-----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, CbnLKKqYAKl5pf0aADrRcRzZuzvhtxhGrqJvAMtiQ7tV71kp2Ee+KeWAyWv/NDw9 a++3ep+yqfFakdeLQ3Swcw== 0000950123-96-007330.txt : 19961217 0000950123-96-007330.hdr.sgml : 19961217 ACCESSION NUMBER: 0000950123-96-007330 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19961216 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: 96680869 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 NO. 2 TO FORM S-1 . 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996 REGISTRATION NO. 333-14107 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 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. ------------------------ 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 13, 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. The Common Stock has been 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 is a designer, manufacturer and distributor 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 2 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. 3 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 ---------------------------------------- ADJUSTED AS HISTORICAL HISTORICAL(6) ADJUSTED(6) ----------- ------------- ------------ BALANCE SHEET DATA: Working capital........................................................................ $ 2,096 $ 774 $ 64,774 ======== ======== ======== Total assets........................................................................... $ 145,753 $ 156,331 $156,331 ======== ======== ======== Short-term indebtedness(5)............................................................. $ 86,173 $ 89,573 $ 25,573 Long-term indebtedness(5).............................................................. 12,412 12,412 12,412 -------- -------- -------- Total indebtedness(5).................................................................. $ 98,585 $ 101,985 $ 37,985 ======== ======== ======== Stockholders' equity(6)................................................................ $ 24,639 $ 25,227 $ 89,227 ======== ======== ========
4 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) Adjusted Historical and 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." 5 10 THE COMPANY The Company is a designer, manufacturer and distributor 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 6 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 7 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 8 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 12 months from the date of receipt of such shares except for transfers to Mr. Svenningsen to repay certain indebtedness and except for gifts. 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"). 9 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 and, in the case of Mr. Svenningsen, cash in the aggregate amount of $133,000. For purposes of this exchange, Mr. Svenningsen and the representatives of the Underwriters determined the value of the Company based on their preliminary assessment of the factors set forth under "Underwriting." The number of shares of Common Stock issued to Mr. Svenningsen was determined by him using such value and the midpoint of the estimated range of the initial public offering price. 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) and $133,000 in cash. 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 11 15 such excess. For a description of the terms of the agreement relating to Mr. Rittenberg's continued 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 stockholders' 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. 11 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." An affiliate of one of the underwriters is a lender under the revolving credit agreement. See "Underwriting." 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. 12 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 $13 per share (the mid-point of the range of initial public offering prices set forth on the cover page of this Prospectus) and the application of the proceeds as set forth under "Use of Proceeds."
ADJUSTED AS HISTORICAL HISTORICAL(1) ADJUSTED(1) ---------- ------------ -------------- ($ IN THOUSANDS) Short-term and long-term indebtedness: Loans payable........................................ $ 47,955 $ 51,355 $ 23,255 Long-term indebtedness, including current portion.... 14,730 14,730 14,730 Subordinated and other indebtedness to stockholders...................................... 35,900 35,900 -- -------- -------- -------- Total indebtedness................................ 98,585 101,985 37,985 -------- -------- -------- Stockholders' equity: Common stock......................................... 393 1,665 2,200 Additional paid-in capital........................... 1,490 19,211 82,676 Retained earnings.................................... 23,490 4,998 4,998 Cumulative translation adjustment.................... (647) (647) (647) Treasury stock....................................... (87) -- -- -------- -------- -------- Total stockholders' equity........................ 24,639 25,227 89,227 -------- -------- -------- Total capitalization................................... $ 123,224 $127,212 $127,212 ======== ======== ========
- --------------- (1) "Adjusted Historical" and "As Adjusted" balance sheet at September 30, 1996 give effect to certain adjustments as described in the notes to the Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." 14 18 DILUTION At September 30, 1996, the Company's net tangible book value was approximately $24.6 million or $1.48 per share ($17.7 million and $1.06, respectively on an "Adjusted Historical" basis) of Common Stock (based upon 16,650,000 shares representing the shares issued in the Organization). See "Organization of the Company" and Supplemental Pro Forma Balance Sheet in the "Supplemental Pro Forma Combined Financial Statements." 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 ======
15 19 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. 16 20
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, -------------------------------------- -------------------------------------------------- ADJUSTED AS 1991 1992 1993 1994 1995 HISTORICAL HISTORICAL(6) ADJUSTED(6) ------- ------- -------- -------- -------- ---------- ------------- ----------- BALANCE SHEET DATA: Working capital..... $ 5,202 $ 7,765 $ 4,730 $ (438) $ 8,383 $ 2,096 $ 774 $ 64,774 ======= ======= ======== ======== ======== ======== ========== ========== Total assets........ $56,978 $60,652 $ 80,090 $ 93,884 $114,601 $ 145,753 $ 156,331 $ 156,331 ======= ======= ======== ======== ======== ======== ========== ========== Short-term indebtedness(5)... $22,070 $25,993 $ 37,271 $ 50,869 $ 58,541 $ 86,173 $ 89,573 $ 25,573 Long-term indebtedness(5)... 11,728 11,116 11,852 8,800 12,284 12,412 12,412 12,412 ------- ------- -------- -------- -------- ---------- ------------- ----------- Total indebtedness(5)... $33,798 $37,109 $ 49,123 $ 59,669 $ 70,825 $ 98,585 $ 101,985 $ 37,985 ======= ======= ======== ======== ======== ======== ========== ========== Stockholders' equity(6)......... $14,467 $15,550 $ 18,496 $ 20,820 $ 27,205 $ 24,639 $ 25,227 $ 89,227 ======= ======= ======== ======== ======== ======== ========== ==========
17 21 - --------------- (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) Adjusted Historical and 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." 18 22 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." 19 23 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 20 24 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. 21 25 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. As a result of new operating leases for added facilities and manufacturing equipment, rent expense included in cost of sales increased $1.5 million. 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 6.9% to 6.0%. The primary reason for the percentage decline was the Company's ability to increase 22 26 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 provision for bad debts of $0.4 million or 0.3% of net sales related to a significant increase in the Company's accounts receivable and increased occupancy costs of $0.4 million or 0.3% of net sales related to the Company's new corporate offices. Also contributing to this increase are non-recurring costs related to the development of a new business management computer system of $0.8 million or 0.5% of net sales as well as one-time costs associated with the move to the new corporate offices of $0.3 million or 0.2% of net sales and additional personnel costs including relocation and recruitment costs of $0.3 million or 0.2% of net sales. ART AND DEVELOPMENT COSTS Art and development costs increased 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 and state income taxes. The amounts shown as income taxes consist principally of foreign taxes. See "Amscan Inc. and Affiliates Combined Financial Statements." 23 27 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. 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. 24 28 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 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 25 29 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%. 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 26 30 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 is not currently in default in respect of any of these restrictive covenants or financial ratios. The Company may seek to enter into new arrangements to replace this revolving credit facility which might include both term debt and revolving credit. Net cash 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, 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 27 31 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. Deposits and other assets increased $7.2 million to $10.1 million on September 30, 1996 from December 31, 1995. Accrued expenses increased $8.0 million to $17.5 million on September 30, 1996. These increases are due principally to deposits placed and the related advances received in connection with various operating leases for manufacturing and warehouse equipment as well as office equipment and computer software. Loans payable increased $10.1 million to $47.9 million on September 30, 1996 from December 31, 1995 due to increases on various existing lines of credit. These increases were used to fund working capital needs which consisted primarily of increased accounts receivable. Subordinated debt and other indebtedness to stockholders increased $19.9 million to $35.9 million on September 30, 1996 from December 31, 1995. This increase is due principally to the declaration of distributions of accumulated earnings to stockholders. Additional paid-in capital decreased $7.6 million to $1.5 million on September 30, 1996 from December 31, 1995 due to the declaration of distributions of previously provided capital. 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. 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 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. 28 32 In 1995, the Company distributed $11.0 million, compared to $7.5 million in 1994, to stockholders, of which $4.0 million in 1995 and $6.3 million in 1994 was reinvested in the Company as debt payable to stockholders. The remainder of these distributions was used principally for the payment of 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 $0.5 million). 29 33 SUPPLEMENTAL PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) The following Supplemental Pro Forma Combined Financial Statements for the year ended December 31, 1995 and as of and for the nine months ended September 30, 1996 reflect the combined results of operations of Amscan Inc. and Affiliates after giving effect to certain events that have occurred or will occur in conjunction with the Organization and the Offering including pro forma adjustments intended to present the historical results as if Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected to be treated as Subchapter S corporations for tax purposes. The unaudited Supplemental Pro Forma Combined Financial Statements have been prepared by management solely to facilitate period to period comparisons and do not represent the actual financial position or results of operations for the periods presented. The Supplemental Pro Forma Combined Balance Sheet and the Supplemental Pro Forma Combined Statements of Operations do not purport to be indicative of future results. The Supplemental Pro Forma Combined Financial Statements should be read in conjunction with the Combined Financial Statements of Amscan Inc. and Affiliates and the notes thereto as of and at December 31, 1995 and the Combined Financial Statements of Amscan Inc. and Affiliates and the notes thereto as of and at September 30, 1996 contained elsewhere in this Prospectus. 30 34 AMSCAN INC. AND AFFILIATES SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 ($ 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 the reduction of actual 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 $3,000 for the establishment of the ESOP for the benefit of the Company's domestic employees and the payment of stock bonuses to certain of such employees; (f) Supplemental pro forma weighted average common shares outstanding is calculated as if the shares issued in the Offering as well as those issued in the Organization had been outstanding from the beginning of the period presented. 31 35 AMSCAN INC. AND AFFILIATES SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ($ 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 the reduction of actual 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 $3,000 for the establishment of the ESOP for the benefit of the Company's domestic employees and the payment of stock bonuses to certain of such employees; (f) Supplemental pro forma weighted average common shares outstanding is calculated as if the shares issued in the Offering as well as those issued in the Organization had been outstanding from the beginning of the period presented. 32 36 AMSCAN INC. AND AFFILIATES SUPPLEMENTAL PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 1996 ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
SUPPLEMENTAL PRO FORMA SUPPLEMENTAL ADJUSTMENTS PRO FORMA ADJUSTED TO GIVE EFFECT TO SUPPLEMENTAL HISTORICAL ADJUSTMENTS HISTORICAL 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 $156,331 ======== ======== ========
33 37 Notes to Supplemental Pro Forma Balance Sheet ($ 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). 34 38 BUSINESS The Company is a designer, manufacturer and distributor 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, napkins, cups 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's in-house design staff produces and manages the broad spectrum of party goods for all occasions. Over the past five years, the businesses which the Company has acquired 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. Further vertical integration of the operations was sought 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 a 48% interest in Amscan de Mexico, S.A. de C.V., a distributor of the Company's products in Mexico was acquired. 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 35 39 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. 36 40 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%
37 41 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. 38 42 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. 39 43 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. 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. 40 44 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." 41 45 (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. Currently, all properties generally are being used on a basis of two shifts out of a maximum potential capacity of three shifts per day. The Company also believes that upon the expiration of its current leases, it either will be able to secure renewal terms or 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. 42 46 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 43 47 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. 44 48 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 45 49 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. 46 50 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 47 51 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 unless otherwise determined by the Committee) 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 unless otherwise determined by the Committee at the time such option was granted, 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 48 52 of Common Stock which may be acquired under the Plan pursuant to the exercise of Options and 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. 49 53 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 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. 50 54 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 -- James M. Harrison........ 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. 51 55 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." 52 56 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 53 57 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. 54 58 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. 55 59 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 The Common Stock has been 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 56 60 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 12 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" and except for gifts of such shares of Common Stock. 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. 57 61 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, and the balance sheet of Amscan Holdings, Inc. as of December 13, 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. 58 62 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 AMSCAN HOLDINGS, INC. INDEX TO FINANCIAL STATEMENT Independent Auditors' Report......................................................... F-35 Balance Sheet at December 13, 1996................................................... F-36
F-1 63 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 64 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 5,855 Accrued expenses...................................................... 7,718 9,526 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 $114,601 ======= ========
See accompanying notes to combined financial statements. F-3 65 AMSCAN INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS ($ 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 66 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 67 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 68 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. The inclusion of the less than majority-owned entities both individually and collectively is not material to the accompanying combined financial statements taken as a whole. 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. F-7 69 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 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 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. Product returns and warranty costs are immaterial. CATALOGUE COSTS The Companies expense costs associated with the production of annual catalogues when incurred. F-8 70 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 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 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. F-9 71 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 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. 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):
ESTIMATED 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.............................. $60,000,000
F-10 72 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 Such revolving credit agreement is collateralized by a first lien on certain of the assets of the Companies. The revolving credit agreement provides for interest on the borrowings to be based on either a prime borrowing rate or LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit agreement requires the Companies to comply with certain covenants including the maintenance of financial ratios, as defined. At December 31, 1995, the Companies were in compliance with all such covenants. Loans and notes payable outstanding at December 31, 1994 and 1995 consisted of the following ($ 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 $174 === ====
F-11 73 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 (6) LONG-TERM INDEBTEDNESS Long-term indebtedness at December 31, 1994 and 1995 consisted of the following ($ 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 74 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 75 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, 266.66 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: Ordinary Shares: 20p par value; 1,250,000 shares authorized, 287,500 issued and outstanding. Preference Shares: One British Pound Sterling par value; 5,000 shares authorized, issued and outstanding. Amscan (Asia Pacific) Pty. Ltd.: Aus. $1 par value; 10,000 shares authorized, 886 shares issued and outstanding. Amscan Partyartikel GmbH: No par value; 50,000 shares authorized, issued and outstanding. Amscan Svenska AB: No par value; 1,500 shares authorized, issued and outstanding. Amscan de Mexico, S.A. de C.V.: Class A Shares: No stated value, fixed capital; 31 shares authorized, issued and outstanding. Class A-1 shares: No stated value, variable capital; 620 shares authorized, issued and outstanding. F-14 76 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 Class B Shares: No stated value, fixed capital; 29 shares authorized, issued and outstanding. Class B-1 Shares: No stated value, variable capital; 580 shares authorized, issued and outstanding. JCS Realty Corp.: No par value; 200 shares authorized, one share issued and outstanding. SSY Realty Corp.: No par value; 200 shares authorized issued and outstanding. (12) COMMITMENTS AND CONTINGENCIES LEASES The Companies are obligated under various capital leases for certain machinery and equipment which expire on various dates through June 1, 2001 (see also note (6)). At December 31, 1994 and 1995, the amount of machinery and equipment and related accumulated amortization recorded under capital leases is included with property, plant and equipment and consisted of the following ($ in thousands):
1994 1995 ------ ------ Machinery and equipment.......................................... $3,122 $3,174 Less: accumulated amortization................................... (244) (564) ------ $2,878 $2,610 ======
Amortization of assets held under capitalized leases is included with depreciation expense. The Companies have several noncancelable operating leases with unaffiliated third parties, primarily for office and manufacturing space, showrooms, and warehouse equipment that expire over the next eight years. These leases generally contain renewal options and require the Companies to pay real estate taxes, utilities and related insurance. At December 31, 1995, certain of the Companies also had noncancelable operating leases with the Principal Stockholder and real estate entities owned either directly or indirectly by the Principal Stockholder ("Uncombined Affiliates") for warehouse and office space that expire over the next sixteen years. Rent due to Uncombined Affiliates represents future commitments associated with property leased by the Companies from the Principal Stockholder or such entities owned directly or indirectly by the Principal Stockholder. Subsequent to December 31, 1995, the terms of the leases have been amended (see note (16)). F-15 77 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 At December 31, 1995 future minimum lease payments under all operating leases consisted of the following ($ 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 $2,526,000, respectively, related to leases with Uncombined Affiliates. (13) SEGMENT INFORMATION INDUSTRY SEGMENTS The Companies operate in primarily one industry segment which involves the design, manufacture, contract for manufacture and distribution of party and novelty goods to retailers and wholesale distributors. GEOGRAPHIC SEGMENTS The Companies' export sales, other than those intercompany sales reported below as sales between geographic areas, are not material. Sales between geographic areas primarily consist of sales of finished goods for distribution in the foreign markets. The Companies' geographic area data for each of the three fiscal years ended December 31, 1993, 1994 and 1995 are as follows ($ 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 ======== ======= ========
F-16 78 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995
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 ========= ======== =========
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. F-17 79 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 (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 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 $10,400,000. F-18 80 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 Assuming the entire lease facility is utilized, future minimum lease payments under the lease will be as follows ($ in thousands): 1997.............................................................. $ 1,305 1998.............................................................. 1,305 1999.............................................................. 1,305 2000.............................................................. 1,305 2001.............................................................. 1,305 Thereafter........................................................ 9,135 ------- $15,660 =======
(b) In July 1996, certain operating leases with Uncombined Affiliates which previously had remaining terms of up to sixteen years have been amended to terms of up to six years. As a result of these reduced lease terms, future minimum lease payments under all operating leases with Uncombined Affiliates, at December 31, 1995 consisted of the following ($ in thousands): 1996.............................................................. $ 2,132 1997.............................................................. 2,246 1998.............................................................. 2,309 1999.............................................................. 2,374 2000.............................................................. 1,239 Thereafter........................................................ 167 ------- $10,467 =======
F-19 81 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 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 82 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 83 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 84 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 85 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 86 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 ------------------------------------ ------------- -------------------------------- 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. The inclusion of the less than majority-owned entities both individually and collectively is not material to the accompanying combined financial statements taken as a whole. 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 87 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. Product returns and warranty costs are immaterial. 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 88 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) ------- $45,074 =======
F-27 89 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 (4) PROPERTY, PLANT AND EQUIPMENT Major classifications of property, plant and equipment at September 30, 1996 consisted of the following ($ 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 90 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, $1,700,000 of mortgage obligations are denominated in Canadian dollars. (b) Certain of the Companies have various term loans payable to financial institutions due through April 1, 2002. The loans are collateralized by specific assets of the Companies and carry interest rates which range from 8.01% to 9.5%. (c) Certain of the Companies have entered into various capital leases for machinery and equipment with implicit interest rates ranging from 6.5% to 23.0% and which extend to 2001. F-29 91 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 At September 30, 1996, principal maturities of long-term indebtedness consisted of the following ($ 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 $1,619,000, in each of the nine months ended September 30, 1995 and 1996, respectively. F-30 92 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 A summary of the operations subject to tax, their reported tax expense and effective tax rates for the nine months ended September 30, 1995 and 1996, consisted of the following ($ 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, 266.66 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: Ordinary Shares: 20p par value; 1,250,000 shares authorized, 287,500 issued and outstanding. Preference Shares: One British Pound Sterling par value; 5,000 shares authorized, issued and outstanding. Amscan (Asia Pacific) Pty. Ltd.: Aus. $1 par value; 10,000 shares authorized, 886 shares issued and outstanding. Amscan Partyartikel GmbH: No par value; 50,000 shares authorized, issued and outstanding. Amscan Svenska AB: No par value; 1,500 shares authorized, issued and outstanding. Amscan de Mexico, S.A. de C.V.: Class A Shares: No stated value, fixed capital; 31 shares authorized, issued and outstanding. Class A-1 Shares: No stated value, variable capital; 620 shares authorized, issued and outstanding. Class B Shares: No stated value, fixed capital; 29 shares authorized, issued and outstanding. Class B-1 Shares: No stated value, variable capital; 580 shares authorized, issued and outstanding. JCS Realty Corp.: No par value; 200 shares authorized, one share issued and outstanding. SSY Realty Corp.: No par value; 200 shares authorized issued and outstanding. F-31 93 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 (12) COMMITMENTS AND CONTINGENCIES LEASES The Companies are obligated under various capital leases for certain machinery and equipment which expire on various dates through June 1, 2001 (see also note (6)). At September 30, 1996, the amount of machinery and equipment and related accumulated amortization recorded under capital leases is included with property, plant and equipment and consisted of the following ($ 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 $1,586,000, respectively, related to leases with Uncombined Affiliates. (13) SEGMENT INFORMATION INDUSTRY SEGMENTS The Companies operate in primarily one industry segment which involves the design, manufacture, contract for manufacture and distribution of party and novelty goods to retailers and wholesale distributors. F-32 94 AMSCAN INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 30, 1996 GEOGRAPHIC SEGMENTS The Companies' export sales, other than those intercompany sales reported below as sales between geographic areas, are not material. Sales between geographic areas primarily consist of sales of finished goods for distribution in the foreign markets. The Companies' geographic area data for the nine months ended September 30, 1995 and 1996 consisted of the following ($ 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 95 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 96 INDEPENDENT AUDITORS' REPORT The Board of Directors Amscan Holdings, Inc.: We have audited the accompanying balance sheet of Amscan Holdings, Inc. as of December 13, 1996. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement 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 of a balance sheet includes examining, on a test basis, evidence supporting the amounts and disclosures in that balance sheet. An audit of a balance sheet also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Amscan Holdings, Inc. as of December 13, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Stamford, Connecticut December 13, 1996 F-35 97 AMSCAN HOLDINGS, INC. BALANCE SHEET DECEMBER 13, 1996 Cash......................................................................... $ 100 ===== 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; 1,000 shares issued and outstanding).................................................... 100 ----- Total equity............................................................ $ 100 =====
NOTE TO BALANCE SHEET Amscan Holdings, Inc. was organized on October 3, 1996 for the purpose of becoming the holding company for the businesses conducted by Amscan Inc. and certain affiliated companies. The only transaction to-date has been the initial capitalization of $100. F-36 98 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 (i) the issuance of shares to the ESOP and issuance of Common Stock to employees therefrom or in the form of stock bonuses to certain domestic employees and (ii) options under the Stock Option Plan. An affiliate of Chase Securities, Inc. from time to time engages in general financing and banking transactions with the Company and its affiliates in the normal course of business and is a lender under the Company's revolving credit agreement. An amount that may exceed 10% of the net proceeds from the sale of Common Stock will be used to repay indebtedness under the revolving credit agreement to such affiliate of Chase Securities, Inc. See "Use of Proceeds." Accordingly, this offering is being conducted in conformity with Rules 2710(8) and 2720(c)(3) of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD"), which provide that, among other U-1 99 things, when an NASD member participates in an underwriting where more than 10% of the net offering proceeds, not including underwriting compensation, are intended to be paid to such member or its affiliate, the initial public offering price can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, Goldman, Sachs & Co. has served in such role and has recommended a price in compliance with the requirements of Rule 2720(c)(3). Goldman, Sachs & Co. will receive compensation from the Company in the amount of $10,000 for serving in such role. In connection with the offering, Goldman, Sachs & Co. in its role as qualified independent underwriter has performed due diligence investigations and reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. 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 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-2 100 [GRAPHIC MATERIAL PHOTOGRAPHS OF CERTAIN OF THE COMPANY'S MANUFACTURING EQUIPMENT] 101 - ------------------------------------------------------------ - ------------------------------------------------------------ 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................................... 15 Selected Historical Combined Financial Data........................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 19 Supplemental Pro Forma Combined Financial Statements (unaudited)................... 30 Business................................... 35 Management of the Company.................. 43 Principal Stockholders..................... 51 Certain Related Transactions............... 52 Description of the Company's Capital Stock.................................... 53 Shares Eligible for Future Sale............ 56 Validity of Common Stock................... 58 Experts.................................... 58 Other Information.......................... 58 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) ------------------------ [AMSCAN LOGO] ------------------------ GOLDMAN, SACHS & CO. ALEX. BROWN & SONS INCORPORATED REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------------ - ------------------------------------------------------------ 102 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............................................... 200,000.00 Accounting Fees and Expenses.......................................... 325,000.00 Printing Costs........................................................ 90,000.00 Fees and Expenses (including legal fees) for qualifications under State Securities laws............................................... 20,000.00 Transfer Agent's Fees and Expenses.................................... 7,500.00 Miscellaneous......................................................... 3,169.48 ----------- Total....................................................... $681,500.00 ============
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 $5,000,000 for a period extending through 1999 issued by Gulf Insurance Company covering all officers and directors of the Registrant, at an aggregate expense of approximately $248,000. Reference is made to Section 9(b) of the Underwriting Agreement filed as Exhibit 1 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-1 103 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits ** Exhibit 1 -- Form of Underwriting Agreement ** Exhibit 2(a) -- Form of Share Exchange Agreement, dated as of December , 1996 among the Company, John A. Svenningsen, Gerald C. Rittenberg and the following trusts each created by agreement dated as of October 29, 1996: Christina Svenningsen Trust, Jon Svenningson Trust, Elisabeth Svenningsen Trust, Melissa Svenningsen Trust, Emily Svenningsen Trust and Sara Svenningsen Trust * 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 Holdings, Inc., Amscan Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank, dated as of November 14, 1996 ** Exhibit 4(c) -- Amendment No. 2 to Credit Agreement among Amscan Holdings, Inc., Amscan Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank, dated as of December 11, 1996 ** 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
II-2 104 * 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 10(o) -- Form of Indemnification Agreement between the Company and each of the Directors * 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. (b) Financial Statement Schedule. Schedule 2 -- Valuation and Qualifying Accounts II-3 105 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 13, 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)
I,1 By /s/ James M. Harrison ----------------------- James M. Harrison As Attorney-in-Fact December 13, 1996 106 SCHEDULE 2 AMSCAN INC. AND AFFILIATES VALUATION AND QUALIFYING ACCOUNTS ($ IN THOUSANDS)
BEGINNING ENDINGBALANCE BALANCE ----------- WRITE-OFFS ----------- ADDITIONS -- ------------------------------ 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-1 107 EXHIBITS
EXHIBIT DESCRIPTION PAGE -------------- ------------------------------------------------------------------ ---- ** Exhibit 1 -- Form of Underwriting Agreement.................................... ** Exhibit 2(a) -- Form of Share Exchange Agreement dated as of December , 1996 among the Company, John A. Svenningsen, Gerald C. Rittenberg and the following trusts each created by agreement dated as of October 29, 1996: Christina Svenningsen Trust, Jon Svenningsen Trust, Elisabeth Svenningsen Trust, Melissa Svenningsen Trust, Emily Svenningsen Trust and Sara Svenningsen Trust...................... * 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 Holdings, Inc., Amscan Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank, dated as of November 14, 1996............... ** Exhibit 4(c) -- Amendment No. 2 to Credit Agreement among Amscan Holdings, Inc. Amscan Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan Bank, dated as of December 11, 1996............... ** 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......................................
