at the time of making such payment referred to in either clause (i) or (ii), and immediately after giving effect thereto, a Default or Event of Default shall have occurred and be continuing or (y) within 91 days after receipt by the Subordinated Creditor of such payment, the Subordinated Creditor receives notice in the form required by Section 3.4 from the Agent, any Bank or any Borrower to the effect that such payment was made in violation of this Agreement. For the purposes of this Agreement, the Senior Debt shall not be deemed to have been paid in full until the Agent, for the ratable benefit of the Banks, shall have received the indefeasible payment of the Senior Debt in full in cash and the Commitments shall have been terminated. Section 1.3. In Furtherance of Subordination. The Subordinated Creditor agrees as follows: (a) Upon any distribution of all or any of the assets of one or more Borrowers to creditors of such Borrower(s) upon the dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of such Borrower(s) or its/their debts, whether in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or similar proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of such 144 3 Borrower(s) or otherwise, any payment or distribution of any kind (whether in cash, property or securities) which otherwise would be payable or deliverable upon or with respect to the Subordinated Debt shall be paid or delivered directly to the Agent for the account of the Banks for application (in the case of cash) to or as collateral (in the case of noncash property or securities) for the payment or prepayment of the Senior Debt until the Senior Debt shall have been paid in full. (b) If any proceeding referred to in subsection (a) above is commenced by or against any Borrower, (i) the Agent is hereby irrevocably authorized and empowered (in its own name or in the name of the Subordinated Creditor or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in subsection (a) above and give acquittance therefor and to file claims and proofs of claim and take such other action (including, without limitation, voting the Subordinated Debt or enforcing any security interest or other lien securing payment of the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Agent or the Banks hereunder; and (ii) the Subordinated Creditor shall duly and promptly take such action as the Agent may request (A) to collect the Subordinated Debt for account of the Banks and to file appropriate claims or proofs of claim in respect of the Subordinated Debt, (B) to execute and deliver to the Agent such powers of attorney, assignments or other instruments as it may request in order to enable it to enforce any and all claims with respect to, and any security interests and other liens securing payment of, the Subordinated Debt, and (C) to collect and receive any and all payments or distributions which may be payable or deliverable upon or with respect to the Subordinated Debt. (c) All payments or distributions upon or with respect to the Subordinated Debt which are received by the Subordinated Creditor contrary to the provisions of this Agreement shall be received in trust for the benefit of the Banks, shall be segregated from other funds and property held by the Subordinated Creditor and shall be forthwith paid over to the Agent for the account of the Banks in the same form as received (with any necessary endorsement) to be applied (in the case of cash) to or held as collateral (in the case of noncash property or securities) for the payment or prepayment of the Senior Debt in accordance with the terms of the Senior Debt. (d) The Agent is hereby authorized to demand specific performance of this Agreement, whether or not the Borrowers shall have complied with any of the provisions hereof applicable to it, at any time when the Subordinated Creditor shall have failed to comply with any of the provisions of this Agreement applicable to it. The Subordinated Creditor hereby irrevocably waives any defense based on the adequacy 145 4 of a remedy at law, which might be asserted as a bar to such remedy of specific performance. Section 1.4. No Commencement of Any Proceeding. The Subordinated Creditor agrees that, so long as any of the Senior Debt shall remain unpaid, it will not commence, or join with any creditor other than the Agent and the Banks in commencing, any proceeding referred to in Section 1.3(a). Section 1.5. Rights of Subrogation. The Subordinated Creditor agrees that no payment or distribution to the Agent or the Banks pursuant to the provisions of this Agreement shall entitle the Subordinated Creditor to exercise any rights of subrogation in respect thereof until the Senior Debt shall have been paid in full and the Commitments shall have been terminated. If any amount is paid to the Subordinated Creditor on account of subrogation rights under this Agreement at any time when all the Senior Debt has not been paid in full and the Commitments have not been terminated, the amount shall be held in trust for the Agent for the ratable benefit of the Banks and shall be promptly paid to the Agent for the benefit of the Banks to be credited and applied to the Senior Debt, whether matured or unmatured or absolute or contingent, in accordance with the terms of the Credit Agreement. Section 1.6. Subordination Legend; Further Assurances. The Subordinated Creditor and the Borrowers will cause each instrument evidencing Subordinated Debt to be endorsed with the following legend: The indebtedness evidenced by this instrument is subordinated to the prior payment in full of the Senior Debt (as defined in the Subordination Agreement referred to below) pursuant to, and to the extent provided in, the Subordination Agreement dated September 20, 1995 by and among Amscan Inc. Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc. and John A. Svenningsen in favor of The Chase Manhattan Bank, N.A., as Agent. The Subordinated Creditor and each Borrower will further mark its books of account in such a manner as shall be effective to give proper notice of the effect of this Agreement and will, in the case of any Subordinated Debt which is not evidenced by any instrument, upon the Agent's request cause such Subordinated Debt to be evidenced by an appropriate instrument or instruments endorsed with the above legend. The Subordinated Creditor and each Borrower will, at its own expense and at any time and from time to time, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may request, in order to protect any right or interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder. 146 5 Section 1.7. No Change in or Disposition of Subordinated Debt. The Subordinated Creditor will not: (a) Cancel or otherwise discharge any of the Subordinated Debt (except upon payment in full thereof paid to the Bank as contemplated by Section 1.3(c)) or subordinate any of the Subordinated Debt to any indebtedness of the Borrowers other than the Senior Debt; (b) Sell, assign, pledge, encumber or otherwise dispose of any of the Subordinated Debt unless such sale, assignment, pledge, encumbrance or disposition is made expressly subject to this Agreement; or (c) Permit the terms of any of the Subordinated Debt to be changed in such a manner as to have an adverse effect upon the rights or interests of the Agent or any Bank hereunder. Section 1.8. Agreement by the Borrowers. Each Borrower agrees that it will not make any payment of any of the Subordinated Debt, or take any other action, in contravention of the provisions of this Agreement. Section 1.9. Obligations Hereunder Not Affected. All rights and interests of the Banks hereunder, and all agreements and obligations of the Subordinated Creditor and the Borrowers under this Agreement, shall remain in full force and effect irrespective of: (a) any lack of validity or enforceability of the Credit Agreement or any other Facility Document or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Debt, or any other amendment or waiver of or any consent to departure from the Credit Agreement or any other Facility Document; (c) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Senior Debt; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a Borrower or a subordinated creditor. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by the Agent or any Bank upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made. 147 6 ARTICLE II. REPRESENTATIONS AND WARRANTIES Section 2.1. Subordinated Debt. The Subordinated Creditor and each Borrower hereby represents and warrants as follows: (a) The Subordinated Debt now outstanding, true and complete copies of instruments evidencing which have been furnished to the Agent, has been duly authorized by the Borrowers, has not been amended or otherwise modified, and constitutes the legal, valid and binding obligation of the Borrowers enforceable against the Borrowers in accordance with its terms. There exists no default in respect of any of the Subordinated Debt. (b) The Subordinated Creditor owns the Subordinated Debt now outstanding free and clear of any lien, security interest, charge or encumbrance or any rights of others (including the rights of any other subordinated creditor). (c) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. ARTICLE III. MISCELLANEOUS Section 3.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Subordinated Creditor or any Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the Agent and the Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 3.2. Formalities. The Subordinated Creditor and each Borrower hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Senior Debt and this Agreement and any requirement that the Agent or any Bank protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against any Borrower or any other person or entity or any collateral. Section 3.3. Expenses. The Subordinated Creditor and the Borrowers jointly and severally agree to pay, upon demand, to the Bank the amount of any and all 148 7 reasonable expenses, including the reasonable fees and expenses of its counsel, which the Agent or any Bank may incur in connection with the exercise or enforcement of any of its rights or interests hereunder. Section 3.4. Notices. Unless the party to be notified otherwise notifies the other party in writing as provided in this Section , and except as otherwise provided in this Agreement, notices shall be delivered in person or sent by overnight courier, facsimile, ordinary mail, cable or telex addressed to such party at its address set forth on the first page of this Agreement. Notices shall be effective: (a) on the day on which delivered to such party in person, (b) on the first Banking Day after the day on which sent to such party by overnight courier, (c) if given by mail, upon receipt, and (d) if given by facsimile, cable or telex, when the facsimile, cable or telex is transmitted to the facsimile, cable or telex number as aforesaid; provided that notices to the Agent and the Banks shall be effective upon receipt. Section 3.5. Continuing Agreement. This Agreement is a continuing agreement and shall (i) remain in full force and effect until the Senior Debt shall have been paid in full and the Commitments shall have been terminated, (ii) be binding upon the Subordinated Creditor, the Borrowers and their respective successors and assigns, and (iii) inure to the benefit of and be enforceable by the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Bank may assign or otherwise transfer all or any portion of its rights or obligations under the Credit Agreement or any other Facility Document or Facility Documents to any other person or entity, and such other person or entity shall thereupon become vested with all the rights in respect thereof granted to such Bank herein or otherwise. Section 3.6. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York . 149 8 IN WITNESS WHEREOF, the Subordinated Creditor and each Borrower has caused this Agreement to be duly executed and delivered as of the date first above written. ----------------------------- John A. Svenningsen AMSCAN INC. By_____________________________ Sheryl B. Mellin Treasurer KOOKABURRA USA, LTD, By_____________________________ Sheryl B. Mellin Treasurer DECO PAPER PRODUCTS, INC. By_____________________________ Sheryl B. Mellin Treasurer TRISAR, INC. By_____________________________ Sheryl B. Mellin Treasurer 150 Exhibit A Promissory Notes
Maker Date Principal Amount Maturity Date - ----- ---- ---------------- ------------- Amscan 1/24/91 $2,250,000 Demand Amscan 5/31/91 $1,500,000 Demand Amscan 12/31/91 $2,250,000 Demand Amscan 1/31/93 $2,350,000 Demand Amscan 1/31/94 $3,650,000 Demand Amscan 9/20/95 $4,000,000 Demand
151 EXHIBIT L BORROWING BASE CERTIFICATE Date ___________________ The Chase Manhattan Bank, N.A., as Agent 31 Mamaroneck Avenue White Plains, New York 10601 ATTN: Carol A. Kornbluth Ladies and Gentlemen: The undersigned hereby certifies that the following computations of the Borrowing Base, as defined in the Credit Agreement, dated as of September 20, 1995, between the undersigned, Kookaburra USA, Ltd., Deco Paper Products, Inc. and Trisar, Inc., the banks named therein, and The Chase Manhattan Bank, N.A., as Agent, are true and correct as of _____________, 19___. TOTAL RECEIVABLES $_________ LESS: Discounts, Claims, Returns, Rebates, Allowances or Setoffs ($_________) Unpaid more than 60 days ($_________) Due Date more than 190 days from sale ($_________) Ineligible Account Debtor ($_________) From a Borrower or Affiliate ($_________) Foreign on Not Denominated in Dollars ($_________) Advance Billings ($_________) Not a First Perfected Security Interest ($_________) Account Debtor Has Disputed Liability ($_________) Other Ineligible (detailed description to be provided ($_________) if requested by the Agent) TOTAL Ineligible Receivables ($_________) TOTAL Eligible Receivables $_________ A TOTAL INVENTORY $_________
152 2 LESS: Greater of Market Reserve Against Inventory and Market Reserve Approved by Independent Auditors ($_________) Packaging Materials ($_________) Work-in-Process ($_________) Other Ineligible ($_________) Not a First Perfected Security Interest ($_________) TOTAL Ineligible Inventory ($_________) TOTAL Eligible Inventory $_________ B TOTAL BORROWING BASE [A x 85%] plus [B x 60%] $_________ C TOTAL Commitment $_________ D Lesser of Borrowing Base (C) and Commitment (D) $_________ E Less: Loans Outstanding under Credit Agreement ($_________)F Aggregate Amount of L/C Credits ($_________)G TOTAL Unused portion of Borrowing Base as of $_________ _____________ (E minus F minus G)
The undersigned further certifies and warrants that no Default or Event of Default is existing as of the date of this Certificate. AMSCAN INC. By --------------------------------- Name: Title: 153 EXHIBIT M COLLATERAL ASSIGNMENT OF LEASES COLLATERAL ASSIGNMENT OF LEASES, dated as of September 20, 1995 by and between AMSCAN INC., a New York corporation, KOOKABURRA USA, LTD., a New York corporation, DECO PAPER PRODUCTS, INC., a Kentucky corporation, and TRISAR, INC., a California corporation, each having a primary business address at 2 Macy Road, Harrison, New York 10528 (collectively referred to herein as "Assignor") and THE CHASE MANHATTAN BANK, N.A., a national banking association organized under the laws of the United States, as agent (the "Agent") for the banks (the "Banks") party to the Credit Agreement (as hereinafter defined), having an address at 31 Mamaroneck Avenue, White Plains, New York 10601. PRELIMINARY STATEMENTS: (1) The Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with the Assignor. The Assignor will receive the proceeds of the Loans under the Credit Agreement and will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. (2) The Assignor is party to the leases described in Schedule A hereto. (3) It is a condition precedent to the making of Loans by the Banks under the Credit Agreement that the Assignor shall have made this Collateral Assignment of Leases. NOW, THEREFORE, in consideration of the premises, the sum of Ten and 00/100 Dollars ($10.00) and in order to induce the Banks to make Loans under the Credit Agreement, the Assignor agrees as follows: 1. Subject to the provisions of paragraph 11 hereof, the Assignor hereby assigns, transfers and sets over unto the Agent for its benefit and the ratable benefit of the Banks, as collateral security for the Obligations (as hereinafter defined), all of the Assignor's right, title and interest, powers, privileges and other benefits under leases of real property to which the Assignor is now or hereafter a party, including, without limitation, those leases described on Schedule A attached hereto and incorporated herein and any and all renewals, extensions, amendments, modifications, substitutions and replacements 154 2 therefor (collectively, the "Leases"). This assignment includes, without limitation, all of the Assignor's rights to the use and occupancy of the properties subject to each and every Lease. In furtherance of the foregoing assignment, the Assignor hereby irrevocably authorizes and empowers the Agent in its own name, or in the name of its nominee, or in the name of, or as attorney-in-fact for, the Assignor, to ask, demand, sue for, collect and receive any and all payments to which the Assignor is or may become entitled under any of the Leases, and to enforce compliance by each and every party, or any one or more of them, with each and every Lease, and with all or any of the terms and provisions thereof. 2. This Assignment is executed only as security for the Obligations (as hereinafter defined), and, therefore, the execution and delivery of this Assignment shall not subject the Agent to, or transfer or pass to the Agent, or in any way affect or modify, the liability of the Assignor under any or all of the Leases, it being understood and agreed that notwithstanding this Assignment or any subsequent assignment, all of the obligations of Assignor to each and every other party under each and every one of the Leases shall be and remain enforceable by such other party, its successors and assigns, only against Assignor or persons other than the Agent and its respective successors and assigns, and that the Agent has not assumed any of the obligations or duties of Assignor under or with respect to the Leases. 3. This Assignment secures the payment of all obligations of the Assignor now or hereafter existing under the Credit Agreement, the Notes and the other Facility Documents, whether for principal, interest, fees, expenses or otherwise, and all obligations of the Assignor now or hereafter existing under this Assignment (all such obligations of the Assignor being the "Obligations"). Without limiting the generality of the foregoing, this Assignment secures the payment of all amounts which constitute part of the Obligations and would be owed by the Assignor to the Agent or the Banks under the Credit Agreement, the Notes and the other Facility Documents but for the facts that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Assignor. 4. To protect the security afforded by this Assignment, the Assignor represents, warrants and agrees as follows: (a) the Assignor will faithfully abide by, perform and discharge each and every obligation, covenant, condition, duty and agreement which each or any of the Leases provides are to be kept, observed or performed by the Assignor, and will promptly notify the Agent in writing of all defaults and events of default under any of the Leases; (b) the Assignor will take all action which might reasonably be required to keep the Leases in full force and effect and to keep them from expiring prior to 155 3 the end of their respective terms or being cancelled, rescinded or terminated; (c) without the prior written consent of the Agent, which shall not be unreasonably withheld, the Assignor will not amend, cancel, rescind, abridge, modify or terminate any Lease or waive, release, discharge or consent to the release of any other party to any Lease of or from any obligation, covenant, condition or agreement to be kept, observed or performed by such other party; (d) without the prior written consent of the Agent, which shall not be unreasonably withheld, the Assignor will not take any action (including, without limitation, the exercise of any right or option) which would permit, or give rise to a right permitting, any other party to any Lease, or any other person or entity whatsoever, to cancel, rescind or terminate any Lease; (e) at the Assignor's sole cost and expense, the Assignor will appear in and defend any action or proceeding arising under, growing out of or in any manner connected with the obligations, covenants, conditions, duties and agreements or liabilities of the Assignor under any of the Leases; (f) should the Assignor fail to make any payment, do any act which this Assignment prohibits or refrain from any act which this Assignment requires, then the Agent may, but shall have no obligation to (and shall not thereby release the Assignor from any obligation hereunder), make such payment or do or prevent such act in such manner and to such extent provided hereby, which rights of the Agent shall specifically include, without limiting the Agent's general powers herein granted, the right to appear in and defend any action or proceeding purporting to affect the security hereof and the rights or powers of the Agent hereunder (or any of them), and also the right to perform and discharge each and every one, or any one or more, of the obligations, covenants, conditions, duties and agreements of the Assignor contained in any one or more of the Leases; and in exercising such powers, the Agent may pay necessary or advisable costs and expenses and incur and pay reasonable attorneys' fees, and the Assignor will reimburse the Agent for such costs, expenses and fees; (g) the Assignor's interests in none of the Leases has been previously mortgaged, pledged, hypothecated or assigned, by operation of law or otherwise, whether absolutely, conditionally, collaterally or otherwise, and, so long as this Assignment is in effect, the Assignor shall not further assign, transfer or otherwise encumber its interest in any of the Leases; (h) each of the Leases is legal, valid, binding and enforceable in accordance with its terms; no party under any of the Leases is, or with the giving of notice or the passage of time, or both, would be, in default thereunder; and all obligations, 156 4 covenants, conditions, duties and agreements have been kept, observed and performed as required thereunder. 5. Subject to the provisions of paragraph 11 hereof, the Assignor does hereby constitute the Agent the Assignor's true and lawful attorney-in-fact, irrevocably, with full power (in the name of the Assignor or otherwise), to: ask, require, demand, sue for, collect, receive, compound and give acquittance for each and every payment due or to become due, under or arising out of any of the Leases to which the Assignor is or may become entitled; enforce compliance by any other party with any term or provision of any one or more of the Leases; endorse each and every check or other instrument or order in connection therewith; make any payments required to be made under any of the Leases, on behalf of or for the account of the Assignor; and file any claim or claims, take any action or actions or institute any proceeding or proceedings which the Agent may deem to be necessary or advisable in connection with the Leases. In exercising such powers, the Agent may pay necessary or advisable costs and expenses (including attorneys' fees), and the Assignor shall reimburse the Agent, upon demand, for such costs and expenses. 6. Upon the full discharge and satisfaction of the Obligations and the termination of the Commitments, this Assignment and all rights herein assigned to the Agent will terminate, and all estate, right, title and interest of the Agent in and to each and every one of the Leases shall revert to the Assignor. 7. The Assignor will, from time to time, do and perform any other act or acts, will execute, acknowledge, deliver and file, register, record and deposit (and will refile, reregister and redeposit whenever required) any and all further instruments required by law or requested by the Agent in order to confirm, or further assure, the interests of the Agent hereunder, and will take such actions and execute such instruments and documents as the Agent may request to facilitate the Agent's exercise of the Assignor's rights, obligations and duties under the Leases, provided that the Assignor is not prohibited from doing so under the applicable Lease. 8. The Agent may assign all or any of the rights assigned to it hereby, or arising out of the Leases, including, without limitation, the right to receive any or all payments due or to become due. In the event of any such assignment such successor or assign of the Agent shall enjoy all rights and privileges and be subject to all obligations of the Agent hereunder. The Agent will give written notice to the Assignor of any such assignment. 9. This Assignment shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. 10. The Assignor shall cause a copy of each and every notice or 157 5 communication received from any one or more of the other parties to any one or more of the Leases, which notice or communication shall notify the Assignor of any default, event of default, breach or other violation, on the part of the Assignor, under one or more of the Leases, to be promptly delivered to the Agent in the manner and at the place provided for in the Credit Agreement for the giving of notices and communications thereunder, or at such other address or in such other manner as the Agent may designate. The Assignor shall furnish to the Agent, within five (5) days after any request by the Agent, true and complete copies of all Leases then in effect. 11. By its acceptance of this Assignment, the Agent hereby agrees with the Assignor that, so long as an Event of Default (as defined in the Credit Agreement) has not occurred, the Agent will not exercise or enforce, or seek to exercise or enforce, or avail itself of, any of the rights, powers, privileges, authorizations or benefits assigned and transferred to the Agent pursuant to this Assignment, and the Assignor may exercise and enforce, or seek to exercise and enforce, such rights, powers, privileges, authorizations or benefits. 12. The Assignor shall indemnify and hold the Agent harmless from and against any and all claims, demands, liabilities, losses, lawsuits, judgments and expenses (including, without limitation, attorney's fees) to which the Agent may become exposed, or which the Agent may incur, in exercising any of its rights under this Assignment or due to the execution of this Assignment, except for any such claims, demands, liabilities, losses, lawsuits, judgments and expenses that are finally judicially determined to have resulted from the Agent's gross negligence or willful misconduct. 13. This Assignment is not intended to create any partnership or joint venture between the Assignor and the Agent and/or the Banks. 14. No delay, omission or failure of the Agent to exercise its rights under this Assignment upon the occurrence of any Event of Default, and no waiver of any Event of Default, shall be deemed to waive, exhaust or impair the Agent's ability or right to exercise such rights at a later time with respect to such Event of Default (if the same shall not have been cured or corrected) or with respect to any other Event of Default, as the case may be. 15. Subject to the aforesaid limitations on assignment, this Assignment shall bind and inure to the benefit of the heirs, executors, administrators, personal representatives, successors and assigns of the Assignor and the Agent. Without limiting the generality of the foregoing, any Bank may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Advances owing to it and any Note held by it) to any other person or entity, and such other person or entity shall thereupon 158 6 become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, subject, however, to the provisions of Article VI (concerning the Agent) of the Credit Agreement. The provisions hereof shall constitute covenants running with the land. 16. As to any Lease under which the Stockholder or an Affiliate is not the landlord, this Assignment is made subject to the prior written consent, where required under the terms of such Lease, of the applicable landlord or lessor thereto. The Assignor covenants to use all reasonable efforts to procure any required landlord consents to this Assignment. In the event that, despite such reasonable efforts, (i) the consent of the landlord under one or more Lease or Leases subject to this Assignment cannot be obtained and (ii) the failure to obtain such consent would result in an event of default under such Lease or Leases, then with respect to such Lease or Leases, this Assignment shall be deemed to be null and void, ab initio, and this Assignment shall remain effective as to all other Leases. IN WITNESS WHEREOF, the Assignor has caused this instrument to be executed by persons duly authorized, all as of the date first above written. Signed, Sealed and Delivered in Presence of: "ASSIGNOR" AMSCAN INC. _____________________________ By:___________________________ Sheryl B. Mellin _____________________________ Treasurer KOOKABURRA USA, LTD. _____________________________ By:___________________________ Sheryl B. Mellin _____________________________ Treasurer 159 7 DECO PAPER PRODUCTS, INC. _____________________________ By:___________________________ Sheryl B. Mellin _____________________________ Treasurer TRISAR, INC. _____________________________ By:___________________________ Sheryl B. Mellin _____________________________ Treasurer "AGENT" THE CHASE MANHATTAN BANK, N.A. - ----------------------------- By:___________________________ _____________________________ Carol A. Kornbluth Vice President 160 8 ACKNOWLEDGMENT STATE OF Connecticut ) ) ss.: COUNTY OF Fairfield ) I certify that on September 20, 1995, Sheryl B. Mellin personally came before me and acknowledged under oath, to my satisfaction, that she is the Treasurer of AMSCAN INC. and that she signed this document on such behalf of AMSCAN INC. as her voluntary act duly authorized by AMSCAN INC. -------------------------------- Commissioner of Superior Court ACKNOWLEDGMENT STATE OF Connecticut ) ) ss.: COUNTY OF Fairfield ) I certify that on September 20, 1995, Sheryl B. Mellin personally came before me and acknowledged under oath, to my satisfaction, that she is the Treasurer of KOOKABURRA USA, LTD. and that she signed this document on such behalf of KOOKABURRA USA, LTD. as her voluntary act duly authorized by KOOKABURRA USA, LTD. -------------------------------- Commissioner of Superior Court 161 9 ACKNOWLEDGMENT STATE OF Connecticut ) ) ss.: COUNTY OF Fairfield ) I certify that on September 20, 1995, Sheryl B. Mellin personally came before me and acknowledged under oath, to my satisfaction, that she is the Treasurer of DECO PAPER PRODUCTS, INC., and that she signed this document on such behalf of DECO PAPER PRODUCTS, INC., as her voluntary act duly authorized by DECO PAPER PRODUCTS, INC. -------------------------------- Commissioner of Superior Court ACKNOWLEDGMENT STATE OF Connecticut ) ) ss.: COUNTY OF Fairfield ) I certify that on September 20, 1995, Sheryl B. Mellin personally came before me and acknowledged under oath, to my satisfaction, that she is the Treasurer of TRISAR, INC., and that she signed this document on such behalf of TRISAR, INC., as her voluntary act duly authorized by TRISAR, INC. -------------------------------- Commissioner of Superior Court 162 10 ACKNOWLEDGMENT STATE OF Connecticut ) ) ss.: COUNTY OF Fairfield ) I certify that on September 20, 1995, Carol A. Kornbluth personally came before me and acknowledged under oath, to my satisfaction, that she is the Vice President of THE CHASE MANHATTAN BANK, N.A. and that she signed this document on such behalf of THE CHASE MANHATTAN BANK, N.A. as her voluntary act duly authorized by THE CHASE MANHATTAN BANK, N.A. -------------------------------- Commissioner of Superior Court 163 Schedule A Leases 164 EXHIBIT N CASH COLLATERAL ACCOUNT AGREEMENT CASH COLLATERAL ACCOUNT AGREEMENT, dated September 20, 1995, made by AMSCAN INC., a New York corporation, KOOKABURRA USA, LTD., a New York corporation, DECO PAPER PRODUCTS, INC., a Kentucky corporation, and TRISAR, INC., a California corporation (each a "Pledgor" and, collectively, the "Pledgors"), to THE CHASE MANHATTAN BANK, N.A. ("Chase"), as agent (the "Agent") for the banks (the "Banks") parties to the Credit Agreement (as hereinafter defined). PRELIMINARY STATEMENTS: (1) The Pledgors have opened a cash collateral account (the "Account") with the Agent at its office at 31 Mamaroneck Avenue, White Plains, New York 10601, Account No. 4521-037-210, in the name of the Pledgors but subject to the terms of this Agreement. (2) The Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with the Pledgors. It is a condition precedent to the making of Loans by the Banks under the Credit Agreement that the Pledgors shall have made the pledge and assignment contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Banks to make Loans under the Credit Agreement, each Pledgor hereby agrees as follows: SECTION 1. Pledge and Assignment. Each Pledgor hereby pledges and assigns to the Agent, and grants to the Agent a security interest in, the following collateral (the "Collateral"): (a) the Account and all certificates and instruments, if any, from time to time representing or evidencing the Account; (b) all cash and amounts from time to time deposited in the Account; (c) all notes, certificates of deposit and other instruments from time to time hereafter delivered to or otherwise possessed by the Agent for or on behalf of such Pledgor in substitution for or in addition to any or all of the then existing Collateral; 165 2 (d) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Collateral; and (e) all proceeds of any or all of the foregoing Collateral. SECTION 2. Security for Obligations. This Agreement secures the payment of all obligations of the Pledgors now or hereafter existing under the Credit Agreement, the Notes and the other Facility Documents, whether for principal, interest, fees, expenses or otherwise, and all obligations of the Pledgors now or hereafter existing under this Agreement (all such obligations of the Pledgors being the "Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by any Pledgor to the Agent or the Banks under the Credit Agreement, the Notes and the other Facility Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Pledgor. SECTION 3. Delivery of Collateral. All certificates or instruments, if any, representing or evidencing the Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, if an Event of Default shall have occurred or be continuing, without notice to any Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Collateral. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. Maintaining the Account. So long as any Bank has any Commitment or any Note or 4c Credit shall remain unpaid, the Pledgors will maintain the Account with the Agent. The Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. SECTION 5. Representations and Warranties. Each Pledgor represents and warrants as follows: (a) The Pledgors are the legal and beneficial owner of the Collateral free and clear of any lien, security interest, or other charge or encumbrance except for the security interest created by this Agreement. (b) The pledge and assignment of the Collateral pursuant to this Agreement creates a valid and perfected first-priority security interest in the Collateral, securing the payment of the Obligations. 166 3 SECTION 6. Further Assurances. Each Pledgor agrees that at any time and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. SECTION 7. Transfers and Other Liens. Each Pledgor agrees that it will not (a) sell or otherwise dispose of any of the Collateral; provided that, so long as no Event of Default shall have occurred and be continuing, such Pledgor may do so in the ordinary course of business, or (b) create or permit to exist any Lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral, except for the security interest under this Agreement. SECTION 8. Agent Appointed Attorney-in-Fact. Each Pledgor hereby appoints the Agent such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time in the Agent's discretion to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to such Pledgor representing any interest payment, dividend, or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. SECTION 9. Agent May Perform. If any Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgors under Section 12. SECTION 10. Reasonable Care. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Chase accords its own property, it being understood that the Agent shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. SECTION 11. Remedies upon Default. If any Event of Default shall have occurred and be continuing: (a) The Agent may, without notice to the Pledgors except as required by law and at any time or from time to time, charge, set off and otherwise apply 167 4 all or any part of the Obligations against the Account or any part thereof. (b) The Agent may also exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") in effect in the State of New York at that time, and the Agent may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) Any cash held by the Agent as Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Agent, then or at any time thereafter be applied (after payment of any amounts payable to the Agent pursuant to Section 12) in whole or in part by the Agent against all or any part of the Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Pledgors or to whomsoever may be lawfully entitled to receive such surplus. SECTION 12. Expenses. Each Pledgor will upon demand pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Agent or the Banks hereunder or (iv) the failure by any Pledgor to perform or observe any of the provisions hereof. SECTION 13. Security Interest Absolute. The obligations of each Pledgor under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against each Pledgor to enforce this Agreement, irrespective of whether any action is brought against any other Pledgor or whether any other Pledgor is joined in any such action or actions. All rights of the Agent and security interests hereunder, and all obligations of each Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Credit 168 5 Agreement, the Note or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement or the Note, including, without limitation, any increase in the Obligations resulting from the extension of additional credit to any Pledgor or any of its Subsidiaries or otherwise; (iii) any taking, exchange, release or non-perfection of any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any part of the Obligations or any other assets of any Pledgor or any of its Subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of any Pledgor or any of its Subsidiaries; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Pledgor or a third party pledgor. SECTION 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by any Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 15. Notices. Unless the party to be notified otherwise notifies the other party in writing, notices shall be given by ordinary mail or telex, addressed to such party at its address on the signature page of the Credit Agreement. SECTION 16. Continuing Security Interest; Assignments under Credit Agreement. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the later of (x) the payment in full of the Obligations and all other amounts payable under this Agreement and (y) the expiration or termination of the Commitments, (ii) be binding upon each Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Agent hereunder, to the benefit of, and be enforceable by, the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Bank may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any 169 6 portion of its Commitment, the Loans owing to it, its interest in any Letter of Credit and any Note held by it) to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, subject, however, to the provisions of Article 10 (concerning the Agent) of the Credit Agreement. Upon the later of payment in full of the Obligations and all other amounts payable under this Agreement and the expiration or termination of the Commitments, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgors. Upon any such termination, the Agent will, at the Pledgors' expense, return to the Pledgors such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Pledgors such documents as the Pledgors shall reasonably request to evidence such termination. SECTION 17. Governing Law; Terms. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. Unless otherwise defined herein or in the Credit Agreement, terms defined in Article 9 of the Code are used herein as therein defined. IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. AMSCAN INC. By________________________________ Sheryl B. Mellin Treasurer KOOKABURRA USA, LTD. By________________________________ Sheryl B. Mellin Treasurer DECO PAPER PRODUCTS, INC. 170 7 By________________________________ Sheryl B. Mellin Treasurer TRISAR, INC. By________________________________ Sheryl B. Mellin Treasurer ACCEPTED AND AGREED: THE CHASE MANHATTAN BANK, N.A. By________________________________ Carol Kornbluth Vice President 171 EXHIBIT Q ASSIGNMENT OF DEPOSIT ACCOUNTS For value received, and in connection with a Credit Agreement dated as of September 20, 1995 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein being used herein as therein defined), among THE CHASE MANHATTAN BANK, N.A. (the "Agent"), the banks named therein (the "Banks"), and the undersigned, the undersigned hereby grants a security interest in and right of set-off to, and assigns, transfers, and pledges to the Agent, its successors and assigns, as security for the Indebtedness (as defined below), all of the undersigned's right, title and interest in and to the commercial demand deposit accounts, account numbers [ ], in each case, maintained with Harris Trust and Savings Bank by one or more of the Obligors (as hereinafter defined) (the "Deposit(s)"), together with all monies, proceeds or sums due or to become due thereon or therefrom and all certificates, receipts or other instruments evidencing such Deposit(s). The undersigned agrees to deliver promptly to the Agent the originals of all certificates, receipts or other instruments evidencing the Deposit(s). This Assignment is given to the Agent as security for all indebtedness, obligations or liabilities of any kind of Amscan Inc., a New York corporation, Kookaburra USA, Ltd., a New York corporation, Deco Paper Products, Inc., a Kentucky corporation, or Trisar Inc., a California corporation (each an "Obligor" and collectively, the "Obligors") to the Banks, now or hereafter existing, under the Credit Agreement, the Notes and the other Facility Documents (as such may be amended from time to time), whether for principal, interest, fees, expenses, or otherwise, and all obligations of the Obligors now or hereafter existing under this Assignment (collectively, the "Indebtedness"). The rights, powers and remedies granted to the Agent and the Banks herein shall be cumulative and in addition to any rights, powers and remedies to which the Agent or the Banks may be entitled either by operation of law or pursuant to any other document or instrument delivered or from time to time to be delivered to the Agent or any Bank in connection with any Indebtedness. The undersigned represents and warrants that: (i) the Obligors are the sole owners of the Deposit(s); (ii) the Deposit(s) is/are free of all liens, security interests, and encumbrances and the undersigned has not made any prior assignment or transfer of any kind of said Deposit(s), the proceeds thereof or interest(s) thereon or therein, except such as may have been created in favor of the Bank; (iii) the undersigned has not withdrawn, cancelled, been repaid or redeemed all or any part of said Deposit(s); (iv) there is no pending application for the withdrawal, cancellation, repayment or redemption of said Deposit(s); and (v) this Assignment does not violate, or require any consent, approval or other action by any governmental official or body or any other person or entity, under any 172 law, regulation, decree or order of any agreement binding upon the undersigned or the property of the undersigned. This Assignment has been given for value and is hereby declared to be irrevocable. So long as any Event of Default shall have occurred or be continuing, the undersigned hereby irrevocably authorizes and empowers the Agent at its option, at any time, and from time to time, for its own use and benefit, either in its own name or in the name of the undersigned: (i) to execute any and all instruments required for the withdrawal or repayment of the Deposit(s), or any part thereof; (ii) to complete in any respect any instrument for the withdrawal of funds; and (iii) to in all respects deal with said Deposit(s) as the owner thereof, and the undersigned hereby irrevocably constitutes and appoints the Bank as its attorney-in-fact to do any and all of the aforesaid. The undersigned waives any presentation, demand of payment, protest and notice of non-payment or protest. Notwithstanding the foregoing, the Agent shall not under any circumstances be deemed to assume any responsibility for or obligation or duty with respect to the Deposit(s) or any proceeds thereof, and shall not be required to take any action of any kind to collect, preserve or protect its or the undersigned's rights in the Deposit(s). The undersigned releases the Agent and the Banks from any claims, causes of action and demands at any time arising out of or with respect to this Assignment, the use or disposition of the Deposit(s) or any action taken or omitted to be taken by the Agent or any Bank with respect thereto, and the undersigned hereby agrees to hold the Agent and the Banks harmless from and with respect to any and all claims, causes of action and demands, other than claims, causes of action and demands that are finally judicially determined to have resulted from the gross negligence or willful misconduct of a Bank or the Agent. The obligations of the undersigned under this Assignment shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Indebtedness or any agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Indebtedness, or any other amendment or waiver of or any consent to departure from any agreement or instrument relating to the Indebtedness; (iii) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guaranty, subordination or other credit support for all or any of the Indebtedness; (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of any Obligor or a guarantor of the Indebtedness or a party agreeing to subordinate its claim to the Indebtedness; or (v) any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the terms or the rights of the Agent or any Bank with respect to the Indebtedness or any agreement or instrument relating to the Indebtedness. This Assignment shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Indebtedness is rescinded or must otherwise be -2- 173 returned by the Banks upon the insolvency, bankruptcy or reorganization of any Obligor or otherwise, all as though such payment had not been made. Upon any default in the payment or performance of any obligation in respect of any of the Indebtedness, the Agent may, without regard to any premium or penalty which may result from liquidation of any Deposit(s) prior to maturity; (i) hold any and all monies or proceeds representing the Deposit(s) in a cash collateral account or invest such monies or proceeds as the Agent may deem appropriate on behalf of the undersigned; or (ii) apply all or any portion of the Deposit(s), in its sole discretion, first, to all costs and expenses of the Agent in enforcing its rights and pursuing its remedies hereunder, second, to the payment of interest on the Indebtedness, whether due or not, and any fees or commissions to which the Agent may be entitled; third, to the payment of principal of the Indebtedness; and fourth, to the undersigned or whosoever may be entitled thereto. The undersigned agrees that if the security assigned hereby includes now or hereafter an International Banking Facility Time Deposit (as defined in Regulation D of the Board of Governors of the Federal Reserve System), any extensions of credit made in reliance upon this Assignment and upon said security shall be used to support only non-U.S. activities of any Obligor or its foreign affiliates. This Assignment shall create a continuing security interest in the Deposit(s) and shall remain in full force and effect until the indefeasible payment in full of the Indebtedness and until the Commitments shall no longer be in effect. Upon the indefeasible payment in full of the Indebtedness and when the Commitments shall no longer be in effect, the security interest granted hereby shall terminate and all rights to the Deposit(s) shall revert to the Grantor. This Assignment shall be governed by and construed in accordance with the laws of the State of New York. The undersigned hereby consents to the non-exclusive jurisdiction of the state and federal courts sitting in New York County, New York, and agrees that in the event of dispute hereunder, suit may be brought against the undersigned in such courts or in any other jurisdiction where the undersigned or any of its assets may be found, and the undersigned hereby irrevocably submits to the jurisdiction of such courts. The undersigned irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the undersigned at its address specified below. The undersigned hereby waives any and every right to a trial by jury in any action or on related to this Assignment, the Indebtedness or the enforcement of either or all of the same, and does further expressly waive any and every right to interpose any counterclaim in any such action or proceeding. -3- 174 As used in this Assignment, the term "undersigned" shall be deemed to include all signatories hereto, if more than one, and notwithstanding that it is used in the singular, the obligations and representations of the undersigned herein shall be considered to be joint and several in the case of multiple parties hereto. IN WITNESS WHEREOF, the undersigned has executed this Assignment this 20th day of September, 1995. AMSCAN INC. KOOKABURRA USA, LTD. - ------------------------------ ------------------------------ Sheryl B. Mellin Sheryl B. Mellin Treasurer Treasurer DECO PAPER PRODUCTS, INC. TRISAR, INC. - ------------------------------ ------------------------------ Sheryl B. Mellin Sheryl B. Mellin Treasurer Treasurer Address for each of the undersigned: 2 Macy Road Harrison, New York 10528 -4- EX-10.A 4 EMPLOYMENT AGREEMENT/JOHN A. SVENNINGSEN 11/1/96 1 Exhibit 10(a) EMPLOYMENT AGREEMENT AGREEMENT, dated as of November 1, 1996 (the "EMPLOYMENT AGREEMENT"), by and between AMSCAN HOLDINGS INC. a Delaware corporation (collectively the "EMPLOYER" or "COMPANY") and John A. Svenningsen (the "EMPLOYEE"). WHEREAS, the Employer is presently planning a public offering of its securities, and wishes to retain the services of the Employee following the consummation of such offering; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree, effective at and only upon the closing of the proposed initial public offering of common stock of the Employer (the date of such closing being referred to herein as the "EFFECTIVE DATE"), as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Employee, and Employee hereby agrees to serve, as Chief Executive Officer, Chairman of its Board of Directors and President of the Company, for the term and upon the conditions and provisions of this Employment Agreement. (b) Upon the commencement of this Employment Agreement, as provided in paragraph 3(a), all other employment arrangements in connection with the Employee's employment by Amscan Inc. shall be terminated except that Amscan Inc. shall remain liable to the Employee for all obligations owing by the Company to the Employee on the Effective Date which have not been discharged. 2. EMPLOYEE'S DUTIES. (a) During the term of this Employment Agreement, the Employer will employ the Employee as President, Chief Executive Officer, Chairman of its Board of Directors and the President of the Company. The Employee shall as its chief executive, supervise, manage and administer the business of the Company, and perform such executive duties as are consistent with his office and position and as may be assigned to him from time to time by the Board of Directors. (b) The Employee shall serve without additional remuneration as (i) a director of the Employer, if elected by Employer's stockholders; (ii) a member of any committee of the Board of the Employer, as determined by the Board; and (iii) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer or the applicable board of directors. (c) During the term of this Employment Agreement, Employee shall devote his full business time, skill and efforts to the affairs of the Employer as reasonably necessary to permit the faithful and diligent performance of his duties hereunder. But, nothing contained herein is intended to preclude the Employee from managing his private assets, including his real 2 estate holdings (in particular those real estate holdings which may be leased to the Company or any of its affiliates or subsidiaries) provided that such activities do not interfere with nor diminish the diligent performance by the Employee of his duties on behalf of the Company. 3. TERM. (a) This Employment Agreement shall commence on the day following the Effective Date and continue for a period of three (3) years thereafter (the "TERM"), unless terminated earlier in accordance with the provisions of this Employment Agreement. Notwithstanding the foregoing, the Employee's employment hereunder shall terminate upon the occurrence of any of the following events: 1. the mutual agreement, in writing, at any time, by the Employer and Employee to terminate such employment; 2. the death of the Employee; 3. the termination of the Employee's employment by the Employer, for "CAUSE" as defined hereinafter; 4. the unilateral cessation or discontinuance by the Employee of his working for or employment by the Employer. (b) For the purposes of this Employment Agreement, "CAUSE" shall mean (i) the commission by the Employee of any crime or an intentional act of fraud against the Employer; (ii) any act of gross negligence or wilful misconduct on the part of the Employee with respect to his duties under this Employment Agreement; (iii) any act of wilful disobedience on the part of the Employee in violation of specific and reasonable directions of the Board. A violation under any Motor Vehicle Law or Code shall not be included in the definition of "Cause". (c) Upon termination of the Employee's employment hereunder, whether at the end of the Term or any extended term or in the event of earlier termination as provided herein, the Employee shall have no further rights under this Employment Agreement, except as expressly herein set forth. Nothing contained herein shall be deemed to preclude the Employer from enforcing any remedies available to it at law or equity in consequence of a breach by the Employee of his obligations to the Employer or available to the Employer under the provisions of this Employment Agreement, including without limitation the enforcement of any restrictive covenants hereunder to the extent herein provided. 4. COMPENSATION. (a) During the Term, the Employer agrees to pay to the Employee the following base yearly salaries: -2- 3 (i) The base yearly salary shall be Three Hundred Thousand ($300,000.00) Dollars until the end of the first contract year. (ii) For each full contract year starting with the second contract year, the base yearly salary will be increased by five (5%) percent of the base yearly salary of the preceding contract year. For the purposes hereof, "contract year' shall mean each successive twelve month period commencing on the Effective Date and on each anniversary thereof during the Term. (b) Employee's base yearly salary shall be payable in regular intervals in accordance with the Company's customary payroll practices in effect during the Term. (c) All compensation shall be subject to such withholding of any federal, state or local taxes as may be required by law with respect to these payments. (d) In the event of the termination of the Employee's employment before the end of a contract year, the base yearly salary for the year of termination shall be pro-rated to the date of termination. (e) Bonuses may be paid by the Company to the Employee in such amounts and in such manner as the Company's Board of Directors may, in its sole discretion, determine. 5. FRINGE BENEFITS. As additional consideration for the services of the Employee under this Employment Agreement, the Employer shall provide to the Employee all fringe benefits provided by the Employer to its other executives, including automobile allowance, paid vacation, holiday and sick leave, medical insurance for the Employee, with spouse and dependent children fully paid for by the Employer, and group life insurance, and participation in pension and/or profit sharing plans, in the same manner and to the same extent as such fringe benefits shall be available to such other executives of the Employer or as the Board of Directors of the Company may otherwise determine. 6. BUSINESS EXPENSES. The Employer acknowledges that the Employee may necessarily incur, for the benefit of the Company and in furtherance of the Company's business, various expenses including, but not limited to, travel, entertainment and promotion expenses. The Employer, at its options, shall either pay such necessary expenses directly, advance sums to be used for payment of such necessary expenses or on submission by the Employee of receipts and an itemized account of such expenditures, reimburse the Employee for such necessary expenses actually incurred by him. -3- 4 7. RESTRICTIVE COVENANTS. The Employee acknowledges that his employment with Employer has brought and will bring him into close contact with trade secrets, proprietary information and other confidential material and assets of the Employer and other information not readily available to the public, the disclosure of which to third parties would have a material adverse effect on the Employer's business operations. In recognition of the foregoing, the Employee covenants and agrees that: (a) During the Term and during any extended term, whether or not the Employee's employment is terminated before the end of the particular term, and upon termination of the Employee's employment for a period of three (3) years following such termination, he will not, directly or indirectly, as proprietor, partner, shareholder (other than as a less than five percent shareholder in a publicly held company), officer, director, employee or consultant, or in any other capacity, for his own benefit or for or with any other person or entity, engage in or perform services in any business or activity involved in or related to the business in which the Employer or any of its Affiliates, as herein defined, is now engaged or any other business in which the Employer or any of its Affiliates may hereafter become engaged during the Term in any trading area in which the Employer may be engaged in business or trade. The Employee acknowledges that the Employer now carries on its business in many trading areas throughout the world. (b) Employee will not, at any time, without the prior written consent of the Employer, furnish or disclose to any person who is not then an officer, employee or agent of the Employer, (i) any trade secret of the Employer, or (ii) any documents, records, plans, models, customer lists or other tangible property of the Employer, regardless of its form, which may come into his possession, custody or control in consequence of his employment. (c) In addition to a right to accounting by the Employer and/or damages and/or any other relief to which the Employer may be entitled as a result of the Employee's breach hereof the Employer will be entitled to injunctive relief restraining any such breach or threatened breach, or the continuation of such breach, by the Employee, provided however, that if a court of competent jurisdiction shall determine that this covenant shall be enforceable only if limited to a shorter period of time or to a smaller geographical area than is herein expressly provided, or otherwise limited, then and in such event, this covenant shall be deemed to be limited to the extent so determined to be enforceable, in the same manner and to the same extent as if such limited were expressly provided herein. (d) The rights hereunder of the Employer against the Employee may be assigned by the Employer and may be enforced by any successors or assigns of the Employer. "AFFILIATES" shall mean any entity controlling, controlled by or under common control with the Company or the entity controlling the Company. -4- 5 9. ENFORCEMENT. In the event of any litigation arising out of or related to the Employment Agreement, in addition to any other relief to which it is entitled, the prevailing party shall be entitled to receive reimbursement from the losing party for the prevailing party's legal fees and expenses in connection with such litigation. 10. NOTICES. Any notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing, and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, to the party to be notified at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: To Employer: Amscan Inc. 80 Grasslands Road Elmsford, NY 10523 Attn: Board of Directors with a copy to: Kurzman & Eisenberg, LLP Attn: Sam Eisenberg, Esq. or Joel S. Lever, Esq. One North Broadway White Plains, NY 10601 To Employee: Mr. John A. Svenningsen c/o Amscan Inc. 80 Grasslands Road Elmsford, NY 10523 Attn: Board of Directors with a copy to: Kurzman & Eisenberg, LLP Attn: Sam Eisenberg, Esq. or Joel S. Lever, Esq. One North Broadway White Plains, NY 10601 11. AMENDMENTS. No amendments or additions to this Employment Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided. -5- 6 12. GOVERNING LAW. This Employment Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 13. PARAGRAPH HEADINGS. The paragraph headings used in this Employment Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this Employment Agreement. 14. ENTIRE AGREEMENT. This Employment Agreement including any Exhibits attached hereto sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, except as specifically provided herein. 15. SUCCESSORS AND ASSIGNS. This Employment Agreement, and the Employee's rights and obligations hereunder, may not be assigned by the Employee. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto, and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. The term "EMPLOYER" as used in this Employment Agreement, shall include all such successors. IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the day and year first above written. /S/ JOHN SVENNINGSEN ------------------------------ (Employer) /S/ JOHN SVENNINGSEN ------------------------------ John Svenningsen (Employee) -6- EX-10.B 5 EMPLOYMENT AGREEMENT/GERALD C. RITTENBERG 10/9/96 1 Exhibit 10(b) EMPLOYMENT AGREEMENT AGREEMENT, dated the 9th day of October, 1996 (the "EMPLOYMENT AGREEMENT"), by and between AMSCAN HOLDINGS, INC. a Delaware corporation (the "EMPLOYER" or "COMPANY") and Gerald C. Rittenberg (the "EMPLOYEE"). WHEREAS, the Employee has been employed by Amscan, Inc. ("Amscan") a New York corporation prior to the Effective Date of this Agreement, pursuant to an Agreement dated November 27, 1991, by and between the Employee and Amscan, as supplemented and amended to the date hereof (the "PRIOR AGREEMENT"); and WHEREAS, the Employer is presently planning a public offering of its securities, and wishes to retain the services of the Employee following the consummation of such offering; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree, effective at and only upon the closing of the proposed initial public offering of common stock of the Employer ("IPO") on or before June 30, 1997 (the date of such closing being referred to herein as the "EFFECTIVE DATE"), as follows: I. Employment. A. The Company hereby employs the Employee, and Employee hereby agrees to serve, as President of the Company, for the term and upon the conditions and provisions of this Employment Agreement. B. Upon the commencement of this Employment Agreement, as provided in paragraph III A, the Prior Agreement and all other employment arrangements in connection with the Employee's employment by Amscan shall be terminated, except that Employee shall receive the unpaid bonus due Employee pursuant to Section 5 of the Prior Agreement through the Effective Date, (which unpaid bonus will be either (i) the pro-rata bonus for 1996 if the Effective Date is in 1996 or (ii) the full bonus for 1996 plus the pro-rata bonus for 1997 if the Effective Date is in 1997). The said unpaid bonus shall be paid to the Employee on the day before the Underwriting Agreement for the IPO is executed by the Underwriters, and the bonus shall be estimated and paid if the amount has not been finally determined. The Employee shall have no obligations to refund the amount so paid. If the estimated amount of said bonus shall be less than the amount of said bonus, as finally determined, the Company shall pay Employee the difference between the finally 2 determined bonus and the estimated bonus within ninety days of the Effective Date. II. Employee's Duties. A. During the term of this Employment Agreement, the Employer will employ the Employee as President of the Company. The Employee shall supervise and administer the general business of the Company and its subsidiaries, including, but not limited to, marketing, sales, manufacturing and other executive functions and to perform such other executive duties as may be assigned to him from time to time by the Board of Directors of the Company or its Chairman of its Board. B. The Employee shall serve without additional remuneration as (i) a director of the Employer, if elected by Employer's stockholders; (ii) a member of any committee of the Board of the Employer, as determined by the Board; and (iii) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer or the applicable board of directors. C. During the term of this Employment Agreement, Employee shall devote the time, skill and efforts to the affairs of the Employer and its subsidiaries as reasonably necessary to permit the faithful and diligent performance of his duties hereunder, as President of the Employer. III. Term. A. This Employment Agreement shall commence on the day following the Effective Date and continue for a period of three (3) years thereafter (the "TERM"), unless terminated earlier in accordance with the provisions of this Employment Agreement. Notwithstanding the foregoing, the Employee's employment hereunder shall terminate upon the occurrence of any of the following events: 1. the mutual agreement, in writing, at any time, by the Employer and Employee to terminate such employment; 2. the death of the Employee; 3. the termination of the Employee's employment by the Employer, for "CAUSE" as defined hereinafter; 4. the unilateral cessation or discontinuance by the Employee of his working for or employment by the Employer. 3 B. For the purposes of this Employment Agreement, "CAUSE" shall mean (i) the commission by the Employee of any crime or an intentional act of fraud against the Employer; (ii) any act of gross negligence or willful misconduct on the part of the Employee with respect to his duties under this Employment Agreement; (iii) any act of willful disobedience on the part of the Employee in violation of specific and reasonable directions of the Board. A violation under any Motor Vehicle Law or Code shall not be included in the definition of Cause. C. Upon termination of the Employee's employment hereunder, whether at the end of the Term or any extended term or in the event of earlier termination as provided herein, the Employee shall have no further rights under this Employment Agreement, except as expressly herein set forth. Nothing contained herein shall be deemed to preclude the Employer from enforcing any remedies available to it at law or equity in consequence of a breach by the Employee of his obligations to the Employer or available to the Employer under the provisions of this Employment Agreement, including without limitation the enforcement of any restrictive covenants hereunder to the extent herein provided. IV. Compensation. A. During the Term, the Employer agrees to pay to the Employee the following base yearly salaries: 1. The base yearly salary shall be $210,282 for the 1996 calendar year and $220,796 for the 1997 calendar year. 2. For each full calendar year, commencing January 1, 1998 the base yearly salary will be increased by 5% of the base yearly salary of the preceding calendar year. B. Employee's base yearly salary shall be payable in regular intervals in accordance with the Company's customary payroll practices in effect during the Term. C. All compensation shall be subject to such withholding of any federal, state or local taxes as may be required by law with respect to these payments. D. In the event of the termination of the Employee's employment before the end of a calendar year, the base yearly salary for the year of termination shall be pro-rated to the date of termination. E. Bonuses may be paid by the Company to the Employee in such amounts and in such manner as the Company's Board of Directors may, in its sole discretion, determine. 4 V. Fringe Benefits. As additional consideration for the services of the Employee under this Employment Agreement, the Employer shall provide to the Employee all fringe benefits provided by the Employer to its other executives, including automobile allowance, paid vacation, holiday and sick leave, medical insurance for the Employee, with spouse and dependent children fully paid for by the Employer, and group life insurance, and participation in pension and/or profit sharing plans, in the same manner and to the same extent as such fringe benefits shall be available to such other executives of the Employer. VI. Business Expenses. The Employer acknowledges that the Employee may necessarily incur, for the benefit of the Company and in furtherance of the Company's business, various expenses including, but not limited to, travel, entertainment and promotion expenses. The Employer, at its options, shall either pay such necessary expenses directly, advance sums to be used for payment of such necessary expenses or on submission by the Employee of receipts and an itemized account of such expenditures, reimburse the Employee for such necessary expenses actually incurred by him. VII. Stock-Options. Employer currently intends to adopt a stock option plan for the benefit of its employees (such plan, whether adopted by Employer is referred to herein as the "OPTION PLAN"). Following adoption of the Option Plan, Employee will be entitled to participate on the same basis and at the same time as other executive officers and key senior management personnel of the Employer in any options awarded to such personnel as a group, provided, however, that the foregoing provision shall not apply with respect to any grants of options pursuant to the Option Plan which are made prior to or within 30 days following the closing of the initial public offering of common stock of the Employer. Such stock option plan shall include a provision for the pro-rata vesting within no more than five (5) years. VIII. Restrictive Covenants. The Employee acknowledges that his employment with Employer has brought and will bring him into close contact with trade secrets, proprietary information and other confidential material and assets of the Employer and other information not readily available to the public, the disclosure of which to third parties would have a material adverse effect on the Employer's business 5 operations. In recognition of the foregoing, the Employee covenants and agrees that: A. During the Term and during any extended term, whether or not the Employee's employment is terminated before the end of the particular term, and upon termination of the Employee's employment for a period of three (3) years following such termination, he will not, directly or indirectly, as proprietor, partner, shareholder (other than as a less than five percent shareholder in a publicly held company), officer, director, employee or consultant, or in any other capacity, for his own benefit or for or with any other person or entity, engage in or perform services in any business or activity involved in or related to the business in which the Employer or any of its Affiliates, as herein defined, is now engaged or any other business in which the Employer or any of its Affiliates may hereafter become engaged during the Term in any trading area in which the Employer may be engaged in business or trade. The Employee acknowledges that the Employer now carries on its business in many trading areas throughout the world. B. Employee will not, at any time, without the prior written consent of the Employer, furnish or disclose to any person who is not then an officer, employee or agent of the Employer, (i) any trade secret of the Employer, or (ii) any documents, records, plans, models, customer lists or other tangible property of the Employer, regardless of its form, which may come into his possession, custody or control in consequence of his employment. C. In addition to a right to accounting by the Employer and/or damages and/or any other relief to which the Employer may be entitled as a result of the Employee's breach hereof the Employer will be entitled to injunctive relief restraining any such breach or threatened breach, or the continuation of such breach, by the Employee, provided however, that if a court of competent jurisdiction shall determine that this covenant shall be enforceable only if limited to a shorter period of time or to a smaller geographical area than is herein expressly provided, or otherwise limited, then and in such event, this covenant shall be deemed to be limited to the extent so determined to be enforceable, in the same manner and to the same extent as if such limitation were expressly provided herein. D. The rights hereunder of the Employer against the Employee may be assigned by the Employer and may be enforced by any successors or assigns of the Employer. "AFFILIATES" shall mean any entity controlling, controlled by or under common control with the Company, including, without limitation, Amscan, Inc. J Twist USA, Amscan Canada, Amscan Sweden, Amscan England, Amscan Australia, Amscan Germany, Deco Manufacturing and the Perfect Party. 6 IX. Enforcement. In the event of any litigation arising out of or related to the Employment Agreement, in addition to any other relief to which it is entitled, the prevailing party shall be entitled to receive reimbursement from the losing party for the prevailing party's legal fees and expenses in connection with such litigation. X. Notices. Any notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing, and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, to the party to be notified at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: To Employer: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, NY 10523 Attn: Board of Directors with a copy to: Kurzman & Eisenberg, LLP Attn: Sam Eisenberg, Esq. One North Broadway White Plains, NY 10601 To Employee: Mr. Gerald C. Rittenberg 18 Carey Drive Bedford, NY 10506 with a copy to: Orloff, Lowenbach, Stifelman & Siegel, P.A. Att: Susan M. Holzman, Esq. 101 Eisenhower Parkway Roseland, New Jersey 07068 XI. Amendments. No amendments or additions to this Employment Agreement shall be binding unless in writing and signed by both parties. XII. Governing Law. This Employment Agreement shall be governed by and construed and enforced in accordance with the laws of the State of 7 New York. XIII. Paragraph Headings. The paragraph headings used in this Employment Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this Employment Agreement. XIV. Entire Agreement. This Employment Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, except as specifically provided herein. XV. Successors and Assigns. This Employment Agreement, and the Employee's rights and obligations hereunder, may not be assigned by the Employee. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto, and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. The term "EMPLOYER" as used in this Employment Agreement, shall include all such successors. IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the day and year first above written. Amscan Holdings, Inc. (Employer) By: /s/ JOHN SVENNINGSEN ----------------------------------- John Svenningsen, President /s/ GERALD C. RITTENBERG ----------------------------------- Gerald C. Rittenberg (Employee) EX-10.C 6 STOCK AGREEMENT DATED OCTOBER 9, 1996 1 Exhibit 10(c) STOCK AGREEMENT AGREEMENT, dated the 9th day of October, 1996, among Gerald C. Rittenberg ("EMPLOYEE")', John Svenningsen ("SVENNINGSEN") and Amscan, Inc., a New York corporation ("AMSCAN"). WHEREAS, Employee and Amscan are parties to an Employment Agreement, dated as of November 27, 1991, as supplemented and amended (as so supplemented and amended, the "EMPLOYMENT AGREEMENT"). Pursuant to the terms of the Employment Agreement, among other provisions, the Employee is entitled to receive certain bonus payments based upon the profits of the Amscan and certain other payments and benefits in addition to his base compensation and fringe benefits. Svenningsen is the sole shareholder of Amscan. NOW, THEREFORE, in consideration of services rendered by Employee to Amscan, and in order to induce Employee to terminate the Employment Agreement and to enter into a new employment agreement which does not provide for the bonus and certain other payments and benefits provided for in the Employment Agreement which would otherwise create significant additional financial obligaion to Amscan, and in consideration of the mutual covenants and agreements contained herein, the parties agree, effective at and only upon the closing of the proposed initial public offering of common stock of Amscan (or any security issued to Amscan's shareholders in exchange for Amscan stock) (the "IPO") (the date of such closing being referred to herein as the "EFFECTIVE Date"), as follows: 1. Payments by Amscan. a. In anticipation of a closing of the IPO for any amount, Amscan will pay Employee $3,450,000 on the day prior to the date that the underwriters of the IPO sign the Underwriters Agreement, ("Underwriting Date"), without any responsibility by the Employee to refund any of such amount. Within 60 days of the closing of the IPO, Amscan will pay Employee an amount equal to five percent (5%) of the "Net Proceeds of the IPO" (as defined below), less the amount of any dividends or other distributions paid to Employee in respect of the Shares prior to the Underwriting Date, and less the sum of $3,450,000 previously paid on account. b. For purposes of this Paragraph 1, "Net Proceeds of the IPO" shall mean the gross proceeds from the sale of all primary and secondary shares in the IPO, including shares sold through the exercise of the rights granted the underwriters ("Greenshoe"), reduced by the amount of all underwriting discounts in connection with the IPO and reduced further by the amount of all other expenses payable in connection with the IPO in the expense 2 categories identified in the IPO registration statement. 2. Transfer of Shares. On the day prior to the Underwriting Date, Amscan will transfer to Employee Amscan shares which when exchanged on a tax free basis on the Underwriting Date for shares of Amscan Holdings, Inc. will be equal to three (3%) percent of Amscan Holdings, Inc. shares to be issued and outstanding after IPO excluding the shares issued pursuant to any Greenshoe. (All of the shares to be issued to the Employee pursuant to this Paragraph 2 are referred to herein as the "RESTRICTED SHARES"). 3. Sale of Shares by Employee: Restrictions. a. The Employee agrees that one-half of the Restricted Shares which are received under Paragraph 2 will not be sold for a period of 18 months following their transfer to Employee. Notwithstanding the foregoing Employee shall be entitled to sell Restricted Shares prior to the end of the 18 months (subject to the provisions of Paragraph 3b) with a fair market value equal to two hundred (200%) percent of the amount of capital gains taxes incurred by the Employee as a result of using Shares to pay off the principal indebtedness or interest under the Loan Agreement between Svenningsen and Employee ("Loan Agreement"). The remaining one-half of the Restricted Shares may be sold after the third anniversary of the transfer of the Restricted Shares to Employee. In order to assure compliance with the foregoing restrictions, the Restricted Shares will bear a restrictive legend and appropriate stop transfer orders will be given to Amscan's transfer agent. b. If the Employee wishes to sell up to one-half of the Restricted Shares to the extent permitted under the preceding paragraph, during the period commencing 12 months after the issuance of the Restricted Shares to him, and ending on the second anniversary of the issuance of such Restricted Shares to him, Amscan will, on one occasion, prepare and file a registration statement for the sale of one-half of the Restricted Shares, provided that (i) such Restricted Shares, in the opinion of counsel to Amscan, may not otherwise be sold by the Employee to the public due to the restrictions imposed by Rule 144 under the Securities Act of 1933, (ii) Amscan may register such Restricted Shares on Form S-3 or any other appropriate registration statement, and (iii) the Employee has given Amscan at least 90 days' prior notice no later than March 1, 1998, of his desire to have such Restricted Shares registered. In connection with any such registration, Amscan will use its best efforts to cause a registration to be timely filed, to become effective and maintained in effect for such period of time as is reasonably necessary to permit the sale thereof. The Employer will pay all expenses incident to such registration. The Employee will pay any underwriting commissions or discounts, if the Employee decides to sell such Restricted 2 3 Shares through an underwriter. The Employer and the Employee shall enter into the usual indemnification agreements with respect to information furnished by the indemnitor which is included in the registration statement. c. Any shares transferred by Employee to Svenningsen pursuant to the terms of the Loan Agreement shall not be deemed to be a sale of the Restricted Shares. d. Employee shall be entitled to make gifts of the Restricted Shares, which gifts shall not be deemed to be sales of the Restricted Shares. Employee personally agrees and agrees on behalf of the donees of the Restricted Shares that none of the donees of his gifts will sell the Restricted Shares prior to the third anniversary of the transfer of the Restricted shares to him. The parties agree that none of the Restricted Shares that were gifted shall be registered pursuant to Paragraph 3b. 4. Future Payments by Svenningsen. a. In the event that Svenningsen, his wife, his issue, or his estate (collectively "Svenningsen") should sell any of his shares of Amscan stock in any public or private sale (other than in the IPO) during the period commencing on the Effective Date and continuing as long as Employee is employed during the initial three (3) year Term of his new employment agreement with Amscan Holdings, Inc. ("New Employment Agreement") and further continuing during the three (3) year or shorter period during which the Restrictive Covenant is enforceable under the New Employment Agreement, Svenningsen will pay to the Employee an amount equal to five percent (5%) of the Net Proceeds of such sale. b. For purposes of this Paragraph 4. "NET PROCEEDS" of such sale shall mean the gross proceeds from the sale of Svenningsen's shares, less all expenses (including any underwriting discounts or commissions and any transfer taxes) payable by Svenningsen in connection with such sale. c. The payment to be made to Employee pursuant to this Paragraph 4 shall be made in cash within 30 days following the closing of the sale of shares by Svenningsen. d. The issuance of Shares by Amscan to make acquisitions or to effect any mergers shall not be sales of Amscan stock by Svenningsen. 