108
EXHIBIT DESCRIPTION PAGE -------------- ------------------------------------------------------------------ ---- ** 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................................................... ** 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 10(o) -- Form of Indemnification Agreement between the Company and each of the Directors..................................................... * 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. (b) Financial Statement Schedule. Schedule 2 -- Valuation and Qualifying Accounts. EX-1 2 UNDERWRITING AGREEMENT 1 Exhibit 1 AMSCAN HOLDINGS, INC. COMMON STOCK (PAR VALUE $0.10 PER SHARE) --------------------------- UNDERWRITING AGREEMENT --------------------------- December __, 1996 Goldman, Sachs & Co., Alex. Brown & Sons Incorporated, As representatives of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004. Ladies and Gentlemen: Amscan Holdings, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 5,350,000 shares and, at the election of the Underwriters, up to 802,500 additional shares of Common Stock, par value $0.10 per share ("Stock") of the Company. The 5,350,000 shares to be sold by the Company are herein called the "Firm Shares" and the 802,500 additional shares to be sold by the Company are herein called the "Optional Shares". The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares". 1. The Company represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-1 (File No. 333-14107) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and 2 regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"); the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 6(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the registration statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the "Registration Statement"; and such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (iii) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (iv) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (v) The Company does not own any real property in fee simple; The Company's subsidiaries have good and marketable title in fee simple to all real property and the Company and its subsidiaries have good title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in -2- 3 the Prospectus or such as do not materially affect the value of such property, taken as a whole, and do not interfere with the use made and proposed to be made of such property, taken as a whole, by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (vi) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and each has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction; (vii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the Stock contained in the Prospectus; with respect to each of the subsidiaries of the Company that are 100% owned by the Company as set forth in Schedule II hereto, all of the issued and outstanding shares of capital stock of each such subsidiary are fully paid and non-assessable and (except as otherwise described in the Prospectus) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; with respect to each of the subsidiaries of the Company that are less than 100% owned by the Company as set forth in Schedule II hereto, all of the issued shares of capital stock owned by the Company of each such subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and (except as otherwise described in the Prospectus) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, and the percentage owned by the Company of all of the outstanding shares of capital stock of each such subsidiary is at least equal to the percentage shown opposite such subsidiary's name on Schedule II hereto; the Organization (as defined in the Prospectus) has been duly and validly consummated in compliance with applicable law; and there are no holders of the securities of the Company or any of its subsidiaries having rights to registration thereof (except as otherwise described in the Prospectus) or pre-emptive rights to purchase capital stock of the Company; (viii) The unissued Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus; (ix) The issue and sale of the Shares and the compliance by the Company with all of the provisions of: (a) this Agreement, (b) the Stock Agreement, dated October 9, 1996 (the "Stock Agreement"), among Gerald C. Rittenberg, John A. Svenningsen and Amscan Inc., -3- 4 (c) the Tax Indemnity Agreement, dated __________, 1996 (the "Tax Indemnity Agreement"), between the Company and John A. Svenningsen, (d) the Share Exchange Agreement, dated December __, 1996 (the "Share Exchange Agreement"), among the Company, John A. Svenningsen, certain trusts as specified therein and Gerald C. Rittenberg and (e) the Capital Contribution Agreement, dated as of October 9, 1996 (the "Capital Contribution Agreement"), between the Company and Allan J. Kaufman, Arthur J. Kaufman and Michael F. Hodges, including the side letter with respect thereto dated of even date therewith (collectively, agreements (b) through (e) (including such side letter) in this subsection 1(ix), the "Organization Agreements") and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, which conflict, breach, violation or default may reasonably be expected to have, individually or in the aggregate, a material adverse affect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, which violation may reasonably be expected to have, individually or in the aggregate, a material adverse affect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement and the Organization Agreements, except for the registration under the Act of the Shares and the registration of the Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), each of which has been made or obtained, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (x) Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or By-laws; neither the Company nor any of its subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, which default may reasonably be expected to have, individually or in the aggregate, a material adverse affect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus; -4- 5 (xi) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock, and under the captions "Shares Eligible For Future Sale", "Organization of the Company", "Certain Related Transactions" and "Underwriting" (except, with respect to the statements under the caption "Underwriting", for information furnished in writing to the Company by the Underwriters through the representatives expressly for use therein) insofar as they purport to describe the provisions of the laws and the provisions of documents referred to therein, are accurate and fairly summarize such provisions in all materials respects; (xii) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected, individually or in the aggregate, to have a material adverse effect on the current or future financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xiii) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xiv) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (xv) Each of the Company and its subsidiaries owns or is licensed to use all patents, trademarks, service marks, trade names and copyrights ("Intellectual Property") currently used in the conduct of their business, except for those patents, trademarks, service marks, trade names or copyrights with respect to which the failure to own or license same would not have a material adverse affect on the financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole. To the best knowledge of the Company and its subsidiaries, none of the activities engaged in by the Company or its subsidiaries infringe upon or otherwise conflict with Intellectual Property rights of others, except for any such conflicts that would not have a material adverse effect on the financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and (xvi) KPMG Peat Marwick LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder. 2. Subject to the terms and conditions herein set forth, (a) the Company agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price per share of $____________, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which -5- 6 such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Company hereby grants to the Underwriters the right to purchase at their election up to 802,500 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering over-allotments in the sale of the Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 5 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. The Company hereby confirms its engagement of Goldman, Sachs & Co. as, and Goldman, Sachs & Co. hereby confirms its agreement with the Company to render services as, a "qualified independent underwriter" within the meaning of Rule 2720(b)(15) of the Rules of Conduct of the National Association of Securities Dealers, Inc. with respect to the offering and sale of the Shares. Goldman, Sachs & Co. in its capacity as qualified independent underwriter and not otherwise, is referred to herein as the "QIU". As compensation for the services of the QIU hereunder, the Company agrees to pay the QIU $10,000 on the Closing Date. 4. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 5. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company shall be delivered by or on behalf of the Company to Goldman, Sachs & Co., for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor in Federal (same day) funds. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on December 23, 1996 or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(k) hereof, will be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. -6- 7 A meeting will be held at the Closing Location at 2:00 p.m., New York City time, on the New York Business Day next preceding Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 5, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 6. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act and, if the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof unless, in the reasonable judgment of the Company, such amendment or supplement is required by law and the Company receives an opinion from counsel reasonably satisfactory to the representatives to such effect; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a -7- 8 material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except for the issuance of an aggregate of $3,000,000 worth of shares of Stock (based on the initial public offering price set forth on the cover of the Prospectus) to the Company's Employee Stock Ownership Plan (and issuances of Stock to employees therefrom) or in the form of stock bonuses to certain domestic employees and except as otherwise provided hereunder, any securities of the Company that are substantially similar to the Shares, 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 Stock or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated -8- 9 basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (i) To use its best efforts to list for quotation the Shares on the Nasdaq Stock Market, Inc. ("NASDAQ"); and (j) To file with the Commission such reports on Form SR as may be required by Rule 463 under the Act. 7. The Company covenants and agrees with the several Underwriters that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares not exceeding $10,000; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 6(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey not exceeding $20,000; (iv) all fees and expenses in connection with listing the Shares on the NASDAQ; (v) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section . It is understood, however, that, except as provided in this Section , and Sections 9 and 13 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 8. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of such Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 6(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; -9- 10 (b) Sullivan & Cromwell, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated such Time of Delivery, with respect to the incorporation of the Company, the Underwriting Agreement, the validity of the Shares being delivered at such Time of Delivery, the Registration Statement, the Prospectus and such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Kurzman & Eisenberg, LLP, counsel for the Company, shall have furnished to you their written opinion (a copy of such opinion in final draft form being attached as Annex II(a) hereto), dated the date of such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) Each of Amscan Inc., Am-Source, Inc., Trisar, Inc., JCS Realty Corp. and SSY Realty Corp. (collectively, the "Domestic Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; and all of the issued shares of capital stock of each such subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of public officials, officers of the Company and officers of the Domestic Subsidiaries, provided that such counsel shall state that he has no reason to believe that both you and he are not justified in relying upon such opinions and certificates); (ii) Each of the Domestic Subsidiaries has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of public officials, officers of the Company and officers of the Domestic Subsidiaries, provided that such counsel shall state that he has no reason to believe that both you and he are not justified in relying upon such opinions and certificates); (iii) All real property and buildings held under lease by the Company and the Domestic Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made of such property and buildings by the Company and such subsidiaries (in giving the opinion in this clause, such counsel may state that he is relying upon opinions of local counsel, upon opinions of counsel to the lessors of such property and, in respect of matters of fact, upon certificates of public officials and officers of the Company or such subsidiaries, provided that such counsel shall state that he has no reason to believe that both you and he are not justified in relying upon such opinions and certificates); (iv) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which any of the Domestic Subsidiaries is a party or of which any of their property is subject which, if determined adversely to any such Domestic Subsidiaries, can reasonably be expected to have, individually or in the aggregate, a material adverse effect on the current or -10- 11 future consolidated financial position stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (v) The issue and sale of the Shares being delivered at such Time of Delivery to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the Organization Agreements and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which any of the Domestic Subsidiaries is a party or by which any of the Domestic Subsidiaries is bound or to which any of the property or assets of any of the Domestic Subsidiaries is subject, which conflict, breach, violation or default may reasonably be expected to have, individually or in the aggregate, a material adverse affect on or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or the Domestic Subsidiaries or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of any of the Domestic Subsidiaries or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any of the Domestic Subsidiaries or any of their properties, which violation may reasonably be expected to have, individually or in the aggregate, a material adverse affect on or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or the Domestic Subsidiaries or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus; (vi) None of the Domestic Subsidiaries is in violation of its Certificate of Incorporation or By-laws or, to the best of such counsel's knowledge after reasonable investigation, in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, or lease or agreement or other instrument to which it is a party or by which it or any of its properties may be bound, which default may reasonably be expected to have, individually or in the aggregate, a material adverse affect on or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or the Domestic Subsidiaries or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus; (vii) The statements set forth in the Prospectus under the caption "Certain Related Transactions" insofar as they purport to describe the provisions of the laws and the provisions of documents referred to therein, are accurate and fairly summarize such provisions in all material respects; (viii) This Agreement has been duly authorized, executed and delivered by the Operating Subsidiaries (as defined below) and duly executed and delivered by John Svenningsen; -11- 12 (ix) The Stock Agreement has been duly authorized, executed and delivered by Amscan Inc. and has been duly executed and delivered by John A. Svenningsen, and such agreement constitutes a valid and legally binding agreement of each of Amscan Inc. and John A. Svenningsen enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (x) Although they do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except for those referred to in the opinion in subsection (vii) of this Section 8(c), they have no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (d) Cummings & Lockwood, counsel for the Company, shall have furnished to you their written opinion (a copy of such opinion in final draft form (which final draft form shall be in form and substance satisfactory to you) being attached as Annex II(b) hereto), dated the date of such Time of Delivery to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the Shares being delivered at such Time of Delivery) have been duly and validly authorized and issued and are fully paid and non-assessable; and the Shares conform to the description of the Stock contained in the Prospectus; (iii) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or cannot reasonably be expected to be subject to any material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel, certificates and official written statements of public officials and in respect of matters of fact upon -12- 13 certificates of officers of the Company, provided that such counsel shall state that they have no reason to believe that both you and they are not justified in relying upon such opinions, certificates and official written statements); (iv) This Agreement has been duly authorized, executed and delivered by the Company; (v) The Organization Agreements (other than the Stock Agreement, as to which such counsel expresses no opinion)) have been duly authorized, executed and delivered by the Company, and such agreements constitute valid and legally binding agreements of the Company enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (vi) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock, and under the captions "Shares Eligible for Future Sale", "Organization of the Company", and "Underwriting" (except, with respect to the statements under the caption "Underwriting", for information furnished in writing to the Company by the Underwriters through the representatives expressly for use therein) insofar as they purport to describe the provisions of the laws and provisions of documents referred to therein, are accurate and fairly summarize such provisions in all material respects; (vii) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company is a party or of which any property of the Company is the subject which, if determined adversely to the Company, can reasonably be expected to have, individually or in the aggregate, a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (viii) The issue and sale of the Shares being delivered at such Time of Delivery to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the Organization Agreements (other than the Stock Agreement, as to which such counsel expresses no opinion) and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company is a party or by which it is bound or to which any of the property or assets of the Company is subject, which conflict, breach, violation or default may reasonably be expected to have, individually or in the aggregate, a material adverse affect on the financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute (other than State securities or Blue Sky laws, as to which such counsel expresses no -13- 14 opinion) or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its properties, which violation may reasonably be expected to have, individually or in the aggregate, a material adverse affect on the financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, or in any way, individually or in the aggregate, impair or delay the consummation of the transactions contemplated by this Agreement or the offering of the Shares in the manner contemplated by the Prospectus; (ix) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement and the Organization Agreements (other than the Stock Agreement, as to which such counsel expresses no opinion), except for the filing of the Certificate of Incorporation of the Company with the State of Delaware, the registration of the offer and sale of the Shares under the Act and the registration of the Stock under the Exchange Act, each of which has been made or obtained, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (x) The Company is not in violation of its Certificate of Incorporation or By-laws; (xi) The Company is not an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act; (xii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; although they do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except as and to the extent expressly set forth in the opinion in subsection (vi) of this Section 8(d), they have no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and they do not know of any amendment -14- 15 to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus which are not filed or described as required; (e) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, KPMG Peat Marwick LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered by KPMG Peat Marwick LLP prior to the execution of this Agreement is attached hereto as Annex I(a) and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery are attached hereto as Annex I(b)); (f)(i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (g) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities, if any, by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities, if any; (h) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or material limitation in trading in the Company's securities on NASDAQ; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this Clause (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (i) The Shares at such Time of Delivery shall have been duly listed for quotation on NASDAQ; -15- 16 (j) The Company has obtained and delivered to the Underwriters an executed copy of an agreement from each of John A. Svenningsen, the Christine Svenningsen Trust, the Jon Svenningsen Trust, the Elisabeth Svenningsen Trust, the Melissa Svenningsen Trust, the Emily Svenningsen Trust and the Sara Svenningsen Trust, substantially to the effect that during the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, he shall 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 Stock or any substantially similar securities without your prior written consent; (k) The Company shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company, reasonably satisfactory to you as to the accuracy of the representations and warranties of the Company herein at and as of such Time of Delivery, as to the performance by the Company of all of its respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section ; (l) The Company shall have obtained (i) all appropriate waivers of the covenants under the Credit Agreement, dated as of September 20, 1995, among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc. and Trisar, Inc., on the one hand, and the Banks signatory thereto and The Chase Manhattan Bank, as Agent, on the other hand, (ii) all appropriate releases of pledged shares pursuant to the Pledge Agreement, dated September 20, 1995, between John A. Svenningsen, as Pledgor, and The Chase Manhattan Bank, as Agent, and (iii) all appropriate releases of pledged shares pursuant to the Stock Pledge Agreement, dated November 13, 1993, among John A. Svenningsen, E. Allan Shook, L. Randall Harris and Higham, McConnell & Dunning; (m) The Company shall have complied with the provisions of Section 6(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and (n) The Organization (as defined in the Prospectus) shall have been duly and validly consummated in accordance with applicable law; the Company shall have entered into (i) the Tax Indemnity Agreement, (ii) an employment agreement between the Company and John A. Svenningsen, (iii) an employment agreement between the Company and Gerald C. Rittenberg and (iv) an employment agreement between the Company and William Wilkey; and Amscan Inc. shall have entered into an employment agreement between it and James M. Harrison, each such agreement with terms substantially as described in the Prospectus. 9. (a) The Company, each of the subsidiaries of the Company listed on the signature pages hereof (the "Operating Subsidiaries"), and John A. Svenningsen (the "Principal Stockholder"), jointly and severally, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other -16- 17 expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company, the Operating Subsidiaries and the Principal Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (b) Each Underwriter will indemnify and hold harmless the Company, the Operating Subsidiaries and the Principal Stockholder against any losses, claims, damages or liabilities to which the Company, the Operating Subsidiaries or the Principal Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company, the Operating Subsidiaries and the Principal Stockholder for any legal or other expenses reasonably incurred by the Company, the Operating Subsidiaries and the Principal Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable out-of-pocket costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. -17- 18 (d) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Operating Subsidiaries and the Principal Stockholder on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company, the Operating Subsidiaries and the Principal Stockholder on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company, the Operating Subsidiaries and the Principal Stockholder on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Operating Subsidiaries or the Principal Stockholder on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Operating Subsidiaries, the Principal Stockholder and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other out-of-pocket expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company, the Operating Subsidiaries and the Principal Stockholder under this Section 9 shall be in addition to any liability which the Company, the respective Operating Subsidiaries and the Principal Stockholder may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the -18- 19 same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company or any of the Operating Subsidiaries within the meaning of the Act. (f) Notwithstanding the foregoing, and without limiting in any way the ability of any Underwriter to commence an action or proceeding against the Principal Stockholder on a joint and several basis, the Principal Stockholder shall not be required to make payment of any amount pursuant to subsection (a), (c) or (d) above to any Underwriter with respect to any loss, claim, damage, liability or expense (each such circumstance or event a "Loss") which falls within the scope of subsection (a), (c) or (d) above unless and until the Company and the Operating Subsidiaries have failed to pay any amount owed to such Underwriter under subsection (a), (c) or (d) above with respect to a Loss within 20 business days after the earlier to occur of (i) a demand by the Underwriters for payment by the Company and the Operating Subsidiaries of such amount, which amount the Company and the Operating Subsidiaries agree, whether by settlement or otherwise, is owed to such Underwriter, or (ii) entry of a final judgment by a court of competent jurisdiction, from which the time period for filing an appeal has expired, against the Company or any of the Operating Subsidiaries providing for payment to the Underwriters of such amount; provided, however, that after any Insolvency Event (as hereinafter defined) the Principal Stockholder shall be liable in accordance with subsections (a), (c) and (d) above without regard to the requirements of clauses (i) and (ii) of this paragraph; and in no event shall the aggregate liability of the Principal Stockholder under Sections 9 and 10 exceed $___________. For purposes of this subsection (f), an "Insolvency Event" shall have occurred when the Company or any of the Operating Subsidiaries has commenced a voluntary proceeding, under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or other proceeding to be adjudicated a bankrupt or insolvent, or otherwise consented to the entry of a decree or order for relief in respect of the Company or any of the Operating Subsidiaries in any involuntary proceeding or to the commencement of any similar proceeding against it, or had entered against it any decree or order for relief in any such involuntary proceeding or adjudging the Company or any of the Operating Subsidiaries a bankrupt or insolvent or appointing a custodian, receiver or similar official of the Company or any of the Operating Subsidiaries, or of any substantial part of its property and, with respect to any involuntary order or decree, such order or decree remains unstayed and in effect for a period of 20 business days, or had any such party appointed or take possession thereof, or made any assignment for the benefit of creditors, or taken any corporate action to authorize any of the foregoing actions. 10. (a) The Company, the Operating Subsidiaries and the Principal Stockholder, jointly and severally, will indemnify and hold harmless Goldman, Sachs & Co., in its capacity as QIU, against any losses, claims, damages or liabilities, joint or several, to which the QIU may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the QIU for any legal or other expenses reasonably incurred by the QIU in connection with investigating or defending any such action or claim as such expressed are incurred. (b) Promptly after receipt by the QIU under subsection (a) above of notice of the commencement of any action, the QIU shall, if a claim in respect thereof is to be made against an indemnifying party under such subsection, notify such indemnifying party in writing of the commencement thereof; but the omission so to notify such indemnifying party shall not relieve it from any liability which it may have to the QIU otherwise than under such subsection. In case any -19- 20 such action shall be brought against the QIU and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to the QIU (who shall not, except with the consent of the QIU, be counsel to the indemnifying party), and, after notice from the indemnifying party to the QIU of its election so to assume the defense thereof, the indemnifying party shall not be liable to the QIU under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the QIU, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the QIU, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the QIU is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the QIU from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of QIU. (c) If the indemnification provided for in this Section 10 is unavailable to or insufficient to hold harmless Goldman, Sachs & Co., in its capacity as QIU, under subsection (a) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then the Company, the Operating Subsidiaries and the Principal Stockholder shall contribute to the amount paid or payable by the QIU as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Operating Subsidiaries and the Principal Stockholder on the one hand and the QIU on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the QIU failed to give the notice required under subsection (b) above, then the Company, the Operating Subsidiaries and the Principal Stockholder shall contribute to such amount paid or payable by the QIU in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company, the Operating Subsidiaries and the Principal Stockholder on the one hand and the QIU on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company, the Operating Subsidiaries and the Principal Stockholder on the one hand and the QIU on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company, as set forth in the table on the cover page of the Prospectus, bear to the fee payable to the QIU pursuant to Section 3 hereof. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact related to information supplied by the Company, the Operating Subsidiaries or the Principal Stockholder on the one hand or the QIU on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Operating Subsidiaries, the Principal Stockholder and the QIU agree that it would not be just and equitable if contributions pursuant to this subsection (c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (c). The amount paid or payable by the QIU as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (c) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the -20- 21 meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (d) The obligations of the Company, the Operating Subsidiaries and the Principal Stockholder under this Section 10 shall be in addition to any liability which the Company, the Operating Subsidiaries or the Principal Stockholder may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the QIU within the meaning of the Act. (e) Notwithstanding the foregoing, and without limiting in any way the ability of the QIU to commence an action or proceeding against the Principal Stockholder on a joint and several basis, the Principal Stockholder shall not be required to make payment of any amount pursuant to subsection (a), (b) or (c) above to the QIU with respect to any loss, claim, damage, liability or expense (each such circumstance or event a "Loss") which falls within the scope of subsection (a), (b) or (c) above unless and until the Company and the Operating Subsidiaries have failed to pay any amount owed to the QIU under subsection (a), (b) or (c) above with respect to a Loss within 20 business days after the earlier to occur of (i) a demand by the QIU for payment by the Company and the Operating Subsidiaries of such amount, which amount the Company and the Operating Subsidiaries agree, whether by settlement or otherwise, is owed to the QIU, or (ii) entry of a final judgment by a court of competent jurisdiction, from which the time period for filing an appeal has expired, against the Company or any of the Operating Subsidiaries providing for payment to the QIU of such amount; provided, however, that after any Insolvency Event the Principal Stockholder shall be liable in accordance with subsections (a), (b) or (c) above without regard to the requirements of clauses (i) and (ii) of this paragraph; and in no event shall the aggregate liability of the Principal Stockholder under Sections 9 and 10 exceed $___________. 11. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Shares, or the Company notifies you that it has so arranged for the purchase of such Shares, you or the Company shall have the right to postpone a Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting -21- 22 Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company, except for (i) the expenses to be borne by the Company and the Underwriters as provided in Section 7 hereof and (ii) the indemnity and contribution agreements of the Company, the Operating Subsidiaries, the Principal Stockholder and the Underwriters in Sections 9 and 10 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 12. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Operating Subsidiaries, the Principal Stockholder and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, the Operating Subsidiaries, the Principal Stockholder or any officer or director or controlling person of the Company, the Operating Subsidiaries or the Principal Stockholder, and shall survive delivery of and payment for the Shares. 13. If this Agreement shall be terminated pursuant to Section 11 hereof, neither the Company, the Operating Subsidiaries nor the Principal Stockholder shall then be under any liability to any Underwriter except as provided in Sections 7, 9 and 10 hereof; but, if for any other reason Shares are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company, the Operating Subsidiaries and the Principal Stockholder shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 7, 9 and 10 hereof. 14. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; and if to the Company, the Operating Subsidiaries or Principal Stockholder shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 9(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company by you on -22- 23 request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 15. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company, the Operating Subsidiaries and the Principal Stockholder and, to the extent provided in Sections 9, 10 and 12 hereof, the officers and directors of the Company and the Operating Subsidiaries and each person who controls the Company, the Operating Subsidiaries or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 16. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 17. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 18. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. -23- 24 If the foregoing is in accordance with your understanding, please sign and return to us 8 counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company, the Operating Subsidiaries and the Principal Stockholder. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, Amscan Holdings, Inc. By:_______________________________ Name: Title: Amscan Inc. By:_______________________________ Name: Title: Am-Source, Inc. By:_______________________________ Name: Title: Trisar, Inc. By:_______________________________ Name: Title: -24- 25 Amscan Distributors (Canada) Ltd. By:_______________________________ Name: Title: JCS Realty Corp. By:_______________________________ Name: Title: SSY Realty Corp. By:_______________________________ Name: Title: __________________________________ John A. Svenningsen Accepted as of the date hereof Goldman, Sachs & Co. Alex. Brown & Sons Incorporated By:__________________________________ (Goldman, Sachs & Co.) On behalf of each of the Underwriters -25- 26 SCHEDULE I
NUMBER OF OPTIONAL SHARES TO BE TOTAL NUMBER OF PURCHASED IF FIRM SHARES MAXIMUM OPTION UNDERWRITER TO BE PURCHASED EXERCISED ----------- --------------- ------------------ Goldman, Sachs & Co............................... Alex. Brown & Sons Incorporated................... [Names of other Underwriters]..................... Total....................................