5. Corporation Taxes. In the event that Employee is liable for the payment of any taxes based upon the net income of Amscan for that portion of Amscan 1996-97 fiscal year or 1997-1998 fiscal year, as the case may be, during which it is a Subchapter S corporation, Svenningsen agrees that he shall pay to Employee an 3 4 amount sufficient to pay such tax liability of Employee including interest and penalties and any tax liability resulting from the undertaking hereby by Svenningsen to pay such tax liability. 6. Svenningsen Loan. Svenningsen agrees to loan the Employee the amounts requested by Employee, in accordance with the Loan Agreement. 7. Miscellaneous. a. No portion of the payment to be made to the Employee as provided in Paragraph 1 hereof and no portion of the value of the shares to be transferred to Employee under Paragraph 2 hereof shall be deducted from the profits of Amscan for the purpose of computing the bonuses payable to Employee under the Employment Agreement. b. In the event that the shareholders of Amscan receive securities in exchange for their Amscan common stock, whether as a result of the formation of a holding company for Amscan, a merger or other transaction, the obligations of Amscan hereunder shall he binding on the issuer of the securities exchanged for Amscan common stock. Following such exchange, all references herein to Amscan or Amscan securities shall be deemed to be references to such issuer or its securities. c. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs, administrators and legal representatives. d. This Agreement will be governed by and interpreted and enforced in accordance with the laws of the State of New York. e. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which shall constitute a single agreement. f. This Agreement represents the entire agreement of the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended except in a writing 4 5 signed by the party or parties to be bound by such modification or amendment. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. /S/ GERALD C. RITTENBERG AMSCAN, INC. - --------------------------- Gerald C. Rittenberg /S/ JOHN SVENNINGSEN By: /S/ JOHN SVENNINGSEN - --------------------------- -------------------- John Svenningsen Name: Title: 5 EX-10.D 7 EMPLOYMENT AGREEMENT/ GERALD C. RITTENBERG 1 Exhibit 10(d) EMPLOYMENT AGREEMENT AGREEMENT, made this 27th day of November, 1991, between Amscan, Inc., a New York corporation (the "Employer" or "Company") and Gerald C. Rittenberg (the "Employee"). W I T N E S S E T H: WHEREAS, Employee is now and has been employed for some time as an employee of the Employer; WHEREAS, the Employer desires to continue to employ the Employee during the term of this Agreement and the Employee desires to continue in the employ of the Employer and the parties wish to set forth the terms and conditions of such employment; NOW, THEREFORE, in consideration of the foregoing and of the covenants and promises contained herein, the parties agree as follows: 1. Prior Contract Superseded. This employment agreement supersedes the current employment agreement between the Employer and the Employee dated February 28, 1990, and the provisions hereof shall govern the employment of the Employee, except that the following provisions of the prior agreement continue in force and effect: (a) The base yearly salary of $150,000. shall remain in effect until February 28, 1992 and shall thereafter be adjusted and increased as set forth in paragraph 4. hereof. 2 (b) The bonuses referred to in the third paragraph of the agreement of February 28, 1990, shall be paid by the Employer to the Employee, to the extent, if any, that any portion thereof is still unpaid. (c) The bonus equal to one percent (l%) of the increase of the net sales of Amscan USA and Amscan Canada referred to in the fourth paragraph of the agreement of February 28, 1990, will be paid by the Employer to the Employee, but any such payment shall be credited to the Employer in reduction of the share of the Aggregate Net Profits, if any, computed for the calendar year 1992 as set forth in paragraph 4. hereof. 2. Duties. During the term of this Agreement, the Employer will employ the Employee to supervise and administer the general business of the Company, including but not limited to marketing, sales, manufacturing and other executive functions and to perform such other executive duties as may be assigned to him from time to time, by the Board of Directors of the Company or its President or Chairman of its Board. (a) The Employee shall devote his entire time and attention to the Employer's business. During the term of this agreement, the Employee shall not engage in any other business activity, regardless of whether it is or is not pursued for gain or profit. - 2 - 3 (b) The Employee is designated as the Executive Vice President of the Company. The Board of Directors may designate the Employee as an officer and director of the Company other than or in addition to his designation as Executive Vice President and the Employee shall during the term of this Agreement serve as such. No additional compensation shall be payable to the Employee for his services as an officer or director of the Company. 3. Term of Employment and Effective Date Thereof. (a) This agreement and the employment of the Employee hereunder shall start and be effective on the date hereof and except as earlier terminated, as herein provided, shall end December 31, 1996. (b) Notwithstanding the foregoing, the Employee's employment hereunder shall terminate upon the occurrence of any of the following events: (i) the mutual agreement, in writing, at any time, by the Employer and Employee to terminate such employment; (ii) the death of the Employee; (iii) the termination of the Employee's employment by the Employer, for "Cause" as defined hereinafter. (iv) the unilateral cessation or discontinuance by the Employee of his working for or employment by the Employer; - 3 - 4 (v) the sale of the business of the Employer or of substantially all of its shares of stock and the termination of the Employee's employment as provided by paragraph 8.(c) hereof. (vi) the election by the Employer to terminate the Employee's employment at any time and for any reason prior to the end of the initial term or any extended term, under the provisions of paragraph 12 hereof. (c) For the purposes of this Agreement, "Cause" shall mean the commission by the Employee of any crime or an intentional act of fraud against the Employer. A violation under any Motor Vehicle Law or Code shall not be included in the definition of "Cause". (d) Upon termination of the Employee's employment hereunder, whether at the end of the term hereof or any extended term or in the event of earlier termination, the Employee shall have no further rights under this Agreement, except as expressly herein set forth. But nothing contained herein shall be deemed to preclude the Employer from enforcing any remedies available to it by law in consequence of a breach by the Employee of his obligations to the Employer or available to the Employer under the provisions of this agreement, including without limitation the enforcement of any restrictive covenants hereunder to the extent herein provided. 4. Compensation. (a) For his services hereunder, the Employer agrees to pay to the Employee during the term of this agreement, the - 4 - 5 following base year salaries: (i) The base yearly salary shall be $150,000 until February 28, 1992. (ii) Commencing March 1, 1992, the base yearly salary shall be increased to $173,000. The base yearly salary of $173,000. payable for less than a full calendar year shall be pro-rated to the end of such calendar year. (iii) For each full calendar year (including the final calendar year of 1996 for the initial term of employment hereunder) starting with the calendar year 1993, the base yearly salary shall be increased by 5% of the base yearly salary of the preceding year. The increase for 1993 shall be 5% of $173,000. (b) Employee's base yearly salary shall be payable in regular intervals in accordance with the Company's payroll practices, in effect, during the term of this Agreement. (c) All compensation shall be subject to such withholding of any federal, state or local taxes as may be required by law with respect to these payments. (d) In the event of the termination of the Employee's employment before the end of a calendar year, the base yearly salary for the year of termination shall be pro-rated to the date of termination, except as provided in paragraph l2. hereof. 5. Bonus. In addition to the base yearly salary set forth in paragraph 4 hereof and any other compensation payable to the Employee as herein set forth, the Employer agrees to pay to the Employee a bonus or bonuses as and upon the terms and conditions hereinafter set forth: - 5 - 6 (a) For each calendar year that the Employee shall be employed by the Employer, whether during the initial term or any extended term, the Employer shall pay to the Employee a bonus of ten (10%) percent of the Aggregate Net Profits (as hereinafter defined and calculated) of the Employer and its Affiliates (as hereinafter described and defined) for the said calendar year. (b) If the Employee's employment shall be terminated before the end of a calendar year, then the bonus for the period of time that the Employee shall be employed during such calendar year shall be ten (10%) percent of the Aggregate Net Profits for the period from the commencement of such year to the date of termination of employment within such year. (c) For the year of termination of employment, no bonus shall be payable by the Employer to the Employee under this provision of this agreement if the Employee's employment has been terminated for "Cause" as set forth in Paragraph 3 hereof or if it has been terminated by reason of the unilateral cessation or discontinuance by the Employee of working for the Employer as set forth in Paragraph 3.(a)(iv) of this agreement. (d) The parties acknowledge that the Company's business is now related to and associated with the following business entities, identified herein for the purposes of this agreement as Amscan U.S.A., Amscan Canada, Amscan Sweden, Amscan England, Amscan Australia, Amscan Germany, Deco Manufacturing, Kookabura Manufacturing, Perfect Party and Cake Tops, and may hereafter become related to business entities which will be - 6 - 7 engaged in businesses similar to those of the Company or related thereto or who will serve the same outlets as does the Company, all of which entities are referred to collectively for the purpose of this Agreement as "Affiliates". While these other business entities are referred to herein as "Affiliates", it is recognized and acknowledged that none of the current or future Affiliates are or will be subsidiaries or have any other relationship to the Company which would be violative of its status as a Sub-Chapter S Corporation under the United States Internal Revenue Code. The Employer may in its sole discretion, from time to time, in the conduct and furtherance of its business, affiliate with such additional business entities as described above. The proprietary ownership of and interests in such Affiliates may be determined by the Employer, in its sole discretion. Such additional business entities shall be regarded as "Affiliates" of the Employer for the purpose of computing Aggregate Net Profits hereunder and the net profits or losses of such additional Affiliates shall be included in the computation of the Aggregate Net Profits, if any, hereunder, as if such other business entities were originally named herein as Affiliates. (e) The Employer may take such steps in the operation of its business as its President or Board of Directors or shareholders may, in their sole discretion, determine, including, without limitation, modification or discontinuance of - 7 - 8 any of its present operations or addition of new operations, without regard to the effect on the calculation of the Aggregate Net Profits hereunder. Similarly, any Affiliate may conduct its business as it sees fit without regard to the effect on the Aggregate Net Profits hereunder. If any action taken by the Employer or its officers or Board of Directors or if any action taken by any of the Affiliates, adversely affects the Aggregate Net Profits as defined herein, the Employee shall not be entitled to any claim or recourse of any kind or nature by reason thereof. (f) The Aggregate Net Profits hereunder shall be calculated by adding the net profits of the Employer and of all of the Affiliates and deducting therefrom the net losses of the Employer and of all of the Affiliates for each calendar year or any lesser period within a calendar year if the Employee's employment shall be terminated before the end of a calendar year. The Employer's fiscal period is the calendar year. However, various of the Affiliates may have fiscal periods which do not coincide with the calendar year. Nevertheless, in computing the Aggregate Net Profits, if any, for any calendar year, the net profits or losses of the respective Affiliates for any full calendar year shall be taken as the amounts calculated as at the end of their respective fiscal periods occurring during the calendar year involved. (g) For the purposes hereof, the Net Profits of the Employer and the Affiliates, if any, shall be computed before - 8 - 9 the payment of any federal, state or local taxes by the Employer and those Affiliates located in the United States and before the payment of comparable taxes payable by any of the Affiliates located outside of the United States. (h) For the purpose of computing the Aggregate Net Profits hereunder during the initial term of this agreement and during the extended term, if the option to extend is exercised as provided by paragraph 13. hereof, the deduction by the Employer for the base salary of the President of the Employer (now, John Svenningsen) shall not exceed the base sum of $250,000. for the calendar year 1992 with successive increases thereafter, of 5% over the base salary for each of the four (4) calendar years of the initial term and if this agreement is extended, then for each of the three years of the extended term. Nothing contained herein shall limit the amount of salary which may be payable by the Employer or any of the current or future Affiliates, as herein described and defined to its President; the foregoing limitation being only for the purpose of computing Aggregate Net Profits. (i) The Employee may examine the financial and other books and records of the Company relating to the profits and losses of the Company and its affiliates. For the purposes hereof, the Aggregate Net Profits shall be calculated and determined by outside accountants regularly employed by the Employer and the respective Affiliates to prepare their financial statements and such calculations shall be made in - 9 - 10 accordance with generally accepted accounting principles consistently applied. The Employee and Employer shall be bound by the calculation of the said accountants as to the amount of the Aggregate Net Profits and Losses. The Employee's share of the Aggregate Net Profits, if any, shall be paid to him as follows: The Aggregate Net Profits shall be computed by the aforesaid accountants in a timely manner at the end of each calendar year or at the time of termination of the Employee's employment within a calendar year, in the event of early termination and the Employee's share of the Aggregate Net Profits shall be paid to him as follows: (i) One-third thereof shall be paid to the Employee within 90 days after the end of the calendar year involved or within 90 days after early termination of Employee's employment within a calendar year, as the case may be. (ii) The remaining two-thirds of the Employee's share of said Aggregate Net Profits shall be loaned by the Employee to the Company to be repaid to the Employee with interest at prime rate chargeable by the Company's bank as follows: Interest only shall be paid at the end of the first year of such loan and the remaining principal plus interest shall be paid at the end of the second year of such loan. The loan shall be deemed to have been made on the first day following the period covered by the accounting involved. (j) Nothing contained herein is intended to imply that - 10 - 11 the Employee is obliged to reimburse the Employer for any losses sustained by the Employer. 6. Fringe Benefits. As additional consideration for the services of the Employee under this Agreement, the Employer shall provide to the Employee all fringe benefits provided by the Employer to its other executives, including automobile allowance, paid vacation, holiday and sick leave, medical insurance for the Employee, spouse and dependent children fully paid for by the Employer and group life insurance, and participation in pension and/or profit-sharing plans, in the same manner and to the same extent as such fringe benefits shall be available to such other executives of the Employer. 7. Business Expenses. The Employer acknowledges that the Employee may necessarily incur, for the benefit of the Company and in furtherance of the Company's business, various expenses included but not limited to travel, entertainment and promotion expenses. The Employer, at its option, shall either pay such necessary expenses directly, advance sums to be used for payment of such necessary expenses or on submission by the Employee of proper vouchers therefor, reimburse the Employee for such necessary expenses actually incurred by him. 8. Additional Compensation Upon Sale of Business. (a) As additional compensation to the Employee for the covenants and obligations of the Employee under this Agreement - 11 - 12 and as an incentive to remain employed by the Employer, the Employer agrees that in the event the Employer shall sell its business, including substantially all of its assets or if the shareholders of the Employee shall sell substantially all of their stock in the Company to another person or entity while the Employee is still employed by the Employer, then the Employer (in the event of a sale by the Employer) or the shareholders (in the event of a sale of stock by the shareholder) shall pay to the Employee a sum of money equal to five percent (5%) of the "Net Selling Price", as defined hereinafter. "Net Selling Price" shall mean the total consideration actually paid by the purchaser for all of the stock or substantially all of the assets of the Company (including liabilities assumed by the purchaser) less any liabilities required to be satisfied or paid by the Employer or the shareholders out of the proceeds of the sale, and less any and all selling expenses of the Employer, including, without limitation, legal fees, brokerage commissions, sales taxes (if paid by the Employer) and other selling expenses whether similar or dissimilar to the foregoing. If payment of such consideration by the purchaser shall be deferred in whole or in part, the Employee will be entitled to his additional compensation hereunder only if and when and to the extent that payments thereof shall actually be collected by the Employer or shareholder(s), and will be subject to deduction for the Employee's pro rata share of collection expenses, including legal fees. - 12 - 13 (b) Nothing contained herein is intended to limit or preclude the sale by the current shareholder(s) of the Employer of any portion of their shares provided that the current shareholder(s) shall retain ownership of more than Fifty (50%) percent of the shares of the Company and control thereof and provided further that any purchasers of such shares shall upon the purchase of such shares covenant and agree to be bound by this portion of the agreement relating to additional compensation upon the sale of the business of the Company. No portion of the consideration received upon such sale shall be payable to the Employee. (c) If the Employer shall sell its business including substantially all of its assets or if the shareholder(s) of Employer shall sell substantially all of their shares of stock in the Company, then at the discretion of the purchaser of said business of said shares of stock, as the case may be, the Employer at the request of the purchaser, may terminate this Agreement. Thereupon, the Employee shall be entitled to receive all sums payable to him in the manner and as provided by sub- paragraph (a) of this paragraph 8. In the event of such termination, the bonus provided in Paragraph 5 shall be based on the Aggregate Net Profits for the portion of the Company's year through the date of such termination. (d) Nothing contained in this paragraph or elsewhere in this agreement or otherwise is intended to imply that a merger or consolidation of the Company with any other company or - 13 - 14 business entity shall constitute a sale of the business hereunder or of the shares of stock of the Company, whereby additional compensation shall be paid to the Employee under this paragraph 8. and such consolidation or merger shall not constitute any such sale. (e) John Svenningsen, as sole shareholder of the Company has signed the last page of this agreement to acknowledge his obligation under this paragraph of this agreement as the sole shareholder of the Company. 9. Additional Compensation Upon Initial Public Offering. (a) As additional consideration for the covenants and obligations of the Employee under this Agreement and as incentive to remain employed by the Employer, the Employer agrees that in the event the Company files a registration statement with the Securities and Exchange Commission in connection with an "Initial Public Offering," as defined hereinafter, during the term of this Agreement and the registration statement is effective and stock of the Company is sold pursuant to the Initial Public Offering, the Company shall issue to the Employee shares of Company Stock (the "Shares") equal to five (5%) percent of the shares of Company Stock issued and outstanding immediately following the closing of the Initial Public Offering. (b) "Initial Public Offering" shall mean the registration of the Company's stock with the Securities and Exchange Commission under the Securities Act of 1933, as - 14 - 15 amended. "Company Stock" shall mean the common stock, no par value, of the Company. (c) It is understood that the Shares received by the Employee pursuant to this paragraph 9 shall be "restricted stock" as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended. Further the Employee agrees that each certificate representing the Shares will bear on its face a legend substantially in the following form: "This certificate and the shares of stock represented hereby have not been registered with the Securities Act of 1933. They have been acquired for investment purposes only and not with the view to the distribution thereof within the meaning of the Securities Act of 1933, and the rules and regulations thereunder. They may not be transferred in the absence of an effective registration statement except in compliance with any provision of law." The Employee further agrees that the Company may place a stop order on the certificate(s) evidencing the Shares, restricting their transfer in accordance with their restricted nature. 10. Restrictive Covenant. The Employee in consideration of his special and unique services and his position, which by its nature exposes him to trade secrets, proprietary information and other confidential material and assets of the Employer, covenants and agrees as follows with the Employer: - 15 - 16 (a) During the term of this Agreement and during any extended term, whether or not the Employee's employment hereunder is terminated before the end of the particular term, and for the additional periods thereafter, set forth below, the Employee covenants and agrees with the Employer that he shall not, directly or indirectly, as proprietor, partner, shareholder (other than as a less than five percent shareholder in a publicly held company), officer, director, employee or consultant, or in any other capacity, for his own benefit or for or with any other person or entity, engage in or perform services in any business or activity involved in or related to the business in which the Employer or any of its Affiliates, as herein defined, is now engaged or any other business in which the Employer or any of its Affiliates may hereafter become engaged in any trading area in which the Employer or any of its Affiliates may be engaged in business or trade. The Employee acknowledges that the Employer and its Affiliates now carry on their business in many trading areas throughout the world. (i) If the Employee's employment is terminated for Cause as defined by paragraph 3.(c) hereof, then the restrictive covenant shall extend for three (3) years after such termination. (ii) If the Employer fails to exercise its option to extend as provided by paragraph 13. hereof, then the restrictive covenant shall extend for one (1) year after the end of the initial term. - 16 - 17 (iii) If the Employer does exercise its option to extend as provided by paragraph 13. hereof, then the restrictive covenant shall extend for three (3) years after the end of the extended term. (iv) But, if the Employer exercises its option to terminate this Agreement as provided by paragraph 12. hereof, then there shall be no restrictive covenant, binding upon the Employee after such termination. (b) The Employee further covenants that he will not, at any time, without the prior written consent of the Employer furnish or disclose to any person who is not then an officer, employee or agent of the Employer, (i) any trade secret of the Employer or of any Affiliate, or (ii) any documents, records, plans, models, customer lists or other tangible property of the Employer or any Affiliate, regardless of its form, which may come into his possession, custody or control in consequence of his employment. (c) In addition to a right to accounting by the Employer and/or damages and/or any other relief to which the Employer may be entitled as a result of the Employee's breach hereof, the Employer or the Affiliates will be entitled to injunctive relief restraining any such breach or threatened breach, or the continuation of such breach, by the Employee, provided, however that if a court of competent jurisdiction shall determine that this covenant shall be enforceable only if limited to a shorter period of time or to a small geographical - 17 - 18 area than is herein expressly provided, or otherwise limited, then and in such event, this covenant shall be deemed to be limited to the extent so determined to be enforceable, in the same manner and to the same extent as of such limits were expressly provided herein. (d) The rights hereunder by the Employer against the Employee may be assigned by the Employer and may be enforced by any successors or assigns of the Employer. (e) The provisions of this paragraph are subject to the provisions of paragraph 8 hereof, related to sale of the business of the Employer or the shares of its stock. 11. Relationship of John Svenningsen. Nothing contained in this Agreement or elsewhere shall preclude or prevent John Svenningsen from engaging in any business or businesses or any activities as he may wish separate and apart from the business of the Employer or its Affiliates. Such other unrelated businesses and activities shall not be considered in determining any rights of the Employee hereunder particularly and, without limitation, as to a share of the Aggregate Net Profits or additional compensation upon the sale of any business or any shares of stock or upon any public offering of shares of stock. The Employee recognizes and acknowledges that John Svenningsen has considerable other business interests which are not related to the operation of business of the Company or of any of its Affiliates. None of these are to be considered in determining any rights of the - 18 - 19 Employee hereunder. John Svenningsen has a proprietary interest in various real properties which are being used in the business of the Company or of Affiliates. None of these are or are to be regarded as assets of the Employer or Company for any purposes under this agreement or otherwise, including without limitation, calculation of Aggregate Net Profits or additional compensation to the Employee upon the sale of the Company's business, or its shares of stock or upon any public offering of shares of stock. 12. Early Termination of Agreement at Employer's Option. Notwithstanding anything to the contrary contained in this agreement or elsewhere, the Employer may terminate this agreement at any time and for any reason, prior to its regular termination date. (a) In the event of such termination, the Employer shall pay to the Employee the following: (i) The base yearly salary at the rates set forth in paragraph 4(a) of this agreement to the end of the current term of the Employee's employment; such payments to be made at the same intervals as the base yearly salary would have been paid had this agreement not been terminated. (ii) 10% of the Aggregate Net Profits, if any, of the Employer and the Affiliates for the period from the commencement of the then current full term to the date of termination, as set forth in paragraph 5.(c) hereof, computed and payable as set forth in paragraph 5. hereof. (b) All loans payable by the Employer to the Employee shall be paid to the Employee within 90 days of the termination - 19 - 20 hereunder with interest to the date of payment. (c) All fringe benefits provided to the Employee under this agreement shall terminate upon the termination of this agreement and shall be disposed of and adjusted as follows: (i) Any motor vehicle which the Employee may have been assigned for the performance of his duties shall be turned back to the Employer. (ii) Vacation pay shall be pro-rated to the date of termination. (iii)Employee may maintain medical insurance for himself and his insured dependents in compliance with the provisions of COBRA or any other applicable law or regulation but the premiums for the first 90 days following termination of the Employee's employment shall be paid by the Employer. (d) The additional compensation payable to the Employee, upon the sale of the business of the Employer or upon a public offering of the shares of stock of the Employer's corporation as provided by paragraphs 8. and 9. hereof shall be paid to the Employee, if such sale or public offering shall be made within one (1) year after the termination of this agreement under this paragraph 12., but if said sale or public offering shall be made after one (1) year after said termination, then the Employee shall have no rights to additional compensation under said paragraphs 8. and 9. (e) The provisions of Article l0(a) hereof relating to restrictions on Employee's employment after termination of the original term of this agreement or any extended term shall have - 20 - 21 no application to a termination under this Paragraph and shall not be binding upon the Employee in the event of a termination of his employment under this Paragraph, it being understood that if the Employee's employment is terminated under this Paragraph at the sole discretion of the Employer, then the Employee is free to seek employment in any manner that he may wish. 13. Option to Extend. The Employer is granted an option to extend this agreement and the employment of the Employee for an additional period of three (3) years during the calendar years 1997, l998, and 1999, upon the following terms and conditions: (a) The option shall be exercised by notice to the Employee by the Employer, no later than July 1, 1996. (b) Notice of the exercise of such option shall be in conformity with the provisions of paragraph 14. hereof (c) The employment of the Employee during such extended three (3) year term shall be upon the same terms and conditions as are set forth in this agreement and the base yearly salary shall be increased from year to year in the manner provided by Paragraph 4.(a)(iii) hereof. 14. Notices. Any notice hereunder shall be sufficient if sent by Certified Mail, Return Receipt Requested, to the party to be notified at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: - 21 - 22 To Amscan or any of its Affiliates at: Amscan, Inc. P.O. Box 587 South Road Harrison, N.Y. 10528 with a copy to: Kurzman & Eisenberg Sam Eisenberg, Esq. One North Broadway White Plains, N.Y. l060l To Gerald C. Rittenberg at: Mr. Gerald C. Rittenberg 25 Tulip Tree Lane Mamaroneck, N.Y. 10543 with a copy to: Norris, McGlaughlin & Marcus Kenneth D. Meskin, Esq. P.O. Box 1018 Somerville, N.J. 08876 15. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided. 16. Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York. - 22 - 23 17 . Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMSCAN, INC. (Employer) By:/s/ JOHN SVENNINGSEN ------------------------------- John Svenningsen, President WITNESS: /s/ EDYTHE BERKOWITZ /s/ GERALD C. RITTENBERG - ---------------------------- ------------------------------- Gerald C. Rittenberg (Employee) The undersigned has placed his signature below as the sole shareholder of the Employer to acknowledge his obligations under paragraph 8. hereof. /s/ JOHN SVENNINGSEN - ---------------------------- John Svenningsen - 23 - 24 SUPPLEMENT TO AGREEMENT made the 27 day of November, 1991, between Amscan, Inc., a New York corporation (the "Employer" or "Company") and Gerald C. Rittenberg (the "Employee") (hereinafter referred to as the "Employment Agreement"). WHEREIN, IT IS MUTUALLY AGREED AS FOLLOWS: Paragraph 5.(f) of the Employment Agreement is amended to add the following: "For the purpose of calculating the Aggregate Net Profits hereunder, all contributions by John Svenningsen to the capital of the Employer or any of its affiliates shall be treated as if such capital contributions were loans to the Employer or any of its affiliates, as the case may be, and an amount equal to the "interest" (computed as hereinafter set forth) which would have been paid on such capital contributions had they been loans shall be deducted as an operating expense. For the purpose of such calculation, the amount of "interest" shall be the "prime" rate chargeable by the Employer's primary bank as it may be determined from time to time by said bank plus one (1%) percent." IN WITNESS WHEREOF, the parties have executed this Agreement the 28 day of December, 1992. AMSCAN, INC. (Employer) By:/s/ JOHN SVENNINGSEN ----------------------------------- John Svenningsen, President /s/ GERALD C. RITTENBERG ----------------------------------- GERALD C. RITTENBERG, Employee /s/ EDYTHE BERKOWITZ - ----------------------------------- Witness EX-10.E 8 EMPLOYMENT AGREEMENT/WILLIAM WILKEY 11/4/96 1 Exhibit 10(e) EMPLOYMENT AGREEMENT AGREEMENT dated as of October 4, 1996 (the "Employment Agreement") by and between AMSCAN INC., a New York corporation or AMSCAN HOLDINGS, INC., a Delaware corporation, upon a public offering being made of its shares of stock and AMSCAN INC. becomes a subsidiary thereof, as the case may be (the "Employer" or "Company") and WILLIAM WILKEY (the "Employee"). R E C I T A L S The Employer is presently planning a public offering of its securities and wishes to employ the Employee following the consummation of such offering. The parties wish to set forth the terms and conditions of such employment: NOW, THEREFORE, in consideration of the foregoing and of the covenants and promises contained herein, the parties agree as follows: 1. EFFECTIVENESS OF THIS AGREEMENT AND NAME OF EMPLOYER: This agreement shall become effective on January 1, 1997. The existing employment agreement between Employer and Employee is not being modified hereby and continues in full force and effect until its termination on December 31, 1996. 2. EMPLOYMENT OF THE EMPLOYEE. The Employer employs the Employee to serve as the Company's sales and marketing manager and as its Senior Vice President in charge of Sales and Marketing and to perform such other duties as may be assigned to him from time to time, by the Company. 3. EMPLOYEE'S DUTIES. (a) During the term of this Employment Agreement, Employee shall devote his full business time, skill and efforts to the affairs of the Employer as reasonably 2 necessary to permit the faithful and diligent performance of his duties hereunder. Employee shall not accept other employment nor permit such personal interests as he may have to interfere with the performance of his duties hereunder. The parties hereto understand and agree that Employee may participate in charitable and similar activities and may have business investments which may, from time to time, require portions of his time, but which Employee agrees shall not interfere with the performance of his duties hereunder and shall not adversely reflect upon the Employer or its operations. (b) The Employee shall serve without additional remuneration as (i) a director of the Employer, if elected by Employer's stockholders; (ii) a member of any committee of the Board of the Employer, as determined by the Board; and (iii) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer or the applicable board of directors. 4. TERM. (a) The Employee's term of employment shall commence on the 1st day of January 1997 and shall continue for a period of five (5) years thereafter (the "Term"), unless terminated earlier in accordance with the provisions of this Employment Agreement. Notwithstanding the foregoing, the Employee's employment hereunder shall terminate upon the occurrence of any of the following events: (i) the mutual agreement, in writing, at any time, by the Employer and Employee to terminate such employment; (ii) the death of the Employee; (iii) the unilateral cessation or discontinuance by the Employee of his working for or employment by the Employer; -2- 3 (iv) the termination of the Employee's employment by the Employer, for "Cause" as defined hereinafter. (b) For the purposes of this Employment Agreement, "Cause" shall mean any one of the following (i) the commission by the Employee of any crime or an intentional act of fraud against the Employer; (ii) any act of gross negligence or wilful misconduct on the part of the Employee with respect to his duties under this Employment Agreement; (iii) any act of wilful disobedience on the part of the Employee in violation of specific and reasonable directions of the Employer; (iv) any other material breach of this Employment Agreement which is not cured by the Employee within a reasonable time fixed by the Employer; (v) any conduct on the part of the Employee which has a materially adverse effect upon the performance by the Employee of his duties in connection with the business of the Employer, or a materially adverse effect upon the relationship of customers or potential customers or employees of the Employer with the Employer. (c) Upon termination of the Employee's employment hereunder, whether at the end of the term hereof or in the event of earlier termination, the Employee shall have no further rights under this Employment Agreement, except as expressly herein set forth. Nothing contained herein shall be deemed to preclude the Employer from enforcing any remedies available to it at law or equity in consequence of a breach by the Employee of his obligations to the Employer or available to the Employer under the provisions of this Employment Agreement, including without limitation the enforcement of any restrictive covenants hereunder to the extent herein provided. 5. COMPENSATION. During the Term, the Employer agrees to pay to the Employee the -3- 4 following base yearly salaries: (a) The base yearly salary shall be $200,000.00 for the calendar year 1997. (b) For each full calendar year after the first the base yearly salary will be increased by 5% of the base yearly salary of the preceding calendar year. (c) Employee's base yearly salary shall be payable in regular intervals in accordance with the Company's customary payroll practices in effect during the Term. (d) All compensation shall be subject to such withholding of any federal, state or local taxes as may be required by law with respect to these payments. (e) In the event of the termination of the Employee's employment before the end of a calendar year, the base yearly salary for the year of termination shall be pro-rated to the date of termination. 6. BONUS. In addition to the base yearly salary set forth in Paragraph 5. hereof and any other compensation payable to the Employee as herein set forth, the Employer agrees to pay to the Employee a bonus or bonuses in the amounts and as and upon the terms and conditions herein set forth: (a) The Employer shall pay to the Employee for each calendar year of his employment hereunder a bonus based upon both the annual increase in sales in the United States and Canada and the annual increase in gross profit with respect to such sales. Annexed hereto as Schedule A is a schedule of the sales increases and the gross profit increases necessary to be achieved to result in the grant of an annual bonus hereunder. For the purpose of computing -4- 5 bonuses, appropriate interpolations shall be made with respect to both the Sales Growth and the Percent Increase in Gross Profit Dollar percentages intermediate to those shown on Schedule A: (Example: Assume Sales Growth to be 4% and Percent Increase in Gross Profit Dollars to be 7% then the bonus shall be $145,000. computed as follows: 4% Sales Growth shall be interpolated as $125,000. and at 7% Percent Increase in Gross Profit Dollars the bonus shall be interpolated as $145,000.) (b) The bonus, if any, payable hereunder shall be computed on the aggregate gross sales and profits within the United States and Canada by Amscan Inc. which includes Deco, Kookaburra, Trisar and Amscan Canada, after intercompany eliminations and before warehouse expenses. (c) All bonuses shall be computed by the Employer's accountants and such computations shall be binding upon the parties except if made fraudulently or in a grossly negligent manner. Employee, upon request, will receive the documents, reports and statements necessary to review and confirm the computations made pursuant to this provision. (d) All bonuses shall be paid within ninety (90) days following the year end. 7. STOCK OPTION. As additional compensation to the Employee, if Amscan Holdings Inc. makes an initial public offering, then the Employer grants to the Employee a stock option to purchase one hundred thousand (100,000) shares of the Company's common stock at the option price or prices and upon the terms and conditions set forth in the "Stock Option Plan" adopted by the Company; a copy of which has been delivered to the Employee. -5- 6 8. ADDITIONAL STOCK OPTIONS. In addition to the grant referenced in paragraph 7. above, if Amscan Holdings, Inc. makes an initial public offering, it intends to adopt a stock option plan for the benefit of its employees (such plan, whether adopted by Employer or any parent corporation of Employer, is referred to herein as the "OPTION PLAN"). Following adoption of the Option Plan, Employee will be entitled to participate on the same basis and at the same time as other executive officers and key senior management personnel of the Employer in any options awarded to such personnel as a group, provided, however, that the foregoing provision shall not apply with respect to any grants of options pursuant to the Option Plan which are made prior to or within 30 days following the closing of the initial public offering of common stock of the Employer or its parent corporation, if any. Such stock option plan shall include a provision for the pro-rata vesting within no more than five (5) years. 9. FRINGE BENEFITS. As additional consideration for the services of the Employee under this Employment Agreement, the Employer shall provide to the Employee all fringe benefits provided by the Employer to its other executives, including automobile allowance, paid vacation, holiday and sick leave, medical insurance for the Employee, with spouse and dependent children fully paid for by the Employer and group life insurance, and participation in pension and/or profit sharing plans, in the same manner and to the same extent as such fringe benefits shall be available to such other executives of the Employer. 10. BUSINESS EXPENSES. The Employer acknowledges that the Employee may necessarily incur, for -6- 7 the benefit of the Company and in furtherance of the Company's business, various expenses included but not limited to travel, entertainment and promotion expenses. The Employer, at its option, shall either pay such necessary expenses directly, advance sums to be used for payment of such necessary expenses or on submission by the Employee of receipts and an itemized account of such expenditures, reimburse the Employee for such necessary expenses actually incurred by him. 11. RESTRICTIVE COVENANT. The Employee acknowledges that his employment with the Employer has brought and will bring him into close contact with trade secrets, proprietary information and other confidential material and assets of the Employer and other information not readily available to the public, the disclosure of which to third parties would have a material adverse effect on the Employer's business operations. In recognition of the foregoing, the Employee covenants and agrees that: (a) During the Term and during any extended term, whether or not the Employee's employment is terminated before the end of the particular term, and upon termination of the Employee's employment for a period of three (3) years following such termination, he will not, directly or indirectly, as proprietor, partner, shareholder (other than as a less than five percent shareholder in a publicly held company), officer, director, employee or consultant, or in any other capacity, for his own benefit or for or with any other person or entity, engage in or perform services in any business or activity involved in or related to the business in which the Employer or any of its Affiliates may hereafter become engaged in the United States and Canada. The Employee acknowledges that the Employer now carries on its -7- 8 business in many trading areas throughout the world and in particular in the United States and Canada. (b) Employee will not, at any time, without the prior written consent of the Employer, furnish or disclose to any person who is not then an officer, employee or agent of the Employer, (i) any trade secret of the Employer, or (ii) any documents, records, plans, models, customer lists or other tangible property of the Employer, regardless of its form, which may come into his possession, custody or control on consequence of his employment. (c) In addition to a right to accounting by the Employer and/or damages and/or any other relief to which the Employer may be entitled as a result of the Employee's breach hereof, the Employer will be entitled to injunctive relief restraining any such breach or threatened breach, or the continuation of such breach, by the Employee, provided however, that if a court of competent jurisdiction shall determine that this covenant shall be enforceable only if limited to a shorter period of time or to a smaller geographical area than is herein expressly provided, or otherwise limited, than and in such event, this covenant shall be deemed to be limited to the extent so determined to be enforceable, in the same manner and to the same extent as if such limited were expressly provided herein. (d) The rights hereunder of the Employer against the Employee may be assigned by the Employer and may be enforced by any successors or assigns of the Employer. 12. NOTICES. Any notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing, and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, to the party to be notified -8- 9 at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: To Employer: Amscan Inc. 80 Grasslands Road Elmsford, NY 10523 Att: Board of Directors with a copy to: Kurzman & Eisenberg Sam Eisenberg, Esq. One North Broadway White Plains, NY 10601 To Employee: Mr. William Wilkey 123 Harbor Drive Unit 212 Stamford, CT 06902 with a copy to: The Wirth Law Firm P.C. Att: John C. Wirth, Jr., Esq. 11 Martine Avenue White Plains, New York 10606 13. AMENDMENTS. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided. 14. GOVERNING LAW. This Employment Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 15. PARAGRAPH HEADINGS. The paragraph headings used in this Employment Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this -9- 10 Employment Agreement. 16. ENTIRE AGREEMENT. This Employment Agreement including any Exhibits attached hereto sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, except as specifically provided herein. 17. SUCCESSORS AND ASSIGNS. This Employment Agreement, and the Employee's rights and obligations hereunder, may not be assigned by the Employee. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto. The term "Employer" as used in this Employment Agreement, shall include all such successors. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMSCAN INC. (Employer) By: /s/ JOHN SVENNINGSEN /s/ WILLIAM WILKEY ------------------------- ------------------------- John Svenningsen, William Wilkey, (Employee) President -10- 11 SCHEDULE A BONUS PER PARA 6. PERCENT INCREASE IN GROSS PROFIT DOLLARS*
SALES 5% 10% 15% 20% 25% 30% 35% 40% GROWTH 3% 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 5% 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 10% 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000 15% 250,000 300,000 350,000 400,000 450,000 500,000 550,000 600,000 20% 300,000 350,000 400,000 450,000 500,000 550,000 600,000 650,000 25% 350,000 400,000 450,000 500,000 550,000 600,000 650,000 700,000 30% 400,000 450,000 500,000 550,000 600,000 650,000 700,000 750,000 35% 450,000 500,000 550,000 600,000 650,000 700,000 750,000 800,000 40% 500,000 550,000 600,000 650,000 700,000 750,000 800,000 850,000
EX-10.F 9 EMPLOYMENT AGREEMENT/ WILLIAM WILKEY-12/29/92 1 Exhibit 10(f) EMPLOYMENT AGREEMENT, made this day of , 1992, between Amscan, Inc., a New York corporation, with offices at South Road, Harrison, New York 10528 (the "Employer" or "Company") and William Wilkey, residing at _____________________________________________ (the "Employee"). 1. Employment of the Employee. The Employer employs the Employee to serve as the Company's sales and marketing manager and to perform such other duties as may be assigned to him from time to time by the Company. (a) The Employee shall devote his entire time and attention to the Employer's business. During the term of this agreement, the Employee shall not engage in any other business activity, whether or not it is pursued for gain or profit. (b) The Employee is designated as Vice President in charge of Sales and Marketing. The Board of Directors may at its will change such designation. No additional compensation shall be payable to the Employee for his services as an officer or director of the Company. 2. Term of Employment and Effective Date Thereof. (a) The initial term of employment of the Employee hereunder shall start as of January 1, 1992 and except as earlier terminated, as herein provided, shall end December 31, 1996. (b) Notwithstanding the foregoing, the Employee's employment hereunder shall terminate upon the occurrence of any of the following events: (i) the mutual agreement of the parties; (ii) the death of the Employee; (iii) the termination of the Employee's employment by the Employer, for "Cause" as defined hereinafter; (iv) the unilateral cessation or discontinuance by the Employee of his working for or employment by the Employer. 2 (c) For the purposes of this agreement, "cause" shall mean the commission by the Employee of any crime or an intentional act of fraud against the Employer or any flagrant act of gross negligence or gross misconduct on the part of the Employee with respect to his duties under this agreement; or any flagrant act on the part of the Employee in violation of specific and reasonable directions of the Board of Directors. (d) Upon termination of the Employee's employment hereunder, whether at the end of the initial term hereof or any extended term or in the event of earlier termination, the Employee shall have no further rights under this Agreement, except as expressly herein set forth. But such termination shall not preclude the Employer from enforcing any remedies available to it by law in consequence of a breach by the Employee of his obligations hereunder, including without limitation the enforcement of any restrictive covenants hereunder. 3. Base Compensation. (a) For his services hereunder, the Employer shall pay to the Employee during the term of this agreement, the following base annual salaries: (i) The base annual salary for the calendar year, 1992 shall be $150,000.. (ii) For each full calendar year of the term of this agreement, starting with the calendar year 1993, the base annual salary shall be increased by $7,500.00 over the base yearly salary of the preceding year. (b) Employee's base annual salary shall be payable in regular intervals in accordance with the Company's payroll practices. (c) All compensation shall be subject to such withholding of any federal, state or local taxes as may be required by law with respect to these payments. (d) In the event of the termination of the Employee's employment before the end of a calendar year, the base yearly salary for the year of termination shall be pro-rated to the date of termination. 4. Bonuses. In addition to the base yearly salary set forth in Paragraph 3 hereof and any other compensation payable to the Employee as herein set forth, the Employer agrees to pay to the Employee a bonus or bonuses as and upon the terms and conditions hereinafter set forth: - 2 - 3 (a) For each calendar year that the Employee shall be employed by the Employer, whether during the initial term or any extended term, the Employer shall pay to the Employee a bonus of the following percentages of the Aggregate Net Profits (as hereinafter defined and calculated) of Amscan (USA), Amscan (Canada) and Deco Manufacturing, Inc. (hereinafter referred to as the Bonus Companies) for the following calendar years: For the year 1992, two (2%) percent; For the year 1993, three (3%) percent; For the year 1994, four (4%) percent; and For the year 1995 and each calendar year thereafter, five (5%) percent. (b) If the Employee's employment shall be terminated before the end of a calendar year, then the bonus for the period of time that the Employee shall be employed during such calendar year shall be prorated for the period from the commencement of such year to the date of termination of employment within such year. (c) If the Employee's employment has been terminated for "cause" as set forth in paragraph 2.(b)(iii) hereof or by reason of the unilateral cessation or discontinuance by the Employee of working for the Employer as set forth in paragraph 2.(b)(iv) of this agreement, no bonus shall be payable by the Employer to the Employee under this provision of this agreement for the year of termination. (e) Each Bonus Company may take such steps in the operation of its business as its officers, directors or shareholders may, in their sole discretion, determine, including, without limitation, modification or discontinuance of any of its present operations or addition of new operations, without regard to the effect on the calculation of the Aggregate Net Profits hereunder. If any action taken by any of the Bonus Companies adversely affects the Aggregate Net Profits as defined herein, the Employee shall not be entitled to any claim or recourse of any kind or nature by reason thereof against any of the Bonus Companies. (f) The Aggregate Net Profits hereunder shall be calculated by adding the net profits of the three Bonus Companies and deducting therefrom the net losses of the three Bonus Companies for each calendar year or any lesser period within a calendar year if the Employee's employment shall be terminated before the end of a calendar year. If any of the three Bonus Companies may have a fiscal period which does not coincide with the calendar year, in computing the Aggregate Net - 3 - 4 Profits, if any, for any calendar year, the net profits or losses of the three Bonus Companies for any full calendar year shall be taken as the amounts calculated as at the end of their respective fiscal periods occurring during the calendar year involved. (g) For the purposes hereof, the Net Profits, if any, of the three Bonus Companies shall be computed before the payment of any federal, state or local taxes by the Bonus Companies located in the United States and before the payment of comparable taxes payable by any of the Bonus Companies located outside of the United States. (h) For the purpose of computing the Aggregate Net Profits hereunder, the deduction by the Employer for the base salary of the President of the Employer (now, John Svenningsen) shall not exceed the base sum of $250,000. for the calendar year 1992 with successive increases thereafter, of 5% over the base salary for each of the four (4) additional calendar years of the initial term and for any extended term. Nothing contained herein shall limit the amount of salary which may be payable by the Employer or any of the Bonus Companies or any current or future Affiliates, (as hereinafter described and defined) to its President; the foregoing limitation being only for the purpose of computing Aggregate Net Profits. (i) For the purposes hereof, the Aggregate Net Profits shall be calculated and determined by outside accountants regularly employed by the Employer and the respective Bonus Companies and Affiliates to prepare their financial statements and such calculations shall be made in accordance with generally accepted accounting principles consistently applied. The Employee and Employer shall be bound by the calculation of the said accountants as to the amount of the Aggregate Net Profits and Losses. The Employee's share of the Aggregate Net Profits, if any, shall be paid to him as follows: The Aggregate Net Profits shall be computed by the aforesaid accountants in a timely manner at the end of each calendar year or at the time of termination of the Employee's employment within a calendar year, in the event of early termination and the Employee's share of the Aggregate Net Profits shall be paid to him as follows: (i) One-third thereof shall be paid to the Employee within 90 days after the end of the calendar year involved or within 90 days after early termination of Employee's employment within a calendar year, as the case may be. - 4 - 5 (ii) The remaining two-thirds of the Employee's share of said Aggregate Net Profits shall be loaned by the Employee to the Company to be repaid to the Employee with interest at prime rate chargeable by the Company's bank as follows: Interest only shall be paid at the end of the first year of such loan and the remaining principal plus interest shall be paid at the end of the second year of such loan. The loan shall be deemed to have been made on the first day following the period covered by the accounting involved. 5. Fringe Benefits. As additional consideration for the services of the Employee under this Agreement, the Employer shall provide to the Employee all fringe benefits provided by the Employer to its other executives, including automobile allowance, paid vacation, holiday and sick leave, medical insurance for the Employee, spouse and dependent children fully paid for by the Employer and group life insurance, and participation in pension and/or profit-sharing plans, in the same manner and to the same extent as such fringe benefits shall be available to such other executives of the Employer. 6. Business Expenses. The Employee may incur, for the benefit of the Company and in furtherance of the Company's business, various expenses included but not limited to travel, entertainment and promotion expenses. The Employer, at its option, shall either pay such necessary expenses to the Employee directly, advance sums to be used for payment of such necessary expenses or on submission by the Employee of proper vouchers therefor, reimburse the Employee for such necessary expenses actually incurred by him. - 5 - 6 8. Restrictive Covenant. In consideration of his special and unique services and his position, which by its nature exposes him to trade secrets, proprietary information and other confidential material and assets of the Employer, the Employer covenants and agrees as follows with the Employer: (a) Except as herein provided, the Employee covenants and agrees with the Employer that for a period of three (3) years after the termination of his employment hereunder, whether at the end of the initial or any extended term hereunder or earlier termination the Employee will not, directly or indirectly, as proprietor, partner, shareholder (other than as a less than five percent shareholder in a publicly held company), officer, director, employee or consultant, or in any other capacity, for his own benefit or for or with any other person or entity, engage in or perform services in any business or activity involved in or related to the business in which the Employer or any of its Affiliates (as defined in sub-paragraph (b) of this paragraph) are now engaged or may hereafter become engaged, in any trading area in which the Employer or any of its Affiliates may be engaged in business or trade. (b) The parties acknowledge that the Employer is associated with other companies either as an owner, shareholder, co-venturer or otherwise, which are engaged in businesses similar to or related to the business of the Employer. These businesses and any other businesses with which the Employer may hereafter become associated which will conduct business similar to or related to the business of the Employer are referred to for the purposes of this paragraph 8. and the restrictive covenant herein contained as Affiliates of the Employer. These include at the present time Amscan U.S.A., Amscan Canada, Amscan Sweden, Amscan England, Amscan Australia, Amscan Germany, Deco Manufacturing, Kookabura Manufacturing, Perfect Party and Cake Tops and may hereafter include other companies. (c) The provisions of paragraph 8.(a) hereof relating to restrictions on Employee's employment upon termination of the - 6 - 7 initial term of this agreement or any extended term or earlier termination shall have no application and shall not be binding upon the Employee in the event of a termination of the Employee's employment, at the will of the Employer, under paragraph 2.(b)(v) hereof. (d) The Employee further covenants that he will not, at any time, without the prior written consent of the Employer furnish or disclose to any person who is not then an officer, employee or agent of the Employer, (i) any trade secret of the Employer or of any Affiliate, or (ii) any documents, records, plans, models, customer lists or other tangible property of the Employer or any Affiliate, regardless of its form, which may come into his possession, custody or control in consequence of his employment. (e) In addition, to a right to accounting by the Employer and/or damages and/or any other relief to which the Employer may be entitled as a result of the Employee's breach of the provisions of this paragraph, the Employer or the Affiliates will be entitled to injunctive relief restraining any such breach or threatened breach, or the continuation of such breach, by the Employee, provided, however that if a court of competent jurisdiction shall determine that this covenant shall be enforceable only if limited to a shorter period of time or to a smaller geographical area than is herein expressly provided, or otherwise limited, then and in such event, this covenant shall be deemed to be limited to the extent so determined to be enforceable, in the same manner and to the same extent as of such limits were expressly provided herein. (f) The rights hereunder by the Employer against the Employee may be assigned by the Employer and may be enforced by any successors or assigns of the Employer or any Affiliate as herein defined. 11. Option to Extend. The Employer is granted an option to extend this agreement and the employment of the Employee for an additional period of three (3) years during the calendar years 1997, 1998, and 1999, upon the following terms and conditions: (a) The option shall be exercised by notice to the Employee by the Employer, no later than July l, 1996. (b) Notice of the exercise of such option shall be in conformity with the provisions of paragraph 12. hereof. (c) The employment of the Employee during such extended three (3) year term shall be upon the same terms and conditions as are set forth in this Agreement modified as follows: (i) Base yearly salary shall be increased from year - 7 - 8 to year in the manner provided by paragraph 3.(a)(ii) hereof; (ii) bonuses shall be paid as provided by paragraph (4) hereof; (iii) in the event of early termination under paragraph 2.(b)(v) hereof, the Employer shall, in addition, pay the following amount: ______________________________________________________ ________________________________________________________________________________ 12. Notices. Any notice hereunder shall be sufficient if sent by Certified Mail, Return Receipt Requested, to the party to be notified at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: To Amscan or any of its Affiliates at: Amscan, Inc., P.O. Box 587, South Road, Harrison, N.Y. 10528, with a copy to: Kurzman & Eisenberg, Sam Eisenberg, Esq. One North Broadway, White Plains, N.Y. 10601. To William Wilkey at: __________________________________________________________ with a copy to: _______________________________________________________________ 13. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided. 14. Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York. 15. Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMSCAN, INC. (Employer) By: /s/ JOHN SVENNINGSEN -------------------------- John Svenningsen, President /s/ WILLIAM WILKEY -------------------------- William Wilkey, (Employee) - 8 - 9 SUPPLEMENT TO EMPLOYMENT AGREEMENT made the 29 day of December, 1992, between Amscan, Inc., a New York corporation (the "Employer" or "Company") and William Wilkey ("the Employee") (hereinafter referred to as the "Employment Agreement"). WHEREIN, IT IS MUTUALLY AGREED AS FOLLOWS: Paragraph 4.(f) of the Employment Agreement is amended to add the following: "For the purpose of calculating the Aggregate Net Profits hereunder, all contributions by John Svenningsen to the capital of the Bonus Companies or any of them, shall be treated as if such capital contributions were loans to the Bonus Companies or any of them, and an amount equal to the "interest", (computed as hereinafter set forth) which would have been paid on such capital contributions had they been loans shall be deducted as an operating expense. For the purpose of such calculation, the amount of "interest" shall be the "prime" rate chargeable by the Employer's primary bank as it may be determined from time to time by said bank plus one (1%) percent." IN WITNESS WHEREOF, the parties have executed this agreement the 29 day of December, 1992 AMSCAN INC. (Employer) By: /s/ JOHN SVENNINGSEN --------------------------------- John Svenningsen, President /s/ WILLIAM WILKEY --------------------------------- WILLIAM WILKEY, Employee EX-10.G 10 EMPLOYMENT AGREEMENT/ JAMES M. HARRISON 1 Exhibit 10(g) EMPLOYMENT AGREEMENT made this 11th day of June, 1996, between Amscan Inc., a New York corporation with offices at 80 Grasslands Road, Elmsford, New York 10523 (the "Employer" or "Company" and James M. Harrison, residing at 16 High Street, East Williston, New York 11596 (the "Employee"). 1. Employment of the Employee. The Employer employs the Employee to serve as: Chief Financial Officer and to perform such other duties as may be assigned to him from time to time, by the Company. (a) The Employee shall devote his entire working time and attention to the Employer's business. During the term of this agreement, the Employee shall not engage in any other business activity, whether or not it is pursued for gain or profit. (b) Company may designate Employee as an officer or director without additional compensation. The Board of Directors may at its will change such designation. (c) Employee's responsibilities will be determined by the Company and may include but not be limited to: (i) supervision, administration and management of the day to day financial operations of the Company; (ii) banking relations and financing as required; (iii) implementation of investment decisions; (iv) the orderly and efficient maintenance of the Company's business records, meeting legal and tax compliance; (v) measuring and reporting the Company's financial results to the Board, as may be requested; (vi) conducting the financial operations of the Company so as to meet all current operating expenses, provide for debt retirement, purchase of new equipment and the maintenance of the Company's facilities; and (vii) other services as Employer may require, consistent with Employee's position as an executive of the Company. 2 2. Term of Employment and Effective Date Thereof. (a) The initial term of employment of the Employee hereunder shall start as of January 1, 1997 or earlier upon written mutual consent of the Company and Employee (the "Commencement Date") and shall continue until terminated as provided herein. (b) The Employee's employment hereunder shall terminate upon the occurrence of any of the following events: (i) the mutual agreement of the parties; (ii) the death of the Employee or disability which shall mean for the purposes of this agreement the mental or physical illness or disability of the Employee which continues for ninety (90) or more consecutive days and which prevents him from performing his obligations hereunder as determined exclusively but in good faith by the Company; (iii) the termination of the Employee's employment by the Employer, for "Cause" as defined hereinafter. (iv) upon thirty (30) days' prior notice the unilateral cessation or discontinuance by the Employee of his working for or employment by the Employer; (v) the election by the Employer to terminate the Employee's employment at any time and for any reason other than the reasons set forth in the preceding sub-paragraphs (i), (ii), (iii) and (iv) subject to the provisions of paragraph 7. hereof. (c) For the purposes of this agreement, "Cause" shall mean: (i) the commission by the Employee of any crime or an intentional act of fraud against the Employer or; (ii) any act of gross negligence or willful misconduct on the part of the Employee with respect to his duties under this agreement or; (iii) any act of willful disobedience on the part of the Employee in violation of specific and reasonable directions of the Board of Directors or; (iv) a failure of any representation or warranty made by Employee pursuant to this agreement to be true when made; (d) Upon termination of the Employee's employment hereunder, the Employee shall have no further rights under this Agreement, except as expressly herein set forth. But such termination shall not preclude the Employer from enforcing any remedies available to it by law in consequence of a breach by the 2 3 Employee of his obligations hereunder, including without limitation the enforcement of any restrictive covenants hereunder. 3. Base Compensation. (a) For his services hereunder, the Employer shall pay to the Employee during the term of this agreement, the following base annual salary: One Hundred and Fifty Thousand ($150,000.00) Dollars. The parties agree that said base compensation may be modified by their mutual consent. (b) Employee's base annual salary shall be payable in regular intervals in accordance with the Company's payroll practices. (c) All compensation shall be subject to such withholding of any federal, state or local taxes as may be required by law with respect to these payments. (d) In the event of the termination of the Employee's employment before the end of a Contract Year (any period equaling twelve (12) months in the aggregate from the Commencement Date), the base yearly salary for the year of termination shall be prorated to the date of termination. 4. Bonus. Employee shall receive a bonus of Fifty Thousand ($50,000.00) Dollars due and payable only upon the Employee being employed by Employer at the completion of the initial Contract Year. Payment of said bonus shall be subject to such withholding of any federal, state or local tax as may be required by law with respect to such payment and payment thereof shall be made within thirty (30) days after the end of the Contract Year. 5. Fringe Benefits. As additional consideration for the services of the Employee under this Agreement, the Employer shall provide to the Employee so long as he is employed by the Company, the following fringe benefits if said benefits are generally provided by the Employer to its other executive employees, including: group insurance life, accidental death and dismemberment, hospitalization, major medical and dental, long-term disability, profit-sharing and/or 401(k). 3 4 6. Business Expenses. The Employee may incur, for the benefit of the Company and in furtherance of the Company's business, various expenses included but not limited to travel, entertainment and promotion expenses. The Employer, at its option, shall either pay such necessary expenses to the Employee directly, advance sums to be used for payment of such necessary expenses or on submission by the Employee of proper vouchers therefor, reimburse the Employee for such necessary expenses actually incurred by him. 7. Termination of Agreement at Employer's Option. A. In the event of termination of the Employee's employment at any time after the Commencement Date, the Employer shall make the following payments to the Employee: (i) The balance of base yearly salary (but not the bonus) payable to the Employee in accordance with paragraph 3. hereof, pro-rated to the date of termination. B. In addition to the foregoing in the event of termination pursuant to paragraph 2.(b)(v), the Employer shall pay to the Employee the following amount: One Hundred and Fifty Thousand ($150,000.00) Dollars payable within thirty (30) days following termination of Employee's employment. 8. Special Circumstances. A. If as provided herein in paragraph 2.(a) the parties mutually agree to an early Commencement Date, the Employer hereby reserves the right if C.R. Gibson Co. commences any action or proceeding or threatens to bring any action or proceeding claiming breach of any non-competition covenant by which the Employee may be bound, to suspend this contract and the employment of Employee hereunder with the following effect: (i) During such period of suspension the Employee shall not be entitled to any monies or payments other than those referenced in paragraph 7.A.(i). (ii) During said period of suspension the Employee shall not receive any of the benefits as specified in paragraph 5. (iii) During the period of suspension, all other terms and provisions of this agreement shall remain in full force and effect including the restrictive covenant provisions contained in paragraph 9. hereof; provided that nothing herein contained is 4 5 intended to prohibit Employee from being employed as long as said employment is not in conflict with the provisions of paragraph 9. B. If on or before January 31, 1997, any proceeding, action or claim by C.R. Gibson Co. as provided in the preceding paragraph 8.A. shall have been resolved, then Employer agrees to annul the suspension and to restore his employment pursuant to the terms and provisions of this agreement. For the purposes of this agreement, the matter shall be deemed to have been resolved if the claim by C.R. Gibson shall be fully and completely withdrawn or alternatively, if an action or proceeding shall have been commenced, such action and proceeding shall have been fully determined permitting the employment of Employee by the Company without any further right of appeal. 9. Restrictive Covenant. In consideration of his special and unique services and his position, which by its nature exposes him to trade secrets, proprietary information and other confidential material related to the Company and with full recognition by the Employee that this restrictive covenant is essential to protect the business of the Company, developed by it at great expense and with great effort, the Employee covenants and agrees as follows with the Employer: (a) Except as herein provided, the Employee covenants and agrees with the Employer that for a period of one (1) year after the termination of his employment hereunder or the suspension of the Employee's employment pursuant to paragraph 8. above without the annulment of such suspension and the restoration of the Employee's employment, the Employee will not, directly or indirectly, as proprietor, partner, shareholder, officer, director, employee or consultant, or in any other capacity for his own benefit or for or with any other person or entity, engage in or perform services in any business or activity involved in or related to the business in which the Employer or any of its Affiliates, (as defined in sub-paragraph (b) of this paragraph) are now engaged or may hereafter become engaged, in any trading area in which the Employer or any of its Affiliates may be engaged in business or trade; provided however that the ownership by the Employee of less than 5% of the issued and outstanding capital stock of a publicly traded corporation shall not be deemed to be in violation of this provision. (b) The parties acknowledge that the Employer is associated with other companies either as an owner, shareholder, co-venturer or otherwise, which are engaged in businesses similar to or related to the business of the Employer. These businesses and any other businesses with which the Employer may hereafter become associated which will conduct business similar to or related 5 6 to the business of the Employer are referred to for the purposes of this paragraph 9. and the restrictive covenant herein as Affiliates of the Employer. (c) The Employee further covenants that he will not, at any time outside the scope of his responsibilities as an Employee, without the prior written consent of the Employer furnish or disclose to any person who is not then an officer, employee or agent of the Employer, (i) any trade secret of the Employer or of any Affiliate, or (ii) any documents, records, plans, models, customer lists or other tangible property of the Employer or any Affiliate, regardless of its form, which may come into his possession, custody or control in consequence of his employment. (d) In addition to a right to accounting by the Employer and/or damages and/or any other relief to which the Employer may be entitled as a result of the Employee's breach of the provisions of this paragraph, the Employer or the Affiliates will be entitled to injunctive relief restraining any such breach or threatened breach, or the continuation of such breach, by the Employee, provided however, that if a court of competent jurisdiction shall determine that this covenant shall be enforceable only if limited to a shorter period of time or to a smaller geographical area than is herein expressly provided, or otherwise limited, then and in such event, this covenant shall be deemed to be limited to the extent so determined to be enforceable, in the same manner and to the same extent as if such limits were expressly provided herein. (e) The rights hereunder by the Employer against the Employee may be assigned by the Employer and may be enforced by any successors or assigns of the Employer or any Affiliate as herein defined. 10. Warranties. Employee warrants and represents that upon the Commencement Date of this agreement: (i) Other than his employment contract with C. R. Gibson Co., there is no agreement written or oral with any person or entity which shall affect in any way Employee's right or authority to enter into this agreement; (ii) He is not in breach of any provision of the aforementioned employment agreement with C. R. Gibson Co. including but not limited to any noncompetition or restrictive covenant contained therein; (iii) He does not know of any intention on the part 6 7 of any Company or person to commence any action or proceeding against him to restrict his employment by the Company as herein provided nor has any such action or proceeding been threatened. 11. Notices. Any notice hereunder shall be sufficient if sent by Certified Mail, Return Receipt Requested, to the party to be notified at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: TO AMSCAN OR ANY OF AMSCAN, INC. ITS AFFILIATES AT: 80 GRASSLANDS ROAD ELMSFORD, N.Y. 10523 WITH A COPY TO: KURZMAN & EISENBERG, LLP SAM EISENBERG, ESQ. ONE NORTH BROADWAY WHITE PLAINS, N.Y. 10601 TO EMPLOYEE: JAMES M. HARRISON 16 HIGH STREET EAST WILLISTON, N.Y. 11596 12. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided. 13. Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York. 14. Assignment. This contract and the rights hereunder may be assigned by the Company subject to its obligations hereunder. 15. Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this Agreement. 7 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMSCAN INC. (Employer) By:/s/JOHN SVENNINGSEN --------------------------- John Svenningsen President /s/JAMES M. HARRISON --------------------------- James M. Harrison (Employee) 8 EX-10.I 11 AMENDED LEASE/ ACP EAST LLC & AMSCAN 1 EXHIBIT 10(i) LEASE BETWEEN ACP EAST LLC - LANDLORD AND AMSCAN INC. - TENANT 80 GRASSLANDS ROAD GREENBURGH, NEW YORK DECEMBER 1995 2 TABLE OF CONTENTS
PARAGRAPH NO. PAGE NO. - ------------- -------- 1. Premises......................................................................................... 1 2. Term............................................................................................. 1 3. Use of Premises.................................................................................. 1 4. Rental........................................................................................... 2 5. Electricity...................................................................................... 3 6. Taxes............................................................................................ 3 7. Operating Expense................................................................................ 5 8. Tenant's Improvement and Alterations............................................................. 10 9. Compliance with Insurance Requirements........................................................... 12 10. Compliance with Law.............................................................................. 12 11. Services......................................................................................... 12 12. Liability Insurance.............................................................................. 14 13. Liability of Landlord............................................................................ 14 14. Repairs.......................................................................................... 15 15. Destruction, Fire or Other Causes................................................................ 15 16. Eminent Domain................................................................................... 16 17. Assignment, Sublet................................................................................ 17 18. Default.......................................................................................... 18 19. Remedies of Landlord............................................................................. 20
3 20. Rules and Regulations............................................................................ 21 21. No Representations by Landlord................................................................... 21 22. Quiet Enjoyment.................................................................................. 21 23. Right to Exhibit Premises........................................................................ 22 24. Subordination.................................................................................... 22 25. Surrender of Premises............................................................................ 23 26. Brokerage........................................................................................ 23 27. Force Majeure.................................................................................... 23 28. Lease Status..................................................................................... 23 29. Holdover......................................................................................... 24 30. Notices.......................................................................................... 24 31. Attornment....................................................................................... 24 32. Entire Agreement, etc............................................................................ 25 33. Assigns.......................................................................................... 25 34. Definitions...................................................................................... 25 35. Waiver of Trial by Jury.......................................................................... 25 36. Late Payments.................................................................................... 25 37. Effects of Waivers of Default.................................................................... 26 38. Landlord's Right to Cure Defaults................................................................ 26 39. Legal Proceedings................................................................................ 26 40. Option to Extend................................................................................. 26