-26- 27 SCHEDULE II
Subsidiary Percentage Owned by Company - ---------- --------------------------- Amscan Inc. 100 Am-Source, Inc. 100 Trisar, Inc. 100 Amscan Distributors (Canada) Ltd. 100 Amscan Holdings Limited 75 Amscan (Asia Pacific) Pty. Ltd. 85 Amscan Partyartikel GmbH 95 Amscan Svenska AB 100 Amscan de Mexico, S.A. de C.V. 48 JCS Realty Corp. 100 SSY Realty Corp. 100
-1- 28 ANNEX I Pursuant to Section 8(e) of the Underwriting Agreement, KPMG Peat Marwick LLP shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Companies and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules examined by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited combined interim financial statements of the Companies for the periods specified in such letter; (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed combined statements of income and combined statements of cash flows included in the Prospectus and on the basis of specified procedures including inquiries of officials of the Companies who have responsibility for financial and accounting matters regarding whether the unaudited condensed combined financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed combined financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the combined results of operations and financial position of the Company for the three years ended December 31, 1995 included in the Prospectus agrees with the corresponding amounts in the audited combined financial statements for such years; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302 and 402, respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Companies, inspection of the minute books of the Companies since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Companies responsible for financial and accounting matters and such other -1- 29 inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited combined statements of income and combined statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited combined statements of income and combined statements of cash flows included in the Prospectus for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus (other than such data and items for the two years ended December 31, 1992) do not agree with the corresponding items in the unaudited combined financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited combined financial statements included in the Prospectus; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived any unaudited combined financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited combined financial statements included in the Prospectus; (D) any unaudited pro forma combined condensed financial statements included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest financial statements included in the Prospectus) or any increase in the long-term debt of the Companies, or any decreases in net current assets or stockholders' equity or other items specified by the Representatives of the Companies, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in Clause (E) there were any decreases in sales or operating income or net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other -2- 30 period of corresponding length specified by the Representatives, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; (vii) In addition to the audits referred to in their report(s) included in the Prospectus, they have performed certain specified procedures not constituting an audit in accordance with generally accepted auditing standards, consisting of a reading of the combining schedules of the Companies, a comparison of the unaudited financial data presented in the unaudited financial statements with the general accounting records of the individual companies to which such unaudited financial statements relate and inquiries of officials of the Companies responsible for financial and accounting matters, with respect to the combined selected financial statements for the Companies for the years ended December 31, 1991 and 1992 which appear in the Prospectus and which are derived from the audited financial statements and the unaudited financial statements, as the case may be, of the individual Companies for such years. Based on the foregoing procedures, nothing came to their attention that caused them to believe that: (A) the combined financial statements of the Company for the years ended December 31, 1991 and 1992 were not determined on a basis substantially consistent with the basis for the determination of the combined financial statements included in the Prospectus for the three years ended December 31, 1995; and (viii) In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (vi) and (vii) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives, which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. -3- EX-2.A 3 SHARE EXCHANGE AGREEMENT 1 Exhibit 2(a) SHARE EXCHANGE AGREEMENT SHARE EXCHANGE AGREEMENT (this "Agreement") dated as of December ___, 1996, among Amscan Holdings, Inc., a Delaware corporation (the "Company"), and John A. Svenningsen, an individual residing in the State of New York ("Svenningsen"), Gerald C. Rittenberg, an individual residing in the State of New York ("Rittenberg") and the following trusts each created by agreement dated as of October 29, 1996: Christina Svenningsen Trust, Jon Svenningsen Trust, Elisabeth Svenningsen Trust, Melissa Svenningsen Trust, Emily Svenningsen Trust, and Sara Svenningsen Trust (such six trusts being collectively, the "Svenningsen Trusts" and individually, a "Svenningsen Trust"). W I T N E S S E T H : WHEREAS, Svenningsen is the owner of the shares (the "Svenningsen Exchange Shares") of capital stock of the companies (the "Operating Companies") listed on Schedules A and B hereto in the number and percentage listed opposite each such company; and WHEREAS, each of the Svenningsen Trusts is the owner of 13-1/3 shares (such 13-1/3 shares owned by a Svenningsen Trust being with respect to such Svenningsen Trust the "Trust Exchange Shares") of the common stock, no par value of SSY Realty Corp., a New York corporation and one of the Operating Companies ("SSY"); and WHEREAS, Rittenberg is the owner of 32.84 shares (the "Rittenberg Exchange Shares") of the common stock, no par value of Amscan Inc., a New York corporation and one of the Operating Companies ("Amscan"); and WHEREAS, 1,000 shares of the Company's common stock, par value $0.10 per share ("Company Common Stock") were issued previously to Svenningsen in connection with the organization of the Company; and WHEREAS, in connection with the organization of the Company and the initial public offering of Company Common Stock (the "Transaction"), the Company and Svenningsen wish to provide for (i) the shares of capital stock of each of the Operating Companies identified in Schedule A hereto which constitute a portion of the Svenningsen Exchange Shares to be exchanged by Svenningsen for a certain number of shares of Company Common Stock determined by the Company and Svenningsen to represent the fair market value of such one of the Operating Companies and (ii) the shares of capital stock of each of the Operating Companies identified in Schedule B hereto which constitute a portion of the Svenningsen Exchange Shares to be exchanged by Svenningsen for a combination of a certain number of shares of Company Common Stock and cash in the 2 2 amount set forth opposite the name of such one of the Operating Companies in Schedule B hereto determined by the Company and Svenningsen to represent in the aggregate the fair market value of such one of the Operating Companies, which shares of Company Common Stock to be delivered to Svenningsen in respect of the Operating Companies total ______________ additional shares of Company Common Stock (such aggregate number of shares being the "Svenningsen Acquisition Shares"), and which cash payments aggregate $133,000 (such aggregate cash amount being the "Svenningsen Cash Payment," and together with the Svenningsen Acquisition Shares, the "Svenningsen Consideration"); and WHEREAS, in connection with the Transaction, the Company and each of the Svenningsen Trusts wish to provide for the exchange by each of such Svenningsen Trusts of the Trust Exchange Shares for the number of shares of Company Common Stock listed opposite such Svenningsen Trust's name on Schedule C hereto (such shares of Company Common Stock transferred to a Svenningsen Trust being with respect to such Svenningsen Trust the "Trust Acquisition Shares"); and WHEREAS, in connection with the Transaction, the Company and Rittenberg wish to provide for the exchange by Rittenberg of the Rittenberg Exchange Shares for 660,000 shares of Company Common Stock (the "Rittenberg Acquisition Shares"); and WHEREAS, Rittenberg and the Company wish to confirm certain of Rittenberg's agreements regarding restrictions on the transfer of the Rittenberg Acquisition Shares. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. EXCHANGE OF SHARES (a) Effective as of the date hereof Svenningsen transfers all right, title and interest to the Svenningsen Exchange Shares to the Company, in exchange for the Svenningsen Consideration, and the Company issues and delivers the Svenningsen Acquisition Shares and pays the Svenningsen Cash Payment to Svenningsen in exchange for the Svenningsen Exchange Shares. (b) Effective as of the date hereof each Svenningsen Trust transfers all right, title and interest to the Trust Exchange Shares to the Company, in exchange for the Trust Acquisition Shares, and the Company issues and delivers the Trust Acquisition Shares in exchange for the Trust Exchange Shares. 3 3 (c) Effective as of the date hereof Rittenberg transfers all right, title and interest to the Rittenberg Exchange Shares to the Company, in exchange for the Rittenberg Acquisition Shares, and the Company issues and delivers the Rittenberg Acquisition Shares in exchange for the Rittenberg Exchange Shares. 2. DELIVERY OF SHARES AND CASH PAYMENT TO SVENNINGSEN (a) Promptly upon the execution and delivery of this Agreement, (i) Svenningsen shall deliver to the Company certificates evidencing the Svenningsen Exchange Shares, duly endorsed in blank or accompanied by appropriate instruments of transfer in form reasonably satisfactory to the Company, (ii) the Company shall deliver to Svenningsen certificates evidencing the Svenningsen Acquisition Shares, and shall record the issuance of such shares to Svenningsen on the stock records of the Company, and (iii) the Company shall pay the Svenningsen Cash Payment to Svenningsen by Company check, by wire transfer or as otherwise agreed to by the parties. (b) Promptly upon the execution and delivery of this Agreement, (i) each Svenningsen Trust shall deliver to the Company certificates evidencing the Trust Exchange Shares, duly endorsed in blank or accompanied by appropriate instruments of transfer in form reasonably satisfactory to the Company, and (ii) the Company shall deliver to each Svenningsen Trust certificates evidencing the Svenningsen Acquisition Shares and shall record the issuance of such shares to each Svenningsen Trust on the stock records of the Company. (c) Promptly upon the execution and delivery of this Agreement, (i) Rittenberg shall deliver to the Company certificates evidencing the Rittenberg Exchange Shares, duly endorsed in blank or accompanied by appropriate instruments of transfer in form reasonably satisfactory to the Company, and (ii) the Company shall deliver to Rittenberg certificates evidencing the Rittenberg Acquisition Shares, and shall record the issuance of such shares to Rittenberg on the stock records of the Company. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY (a) The Company hereby represents and warrants to Svenningsen, Rittenberg and the Svenningsen Trusts as follows: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business as it is now being conducted. The Company is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where such qualification is necessary, except where a failure to be so 4 4 qualified could not reasonably be expected to have a material adverse effect upon the business, properties or operations of the Company. (ii) The authorized capital stock of the Company consists of 50,000,000 shares of Company Common Stock, of which, without giving effect to the shares of Company Common Stock issued pursuant hereto, 1,000 shares are issued and outstanding, and are owned of record by Svenningsen, and 5,000,000 shares of preferred stock, par value $0.10 per share, of which no shares are issued and outstanding. (iii) No consent, approval or authorization of, or declaration, filing or registration with, any third party, including any governmental or regulatory authority, on the part of the Company, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby other than the filing of a Form D pursuant to regulations under the Securities Act of 1933, as amended (such Act and the rules and regulations thereunder, collectively, the "1933 Act") and other than any consents, approvals, authorizations, registrations or qualifications as may be required under state securities or blue sky laws in connection with the exchange contemplated hereby. (iv) The Company has full corporate power and authority to execute, deliver and perform this Agreement, and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not conflict with, or result in a violation of, or constitute a material default under, any provision of the Certificate of Incorporation or By-laws of the Company, or any material agreement, mortgage, indenture, license, permit, lease or other instrument or any judgment, decree, ruling or order to which the Company is a party or by which the Company or its properties are bound. (v) This Agreement has been duly authorized by all necessary corporate action, has been duly executed and delivered by or on behalf of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter in effect affecting the enforcement of creditors' rights generally or by general rules of equity. (b) The Company hereby represents and warrants to Svenningsen that the Svenningsen Acquisition Shares, when issued to Svenningsen in accordance with the terms hereof, will have been duly authorized, validly issued, and will be fully paid and non-assessable. The issuance of the Svenningsen Acquisition Shares to Svenningsen in accordance with the terms hereof will transfer to Svenningsen full legal and valid title thereto, free and clear of any liens, security interests, charges, pledges or encumbrances. 5 5 (c) The Company hereby represents and warrants to each of the Svenningsen Trusts that the Trust Acquisition Shares, when issued to such Svenningsen Trust in accordance with the terms hereof, will have been duly authorized, validly issued and will be fully paid and non-assessable. The issuance of the Trust Acquisition Shares to such Svenningsen Trust in accordance with the terms hereof will transfer to such Svenningsen Trust full legal and valid title thereto, free and clear of any liens, security interests, charges, pledges or encumbrances. (d) The Company hereby represents and warrants to Rittenberg that the Rittenberg Acquisition Shares, when issued to Rittenberg in accordance with the terms hereof, will have been duly authorized, validly issued, and will be fully paid and non-assessable. The issuance of the Rittenberg Acquisition Shares to Rittenberg in accordance with the terms hereof will transfer to Rittenberg full legal and valid title thereto, free and clear of any liens, security interests, charges, pledges or encumbrances. 4. REPRESENTATIONS AND WARRANTIES OF SVENNINGSEN Svenningsen hereby represents and warrants to the Company as follows: (a) The Svenningsen Exchange Shares are owned beneficially and of record by Svenningsen, free and clear of any liens, security interests, charges, pledges or encumbrances. The Svenningsen Exchange Shares, the Rittenberg Exchange Shares and the Trust Exchange Shares have been duly authorized, and are validly issued, fully paid and non-assessable, and the Svenningsen Exchange Shares represent the percentage of issued and outstanding capital stock of the Operating Companies as set forth on Schedules A and B hereto. The transfer of the Svenningsen Exchange Shares to the Company in accordance with the terms hereof will transfer to the Company full legal and valid title thereto, free and clear of any liens, security interests, charges, pledges or encumbrances. (b) No consent, approval or authorization of, or declaration, filing or registration with, any third party, including any governmental or regulatory authority, on the part of Svenningsen or any of the Operating Companies, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby other than consents which have heretofore been obtained. (c) Svenningsen has full power and authority to execute, deliver and perform this Agreement, and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not conflict with, or result in a violation of, or constitute a default under, any provision of the Certificate or Articles of Incorporation or By-laws of any of the Operating Companies, or any material agreement, mortgage, indenture, license, permit, lease or other instrument or any judgment, decree, ruling or 6 6 order to which any of Svenningsen or the Operating Companies is a party or by which any of Svenningsen or the Operating Companies or his or their respective properties are bound. (d) This Agreement constitutes the legal, valid and binding obligation of Svenningsen, enforceable against him in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter in effect affecting the enforcement of creditors' rights generally or by general rules of equity. (e) Svenningsen will acquire the Svenningsen Acquisition Shares for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof except in compliance with 1933 Act, and he will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of any of such Svenningsen Acquisition Shares (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any of such Svenningsen Acquisition Shares) except in compliance with the 1933 Act. Svenningsen acknowledges that the Svenningsen Acquisition Shares shall constitute "restricted securities" as defined in Rule 144 under the 1933 Act. (f) Svenningsen is an "accredited investor" as defined in Regulation D under the 1933 Act. 5. REPRESENTATIONS AND WARRANTIES OF THE SVENNINGSEN TRUSTS Each of the Svenningsen Trusts hereby represents and warrants to the Company solely as to itself as follows: (a) The Trust Exchange Shares are owned by it beneficially and of record, free and clear of any liens, security interests, charges, pledges or encumbrances. The Trust Exchange Shares represent 6-2/3 percent of the issued and outstanding capital stock of SSY. The transfer of the Trust Exchange Shares to the Company in accordance with the terms hereof will transfer to the Company full legal and valid title thereto, free and clear of any liens, security interests, charges, pledges or encumbrances. (b) No consent, approval or authorization of, or declaration, filing or registration with, any third party, including any governmental or regulatory authority, on the part of the Svenningsen Trust, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (c) The Svenningsen Trust has full power and authority to execute, deliver and perform this Agreement, and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not conflict with, or result in a 7 7 violation of, or constitute a default under, any material agreement, mortgage, indenture, license, permit, lease or other instrument or any judgment, decree, ruling or order to which the Svenningsen Trust is a party or by which the Svenningsen Trust or its properties are bound. (d) This Agreement constitutes the legal, valid and binding obligation of the Svenningsen Trust, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter in effect affecting the enforcement of creditors' rights generally or by general rules of equity. (e) The Svenningsen Trust will acquire the Trust Acquisition Shares for its own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof except in compliance with the 1933 Act, and the Svenningsen Trust will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of any of such Trust Acquisition Shares (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any of such Trust Acquisition Shares) except in compliance with the 1933 Act. The Svenningsen Trust acknowledges that the Trust Acquisition Shares shall constitute "restricted securities" as defined in Rule 144 under the 1933 Act. (f) The Svenningsen Trust has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the prospective investment in the Trust Acquisition Shares and the Svenningsen Trust has received a copy of the Company's Preliminary Prospectus dated December 2, 1996 relating to the proposed initial public offering of Company Common Stock by the Company. 6. REPRESENTATIONS AND WARRANTIES OF RITTENBERG Rittenberg hereby represents and warrants to the Company as follows: (a) The Rittenberg Exchange Shares are owned by Rittenberg beneficially and of record, free and clear of any liens, security interests, charges, pledges or encumbrances. The transfer of the Rittenberg Exchange Shares to the Company in accordance with the terms hereof will transfer to the Company full legal and valid title thereto, free and clear of any liens, security interests, charges, pledges or encumbrances. (b) No consent, approval or authorization of, or declaration, filing or registration with, any third party, including any governmental or regulatory authority, on the part of Rittenberg, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 8 8 (c) Rittenberg has full power and authority to execute, deliver and perform this Agreement, and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not conflict with, or result in a violation of, or constitute a default under, any material agreement, mortgage, indenture, license, permit, lease or other instrument or any judgment, decree, ruling or order to which Rittenberg is a party or by which Rittenberg or his respective properties are bound. (d) This Agreement constitutes the legal, valid and binding obligation of Rittenberg, enforceable against him in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter in effect affecting the enforcement of creditors' rights generally or by general rules of equity. (e) Rittenberg will acquire the Rittenberg Acquisition Shares for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof except in compliance with the 1933 Act, and he will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of any of such Rittenberg Acquisition Shares (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any of such Rittenberg Acquisition Shares) except in compliance with the 1933 Act. Rittenberg acknowledges that the Rittenberg Acquisition Shares shall constitute "restricted securities" as defined in Rule 144 under the 1933 Act. (f) Rittenberg is an "accredited investor" as defined in Regulation D under the 1933 Act. 7. CONFIRMATION OF RITTENBERG'S AGREEMENTS Subject to and in accordance with the terms of the Stock Agreement among Rittenberg, Svenningsen and Amscan Inc., dated October 9, 1996 (the "Stock Agreement") and the Loan Agreement between Svenningsen, Rittenberg and Kurzman & Eisenberg, LLP, as escrow agent, dated October 9, 1996 (the "Loan Agreement"), Rittenberg hereby confirms his agreement that he will not sell any Rittenberg Acquisition Shares received by Rittenberg hereunder for a period of twelve (12) consecutive months from the date hereof, except that during such twelve month period, Rittenberg may (i) transfer any of such shares to Svenningsen to repay indebtedness which Rittenberg might incur pursuant to the Loan Agreement, and/or (ii) make gifts of the Rittenberg Acquisition Shares; provided, however that Rittenberg personally agrees and agrees on behalf of the donees of Rittenberg Acquisition Shares in connection with such gifts that none of the donees of his gifts will sell Rittenberg Acquisition Shares prior to the third anniversary of the transfer of the Rittenberg Acquisition Shares to Rittenberg. 9 9 8. MISCELLANEOUS (a) From time to time on and after the date hereof, each of the parties hereto shall deliver or cause to be delivered such further documents and instruments and shall do and cause to be done such further acts and things as shall be necessary or desirable to carry out the intent of the parties hereto and accomplish the purposes set forth herein. (b) This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modifications or amendment is sought. Any party hereto may, by an instrument in writing, waive compliance by another party hereto with any term or provision of this Agreement included for the benefit of such waiving party. The waiver by any party hereto of a breach of any terms or provisions of this Agreement shall not be construed as a waiver of any other terms or provisions or of any further breach. (c) This Agreement, together with the related schedules hereto, constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject matter herein or thereof. (d) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors. This Agreement may not be assigned by any party hereto. (e) Any notice or other communication given pursuant to this Agreement shall be in writing and shall be given to the parties at the following addresses or at such other addresses as the parties may hereafter specify in writing: If to the Company: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Attn.: Mr. James M. Harrison with a copy to: Cummings & Lockwood Four Stamford Plaza P.O. Box 120 Stamford, Connecticut 06904 Attn.: Paul G. Hughes, Esq. 10 10 If to Svenningsen or any of the Svenningsen Trusts: Mr. John A. Svenningsen c/o Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 with a copy to: Kurzman & Eisenberg, LLP One North Broadway White Plains, New York 10601 Attn: Joel Lever, Esq. If to Rittenberg: Mr. Gerald C. Rittenberg 18 Carey Drive Bedford, New York 10506 with a copy to: Orloff, Lowenbach, Stifelman & Siegel, P.A. 101 Eisenhower Parkway Roseland, New Jersey 07068 Attn: Susan M. Holzman, Esq. Any such notice or communication shall be hand delivered, mailed by registered or certified mail, return receipt requested, postage prepaid, sent by a recognized overnight delivery service or sent by telecopier with receipt confirmed by telephone by the recipient of such notice or other communication. If hand delivered, notice shall be effective upon delivery; if mailed, notice shall be effective upon the fourth day following the postmark date; if sent by a recognized overnight delivery service, notice shall be effective upon the second business day after deposit with such delivery service; if telecopied, notice shall be effective upon confirmation of receipt. (f) This Agreement shall be governed and construed in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws. All claims, disputes or causes of action relating to or arising out of this Agreement shall be 11 11 brought, heard and resolved solely and exclusively by and in a federal or state court situated in New York. (g) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (h) Descriptive headings are for convenience only and will not control or affect the meaning or construction of any provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. AMSCAN HOLDINGS, INC. ----------------------------------- Name: Title: ----------------------------------- John A. Svenningsen ----------------------------------- Gerald C. Rittenberg 12 12 CHRISTINA SVENNINGSEN TRUST By_________________________________ John A Svenningsen, Trustee JON SVENNINGSEN TRUST By_________________________________ John A Svenningsen, Trustee ELISABETH SVENNINGSEN TRUST By_________________________________ John A Svenningsen, Trustee MELISSA SVENNINGSEN TRUST By_________________________________ John A Svenningsen, Trustee EMILY SVENNINGSEN TRUST By_________________________________ John A Svenningsen, Trustee SARA SVENNINGSEN TRUST By_________________________________ John A Svenningsen, Trustee 13 SCHEDULE A NUMBER OF SHARES AND PERCENTAGE OF ISSUED AND OUTSTANDING SHARES OWNED AND TO BE EXCHANGED BY JOHN NAME OF ENTITY A. SVENNINGSEN - -------------- ----------------------------------------------------- Amscan Inc. 660 shares of common stock, no par value/100% Am-Source, Inc. 60 shares of common stock, no par value/50% Trisar, Inc. 266.66 shares of common stock, no par value/100% JCS Realty Corp. 1 share of common stock, no par value/100% SSY Realty Corp. 120 shares of common stock, no par value/60%
14 SCHEDULE B