4 EXHIBITS: A Demised Premises B Description C Landlord Improvements 5 OFFICE LEASE This Lease, dated as of the first day of December, 1995, by and between ACP East LLC, having a place of business, PO Box 587, Harrison, New York 10528 (hereinafter called "Landlord"), and Amscan Inc, having a business address at 2 Macy Road, PO Box 587, Harrison, New York 10528 (hereinafter called "Tenant"). W I T N E S S E T H: PARAGRAPH I - PREMISES. The Landlord does hereby lease and demise to Tenant and Tenant hereby hires and takes from Landlord, for the term and upon the terms, conditions and rentals hereinafter specified, the entire third floor and the "South wing" of the 2nd floor as outlined on a certain plan attached hereto and made a part hereof as Exhibit A, said space being 46,714 rentable square feet as measured and determined by Landlord. Said Exhibit A sets forth the premises herein demised (hereinafter called the "DEMISED PREMISES OR PREMISES") in the building ("Building") commonly known as 80 Grasslands Road, Greenburgh, New York, situated on a portion of the land described in Exhibit B attached hereto and made a part hereof (hereinafter called the "Land"). The Land (including all parking areas) and Building are hereinafter collectively referred to as "Landlord's Building or Building". Tenant agrees to accept the Demised Premises in an "as is" condition with the exception that Landlord agrees to deliver the Demised Premises consistent with the provisions contained within Exhibit C annexed hereto and made a part hereof. PARAGRAPH 2 - TERM. Tenant shall have and hold the Demised Premises for a term commencing on October 1, 1995 ("Commencement Date"), and expiring on February 28, 2011, which is fifteen (15) years after the date on which Tenant commences the payment of rent. (the period between the Commencement Date and the Expiration Date hereinafter defined as the "Term"). Except as provided in Paragraph 4, and notwithstanding anything else in this Lease to the contrary, Tenant will begin payment of rent March 1, 1996. PARAGRAPH 3 - USE OF PREMISES. Tenant shall only use the Demised Premises for general office use and uses ancillary thereto. No signs of any kind shall be installed or maintained on the exterior of the Building in which the Demised Premises is located, including the windows thereof, unless Landlord, in the exercise of its absolute discretion, shall give Tenant prior written consent to such installation or maintenance and determines that same are consistent with the building standards. Landlord represents that the floor space at the Demised Premises will carry 50 pounds per square foot of floor space live load uniformly 1 6 distributed. Tenant shall not place a load upon any floor of the Building which exceeds 50 pounds floor load per square foot which such floor was designed to carry. If Tenant shall desire a floor load in excess of 50 pounds floor load per square foot for which the floor or any portion of the Building is designed, upon submission to Landlord of plans showing the location of and the desired floor live load for the area in question, Landlord shall strengthen and reinforce the same, at Tenant's sole expense, so as to carry the live load desired. Business machines and mechanical equipment used by Tenant which cause vibration or noise that may be transmitted to the Building to any leased space to such a degree as to be reasonably objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at its expense, in settings of cork, rubber or spring-type or other vibration eliminators sufficient to reduce such vibration or noise to a reasonable degree. Tenant shall be entitled to a listing in the Building directory located in the lobby thereof and one listing on the second floor. Landlord represents and warrants that the use and occupancy of the Demised Premises for the transaction of Tenant's business does not violate any existing laws, orders, rules or regulations of any state, federal, municipal or local government, department or agency. Landlord further represents and warrants that a permanent Certificate of Occupancy for the Building and the Demised Premises is, or prior to the Occupancy Date will be, in force and will not be violated by Tenant's proposed use and occupancy of the Demised Premises, and that all other licenses or permits required for the Tenant's use and occupancy of the Demised Premises (other than any license or permit required for the conduct of Tenant's business) is, or prior to the Commencement Date will be, in force. PARAGRAPH 4 - RENTAL. Tenant agrees to pay to Landlord as rent for the Demised Premises during the Term hereof, excluding any portion of the term occurring prior to the rent commencement date, as hereinafter defined, a minimum annual rent ("Minimum Rent") of Eight Hundred Seventeen Thousand, Four Hundred Ninety Five ($817,495.00) Dollars, payable in monthly installments of Sixty Eight Thousand One Hundred Twenty Four and 58/100 Dollars ($68,124.58). Said Minimum Rent shall be payable in successive periods commencing March 1, 1995. Except as otherwise provided herein to the contrary, installments of Minimum Rent shall he paid in advance commencing on the Rent Commencement Date and on the first day of each successive calendar month during the term of this Lease at the office of Landlord, or such other place as Landlord may designate in writing from time to time, with payment in advance of appropriate fractions of a monthly payment for any portion of a month at the expiration or prior termination of the term hereof. Tenant shall pay, however, Minimum Rent for the first full month of the term of this Lease upon the execution of this Lease. In addition to Minimum Rent, Tenant agrees to pay Landlord such additional rent ("ADDITIONAL RENT"), if any, as provided elsewhere in this Lease, including, but not limited to, the items of Additional Rent set forth in Paragraphs 5, 6 and 7. Each installment of Minimum or Additional Rent is due at the office of the Landlord on the first day of the month. If a payment is not received within ten (10) days of its due date, Tenant shall pay, in addition to the payment due, an amount equal to Five (5%) Percent of the amount due. Such charge shall 2 7 not authorize payment of any installment of Rent or Additional Rent after its due date and same shall be payment in addition to any such other rights and remedies of the Landlord provided for herein or by law for nonpayment of rent. During the initial term, the minimum rent shall be increased on each five year anniversary (March 1, 2001 and March 1, 2006) by 15% for the five year period beginning March 1, 2001. The minimum rent shall be Nine Hundred Forty Thousand, One Hundred Nineteen Dollars and 12/100 ($940,119.12) payable in monthly installments of Seventy Eight Thousand, Three Hundred Forty Three Dollars and 26/100 ($78,343.26). For the five year period beginning March 1, 2006, the minimum rent shall be One Million, Eighty One Thousand, One Hundred Thirty Six Dollars and 88/100 ($1,081,136.88), payable in monthly installments of Ninety Thousand Ninety Four Dollars and 74/100 ($90,094.74). PARAGRAPH 5 - ELECTRICITY Landlord shall have installed a separate electric meter or meters for Tenant's Premises. Tenant shall arrange to obtain electricity from the public utility company furnishing electric service to the Building. Such electricity may be furnished to Tenant by means of the then existing Building system feeders, risers and wiring to the Demised Premises to the extent that the same are, in Landlord's sole judgment, available, suitable and safe for such purposes. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electricity directly from such public utility company shall be installed by Landlord, at the sole cost and expense of Landlord. Tenant agrees to pay any bills for said electric usage and other services by the electric utility company upon the terms of those bills when rendered and agrees to hold Landlord harmless for Tenant's liabilities arising out of said usage or service. PARAGRAPH 6 - TAXES. A. For the purposes of this Article 6: (1) "Taxes" shall mean (i) all real estate taxes and assessments (special or otherwise) whether federal, state, local or municipal, and any other governmental imposition or charge of a similar or dissimilar nature, whether general, special, ordinary, extraordinary, foreseen or unforeseen, which may be assessed, levied or imposed upon all or any part of Landlord's Building, whether or not the same constitute one or more tax lots, and (ii) any normal and reasonable expenses incurred by Landlord in contesting any of the foregoing or the assessed valuation of all or any part of Landlord's Building. If, however, by law, any assessment may be divided and paid in annual installments, then, provided the same is not prohibited under the terms of any superior lease or superior mortgage, for the purposes of this Paragraph 6, (a) such assessment shall be deemed to have been so divided and to be payable in the maximum number of annual installments permitted by law, and (b) there shall be deemed included in 3 8 Taxes for each Tax Year the annual installment of such assessment becoming payable during such Tax Year, together with interest payable during such Tax Year on such annual installment and on all installments thereafter becoming due as provided by law, all as if such assessment had been so divided. If at any time during the term of this Lease the methods of taxation prevailing at the Commencement Date shall be altered so that in lieu of or as an addition to or as a substitute for the whole or any part of the taxes, assessments, levies, impositions or charges now levied on real estate and the improvements thereon, there shall be levied, assessed or imposed (i) a tax, assessment, levy, imposition or charge wholly or partially as capital levy or otherwise on the rents received therefrom, or (ii) a tax, assessment, levy, imposition or charge measured by or based in whole or in part upon the Demised Premises and imposed upon Landlord, or (iii) a license fee measured by the rents payable by Tenant to Landlord, or (v) any other tax, assessment, levy, imposition, charge or licensing fee, however described or imposed, then all such taxes, assessments, levies, impositions, charges, or fees, or the part thereof so measured or based, shall be deemed to be included within the term "Taxes" for the purposes hereof. Taxes shall not include any interest, penalties or late charges. (2) "Base Tax Amount" shall mean Taxes for the fiscal period from July 1, 1995, through June 30, 1996, as same may be reduced pursuant to any application or proceeding brought by or on behalf of Landlord for reduction in the assessed valuation of the Building. (3) "Tax Year" shall mean the twelve (12) month period commencing July 1st of each year. (4) "Tenant's Proportionate Tax Share" shall mean 52%. B. (1) Commencing March 1, 1997, Tenant shall pay as Additional Rent for each Tax Year, all or any portion of which shall be within the term of the Lease, a sum ("Tax Payment") equal to the product obtained by multiplying (i) Tenant's Proportionate Tax Share by (ii) the amount by which Taxes for such Tax Year exceed the Base Tax Amount. (2) Before or after the start of each Tax Year during the Term, Landlord shall furnish to Tenant a written statement ("Tax statement") setting forth (i) the Taxes, for such Tax Year, and (ii) a computation showing the Tax Payment due by Tenant on account of such Tax Year. Commencing with the delivery of a Tax Statement for the applicable Tax Year and on the first day of each succeeding month, until the delivery of a new or revised Tax Statement, Tenant shall pay to Landlord, as Additional Rent, together with Tenant's payment of Minimum Rent, an amount equal to one-twelfth (1/12th) of Tenant's Tax Payment as shown on the Tax Statement and the unpaid tax payment for the Tax Year as specified in the next sentence. Promptly after a Tax Statement is furnished to Tenant, or together therewith, Landlord shall notify Tenant if the installments of Tenant's Tax Payments previously paid, if any, on account of the Tax Year which is the subject of the Tax Statement, were greater or less than the installments of Tenant's Tax Payment which Tenant was required to pay on account of such Tax Year, and (A) if there shall be a deficiency, Tenant shall pay the amount thereof within ten (10) days after demand therefor, or (B) if there shall have been an overpayment, Landlord shall credit the amount thereof against any subsequent payment(s) payable by Tenant under this subsection (2), (or if after the 4 9 expiration or termination of this Lease, refund the amount thereof to Tenant) and (iii) on the first day of the month following the month in which the Tax Statement is furnished to Tenant and monthly thereafter, until Tenant's receipt of a subsequent Tax Statement from Landlord, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of Tenant's Tax Payment as shown on such Tax Statement. If there shall be any change in Taxes for any Tax Year, Landlord may furnish a revised Tax Statement for such Tax Year, and Tenant's Tax Payment for such Tax Year shall be adjusted in the same manner as provided in the preceding sentence. (3) Tenant shall also pay to Landlord upon demand, as Additional Rent, the full amount of any occupancy tax or rent tax now in effect or hereafter enacted, if payable by Landlord in the first instance or hereafter required to be paid by Landlord. C. Each Tax Statement furnished by Landlord shall be accompanied by a copy of the tax bill upon which same is based, and shall be conclusive and binding upon Tenant unless (i) within thirty (30) days after receipt of such Tax Statement, Tenant shall pay the amount shown on such Tax Statement and (ii) within thirty (30) days after the receipt of such Tax Statement, Tenant shall notify Landlord that it disputes the correctness of the Tax Statement, specifying the particular respects in which the Tax Statement is claimed to be incorrect. If the dispute shall be determined in Tenant's favor, the amount of Tenant's overpayment of Additional Rent resulting from compliance with the Tax Statement shall be credited by Landlord against the next succeeding installments of Additional Rent payable by Tenant pursuant to this Paragraph 6 (or, if after the expiration or termination of this Lease, shall be refunded to Tenant). D. If the Commencement Date of the term of this Lease is not the first day of a Tax Year, or if the date of any expiration or termination of this Lease (except for a termination due to Tenant's default), whether or not same is the Expiration Date or another date prior or subsequent thereto, is not the last day of a Tax Year, the Tax Payments shall be pro-rated upon the number of days of the term within the applicable Tax Year. E. If as a result of any application or proceeding brought by or on behalf of Landlord for reduction in the assessed valuation of the Building affecting any Tax Year there shall be a decrease in Taxes for the Tax Year, Landlord's statement next following such decrease shall include an adjustment for such Tax Year reflecting Tenant's proportionate share of such decrease in Taxes incurred by Landlord in connection with the application or proceeding to reduce the taxes. PARAGRAPH 7 - OPERATING EXPENSE ("OE"). A. For the purposes of this Article 7: The term "Operating Expenses" ("OE") shall mean all costs and expenses (and taxes thereon, if any) paid or incurred by Landlord or on behalf of Landlord for 80 Grasslands Road, Greenburgh, New 5 10 York 10523 (the "Building") with respect to the operation, repair, safety, cleaning, management, security and maintenance of the Building, the land on which the Building is located, building equipment, sidewalks, plazas, curbs and other areas adjacent to the Building and with respect to the services provided tenants, including without limitation; (i) salaries, wages and bonuses paid to, and the cost of any hospitalization, medical, surgical, union and general welfare benefits (including group life insurance), any pension, retirement or life insurance plan and other benefit or similar expense relating to employees of Landlord engaged in the operation, repair, safety, management, security or maintenance of the Real Property and the building equipment or in providing services to tenants (ii) social security, unemployment and other payroll taxes, the cost of providing disability and workmen's compensation coverage imposed by any legal requirements, union contract or otherwise with respect to said employees; (iii) the cost of electricity, gas, oil, steam, water, air conditioning and other fuel and utilities; (iv) the cost of casualty, rent, liability, fidelity, plate glass and any other insurance; (v) the cost of painting public areas of the Building and of all building supplies, tools, materials and equipment; (vi) the cost or rental of all building supplies, tools, materials and equipment; (vii) the cost of uniforms, work clothes and dry cleaning; (viii) guard, watchman or other security personnel, service or system, if any; (ix) reasonable management fees, or if no managing agent is employed by Landlord, a sum in lieu thereof; (x) reasonable charges of independent contractors performing work included within this definition of Operating Expenses; (xi) telephone and stationery; (xii) reasonable legal, accounting and other professional fees and disbursements incurred in connection with the operation and management of the Building, including real estate tax counsel; (xiii) reasonable association fees and dues; (xiv) decorations; (xv) depreciation of hand tools and other movable equipment used in the operation, repair, safety, management, security or maintenance of the Buildings; and (xvi) landscaping; provided, however, that the foregoing costs and expenses shall exclude or have deducted from them, as the case may be: (a) expenditures for capital improvements, additions or alterations other than those which under generally applied real estate practice are expenses or regarded as deferred expenses and other than capital expenditures made by reason of legal requirements or insurance requirements, (provided that if Landlord is a self-insurer with respect to the area of capital improvement at issue, then the insurance requirements shall be those that commonly and usually are applied by other insurance companies with respect to buildings of like kind), in any of which cases the cost thereof shall be included in Operating Expenses for the calendar year in which the costs are incurred and subsequent calendar years (provided Landlord shall have included similar costs incurred during or prior to Landlord's Base Operating Year in calculating the Operating Expense for Landlord's Base Operating Year), on a straight-line basis, amortized over an appropriate period, with an interest factor equal to the Prime Interest Rate, at the time of Landlord's having made said expenditure, to the extent that the said capital cost, on an amortized basis, plus said interest exceeds the depreciation and interest available to Landlord for the said capital improvement on Landlord's tax returns. (b) amounts received by Landlord through proceeds of insurance; (c) cost of repairs or replacements incurred by reason of fire or other casualty or condemnation to the extent Landlord is compensated therefor; 6 11 (d) advertising and promotional expenditures and tenant inducement costs; (e) costs incurred in performing work or furnishing services for any tenant (including Tenant), whether at such Tenant's or Landlord's expense, to the extent that such work or service is in excess of any work or service that Landlord is obligated to furnish at Landlord's expense; (f) depreciation, except as provided above; (g) brokerage commissions; (h) Taxes; (i) the cost of electricity (for other than general building purposes) furnished to the Demised Premises or any other space leased to tenants, as reasonably estimated by Landlord. (j) refinancing costs, and mortgage interest and amortization payments. (k) costs incurred in performing work or furnishing services for any tenant to the extent that Landlord has received compensation therefor from the benefiting tenant. (l) any and all costs arising from the presence of hazardous substances or waste in or about the Building or Land, including, without limitation, asbestos-containing material, hydrochlorofluororcarbons and chlorofluorocarbons, and hazardous substances or waste in the ground water or soil, so long as not placed in the Demised Premises or on the Land by Tenant. (m) costs (including, without limitation, attorneys fees and costs of settlement, judgements and payments in lieu thereof) arising from actual or potential claims, disputes or litigation (including with tenants) relating to Landlord and/or the Building and not in connection with the operation and management of the Building. (n) any costs for goods and/or services representing an amount paid to any person, firm, corporation or other entity related to Landlord which is in excess of the fair market value of such goods and/or services. (o) bad debt expenses. (p) fines, penalties, late payment charges, interest and any other costs due to the violation by Landlord or any other tenant of the terms and conditions of any lease of space in the Building. (q) costs necessitated by or resulting from the gross negligence or willful misconduct of Landlord, its vendors, agents, employees and/or independent contractors. (r) Landlord's general corporate overhead and general administrative expenses. 7 12 (s) any ground lease rental. OE shall be "net" only, and for that purpose shall be reduced by the amounts of any cash reimbursements, refunds or credits received by Landlord (net of the reasonable OE of obtaining the same, if any) with respect to any item of cost that is included in OE, other than reimbursements by other tenants similar to those required of Tenant. No item of expense shall be included in or deducted from OE more than once under any circumstances. Landlord shall prorate all bills for services rendered to the Building and to any other property owned by Landlord. If Landlord shall purchase any item of capital equipment or make any capital expenditure, improvements, additions or alterations which have the effect of reducing the expenses which would otherwise be included in operating Expenses, then the costs of such capital equipment or capital expenditure are to be included in Operating Expenses for the calendar year in which the costs are incurred and subsequent calendar years, on a straight-line basis, to the extent that such items are amortized over such period of time as Landlord reasonably estimates such savings or reductions in operating Expenses are expected to equal Landlord's costs for such capital equipment or capital expenditure, with an interest factor equal to the Prime Interest Rate at the time of Landlord's having made said expenditure, to the extent that the said capital cost, on an amortized basis, plus said interest, exceeds the depreciation and interest available to Landlord for said capital equipment or expenditure on Landlord's tax returns. If Landlord shall lease any items of capital equipment designed to result in savings or reductions in expenses which would otherwise be included in operating Expenses, then the rentals and other costs paid pursuant to such leasing shall be included in Operating Expenses for the calendar year in which they were incurred. If during the period for which OE or Base OE Charges are being computed, Landlord is not for all or any part of such period furnishing any particular work or service (the cost of which if performed by Landlord would be included in OE or Base OE Charge) with respect to a portion of the Building occupied, or intended for occupancy by a tenant because (i) such portion is not occupied by a tenant or (ii) Landlord is not obligated to perform such work or service in such portion, then the amount of OE or Base OE Charge, as the case may be, for such period shall be deemed, for the purposes of this Paragraph 7, to be increased by an amount equal to the additional OE or Base OE Charge, as the case may be, which would reasonably have been incurred during such period by Landlord if Landlord had at its own expense furnished such work or service to the greater of (a) 95% of the number of square feet of rentable area in the Building or (b) the number of square feet of rentable area occupied by tenants in the Building during such period provided, that in no event shall Landlord collect for any OE Year, in total, from Tenant and other tenants of the Building, an amount greater than 100% of the actual OE for such OE Year. (2) "Base OE Charge" shall mean OE charges for the fiscal period from March 1, 1996 through March 1, 1997. (3) "OE Year" shall mean the twelve (12) month period commencing March 1st of each year, except that with respect to 1995, October 1, 1995 - February 28, 1996 shall 8 13 represent the OE Year. (4) "Tenant's Proportionate OE Share" shall mean 52%. B. (1) Commencing March l, 1997 Tenant shall pay as Additional Rent for each OE Year, all or any portion of which shall be within the term of this Lease, a sum ("OE Payment") equal to the product obtained by multiplying (i) Tenant's Proportionate OE Share by (ii) the amount by which OE for such OE Year exceeds the Base OE Charge. (2) Before or after the start of each OE Year during the Term, Landlord shall furnish to Tenant a written statement ("OE STATEMENT") setting forth (i) the OE for such OE Year, and (ii) a computation showing the OE Payment due by Tenant on account of such OE Year. Commencing with the delivery of an OE Statement for the applicable OE Year and on the first day of each succeeding month, until the delivery of a new or revised OE Statement, Tenant shall pay to Landlord, as Additional Rent, together with Tenant's payment of Minimum Rent, an amount equal to one-twelfth (1/12th) of Tenant's OE Payment as shown on the OE Statement. Promptly after an OE Statement is furnished to Tenant, or together therewith, Landlord shall notify Tenant if the installments of Tenant's OE Payments previously paid on account of the OE Year which is the subject of the OE Statement, were greater or less than the installments of Tenant's OE Payment which Tenant was required to pay on account of such OE Year, and (A) if there shall be a deficiency, Tenant shall pay the amount thereof within ten (10) days after demand therefor, or (B) if there shall have been an overpayment, Landlord shall credit the amount thereof against any subsequent payment(s) payable by Tenant under this subsection (2) (or, if after the expiration or termination of this Lease, refund the amount thereof to Tenant), and (iii) on the first day of the month following the month in which the OE Statement is furnished to Tenant and monthly thereafter, until Tenant's receipt of a subsequent OE Statement from Landlord, Tenant shall pay to Landlord an amount equal to one twelfth (1/12th) of Tenant's OE Payment as shown on such OE Statement. If there shall be any change in OE for any OE Year, Landlord may furnish a revised OE Statement for such OE Year, and Tenant's OE Payment for such OE Year shall be adjusted in the same manner as provided in the preceding sentence. C. Each OE Statement furnished by Landlord shall be accompanied by a copy of the OE bills upon which same is based, and shall be conclusive and binding upon Tenant unless (i) within thirty (30) days after receipt of such OE Statement, Tenant shall pay the amount shown on such OE Statement and (ii) within sixty (60) days after the receipt of such OE Statement, Tenant shall notify Landlord that it disputes the correctness of the OE Statement, specifying the particular respects in which the OE Statement is claimed to be incorrect. If the dispute shall be determined in Tenant's favor, the amount of Tenant's overpayment of Additional Rent resulting from compliance with the OE Statement shall be credited by Landlord against the next succeeding installments of Additional Rent payable by Tenant pursuant to this Paragraph 7 (or, if after the expiration or termination of this Lease, shall be refunded to Tenant). 9 14 D. If the date of any expiration or termination of this Lease (except for a termination due to Tenant's default), whether or not same is the Expiration Date or another date prior or subsequent thereto, is not the last day of an OE Year, the OE Payments shall be pro-rated upon the number of days of the term within the applicable OE Year. PARAGRAPH 8 - TENANT'S IMPROVEMENT AND ALTERATIONS. A. Tenant shall not make any Tenant's Improvements (as hereinafter defined) to the Demised Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed (except as may otherwise be provided below). As used herein, "TENANT'S IMPROVEMENTS" shall include all work required to be done in preparing the Demised Premises so that it may be operated for business with the public (other than Landlord's work as specified in Exhibit C), as well as all alterations, decorations, installations, additions or improvements to the Demised Premises occurring after the Commencement Date of this Lease. All such Tenant's Improvements shall be done pursuant to plans and specifications approved by Landlord (which approval shall not be unreasonably withheld or delayed), shall be completed at Tenant's full cost and expense, shall comply with all applicable governmental rules and regulations, shall be done only by contractors, sub-contractors and mechanics approved by Landlord, which approval shall not be unreasonably withheld or delayed; shall be done in a first class manner to Landlord's reasonable satisfaction and shall be done in a manner which will assure labor harmony at the site. As a condition precedent to Landlord's consent to the making by Tenant of such Tenant's Improvements to the Demised Premises, Tenant agrees to obtain and deliver to Landlord written and unconditional waivers of mechanics' liens upon the real property in which the Demised Premises are located, for all work, labor and services to be performed and materials to be furnished in connection with such work, signed by all contractors, materialmen and laborers to become involved in such work. Notwithstanding the foregoing, if any mechanics' lien is filed against the Demised Premises or Landlord's Building for work claimed to have been done for, or materials claimed to have been furnished to, Tenant, it shall be discharged by Tenant within thirty (30) days thereafter, at Tenant's expense, by filing the bond required by law, or payment or otherwise. If Tenant shall fail to so discharge any such lien within such thirty (30) day period, Tenant shall be in default hereunder and Landlord shall have the right, but not the obligation, to discharge such lien, by payment, bond or otherwise, and the actual cost thereof shall be charged to Tenant, and such sum due Landlord shall be deemed Additional Rent automatically upon the payment or the posting of a bond or otherwise by Landlord and shall be paid by Tenant promptly upon being billed therefor. Landlord shall not be liable for any failure of any building facilities or services caused by alterations, installations, and/or additions by Tenant, and Tenant shall promptly correct any such failure. In the event Tenant shall not promptly correct same after notice and the lapse of ten (10) days, Landlord may make such correction and charge Tenant for the reasonable cost thereof. Such sum due Landlord shall be deemed Additional Rent and shall be paid by Tenant promptly upon being billed therefor. B. Prior to commencing any work pursuant to the provisions of Paragraph 8, Tenant will furnished Landlord: (1) copies of all governmental permits and authorizations which are required in 10 15 connection with such work; (2) final plans and specifications for all such work, which plans, and specifications shall be subject to Landlords written approval, and which approval shall not be unreasonably withheld or delayed; (3) a certificate evidencing that Tenant (or Tenant's contractors) has (have) procured workmen's compensation insurance covering all persons employed in connection with the work who might assert claims for death or bodily injury against Landlord, Tenant or Landlord's Building; and (4) such additional personal injury and property damage insurance as Landlord may reasonably require because of the nature of the work to be done by Tenant. C. In the event that Tenant engages in the preparation of food or baked goods or engages in the use or storing of inflammable or combustible material, Tenant shall install chemical extinguishing devices (such as ansul) which would be required and approved by the fire insurance rating organization and shall keep these devices under service as required by the fire insurance rating organization; and Tenant shall also install a gas cutoff, if gas is used in the Demised Premises. If Tenant fails to install said installations and subscribe to the servicing of such installations after notice and the lapse of ten (10) days, Landlord shall have the right to enter the Demised Premises to make necessary installations and charge the reasonable cost of such installations to Tenant as Additional Rent. D. All Tenant's Improvements upon the Demised Premises and any replacements therefor made by either party, including all paneling, decorations, partitions, railing, mezzanine floors, galleries and the like, affixed to the realty so that such items cannot be removed without injury to the Building shall, unless Landlord elects otherwise (which election shall be made by giving written notice to Tenant), at the time Landlord approves such Tenant Improvements become the property of Landlord and shall remain upon, and be surrendered with the Demised Premises as a part thereof at the termination of this Lease, without compensation to the Tenant. In the event such Tenant Improvements may be removed by Tenant, Tenant shall repair and restore, and save Landlord harmless from, all damages to the Demised Premises caused by such removal. Any such Tenant Improvements not so removed by Tenant shall be deemed abandoned by Tenant and shall become the property of Landlord and shall remain upon and be surrendered with the Demised Premises as a part thereof at the termination of this Lease, without compensation to Tenant. E. Where furnished by or at the expense of Tenant, all movable property, furniture, furnishings and trade fixtures including those affixed to the realty (including any vault) shall remain the property of Tenant and shall be removed by Tenant at its expense at or any time before the expiration of the term of this Lease and in case of damage by such removal, Tenant shall repair such damage. F. Tenant shall not make structural repairs or changes to the Demised Premises without first 11 16 obtaining Landlord's prior written consent. PARAGRAPH 9 - COMPLIANCE WITH INSURANCE REQUIREMENTS. Tenant shall not do or permit to be done any act or thing upon the Demised Premises which will invalidate or be in conflict with fire, public liability or other insurance policies, the notice of which regulations or ordinance has been given to Tenant, covering Landlord's Building. Tenant at its sole expense shall comply with all rules, orders, regulations and requirements of the boards of fire underwriters or other similar body or authority having jurisdiction to the extent arising from Tenant's particular use of the Demised Premises, and shall not do or permit anything to be done, in or upon the Demised Premises, or bring or keep anything therein, which is prohibited by the fire department or any such boards of fire underwriters or other body or authority which would increase the rate of fire insurance applicable to Landlord's Building over that in effect on the Commencement Date of this Lease. If by reason of failure to comply with the provisions of this Paragraph 9 the fire insurance rate shall on the Commencement Date of this Lease or at any time thereafter be higher than it otherwise would be when occupied for the use permitted by this Lease, then Tenant, upon demand of Landlord, shall reimburse Landlord, as Additional Rent under this Lease, for that part of all fire insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant. PARAGRAPH 10 - COMPLIANCE WITH LAW. Tenant at its sole cost and expense shall provide safe and healthful working conditions for the employees of Tenant, and Tenant shall comply with all laws, orders and regulations of Federal, State, County and Municipal Authorities and with any direction of any duly authorized public officer or officers having jurisdiction pursuant to law which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Demised Premises arising from Tenant's particular use or occupancy thereof. Landlord shall comply with all other laws, orders and regulations, and shall rectify all conditions due to hazardous or toxic substances. PARAGRAPH 11 - SERVICES. As long as this Lease is in effect: A. The Demised Premises will be serviced by at least one elevator at all times. The elevators shall be operated by automatic control or by manual control, at Landlord's option, or by a combination of both such methods. B. Landlord shall, through the air conditioning system of the Building, furnish to the Demised Premises on business days from 8:00 a.m. to 6:00 p.m. air cooling, ventilation and/or heating, in accordance with applicable law and normal standards for first class office buildings in Greenburgh, New York. Sundays and such other state or national holidays (herein called "Holidays") listed on the Rules and Regulations of the Building, as they may be reasonably revised by Landlord from time to 12 17 time, shall not be deemed business days for the purposes of this sub-paragraph, but to the extent Tenant requires air cooling, ventilation and/or heating on those days, Landlord shall provide it as required, in accordance with subparagraph D, below. C. Landlord will maintain the air conditioning, heating, ventilating, electrical, plumbing, mechanical and other building systems in a manner befitting a first-class building and will use all reasonable care to keep the same in proper and efficient operating condition. D. Landlord will provide after-hour heating and air conditioning and the other services specified herein (including access) so long as Tenant makes requests therefor as provided herein. Tenant shall give not less than twelve (12) hours advance notice to Landlord of Tenant's need for after-hours heating or air conditioning. E. In the event that Tenant requires water to be furnished in addition to the hot and cold water to be supplied by Landlord for ordinary lavatory, cleaning and drinking purposes, Landlord shall supply the same and Tenant shall pay the cost thereof as measured by a meter or meters installed at Tenant's expense. F. Landlord agrees to provide, except on Saturday, Sundays and Holidays, in the Demised Premises, all other services set forth in this Lease and to keep the areas owned by Landlord adjacent to the Building free from snow, ice and rubbish. Landlord also agrees to provide cleaning and janitorial services consistent with services offered in similar office buildings located in Greenburgh, New York. G. Landlord shall make available to Tenant, at no additional cost to Tenant, not less than 150 unassigned parking spaces in the Landlord's parking area, 13 of which shall be in the Building's garage. Landlord reserves the right to reasonably change from time to time the location of such parking areas and the rules and regulations applicable thereto. H. Landlord shall not be liable to anyone for the cessation of any electric service rendered to the Demised Premises or to Landlord's Building as agreed to by the terms of this Lease including any consequential damages to Tenant, due to any cause beyond Landlord's reasonable control. I. (a) Notwithstanding any provision of this Lease to the contrary, if Tenant shall not be provided any Essential Service (as defined in this Paragraph) for a period of five (5) consecutive business days and, as a result thereof, Tenant is unable to use all or substantially all of the Demised Premises for the conduct of business, then the rent shall abate as of the commencement of such five (5) day period through the day preceding the day on which the service is substantially restored. If Tenant shall not be provided any Essential Service for a period of forty-five (45) consecutive days and, as a result thereof, Tenant is unable to use all or substantially all of the Demised Premises for the conduct of business, then Tenant may, at Tenant's option, terminate the Lease, upon ten (10) days written notice to Landlord. (b) "Essential Service" shall be deemed to mean and be limited to reasonable toilet 13 18 facilities, heating and air conditioning (as the season may then require), electric power for the service of at least one passenger elevator, to the extent such services are required to be furnished by Landlord under this Lease. PARAGRAPH 12 - LIABILITY INSURANCE. Tenant shall, at Tenant's own cost and expense, secure and maintain General Liability Insurance written on a so-called "Comprehensive" General Liability Form (or on a combination of a basic policy and umbrella which provide the same coverage) with bodily injury limits of not less than $2,000,000 per/person, $4,000,000 per/occurrence, and for a property damage limit of not less than $1,000,000 per/occurrence with Landlord as a named insured and Tenant shall furnish to Landlord a certificate of the liability insurance carrier of Tenant evidencing coverage of Tenant contractual obligation to indemnify Landlord under Paragraph 13 of this Lease. Tenant shall deliver or cause to be delivered to Landlord a certificate or certificates of General Liability Insurance effected by Tenant under the terms hereof. Such certificates shall provide that in the event of termination or material change in coverage, Landlord shall be given thirty (30) days' advance notice in writing, sent by mail to the address of Landlord. All insurance shall be with companies licensed to do business in the State of New York and subject to the reasonable approval of Landlord. PARAGRAPH 13 - LIABILITY OF LANDLORD. Landlord and its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of Landlord's Building, nor for the loss or damage to any property of Tenant by theft or otherwise. Landlord and its agents shall not be liable for any injury or damage, consequential or otherwise, to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leak from any part of Landlord's building or from the pipes, appliances or plumbing works or from the roof, street or sub-surface or from any other place or by dampness or by any other cause of whatsoever nature, unless caused by or due to the gross negligence or willful misconduct of Landlord, its agents, contractors, servants or employees. Tenant shall give immediate notice to Landlord in case of accidents in the Demised Premises or in Landlord's Building or of defects therein or in any fixtures or equipment. Tenant shall indemnify and save harmless Landlord from and against any and all liability and damages, and from and against any and all suits, claims, and demands of every kind and nature, including, but not limited to, reasonable counsel fees and expenses by or on behalf of any person, firm, association or corporation, arising out of or based upon an accident, injury or damage, however occurring, which shall or may happen during the period between the date upon which the Demised Premises are made available to Tenant for the making of Tenant's Improvements and the expiration of the term hereof, on or about the Demised Premises, and from and against any matter or thing growing out of the condition, maintenance, repair, alteration, use, occupation or operation of the Demised Premises by Tenant, unless caused by or due to the gross negligence or willful misconduct or breach of Lease by Landlord. Anything to the contrary herein notwithstanding, there shall be absolutely no personal liability 14 19 on the part of the Landlord (or any partner, trustee, shareholder, officer or any individual or entity in any capacity associated with, employed by or under the supervision of Landlord) to the Tenant with respect to any of the terms, covenants and conditions of this Lease and Tenant shall look solely to the equity of the Landlord or any successor in interest to the Landlord in the fee or leasehold estate of the Landlord, as the case may be, for the satisfaction of each and every remedy of the Tenant in the event of any breach by the Landlord or by any successor in interest to the Landlord of any of the terms, covenants and conditions of this Lease to be performed by the Landlord. Such exculpation of personal liability is and shall be absolute and without any exception whatsoever. PARAGRAPH 14 - REPAIRS. A. Tenant shall take good care of the interior of the Demised Premises and the fixtures and appurtenances therein, including damage to plate or window glass and at its sole cost and expense make promptly, as and when needed, all nonstructural repairs and replacement thereof to preserve them in good condition and working order, except to the extent same is caused by the negligence and/or willful act of Landlord, its employees, servants, agents or contractors or by the failure of Landlord to comply with its responsibilities hereunder. B. Landlord shall make all structural repairs and replacements to the Demised Premises and Landlord's Building and all repairs and replacements, structural and otherwise, necessary to keep in good order and repair the common areas (including the public halls and stairways) and the exterior of Landlord's Building (including all parts of the heating, plumbing, electrical and air conditioning systems of the Building), except those installed by Tenant within the Demised Premises. Landlord reserves the right to enter the Demised Premises by itself or its authorized agents, servants or employees at reasonable times, upon reasonable notice, for the purpose of repairing, at Landlord's sole cost and expense, any utility equipment of any kind in or upon the Demised Premises which services other portions of the Landlord's Building; provided that such repairs shall be made in a manner which minimizes interference with Tenant and its use of the Demised Premises and as long as same does not result in any additional costs and expenses to the Landlord. Any repairs and replacements required to be made to the structural, exterior and public portions of the Building which may be necessitated as a result of the negligence of Tenant, its agents or employees shall be made by Landlord at the sole cost and expense of Tenant. C. All repairs, restorations or replacements by either party shall be of a first class quality and done in a good workmanlike manner. PARAGRAPH 15 - DESTRUCTION, FIRE OR OTHER CAUSES. A. If Landlord's Building is totally damaged or is rendered wholly untenantable by fire or other cause, and cannot reasonably be repaired by Landlord within one hundred eighty (180) days of work, during normal working hours, or if the Building shall be so damaged that Landlord cannot reasonably restore the same, but must demolish it or rebuild it, which Landlord may in its sole discretion 15 20 determine, then Landlord or Tenant may, within sixty (60) days after such casualty, give to the other party notice in writing of its intention to terminate this Lease, and thereupon the term of this Lease shall expire by lapse of time upon the tenth (10th) day after such notice is given, and Tenant shall vacate the Demised Premises and surrender the same to Landlord. Upon termination of this Lease under this Paragraph 15, Tenant's liability for rent shall cease as of the day following the casualty or when Tenant ceases to do business in the Demised Premises, whichever date is later. If neither party terminates this Lease pursuant to this Paragraph, Landlord shall repair or rebuild the Demised Premises with reasonable diligence. B. If the Demised Premises or Landlord's Building shall be partially damaged by fire or other casualty, the damages to Landlord's Building and to the Demised Premises shall, to the extent that they were originally constructed and furnished by the Landlord, be promptly repaired by and at Landlord's expense and the damage to all of Tenant's fixtures and other improvements installed by Tenant shall be promptly repaired by and at the expense of Tenant and the rent until such repairs shall be made, shall be apportioned according to the part of the Demised Premises which is tenantable by Tenant until the Landlord has made the repairs required of Landlord, provided, however, that if such repairs cannot be made within 180 days, Tenant shall have the right to terminate this Lease in accordance with the procedures specified in Paragraph A above. C. Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility (to the releasor or anyone claiming through or under the releasor by way of subrogation or otherwise) for any loss or damage to property of the releasor or any claiming through or under the releasor, to the extent covered by fire or any of the extended coverage insurance, additional extended coverage insurance or supplementary contract casualties, even if such fire or other casualty shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible. The provisions of this subparagraph shall not apply if the application hereof is not permitted under the terms of the releasing party's casualty insurance policy. D. Tenant agrees that Landlord shall not be liable for any damage to personal property in the Demised Premises or to Tenant arising from any act or neglect of any other tenant or occupant in Landlord's Building, from rain or snow or from the bursting, overflowing or leakage of water, steam or gas pipes or defect in the lighting system or from any act of neglect of any other tenant or occupant in Landlord's Building. PARAGRAPH 16 - EMINENT DOMAIN. In the event the whole of the Demised Premises shall be acquired or condemned by eminent domain for any public or quasipublic use or purpose, then and in that event, the term of this Lease shall cease and terminate from the date of title vesting in such proceeding or the termination of the right to possession, whichever is earlier. In the event any substantial part thereof or of Landlord's Building or of the structure of which Landlord's's Building is a part is so acquired or condemned as to render the Demised Premises untenantable or to materially and adversely effect Tenant's use thereof, or in the event that a part of Landlord's Building, other than the Demised Promises, shall be so condemned or taken and 16 21 if in the opinion of the Landlord, the Building should be restored in such way as to alter the Demised Premises materially, the Landlord or Tenant may terminate this Lease and the term and the estate hereby granted by notifying the other party in writing of such termination and this Lease and the term and estate, hereby granted shall expire on the date specified in the notice of termination not less than thirty (30) days after the giving of such notice, as fully and completely as if such date were the date hereinbefore set forth for the expiration of the term of this Lease, and the rent hereunder shall be apportioned as of said date. Tenant shall have no claim against Landlord for the value of the unexpired term of said Landlord, nor a claim to any part of an award in such proceeding and rent shall be adjusted and paid to the date of such termination. Nothing herein contained shall be deemed to affect or be in derogation of any right or rights of Tenant against the condemning authority to claim and recover damages, if any, to or for the taking of its movable fixtures and equipment and improvements which are not affixed to Landlord's Building or expenses or removal or relocation provided that any such damages awarded to Tenant shall not reduce the award payable to Landlord. PARAGRAPH 17 - ASSIGNMENT - SUBLET. Tenant covenants and agrees that neither this Lease nor the term or estate hereby granted nor any part hereof or thereof will be assigned,, mortgaged, pledged, encumbered, nor sublet or otherwise transferred (herein referred to as "Transfer") and that neither the Demised Premises, nor any part hereof, will be encumbered in any manner without the prior written consent of the Landlord, which consent shall not be unreasonably withheld or delayed. The proposed transferee shall promptly execute, acknowledge and deliver to the Landlord an agreement (in form and substance reasonably satisfactory to the Landlord) whereby transferee shall assume and agree to perform and be bound by all the covenants, agreements, terms and conditions set forth in this Lease on the part of the Tenant to be performed. Tenant and Guarantor, if any, covenants and agrees that notwithstanding such Transfer or acceptance of rent or additional rent by Landlord from any transferee, Tenant and Guarantor shall remain fully liable for the payment of the fixed rent and additional rent due and to become due hereunder and for the performance of all the covenants, agreements, terms and provisions contained in this Lease on the part of the Tenant to be performed, and such Transfer shall expressly so indicate. If this Lease be transferred, Landlord may, after default by Tenant, collect rent from the transferee and apply the net amount collected to the rent herein reserved, but no such Transfer or collection shall be deemed a waiver by Landlord of any of Tenant's covenants contained in this paragraph or the acceptance of the transferee as Tenant, or a release of Tenant from further performance by Tenant of the covenants on the part of the Tenant herein contained. Notwithstanding anything hereinbefore contained, in the event that Tenant desires Landlord's consent to a Transfer of the Demised Premises, Tenant, by notice in writing, shall notify Landlord of the name of the proposed transferee, such information as to the proposed transferee's financial responsibility and standing in the community as Landlord may reasonably require and of the covenants, agreements, terms and conditions contained in the proposed Transfer. Anything herein contained to the contrary notwithstanding, Landlord may, as a condition to its consent to any transfer, require that the proposed transferee pay to Landlord reasonable expenses, legal 17 22 fees and disbursements. Notwithstanding anything to the contrary contained herein, and after compliance with the previous requirements stated in this Paragraph 17, if Tenant wishes to transfer the Premises, Tenant shall give Landlord written notice of its intention as aforesaid, including any specific information regarding the proposed transferee and Landlord shall have the right upon receipt of such notice to terminate this Lease within thirty (30) days after Landlord's receipt of Tenant's notice. Landlord shall give notice to Tenant of Landlord's election to terminate this Lease, which termination shall become effective upon the date the proposed assignment or sublease would have been effective; and, upon such termination, all of the liabilities of the parties, each to the other, shall cease and terminate except as to covenants, which survive the termination of this Lease. Nothing contained herein shall prohibit Landlord from negotiating directly with the proposed transferee and completing a direct lease therewith. Upon any such event, Tenant shall be responsible for any brokerage commission due for such leasing transaction, if Tenant would have been responsible for brokerage commission pursuant to the proposed sublease. Tenant is hereby prohibited from subletting the Premises or assigning this Lease or any part thereof to any existing tenant in the building or tenant who is in negotiations with Landlord for any space within the building. Landlord agrees to notify Tenant of any such conflict within five (5) days of its receipt of Tenant's notice of its intention to sublet or assign pursuant to this Paragraph 17. Notwithstanding anything to the contrary contained herein, the use of the Demised Premises pursuant to any transfer shall be limited to general office use and uses ancillary thereto, but specifically excluding employment agencies, travel agencies, or any other business that Landlord shall reasonably determined to be a high traffic use inappropriate for a first class building. PARAGRAPH 18 - DEFAULT. A. To the extent permitted by applicable law, this Lease and the term and estate hereby granted are subject to the limitation that whenever Tenant shall make an assignment of the property of Tenant for the benefit of creditors, or any voluntary or involuntary petition for relief shall be filed by or against Tenant under any chapter of the Federal Bankruptcy Code, any bankruptcy or insolvency law, or under the provisions of any law of like import, or whenever a permanent receiver of Tenant or of or for the property of Tenant shall be appointed, then Landlord (a) at any time after receipt of notice of the occurrence of any such event, or (b) if such event occurs without the acquiescence of Tenant, at any time after the event continues for ninety (90) days, may give Tenant a notice of Landlord's intention to end the term of this Lease at the expiration of five (5) days from the date of service of such notice of intention, and upon the expiration of said five (5) day period, this Lease and the term and estate hereby granted, whether or not the term shall theretofore have commenced, shall terminate with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in Paragraph 18. If, at any time (a) Tenant shall be comprised of two or more persons, or (b) Tenant's obligations under this Lease shall have been guaranteed by any person, or (c) Tenant's interest in this Lease shall have been assigned, the word "Tenant" as used in this Section shall mean any one or more of the person 18 23 primarily or secondarily liable for Tenant's obligations under this Lease. If this Lease shall be assumed or assigned by a trustee pursuant to the provisions of Title 11 of the United States Code ("Bankruptcy Code"), the trustee shall cure any default under this Lease and shall provide such adequate assurance of future performance of this Lease as are provided in Section 365(b)(3) of the Bankruptcy Code. If the trustee does not cure said defaults and provide Adequate Assurances within sixty (60) days after there has been an order for relief pursuant to the Bankruptcy code, this Lease shall be deemed rejected and Landlord shall have no further liability hereunder to Tenant or any person claiming through or under Tenant, and if Tenant or any such person is in possession, Tenant or any such person shall forthwith quit and surrender the Demised Premises to Landlord. If this Lease shall be so canceled or terminated, Landlord, in addition to the other rights and remedies of Landlord under any provision of this Lease or under any statute or rule of law, may retain as liquidated damages any Minimum Rent, Additional Rent or monies received by Landlord from Tenant or others on behalf of Tenant. B. If any one or more of the following events (herein sometimes called "events of default") shall happen: (1) if default shall be made in the due and punctual payment of any minimum Rent, or Additional Rent payable under this Lease or any part thereof, when and as the same shall become due and payable, and said default shall continue for ten (10) days after notice from Landlord (2) if default shall be made by Tenant in the performance or compliance with any of the agreements, terms, covenants or conditions in this Lease provided other than those referred to in the foregoing subparagraph B(1) for a period of thirty (30) days after notice from Landlord to Tenant specifying the items in default, or in the case of a default or a contingency which cannot with due diligence be cured within said twenty (20) day period, Tenant fails to proceed within said thirty (30) day period to cure the same and thereafter to prosecute the curing of such default with due diligence (it being intended in connection with a default not susceptible of being cured with due diligence within said thirty (30) day period that the time of Tenant within which to cure the same shall be extended for such period as may be necessary to complete the same with all due diligence); then and in either such event Landlord at any time thereafter, and while any such event of default is continuing, may give written notice to Tenant specifying such event of default or events of default and stating that this Lease and the term hereby demised shall expire and terminate on the date specified in such notice, which shall be at least five (5) days after the giving of such notice, and upon the date specified in such notice this Lease and the term hereby demised and all rights of Tenant under this Lease, including any renewal privileges whether or not exercised, shall expire and terminate, and Tenant shall remain liable as hereinafter provided. C. Upon any such expiration or termination of this Lease, Tenant shall quit and surrender the Demised Premises to Landlord, and Landlord, upon or at any such expiration or termination, may without further notice enter upon and reenter the Demised Premises and possess and repossess itself thereof, by force, summary proceeding, ejectment or otherwise, and may dispossess Tenant and remove Tenant and all other persons and property from the Demised Premises and may have, hold and enjoy the Demised Premises and the right to receive all rental income of and from the same. 19 24 D. If this Lease shall be terminated pursuant to this Paragraph 12, or by summary proceedings or otherwise, or if the Demised Premises or any part thereof shall be abandoned by the Tenant, Landlord may in its own name, but as agent for Tenant if this Lease not be terminated, or if this Lease be terminated, in its own behalf, relet the Demised Premises or any part hereof, or said premises, with additional premises for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the term of this Lease) and on such conditions (which may include concessions or free rent and alterations of the Demised Premises) as Landlord, in its uncontrolled discretion, may determine and may collect and receive the rents therefor. Landlord shall in no way be responsible or liable for any failure to relet the Demised Premises or any part thereof, or of any failure to collect any rent due upon such reletting. PARAGRAPH 19 - REMEDIES OF LANDLORD. In case of any such default, reentry, expiration and/or dispossess by summary proceedings or otherwise, provided in Paragraph 18 of this Lease: (a) the Minimum Rent and Additional Rent shall become due thereupon and be paid up to the time of such reentry, dispossess and/or expiration, together with such reasonable expenses as Landlord may incur for legal expenses, attorney's fees, brokerage and/or putting the Demised Premises in good order, or for preparing the same for re-rental; (b) Landlord may re-let the Demised Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant concessions or free rent; and/or (c) Tenant or the legal representative of Tenant shall also pay Landlord as liquidated damages for the failure of Tenant to observe and perform said tenant's covenants herein contained, any minimum deficiency between; (i) the rent reserved and/or covenanted to be paid herein; and (ii) the net amount, if any, of the rents collected on account of the lease or leases of the Demised Premises for each month of the period which would otherwise have constituted the balance of the term of this Lease. In computing such liquidated damages, there shall be added to the said deficiency such reasonable expenses as Landlord may incur in connection with the re-letting, such as legal expenses, attorneys fees, brokerage and for keeping the Demised Premises in good order or for preparing the same for reletting and interest on any payments made after the due date computed at fifteen (15%) per annum (but in no event in excess of the maximum rate permitted by law). Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of 20 25 Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord at its option may make such reasonable alterations, repairs, replacement and/or decorations in the Demised Premises as Landlord considers advisable and necessary for the purpose of re-letting the Demised Premises; and the making of such alterations shall not operate or be considered to release Tenant from liability hereunder as aforesaid. The inability of Landlord to re-let the Demised Premises or any part hereof shall not release or affect Tenant's liability for damages hereunder nor shall Landlord in any event be liable whatsoever for inability to re-let the Demised Premises. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. No such expiration or termination of this Lease shall relieve Tenant of its liability and obligations under this Lease. Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy, at law or in equity. Notwithstanding anything to the contrary contained within this Paragraph 19, the damages specified within this provision shall not exceed the rent and additional rent otherwise payable through to the earliest cancellation date as specified in the cancellation provision contained in Paragraph 43, plus Fifty Thousand ($50,000.00) Dollars. PARAGRAPH 20 - RULES AND REGULATIONS. To the extent not inconsistent with this Lease, Tenant and Tenant's servants, employees, agents, visitors and licensees shall observe faithfully, and comply strictly with, such reasonable Rules and Regulations as Landlord and its agents, may, from time to time, adopt that are generally applicable to all tenants. Notice of any rules or regulations shall be given in writing. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant but Landlord shall not be discriminatory in the enforcement of said Rules and Regulations. Landlord shall not be liable to Tenant for violation of the Rules and Regulations by any other tenant, its servants, employees, agents, visitors or licensees- PARAGRAPH 21 - NO REPRESENTATIONS BY LANDLORD. Landlord or Landlord's agents have made no representations or promises with respect to Landlord's Building or the Demised Premises except as herein expressly set forth. Landlord represents that as of the date of execution of this Lease, (i) it has no knowledge of the existence of hazardous or toxic substances stored or maintained at the Building and (ii) the Building does not contain any asbestos. PARAGRAPH 22 - QUIET ENJOYMENT. Landlord represents and covenants that Landlord has full right, power and authority to enter this Lease for the term herein granted and Landlord covenants and agrees with Tenant that upon the Tenant paying the Minimum Rent and Additional Rent and observing and performing all the terms, covenants and conditions on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy 21 26 the Demised Premises, free from any interference, molestation or acts of Landlord or of anyone claiming by, through or under Landlord or anyone else, subject, nevertheless, to the terms and conditions of this Lease and to any ground lease, underlying leases and mortgages, as of record appears, and all modifications thereof. PARAGRAPH 23 - RIGHT TO EXHIBIT PROMISES. Landlord reserves the right to enter the Demised Premises and exhibit same at any reasonable time upon reasonable prior notice to Tenant: (a) to prospective mortgagees, purchasers and ground lessees; and (b) to prospective tenants at any reasonable time within one hundred eighty (180) days before expiration of the terms of this Lease. PARAGRAPH 24 - SUBORDINATION. A. This Lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases of the real property of which the Demised Premises form a part, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and no further instrument of subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant shall execute promptly any reasonable certificate that Landlord may request. B. Tenant agrees that neither the termination of any ground or underlying lease nor the foreclosure of Landlord's leasehold interest in the Land and Building of which the Demised Premises are a part, or the institution of any suit or proceedings by the Landlord under such ground or underlying lease or by the holder of any such mortgage, shall by operation of law or otherwise result in the cancellation or termination of this Lease or the obligations of Tenant hereunder, and Tenant agrees to attorn and to recognize the landlord under such ground or underlying lease, or the holder of any such mortgage, as the case may be, as Tenant's landlord hereunder in the event that such party shall succeed to Landlord's interest in the Demised Premises provided, however, that said successor in interest shall not be bound by (i) any payment of rent or additional rent for more than one month in advance, except prepayments in the nature of security for the performance by Tenant of Tenant's obligations under this Lease, or (ii) any amendment or modification of this Lease made without the consent of the holder of any such mortgage or such successor in interest. No surrender of such ground lease nor merger of all or any part of the fee title of Landlord's Building shall result by operation of law or otherwise in the cancellation or termination of this Lease or the obligations of the Tenant under this Lease, and Tenant covenants and agrees to attorn to the owner from time to time of all or any part of the fee title of Landlord's Building after such surrender or merger. 22 27 PARAGRAPH 25 - SURRENDER OF THE PREMISES. Except as otherwise herein provided, at the expiration of the term, Tenant will peacefully yield up to Landlord the Demised Premises, broom clean, in as good order and repair as when delivered to Tenant, damage by fire, casualty, war or insurrection or act upon the part of any governmental authority, ordinary wear and tear, and damage by the elements and repairs that are Landlord's obligation excepted. Except as otherwise provided in this Lease, any property left by Tenant in the Demised Premises shall be deemed abandoned by Tenant and Landlord at Landlords sole option may keep said property or require Tenant at Tenant's expense to promptly remove the same from the Demised Premises. PARAGRAPH 26 - BROKERAGE Landlord and Tenant warrant and represent to each other that they have not dealt with any realtor, broker or agent in connection with the negotiation of this Lease and agree to indemnify and hold each other harmless from and against any cost, expense or liability (including, but not limited to, costs of suit and reasonable attorney's fees) for any compensation, commission or charges claimed by any other broker with respect to this Lease and the negotiation thereof. PARAGRAPH 27 - FORCE MAJEURE. Landlord and Tenant, respectively, shall not be in default hereunder, if Landlord, or as the case may be, Tenant, is unable to fulfill or is delayed in fulfilling any of its obligations hereunder, including, without limitation, any obligations to supply any service hereunder, if Landlord, or as the case may be, Tenant, is prevented from fulfilling or is delayed in fulfilling such obligations by reason of fire or other casualty, strikes or labor troubles, governmental preemption in connection with a national emergency, shortage of supplies or materials, or by reason of any rules, or regulation of any governmental authority, or by reason of the condition of supply and demand affected by war or other emergency, of any other cause beyond its reasonable control. Such inability or delay by Landlord or Tenant in fulfilling any of their respective obligations hereunder shall not affect, impair or excuse the other party hereto from the performance of any of the terms, covenants, conditions, limitations, provisions or agreements hereunder on its part to be performed, nor result in any abatement of Minimum Rent or Additional Rent payable hereunder. PARAGRAPH 28 - LEASE STATUS. Upon request of Landlord, Tenant, within ten (10) days of such request, will execute and deliver to Landlord an instrument prepared by Landlord stating, if the same be true, that this Lease is a true and exact copy of the Lease between the parties hereto, that there are no amendments hereof (or stating what amendments there may be), that the same is then in full force and effect and that, to the best of Tenant's knowledge, there are then no offsets, defenses or counterclaims with respect to the payment of rent reserved hereunder or in the performance of the other terms, covenants and conditions hereof on the part of the Tenant to be performed, and that as of such date no default has been declared hereunder by either party hereto and that the Tenant at the time has no knowledge of any facts or circumstances which it 23 28 might reasonably believe would give rise to a default by either party. PARAGRAPH 29 - HOLDOVER. After the expiration of the term of this Lease, if Tenant shall continue in possession thereafter, such possession shall be on a month-to-month basis upon the same terms of this Lease at the same rental paid during the preceding expired term until terminated at the end of a month by either party upon thirty (30) days' advance written notice to the other party. PARAGRAPH 30 - NOTICES. All notices, demands and requests under this Lease shall be in writing and shall be sent by personal delivery or recognized overnight carrier, postage prepaid, receipt requested, and addressed as follows: To Tenant: Amscan Inc. 2 Macy Road PO Box 587 Harrison, NY 10528 Attn: John P. Jordan To Landlord: ACP East LLC 2 Macy Road PO Box 587 Harrison, NY 10528 Attn: John P. Jordan Either party may, by notice given to the other party, designate a new address to which notices, demands and requests shall be sent and, thereafter, any of the foregoing shall be sent to the address most recently designated by such party. Notices, demands and requests which shall be served upon Landlord or Tenant in the manner aforesaid shall be deemed to have been served or given for all purposes under this Lease at the time such notice, demand or request shall be personally delivered or one (1) business day after delivery to overnight carrier. PARAGRAPH 31 - ATTORNMENT. Tenant shall, if requested by either: (a) a fee or leasehold mortgagee of the Demised Premises; or (b) the landlord under any ground or underlying leases which may nor or hereafter affect the Demised Premises at any time, or in the event any proceedings are brought for the foreclosure or, in the event of exercising of the power of sale under any mortgage made by the Landlord covering the Demised Premises, attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the landlord under this Lease. 24 29 PARAGRAPH 32 - ENTIRE AGREEMENT, ETC. This Lease and the Riders, if any, and Exhibits attached hereto set forth the entire agreement between the parties. Any prior conversations or writings are merged herein and extinguished. No subsequent amendment to this Lease shall be binding upon Landlord or Tenant, unless same is in writing and signed by both parties. Submission of this Lease for examination does not constitute an option for the Demised Premises and becomes effective as a lease only upon execution and delivery thereof by Landlord and Tenant. PARAGRAPH 33 - ASSIGNS. The covenants, conditions, and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors and, except as otherwise provided in this Lease, their assigns. PARAGRAPH 34 - DEFINITIONS. The word Landlord as used in this Lease means only the owner for the time being of Landlord's interest in this Lease. In the event of any assignment of Landlord's interest in this Lease, the assignor in each such case shall no longer be liable for the performance or observance of any agreements or conditions on the part of the Landlord to be performed or observed after the date of such assignment. PARAGRAPH 35 - WAIVER OF TRIAL BY JURY. Landlord and Tenant shall and hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised Premises, any claim of injury or damage and any emergency or any other statutory remedy. Tenant shall not interpose any counterclaim or counterclaims in a summary proceeding or in any action based on non-payment of Minimum Rent or Additional Rent, unless such claim will otherwise be lost to Tenant. PARAGRAPH 36 - LATE PAYMENTS. If Tenant shall fail to pay within ten days any installment or payment of Minimum Rent or Additional Rent required to be paid hereunder, Tenant shall pay interest thereon at the lesser of fifteen (15) percent per annum, or the maximum legal rate then prevailing (taking into account any and all amounts paid for late payments pursuant to this Lease) from the date on which such installment or payment is due to the date of payment thereof, and such interest shall be deemed to be Additional Rent which shall be paid by Tenant promptly upon being billed therefor. 25 30 PARAGRAPH 37 - EFFECTS OF WAIVERS OF DEFAULT. No consent or waiver, express or implied, by Landlord to or of any breach of any term, covenant or condition of this Lease on the part of Tenant shall be construed as a consent or waiver to or of any other breach of the same or any other term, covenant or condition, unless in writing signed by Landlord. The failure of Landlord to insist in any one or more instances upon the strict performance of any one or more of the agreements, terms, covenants, conditions or obligations of this Lease, or to exercise any right, remedy or election herein contained shall not be construed as a waiver or relinquishment for the future performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission whether of a similar nature or otherwise. PARAGRAPH 38 - LANDLORD'S RIGHT TO CURE DEFAULTS. Landlord may, but shall not be obligated to cure, at any time, upon ten (10) days' notice to Tenant, or in the event of an emergency, without notice to Tenant, any default by Tenant under this Leasee and whenever Landlord so elects, all costs and expenses incurred by Landlord in curing a default, including, without limitation, reasonable attorneys' fees and disbursements, shall be paid by Tenant to Landlord on demand, and shall be recoverable as Additional Rent. PARAGRAPH 39 - LEGAL PROCEEDINGS. Tenant and Landlord hereby agree that any legal proceeding with respect to this Lease may be brought in the State of New York or in the United States District Court for the district in which the property is located as Tenant or Landlord may elect. The parties further agree that the Law of the State of New York will be the prevailing law to be applied with respect to this Lease. Nothing in this paragraph shall affect Landlord's right to commence legal proceedings in other jurisdictions in which assets of Tenant are located for the purpose of enforcing any judgment obtained in any proceeding brought pursuant to this Lease. Tenant hereby appoints and authorizes Mr. John P. Jordan, 2 Macy Road, Harrison, NY 10528 for the purpose of accepting service process for any action or proceedings commenced pursuant to the terms of this Lease. Service upon such individual or the Tenant shall be deemed service upon Tenant as if such process was personally served upon the Tenant. PARAGRAPH 40 - OPTION TO EXTEND A. Provided the lease is still in effect, Tenant shall have and is hereby granted the right and option to extend the term of this lease for an additional five year term at a minimum rent of One Million, Two Hundred Forty Three Thousand, Three Hundred Seven Dollars and 40/100 ($1,243,307.40) payable in monthly installments of One Hundred Three Thousand, Six Hundred Eight Dollars and 95/100 ($103,680.95), and for an additional five year term at a minimum rent of One Million, Four Hundred Twenty Nine Thousand, Eight Hundred Three Dollars and 48/100 ($1,429,803.48), payable in monthly 26 31 installments of One Hundred Nineteen Thousand, One Hundred Fifty Dollars and 29/100 ($119,150.29). B. Notice by Tenant of the exercise of its option must be received by Landlord not later than one hundred twenty ( 120) days prior to the expiration of the then current term or period. 27 32 IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and seals the day and year first above written. Signed, sealed and delivered in the presence of: ACP EAST, LLC /s/ JOHN ANDERS SVENNINGSEN, PRESIDENT - ----------------------------------------- As to Landlord AMSCAN INC. /s/ JOHN ANDERS SVENNINGSEN, PRESIDENT - ----------------------------------------- As to Tenant 28 33 AMSCAN TURNER CONSTRUCTION COMPANY 80 GRASSLANDS ROAD JOB #SPD-0189 GREENBURGH, NY 20-DEC-95 DOCUMENT LIST
Document Description Revision Date DRAWINGS: ARCHITECHURAL DRAWINGS COVER SHEET A-00 GENERAL CONDITIONS AND NOTES 4-Dec-95 A-01 2ND FLOOR - PARTITION PLAN 4-Dec-95 A-02 2ND FLOOR - REFLECTED CEILING PLAN 4-Dec-95 A-03 2ND FLOOR - POWER/SIGNAL PLAN 4-Dec-95 A-04 2ND FLOOR - FINISH PLAN 4-Dec-95 A-05 3RD FLOOR - PARTITION PLAN 4-Dec-95 A-06 3RD FLOOR - REFLECTED CEILING PLAN 4-Dec-95 A-07 3RD FLOOR - POWER/SIGNAL PLAN 4-Dec-95 A-08 3RD FLOOR - FINISH PLAN 4-Dec-95 A-09 DOOR & HARDWARE SCHEDULES 4-Dec-95 A-10 ELEVATIONS 4-Dec-95 A-11 ELEVATIONS 4-Dec-95 A-12 ELEVATIONS 4-Dec-95 A-13 DETAILS 4-Dec-95 F-01 2ND FLOOR - FURNITURE PLAN 4-Dec-95 F-02 3RD FLOOR - FURNITURE PLAN 4-Dec-95 PLUMBING P-01 SECOND FLOOR- PLUMBING PLAN 12-Dec-95 P-02 THIRD FLOOR - PLUMBING PLAN 12-Dec-95 FIRE PROTECTION FP-1 SECOND FLOOR - FIRE PROTECTION PLAN 12-Dec-95 FP-2 THIRD FLOOR - FIRE PROTECTION PLAN 12-Dec-95 MECHANICAL M-01 SECOND FLOOR- HVAC PLAN 12-Dec-95 M-02 THIRD FLOOR - HVAC PLAN 12-Dec-95 M-03 DETAILS, SCHEDULES and SYMBOL LIST 12-Dec-95 ELECTRICAL E-01 SECOND FLOOR - REFLECTED CEILING PLAN 12-Dec-95 E-02 SECOND FLOOR - POWER/SIGNAL PLAN 12-Dec-95 E-03 THIRD FLOOR - REFLECTED CEILING PLAN 12-Dec-95 E-04 THIRD FLOOR - POWER/SIGNAL PLAN 12-Dec-95 E-05 ONE LINE RISER and SCHEDULES 12-Dec-95 E-06 SECOND FLOOR - FIRE ALARM SYSTEM PLAN 12-Dec-95 E-07 THIRD FLOOR - FIRE ALARM SYSTEM PLAN 12-Dec-95 E-08 RISER DIAGRAMS 12-Dec-95
34 DOCUMENT LIST
Document Description Revision Date DRAWINGS: SPECIFICATIONS: Pages ARCHITECTURAL SPECIFICATIONS ARE ON THE DRAWINGS SUPPLEMENTARY GENERAL CONDITIONS 21 15000 PLUMBING - GENERAL PROVISIONS 2 15100 PLUMBING - PIPING 4 15200 PLUMBING - INSULATION 1 15300 SPRINKLER SYSTEM 3 15500 HVAC - GENERAL PROVISIONS 3 15600 HVAC - PIPING SYSTEMS 5 15650 HVAC-AIR DISTRIBUTION 14 15700 HVAC - INSULATION and NOISE CONTROL 2 15750 HVAC - TERMINAL UNITS 2 15800 HVAC - AUTOMATIC TEMPERATURE CONTROLS 8 16000 ELECTRICAL - GENERAL PROVISIONS 7 16001 ELECTRICAL 12 16111 RACEWAYS 9 16120 WIRE & CABLE 4 16140 DEVICES 4 16150 METER WIRING and CONTROLS 4 16160 MOTOR STARTERS 2 16200 FIRE DETECTION and ALARM SYSTEM 9 16400 BUILDING POWER DISTRIBUTION SYSTEM 7 16501 LIGHTING EQUIPMENT 11 16740 TELEPHONE/DATA (EMPTY CONDUIT SYSTEM) 3 16750 UNINTERRUPTIBLE POWER SYSTEM 14 OTHER DOCUMENTS: ADDENDUMS 1 PERILLO ASSOC'S ELECTRICAL ADDENDUM NO. 1 4 pages 18-Dec-95 ARCHITECTURAL SKETCHES 1 TYPICAL OFFICE DOOR & GLASS FRAME 18-Dec-95 2 SECTION @ GLASS CONFERENCE ROOM WALL 18-Dec-95 3 SCHEMATIC OF ETCHED GLASS 18-Dec-95 4 FIN TUBE SKETCH 13-Dec-95 CPG MEMOS/CORRESPONDENCE 1 ANSWERS & COMMENTS TO MILLWORK QUESTIONS 18-Dec-95 MANUFACTURER'S CATALOG CUTS 1 SKYLIGHT 2 FUME HOOD 13-Dec-95 13-Dec-95
35 AMENDMENT TO LEASE WHEREAS: ACP EAST LLC and AMSCAN INC. are the LANDLORD and TENANT, respectively, in a lease (the "LEASE") for the rental of property at 80 GRASSLANDS ROAD, ELMSFORD, NEW YORK 10523, DATED DECEMBER 1, 1995; WHEREAS: The TERM of the Lease is 15 YEARS, terminating on February 28, 201l with an OPTION TO RENEW until February 28, 2016; WHEREAS: The parties desire to AMEND THE TERM AND OPTION FOR RENEWAL of the Lease; NOW THEREFORE: For good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the undersigned, by their signatures below, agree that THE LEASE IS HEREBY AMENDED AS FOLLOWS: The TERM of the Lease is changed to FIVE YEARS. The EXPIRATION DATE is changed to FEBRUARY 28, 2001. The OPTION TO RENEW is changed to FIVE YEARS AT MARKET RENTAL, with ADDITIONAL OPTIONS TO RENEW AT MARKET RENTAL FOR TWO PERIODS OF FIVE YEARS EACH.