NUMBER OF SHARES AND PERCENTAGE OF ISSUED CASH PORTION OF AND OUTSTANDING SHARES OWNED AND TO BE SVENNINGSEN NAME OF ENTITY EXCHANGED BY JOHN A. SVENNINGSEN CONSIDERATION -------------- -------------------------------- ------------- Amscan Distributors (Canada) Ltd. 3,000 shares of common stock, par value $1 (Canadian) per $75,000 share/100% Amscan Svenska AB 1,500 shares of common stock, no par value/100% $2,000 Amscan Holdings Limited 215,625 shares of common stock, par value 20p per share/75% $20,000 5,000 shares of preference stock, par value 1 British Pound Sterling per share/100% Amscan (Asia Pacific) Pty. Ltd. 760 shares of common stock, par value Aus. $1 per share/85% $20,000 Amscan Partyartikel GmbH 47,500 shares/95% $14,000 Amscan de Mexico, S.A. de C.V. 29 shares of Class B common stock, no par value and 580 shares $2,000 of Class B-1 common stock, no par value/48.3% of all outstanding shares of capital stock
15 SCHEDULE C
NUMBER OF SHARES OF NAME OF TRUST COMPANY COMMON STOCK ------------- -------------------- Christina Svenningsen Trust Jon Svenningsen Trust Elisabeth Svenningsen Trust Melissa Svenningsen Trust Emily Svenningsen Trust Sara Svenningsen Trust
EX-4.B 4 AMENDMENT NO. 1 TO CREDIT AGREEMENT 1 Exhibit 4(b) AMENDMENT NO. 1 Dated as of November 14, 1996 AMENDMENT by and among AMSCAN INC., a corporation organized under the laws of the State of New York (for itself and as successor by merger to Kookaburra USA, Ltd. and Deco Paper Products, Inc.), and TRISAR INC. (collectively, the "Borrowers" and each, individually, a "Borrower"), each of the banks parties to the Credit Agreement (as hereinafter defined) (the "Banks") and THE CHASE MANHATTAN BANK (successor by merger to THE CHASE MANHATTAN BANK, N.A.), as agent for the Banks (in such capacity, together with its successors and assigns in such capacity, the "Agent"). PRELIMINARY STATEMENTS: A. Amscan Inc., Trisar, Inc., the Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995 (the "Credit Agreement"; the capitalized terms defined therein being used herein as therein defined unless otherwise defined herein). B. The Borrowers, the Banks and the Agent have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. AMENDMENTS. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) The definition of the term "Letters of Credit" contained in Section 1.1 of the Credit Agreement is amended and restated in full to read as follows: "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 with either (a) an expiration date of up to twelve (12) months from the date of issue, or (b) an evergreen provision, by virtue of which the letter of credit shall renew annually unless the Issuing Bank provides the beneficiary with notice of non-renewal, issued by the Issuing Bank for the account of any Borrower as more particularly set forth in Section 2.1(b) hereof. "Letters of Credit" shall 2 2 include, without limitation, those Letters of Credit set forth on Schedule 1.1 hereto. (b) Section 2.1(b) of the Credit Agreement is amended and restated in full to read as follows: (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 $4,000,000 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. 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. (c) Section 7.1 of the Credit Agreement is amended by the addition of the following new paragraph (c), and relettering the following paragraphs accordingly: (c) Debt of such Borrower pursuant to guarantee agreements, but only to the extent that such Debt is secured by a Letter of Credit issued by the Issuing Bank pursuant to Section 2.1(b); (d) Section 7.2 of the Credit Agreement is amended and restated in full to read as follows: 7.2 GUARANTEES, ETC. 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 3 3 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: (a) guarantees by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (b) as set forth on Schedule 5.10; and (c) guarantees secured in whole by a Letter of Credit issued by the Issuing Bank pursuant to Section 2.1(b). (e) A new Schedule 1.1 is added to the Credit Agreement in the form of Schedule 1.1 attached hereto. SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective when, and only when, the Agent shall have received counterparts of this Amendment duly executed by the Borrowers, the Banks and the Agent, and Section 1 hereof shall become effective when, and only when, the Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated the date of receipt thereof by the Agent (which date shall be the same for all such documents), in form and substance satisfactory to the Agent and its legal counsel: (a) Certified copies of (i) the resolutions of the Board of Directors of each Borrower approving this Amendment and the matters contemplated hereby and (ii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Amendment and the matters contemplated hereby. (b) A certificate of the Secretary or an Assistant Secretary of each Borrower certifying the names and true signatures of the officers of such Borrower authorized to sign this Amendment and the other documents to be delivered hereunder. (c) A certificate signed by a duly authorized officer of each Borrower stating that: (i) The representations and warranties contained in Section 3 hereof are correct on and as of the date of such certificate as though made on and as of such date, and (ii) No event has occurred and is continuing which constitutes a Default or an Event of Default. 4 4 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each borrower represents and warrants as follows: (a) Such Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Amendment. (b) The execution, delivery and performance by such Borrower of this Amendment are within such Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) such Borrower's charter or by-laws, (ii) law or any contractual restriction binding on or affecting such Borrower, or result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge, encumbrance or preferential arrangement of any nature upon or with respect to any of the properties now owned or hereafter acquired by such Borrower. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Borrower of this Amendment. (d) This Amendment constitutes legal, valid and binding obligation of such Borrower enforceable against such Borrower in accordance with its terms. (e) The Security Agreement constitutes valid and perfected first priority security interests and liens in and to the Collateral covered thereby enforceable against all third parties in all jurisdictions and secure the payment of all obligations of such Borrower under the Facility Documents (including, without limitation, L/C Credits), and the execution, delivery and performance of this Amendment do not adversely affect the aforesaid security interests and liens of such Security Agreement. (g) There is no pending or threatened action or proceeding affecting such Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which may materially adversely affect the financial condition or operations of such Borrower or any Subsidiary. There is no pending or threatened action or proceeding affecting such Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which purports to affect the legality, validity or enforceability of this Amendment. (h) The covenants of the Borrowers contained in those two certain waiver letters pertaining to the Credit Agreement, each dated as of September 5, 1996, have been satisfied or discharged in full. 5 5 SECTION 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. (a) Upon the effectiveness of section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in any Facility Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, the Credit Agreement, the Notes and the other Facility Documents, shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, the Security Agreement and all of the Collateral described therein do and shall continue to secure the payment of all obligations, indebtedness and liabilities of the Borrowers to the Bank under the Credit Agreement and the other Facility Documents (including, without limitation, L/C Credits), as amended hereby. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Bank under any of the Facility Documents, nor constitute a waiver of any provision of any of the Facility Documents. Section 5. COSTS, EXPENSES AND TAXES. The Borrowers jointly and severally agree to pay on demand all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to advising the agent as to its rights and responsibilities hereunder and thereunder. The Borrowers further jointly and severally agree to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this section 5. In addition, the Borrowers shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment, and agrees to save the Agent and the Banks harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. Section 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Section 7. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 6 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. Borrowers: AMSCAN INC. By: /s/ James M. Harrison ------------------------------ Name: James M. Harrison Title: Vice President TRISAR INC. By: /s/ John A. Svenningsen ------------------------------ Name: John A. Svenningsen Title: President 7 7 Agent: THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.) By: /s/ Carol A. Kornbluth ------------------------------ Carol A. Kornbluth Vice President Banks: THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.) By: /s/ Carol A. Kornbluth ------------------------------ Carol A. Kornbluth Vice President FIRST UNION NATIONAL BANK (as successor to First Fidelity Bank, N.A.) By: /s/ John Ritacco ------------------------------ John Ritacco Senior Vice President FLEET BANK, N.A. (for itself and as successor to NatWest Bank, N.A.) By: /s/ Neil Platt ------------------------------ Neil Platt Vice President 8 Schedule 1.1 Letters of Credit
Issuing Bank Current SBLC # Beneficiary Amount Expiry Date - ------ ----------- ------ ----------- P-262881 The Travelers Companies $450,000 12/31/97 P-263223 Town of Greenburgh $75,000 12/26/96
EX-4.C 5 AMENDMENT NO. 2 TO CREDIT AGREEMENT 1 Exhibit 4(c) AMENDMENT NO. 2 Dated as of December 11, 1996 AMENDMENT by and among AMSCAN HOLDINGS, INC., a corporation organized under the laws of the State of Delaware, AMSCAN INC., a corporation organized under the laws of the State of New York (for itself and as successor by merger to Kookaburra USA, Ltd. and Deco Paper Products, Inc.), and TRISAR INC. (collectively, the "Borrowers" and each, individually, a "Borrower"), each of the banks parties to The Credit Agreement (as hereinafter defined) (the "Banks") and THE CHASE MANHATTAN BANK (successor by merger to THE CHASE MANHATTAN BANK, N.A.), as agent for the Banks (in such capacity, together with its successors and assigns in such capacity, the "Agent"). PRELIMINARY STATEMENTS: A. Amscan Inc., Trisar, Inc., the Banks and the Agent have entered into a Credit Agreement dated as of September 20, 1995, as amended by that certain Amendment No. 1, dated as of November 14, 1996 (the "Credit Agreement"; the capitalized terms defined therein being used herein as therein defined unless otherwise defined herein). B. Amscan Holdings, Inc. was incorporated on October 3, 1996 for the purpose of becoming the holding company for Amscan Inc., Trisar Inc. and certain other Affiliates of the Borrowers. C. Amscan Holdings, Inc. plans to make an initial public offering of its capital stock substantially in accordance with the terms and conditions of the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 15, 1996 (the receipt by Amscan Holdings, Inc. of the net proceeds of said offering hereinafter the "Amscan IPO"). D. The Borrowers, the Banks and the Agent have agreed to amend the Credit Agreement and certain other Facility Documents as hereinafter set forth. SECTION 1. Amendments. The Facility Documents are, effective as of the date of the Amscan IPO and subject to the satisfaction of the conditions precedent set forth in Section 4 hereof, hereby amended as follows: 2 2 (a) The terms "Borrowers" and "Borrower" contained in the First Preamble of the Credit Agreement are amended by adding Amscan Holdings, Inc., a Delaware corporation, as a Borrower and by deleting Kookaburra USA, Ltd. and Deco Paper Products, Inc. as Borrowers. (b) The definition of the term "Change of Ownership" is deleted from Section 1.1 of the Credit Agreement. (c) The definition of the term "Shareholder Payments" is deleted from Section 1.1 of the Credit Agreement. (d) The definition of the term "Guarantors" contained in Section 1.1 of the Credit Agreement is amended and restated in full to read as follows: "Guarantors" means each Person who delivers a guaranty of all or any portion the Borrowers' obligations under this Agreement or any other Facility Document. (e) The definition of the term "Restricted Payment Allowance" contained in Section 1.1 of the Credit Agreement is amended and restated in full to read as follows: "Restricted Payment Allowance" means, at any date of determination thereof, for the Borrowers, on a combined basis in accordance with GAAP, If such date of determination is prior to the Amscan IPO: (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. 3 3 If such date of determination is the date of the Amscan IPO or thereafter: (a) 50% of net profit (after adjusting for the IPO Payments) for the immediately preceding fiscal quarter of the Borrowers, demonstrated to the Bank's satisfaction, plus (b) the unused amount of the Restricted Payment Allowance for preceding fiscal periods 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. (f) The definition of the term "Pledge Agreements" contained in Section 1.1 of the Credit Agreement is amended and restated in full to read as follows: "Pledge Agreements" means the pledge agreements in the form of Exhibit E-1 to be delivered by the Borrowers under the terms of this Agreement. (g) The definition of the term "EBIT" contained in Section 1.1 of the Credit Agreement is amended and restated in full to read as follows: "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, plus (iv) the IPO Payments, if any. (h) The definition of the term "EBITDA" contained in Section 1.1 of the Credit Agreement is amended and restated in full to read as follows: "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, plus (iv) the IPO Payments, if any. 4 4 (i) The following new definitions are added in proper alphabetical order to Section 1.1 of the Credit Agreement: "Amscan IPO" means the receipt by Amscan Holdings, Inc. of the net proceeds of an initial public offering of the capital stock of Amscan Holdings, Inc. substantially in accordance with the terms and conditions of the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 15, 1996. "Change of Control" means (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of greater than twenty percent (20%) of the outstanding shares of voting stock of Amscan Holdings, Inc., other than John Svenningsen or his heirs; or (ii) during any period of twelve (12) consecutive months following the Amscan IPO, individuals who at the beginning of such twelve (12) month period were directors of Amscan Holdings, Inc., together with any new directors whose election by the Board of Directors of Amscan Holdings, Inc. was approved by a majority of the directors then still in office and who are either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors of Amscan Holdings, Inc. "Excluded Subsidiaries" shall mean Am-Source, Inc., Amscan Distributors (Canada) Ltd., Amscan Svenska AB, JCS Realty Corp., SSY Realty Corp., Amscan Holdings Limited, Amscan (Asia Pacific) Pty. Ltd., Amscan Partyartikel GmbH and Amscan de Mexico, S.A. de C.V. "IPO Payments" shall mean, if the Amscan IPO shall have occurred and to the extent the following expenses have been incurred and expensed, the following expenses: (a) the $12,640,000 payment to Gerald C. Rittenberg in connection with the Amscan IPO, (b) the payment of $1,000,000 to E. Allan Shook and L. Randall Harris in connection with the discharge of contractual obligations, and (c) the contribution to the Employee Stock Ownership Plan of Amscan Holdings, Inc. in the amount of $3,000,000. (j) Subsections 6.8(a) and (b) of the Credit Agreement are amended and restated in full as follows: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrowers, a consolidated balance sheet of Amscan Holdings, Inc. and the other Borrowers as of the end of such fiscal year and a consolidated income statement and statements of cash flows and changes in stockholders' equity of Amscan Holdings, Inc. and the other Borrowers for such fiscal year, all in reasonable detail and stating in comparative form the respective 5 5 consolidated 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, within 45 days after the end of each of the first three quarters of each fiscal year of the Borrowers thereafter, a consolidated balance sheet of Amscan Holdings, Inc. and the other Borrowers as of the end of such quarter and a consolidated income statement and statements of cash flows and changes in stockholders' equity, of Amscan Holdings, Inc. and the other Borrowers 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 consolidated 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 Amscan Holdings, Inc. (subject to year-end adjustments); (k) The following are added as new Subsections 6.8(k) and (l) of the Credit Agreement, and the following paragraphs relettered accordingly: (k) as soon as available after filing the same with the Securities and Exchange Commission, but in no event later than 45 days after the end of each of the first three fiscal quarter of the Borrowers, a true and compete copy of the Form 10-Q of Amscan Holdings, Inc.; (l) as soon as available after filing the same with the Securities and Exchange Commission, but in no event later than 100 days after the end of each fiscal year of the Borrowers, a true and complete copy of the Form 10-K of Amscan Holdings, Inc.; (l) Section 6.10 of the Credit Agreement is amended and restated in full as follows: Section 6.10. Further Assurances. By January 31, 1997, negotiate in good faith with the Agent and the Banks to amend this Agreement and the other Facility Documents as may be reasonably requested by the Agent or the Banks to address issues arising from (a) the addition of Amscan Holdings, Inc. as a Borrower, (b) the Amscan IPO, or (c) the change of the tax status of the Borrowers from S Corporations to C Corporations. (m) Section 6.11 of the Credit Agreement is amended and restated in full as follows: 6 6 Section 6.11. Additional Security. By January 31, 1997, executed and deliver a security agreement, a pledge agreement and such other security documents as the Agent and the Banks may reasonably request to grant and perfect a first priority security interest in the assets of Amscan Holdings, Inc. (other than the capital stock of the other Borrowers) to the Agent, for the ratable benefit of the Banks, as security for the obligations of the Borrowers under this Agreement and the other Facility Documents. (n) Subsection 9.1(r) of the Credit Agreement is amended and restated in full as follows: (r) There shall have been a Change in Control of Amscan Holdings, Inc.; (o) Schedule 5.9 to the Credit Agreement is hereby replaced with Schedule 5.9 hereto. (p) Section 7.6 of the Credit Agreement is amended and restated in full as follows: 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) such Borrower may declare and deliver dividends and make distributions payable solely in common stock of such Borrower; (b) 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; (c) 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. (q) Section 8.2 of the Credit Agreement is amended and restated in full as follows: 7 7 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:
Fiscal Year Combined Capital ----------- ---------------- Expenditures ------------ 1995 $10,000,000 1996 $11,000,000 1997 25% of EBITDA minus the amount by which 1996 Combined Capital Expenditures exceed $10,000,000, but not to exceed $10,000,000 1998 and thereafter 25% of EBITDA, not to exceed $10,000,000 annually
SECTION 2. Release. Effective upon the satisfaction of each of the following conditions: (i) the filing by or on behalf of Amscan Holdings, Inc. of a request to the Securities and Exchange Commission to accelerate the effectiveness of the Registration Statement on Form S-1 filed by Amscan Holdings, Inc. in connection with the Amscan IPO and (ii) the issuance of shares of Amscan Inc. common stock and the making of a cash payment to Gerald C. Rittenberg as contemplated by the Stock Agreement dated October 9, 1996 among Gerald C. Rittenberg, the Stockholder and Amscan Inc. (the "Release Date"), the obligations of the Stockholder under the Pledge Agreement delivered by the Stockholder pursuant to the terms of the Credit Agreement (the "Stockholder Pledge Agreement") are terminated and the Pledged Shares (as such term is defined in the Stockholder Pledge Agreement) are released from any Lien in favor of the Agent and the Banks. The foregoing release (the "Release") is subject to the following limitations, terms and conditions: (a) The Release is granted without prejudice to any right the Agent or any Bank may have, on any future date, to declare the Borrowers to be out of compliance with any term or provision of the Credit Agreement, other than for the sale of the Collateral subject to the Stockholder Pledge Agreement. (b) The Release shall have no effect on any other portions of the Credit Agreement, all of which shall remain in full force and effect, including all of the Agent's and the Banks' right and remedies thereunder, all of which are expressly reserved. 8 8 (c) The Agent's and the Banks' granting of the Release shall not be deemed to limit or hinder any rights of the Agent or any Bank under the Credit Agreement, nor shall it be deemed to create or infer a course of dealing between the Agent or any Bank and the Borrowers with regard to any provision of the Credit Agreement. SECTION 3. Consent. Effective on the Release Date, the Agent and the Banks hereby consent to the exchange of the shares of the capital stock of the Borrowers by the Stockholder for capital stock of Amscan Holdings, Inc. (the "Exchange") (the "Exchange Consent"). Effective as of the date of the Amscan IPO and subject to the satisfaction of the conditions precedent set forth in Section 4 hereof, the Agent and the Banks hereby consent to the offering of up to 6,152,500 shares of common stock in the Amscan IPO (the "Offering") (the "Offering Consent" and, together with the Exchange Consent, collectively, the "Consent"). The Consent is subject to the following limitations, terms and conditions: (a) The Consent is granted without prejudice to any right the Agent or any Bank may have, on any future date, to declare the Borrowers to be out of compliance with any term or provision of the Credit Agreement, for a reason other than the Exchange and the Offering as referenced above. (b) The Consent shall have no effect on any other portions of the Credit Agreement, all of which shall remain in full force and effect, including all of the Agent's and the Banks' rights and remedies thereunder, all of which are expressly reserved. (c) The Agent's and the Banks' granting of the Consent shall not be deemed to limit or hinder any rights of the Agent or any Bank under the Credit Agreement, nor shall it be deemed to create or infer a course of dealing between the Agent or any Bank and the Borrowers with regard to any provision of the Credit Agreement. SECTION 4. Conditions of Effectiveness. This Amendment shall become effective when, and only when, the Agent shall have received counterparts of this Amendment duly executed by the Borrowers, the Banks and the Agent, and Section 1 and the Offering Consent hereof shall become effective when, and only when, the Agent shall have additionally (i) received all of the following documents, each document (unless otherwise indicated) being dated the date of receipt thereof by the Agent (which date shall be the same for all such documents), in form and substance satisfactory to the Agent and its legal counsel and (ii) have received evidence satisfactory to it of the occurrence of the following non-documentary conditions: (a) Certified copies of (i) the resolutions of the Board of Directors of each Borrower approving this Amendment and the matters contemplated hereby, (ii) the Certificate of Incorporation and Bylaws of each Borrower, (iii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Amendment and the matters contemplated hereby, (iv) the Stock Agreement dated October 9, 1996 among Gerald C. Rittenberg, the Stockholder and 9 9 Amscan Inc., and (v) the amended form of registration statement for the Amscan IPO filed with the SEC on December 12, 1996. (b) A certificate of the Secretary or an Assistant Secretary of each Borrower certifying the names and true signatures of the officers of such Borrower authorized to sign this Amendment and the other documents to be delivered hereunder. (c) A favorable opinion of Kurzman & Eisenberg, counsel for the Borrowers, to the effect that this Amendment has been duly authorized, executed and delivered by each of the Borrowers and constitutes the legal, valid and binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms, and confirming the opinion of McCarthy, Fingar, Donovan, Drazen & Smith, legal counsel to the Borrowers, furnished as of September 20, 1995 pursuant to Section 4.1(i) of the Credit Agreement, with references therein to the Credit Agreement to mean the Credit Agreement as amended by this Amendment. (d) A schedule of all of the subordinated debt of the Borrowers, calculated on a pro forma basis to take into account the Amscan IPO and the transactions anticipated to be carried out in connection therewith; (e) A schedule of the Subsidiaries and affiliates of each of the Borrowers; (f) The payment of a $10,000 amendment fee to the Agent; (h) The Amscan IPO shall have occurred on or before January 31, 1997. (h) An Amended and Restated Promissory Note in favor of each of the Banks, duly executed and delivered to each such Bank. (i) A certificate dated as of the date of the Amscan IPO signed by a duly authorized officer of each Borrower stating that: (i) The representations and warranties contained in Section 5 hereof and in the Credit Agreement and each other Facility Document are true and correct on and as of the date of such certificate as though made on and as of such date, and (ii) No event has occurred and is continuing which constitutes a Default or an Event of Default. SECTION 5 Representations and Warranties of the Borrowers. Each Borrower represents and warrants as follows: 10 10 (a) Such Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Amendment. (b) The execution, delivery and performance by such Borrower of this Amendment and the Facility Documents, as amended hereby, to which it is or is to be a party are within such Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) such Borrower's charter or by-laws, (ii) law or any contractual restriction binding on or affecting such Borrower, or result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge, encumbrance or preferential arrangement of any nature upon or with respect to any of the properties now owned or hereafter acquired by such Borrower. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Borrower of this Amendment or any of the Facility Documents, as amended hereby, to which it is or is to be a party. (d) This Amendment and each of the other Facility Documents as amended hereby, to which such Borrower is a party constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms. (e) The Security Agreement constitutes valid and perfected first priority security interests and liens in and to the Collateral covered thereby enforceable against all third parties in all jurisdictions and secure the payment of all obligations of such Borrower under the Facility Documents (including, without limitation, L/C Credits), as amended hereby, and the execution, delivery and performance of this Amendment do not adversely affect the aforesaid security interests and liens of such Security Agreement. (f) There is no pending or threatened action or proceeding affecting such Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which may materially adversely affect the financial condition or operations of such Borrower or any Subsidiary. There is no pending or threatened action or proceeding affecting such Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which purports to affect the legality, validity or enforceability of this Amendment or any of the other Facility Documents, as amended hereby. (g) The pro forma balance sheet and income statement, dated as of September 30, 1996, calculated to take into effect the Amscan IPO and the transactions contemplated in connection therewith, are true and correct. Copies of the pro forma balance sheet and income statement have been provided to the Banks. 