LANDLORD: TENANT: ACP EAST LLC AMSCAN INC. /s/ JOHN P. JORDAN - ---------------------------------- ---------------------------------- John A. Svenningsen, its President John P. Jordan, its Vice President
EX-10.J 12 MODIFIED AND AMENDED LEASE/ J.A. SVENNINGSEN 1 Exhibit 10(j) MODIFICATION OF LEASE AGREEMENT made this 1st day of March, 1995 by and between JOHN ANDERS SVENNINGSEN (hereafter referred to as "Landlord") and AMSCAN, INC. a New York Corporation (hereinafter referred to as "Tenant"). W I T N E S S E T H: WHEREAS, Landlord and Tenant are signatories to a lease agreement dated December 7, 1984 for premises described on Schedule "A" hereto (hereinafter referred to as the "Lease"); and WHEREAS, Tenant has approached Landlord and has requested an extension of the Lease term; and WHEREAS, Landlord agrees to the extension as requested by Tenant subject to the terms and conditions specified herein. NOW, IN CONSIDERATION OF THE PREMISES AND PROMISES CONTAINED HEREIN, IT IS MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS: 1. The Second Paragraph of the Lease is deleted and replaced by the following: "Term: The term shall be fifteen (15) years, commencing on March 1, 1995." 2.Except as herein modified, all other terms, provisions and conditions contained within this Lease, shall remain as stated in the Lease. LANDLORD: JOHN ANDERS SVENNINGSEN /s/ JOHN ANDERS SVENNINGSEN ----------------------------------- JOHN ANDERS SVENNINGSEN TENANT: AMSCAN, INC. By:/S/ STEPHEN J. STEIN -------------------------------- Name: Stephen J. Stein Title: Secretary 2 DESCRIPTION OF PREMISES The premises commonly known as 28401 Rancho California Road, Rancho California, California 92390, and more particularly described as Parcels 17, 18 and 19, inclusive, and Parcel 22 of Parcel Map No. 12549, as shown by Parcel Map on file in Book 74, Pages 84 through 89, inclusive, of Parcel Maps, Records of Riverside County, California. EXHIBIT "A" 3 LEASE This Lease is made December 7, 1984, between JOHN ANDERS SVENNINGSEN, referred to hereafter as "LANDLORD", and AMSCAN, INC., a New York corporation, referred to hereafter as "TENANT". R E C I T A L S This Lease is made with reference to the following facts and objectives: A. Landlord is the owner of that certain Real Property described in Exhibit "A", and is currently in the process of constructing certain improvements thereon pursuant to the terms of that certain Construction Agreement dated September 26, 1984 between HUNTLEY PROPERTIES CONSTRUCTION, as General Contractor, and LANDLORD, as Owner. The Real Property and improvements being constructed thereon are hereinafter referred to as the "Premises." B. TENANT desires to lease from LANDLORD and LANDLORD desires to lease to TENANT the Premises. WHEREFORE, the parties hereto hereby covenant and agree as follows: 1. Demise. LANDLORD leases to TENANT and TENANT leases from LANDLORD the Premises. 2. Term. The term shall be ten (10) years, commencing on the earlier of: (a) the first day of the month following the month in which a Certificate of Occupancy with respect to the entirety of the Premises is issued, (b) July 1, 1985 4 (c) the date on which Tenant first occupies any portion of the Premises. The parties shall execute an amendment to this Lease stating the exact commencement date when the same has been ascertained. 3. Possession Prior to the Commencement of the Term. LANDLORD shall notify TENANT of the expected date for substantial completion of the Premises at least sixty (60) days before said date. Following such notification, TENANT shall be entitled to enter upon the Premises for purposes of equipping and fixturing the Premises so long as such entry does not interfere with LANDLORD or Landlord's Contractor. If TENANT enters the Premises as provided in this paragraph, all of the provisions of the Lease shall be in full force and effect except the Rent Provision. 4. Monthly Rental. (a) During the initial year of the term, TENANT shall pay to LANDLORD as monthly rent, without deduction, setoff, prior notice, or demand, the sum of Twenty-five Thousand Dollars ($25,000.00) per month in advance on the first (1st) day of each month. Such rental shall be prorated for any partial month which may exist at the commencement of the term. (b) Beginning one (1) year following commencement of the term, and continuing on each succeeding anniversary of the commencement of the term, the monthly rental paid by TENANT shall be increased by Five (5%) percent over the - 2 - 5 monthly rental paid by TENANT during the immediately preceding year of the term. 5. Personal Property Taxes. TENANT shall pay before delinquency all taxes, assessments, license fees, and other charges (taxes) that are levied and assessed against TENANT's personal property installed or located in or on the Premises, and that become payable during the term. TENANT shall furnish LANDLORD with satisfactory evidence of these payments. 6. Real Property Taxes. TENANT shall pay all real property taxes and general and special assessments (real property taxes) levied and assessed against the Premises. TENANT shall pay the real property taxes not later than ten (10) days before the taxing authority's delinquency date and shall furnish LANDLORD with satisfactory confirmation of such payment. TENANT's obligations to pay real property taxes shall be prorated on the basis of a 365-day year to account for any fractional portion of a fiscal tax year included in the term at its commencement and expiration. 7. Substitute Taxes. If at any time during the term of the Lease the laws concerning the methods of real property taxation prevailing at the commencement of the term are changed so that a tax or excise on rents or any other such tax, however described, is levied or assessed against LANDLORD as a direct substitution in whole or in part for any real property taxes, TENANT shall pay before delinquency (but only to the extent that it can be ascertained that there has been a substitution and that as a result TENANT - 3 - 6 has been relieved from the payment of real property taxes it would otherwise have been obliged to pay) the substitute tax or excise on rents. TENANT's share of any tax or excise on rent shall be substantially the same as, and a substitute for, the payment of such real property taxes as provided in this Lease. 8. Use. (a) TENANT shall use the Premises for purposes of operating a paper products manufacturing and warehousing facility, and related purposes, and for no other use without LANDLORD'S express written consent, which shall not be unreasonable denied. (b) TENANT shall not do, bring or keep anything on or about the Premises that will cause a cancellation of any insurance covering the Premises, or any portion thereof. (c) TENANT shall comply with all laws, rules, regulations, and ordinances adopted by any governmental or quasi-governmental entity having jurisdiction concerning the premises or TENANT's use of the Premises. 9. Maintenance. TENANT, at its sole cost and expense, shall be responsible for maintaining all portions of the Premises. TENANT expressly waives the provisions of sections 1941 and 1942 of the Civil Code. 10. Alterations. TENANT shall not make any alterations to the Premises without LANDLORD's consent, which shall not be unreasonably denied. Any alterations made shall remain - 4 - 7 in and be surrendered with the Premises on expiration or termination of the term. If TENANT makes any alterations to the Premises as provided above, the alteration shall not be commenced until fifteen (15) days after LANDLORD has received notice from TENANT stating the date that the installation of the alteration is to commence so that LANDLORD can post and record an appropriate Notice of Nonresponsibility. 11. Mechanic's Liens. TENANT shall pay all costs for construction done by it or caused to be done by it on the Premises. TENANT shall keep the Premises free and clear of all mechanic's liens resulting from construction done by or for TENANT. 12. Utilities and Services. TENANT shall make all arrangements for and pay for all utilities and services furnished to or used by it, including without limitation, gas, electricity, water, telephone service, and trash collection, and for all connection charges. 13. Indemnity and Exculpation; Insurance. (a) LANDLORD shall not be liable to TENANT for any damage to TENANT or TENANT's property from any cause. TENANT waives all claims against LANDLORD for damage to person or property arising for any reason. (b) TENANT shall defend, indemnify and hold LANDLORD harmless from any and all costs or expenses, including reasonable attorneys' fees, arising out of any - 5 - 8 damage to any person or property occurring in, on or about the Premises. (c) TENANT, at TENANT's sole cost, shall maintain on all of TENANT's personal property, TENANT's improvements and alterations in, on or about the Premises, a policy of standard fire, flood and extended coverage insurance with vandalism and malicious mischief endorsement to the extent of at least One Hundred Percent (100%) of full replacement value. The proceeds from any such policy shall be used by TENANT for the replacement of personal property or the restoration of TENANT's improvements or alterations. Evidence of such insurance shall be supplied to LANDLORD. (d) TENANT, at TENANT's sole cost, shall maintain on the Premises a policy of standard fire, flood and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least One Hundred Percent (100%) of full replacement value. The insurance policy shall be issued in the names of LANDLORD, LANDLORD's Lender and TENANT, as their interests appear. The proceeds from any such policy shall be paid to and shall belong to LANDLORD, but shall be made available to TENANT for utilization pursuant to the terms of Paragraph 14 hereof. In case this Lease is terminated, the insurance policy and all rights under it or the insurance proceeds shall be assigned to LANDLORD at LANDLORD's election. Evidence of such insurance shall be supplied to LANDLORD. The "Full Replace- - 6 - 9 ment Value" of the Premises shall be determined by the company issuing the fire insurance policy at the time the policy is initially obtained. Not more frequently than annually, either party shall have the right to notify the other party that it elects to have the replacement value redetermined. Any such redetermination shall be made promptly by the insurance company insuring the Premises in accordance with the Rules and Practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and each party shall be promptly notified of the results by the company. The fire insurance policy shall be adjusted according to the redetermination made by the insurance company. (e) TENANT, at its cost, shall maintain insurance insuring that the monthly rent payable hereunder will be paid to LANDLORD for a period of up to six (6) months in the event that the premises are destroyed or rendered inaccessible by a risk insured against by policy of standard fire, flood and extended coverage insurance, with vandalism and malicious mischief endorsements. (f) TENANT, at TENANT's sole cost, shall maintain public liability insurance insuring LANDLORD against damage for injuries occurring in connection with the use of the premises in the amount of Five Million Dollars ($5,000,000.00) single limit coverage. Evidence of such insurance shall be supplied to LANDLORD. (g) All policies of insurance described herein shall: - 7 - 10 i. be issued by insurance companies auth- orized to do business in the State of California, with a financial rating of at least an A+ 4A Status as rated in the most recent edition of Best's Insurance Reports; ii. be issued as a primary policy; iii. contain an endorsement requiring not less than thirty (30) days written notice from the insurance company to LANDLORD before any cancellation, expiration or modification in the coverage, scope or amount of any policy. 14. Destruction. (a) If, during the term hereof, the Premises or any part thereof are totally or partially destroyed from any cause whatsoever, whether or not covered by insurance carried pursuant to this Lease, rendering the Premises totally or partially inaccessible or unusable, TENANT shall restore the Premises to substantially the same condition as they were in immediately before destruction within six (6) months from the date of such destruction. Such destruction shall not terminate this Lease. Tenant shall be entitled to utilize the proceeds of any insurance carried pursuant to the terms of this Lease for such purposes. (b) TENANT waives the provisions of Civil Code Section 1932(2), and Civil Code Section 1933(4), with respect to any destruction of the Premises. - 8 - 11 15. Condemnation. (a) Definitions. i. "Condemnation" means (a) the exercise of any governmental power whether by legal proceedings or otherwise by a condemnor or (b) a voluntary sale or transfer by LANDLORD to a condemnor while any proceedings for condemnation are pending. ii. "Date of Taking" means the date the condemnor has the right to possession of the property being condemned. iii. "Award" means all compensation, sums or anything of value awarded, paid or received on a total or partial condemnation. iv. "Condemnor" means any public or quasi-public authority or private corporation or individual having the power of condemnation. (b) If, during the term hereof, there is any taking of all or any part of the building, other improvements or land constituting the Premises or any interest in this Lease, by condemnation, the rights and obligations of the parties shall be determined as provided herein. (c) If the Premises are totally taken by condemnation, this Lease shall terminate on the date of taking. (d) If any portion of the Premises is taken by condemnation, this Lease shall remain in effect, except that TENANT may elect to terminate this Lease if Fifty Percent (50%) or more of the total number of square feet in the Premises are taken. If TENANT elects to terminate this Lease, TENANT must exercise TENANT's right to terminate pursuant to this paragraph by giving written notice to - 9 - 12 LANDLORD within thirty (30) days after the nature and the extent of the taking have been finally determined. TENANT shall also notify LANDLORD of the date of termination, which date shall not be earlier than thirty (30) days nor more than ninety (90) days after the date that TENANT has notified LANDLORD of TENANT's election to terminate; except that this Lease shall terminate on the date of taking if the date of taking falls on a date before the date of termination as designated by TENANT. If TENANT does not terminate this Lease within the aforesaid period, this Lease shall continue in full force and effect. (e) If any portion of the Premises is taken by condemnation and this Lease remains in full force and effect, then on the date of taking, the rental shall be reduced by an amount that is in the same ratio to the unreduced rental as the total number of gross square feet in the building area of the Premises taken bears to the total number of gross square feet in the building area of the Premises immediately before the date of taking. (f) If there is a partial taking of the Premises and this Lease remains in full force and effect, LANDLORD, at LANDLORD's option, may restore the Premises. In the event that LANDLORD elects to restore the Premises, the reduction in rental provided under subparagraph (e.) hereof shall terminate as of the date of completion of restoration. (g) The award shall belong to and be paid - 10 - 13 entirely to LANDLORD, except that TENANT shall receive from the award any sum attributable by the award to the taking of personal property located on the Premises and belonging to TENANT. 16. Assignment. TENANT shall not assign or encumber TENANT's interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity (except TENANT's authorized representatives) to occupy or use all or any part of the Premises, without obtaining LANDLORD's express written consent. Any assignment, encumbrance or sublease without LANDLORD's consent shall be voidable and, at LANDLORD's election, shall constitute a default. No consent to any assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this paragraph. 17. Default. (a) The occurrence of any one of the following shall constitute a default by TENANT: (i) Failure to pay rent when due; (ii) Failure to perform any other provisions of this Lease if the failure to perform is not cured within ten (10) days after notice has been given to TENANT. If the default cannot reasonably be cured within ten (10) days, TENANT shall not be in default of this Lease if TENANT commences to cure the default within the ten (10) day period and diligently and in good faith continues to cure the default until cure is accomplished. (iii) The Levy of a Writ of Attachment or execution on this Lease, the Premises or any portion thereof which is not released (by bond or otherwise) within fifteen (15) days. - 11 - 14 (iv) The appointment of a receiver with authority to take possession of the Premises or any part thereof, in a proceeding or action to which TENANT is a party. Notices given under this paragraph shall specify the alleged default and the applicable Lease provisions and shall demand that TENANT perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless LANDLORD so elects in the notice. (b) In the event that TENANT defaults under this Lease, LANDLORD shall have all rights and remedies available to LANDLORD under law and the exercise by LANDLORD of one right or remedy shall not preclude the exercise by LANDLORD of any other right or remedy. (c) In the event of any default by TENANT, then LANDLORD, in addition to any other rights or remedies he may have, shall have the immediate right of re-entry and may remove all persons and property from the Premises. (d) If TENANT defaults and abandons the Premises before the end of the term, or if TENANT's right to possession is terminated by LANDLORD because of a default, then in either such case, LANDLORD may recover from TENANT all damages suffered by LANDLORD as the result of TENANT's failure to perform TENANT's obligations hereunder, including but not restricted to, the worth at the time of the award of the amount by which the rent then unpaid hereunder - 12 - 15 for the balance of the Lease term exceeds the amount of such rental loss for the same period which TENANT proves could be reasonably avoided by LANDLORD. 18. LANDLORD's Entry on Premises. LANDLORD, or LANDLORD's authorized representatives, shall have the right to enter the Premises at all reasonable times for any reasonable purpose. 19. Subordination. This Lease is and shall be subordinate to any encumbrance now of record or recorded after the date of this Lease affecting the building, other improvements, and land constituting the Premises. Such subordination is effective without any further act of TENANT. TENANT shall from time to time, upon request from LANDLORD, execute and deliver any documents or instruments that may be required by lender to effect any subordination. If TENANT fails to execute and deliver any such documents or instruments, TENANT irrevocably constitutes and appoints LANDLORD as TENANT's special attorney-in-fact to execute and deliver any such documents or instruments. 20. Notice. Any notice, demand, request, consent, approval or communication that either party desires or is required to give to the other party, or any other person, shall be in writing and either served personally or sent by prepaid first-class mail. Any such notice, demand, request, consent, approval or communication shall be addressed to the other party at the address set forth below. Either party may change its address by notifying the other party of the - 13 - 16 change of address. Notice shall be deemed communicated within forty-eight (48) hours from the time of mailing if mailed as provided in this paragraph. LANDLORD: TENANT: -------- ------- JOHN ANDERS SVENNINGSEN AMSCAN, INC. c/o AMSCAN, INC. P.O. Box 587 P.O. Box 587 South Road South Road Harrison, New York 10528 Harrison, New York 10528 21. Waiver. No delay or omission in the exercise of any right or remedy of LANDLORD with respect to any default by TENANT shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by LANDLORD of delinquent rent shall not constitute a waiver of any other default, but shall constitute only a waiver of timely payment for the particular rent payment accepted. LANDLORD's consent to or approval of any act by TENANT requiring LANDLORD's consent to or approval shall not constitute payment to or approval of any subsequent act of TENANT. Any waiver by LANDLORD of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. 22. Attorneys' Fees. If either party becomes a party to any litigation concerning this Lease, the Premises, the building or other improvements on the Premises or the land constituting a part of the Premises, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its - 14 - 17 authorized representatives, then the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorneys' fees and costs incurred by it in litigation. If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and costs of suit. 23. Surrender of Premises. On expiration of this Lease, TENANT shall surrender to LANDLORD the Premises and all TENANT's improvements and alterations in good condition, reasonable wear and tear excepted. If TENANT fails to surrender the Premises to LANDLORD as aforesaid, TENANT shall hold LANDLORD harmless from all damages resulting from TENANT's failure to surrender the Premises, including without limitation, claims made by a succeeding tenant resulting from TENANT's failure to surrender the Premises. 24. Time of Essence. Time is of the essence of each provision of this Lease; all provisions relating to time shall be strictly construed. 25. Successors. This Lease shall be binding on and inure to the benefit of the parties and their successors; provided, however, that this provision is expressly subject to the prohibition against assignment and subleasing contained herein. - 15 - 18 26. Integration. This Lease contains all of the agreements of the parties. No party has entered into this Lease in reliance upon any representation not contained herein. 27. Captions. The captions of this Lease shall have no effect on its interpretation. 28. Joint and Several Obligations. "Party" shall mean LANDLORD or TENANT. If more than one person or entity is LANDLORD or TENANT, the obligations imposed on that party shall be joint and several. 29. Industrial Development Bond. Tenant understands that the Premises have been constructed by means of a loan ("Loan") funded pursuant to the sale by the Riverside County Industrial Development Authority ("Authority") of its Industrial Development Bond, Issue A of 1984 (Amscan, Inc. Project) ("Bond") and that such Bond is secured by a mortgage to the Authority which has been assigned to The Chase Manhattan Bank, N.A. ("Bank"). TENANT agrees to perform the following throughout the life of the Loan: (a) It shall not assign or sublet or transfer the whole or any part of the Premises or abandon the same or lease, surrender or otherwise dispose of any other use or possessory interest in the whole or part of the Premises to any person, firm or corporation without the prior written consent of the Authority, the Bank and the Lessor. (b) It shall be the principal user of the Premises, - 16 - 19 and shall not suffer or permit any other person to constitute a principal user of the Premises without the prior written consent of the Authority and the Bank. (c) It shall take no action which will cause the interest on the Bond to become subject to federal and California personal income taxation. (d) As of the date of the issue of the Bond, it shall furnish the Lessor and the Authority with a schedule listing any and all "capital expenditures" with respect to the Premises paid or incurred during the three year period before the date of issue of the Bond. Additionally, it shall furnish the Lessor and the Authority with such a schedule for each three successive twelve month period after such date of issue. (e) It shall cause to be filed any and all reports or returns as required by the Treasury regulations governing the issuance of industrial development bonds. (f) For the six year period commencing December 11, 1981 and terminating December 11, 1987, it, or any party related to it, has not and shall not incur any capital expenditures made by the Lessor, and any related party thereto in the County of Riverside causes the total amount of the combined capital expenditures of all said parties to exceed $10,000,000. (g) It shall advise Lessor of any other lease it - 17 - 20 enters into for premises located in the County of Riverside. EXECUTED the day and year first above written at Westchester, New York.
LANDLORD: TENANT: AMSCAN, INC., A New York Corporation. /s/ JOHN ANDERS SVENNINGSEN By:/s/ ELVERA SVENNINGSEN - ---------------------------- ---------------------------- JOHN ANDERS SVENNINGSEN Its Secretary
21 DESCRIPTION OF PREMISES The premises commonly known as 28401 Rancho California Road, Rancho California, California 92390, and more particularly described as Parcels 17, 18 and 19, inclusive, and Parcel 22 of Parcel Map No. 12549, as shown by Parcel Map on file in Book 74, Pages 84 through 89, inclusive, of Parcel Maps , Records of Riverside County, California. EXHIBIT "A" 22 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: MEMORANDUM OF LEASE This Memorandum of Lease is made and entered into by and between JOHN ANDERS SVENNINGSEN, hereinafter referred to as "LANDLORD", and AMSCAN, INC., a New York corporation, hereinafter referred to as "TENANT", to witness that: LANDLORD hereby leases to TENANT for a term of ten (10) years, commencing on the earlier of: (a) the first day of the month following the month in which a Certificate of Occupancy with respect to the entirety of the Premises is issued, (b) July 1, 1985, or (c) the date on which TENANT first occupies any portion of the Premises, on the terms and conditions set forth in that certain Lease by and between the parties hereto dated December 7, 1984, all the terms and conditions of which Lease are made a part hereof as though fully set forth herein, all those certain premises in the County of Riverside, State of California, described in Exhibit "A" which is attached hereto and incorporated herein by this reference, including any improvements to be constructed thereon. EXECUTED on the 7 day of December, 1984 at Westchester, New York. LANDLORD: /s/ JOHN ANDERS SVENNINGSEN ----------------------------- JOHN ANDERS SVENNINGSEN TENANT: AMSCAN, INC., a New York corporation, By /s/ ELVERA SVENNINGSEN -------------------------- Its Secretary 23 STATE OF NEW YORK ) ) ss. COUNTY OF WESTCHESTER ) On December 7, 1984, before me, the undersigned, a Notary Public in and for said State, personally appeared JOHN ANDERS SVENNINGSEN known to me to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the same. WITNESS my hand and official seal. /s/ JOEL S. LEVER --------------------------------- Notary Public in and for said State. STATE OF NEW YORK ) ) ss COUNTY OF Westchester ) On December 7, 1984, before me, the undersigned, a Notary Public in and for said State, personally appeared ELVERA SVENNINGSEN, known to me to be the Secretary of AMSCAN, INC., a New York corporation, the corporation that executed the within instrument, known to me to be the person who executed the within instrument, on behalf of the corporation therein named, and acknowledged to me that such corporation executed the same. WITNESS my hand and official seal. /s/ JOEL S. LEVER -------------------------------- Notary Public in and for said State. -2- 24 DESCRIPTION OF PREMISES The premises commonly known as 28401 Rancho California Road, Rancho California, California 92390, and more particularly described as Parcels 17, 18 and 19, inclusive, and Parcel 22 of Parcel Map No. 12549, as shown by Parcel Map on file in Book 74, Pages 84 through 89, inclusive, of Parcel Maps, Records of Riverside County, California. EXHIBIT "A" 25 AMENDMENT TO LEASE Whereas: John Anders Svenningsen and Amscan Inc. are the Landlord and Tenant, respectively, in a lease (the "Lease") for the rental of property at 28401 Rancho California Road, Temecula, California 92590, dated December 7, 1984, and extended by modification dated March 1, 1995; Whereas: The Term of the Lease is 15 years, terminating on February 28, 2010; Whereas: The parties desire to amend the Term of the Lease; Now Therefore: For good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the undersigned, by their signatures below, agree that the Lease is hereby amended as follows: The Term of the Lease is changed to Five Years. The Expiration Date is changed to February 28, 2000. Tenant is granted an Option to Renew for Five Years at Market Rental, with additional options to renew at market rental for one period of five years. Landlord: Tenant: John Anders Svenningsen Amscan, Inc. /s/ JOHN P. JORDAN - ------------------------- ------------------------------------- John P. Jordan, its Vice President EX-10.K 13 AMENDED LEASE/ J.A. SVENNINGSEN-11/09/95 1 Exhibit 10(k) L E A S E This Lease is made November 9, 1995, between JOHN ANDERS SVENNINGSEN referred to hereafter as "LANDLORD", and AMSCAN INC., a New York corporation, referred to hereafter as "TENANT". R E C I T A L S This Lease is made with reference to the following facts and objectives: A. Landlord is the owner of that certain Real Property described in Exhibit "A", and is currently in the process of constructing certain additional improvements thereon pursuant to the terms of that certain Construction Agreement dated May 25, 1995 between HEDLEY BROTHERS CONSTRUCTION CO., as General Contractor, and LANDLORD, as Owner. The Real Property and improvements previously constructed thereon are subject to a lease between LANDLORD and TENANT dated December 7, 1984, and extended by modification dated March 1, 1995. The additional improvements being constructed, consisting of a 98,680 more or less square foot additional warehouse at 28381 Vincent Moraga and more fully described in Exhibit "A" hereto, are hereinafter referred to as the "Premises." B. TENANT desires to lease from LANDLORD and LANDLORD desires to lease to TENANT the Premises. WHEREFORE, the parties hereto hereby covenant and agree as follows: 1. Demise. LANDLORD leases to TENANT and TENANT leases from LANDLORD the Premises. 2. Term. The term shall be coterminous with the December 7, 1984 lease - approximately fourteen years, two months, commencing on the earlier of: (a) the first day of the month following 1 2 the month in which a Certificate of Occupancy with respect to the entirety of the Premises is issued, (b) January 1, 1996 or (c) the date on which Tenant first occupies any portion of the Premises. The parties shall execute an amendment to this Lease stating the exact commencement date when the same has been ascertained. 3. Possession Prior to the Commencement of the Term. LANDLORD shall notify TENANT of the expected date for substantial completion of the Premises at least sixty (60) days before said date. Following such notification, TENANT shall be entitled to enter upon the Premises for purposes of equipping and fixturing the Premises so long as such entry does not interfere with LANDLORD or Landlord's Contractor. If TENANT enters the Premises as provided in this paragraph, all of the provisions of the Lease shall be in full force and effect except the Rent Provision. 4. Monthly Rental. (a) During the initial year of the term, TENANT shall pay to LANDLORD as monthly rent, without deduction, setoff, prior notice, or demand, the sum of Fifty-Six Thousand, Two Hundred Forty-Seven Dollars and Sixty Cents ($56,247.60) per month in advance on the first (1st) day of each month. Such rental shall be prorated for any partial month which may exist at the commencement of the term. (b) Beginning one (1) year following commencement of the term, and continuing on each succeeding anniversary of the commencement of the term, the monthly rental paid by TENANT shall be increased by Five (5%) percent over the monthly rental paid by TENANT during the immediately preceding year of the term. 5. Personal Property Taxes. TENANT shall pay before delinquency all taxes, assessments, license fees, and other charges (taxes) that are levied and assessed against TENANT's personal property installed or located in or on the Premises, and that become payable during the term. TENANT shall furnish LANDLORD with satisfactory evidence of these payments. 2 3 6. Real Property Taxes. TENANT shall pay all real property taxes and general and special assessments (real property taxes) levied and assessed against the Premises. TENANT shall pay the real property taxes not later than ten (10) days before the taxing authority's delinquency date and shall furnish LANDLORD with satisfactory confirmation of such payment. TENANT's obligations to pay real property taxes shall be prorated on the basis of a 365-day year to account for any fractional portion of a fiscal tax year included in the term at its commencement and expiration. 7. Substitute Taxes. If at any time during the term of the Lease the laws concerning the methods of real property taxation prevailing at the commencement of the term are changed so that a tax or excise on rents or any other such tax, however described, is levied or assessed against LANDLORD as a direct substitution in whole or in part for any real property taxes, TENANT shall pay before delinquency (but only to the extent that it can be ascertained that there has been a substitution and that as a result TENANT has been relieved from the payment of real property taxes it would otherwise have been obligated to pay) the substitute tax or excise on rents. TENANT's share of any tax or excise on rent shall be substantially the same as, and a substitute for, the payment of such real property taxes as provided in this Lease. 8. Use. (a) TENANT shall use the Premises for purposes of operating a paper products manufacturing and warehousing facility, and related purposes, and for no other use without LANDLORD's express written consent, which shall not be unreasonably denied. (b) TENANT shall not do, bring or keep anything in or about the Premises that will cause a cancellation of any insurance covering the Premises, or any portion thereof. (c) TENANT shall comply with all laws, rules, regulations, and ordinances adopted by any governmental or quasigovernmental entity having jurisdiction concerning the Premises or 3 4 TENANT'S use of the Premises. 9. Maintenance. TENANT, at its sole cost and expense, shall be responsible for maintaining all portions of the Premises. TENANT expressly waives the provisions of Sections 1941 and 1942 of the Civil Code. 10. Alterations. TENANT shall not make any alterations to the Premises without LANDLORD's consent, which shall not be unreasonably denied. Any alterations made shall remain on and be surrendered with the Premises on expiration or termination of the term. If TENANT makes any alterations to the Premises as provided above, the alteration shall not be commenced until fifteen (15) days after LANDLORD has received notice from TENANT stating the date that the installation of the alteration is to commence so that LANDLORD can post and record an appropriate Notice of Nonresponsibility. 11. Mechanic's Liens. TENANT shall pay all costs for construction done by it or caused to be done by it on the Premises. TENANT shall keep the Premises free and clear of all mechanic's liens resulting from construction done by or for TENANT. 12. Utilities and Services. TENANT shall make all arrangements for and pay for all utilities and services furnished to or used by it and connection charges related to such utilities and services, including without limitation, gas, electricity, water, telephone service, and trash collection. 13. Indemnity and Exculpation; Insurance. (a) LANDLORD shall not be liable to TENANT for any damage to TENANT or TENANT's property from any cause. TENANT waives all claims against LANDLORD for damage to person or property arising for any reason. (b) TENANT shall defend, indemnify and hold LANDLORD harmless from any and all costs or expenses, including reasonable attorneys' fees, arising out of any damage to any 4 5 person or property occurring in, on or about the Premises. (c) TENANT, at TENANT's sole cost, shall maintain on all of TENANT's personal property, TENANT's improvements and alterations in, on or about the Premises, a policy of standard fire, flood and extended coverage insurance with vandalism and malicious mischief endorsement to the extent of at least One Hundred Percent (100%) of full replacement value. The proceeds from any such policy shall be used by TENANT for the replacement of personal property or the restoration of TENANT's improvements or alterations. Evidence of such insurance shall be supplied to LANDLORD. (d) TENANT, at TENANT's sole cost, shall maintain on the Premises a policy of standard fire, flood and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least One Hundred Percent (100%) of full replacement value. The insurance policy shall be issued in the names of LANDLORD, LANDLORD's Lender and TENANT, as their interests appear. The proceeds from any such policy shall be paid to and shall belong to LANDLORD, but shall be made available to TENANT for utilization pursuant to the terms of Paragraph 14 hereof. In case this Lease is terminated, the insurance policy and all rights under it or the insurance proceeds shall be assigned to LANDLORD at LANDLORD's election. Evidence of such insurance shall be supplied to LANDLORD. The "Full Replacement Value" of the Premises shall be determined by the company issuing the fire insurance policy at the time the policy is initially obtained. Not more frequently than annually, either party shall have the right to notify the other party that it elects to have the replacement value redetermined. Any such redetermination shall be made promptly by the insurance company insuring the Premises in accordance with the Rules and Practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and each party shall be promptly notified of the results by the company. The fire insurance policy shall be adjusted according to the redetermination made by the insurance company. (e) TENANT, at its cost, shall maintain insurance insuring that the monthly rent 5 6 payable hereunder will be paid to LANDLORD for a period of up to six (6) months in the event that the premises are destroyed or rendered inaccessible by a risk insured against by policy of standard fire, flood and extended coverage insurance, with vandalism and malicious mischief endorsements. (f) TENANT, at TENANT's sole cost, shall maintain public liability insurance insuring LANDLORD against damage for injuries occurring in connection with the use of the Premises in the amount of Five Million Dollars ($5,000,000.00) single limit coverage. Evidence of such insurance shall be supplied to LANDLORD. (g) All policies of insurance described herein shall: i. be issued by insurance companies authorized to do business in the State of California, with a financial rating of at least an A Status as rated in the most recent edition of Best's Insurance Reports; ii. be issued as a primary policy; iii. contain an endorsement requiring not less than thirty (30) day written notice from the insurance company to LANDLORD before any cancellation, expiration or modification in the coverage, scope or amount of any policy. 14. Destruction. (a) If, during the term hereof, the Premises or any part thereof are totally or partially destroyed from any cause whatsoever, whether or not covered by insurance carried pursuant to this Lease, rendering the Premises totally or partially inaccessible or unusable, TENANT shall restore the Premises to substantially the same condition as they were in immediately before destruction within six (6) months from the date of such destruction. Such destruction shall not terminate this Lease. Tenant shall be entitled to utilize the proceeds of any insurance carried pursuant to the terms of this Lease for such purposes. 6 7 (b) TENANT waives the provisions of Civil Code Section 1932(2), and Civil Code Section 1933(4), with respect to any destruction of the Premises. 15. Condemnation. (a) Definitions. i. "Condemnation" means (a) the exercise of any governmental power whether by legal proceeding or otherwise by a condemnor or (b) a voluntary sale or transfer by LANDLORD to a condemnor while any proceedings for condemnation are pending. ii. "Date of Taking" means the date the condemnor has the right to possession of the property being condemned. iii. "Award" means all compensation, sums or anything of value awarded, paid or received on a total or partial condemnation. iv. "Condemnor" means any public or quasipublic authority or private corporation or individual having the power of condemnation. (b) If, during the term hereof, there is any taking of all or any part of the building, other improvements or land constituting the Premises or any interest in this Lease, by condemnation, the rights and obligations of the parties shall be determined as provided herein. (c) If the Premises are totally taken by condemnation, this Lease shall terminate on the date of taking. (d) If any portion of the Premises is taken by condemnation, this Lease shall remain in effect, except that TENANT may elect to terminate this Lease if Fifty Percent (50%) or more of the total number of square feet in the Premises are taken. It TENANT elects to terminate this Lease, TENANT must exercise TENANT's right to terminate pursuant to this paragraph by giving 7 8 written notice to LANDLORD within thirty (30) days after the nature and the extent of the taking have been finally determined. TENANT shall also notify LANDLORD of the date of termination, which date shall not be earlier than thirty (30) days nor more than ninety (90) days after the date that TENANT has notified LANDLORD of TENANT's election to terminate; except that this Lease shall terminate on the date of taking if the date of taking falls on a date before the date of termination as designated by TENANT. If TENANT does not terminate this Lease within the aforesaid period, this Lease shall continue in full force and effect. (e) If any portion of the Premises is taken by condemnation and this Lease remains in full force and effect, then on the date of taking, the rental shall be reduced by an amount that is in the same ratio to the unreduced rental as the total number of gross square feet in the building area of the Premises taken bears to the total number of gross square feet in the building area of the Premises immediately before the date of taking. (f) If there is a partial taking of the Premises and this Lease remains in full force and effect, LANDLORD, at LANDLORD's option, may restore the Premises. In the event that LANDLORD elects to restore the Premises, the reduction in rental provided under sub-paragraph (e.) hereof shall terminate as of the date of completion of restoration. (g) The award shall belong to and be paid entirely to LANDLORD, except that TENANT shall receive from the award any sum attributable by the award to the taking of personal property located on the Premises and belonging to TENANT. 16. Assignment. TENANT shall not assign or encumber TENANT's interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity (except TENANT's authorized representatives) to occupy or use all or any part of the Premises, without obtaining LANDLORD's express written consent. Any assignment, encumbrance or sublease without LANDLORD's consent shall be voidable and, at LANDLORD's election, shall constitute a 8 9 further waiver of the provisions of this paragraph. 17. Default. (a) The occurrence of any one of the following shall constitute a default by TENANT: (i) Failure to pay rent when due; (ii) Failure to perform any other provisions of this Lease if the failure to perform is not cured within ten (10) days after notice has been given to TENANT. If the default cannot reasonably be cured within ten (10) days, TENANT shall not be in default of this Lease if TENANT commences to cure the default within the ten (10) day period and diligently and in good faith continues to cure the default until cure is accomplished. (iii) The Levy of a Writ of Attachment or execution on this Lease, the Premises or any portion thereof which is not released (by bond or otherwise) within fifteen (15) days. (iv) The appointment of a receiver with authority to take possession of the Premises or any part thereof, in a proceeding or action to which TENANT is a party. Notices given under this paragraph shall specify the alleged default and the applicable Lease provisions and shall demand that TENANT perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless LANDLORD so elects in the notice. (b) In the event that TENANT defaults under this Lease, LANDLORD shall have all rights and remedies available to LANDLORD under law and the exercise by LANDLORD of one right or remedy shall not preclude the exercise by LANDLORD of any other right or remedy. 9 10 (c) In the event of any default by TENANT, then LANDLORD, in addition to any other rights or remedies he may have, shall have the immediate right of re-entry and may remove all persons and property from the Premises. (d) If TENANT defaults and abandons the Premises before the end of the term, or if TENANT's right to possession is terminated by LANDLORD because of a default, then in either such case, LANDLORD may recover from TENANT all damages suffered by LANDLORD as the result of TENANT's failure to perform TENANT's obligations hereunder, including, but not restricted to, the worth at the time, of the award of the amount by which the rent then unpaid hereunder for the balance of the Lease term exceeds the amount of such rental loss for the same period which TENANT proves could be reasonably avoided by LANDLORD. 18. LANDLORD's Entry on Premises. LANDLORD, or LANDLORD's authorized representatives, shall have the right to enter the Premises at all reasonable times for any reasonable purpose. 19. Subordination. This Lease is and shall be subordinate to any encumbrance now of record or recorded after the date of this Lease affecting the building, other improvements, and land constituting the Premises. Such subordination is effective without any further act of TENANT. TENANT shall from time to time, upon request from LANDLORD, execute and deliver any documents or instruments that may be required by lender to effect any subordination. If TENANT fails to execute and deliver any such documents or instruments, TENANT irrevocably constitutes and appoints LANDLORD as TENANT's special attorney-in-fact to execute and deliver any such documents or instruments. 20. Notice. Any notice, demand, request, consent, approval or communication that either party desires or is required to give to the other party, or any other shall be in writing-and either served personally or sent by prepaid first-class mail. Any such notice, demand, request, consent, approval or communication shall be addressed to the other party at the address set forth below. Either party 10 11 may change its address by notifying the other party of the change of address. Notice shall be deemed communicated within forty-eight (48) hours from the time of mailing if mailed as provided in this paragraph. LANDLORD: TENANT: - --------- ------- JOHN ANDERS SVENNINGSEN AMSCAN INC C/O AMSCAN INC. 2 Macy Road 2 Macy Road PO Box 587 PO Box 587 Harrison, New York 10528 Harrison, New York 10528 21. Waiver. No delay or omission in the exercise of any right or remedy of LANDLORD with respect to any default by TENANT shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by LANDLORD of delinquent rent shall not constitute a waiver of any other default, but shall constitute only a waiver of timely payment for the particular rent payment accepted. LANDLORD's consent to or approval of any act by TENANT requiring LANDLORD's consent to or approval shall not constitute consent to or approval of any subsequent act of TENANT. Any waiver by LANDLORD of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. 22. Attorneys' Fees. If either party becomes a party to any litigation concerning this Lease, the Premises, the building or other improvements on the Premises or the land constituting a part of the Premises, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, then the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorneys' fees and costs incurred by it in litigation. If either party commences an action against the other party arising out of or in connection 11 12 with this Lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and costs of suit. 23. Surrender of Premises. On expiration of this Lease, TENANT shall surrender to LANDLORD the Premises and all TENANT's improvements and alterations in good condition, reasonable wear and tear excepted. If TENANT fails to surrender the Premises to LANDLORD as aforesaid, TENANT shall hold LANDLORD harmless from all damages resulting from TENANT's failure to surrender the Premises, including without limitation, claims made by a succeeding tenant resulting from TENANT's failure to surrender the Premises. 24. Time of Essence. Time is of the essence of each provision of this Lease; all provisions relating to time shall be strictly construed. 25. Successors. This Lease shall be binding on and inure to the benefit of the parties and their successors; provided, however, that this provision is expressly subject to the prohibition against assignment and subleasing contained herein. 26. Integration. This Lease contains all of the agreements of the parties. No party has entered into this Lease in reliance upon any representation not contained herein. 27. Captions. The captions of this Lease shall have no effect on its interpretation. 28. Joint and Several Obligations. "Party" shall mean LANDLORD or TENANT. If more than one person or entity is LANDLORD or TENANT, the obligations imposed on that party shall be joint and several. EXECUTED the day and year first above written at Harrison, New York. - ---------------------------------- ----------------------------------- 12 13 LANDLORD: TENANT: - --------- ------- AMSCAN INC., A New York Corporation /s/JOHN ANDERS SVENNINGSEN - -------------------------- JOHN ANDERS SVENNINGSEN By: /s/JOHN JORDAN ------------------------------------ Its Vice President ------------------------------------ 13 14 DESCRIPTION OF PREMISES The premises commonly known as, Temecula, California, and more particularly described as Parcels 17, 18 and 19, inclusive, and Parcel 22 of Parcel Map No. 12549, as shown by Parcel Map on file in Book 74, Pages 84 through 89, inclusive, of Parcel Maps, Records of Riverside County, California. EXHIBIT "A" 14 15 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: MEMORANDUM OF LEASE This Memorandum of Lease is made and entered into by and between JOHN ANDERS SVENNINGSEN, hereinafter referred to as "LANDLORD", and AMSCAN INC., a New York corporation, hereinafter referred to as "TENANT", to witness that: LANDLORD hereby leases to TENANT for a term of ten (10) years, commencing on the earlier of: (a) The first day of the month following-the month in which a Certificate of Occupancy with respect to the entirety of the Premises is issued, (b) July 1, 1985, or (c) the date on which TENANT first occupies any portion of the Premises, on the terms and conditions set forth in that certain case by and between the parties hereto dated 12/07/84 all the terms and conditions of which Lease are made a part hereof as though fully set forth herein, all those certain Premises in the County of Riverside, State of California, described in Exhibit "A" which is attached hereto and incorporated herein by this reference, including any improvements to be constructed thereon. EXECUTED on the 7 day of December, 1984 at Westchester, New York. LANDLORD: --------- ------------------------------------ JOHN ANDERS SVENNINGSEN TENANT: AMSCAN, INC., A New York Corporation, By: --------------------------------- Its --------------------------------- 15 16 STATE OF NEW YORK COUNTY OF WESTCHESTER On before me, the undersigned, a Notary Public in and for said State, personally appeared JOHN ANDERS SVENNINGSEN known to me to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the same. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF NEW YORK COUNTY OF WESTCHESTER On , before me, the undersigned, a Notary Public in and for said State, personally appeared Elvira Svenningsen, known to me to be the secretary of AMSCAN, INC., a New York corporation, the corporation that executed the within instrument, known to me to be the person who executed the within instrument, on behalf of the corporation therein named, and acknowledged to me that such corporation executed the same. WITNESS my hand and official seal. ----------------------------------- 16 17 DESCRIPTION OF PREMISES The premises commonly known as 28401 Rancho California Road, Rancho California, California 92390, and more particularly described as Parcels 17, 18 and 19, inclusive, and Parcel 22 of Parcel I-lap No. 12549, as shown by Parcel Map on file in Book 74, Pages 84 through 89, inclusive, of Parcel Maps, Records of Riverside County, California. EXHIBIT "A" 17 18 AMENDMENT TO LEASE WHEREAS: JOHN ANDERS SVENNINGSEN and AMSCAN INC. are the LANDLORD and TENANT, respectively, in a lease (the "LEASE") for the rental of property at 28381 VINCENT MORAGA BOULEVARD, TEMECULA, CALIFORNIA 92590, dated November 9, 1995; WHEREAS: The TERM of the Lease is 14 YEARS, TWO MONTHS, terminating on February 28, 2010; WHEREAS: The parties desire to AMEND THE TERM of the Lease; NOW THEREFORE: For good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the undersigned, by their signatures below, agree that THE LEASE IS HEREBY AMENDED AS FOLLOWS: The TERM of the Lease is changed to FOUR YEARS AND TWO MONTHS. The EXPIRATION DATE is changed to FEBRUARY 28, 2000. Tenant is granted an OPTION TO RENEW for FIVE YEARS AT MARKET RENTAL, with an ADDITIONAL OPTION TO RENEW AT MARKET RENTAL FOR ONE PERIOD OF FIVE YEARS. LANDLORD: TENANT: JOHN ANDERS SVENNINGSEN AMSCAN INC. _____________________________ /s/JOHN P. JORDAN JOHN P. JORDAN, ITS VICE PRESIDENT 18 EX-10.M 14 LOAN AGREEMENT-10/09/96 1 EXHIBIT 10(m) LOAN AGREEMENT made this 9th day of October, 1996, by and between JOHN A. SVENNINGSEN, whose principal place of business is c/o Amscan Inc., 80 Grasslands Road, Elmsford, New York 10523 ("Svenningsen"); GERALD C. RITTENBERG, now residing at 18 Carey Drive, Bedford, New York 10506 ("Rittenberg"); and KURZMAN & EISENBERG, LLP with a principal place of business at 1 North Broadway, White Plains, N.Y. 10601 ("Escrow Agent"). R E C I T A L S 1. Rittenberg wishes to borrow monies from Svenningsen in amounts as hereinafter set forth in this Agreement ("Loan Agreement") and Svenningsen has agreed to loan such monies to Rittenberg. 2. In order to induce Svenningsen to make the loans to Rittenberg as herein contemplated (which loans are hereinafter referred to as the "Loan"), Rittenberg proposes to pledge to Svenningsen two thirds (2/3) of all shares of common stock to be issued to Rittenberg upon a contemplated public offering ("IPO") of the shares of Amscan described in Paragraph 2 of the Stock Agreement between Rittenberg, Svenningsen and Amscan. The Shares so pledged are herein referred to as the "Shares". 3. The parties wish to set forth the terms under which such Loan is to be made and secured. NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS: 1. Loan. Svenningsen covenants and agrees to loan to Rittenberg an 2 aggregate amount which shall be no greater than 4/9ths of the value of all shares issued to Rittenberg under Paragraph 2 of the Stock Agreement, based on the offering price for shares of Amscan set forth in the final prospectus ("Maximum Amount of the Loan"). Such Loan may be made either in one or two advances but only on the following dates and only upon ten (10) days advanced written notice to Svenningsen and Escrow Agent: (1) on the date of the initial public offering of Amscan shares of stock; and (2) on April 1, 1997 if the IPO occurs before December 31, 1996 or April 1, 1998 if the IPO occurs after December 31, 1996 (collectively the "Loan Advancement Dates"). (DELETED) 2. EVIDENCE OF THE ADVANCES. Each advance to be made by Svenningsen to Rittenberg with respect to the Loan hereunder shall be evidenced and acknowledged by a receipt and acknowledgement from Rittenberg in the form annexed hereto ("Receipt and Acknowledgment"). 3. TERMS OF THE LOAN. The advances made hereunder shall be repaid with interest per annum at the ninety (90) day Libor rate, plus one-eighth of 1%, in effect on the date of the first advance or on the date of the single advance if there is only one advance ("Single Advance"), as the case may be, adjusted every ninety (90) days thereafter during the term of the Loan, compounded annually. Interest shall be paid annually commencing one year from the date of the first advance or the Single Advance, and on the anniversary date thereafter of the 2 3 first or Single Advance, as the case may be, except that the final interest payment shall be made on the due date of the principal of this Loan. The principal amount of the Loan shall be due and paid thirty (30) months after the date of the first or Single Advance, as the case may be, with accrued interest to the date of such payment, unless sooner paid. Rittenberg may make payment of any portion or of all of the indebtedness hereunder, either in cash or by the transfer to Svenningsen of so many of the Shares pledged hereunder as shall be equal in value to the amount of the payment to be made; such value to be computed at the average closing market price of the Shares for the seven (7) trading days prior to the payment ("Average Closing Market Price"). 4. PREPAYMENT OF THE LOAN. The entire Loan hereunder may be prepaid in full, at any time, without penalty, with interest to the date of payment. Rittenberg may make no more than seven (7) partial prepayments in no less than $250,000.00 in either Shares or Cash or a combination thereof, each with interest to the date of each prepayment. It is the intent of the parties that so long as the indebtedness hereunder shall remain unpaid, Svenningsen may retain as security so many of the pledged Shares as shall have a cumulative value of at least one and one-half times the unpaid principal indebtedness, but in no event more than the number of Shares initially deposited in the Escrow Agent. Upon making a payment of the principal portion of the indebtedness, the Escrow 3 4 Agent shall promptly, upon Rittenberg's request, release and transfer to Rittenberg so many of the remaining pledged Shares held by him equal to fifty (50%) percent of the number of Shares used by Rittenberg to repay the principal indebtedness or if cash or a check is used to pay the principal indebtedness ("Cash Payment") then the Cash Payment shall be divided by the Average Closing Market Price of Amscan shares and the product of such division shall be multiplied by one hundred fifty (150%) percent. Notwithstanding anything to the contrary contained in this Loan Agreement, if any Shares are registered pursuant to the provisions of Paragraph 3(b) of the Stock Agreement, then, from and after the registration of such Shares, any pledged Shares transferred to Svenningsen in payment of any principal or interest due under the Loan shall be unregistered Shares to the extent available, before any registered Shares are used for that purpose. In addition, any pledged Shares released to Rittenberg pursuant to the preceding paragraph upon payment of principal under the Loan shall be registered Shares to the extent available, before unregistered Shares are used for that purpose. 5. PLEDGE OF SHARES. In consideration of the loan to be made hereunder by Svenningsen to Rittenberg, Rittenberg grants a security interest to Svenningsen in all the Shares. Upon receipt by Rittenberg of the certificates representing the Shares, Rittenberg shall deliver all of such certificates to the Escrow Agent, duly endorsed in blank, 4 5 to be held by the Escrow Agent as provided in this Agreement. Rittenberg shall have the right at any time to substitute with the Escrow Agent unregistered Amscan shares, duly endorsed in blank, that are not pledged for registered Shares, with one registered Share released from escrow for every unregistered Amscan share delivered to the Escrow Agent. 6. LOAN MADE WITHOUT RECOURSE. The liability of Rittenberg to repay principal or interest on the Loan and the advances made hereunder is limited to the Shares pledged by Rittenberg to Svenningsen as security for the payment of the Loan hereunder and in no event shall Rittenberg be personally liable for any deficiency resulting from the sale of the Shares nor shall any action or proceeding be brought against Rittenberg to recover judgment against Rittenberg upon any unpaid balance of principal or interest on the Loan made hereunder. 7. DIVIDENDS. During the term of the pledge of the Shares hereunder and so long as there is no default with respect to the Loan, all cash dividends paid on account of the Shares shall be the property of Rittenberg. 8. VOTING RIGHTS. During the term of this pledge of the Shares hereunder and so long as there is no default with respect to the Loan, Rittenberg may vote the Shares on all corporate questions. 9. REPRESENTATIONS BY RITTENBERG. 5 6 Rittenberg warrants and represents in order to induce Svenningsen to make the Loan hereunder and to accept the Shares herein pledged as security, that there are no restrictions upon the right of Rittenberg to make the pledge of such Shares herein provided. 10. ADJUSTMENTS. If, during the term of the pledge hereunder any reclassification, readjustment, or other change is declared in the Shares or made in the capital structure of the Corporation which has issued the pledged Shares, all new, substituted and additional Shares, or other securities, issued by reason of any such change shall be held by the Escrow Agent under the terms of this Agreement in the same manner as the Shares originally pledged hereunder. 11. WARRANTS AND RIGHTS. If, during the term of the pledge hereunder, subscription warrants or any other rights or options are issued in connection with the pledged Shares, Rittenberg shall immediately pledge such warrants, rights, or options to Svenningsen, and shall deliver any evidence thereof, duly endorsed in blank, to the Escrow Agent, to be held as additional collateral security for the Loan. If exercised by Rittenberg, all new Shares or other securities so acquired by Rittenberg shall be immediately assigned to the Escrow Agent, duly endorsed in blank, as collateral for the Loan, to be held by the Escrow Agent under the terms of this Agreement in the same manner as the Shares originally pledged herein. 6 7 12. CASH ESCROW. Svenningsen acknowledges that the purpose of the Loan is to enable Rittenberg to pay the income taxes due on the Shares to be issued to Rittenberg pursuant to the Stock Agreement. In order to insure that the funds for the Loan will be available to Rittenberg on the Loan Advancement Dates, Svenningsen agrees to deposit with the Escrow Agent within five (5) business days after the closing of the IPO, a sum (the "Fund") equal to the Maximum Amount of the Loan, which sum shall be held, invested and disbursed by the Escrow Agent as provided in this Agreement. 13. INVESTMENT OF FUND. The Escrow Agent shall invest the Fund in United States Treasury obligations with maturities of not more than six (6) months from the date of the investment and will invest the Fund in a way to insure that the money is available on the Loan Advancement Dates. The Escrow Agent shall not be responsible for earning any specified rate of interest or rate of return on the Fund. 13.1 FINANCIAL SERVICES. The Escrow Agent shall be entitled to utilize the services of banks, brokerage houses or other investment or financial intermediaries to effectuate the investment of the Fund. All commission charges and service and other fees shall be paid out of the Fund. 13.2 ATTRIBUTION OF INVESTMENT INCOME. All interest and other earnings from the investment of the Fund shall accrue for the account of and shall be taxable to Svenningsen. Svenningsen shall 7 8 be designated to receive any 1099-INT or comparable statements and shall be responsible for paying any applicable income taxes in respect of any investment earnings from the Fund. 13.3 DISBURSEMENT OF THE FUND. On the Loan Advancement Dates, Rittenberg shall deliver to the Escrow Agent an executed Receipt and Acknowledgment for the amount of the requested advance on the Loan, upon receipt of which the Escrow Agent shall disburse the requested advance on the Loan to Rittenberg. If the requested advance by Rittenberg is for the Maximum Amount of the Loan, on the date such advance is paid to Rittenberg, or on April 1, 1998, whichever shall occur first, then the Escrow Agent shall disburse the balance of the Fund to Svenningsen. 14. PAYMENT OF LOAN. Upon payment at maturity of the principal and interest of the Loan, less amounts theretofore received and applied by Svenningsen in reduction thereof, the Escrow Agent shall promptly transfer and deliver to Rittenberg all the pledged Shares and all rights and other property received and being held by the Escrow Agent (collectively "Escrow Property"). 15. DEFAULT. If Rittenberg defaults in the payment, at maturity, of the principal or interest of the Loan, or any part thereof, such default, continuing for a period of fifteen (15) days after notice to Rittenberg as herein provided, Svenningsen shall notify the Escrow Agent and the Escrow Agent shall transfer to Svenningsen all 8 9 the Escrow Property. Svenningsen shall have the rights and remedies provided in the Uniform Commercial Code in force in the State of New York at the date of this agreement. In addition to and in conjunction with such rights and remedies, Svenningsen may, by giving fifteen (15) days notice to Rittenberg by certified mail, and without liability for any diminution in price that may have occurred, sell all the pledged Shares (subject to the securities restrictions on the Shares) in any manner and for any price Svenningsen determines. At any bona fide public sale, Svenningsen may purchase all or any part of the pledged shares. Svenningsen may retain out of the proceeds of any sale an amount equal to the principal and interest then due on the Loan, plus the expenses of the sale, and shall pay any balance of the proceeds to Rittenberg. As heretofore stated, Rittenberg shall not be liable for any deficiency. 16. EXCULPATION AND INDEMNIFICATION OF ESCROW AGENT. Svenningsen and Rittenberg acknowledge and agree that: Kurzman & Eisenberg shall be the Escrow Agent and the Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, certificate, receipt, authorization, power of attorney or other paper or document which the Escrow Agent in good faith believes to be genuine and what it purports to be, and shall have no duty or responsibility to investigate or inquire into the accuracy, authenticity or legal sufficiency of any such item. The Escrow Agent may consult with outside counsel in the 9 10 event a dispute or question arises as to the construction of any of the provisions of this Agreement or the duties of the Escrow Agent, and the Escrow Agent shall incur no liability and shall be fully protected by acting in good faith in accordance with the opinion and instructions of its counsel. The Escrow Agent shall not be liable for any error of judgment or any mistake of fact or law, or for anything else which the Escrow Agent may do or refrain from doing in connection with this Agreement, except for gross negligence or willful misconduct. In the event of a disagreement or dispute between Svenningsen and Rittenberg which results in adverse claims or demands being made on the Escrow Agent, or in the event the Escrow Agent has a good faith doubt as to what action should be taken under this Agreement, the Escrow Agent may, at its option, refuse to comply with the conflicting claims or demands or to take other action so long as the disagreement or dispute or good faith doubt continues or persists, and may by way of interpleader deposit the entire amount of the Escrow Property (as defined in Paragraph 14) with any New York court of competent jurisdiction. The Escrow Agent may resign as such by giving no less than ten (10) days' advance written notice of intention to resign to Svenningsen and Rittenberg. Any such resignation shall take effect on the later of the effective date of resignation specified in the notice, or ten (10) days after the date the notice of resignation is received by Svenningsen and Rittenberg. The 10 11 resigning Escrow Agent's duties under this Agreement shall terminate on the effective date of resignation, and the Escrow Agent shall thereupon deliver the assets held by such Escrow Agent to any successor escrow agent which shall be designated in a joint written notice signed by Svenningsen and Rittenberg. If Svenningsen and Rittenberg fail to designate a successor before the effective date of the Escrow Agent's resignation, the Escrow Agent may petition any New York court of competent jurisdiction for appointment of a successor escrow agent and, pending such appointment, may deposit the Escrow Property with the court. The Escrow Agent has served as counsel to Svenningsen in connection with this Agreement and related transactions. Svenningsen and Rittenberg agree that the Escrow Agent, while serving as such, shall continue to have the right to represent its client as aforesaid, in any conflict, claim, dispute, litigation or other proceeding arising out of or in connection with this Agreement and all related matters, and waive any conflict of interest on the part of the Escrow Agent. In the event that the Escrow Agent becomes involved in litigation in connection with or arising out of its service as Escrow Agent under this Agreement, except by reason of such Escrow Agent's own willful misconduct or gross negligence, Svenningsen and Rittenberg shall jointly and severally indemnify and hold such Escrow Agent harmless against any loss, damages, costs and expenses (including reasonable attorneys' fees) incurred by such Escrow 11 12 Agent in connection with such litigation. 17. Notices. Any notices and other communications, required or permitted to be given hereunder, shall be in writing, and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, to the party to be notified at his or its address set forth below or at such other address as the party to be notified may have otherwise designated, by notice in writing, with copies to their respective attorneys as set forth below: To Svenningsen: John Svenningsen c/o Amscan, Inc. 80 Grasslands Road Elmsford, NY 10523 with a copy to: Kurzman & Eisenberg, LLP Attn: Sam Eisenberg, Esq. One North Broadway White Plains, NY 10601 To Rittenberg: Mr. Gerald C. Rittenberg 18 Carey Drive Bedford, NY 10506 with a copy to: Orloff, Lowenbach, Stifelman & Siegel, P.A. Attn: Susan M. Holzman, Esq. 101 Eisenhower Parkway Roseland, New Jersey 07068 To Escrow Agent: Kurzman & Eisenberg, LLP Attn: Sam Eisenberg, Esq. One North Broadway White Plains, NY 10601 18. ADDITIONAL DOCUMENTS. 12 13 The parties agree to execute such other documents and instruments as shall be reasonably necessary to effectuate the provisions and intent of this Loan Agreement. 19. CONDITION OF THIS AGREEMENT. It is expressly understood and agreed that this Loan Agreement and the contemplated Loan is conditioned upon a public offering of the shares of stock of Amscan on or before June 30, 1997 and the issuance of Shares to Rittenberg, at the time of such public offering, having a value of at least one and one-half times the maximum amount of the Loan to be made hereunder and if either of these conditions is not met, this agreement shall be null and void and of no force and effect. 20. BINDING EFFECT. This agreement shall be binding upon and shall inure to the benefit of the parties hereto and each of their respective heirs, successors and assigns. IN WITNESS WHEREOF, the parties have executed this agreement. /s/ JOHN A. SVENNINGSEN -------------------------------- JOHN A. SVENNINGSEN /s/ GERALD C. RITTENBERG -------------------------------- GERALD C. RITTENBERG KURZMAN & EISENBERG, LLP, ESCROW AGENT By /s/ JOEL S. LEVER ------------------------------------ Joel S. Lever, Member/Manager 13 14 RECEIPT AND ACKNOWLEDGMENT Amount: $__________________ Dated:________________ The undersigned, GERALD C. RITTENBERG, acknowledges the receipt this day from John A. Svenningsen of the sum of _________ ________________________ ($_________) Dollars as and for an advance under a Loan Agreement made between the parties dated October , 1996, and agrees to repay such advance and the loan represented thereby in accordance with the terms and provisions of said Loan Agreement and acknowledges that such advance and the loan represented thereby is secured by the pledge of shares of stock as set forth in said Loan Agreement. The provisions of such Loan Agreement are made a part of this Receipt and Acknowledgement as if fully set forth herein, at length. _____________________________ GERALD C. RITTENBERG 15 NOTE $_________________ DATED:________________ FOR VALUE RECEIVED, GERALD C. RITTENBERG, NOW RESIDING AT 18 CAREY DRIVE, BEDFORD, NEW YORK 10506, PROMISES TO PAY TO THE ORDER OF JOHN A. SVENNINGSEN, WHOSE PLACE OF BUSINESS IS NOW AMSCAN INC., 80 GRASSLANDS ROAD, ELMSFORD, NEW YORK 10523, THE SUM OF FOUR MILLION ($4,000,000.00) DOLLARS OR SO MUCH THEREOF AS MAY BE ADVANCED AND LOANED BY SVENNINGSEN TO RITTENBERG UNDER THE TERMS OF THE LOAN AGREEMENT HEREINAFTER REFERRED TO TOGETHER WITH INTEREST FROM THE DATE HEREOF AT THE RATE OF ____% PERCENT PER ANNUM ON THE UNPAID PORTION OF THIS NOTE. INTEREST SHALL BE PAID QUARTER-ANNUALLY. PRINCIPAL AND INTEREST OF THIS NOTE SHALL BE PAID NO LATER THAN THIRTY (30) MONTHS FROM THE DATE HEREOF. THIS NOTE MAY BE PREPAID AT RITTENBERG'S OPTION, IN INSTALLMENTS OF NO LESS THAN TWO HUNDRED AND FIFTY THOUSAND ($250,000.00) DOLLARS, EACH AND NO MORE THAN ONE-SEVENTH (1/7TH) OF THE PRINCIPAL OF THIS NOTE, TOGETHER WITH INTEREST TO THE DATE OF EACH PAYMENT. TO SECURE THE PAYMENT OF THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY, RITTENBERG HAS PLEDGED CERTIFICATES REPRESENTING _________ OF THE COMMON SHARES OF AMSCAN HOLDINGS, A DELAWARE CORPORATION, WHOSE PRINCIPAL OFFICE IS AT 80 GRASSLANDS ROAD, ELMSFORD, NEW YORK 10523, WHICH SHARES ARE HELD AS SECURITY FOR THIS NOTE PURSUANT TO THE TERMS OF AN AGREEMENT OF LOAN BY AND BETWEEN THE PARTIES HERETO DATED ___________________. THE LIABILITY OF RITTENBERG TO PAY THIS NOTE IS LIMITED TO THE SHARES OF STOCK HELD IN ESCROW AS SECURITY FOR PAYMENT OF THIS NOTE, AND IN NO EVENT SHALL RITTENBERG BE LIABLE FOR ANY DEFICIENCY RESULTING FROM THE SALE OF SUCH SHARES, NOR SHALL ANY ACTION OR PROCEEDING BE BROUGHT AGAINST RITTENBERG TO RECOVER JUDGMENT AGAINST RITTENBERG UPON ANY UNPAID BALANCE OF THIS NOTE. SVENNINGSEN, HIS HEIRS, REPRESENTATIVES, SUCCESSORS AND ASSIGNS MAY DECLARE THE ENTIRE UNPAID PRINCIPAL AMOUNT OF THIS NOTE AND ACCRUED INTEREST THEREON IMMEDIATELY DUE AND PAYABLE UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS: DEFAULT IN THE PAYMENT OF PRINCIPAL OR INTEREST UNDER THE NOTE, SUCH DEFAULT REMAINING UNCURED FOR TEN (10) DAYS AFTER WRITTEN NOTICE THEREOF TO RITTENBERG IN ACCORDANCE WITH THE NOTICE PROVISIONS CONTAINED IN PARAGRAPH ___ OF THE AGREEMENT; VOLUNTARY WITHDRAWAL BY RITTENBERG AS AN EMPLOYEE OF AMSCAN HOLDINGS; THE FILING BY RITTENBERG OF A PETITION UNDER ANY OF THE PROVISIONS OF THE BANKRUPTCY ACT; THE FILING OF A PETITION IN BANKRUPTCY AGAINST RITTENBERG, THE SAME NOT BEING DISMISSED OR WITHDRAWN WITHIN TWENTY (20) DAYS AFTER THE FILING THEREOF; THE MAKING BY RITTENBERG OF AN ASSIGNMENT FOR THE BENEFIT OF HIS CREDITORS; OR THE APPOINTMENT OF A RECEIVER OR GUARDIAN OF HIS PROPERTY. __________________________ GERALD C. RITTENBERG EX-21 15 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 AMSCAN INC. AND AFFILIATES SUBSIDIARIES OF THE REGISTRANT JURISDICTION OF SUBSIDIARIES INCORPORATION/ORGANIZATION ------------ -------------------------- Amscan (Asia Pacific) Pty. Limited Australia Amscan de Mexico, S.A. de C.V. Mexico Amscan Distributors (Canada) Ltd. Canada Amscan Holdings Limited United Kingdom Amscan Inc. New York Amscan Partyartikel GmbH Germany Amscan Svenska AB Sweden Am-Source, Inc. Rhode Island JCS Realty Corp. New York SSY Realty Corp. New York Trisar, Inc. California EX-23.A 16 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23(a) INDEPENDENT AUDITORS' CONSENT To the Stockholders of Amscan Inc. and Affiliates: The audits referred to in our report dated April 5, 1996, except as to note 16, which is as of July 31, 1996 and note 7, which is as of September 30, 1996, included the related special purpose combined financial statement schedule as of December 31, 1994 and 1995, and for each of the years in the three-year period ended December 31, 1995, included in the registration statement. This special purpose combined financial statement schedule is the responsibility of the Companies' management. Our responsibility is to express an opinion on this special purpose combined financial statement schedule based on our audits. In our opinion, such special purpose combined financial statement schedule, when considered in relation to the basic special purpose combined financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP Stamford, Connecticut November 27, 1996 EX-24 17 POWERS OF ATTORNEY 1 Exhibit 24 POWER OF ATTORNEY The undersigned officer and/or director of Amscan Holdings, Inc., a Delaware corporation (the "Company"), hereby severally constitutes Gerald C. Rittenberg and James M. Harrison, and each of them singly, as my true and lawful attorney-in-fact with full power to them, and each of them singly, to sign for me and in my name and in my capacity as officer and/or director of the Company, any and all amendments to the Registration Statement on Form S-1 (Registration No. 333-14107) relating to the offer and sale of shares of the Company's Common Stock, $0.10 par value, which amendments may be filed pursuant to the Securities Act of 1933, as amended, and, in general, to do all such things in my name and behalf and in my capacity as officer and/or director of the Company to enable the Company to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, including the signing and filing of such amendments, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming my signature as it may be signed by my said attorneys, and all that my said attorneys may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 26th day of November, 1996. /s/ Christine Svenningsen ------------------------- Christine Svenningsen 2 Exhibit 24 POWER OF ATTORNEY The undersigned officer and/or director of Amscan Holdings, Inc., a Delaware corporation (the "Company"), hereby severally constitutes Gerald C. Rittenberg and James M. Harrison, and each of them singly, as my true and lawful attorney-in-fact with full power to them, and each of them singly, to sign for me and in my name and in my capacity as officer and/or director of the Company, any and all amendments to the Registration Statement on Form S-1 (Registration No. 333-14107) relating to the offer and sale of shares of the Company's Common Stock, $0.10 par value, which amendments may be filed pursuant to the Securities Act of 1933, as amended, and, in general, to do all such things in my name and behalf and in my capacity as officer and/or director of the Company to enable the Company to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, including the signing and filing of such amendments, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming my signature as it may be signed by my said attorneys, and all that my said attorneys may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day of November, 1996. /s/ James M. Harrison ------------------------- James M. Harrison 3 Exhibit 24 POWER OF ATTORNEY The undersigned officer and director of Amscan Holdings, Inc., a Delaware corporation (the "Company"), hereby severally constitutes Gerald C. Rittenberg and James M. Harrison, and each of them singly, as my true and lawful attorney-in-fact with full power to them, and each of them singly, to sign for me and in my name and in my capacity as director and/or officer of the Company, any and all amendments to the Registration Statement on Form S-1 (Registration No. 333-14107) relating to the offer and sale of shares of the Company's Common Stock, $0.10 par value, which amendments may be filed pursuant to the Securities Act of 1933, as amended, and, in general, to do all such things in my name and behalf and in my capacity as officer and/or director of the Company to enable the Company to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, including the signing and filing of such amendments, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming my signature as it may be signed by my said attorneys, and all that my said attorneys may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 29th day of Oct., 1996. /s/ John A. Svenningsen ------------------------- John A. Svenningsen 4 Exhibit 24 POWER OF ATTORNEY The undersigned officer and/or director of Amscan Holdings, Inc., a Delaware corporation (the "Company"), hereby severally constitutes Gerald C. Rittenberg and James M. Harrison, and each of them singly, as my true and lawful attorney-in-fact with full power to them, and each of them singly, to sign for me and in my name and in my capacity as officer and/or director of the Company, any and all amendments to the Registration Statement on Form S-1 (Registration No. 333-14107) relating to the offer and sale of shares of the Company's Common Stock, $0.10 par value, which amendments may be filed pursuant to the Securities Act of 1933, as amended, and, in general, to do all such things in my name and behalf and in my capacity as officer and/or director of the Company to enable the Company to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, including the signing and filing of such amendments, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming my signature as it may be signed by my said attorneys, and all that my said attorneys may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day of November, 1996. /s/ Gerald C. Rittenberg ------------------------- Gerald C. Rittenberg EX-27 18 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 3,530 0 54,520 3,161 46,303 110,109 49,263 18,854 145,753 108,013 0 0 0 393 24,246 145,753 147,008 147,008 92,861 92,861 0 963 4,569 20,104 767 18,095 0 0 0 18,095 0 0 Amscan Holdings, Inc. is a corporation which was formed in October 1996 for the purpose of becoming a holding company for certain operating and certain real estate companies. Amscan Holdings, Inc., therefore, had no shares outstanding as of the end of any of the periods presented.
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