11 11 (h) John Svenningsen, following the Amscan IPO, will remain the legal and beneficial owner of a majority of the voting capital stock of Amscan Holdings, Inc., which will remain the legal and beneficial owner of a majority of the voting capital stock of Amscan Inc. and Trisar, Inc. (i) There has been no material adverse change in the business, management, operations, properties, prospects or condition (financial or otherwise) of the Stockholder of the Borrowers or their respective subsidiaries since the end of the last fiscal period reflected in the latest financial statements provided to the Banks. SECTION 6. Reference to and Effect on the Facility Documents. (a) Upon the effectiveness of Sections 1, 2 and 3 hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in any Facility Documents to the Credit Agreement or any other Facility Document, shall mean and be a reference to the Credit Agreement or such other Facility Document as amended hereby. (b) Except as specifically amended above, the Credit Agreement, the Notes and the other Facility Documents, shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, the Security Agreement and all of the Collateral described therein do and shall continue to secure the payment of all obligations, indebtedness and liabilities of the Borrowers to the Bank under the Credit Agreement and the other Facility Documents (including, without limitation, L/C Credits), as amended hereby. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Agent or the Banks under any of the Facility Documents, nor constitute a waiver of any provision of any of the Facility Documents. SECTION 7. Pledge of Shares. Amscan Holdings, Inc. hereby covenants and agrees that, in the event that (a) the Exchange has taken place and (b) the Amscan IPO has not occurred on or prior to January 31, 1997, it shall pledge all of the capital stock of Amscan Inc. and Trisar, Inc. to secure the obligations of the Borrowers under the Credit Agreement and the other Facility Documents substantially on the terms and conditions of the Stockholder Pledge Agreement. SECTION 8. Costs, Expenses and Taxes. The Borrowers jointly and severally agree to pay on demand all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent and the Banks with respect thereto and with respect to advising the Agent and the Banks as to its rights and responsibilities hereunder and thereunder. The Borrowers further jointly and severally agree to pay on 12 12 demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8. In addition, the Borrowers shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Agent and the Banks harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 9. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 13 13 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. Borrowers: AMSCAN HOLDINGS, INC. By: /s/ John Jordan -------------------------------- Name: John P. Jordan Title: Vice President AMSCAN INC. By: /s/ John Jordan -------------------------------- Name: John P. Jordan Title: Vice President TRISAR INC. By: /s/ John Jordan -------------------------------- Name: John P. Jordan Title: Vice President 14 14 Agent: THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.) By: /s/ CAROL A. KORNBLUTH ---------------------------------------- Carol A. Kornbluth Vice President Banks: THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.) By: /s/ CAROL A. KORNBLUTH ---------------------------------------- Carol A. Kornbluth Vice President FIRST UNION NATIONAL BANK (as successor to First Fidelity Bank, N.A.) By: /s/ MICHAEL CHALIAN ---------------------------------------- Michael Chalian Senior Vice President FLEET BANK, N.A. (for itself and as successor to NatWest Bank, N.A.) By: /s/ NEIL PLATT ---------------------------------------- Neil Platt Vice President EX-5 6 OPINION OF CUMMINGS & LOCKWOOD 1 EXHIBIT 5 CUMMINGS & LOCKWOOD Four Stamford Plaza P. O. Box 120 Stamford, Connecticut 06904-0120 (203) 327-1700 FAX (203) 351-4534 December 13, 1996 The Board of Directors Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Re: Amscan Holdings, Inc. - Registration Statement on Form S-1 (Registration No. 333-4107) Gentlemen: We have acted as special counsel for Amscan Holdings, Inc., a Delaware corporation (the "Company"), in connection with the issuance and sale by the Company of up to 6,152,500 shares (the "Shares") of its common stock, $0.10 par value (the "Common Stock"), to the several underwriters (the "Underwriters") to be named in Schedule I to the Underwriting Agreement (the "Underwriting Agreement"), a copy of the form of which has been filed as Exhibit 1 to the Registration Statement on Form S-1 (Registration No. 333-14107), as amended by Amendment Nos. 1 and 2 thereto, of the Company (as so amended, the "Registration Statement"). We have examined originals, or copies certified or otherwise identified to our satisfaction, of such agreements, documents, certificates and other statements of government officials and corporate officers and representatives and such other documents as we have deemed relevant and necessary as a basis for the opinions expressed herein, including the following: (a) the Certificate of Incorporation of the Company in the form filed as Exhibit 3(a) to the Registration Statement; (b) the By-Laws of the Company in the form filed as Exhibit 3(b) to the Registration Statement; (c) the Registration Statement; (d) 2 The Board of Directors -2- December 13, 1996 Amscan Holdings, Inc. resolutions adopted by the Board of Directors of the Company by unanimous consent dated as of November 27, 1996; and (e) the Underwriting Agreement. In our examination of the foregoing agreements, instruments, certificates and other documents, we have assumed that: (a) the statements made therein are accurate and complete; (b) the signatures on documents and instruments submitted to us as originals are authentic; and (c) documents submitted to us as copies of original documents conform with the originals thereof. For purposes hereof, we have also assumed that: (a) the agreements between the Company and the Underwriters will be in substantially the form of the Underwriting Agreement; (b) the Pricing Committee of the Board of Directors of the Company will approve the public offering price to be included in the Registration Statement (the "Public Offering Price"); and (c) the Public Offering Price for each of the shares will be greater than the par value thereof. Based upon the foregoing, we are of the opinion that the Shares have been duly authorized for issuance and sale, and when sold pursuant to the terms and conditions of the Underwriting Agreement, will be validly issued, fully paid and nonassessable. No opinion is expressed herein other than under the General Corporation Law of the State of Delaware. We hereby consent to the use of our name under the caption "Validity of Common Stock" in the Prospectus included in the Registration Statement and to the filing of this opinion as Exhibit 5 thereto. Very truly yours, /s/ CUMMINGS & LOCKWOOD EX-10.H 7 1996 STOCK OPTION PLAN FOR KEY EMPLOYEES 1 Exhibit 10(h) AMSCAN HOLDINGS, INC. 1996 STOCK OPTION PLAN FOR KEY EMPLOYEES 1. OBJECTIVE OF THE PLAN. The 1996 Stock Option Plan for Key Employees (the "Plan") is intended to encourage ownership of the Common Stock of Amscan Holdings, Inc. (the "Corporation") by key employees of the Corporation and any subsidiary corporation of the Corporation now existing or hereafter formed or acquired and to provide incentives for them to put forth maximum efforts for its successful operations. By extending to key employees the opportunity to acquire proprietary interests in the Corporation and to participate in its success, the Plan may be expected to benefit the Corporation and its stockholders by making it possible for the Corporation to attract and retain the best available talent and by rewarding key employees for their part in increasing the value of the Corporation's stock. The Options (as hereinafter defined) offered pursuant to the Plan are a matter of separate inducement and are not in lieu of any salary or other compensation for the services of any employee or director. The Corporation, by means of the Plan, seeks to retain the services of persons now holding key positions and to secure the services of persons capable of filling such positions. The Options granted under the Plan are intended to be either Incentive Stock Options (as hereinafter defined) or options that do not meet the requirements for Incentive Stock Options, but the Company makes no warranty as to the qualification of any Option as an Incentive Stock Option. 2. DEFINITIONS. As used herein, the following terms have the meanings hereinafter set forth unless the context clearly indicates to the contrary: 2.1. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 2.2. "Board of Directors" shall mean the board of directors of the Corporation. 2.3. "Cause" shall mean incompetence, gross negligence, 2 2 insubordination, conviction of a felony, or willful misconduct by an employee of the Corporation as determined in good faith by the Corporation. 2.4. "Change in Control" shall have the meaning specified in Section 9 hereof. 2.5. "Closing Date" shall mean the closing of the sale of shares of Common Stock contemplated by the Corporation's Registration Statement on Form S-1 (No. 333-14107), as such Registration Statement may be amended (as so amended, the "Registration Statement"). 2.6. "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.7. "Committee" shall mean the committee appointed in accordance with Section 4 to administer this Plan. 2.8. "Common Stock" shall mean the Common Stock, par value $0.10 per share, of the Corporation. 2.9. "Continuous Employment" shall mean continuous regular employment by the Corporation or by one of its subsidiaries or an uninterrupted chain of continuous regular employments by the Corporation and/or one or more of its subsidiaries. A leave of absence granted in accordance with the Corporation's or its subsidiaries' usual procedures (such as those attributable to illness, military obligations or governmental service) shall not be considered a termination of employment nor an interruption of Continuous Employment hereunder, and an employee who is granted such a leave of absence shall be considered to be continuously employed during the period of such leave. 2.10. "Effective Date" shall have the meaning specified in Section 18 hereof. 2.11. "Fair Market Value" of the Common Stock on the Closing Date shall be equal to the initial public offering price per share of Common Stock sold pursuant to the Registration Statement. In all other cases, Fair Market Value shall be determined by the Committee in good faith as of the last business day for which the prices or quotes described in this sentence are available preceding the date such Option is granted and shall mean: (i) the average on that date of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; (ii) the last reported sale price on that date of the Common Stock reported on The Nasdaq Stock Market, Inc., if the Common Stock is not then traded on a national securities exchange; (iii) the closing bid price (or average of bid prices) last quoted on that date by an established quotation service for over-the-counter securities, if the Common Stock is 3 3 not reported on a national securities exchange or The Nasdaq Stock Market, Inc. or (iv) if none of clauses (i), (ii) and (iii) apply, the amount determined in good faith by the Committee. For purposes of the Plan, the determination by the Committee of the fair market value of a Share shall be conclusive. 2.12. "Incentive Stock Options" shall mean those Options granted hereunder which are incentive stock options as defined in Section 422(b) of the Code and Treasury Regulations issued pursuant thereto. 2.13. "Incumbent Board" shall have the meaning specified in Section 9 hereof. 2.14. "Non-Qualified Stock Options" shall mean those Options granted hereunder which are not Incentive Stock Options. 2.15. "Option" shall mean an option to purchase Common Stock granted pursuant to the provisions of this Plan. 2.16. "Option Agreement" shall mean the agreement between the Optionee and the Corporation setting forth the terms and conditions of an Option. 2.17. "Optionee" shall mean an individual who receives an Option pursuant to this Plan. 2.18. "Ten Percent Stockholder" shall mean an individual who owns, within the meaning of Section 422(b)(6) of the Code, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of any subsidiary corporation or parent corporation of the Corporation. In determining stock ownership of an employee, the rules of Section 424(d) of the Code shall be applied, and the Committee may rely on representations of fact made to it by the employee and believed to be true. As used in this Plan, the terms "subsidiary corporation" and "parent corporation" shall be interpreted in accordance with Sections 424(f) and 424(e) of the Code, respectively. 2.19. "Termination Date" shall have the meaning specified in Section 18 hereof. 3. STOCK RESERVED FOR THE PLAN. Two Million (2,000,000) shares of the authorized but unissued Common Stock are reserved for issue and may be issued upon exercise of Options granted under the Plan. 4 4 In lieu of such unissued shares, the Corporation 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 Plan, provided that (subject to the provisions of Section 15 (Adjustments Upon Changes in Capitalization)) the total number of Options which may be granted and shares which may be sold pursuant to Options granted under the Plan shall not exceed Two Million (2,000,000). If any Options granted under the Plan shall for any reason terminate or expire without having been exercised or vested in full, the Common Stock not issued or delivered under such Options shall be available again for the purposes of the Plan. 4. ADMINISTRATION OF THE PLAN. 4.1. The Board of Directors shall appoint a Committee to administer the Plan; provided, however, that following the Closing Date, the Committee shall be composed of at least two (2) directors who are Non-Employee Directors (as defined in Rule 16b-3 under the 1934 Act, as such rule became effective August 15, 1996). 4.2. The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to determine: Optionees, the time or times at which Options shall be granted, the number of shares to be covered by each Option, the purchase price of the Common Stock covered by each Option, and whether Options shall be Incentive Stock Options, Non-Qualified Stock Options, or both. 4.3. The Committee shall further have plenary authority at its discretion to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it; to determine the terms (which need not be identical) of Option Agreements executed and delivered under the Plan, including such terms and provisions as shall be requisite in the judgment of the Committee to conform to any change in any law or regulation applicable thereto and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee's determination on the foregoing matters shall be conclusive. 4.4. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such legal counsel, consultant or agent. Expenses incurred by the Board of Directors or the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. No member or former member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder. 5 5 5. ELIGIBILITY; FACTORS TO BE CONSIDERED IN GRANTING OPTIONS. 5.1. Optionees shall be such key employees of the Corporation as the Committee, in its sole discretion, shall determine. An Optionee may be any person who, at the time the Option is granted, is a regular, salaried employee (which term shall include officers and directors) of the Corporation or its subsidiaries. A director of the Corporation who is not also a regular, salaried employee of the Corporation will not be eligible to receive an Option. Pursuant to Section 422 of the Code, no Incentive Stock Options may be granted to an individual who, immediately after such Option is granted, is a Ten Percent Stockholder unless (a) the option price is at least 110% of the Fair Market Value of such stock on the date of grant and (b) the Option may not be exercised more than 5 years after the date of grant. 5.2. In determining the Optionees, the number of shares of Common Stock to be covered by each Option, the vesting period of any Option, the term of any Option, and whether any such Option shall be an Incentive Stock Option, a Non-Qualified Stock Option, or both, the Committee shall take into account the duties of the respective employees, their present and potential contributions to the success of the Corporation, and such other factors as the Committee shall deem relevant in connection with accomplishing the purposes of the Plan. An existing Optionee may be granted and hold an additional Option or Options if the Committee shall so determine. 6. OPTION PRICE. The purchase price of Common Stock covered by each Option shall be determined by the Committee but shall not be less than 100% (or 110% in the case of an Incentive Stock Option granted to a Ten Percent Stockholder pursuant to Section 422(c)(5) of the Code) of the Fair Market Value of the Common Stock at the time the Option is granted. 7. TERM OF OPTIONS. The term of each option shall be for such period as the Committee shall determine but, notwithstanding the foregoing, the term of no option shall be more than ten (10) years from the date of granting thereof (or five (5) years from the date of granting of the option in the case of an incentive stock option granted to a Ten Percent Stockholder pursuant to Section 422(c)(5) of the Code). 8. EXERCISE OF OPTIONS. 8.1. The method of exercise of Options shall be prescribed by the Committee; provided, however, that, if no other schedule is prescribed by the Committee, one-quarter (25%) of the total number of shares of Common Stock covered by an Option granted to an employee of the Corporation or its subsidiaries shall become exercisable upon such employee's completion of one year of Continuous Employment with the 6 6 Corporation or its subsidiaries 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 shall become exercisable upon such employee's completion of two, three and four years of Continuous Employment with the Company or its subsidiaries, respectively. Once an Option or part thereof becomes exercisable, it shall remain exercisable until expiration of the Option, unless otherwise specified by the Committee. 8.2. Unless otherwise provided in the 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 in accordance with the terms of the Option by written notice delivered to the Corporation; provided, however, that an Option shall not be exercised as to fewer than fifty (50) shares, or the remaining shares covered by the Option if fewer than fifty (50), at any one time. 8.3. The purchase price of the shares as to which an Option shall be exercised shall 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 Corporation shares of the Corporation'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 an Option is being exercised; or (c) partly in cash and partly in shares of the Corporation's Common Stock valued at Fair Market Value. Fractional shares of Common Stock will not be issued. Notwithstanding the foregoing, the Committee shall have the right to modify, amend or cancel the provisions of clauses (b) and (c) above at any time upon prior notice to the holders of Options. Except as provided in Sections 10 (Agreement to Serve) and 11 (Nontransferability of Options) hereof, no Option may be exercised at any time except by an Optionee who is then a regular employee of the Corporation. 8.4. Except as otherwise provided under the Code, to the extent that the aggregate Fair Market Value of stock with respect to which Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all stock option plans of the Corporation) exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. For purposes of this limitation, (i) the Fair Market Value of stock is determined as of the time the Option is granted and (ii) the limitation will be applied by taking into account Options in the order in which they were granted. 7 7 9. ACCELERATED EXERCISE. Notwithstanding any other provision of this Plan or any Option granted hereunder, any Option granted hereunder and then outstanding shall become immediately exercisable in full: (i) in the event a tender offer or exchange offer is made by any "person" within the meaning of Section 14(d) of the 1934 Act or (ii) in the event of a Change in Control (as hereinafter defined); provided, however, that if in the opinion of counsel to the Corporation the immediate exercisability of such Option, when taken into consideration with all other "parachute payments" as defined in Section 280G(b) of the Code, would result in an "excess parachute payment" as defined in such section, such Option shall not become immediately exercisable, except as and to the extent the Committee in its discretion shall otherwise determine. For purposes of this Section 9, a "Change in Control" shall have occurred if: (a) any "person" within the meaning of Section 14(d) of the 1934 Act (other than any person who is the beneficial owner of more than 25% of the Common Stock on the Closing Date) becomes the "beneficial owner" as defined in Rule 13d-3 thereunder, directly or indirectly, of more than 25% of the Common Stock; (b) any "person" acquires by proxy or otherwise the right to vote more than 25% of the Common Stock for the election of directors, other than solicitation of proxies by the Incumbent Board, for any merger or consolidation of the Corporation or for any other matter or question; (c) during any two-year period, individuals who constitute the Board of Directors of the Corporation (the "Incumbent Board") as of the beginning of the period cease for any reason to constitute at least a majority thereof, provided that any person becoming a director during such period whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least three-quarters of the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this clause (c), considered as though such person were a member of the Incumbent Board; or (d) the Corporation's stockholders have approved the sale of all or substantially all of the assets of the Corporation. The Committee may provide for the acceleration of the vesting of Options under such other circumstances as the Committee shall determine in its discretion. The 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. 8 8 10. AGREEMENT TO SERVE. Each Optionee shall agree, as one of the terms of the Option Agreement and during the course of employment by the Corporation or its subsidiaries, to devote such Optionee's entire time, energy and skill to the service of the Corporation and the promotion of its interests, subject to vacations, sick leave and other absences in accordance with the regular policies of the Corporation or its subsidiaries. If an Optionee shall at any time not be an employee of the Corporation or one of its subsidiaries, the Option shall at once terminate subject to possible exercise as provided in Section 12 (Termination of Employment). Nothing in this Plan or in any Option granted pursuant to this Plan shall constitute an obligation for the Company or any subsidiary to continue the employment of the Optionee. 11. NONTRANSFERABILITY OF OPTIONS. An Option granted under the Plan shall not be transferable otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order (as defined in the Code), and an Option may be exercised, during the lifetime of an Optionee, only by the Optionee. 12. TERMINATION OF EMPLOYMENT. 12.1. Options granted under the Plan shall not be affected by any change of duties or position so long as the Optionee continues to be an employee of the Corporation or one of its subsidiaries. In the event that the employment of an Optionee shall be terminated (other than by reason of retirement, disability or death) such Option may, subject to the provisions of Sections 8 (Exercise of Options), 10 (Agreement to Serve) and 13 (Retirement, Disability or Death), be exercised, to the extent that the Optionee was entitled to do so at the date of termination of employment unless the Committee otherwise determines, at any time within thirty (30) days after such termination, but in no event after the expiration of the term of the Option unless the Committee otherwise determines. 12.2. Notwithstanding the foregoing and except as otherwise provided by the Committee, in the event an Optionee is discharged for Cause, the unexercised portion of an Option shall terminate immediately. If the Optionee has exercised all or part of an Option within fifteen (15) days of notice of discharge for Cause and the Corporation has not yet delivered Common Stock pursuant to such exercise, such exercise shall be deemed invalid and any purchase price tendered by the Optionee for Common Stock shall be refused or, if previously paid, shall be returned to the Optionee. 9 9 13. RETIREMENT, DISABILITY OR DEATH. 13.1. If an Optionee shall retire from the Corporation at normal retirement date pursuant to any pension plan provided by the Corporation or its subsidiaries, or if such retirement is earlier than the Optionee's normal retirement date and such retirement is with the prior consent of the Corporation, then notwithstanding the provisions of Sections 8 (Exercise of Options) and 10 (Agreement to Serve), such Optionee may exercise an Option in full, 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. 13.2. If the employment of any Optionee shall terminate by reason of the Optionee's disability (within the meaning of Section 22(e)(3) of the Code) and while such Optionee is entitled to exercise such Option as herein provided, such Optionee shall have the right to exercise such Option, to the extent not theretofore exercised, in respect of any or all such number of shares of Common Stock which such Optionee would have been entitled to purchase under the Option at the date of such termination of such employment, at any time up to and including 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. 13.3. If an Optionee shall die while employed by the Corporation or any of its subsidiaries or during either the 90-day period specified in Section 13.1 or the 90-day period specified in Section 13.2 hereof, such Option may be exercised, subject to the provisions of Section 8 (Exercise of Options) hereof, to the extent that the Optionee was entitled to do so at the date of death unless otherwise determined by the Committee, by the representative of the Optionee's estate or other person at the time entitled by law to exercise such Option, at any time within such period (not exceeding one year after the Optionee's death or for such other period as may be specified by the Committee) as shall be prescribed in the Option Agreement, but in no event after the expiration of the term of the Option. 13.4. Notwithstanding the provisions of Sections 12.1, 12.2, 13.1, 13.2 or 13.3 hereof, the Committee shall be entitled to prescribe other exercise periods for an Option, but in no event shall any Option be exercisable after the expiration of the term of the Option. 14. NO LOANS TO HOLDERS OF OPTIONS. Neither the Corporation, 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 such person to acquire or carry shares of Common Stock issued upon the exercise of Options. 10 10 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. 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 of shares, exchange of shares, or other like change in the capital structure of the Corporation, an adjustment shall be made to each outstanding Option such that each such Option shall thereafter be exercisable for such securities, cash and/or other property as would have been received in respect of the shares of Common Stock subject to such Option had such Option been exercised in full immediately prior to such change, and such an adjustment shall be made successively each time any such change shall occur. The term "Common Stock" shall after any such change refer to the securities, cash and/or property then receivable upon exercise of an Option. In addition, in the event of any such change, the Committee shall make any further adjustment as may be appropriate to the maximum number of shares of Common Stock which may be acquired under the Plan pursuant to the exercise of Options and 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, and the determination of the Committee as to these matters shall be conclusive. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of the Code and (ii) in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder not an incentive stock option for purposes of Section 422 of the Code without the consent of the Optionee holding such Incentive Stock Option. 16. SATISFACTION OF WITHHOLDING TAXES. The Corporation may require an Optionee exercising a Non-Qualified Stock Option granted hereunder, or disposing of Shares acquired pursuant to the exercise of an Incentive Stock Option in a disqualifying disposition (within the meaning of Section 421(b) of the Code), to reimburse the corporation that employs such Optionee for any taxes required by any government to be withheld or otherwise deducted and paid by such corporation in respect of the issuance or disposition of such Shares. In lieu thereof, the corporation that employs such Optionee shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the Optionee upon such terms and conditions as the Committee shall prescribe. The corporation that employs such Optionee may, in its discretion, hold the stock certificate to which such Optionee is entitled upon the exercise of an Option as security for the payment of such withholding tax liability, until cash sufficient to pay that liability has been accumulated. In addition, the Corporation shall be authorized to effect any such withholding upon exercise of a Non-Qualified Stock Option by retention of Shares deliverable upon such exercise having a Fair Market Value at the date of exercise which is equal to the amount to be withheld. 11 11 17. RIGHT TO CONTINUED EMPLOYMENT. Nothing in the Plan or in any Option Agreement shall confer upon any employee the right to continue in the employ of the Corporation or any of its subsidiaries or interfere with the right of the Corporation or any such subsidiary to terminate the employment of such employee at any time. 18. TIME OF GRANTING OPTIONS. Nothing in the Plan or in any resolution to be adopted by the Board of Directors or the holders of Common Stock of the Corporation shall constitute the granting of an Option, which shall be deemed to have been granted only on the date on which the identity of the Optionee and the terms of the Option are determined by the Committee. Except as provided in Sections 19 and 23, the Corporation may, from time to time during the period beginning on the date (the "Effective Date") the Plan is adopted by the Board of Directors and ending on the date ten (10) years thereafter (the "Termination Date"), grant to certain key employees of the Corporation or any of its subsidiaries now existing or hereafter formed or acquired Options under the terms herein set forth. 19. TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors may at any time prior to the Termination Date terminate the Plan or make such modification or amendment of the Plan as it shall deem advisable; provided, however, that except as provided in Section 15 (Adjustments Upon Changes in Capitalization), no amendment may be made without approval by the holders of Common Stock if such amendment would: (a) increase the maximum number of shares for which Options may be granted under the Plan, either in the aggregate or to any individual, (b) change the manner of determining the minimum option prices, (c) extend the period during which Options may be granted or extend the period during which an Option may be exercised beyond the maximum term provided in Section 7 (Term of Options) or (d) amend the requirements as to the class of employees eligible to receive Options. No termination, modification or amendment of the Plan may, without the consent of an Optionee, adversely affect the rights of such Optionee. 20. GOVERNMENT REGULATIONS. The Plan, the granting and exercising of Options hereunder and the obligation of the Corporation to issue, sell and deliver shares, as applicable, under such Options, shall be subject to the effectiveness of the Registration Statement and to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares, including any applicable Blue Sky laws. 12 12 21. NO RIGHTS IN OPTION STOCK No Optionee shall have any rights as a stockholder with respect to shares of Common Stock of the Corporation as to which the Option shall not have been exercised and payment made as herein provided, and an Optionee shall have no rights with respect to such shares of Common Stock not expressly conferred by the Plan. 22. EFFECTIVE DATE. The Plan shall become effective on the Effective Date; provided, however, that if the Plan is not approved by a vote of the stockholders of the Company at an annual meeting or any special meeting or by unanimous consent within twelve (12) months before or after the Effective Date, the Plan and any Options granted under the Plan shall terminate. 23. GOVERNING LAW. The validity and construction of the Plan and the instruments evidencing Options shall be governed by the laws of Delaware. EX-10.L 8 TAX INDEMNIFICATION AGREEMENT 1 Exhibit 10(l) TAX INDEMNIFICATION AGREEMENT This Indemnification Agreement is made and entered into as of December __, 1996 between Amscan Holdings, Inc., a Delaware corporation ("Amscan"), and John A. Svenningsen ("Svenningsen"). WHEREAS, as of the date hereof, Amscan has acquired all of the business operations of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. (individually, a "Subchapter S Company" and, collectively, the "Subchapter S Companies"); WHEREAS, the Subchapter S Companies elected under Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), to be treated and operated as Subchapter S corporations; WHEREAS, Svenningsen was for a number of years the sole shareholder of Amscan Inc., JCS Realty Corp. and SSY Realty Corp. and since 1993 owned a 50% interest in Am-Source, Inc.; NOW, THEREFORE, in consideration of the premises and mutual provisions hereinafter set forth, the parties hereto hereby agree as follows: Article 1. AMSCAN INDEMNITY. Amscan will indemnify svenningsen for any United States Federal income tax liability, to the extent such liability is attributable to a claim by the Internal Revenue Service that Svenningsen's income with respect to his ownership of stock in any of the Subchapter S Companies for any taxable year exceeds the income reported to Svenningsen by a Subchapter S Company on its Internal Revenue Service Form K-1 for such taxable year and for any United States Federal income tax liability of Svenningsen in respect of payments to Svenningsen pursuant to this Article 1; provided, however, that Amscan's obligation to indemnify Svenningsen shall be limited to taxes on income which create a tax benefit to any of the Subchapter S Companies (whether by reason of deduction, amortization, credit or otherwise) for a taxable year(s) which end(s) after closing. Article 2. SVENNINGSEN INDEMNITY. Svenningsen will indemnify Amscan for Amscan's United States Federal income tax liability resulting from a claim by any taxing authority that a Subchapter S Company was not properly treated as a Subchapter S corporation for any period in which such Subchapter S Company filed a tax return on which it claimed that it was properly treated as a Subchapter S corporation; provided, however, that Svenningsen's obligation to indemnify Amscan shall be limited to the amount that Svenningsen would be entitled to receive as a refund of United States 2 2 Federal income taxes previously paid with respect to his share of income generated by a Subchapter S Company.. Article 3. PROCEDURES RELATING TO INDEMNIFICATION. If notice of a pending or threatened audit is not given to the indemnifying party promptly after receipt of correspondence from any taxing authority, or in reasonable detail to apprise the indemnifying party of the nature of the proposed adjustments, such failure to provide notice promptly shall not relieve the indemnifying party of its obligations under this agreement, except to the extent that the failure to notify timely actually prejudices the indemnifying party's ability to contest such matter. With respect to any audit, the indemnifying party shall control all proceedings taken solely in connection with such audit (including, without limitation, selection of and payment for counsel reasonably acceptable to indemnitee) and, without limiting the foregoing, may in its sole discretion pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority with respect thereto, and may, in its sole discretion, either pay the tax claimed and sue for a refund where applicable law permits such refund suits or contest the audit adjustments in any permissible manner; provided, however, that if (i) the results of such proceedings, suit, contest, claim, hearing, compromise or proposed settlement could reasonably be expected to have a material adverse effect on the assets, business, operations or financial condition of Amscan or Svenningsen, or their ability to treat any income or losses in a particular manner for tax calculation purposes for taxable periods ending after the closing of the exchange of certain shares of capital stock owned by Svenningsen for shares of Common Stock of Amscan or (ii) any such proceeding, suit, contest, claim, hearing, compromise or proposed settlement or procedure involves taxes other than taxes subject to indemnification, the parties hereto shall consult and mutually agree on a reasonable good faith basis upon all aspects of the conduct of such matters. The indemnitee and the indemnifying party shall cooperate in contesting any audit, which cooperation shall include, without limitation, the retention and provision to the indemnifying party of records and information which are reasonably relevant to such audit and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such audit. Article 4. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws. Article 5. NOTICES. All notices or other communications provided for under this Agreement shall be given in writing and shall be delivered personally or sent by post, telex or facsimile transmission to the other party at the following address or to such other address as to which a party has given notice as provided herein. 3 3 If to Amscan: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 If to Svenningsen: John A. Svenningsen c/o Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Article 6. ASSIGNMENT. Except as otherwise specifically provided herein, this Agreement and any rights and obligations hereunder may not be assigned by either party without the prior written approval of the other party, and any attempted assignment not in compliance with this Article shall be void and of no effect. Article 7. COSTS. In any proceeding to enforce any rights under this Agreement by legal proceedings or otherwise, the prevailing party shall be reimbursed by the defaulting party for all of the costs and expenses of the prevailing party in pursuing such proceeding, including, without limitation, reasonable attorneys' or solicitors' fees. Article 8. PARTIES NOT PARTNERS. Nothing contained in this Agreement shall constitute a partnership or other agency agreement between the parties hereto or their respective subsidiaries or any of them, nor shall anything contained in this Agreement give any of the parties hereto or any of the respective subsidiaries the right to bind, or pledge the credit of, any of the other parties hereto or any of their respective subsidiaries. Article 9. ANNUAL REVIEW. This Agreement may be amended by mutual consultation between the parties, evidenced in a writing signed by both parties, and the parties agree to engage in mutual consultation in good faith during each annual period from the date hereof at the request of any party to maintain in this Agreement the principles of fairness and equity, and to amend this Agreement accordingly. Article 10. SEVERABILITY. If any provision in this Agreement is found by any court or administrative body of competent jurisdiction to be invalid or unenforceable, the invalidity or unenforceability of such provision shall not affect the other provisions of this Agreement and all provisions not affected by such invalidity or unenforceability shall remain in full force and effect unless the severance of the invalid or unenforceable provision would unreasonably frustrate the commercial purposes of this Agreement. The parties hereby agree to attempt to substitute for any invalid or unenforceable provision a 4 4 valid or enforceable provision which achieves to the greatest extent possible the economic objectives of the invalid or unenforceable provision. Article 11. WAIVER. The waiver by either party of a breach or default of any of the provisions of this Agreement by the other party shall not be construed as a waiver of any succeeding breach of the same or other provisions nor shall any delay or omission on the part of either party to exercise or avail itself of any right, power or privilege that it has or may have hereunder operate as a waiver of any breach or default by the other party. Article 12. ENTIRE AGREEMENT. This Agreement constitutes the entire and only Agreement between the parties hereto relating to the subject matter hereof and overrides and supersedes any prior arrangements or oral discussions and shall not be modified except in writing by agreement between the parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. AMSCAN HOLDINGS, INC. By: ___________________________________ Name: Title: ___________________________________ John A. Svenningsen EX-10.N 9 METLIFE CAPITAL CORP. MASTER LEASE PURCHASE AGRMT. 1 Exhibit 10(n) MASTER LEASE PURCHASE AGREEMENT THIS AGREEMENT is entered into the 21st day of November, 1995 between METLIFE CAPITAL CORPORATION ("Lessor") whose address is 10900 N.E. 8th Street, mailing address C-97550, Bellevue, Washington 98009 and AMSCAN INC., a New York Subchapter "S" corporation ("Co-Lessee"), DECO PAPER PRODUCTS, INC., a Kentucky corporation ("Co-Lessee"), KOOKABURRA USA, LTD., a New York corporation ("Co-Lessee") and TRISAR, INC., a California corporation ("Co-Lessee") ("Lessee") whose address is (addresses as per the attached). Lessor and Lessee from time to time may enter into written agreements in the form of "Lease Purchase Addenda" for the leasing of equipment by Lessor to Lessee. To facilitate such transactions, Lessor and Lessee are entering into this Master Lease Purchase Agreement (the "Master Lease"), the terms and provisions of which shall be incorporated by reference in each such Lease Purchase Addendum, and they MUTUALLY AGREE AS FOLLOWS: 1. Lease Purchase Addendum If Lessor agrees to lease equipment when requested by Lessee, the parties shall sign a Lease Purchase Addendum ("Addendum") setting forth the particulars regarding the transaction, including, without limitation, the list of Items of equipment (individually, an "Item" and, collectively, the "Equipment"), the prices of each Item (including disclosure of all rebates, discounts and other incentives received or receivable with respect thereto). "Related Costs," including taxes, transportation, installation and other applicable costs, the aggregate of the foregoing ("Total Cost"), length of the Basic Term, rental rates, purchase and renewal options, if any, and other applicable provisions. "Cost of an Item" shall mean the price of the Item plus its applicable portion of Related Costs. In the absence of a signed Addendum, this Master Lease shall not constitute a lease or a commitment by either party to enter into a lease. 2. Request to Lease; Equipment Acceptance (a) REQUEST; SPECIFICATIONS. Signing an Addendum shall constitute the request from Lessee to Lessor to lease the Equipment, and the Addendum and this Master Lease shall constitute the lease and agreement (the "Lease") regarding the Equipment. As security for all obligations of Lessee to Lessor now existing or hereafter arising under this Lease, Lessee grants Lessor a security interest in all Equipment. At the time of signing the Addendum, Lessee shall furnish Lessor detailed specifications ("Specifications") of the Items, including descriptions, prices, delivery terms and instructions, installation provisions and all other applicable specifications. Lessee assumes full responsibility with respect to the selection of Items supplied for lease and the specification thereof; the Lessor 2 shall have no liability or responsibility with respect thereto regardless of whether the Specifications prove inadequate for the intended purpose or use. (b) INSPECTION; ACCEPTANCE. It is Lessee's responsibility to receive and promptly inspect and test each Item tendered for delivery by a supplier and the installation thereof. Lessee shall give Lessor written notice of acceptance of an Item as soon as it can be determined that the Item and its installation are in compliance with Specifications. As between Lessee and Lessor, the giving of such written notice shall constitute Lessee's irrevocable acceptance of the Item or Items designated in the notice, whether or not such Items or their installation are defective in any respect, and notwithstanding any failure of an Item or its installation to conform to Specifications, without prejudice however to rights which Lessor and Lessee, or either of them, may have against any other person, whether with respect to design, manufacture, condition or otherwise. (c) PURCHASE CUT-OFF DATE. If, by the "Purchase Cut-Off Date" set forth in an Addendum, Lessee shall not have given Lessor written notice of acceptance of an Item, Lessor shall have no obligation to lease the Item to Lessee. In such event, Lessee shall immediately pay all accrued Interim Rental and reimburse Lessor for all sums Lessor may have paid for with respect to the Item and for all Lessor's costs and expenses with respect thereto, and Lessee shall indemnify and defend Lessor against and hold Lessor harmless from any and all cost, expense, loss, liability and damage that Lessor may suffer or that may be asserted against Lessor by reason of Lessor's failure or refusal to lease such Item. Any such Item shall be deemed to be deleted from the Addendum and no longer included in the Equipment. (d) CONDITIONS PRECEDENT. Lessee shall deliver to Lessor such further instruments, documents and certifications as Lessor reasonably may request, including, without limitation evidences of authority (e.g., corporate certificates, corporate resolutions, partnership documents and authorizations), evidence of insurance, purchase orders and acceptances thereof, purchase and sale agreements and financial information, and instruments and documents to implement, perfect or continue the perfection of Lessor's rights and remedies as Lessor of the Equipment, including Uniform Commercial Code forms. Lessee's delivery of the foregoing and of the Specifications are conditions precedent to any obligation of Lessor to make any commitments to pay for the Equipment or any Item. (e) SUPPLEMENTAL LEASE REQUEST. If at any time prior to the Closing Date Lessee requests Lessor to add further Items to the Equipment, and if Lessor so agrees, Lessee shall execute a Lease Purchase Addendum Supplement in a form supplied by Lessor, which shall become part of the Addendum, subject to all of its provisions and the provisions of this Master Lease, and the Equipment specified therein shall be Items of Equipment under the Lease. -2- 3 (f) CLOSING. Following the date ("Closing Date") which is the earlier of (i) the date Lessee gives Lessor written notice of acceptance of the last Item or (ii) the Purchase Cut-Off Date (or on such other day as is mutually agreed), Lessor shall send Lessee a Closing Schedule ("Schedule"), setting forth any adjustments to descriptions and Costs of Items and Total Cost and confirming the Closing Date, amount of Periodic Rental installments, payment schedules, and insurance requirements. Lessee's signature on any such Schedule shall signify the Lessee's agreement that the Schedule is correct. Notwithstanding any discrepancies or disagreements between Lessor and Lessee regarding the Schedules, Lessee shall pay all rentals as they become due in accordance with the terms and conditions of the Lease. If Lessee establishes an error that affects the amount of rentals, Lessor shall give Lessee a credit for any overpayment of rentals, and Lessee promptly shall pay Lessor any underpayments. The Schedules are incorporated herein by reference. 3. Lessee's Warranties (a) Lessee represents and warrants to Lessor that it is a corporation or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and that it is qualified to do business in every jurisdiction where the failure to qualify would have a materially adverse effect on Lessor's rights hereunder, it has taken all corporate or partnership action which may be required to authorize the execution, delivery and performance of this Lease, and such execution, delivery and performance will not conflict with or violate any provision of its Charter or Articles or Certificate of Incorporation, By-laws or any provisions thereof, or in the case of a partnership, its Certificate of Partnership or Limited Partnership and its Partnership Agreement, or result in a default or acceleration of any obligation under any agreement, order, decree or judgment to which it is a party or by which it is bound, nor is it now in default under any of the same; there is no litigation or proceeding pending or threatened against it which may have a materially adverse effect on Lessee or which would prevent or hinder the performance by it of its obligations hereunder; this Lease and the attendant documents constitute valid obligations of the Lessee, binding and enforceable against it in accordance with their respective terms; no action by or with any commission or administrative agency is required in connection herewith; it has the power to own its assets and to transact business in which it is engaged; it will give to Lessor prompt notice of any change in its name, identity or structure. (b) Lessee's written acceptance of an Item and its installation shall constitute a REPRESENTATION AND WARRANTY BY Lessee to Lessor that (i) the Item is personal property in good order and condition; (ii) the Item conforms to Specifications; (iii) unless otherwise specified, the Item has not been used prior to its acceptance by Lessee; and (iv) at all times Lessee shall keep the Equipment in Lessee's -3- 4 possession at the address specified in the Addendum unless Lessor shall otherwise consent in writing. Lessee shall not cause, suffer or permit any Item to be attached or affixed to real property or improvements thereon (collectively, "Realty") unless Lessor first shall consent thereto in writing and Lessee shall have obtained from all persons having any interest in the Realty written consents which approve such attachment, waive any claims to or encumbrances upon attached Items and consent to the detachment and removal of such Items at any time by Lessor or Lessee. Notwithstanding attachment of any Items to Realty, all the Equipment at all times shall be and remain personal property. Upon termination of Lessee's right to possession of the Equipment, whether by expiration of the Term or otherwise, Lessee at its sole cost and expense shall detach and remove the Equipment from the Realty and save Lessor harmless from and indemnify and defend Lessor against any claim, demand, loss, liability and damage arising from such detachment, removal or both. 4. Term Of Lease The Term of the Lease ("Term") may consist of an "Interim Term" and a "Basic Term." The Interim Term shall begin on the date that Lessee first gives Lessor written notice of acceptance of an Item or written approval for partial payment, whichever is earlier, and shall continue until the time the Basic Term begins. The Basic Term shall begin on the Closing Date and shall continue for the length of the Basic Term set forth in the Addendum. 5. Interim Rental During the Interim Term, if any, Lessee shall pay rent monthly ("Interim Rental"), on a calendar month basis, in an amount determined by Lessor by applying the "Interim Rental Rate" set forth in the Addendum to portions of the Total Cost then or theretofore expended by Lessor, for the number of days such sums are outstanding during such calendar month. The "prime rate" referred to in this Lease shall mean the rate per annum publicly announced by Chase Manhattan Bank, New York City, from time to time as its prime rate, whether or not such rate is applied by said bank to any then outstanding loans, changing with each annual change of such prime rate, Lessee shall pay Lessor each installment of Interim Rental on the fifteenth day after the end of such calendar month. 6. Periodic Rental Lessee shall pay rent ("Periodic Rental") for the Basic Term in an amount calculated by multiplying the Total Cost by the Periodic Rental Rate set forth in the Addendum multiplied by the number of months constituting the length of the Basic Term. Lessee shall pay installments of Periodic Rental to Lessor in accordance with the payment schedule set forth in the Addendum. -4- 5 7. Late Payment If any installment of rent or other sum owing under the Lease shall not be paid when due and shall remain unpaid for ten (10) days, Lessee shall pay Lessor a late charge equal to five percent (5%) of the amount delinquent, but in no event at a rate greater than limited by any applicable law. Such late charge is in addition to and not in lieu of other rights and remedies Lessor may have. 8. Insurance Lessee shall procure and continuously maintain and pay for (a) all risk insurance against loss or damage to the Equipment for not less than the full replacement value thereof naming Lessor as Loss Payee and (b) combined single limit liability insurance, insuring Lessor and Lessee, all in such amounts and against such risks and hazards as are set forth in the Addendum, with insurance companies and pursuant to contracts or policies satisfactory to Lessor. All contracts and policies shall include provisions for the protection of Lessor notwithstanding any act or neglect of or breach or default by Lessee, shall provide that proceeds of all insurance shall be payable first to Lessor to the extent of its liability or interest as the case may be, shall provide that they may not be modified, terminated or canceled unless Lessor is given at least thirty (30) days' advance written notice thereof, and shall provide that the coverage is "primary coverage" for the protection of Lessee and Lessor notwithstanding any other coverage carried by Lessee or Lessor protecting against similar risks. Lessee shall promptly notify any appropriate insurer and Lessor of each and every occurrence which may become the basis of a claim or cause of action against the insureds and provide Lessor with all data pertinent to such occurrence. Lessee shall furnish Lessor with certificates of such insurance or copies of policies upon request, and shall furnish Lessor with renewal certificates not less than ten (10) days prior to the renewal date. 9. Taxes Lessee shall pay all taxes, fees, assessments and other governmental charges of whatsoever kind or character and by whomsoever payable on or relating to any Item of Equipment or the sale, purchase, ownership, use, value, value added, possession, shipment, transportation, delivery or operation thereof or the exercise of any option, election or performance of any obligation by Lessee hereunder, which may accrue or be levied, assessed or imposed during the Term and any Renewal Term or which remain unpaid as of the date of surrender of such Item to Lessor, and all taxes of any kind imposed by any federal, state, local or foreign taxing authority against Lessor on or measured by any amount payable by Lessee hereunder, including, without limitation, all license and registration fees and all sales, use, value, ad valorem, personal property, excise, gross receipts, stamp or other taxes, imposts, duties and charges together with any penalties, -5- 6 fines, or interest thereon, except taxes of Lessor on net income imposed by the United States or any state. Lessee shall reimburse Lessor for any payments made by Lessor which are the obligation of Lessee under the Lease, but Lessee shall not be obligated to pay any amount under this Section so long as it shall in good faith and by appropriate proceeding contest the validity or the amount thereof, unless such contest would adversely affect Lessor's interest in any Item of Equipment or would subject any Item to forfeiture or sale. Lessee shall indemnify Lessor on an after-tax basis against any loss, claim, demand and expense, including legal expense, resulting from such nonpayment or contest and further agrees to indemnify Lessor against any and all taxes, assessments and other charges imposed upon Lessor under the laws of any federal, state, local or foreign government or taxing authority, as a result of any payment made by Lessee pursuant to this Section. Whenever this Lease terminates as to any Item, Lessee will on request advance to Lessor the amount estimated by Lessor to equal personal property taxes on the Item which are not yet payable but for which Lessee will afterward become liable hereunder; Lessor will account to Lessee for such advances. On request of either Lessor or Lessee, the other will submit written evidence of all payments required of it under this Section. 10. Maintenance, Etc. (a) Lessee at its expense at all times shall: (i) keep the Equipment in good and efficient working order, condition and repair, ordinary wear and tear excepted, and make all inspections and repairs, including replacement of worn parts, to effect the foregoing and to comply with requirements of laws, regulations, rules and provisions and conditions of insurance policies; and (ii) pay all costs, expenses, fees and charges incurred in connection with the use or operation of the Equipment and of each Item, including but not limited to repairs, maintenance, storage and servicing. Lessee shall not make any alterations, substitutions, improvements or additions to the Equipment or Items, except those required in order to comply with laws, regulations, rules and insurance policies, unless Lessor first shall have consented thereto in writing. Notwithstanding any consent by Lessor, Lessee shall pay all costs and expenses of the foregoing. All replacements, repairs, improvements, alterations, substitutions and additions shall constitute accessions to the Equipment and shall be subject to Lessor's security interest. (b) Lessor hereby transfers and assigns to Lessee, for so long during the Term and any Renewal Term as Lessee is not in default, Lessor's right, title and interest in, under and to any assignable factory and dealer warranty, whether express or implied, with respect to the Equipment. All claims and actions upon any warranty shall be made and prosecuted by Lessee at its sole cost and expense. Lessor shall have no obligation to make or prosecute any claim upon or under a warranty. So long as Lessee shall not be in default, Lessor shall cooperate with Lessee with respect to a claim on a non-assignable warranty, at Lessee's expense. Lessee shall have proceeds of a warranty claim or recovery paid to Lessor. Lessor shall make such proceeds available for any repair, restoration or -6- 7 replacement to correct such warranted condition. Excess proceeds shall be used to reduce Lessee's Lease obligations. 11. Use So long as Lessee shall not be in default, Lessee shall be entitled to the possession, use and quiet enjoyment of the Equipment during the Term and any Renewal Term in accordance with the terms of the Lease. Lessee warrants that the Equipment will at all times be used and operated solely in the conduct of Lessee's business for the purpose for which it was designed and intended and under and in compliance with applicable laws and all lawful acts, rules, regulations and orders of any governmental bodies or officers having power to regulate or supervise the use of such property, except that Lessee may in good faith and by appropriate proceedings contest the application of any such rule, regulation or order in any reasonable manner that will not adversely affect the interest of Lessor in any Equipment or subject the same to forfeiture or sale. Lessee will not permit its rights or interest hereunder to be subject to any lien, charge or encumbrance and will keep the Equipment free and clear of any and all liens, charges, encumbrances and adverse claims (except those arising from acts of Lessor). 12. Net Lease; Loss And Damage (a) This is a net lease. Lessee assumes all risk of and shall indemnify Lessor against all damage to and loss of the Equipment from any cause whatsoever, whether or not such loss or damage is or could have been covered by insurance. Except as otherwise specifically provided herein, the Lease shall not terminate and there shall be no abatement, reduction, suspension or deferment of Interim or Periodic Rental for any reason, including damage to or loss of the Equipment or any one or more Items. Lessee promptly shall give Lessor written notice of any material loss or damage, describing completely and in detail the cause and the extent of loss and damage. At its option, Lessee shall: (i) repair or restore the damaged or lost Items to good condition and working order; or (ii) replace the damaged or lost Items with similar equipment in good condition and working order; or (iii) pay Lessor in cash the Stipulated Loss Value of the damaged or lost Items. Upon Lessee's complying with the foregoing, Lessor shall pay or cause to be paid over to Lessee the net proceeds of insurance, if any, with respect to such damage or loss. "Damage" and "loss" shall include damages and losses of any kind whatsoever including, without limitation, physical damage and partial or complete destruction, including intentionally caused damage and destruction, and theft. (b) If Lessee pays Lessor the Stipulated Loss Value for an Item, then the Lease shall terminate with respect to that Item, that Item shall no longer be deemed part of the Equipment and Lessee shall be entitled to retain the Item. However, it is understood that Lessor makes no representation or warranty with respect to the Item, and further that -7- 8 Lessor shall have no obligation to pay any tax with respect thereto. In the event that Lessee pays Lessor the Stipulated Loss Value for an Item, no further Interim Rental shall be payable with respect to the Item, and Periodic Rental for the remainder of the Term shall be reduced by multiplying the Cost of that Item by the Periodic Rental Rate by the number of months then remaining in the Basic Term. 13. Stipulated Loss Value The "Stipulated Loss Value" of an Item shall be a sum computed by Lessor, which is equal to that portion of the Cost of that Item which remains outstanding presuming that Periodic Rental payments received are first applied to earned but unpaid interest at the rental rate as specified in the Addendum. The Stipulated Loss Value for the Equipment shall not exceed the amount set forth in the Closing Schedule for the Lease Year during which the loss occurs, which amount shall be prorated monthly effective to the month in which payment of the Stipulated Loss Value is received by Lessor. A "Lease Year" is a twelve-month period beginning on the Closing Date or on any anniversary thereof. 14. Security Interest And Marking (a) This Lease is one intended as security and for tax purposes, both parties will treat this transaction as a secured loan by Lessor to Lessee. (b) If so requested by Lessor, Lessee will affix tags, supplied by Lessor, reflecting Lessor's security interest in the Equipment. 15. Lessee's Indemnities Lessee will defend, indemnify and hold harmless Lessor from and against any claim, cause of action, damage, liability, cost or expense (including but not limited to legal fees and costs) which may be asserted against or incurred in any manner by or for the account of Lessor or Lessee: (i) relating to the Equipment or any part thereof, including, without limitation, the manufacture, construction, purchase, delivery, acceptance or rejection, installation, ownership, sale, leasing, removal or return of the Equipment, or as a result of the use, maintenance, repair, replacement, operation or the condition thereof (whether defects are latent or discoverable); (ii) by reason or as a result of any act or omission of Lessee for itself or as agent or attorney-in-fact for Lessor hereunder; (iii) as a result of claims for patent, trademark or copyright infringement; or (iv) as a result of product liability claims or claims for strict liability. -8- 9 16. Lessor May Perform if lessee at any time shall fail to pay to any person any sum which Lessee is required by the Lease to pay or shall fail to do or perform any other thing Lessee is required by the Lease to do or perform, Lessor at its option may pay such sum or do or perform such thing, and Lessee shall reimburse Lessor on demand for the amount of such payment and for the cost and expense which may be incurred by Lessor for such acts or performance, together with interest thereon at the Default Rate from the date of demand until paid. 17. Events Of Default And Remedies (a) EVENTS OF DEFAULT. Each of the following shall constitute an event of default: (i) failure to perform and comply with the provisions and conditions of Section 8 hereof; or (ii) failure to pay on the date when due, any sum, including installments of rental, owed by Lessee or any affiliate of Lessee at any time to Lessor, (iii) failure to perform and comply with any other provision or condition of the Lease within thirty (30) days after Lessor shall have given Lessee written notice of default with respect thereto; or (iv) any event of default occurs with respect to any obligations of Lessee to Lessor (or to any affiliate of Lessor, including, without limitation, MetLife Capital, Limited Partnership and Metropolitan Life Insurance Company and their respective affiliates and/or subsidiaries) on or with respect to any transactions, debts, undertakings or agreements other than the Lease; or (v) if any representation or warranty made by Lessee herein or in any statement or certificate furnished by Lessee in connection wit this Lease proves untrue in any material respect as of the date of making thereof, and shall not be made good within thirty (30) days after written notice thereof to Lessee, or Lessee becomes insolvent or is generally not paying its debts as they become due or makes an assignment for benefit of creditors; or (vi) proceedings are commenced by Lessee under the Federal Bankruptcy Code or any similar Federal or State laws for the relief of debtors are commenced against Lessee and are not dismissed within sixty (60) days after such commencement, or a trustee or receiver is appointed for Lessee or a major part of its property and is not discharged within thirty (30) days after such appointment; or (vii) any item of Equipment is seized or levied on under legal or governmental process against Lessee or against such item of Equipment or for any reason Lessor deems itself insecure; (viii) the merger, consolidation, reorganization, conversion to a Subchapter "S" status or dissolution of a corporate or partnership Lessee which has a materially adverse effect upon Lessor's position under the Lease. (b) REMEDIES. The occurrence of an Event of Default shall terminate any obligation of Lessor to lease Equipment or Items thereof to Lessee. When an Event of Default has occurred and is continuing, Lessor at its option may: (i) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the -9- 10 Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof, and/or (ii) without notice or demand declare immediately due and payable the entire Stipulated Loss Value of any and all Items of Equipment then under lease plus any and all amounts which under the terms of the Lease may be then due; and thereupon MetLife shall have an immediate right to pursue all remedies provided by law, including, without limitation, the following: (a) Lessee agrees to put Lessor in possession of the Equipment on demand; (b) Lessor is authorized to enter any premises where Equipment is situated and take possession thereof without notice or demand and without legal proceedings; (c) at Lessor's request, Lessee will assemble the Equipment and make it available to Lessor at a place designated by Lessor which is reasonably convenient to both parties; (d) Lessee agrees that ten (10) days from the time notice is sent shall be a reasonable period of notification of a sale or other disposition of the Equipment; (e) Lessee agrees to pay on demand the amount of all expenses reasonably incurred by Lessor in protecting or realizing on the Equipment; (f) if Lessor disposes of the Equipment, Lessee agrees to pay any deficiency remaining after application of the net proceeds to the amounts due hereunder. If upon the occurrence of an Event of Default, Lessor brings suit or otherwise incurs expenses for protection of Lessor's rights, Lessee will pay Lessor its legal fees, in a reasonable amount, together with Lessor's collection expenses and court costs. In addition, from and after an Event of Default, Lessee shall be liable for interest on amounts due Lessor hereunder at a rate per annum computed monthly which shall be five (5) percentage points above the prime rate, but not greater than the maximum rate, if any, limited by applicable law ("Default Rate"); provided, however, that Lessee shall not be assessed a late charge during such period of time that the Default Rate is accruing against Lessee as herein stated. The remedies herein provided in favor of Lessor shall not be deemed to be exclusive but shall be concurrent and cumulative and in addition to all other remedies available at law or equity. The exercise or partial exercise of any remedy shall not restrict Lessor from further exercise of that remedy or any other remedy. 16. Surrender At any time that Lessee is required to deliver the Equipment to Lessor, Lessee shall immediately cease using the Equipment and at Lessee's expense shall redeliver and surrender the Equipment to Lessor in good order, condition and repair, ordinary wear and tear excepted, securely crated and safely packed, at a place to be designated by Lessor in the State where the Equipment by the terms of the Addendum is required to be kept, and, if Lessor so specifies, loaded FOB a common or contract carrier designated by Lessor. -10- 11 19. Holdover If Lessee shall not immediately redeliver and surrender any Item of Equipment to Lessor when required by the terms hereof, Lessee shall pay Lessor, at such time or times as Lessor may demand, a sum equal to a one-month installment of Periodic Rental for each calendar month or fraction of a month during which such failure to redeliver and surrender continues. 20. Inspection; Reports Lessor, its agents and employees shall have the right to enter upon any premises where the Equipment or Items are then located to inspect and examine the same during normal business hours and at any other times if Lessor reasonably believes any Items or Lessor's rights are in jeopardy of damage or loss. So long as Lessee is not in default, Lessor shall give Lessee not less than twenty-four (24) hours notice of such inspection. Lessee shall immediately give Lessor written notice of any damage to or loss of the Equipment or any Items from any cause, including without limitation damage or loss caused by accident, the elements, intentional acts and theft. Such notice shall provide itemization of the affected Items and a detailed account of the event, including names of any injured persons and a description of any damaged property arising from any such event or from any use or operation of the Equipment or any Items, and of any attempt to take, distrain, levy upon, seize or attach the Equipment or any Items. All rights granted to Lessor herein are for the benefit of Lessor and shall not be construed to impose any obligation on Lessor, whether or not Lessor makes any inspections or receives any reports. 21. Financial And Other Data During the Term and any Renewal Term, Lessee: (a) shall furnish Lessor annual balance sheets and profit and loss statements of Lessee and any guarantor of Lessee's obligations accompanied, at Lessor's request, by the audit report of an independent certified public accountant acceptable to Lessor, and (b) at Lessor's request, shall furnish Lessor all other financial information and reports reasonably requested by Lessor at any time, including quarterly or other interim balance sheets and profit and loss statements of Lessee and any such guarantor. Lessee shall furnish such other information as Lessor may reasonably request at any times concerning Lessee and its affairs. 22. Warranty Of Information Lessee warrants that all information furnished and to be furnished to Lessor is accurate and that all financial statements it has furnished and hereafter may furnish Lessor, including operating statements and statements of condition, are and will be prepared in accordance with generally accepted accounting principles, consistently applied, -11- 12 and reasonably reflect and will reflect, as of their respective dates, results of the operations and the financial condition of Lessee and of any other entity they purport to cover. 23. Non-Waiver Neither the acceptance by Lessor of any payment or any other performance, nor any act or failure of Lessor to act or to exercise any rights, remedies or options in any one or more instances shall constitute a waiver of any such right, remedy or option or of any other then existing or thereafter accruing right, remedy or option, or of any breach or default then existing or thereafter occurring. No purported waiver by Lessor of any right, remedy, option, breach or default shall be binding unless in writing and signed by an officer of Lessor. A written waiver by Lessor of any right, remedy, option, breach or default shall not constitute a waiver of any other then existing or thereafter accruing right, remedy or option or of any other then existing or thereafter occurring breach or default. 24. Notices; Payments (a) A written notice may be given: (i) by delivering the same to a corporate officer of the party to whom it is directed (the "Addressee"), or to a general partner if the Addressee is a partnership, or to the owner if the Addressee is a sole proprietorship; or (ii) by mailing the notice to the Addressee by first class mail, registered or certified, with postage prepaid, addressed to the Addressee at the address following its name in the opening paragraph of this Master Lease or to such other address as Addressee may specify by notice in writing given in accordance with this Section. A notice so mailed shall be deemed given on the third business day following the date of mailing. A "business day" shall be any day that is not a Saturday or Sunday or legal holiday. (b) The Lessee shall make all payments to Lessor at the place where the notice is to be mailed to Lessor pursuant to subparagraph (a). Payments are deemed paid when received by Lessor. 25. Assignment (a) Lessee shall not assign the Lease or any rights in or to the Equipment or Items. Any attempted assignment shall be of no effect, unless Lessor first shall have consented thereto in writing. Lessor's consent to an assignment in any one or more instances shall not impose any obligation upon Lessor to consent to any other or further assignment. Lessor's consent to an assignment shall not release Lessee from any obligations with respect to the Lease unless expressly so stated in the written consent. (b) All rights of Lessor hereunder may be assigned, pledged, mortgaged, transferred or otherwise disposed of, either in whole or in part, without notice to Lessee but -12- 13 subject always to the rights of Lessee under this Lease. If Lessee is given notice of any such assignment, Lessee shall acknowledge receipt thereof in writing. In the event that Lessor assigns this Lease or the rent due or to become due hereunder or any other interest herein, whether as security for any of its indebtedness or otherwise, no breach or default by Lessor hereunder or pursuant to any other agreement between Lessor and Lessee, should there be one, shall excuse performance by Lessee of any provision hereof, it being understood that in the event of such default or breach by Lessor that Lessee shall pursue any rights on account thereof solely against Lessor. No such assignee shall be obligated to perform any duty, covenant or condition requested to be performed by Lessor under the terms of this Lease. 26. Survival The representations, warranties, indemnities and agreements of Lessee, and Lessee's obligations under any and all provisions of the Lease, shall survive the expiration or other termination of the Lease, shall be binding upon its successors and assigns and are expressly made for the benefit of and shall be enforceable by Lessor and its successors and assigns. 27. Miscellaneous (a) The term "Lessor" shall mean the Lessor named herein and its successors and assigns. (b) Whenever the context so requires, any pronoun gender includes all other genders, and the singular includes the plural. If more than one person constitute Lessee, whether as a partnership or otherwise, all such persons are and shall be jointly and severally liable for all agreements, undertakings and obligations of Lessee. (c) All captions and section, paragraph and other divisions and subdivisions are for convenience of reference only and shall not affect the construction, interpretation or meaning of the agreement or Lease or of any of the provisions thereof. (d) This Lease shall be governed by and construed according to the law of the State of Washington. (e) This Lease shall be binding upon and, except as limited in Section 25 hereof, shall inure to the benefit of Lessor and Lessee and their respective successors and assigns. (f) This Lease cannot be canceled or terminated except as expressly provided herein. -13- 14 (g) Wherever Lessor's consent is required hereunder, such consent will not be unreasonably withheld. (h) Lessee's obligation to pay or reimburse Lessor for expenses as provided hereunder shall be limited to reasonable expenses. 28. Lessor's Disclaimer Lessee acknowledges and agrees that it has selected both the Equipment of the type and quantity which is the subject of this Lease and the supplier from whom the Equipment was purchased. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY, ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY OF THIS LEASE. The Lessee understands and agrees that neither the supplier nor any salesman or any agent of the supplier is an agent of Lessor. No salesman or agent of supplier is authorized to waive or alter any term or condition of this Lease, and no representation as to the Equipment or any other matter by the supplier shall in any way affect Lessee's duty to pay the rent and perform its obligations as set forth in this Lease. Lessor shall not be liable to Lessee for any incidental, consequential, or indirect damages or for any act, neglect, omission, breach or default by any third party. 29. No Affiliation With Suppliers lessee warrants that neither it nor any of its officers, directors (if a corporation) or partners (if a partnership) has, directly or indirectly, a substantial financial interest in the manufacturer or supplier of any Equipment except as previously disclosed in writing to Lessor. 30. Entire Agreement This Master Lease and any Lease Purchase Addenda hereto shall constitute the entire agreement between the parties and shall not be altered or amended except by an agreement in writing signed by the parties hereto or their successors or assigns. -14- 15 IN WITNESS WHEREOF, Lessor and Lessee have signed this agreement as of the day and year first hereinabove written. LESSOR: LESSEE: See attached Signature Page METLIFE CAPITAL CORPORATION By /s/ WILLIAM J. STODDARD By ---------------------------- ----------------------------------- Its Sr. Vice President Its --------------------------- ----------------------------------- -15- 16 This Signature Page is attached to and made a part of that certain Master Lease Purchase Agreement dated 11/21/1995 by and between MetLife Capital Corporation ("Lessor") and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC. ("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee"). CO-LESSEE AMSCAN INC. By /s/ SHERYL B. MELLIN Address: ---------------------------------- South and Macy Road Its TREASURER Harrison, New York 10528 --------------------------------- CO-LESSEE DECO PAPER PRODUCTS, INC. By /s/ SHERYL B. MELLIN Address: ---------------------------------- 4004 Collins Lane Its TREASURER Louisville, Kentucky 40245 --------------------------------- CO-LESSEE KOOKABURRA USA, LTD. By /s/ SHERYL B. MELLIN Address: ---------------------------------- One Commerce Drive South Its TREASURER Harriman, NY 10926 --------------------------------- CO-LESSEE TRISAR, INC. By /s/ SHERYL B. MELLIN Address: ---------------------------------- 121 Old Springs Road Its TREASURER Anaheim, CA 92808 --------------------------------- -16- 17 LEASE PURCHASE ADDENDUM NO. ONE THIS ADDENDUM is entered into the 21st day of November, 1995 between METLIFE CAPITAL CORPORATION ("Lessor") whose mailing address is C-97550, Bellevue, Washington 98009 and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC. ("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee") whose addresses are South & Macy Road, Harrison, NY 10528, 4004 Collins Lane, Louisville, KY 40245, One Commerce Drive South, Harriman, NY 10926 and 121 Old Springs Road, Anaheim, CA 92808, respectively. Lessee has requested to lease from Lessor the following items of personal property (individually, an "Item" and, collectively, the "Equipment") for the prices and for delivery as follows:
- ------------------------------------------------------------------------------------- Name and Address of Supplier Quantity Complete Description of Equipment Price - ------------------------------------------------------------------------------------- (New unless otherwise specified) See Attached Schedule, [ ] check if applicable TO BE DETERMINED VARIOUS FLEXO PRESSES, CUP, FOLDING, $6,000,000.00 PACKAGING AND WAREHOUSE EQUIPMENT TOTAL PRICE $6,000,000.00 FED. EXCISE TAX $ TRANSPORTATION $ OTHER $ - ------------------------------------------------------------------------------------- Date Delivery Delivery Instructions to be Expected: as specified by Lessee TOTAL COST: $6,000,000.00 On or before 12/31/95 to Supplier - ------------------------------------------------------------------------------------- Street City County State SHIP TO LESSEE AT: AS PER LESSEE'S INSTRUCTIONS - -------------------------------------------------------------------------------------
Lessee and Lessor AGREE that subject to the conditions and agreements herein and in the Master Lease referred to below (i) Lessor shall lease the Equipment to Lessee, and (ii) 18 Lessee shall lease the Equipment from Lessor and perform and comply with the provisions of this Agreement. Certain Definitions and Stipulations: Purchase Cut-Off Date: 12/31/95 Particular Lease Terms: Length of Basic Term: One Hundred Twenty (120) months Interim Rental Rate: (.25%) percentage point(s) above Chase Manhattan Bank's Prime Rate Periodic Rental Rate (for each installment) **1.1457% percent (%) of Lessor's Cost of the Equipment Payment Schedule: Monthly in arrears **The rental factor expressed above as a percentage of Equipment Cost will be adjusted at lease closing in accordance with the following formula: The rental factor will be converted to a simple interest equivalent rate that is then increased or decreased 1% for each 1% (or pro rata for any fraction of 1%) change in the average yield of seven-year U.S. Treasury Notes (as published in the Federal Reserve Statistical Release H.15[519]) from the complete one week period immediately preceding the date of lease closing. At the time of the proposal dated August 21, 1995, the average yield for the prior week is 6.42%. Purchase, Sale and Renewal Options: (a) On the last date of the Lease Term, Lessee may purchase for cash all but not less than all of the Equipment then under lease for a price equal to 48.147% of Equipment Cost. (b) If Lessee elects not to purchase the Equipment pursuant to (a) above, then Lessee shall sell the equipment in a commercially reasonable manner, or, at Lessor's option, assuming Lessee has exercised its option to sell, the Equipment will be sold by Lessor as agent for Lessee. In no event will Lessee sell the Equipment for less than 23.000% of Equipment Cost without Lessor's prior written consent. All net proceeds of sale shall be paid to Lessor; provided, however, that if the net proceeds of sale exceed 48.147% of Equipment Cost, such excess shall be paid to Lessee; provided further however, that if the net proceeds of sale are less than 48.147% of Equipment Cost, Lessee shall pay to Lessor the difference to a maximum of 30.189% Equipment Cost. -2- 19 (c) If neither purchase or sale options are exercised in accordance with Sections (a) or (b) above, then on the last date of the term the Lease will be renewed for a period of Thirty six (36) months at a rental payment equal to 1.14567% of Equipment Cost payable monthly in arrears. (d) Assuming the Lease is renewed pursuant to (c), on the last date of renewal term, Lessee shall have the option to purchase all but not less than all of the Equipment then under Lease for a price equal to 15.000% of Equipment Cost. (e) If Lessee does not exercise the purchase option referred to in Section (d) above, then the Equipment will be sold by Lessee, or at Lessor's option by Lessor as agent for Lessee, in a commercially reasonable manner, but in no event will Lessee sell the Equipment for less than 12.000% of Equipment Cost without Lessor's prior written consent. The net proceeds of sale shall be paid to Lessor; provided, however, that if the net proceeds exceed 15.000% of Equipment Cost, then the excess shall be paid to Lessee; provided further, however, that if the net proceeds are less than 15.000% of Equipment Cost, then Lessee shall pay the difference to Lessor to a maximum of 8.777% of Equipment Cost. Premises where Equipment will be kept: various locations in NY, KY and CA Insurance Required: Liability. Not less than $1,000,000.00 Combined Single Limit Liability insurance, including bodily injury and death and property damage, naming Lessor as additional insured. Physical Damage. Not less than $6,000,000.00 All risk physical damage insurance, including loss by burglary, theft, and malicious mischief, for full replacement value of the equipment, naming Lessor as loss payee. Other. N/A Yield Maintenance Premium: If at any time after the fifth (5th) year or at the end of the Basic Term or prior to the end of any Renewal Term Lessee elects to exercise its purchase or sale rights under the "Purchase Option" or "Sale of Equipment" sections, or if Lessee otherwise elects to retire the outstanding lease balance, then Lessee may be required to compensate Lessor for any yield deficiency resulting from market interest rate fluctuations. -3- 20 The Yield Maintenance Amount (YMA) is determined by (i) calculating the decrease (expressed in basis points) in the current weekly average yield of five (5) Year U.S. Treasury Notes ("Treasury Note Rate") (as published in Federal Reserve Statistical Release H.15[519]) from 12/26/95 to the termination date, (ii) dividing the difference by 100, (iii) multiplying the result by the applicable premium factor shown below, and (iv) multiplying the product by the Purchase Option Amount (if the Lease is terminating at the end of the Basic Term or the First Renewal Term) or the outstanding lease balance (if the Lease is terminating at any other time). In the event that the Treasury Note Rate either remains the same or increases from 12/26/95 to the termination date, no YMA shall be payable. YMA Premium Factors During Fifth Year of Basic Term .024 During Sixth Year of Basic Term .019 End of Basic Term/During First Year of Renewal Term .014 During Second Year of Renewal Term .010 During Third Year of Renewal Term .005 On the date of termination, Lessee shall pay Lessor the total of (i) Periodic Rental due on that date and all other amounts due hereunder, (ii) the Purchase Option Amount (if the Lease is terminating at the end of the Basic Term or the First Renewal Term) or the outstanding lease balance (if the Lease is terminating at any other time), (iii) the YMA, if applicable. Master Lease: Lessor and Lessee are entering into or have entered into a Master Lease Purchase Agreement ("Master Lease") dated 11/21/95. All of the terms, conditions, agreements and provisions of the Master Lease are incorporated herein by this reference and constitute a part of this Addendum. If there shall be any conflict between any provision of the Master Lease and a provision of this Addendum, the provision of the Addendum shall govern. Lessor's Disclaimer: Lessee acknowledges and agrees that it has selected both the Equipment of the type and quantity which is the subject of this Addendum and the supplier from whom Lessor purchased the Equipment. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY, ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY OF THE MASTER LEASE OR THIS ADDENDUM. The Lessee understands and agrees that neither the supplier nor any salesman nor any -4- 21 agent of the supplier is authorized to waive or alter any term or condition of the Master Lease or this Addendum, and no representation as to the Equipment or any other matter by the supplier shall in any way affect Lessee's duty to pay the rent and perform its obligations as set forth in the Master Lease or this Addendum. Lessor shall not be liable to Lessee for incidental, consequential, or indirect damages or for any act, neglect omission, breach or default by Lessor or any third party. LESSOR: CO-LESSEE: METLIFE CAPITAL CORPORATION AMSCAN INC. By /s/ WILLIAM J. STODDARD By /s/ SHERYL B. MELLIN -------------------------- ------------------------------------ Its SENIOR VICE PRESIDENT Its TREASURER -------------------------- ------------------------------------ CO-LESSEE: DECO PAPER PRODUCTS, INC. By /s/ SHERYL B. MELLIN - ------------------------------------- ------------------------------------ Its TREASURER - ------------------------------------- ------------------------------------ CO-LESSEE: KOOKABURRA USA, LTD. By /s/ SHERYL B. MELLIN - ------------------------------------- ------------------------------------ Its TREASURER - ------------------------------------- ------------------------------------ CO-LESSEE: TRISAR, INC. By /s/ SHERYL B. MELLIN - ------------------------------------- ------------------------------------ Its TREASURER - ------------------------------------- ------------------------------------ -5- 22 ADDENDUM NO. ONE Addendum No. One to that certain Master Lease Purchase Agreement ("Agreement") dated November 21, 1995 by and between METLIFE CAPITAL CORPORATION ("Lessor") and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC. ("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee"). WHEREAS, the parties desire to enter into the Agreement provided that this Addendum No. One is executed contemporaneously therewith; NOW, THEREFORE, it is agreed as follows: Section 17.(a) Events of Default shall be amended to include the following additional paragraph: (ix) failure to comply with the following Financial Covenant: AMSCAN shall maintain Tangible Net Worth of not less than: $24,000,000 on 12/31/95 $28,000,000 on 12/31/96 $33,500,000 on 12/31/97 $39,000,000 on 12/31/98 $44,500,000 on 12/31/99 Tangible Net Worth shall be defined as the sum of Total Shareholders' Equity as stated in AMSCAN's annual audited financial statements plus the Total Subordinated Debt as stated in AMSCAN's audited financial statements and no value shall be given to intangible assets. IN WITNESS WHEREOF, parties have executed this Addendum No. One this 21st day of November, 1995. LESSOR: CO-LESSEE: METLIFE CAPITAL CORPORATION AMSCAN INC. By /s/ WILLIAM J. STODDARD By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its SENIOR VICE PRESIDENT Its TREASURER ----------------------------------- -------------------------------- 23 CO-LESSEE: DECO PAPER PRODUCTS, INC. By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its TREASURER ------------------------------------ --------------------------------- CO-LESSEE: KOOKABURRA USA, LTD. By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its TREASURER ------------------------------------ --------------------------------- CO-LESSEE: TRISAR, INC. By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its TREASURER ------------------------------------ --------------------------------- -2- 24 AMENDMENT NO. ONE AMENDMENT NO. ONE to that certain Lease Purchase Addendum No. One dated November 21, 1995 by and between METLIFE CAPITAL CORPORATION ("Lessor") and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC. ("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee"). WHEREAS, the parties entered into the Addendum as aforesaid; and WHEREAS, the parties now desire to amend the Addendum in certain respects; NOW, THEREFORE, it is agreed as follows: The Total Cost of the Equipment is hereby increased to $6,335,964.18. The Length of Basic Term is hereby corrected to Eighty-four (84) months. IN WITNESS WHEREOF, the parties have executed this Amendment No. One this 12th day of February, 1996. LESSOR: CO-LESSEE: METLIFE CAPITAL CORPORATION AMSCAN INC. By /s/ WILLIAM J. STODDARD By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its SENIOR VICE PRESIDENT Its TREASURER ------------------------------------ ---------- CO-LESSEE: DECO PAPER PRODUCTS, INC. By /s/ SHERYL B. MELLIN -------------------- Its TREASURER ---------- 25 CO-LESSEE: KOOKABURRA USA, LTD. By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its TREASURER ------------------------------------ --------------------------------- CO-LESSEE: TRISAR, INC. By /s/ SHERYL B. MELLIN ------------------------------------ --------------------------------- Its TREASURER ------------------------------------ --------------------------------- -2- 26 LEASE PURCHASE ADDENDUM NO. TWO THIS ADDENDUM is entered into the 20th day of June, 1996 between METLIFE CAPITAL CORPORATION ("Lessor"), whose mailing address is C-97550, Bellevue, Washington 98009 and AMSCAN INC. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee"), whose addresses are 80 Grasslands Road, Elmsford, NY 10523 and 121 Old Springs Road, Anatheim, CA 92808, respectively. Lessee has requested to lease from Lessor the following items of personal property (individually, an "Item" and, collectively, the "Equipment") for the prices and for delivery as follows:
- ------------------------------------------------------------------------------------- Name and Address of Supplier Quantity Complete Description of Equipment Price - ------------------------------------------------------------------------------------- (New unless otherwise specified) See Attached Schedule, [ ] check if applicable VARIOUS TO BE Printing and Warehouse Equipment $10,086,957.79 DETERMINED TOTAL PRICE $10,086,957.79 FED. EXCISE TAX $ TRANSPORTATION $ OTHER $ - ------------------------------------------------------------------------------------- Date Delivery Delivery Instructions to be Expected: as specified by Lessee TOTAL COST: $10,086,957.79 On or before 12/30/96 to Supplier - ------------------------------------------------------------------------------------- Street City County State SHIP TO LESSEE AT: As per Lessee's instructions - -------------------------------------------------------------------------------------
Lessee and Lessor AGREE that subject to the conditions and agreements herein and in the Master Lease referred to below (i) Lessor shall lease the Equipment to Lessee, and (ii) Lessee shall lease the Equipment from Lessor and perform and comply with the provisions of this Agreement. Certain Definitions and Stipulations: 27 Purchase Cut-Off Date: 12/30/96 Particular Lease Terms: Length of Basic term: Eighty-four (84) months Interim Rental Rate: (2.50%) percentage point(s) above Chase Manhattan Bank's Prime Rate Periodic Rental Rate (for each installment) **0.98835% percent (%) of Lessor's Cost of the Equipment Payment Schedule: Monthly in arrears **The rental factor expressed above as a percentage of Equipment Cost will be adjusted at lease closing in accordance with the following formula: The rental factor will be converted to a simple interest equivalent rate that is then increased or decreased 1% for each 1% (or pro rata for any fraction of 1%) change in the average yield of seven-year U.S. Treasury Constant Maturities (as published in the Federal Reserve Statistical Release H.15[519]) from the complete one-week period immediately preceding the date of lease closing. At the time of the proposal dated February 23, 1996, the average yield for the prior week was 5.46%. In addition, adjustment of the rental factors as provided above may require corresponding adjustments to the Purchase Option and Maximum Guaranty percentages to preserve Lessor's anticipated transaction economics. Lessee will be provided with adjusted percentages at the time this option to fix the rate is exercised. Purchase, Sale and Renewal Options: (a) On the last date of the Lease Term, Lessee may purchase for cash all but not less than all of the Equipment then under lease for a price equal to 59.713% of Equipment Cost. (b) If Lessee elects not to purchase the Equipment pursuant to (a) above, then Lessee shall sell all but not less than all of the equipment in a commercially reasonable manner, or, at Lessor's option, assuming Lessee has exercised its option to sell, the Equipment will be sold by Lessor as agent for Lessee. In no event will Lessee sell the Equipment for less than 25.000% of Equipment Cost without Lessor's prior written consent. All net proceeds of sale shall be paid to Lessor; provided however, that if the net proceeds of sale exceed 59.713% of Equipment Cost, such excess shall be paid to Lessee; provided further however, that if the net proceeds of sale are less than 59.713% of Equipment Cost, Lessee shall pay to Lessor the difference to a maximum of 42.714% Equipment Cost. -2- 28 (c) If neither purchase or sale options are exercised in accordance with Sections (a) or (b) above, then on the last date of the term the Lease will be renewed for a period of Thirty six (36) months at a rental payment equal to 0.98835% of Equipment Cost payable monthly in arrears. (d) Assuming the Lease is renewed pursuant to (c), on the last date of renewal term, Lessee shall have the option to purchase all but not less than all of the Equipment then under Lease for a price equal to 34.899% of Equipment Cost. (e) If Lessee does not exercise the purchase option referred to in Section (d) above, then all but not less than all of the Equipment will be sold by Lessee, or at Lessor's option by Lessor as agent for Lessee, in a commercially reasonable manner, but in no event will Lessee sell the Equipment for less than 15.000% of Equipment Cost without Lessor's prior written consent. The net proceeds of sale shall be paid to Lessor; provided however, that if the net proceeds exceed 34.899% of Equipment Cost, then the excess shall be paid to Lessee; provided further however, that if the net proceeds are less than 34.899% of Equipment Cost, then Lessee shall pay the difference to lessor to a maximum of 27.361% of Equipment Cost. Premises where Equipment will be kept: Various Locations to be determined by Lessee Insurance Required: Liability. Not less than $1,000,000.00 Combined Single Limit Liability insurance, including bodily injury and death and property damage, naming Lessor as additional insured. Physical Damage. Not less than $10,086,957.79 All risk physical damage insurance, including loss by burglary, theft, and malicious mischief, for full replacement value of the equipment, naming Lessor as loss payee. Other. N/A. Yield Maintenance Premium: If at any time after the sixth year or at the end of the Basic Term or prior to the end of any Renewal Term Lessee elects to exercise its purchase or sale rights under the "Purchase Option" or "Sale of Equipment" sections, or if Lessee otherwise -3- 29 elects to retire the outstanding lease balance, then Lessee may be required to compensate Lessor for any yield deficiency resulting from market interest rate fluctuations. The Yield Maintenance Amount (YMA) is determined by (i) calculating the decrease (expressed in basis points) in the current weekly average yield of seven (7) Year U.S. Treasury Notes ("Treasury Note Rate") (as published in Federal Reserve Statistical Release H.15[519]) from ___________ to the termination date, (ii) dividing the difference by 100, (iii) multiplying the result by the applicable premium factor shown below, and (iv) multiplying the product by the Purchase Option Amount (if the lease is terminating at the end of the Basic Term or the First Renewal Term) or the outstanding lease balance (if the lease is terminating at any other time). In the event that the Treasury Note Rate either remains the same or increases __________ from to the termination date, no YMA shall be payable. YMA Premium Factors During Seventh Year of Basic Term .029 End of Basic Term/During First Year of First Renewal Term .024 During Second Year of First Renewal Term .019 During Third Year of First Renewal Term .014 End of First Renewal Term/During First Year of Second Renewal Term .010 During Second Year of Second Renewal Term .005 On the date of termination, Lessee shall pay Lessor the total of (i) Periodic Rental due on that date and all other amounts due hereunder, (ii) the Purchase Option Amount (if the lease is terminating at the end of the Basic Term or the First Renewal Term) or the outstanding lease balance (if the lease is terminating at any other time) (iii) the YMA, if applicable. Master Lease: Lessor and Lessee are entering into or have entered into a Master Lease Purchase Agreement ("Master Lease") dated November 21, 1995. All of the terms, conditions, agreements and provisions of the Master Lease are incorporated herein by this reference and constitute a part of this Addendum. If there shall be any conflict between any provision of the Master Lease and a provision of this Addendum, the provision of the Addendum shall govern. Lessor's Disclaimer: Lessee acknowledges and agrees that it has selected both the Equipment of the type and quantity which is the subject of this Addendum and the supplier from whom Lessor purchased the Equipment. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY, ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS MERCHANTABILITY OR -4- 30 FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY OF THE MASTER LEASE OR THIS ADDENDUM. The Lessee understands and agrees that neither the supplier nor any salesman nor any agent of the supplier is authorized to waive or alter any term or condition of the Master Lease or this Addendum, and no representation as to the Equipment or any other matter by the supplier shall in any way affect Lessee's duty to pay the rent and perform its obligations as set forth in the Master Lease or this Addendum. Lessor shall not be liable to Lessee for incidental, consequential, or indirect damages or for any act, neglect omission, breach or default by Lessor or any third party. LESSOR: CO-LESSEE: METLIFE CAPITAL CORPORATION AMSCAN INC. By /s/ WILLIAM J. STODDARD By /s/ JOHN P. JORDAN --------------------------------- ----------------------------------- Its /s/ VICE PRESIDENT Its /s/ VICE PRESIDENT --------------------------------- ----------------------------------- CO-LESSEE: TRISAR, INC. By /s/ JOHN P. JORDAN ------------------------------- Its /s/ VICE PRESIDENT ------------------------------- -5- 31 AMENDMENT NO. ONE AMENDMENT NO. ONE to that certain Lease Purchase Addendum No. Two dated June 20, 1996, by and between METLIFE CAPITAL CORPORATION "Lessor") and AMSCAN INC. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee"). WHEREAS, the parties entered into the Lease as aforesaid; and WHEREAS, the parties now desire to amend the Lease in certain respects; NOW THEREFORE, it is agreed as follows: The Interim Rental Rate is hereby corrected to read as follows: 2.50% percentage point(s) above 30 Day Commercial Paper "Early Termination: Co-Lessees may terminate this lease any time after the sixth year of the lease, subject to the payment of the unamortized balance of the lease based on a 12 year amortization schedule and the payment of a yield maintenance fee based on a 12 year lease term." IN WITNESS WHEREOF, the parties have executed this Amendment No. One this 8th day of July, 1996. LESSOR: CO-LESSEE: METLIFE CAPITAL CORPORATION AMSCAN INC. By /s/ WILLIAM J. STODDARD By /s/ JOHN P. JORDAN --------------------------------- ----------------------------------- Its /s/ SENIOR VICE PRESIDENT Its /s/ VICE PRESIDENT --------------------------------- ----------------------------------- CO-LESSEE: TRISAR, INC. By /s/ JOHN P. JORDAN ---------------------------- Its /s/ VICE PRESIDENT ---------------------------- EX-10.O 10 INDEMNIFICATION AGREEMENT 1 Exhibit 10(o) AMSCAN HOLDINGS, INC. INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT dated as of ______________, ____, between AMSCAN HOLDINGS, INC., a Delaware corporation (the "Company"), and _______________ (the "Indemnitee"). Section 145 of the Delaware General Corporation Law empowers corporations to indemnify persons serving as a director, officer, employee or agent of such corporation or persons who serve at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and Section 145(f) of such law further specifies that the indemnification set forth in said Section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise. The Company desires to have the Indemnitee serve or continue to serve as an officer and/or director of the Company free from undue concern for unpredictable, inappropriate or unreasonable claims for damages by reason of the Indemnitee's being an officer and/or director of the Company or by reason of the Indemnitee's decisions or actions on its behalf; and the Indemnitee desires to serve, or to continue to serve, in such capacity. Accordingly, in consideration of the Indemnitee's serving or continuing to serve as an officer and/or director of the Company, the parties agree as follows: 1. Indemnification. (a) The Company shall indemnify, defend and hold harmless the Indemnitee against all expenses, losses, claims, damages and liabilities, including, without limitation, attorneys' fees, judgments, fines and amounts paid in settlement (all such expenses, collectively, "Costs"), actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which the Indemnitee is a party or threatened to be made a party (all such actions, collectively, "Proceedings") (i) by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust or other enterprise (collectively, "Affiliates") of which the indemnitee has been or is serving at the request of, for the convenience of or to represent the interest of the Company or (ii) by reason of anything done or not done by the Indemnitee in any such capacity referred to in the foregoing clause (i). Notwithstanding the foregoing, "Costs" shall not include any amounts for which the Indemnitee is actually 2 2 indemnified pursuant to any directors' and officers' liability insurance or otherwise than pursuant to this Agreement. 2. Culpable Action. (a) Notwithstanding the provisions of Section 1., the Indemnitee shall not be entitled to indemnification if the Indemnitee failed to act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, the Indemnitee had no reasonable cause to believe the Indemnitee's conduct was unlawful (any such action, a "Culpable Action"). (b) The existence or occurrence of a Culpable Action shall be conclusively determined by (i) a non-appealable, final decision of the court having jurisdiction over the applicable Proceeding or (ii) a non-appealable, final decision of the Court of Chancery of the State of Delaware (or if such a decision is appealable, by the court in such State which has jurisdiction to render a non-appealable, final decision). Such determination shall be final and binding upon the parties hereto. (c) If a Proceeding involves more than one claim, issue or matter, the determination as to whether there exists or has occurred a Culpable Action shall be severable as to each and every claim, issue and matter. (d) The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendre or its equivalent does not change the presumption of Section 2. that the Indemnitee is entitled to indemnification hereunder and does not create a presumption that there exists a Culpable Action. 3. Payment Of Costs. The costs incurred by the Indemnitee in connection with any Proceeding, including any Proceeding brought pursuant to Section 2.(b), shall be paid by the Company on an "as incurred" basis; provided, however, that if it shall ultimately be determined that there exists or has occurred a Culpable Action with respect to such Proceeding, the Indemnitee shall repay to the Company the amount (or the appropriate portion thereof as contemplated by Section 2.(c)) so advanced, including the costs of obtaining a determination pursuant to Section 2.(b). 4. Notice to the Company by the Indemnitee; Defense of Proceeding; Settlement. (a) The Indemnitee shall give to the Company notice in writing as soon as practicable of any Proceeding for which indemnity will or could be sought under this Agreement; provided, however, that the failure by the Indemnitee to give notice as 3 3 provided herein shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually prejudiced by such failure to give notice; provided, further, that the failure by the Indemnitee to give notice as provided herein shall not relieve the Company from any liability it might have to the Indemnitee otherwise than under this Agreement. (b) With respect to any Proceeding as to which the Indemnitee has given notice pursuant to Section 4.(a) hereof, the Company shall have the right to participate therein and to assume the defense thereof; provided, that the Company shall not be entitled to assume the defense of any Proceeding (i) brought by or on behalf of the Company or (ii) as to which independent counsel for the Company shall have concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of such Proceeding. (c) The Company shall not be liable to the Indemnitee pursuant to this Agreement for any amounts paid in settlement of any Proceeding unless the Company gives its written approval of such settlement. The Company shall not settle any proceeding in any manner that would impose any penalty or limitation on the Indemnitee without the Indemnitee's written consent. Neither the Company nor the Indemnitee shall unreasonably withhold approval of, or consent to, any proposed settlement. 5. Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. 6. No Right to Employment or Directorship. This Agreement shall not entitle the Indemnitee to any right or claim to be retained as an employee, officer and/or director of the Company or limit the right of the Company to terminate the employment, officership and/or directorship of the Indemnitee or to change the terms of such employment, officership and/or directorship. 7. Other Rights and Remedies. This Agreement shall not be deemed exclusive as to any other non-contractual rights to indemnification to which the Indemnitee may be entitled under any provision of law, the Certificate of Incorporation of the Company, any By-law of the Company or otherwise. 8. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 4 4 9. Descriptive Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction or any provision of this Agreement. 10. Modification. This Agreement shall not be altered or otherwise amended except pursuant to an instrument in writing signed by each of the parties. 11. Notices. All notices, requests, consents and other communications hereunder to either party shall be deemed to be sufficient if contained in a written instrument delivered in person or by facsimile transmission with electronic confirmation of receipt or if sent by air courier or first class registered or certified mail, postage prepaid, addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by notice given pursuant to this Section 11.: (i) if to the Company, to Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Attention: President and Chief Executive Officer (ii) if to the Indemnitee, to: ---------------------------- ---------------------------- ---------------------------- 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Indemnitee and the indemnitee's spouse, heirs, executors and administrators. 5 5 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed as of the date first above written. AMSCAN HOLDINGS, INC. By__________________________________________ Title: ____________________________________________ Name: EX-23.A 11 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 December 13, 1996 -----END PRIVACY-ENHANCED MESSAGE-----